109 HR 5176 IH: Fair Flat Tax Act of 2006
U.S. House of Representatives
2006-04-25
text/xml
EN
Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
1.Short title; amendment of 1986 Code; table of contents
(a)This Act may be cited as the Fair Flat Tax Act of 2006
.
(b)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)The table of contents for this Act is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Purpose.
Title I—Individual income tax reforms
Sec. 101. 3 progressive individual income tax rates for all forms of income.
Sec. 102. Increase in basic standard deduction.
Sec. 103. Simplified family credit.
Sec. 104. Expanded access to college.
Sec. 105. Deduction for mortgage interest whether or not individual itemizes.
Sec. 106. Universal pension accounts.
Sec. 107. Repeal of individual alternative minimum tax.
Title II—Income tax reforms
Subtitle A—Provisions Relating to Corporate and business income tax
Sec. 201. Corporate flat tax.
Sec. 202. Treatment of travel on corporate aircraft.
Sec. 203. Valuation of employee personal use of noncommercial aircraft.
Sec. 204. Elimination of tax expenditures that subsidize inefficiencies in the health care system.
Sec. 205. Pass-through business entity transparency.
Sec. 206. Broker reporting of customer's basis in securities transactions.
Sec. 207. Repeal of lower cost or market inventory method.
Sec. 208. Imposition of withholding on certain payments made by government entities.
Subtitle B—Provisions designed to curtail tax shelters
Sec. 211. Penalty for promoting abusive tax shelters.
Sec. 212. Penalty for aiding and abetting the understatement of tax liability.
Sec. 213. Increase in criminal monetary penalty limitation for the underpayment or overpayment of tax due to fraud.
Subtitle C—Economic Substance Doctrine
Sec. 221. Clarification of economic substance doctrine.
Sec. 222. Penalty for understatements attributable to transactions lacking economic substance, etc.
Sec. 223. Denial of deduction for interest on underpayments attributable to noneconomic substance transactions.
Subtitle D—Provisions Relating to Oil and Gas
Sec. 231. Elimination of amortization of geological and geophysical expenditures for major integrated oil companies.
Sec. 232. Revaluation of lifo inventories of large integrated oil companies.
Subtitle E—Uniform Definition of Child
Sec. 241. Repeal of uniform definition of child and restoration of prior rule.
Subtitle F—Other Revenue Provisions
Sec. 251. Inflation adjustment of tax on distilled spirits, beer, wine, and tobacco.
Sec. 252. Termination of various exclusions, exemptions, deductions, and credits.
Sec. 253. Termination of various preferential treatments.
Title III—Technical and conforming amendments; sunset
Sec. 301. Technical and conforming amendments.
Sec. 302. Sunset.
2.The purpose of this Act is to amend the Internal Revenue Code of 1986—
(1)to make the Federal individual income tax system simpler, fairer, and more transparent by—
(A)recognizing the overall tax burden on individual Americans,
(B)repealing the individual alternative minimum tax,
(C)increasing the basic standard deduction and maintaining itemized deductions for principal residence mortgage interest and charitable contributions,
(D)reducing the number of exclusions, exemptions, deductions, and credits, and
(E)treating all income equally,
(2)to make the Federal corporate income tax rate a flat 35 percent and eliminate special tax preferences that favor particular types of businesses or activities, and
(3)to partially offset the Federal budget deficit through the increased revenues resulting from these reforms.
<enum>I</enum><header>Individual income tax reforms</header>
<section id="HEE2901663D744BD3927705BEC1853D4B"><enum>101.</enum><header>3 progressive individual income tax rates for all forms of income</header>
<subsection id="HAD57E192B3144E9FB56DD3023B2634F9"><enum>(a)</enum><header>Married individuals filing joint returns and surviving spouses</header><text>The table contained in <external-xref legal-doc="usc" parsable-cite="usc/26/1">section 1(a)</external-xref> is amended to read as follows:</text>
<quoted-block id="HA8024B9320634D6FA6CBB8755C5327B0">
<table table-type="subformat" line-rules="no-gen">
<tgroup cols="2"><thead>
<row><entry colname="I45">If taxable income is:</entry><entry colname="I46">The tax is:</entry></row></thead>
<tbody>
<row><entry colname="I47">Not over $25,000</entry><entry colname="I48">15% of taxable income. </entry></row>
<row><entry colname="I47">Over $25,000 but not over $120,000</entry><entry colname="I48">$3,750, plus 25% of the excess over $25,000 </entry></row>
<row><entry colname="I47">Over $120,000</entry><entry colname="I48">$27,500, plus 35% of the excess over $120,000.</entry></row></tbody></tgroup></table><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H7B81A4B6DE7B4950BFF49641C33D3807"><enum>(b)</enum><header>Heads of households</header><text>The table contained in <external-xref legal-doc="usc" parsable-cite="usc/26/1">section 1(b)</external-xref> is amended to read as follows:</text>
<quoted-block id="H09AE5BA9F87D48A3A331244205710900">
<table table-type="subformat" line-rules="no-gen">
<tgroup cols="2"><thead>
<row><entry colname="I45">If taxable income is:</entry><entry colname="I46">The tax is:</entry></row></thead>
<tbody>
<row><entry colname="I47">Not over $16,000</entry><entry colname="I48">15% of taxable income. </entry></row>
<row><entry colname="I47">Over $16,000 but not over $105,000</entry><entry colname="I48">$2,400, plus 25% of the excess over $16,000 </entry></row>
<row><entry colname="I47">Over $105,000</entry><entry colname="I48">$24,650, plus 35% of the excess over $105,000.</entry></row></tbody></tgroup></table><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H46C4A7022C7B48FDB06E5C5FB14650FC"><enum>(c)</enum><header>Unmarried individuals (other than surviving spouses and heads of households)</header><text>The table contained in <external-xref legal-doc="usc" parsable-cite="usc/26/1">section 1(c)</external-xref> is amended to read as follows:</text>
<quoted-block id="H2E43AD57E13F40CBA0C8D961F10075DF">
<table table-type="subformat" line-rules="no-gen">
<tgroup cols="2"><thead>
<row><entry colname="I45">If taxable income is:</entry><entry colname="I46">The tax is:</entry></row></thead>
<tbody>
<row><entry colname="I47">Not over $15,000</entry><entry colname="I48">15% of taxable income. </entry></row>
<row><entry colname="I47">Over $15,000 but not over $70,000</entry><entry colname="I48">$2,250, plus 25% of the excess over $15,000 </entry></row>
<row><entry colname="I47">Over $70,000</entry><entry colname="I48">$16,000, plus 35% of the excess over $70,000.</entry></row></tbody></tgroup></table><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="HCD4D3D15ED404E47A2DD783E63EF22F6"><enum>(d)</enum><header>Married individuals filing separate returns</header><text>The table contained in <external-xref legal-doc="usc" parsable-cite="usc/26/1">section 1(d)</external-xref> is amended to read as follows:</text>
<quoted-block id="HA53FDD3E7AB34028B8D9DD10D3B701DB">
<table table-type="subformat" line-rules="no-gen">
<tgroup cols="2"><thead>
<row><entry colname="I45">If taxable income is:</entry><entry colname="I46">The tax is:</entry></row></thead>
<tbody>
<row><entry colname="I47">Not over $12,500</entry><entry colname="I48">15% of taxable income. </entry></row>
<row><entry colname="I47">Over $12,500 but not over $60,000</entry><entry colname="I48">$1,875, plus 25% of the excess over $12,500 </entry></row>
<row><entry colname="I47">Over $60,000</entry><entry colname="I48">$13,750, plus 35% of the excess over $60,000.</entry></row></tbody></tgroup></table><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H03C8AD638EE540CDAE8000002F7FE59D"><enum>(e)</enum><header>Conforming amendments to inflation adjustment</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/1">Section 1(f)</external-xref> is amended—</text>
<paragraph id="H9DAD5EE4EC6E42B1BACFF8F9CA55AEA1"><enum>(1)</enum><text>by striking <quote>1993</quote>in paragraph (1) and inserting <quote>2006</quote>,</text></paragraph>
<paragraph id="H7DD42AE8019F4ACE9C52C47D64054A7"><enum>(2)</enum><text>by striking <quote>except as provided in paragraph (8)</quote> in paragraph (2)(A),</text></paragraph>
<paragraph id="HD1B4722844204B92008000459403C984"><enum>(3)</enum><text>by striking <quote>1992</quote> in paragraph (3)(B) and inserting <quote>2005</quote>,</text></paragraph>
<paragraph id="H1E382590E2CF40809FD624A6A0F69C71"><enum>(4)</enum><text>by striking paragraphs (7) and (8), and</text></paragraph>
<paragraph id="H7730EE065244417F99025CC611CD944E"><enum>(5)</enum><text>by striking <quote>Phaseout of Marriage Penalty in 15–Percent Bracket;</quote> in the heading thereof.</text></paragraph></subsection>
<subsection id="HB5B78CEAA14C4F90A8CA1CBD120044EF"><enum>(f)</enum><header>Repeal of rate differential for capital gains and dividends</header>
<paragraph id="H9D16C3337FA0476990654407723D22F"><enum>(1)</enum><header>Repeal of 2003 rate reduction</header><text>Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 is amended by striking <quote>December 3, 2008</quote> and inserting <quote>December 31, 2005</quote>.</text></paragraph>
<paragraph id="H9C79C83E75FD418EB77007F1C9174F8F"><enum>(2)</enum><header>Termination of pre-2003 capital gain rate differential</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/1">Section 1(h)</external-xref> is amended (after the application of paragraph (1)) by adding at the end the following new paragraph:</text>
<quoted-block id="H86A6A45DE3D54442A03500AC6197AD5">
<paragraph id="HB4F74DC972C9423A940982B803FC857C"><enum>(13)</enum><header>Termination</header><text>This section shall not apply to taxable years beginning after December 31, 2005.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></paragraph></subsection>
<subsection id="H12F988C347FE48E88D9CD3CB616FEEFA"><enum>(g)</enum><header>Additional conforming amendments</header>
<paragraph id="H8AB6AF9D9560466A9270ABC58F005862"><enum>(1)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/1">Section 1</external-xref> is amended by striking subsection (i).</text></paragraph>
<paragraph id="H004034130ADA44FDBF260510C38C953"><enum>(2)</enum><text>The Internal Revenue Code of 1986 is amended by striking <quote>calendar year 1992</quote> each place it appears and inserting <quote>calendar year 2005</quote>.</text></paragraph>
<paragraph id="H7ADCD5050E2846B6B6A2DFB883808663"><enum>(3)</enum><text>Section 1445(e)(1) (after the application of subsection (g)(1)) is amended by striking <quote>(or, to the extent provided in regulations, 20 percent)</quote>.</text></paragraph></subsection>
<subsection id="HD4CADE0F76D947A0004BDB68BD63D2D1"><enum>(h)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2005.</text></subsection></section>
<section id="H3C3DC8DA68CE4699B3D3611DFD22EF48"><enum>102.</enum><header>Increase in basic standard deduction</header>
<subsection id="H211A72C733F944C3A8E8993FFDFCF8C4"><enum>(a)</enum><header>In general</header><text>Paragraph (2) of section 63(c) (defining standard deduction) is amended to read as follows:</text>
<quoted-block id="H941BAF3D66D148B3ADDA07A8F43E6FC1">
<paragraph id="HB4DE112E145A458AB0E3F8005CD7B0B7"><enum>(2)</enum><header>Basic standard deduction</header><text>For purposes of paragraph (1), the basic standard deduction is—</text>
<subparagraph id="HD4318ECD34C049AD00028DF5C4B475C"><enum>(A)</enum><text>200 percent of the dollar amount in effect under subparagraph (C) for the taxable year in the case of—</text>
<clause id="HD20A0A5543C94EF8AE001E3006517966"><enum>(i)</enum><text>a joint return, or</text></clause>
<clause id="H9A4C2C15393E47F0AB013F98CEC0AEB2"><enum>(ii)</enum><text>a surviving spouse (as defined in section 2(a)),</text></clause></subparagraph>
<subparagraph id="H3A95853E7C224FD7B3AABB2630413E00"><enum>(B)</enum><text>$26,250 in the case of a head of household (as defined in section 2(b)), or</text></subparagraph>
<subparagraph id="H7876E8BC74E845C982E261CDB9B0B02C"><enum>(C)</enum><text>$15,000 in any other case.</text></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H0034FA7FF2D446B99B00BE6234D34026"><enum>(b)</enum><header>Conforming amendment to inflation adjustment</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/63">Section 63(c)(4)(B)(i)</external-xref> is amended by striking <quote>(2)(B), (2)(C), or</quote>.</text></subsection>
<subsection id="HCB49950974DE4E61A81968311CAC4391"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2005.</text></subsection></section>
<section id="H53D21E182B524F3A952166AC764773BC" display-inline="no-display-inline"><enum>103.</enum><header>Simplified family credit</header>
<subsection id="H122B66EE1A9A423EB31C8630EB19919F"><enum>(a)</enum><header>In general</header><text>Section 32 (relating to earned income credit) is amended to read as follows:</text>
<quoted-block id="H62633A0670FA460AB5A0C6FE5D808FBB">
<section id="H8057B0FB211F471389F2398B54B4F81D"><enum>32.</enum><header>Simplified family credit</header>
<subsection id="H44C5029186DE48D6BC00A1F6DCBD9C9"><enum>(a)</enum><header>Allowance of credit</header><text>In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the lesser of—</text>
<paragraph id="HD30C38C3E61B44FB81009D47D7794DB2"><enum>(1)</enum><text>$2,500 multiplied by the number of qualifying children of the taxpayer, or</text></paragraph>
<paragraph id="H8B4A02ACEA9349C48F276446385B82BA"><enum>(2)</enum><text>50 percent of modified adjusted gross income.</text></paragraph></subsection>
<subsection id="HC9E83491447C49B495F8E0C8B87DD197"><enum>(b)</enum><header>Limitations</header>
<paragraph id="H82CC45EBC1D14FDAA7F5005D91111C00"><enum>(1)</enum><header>Limitation based on modified adjusted gross income</header>
<subparagraph id="H7FFDB285E3184077817046E9E6D5F115"><enum>(A)</enum><header>In general</header><text>The amount of the credit allowable under subsection (a) shall be reduced (but not below zero) by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the threshold amount.</text></subparagraph>
<subparagraph id="H89D821C7996240C19D9E7F10107DAB4"><enum>(B)</enum><header>Threshold amount</header><text>For purposes of paragraph (1), the term <term>threshold amount</term> means $60,000 ($120,000 in the case of a joint return). For purposes of this paragraph, marital status shall be determined under section 7703.</text></subparagraph></paragraph>
<paragraph id="H1780582628654B6BB814C7E7ED37B464"><enum>(3)</enum><header>Limitation on number of qualifying children taken into account</header><text>For purposes of subsection (a), not more than 3 qualifying children of the taxpayer may be taken into account.</text></paragraph>
<paragraph id="H21CB92E842F141C4B47F17A9831E3576"><enum>(4)</enum><header>Limitation on amount of refundable credit</header>
<subparagraph id="H6F64F4C345164E0D0055D6739CA5FB2"><enum>(A)</enum><header>In general</header><text>The amount of the credit allowed under subsection (a) for a taxable year which is allowed under this subpart shall not exceed the modified adjusted gross income of the taxpayer for such year.</text></subparagraph>
<subparagraph id="H27025E74F96D44A399845D4DAC779C26"><enum>(B)</enum><header>Allowance of remaining amount of credit</header><text>The excess of—</text>
<clause id="H4DD05D36363142C189DEACEE7792973C"><enum>(i)</enum><text>the amount of the credit allowed under subsection (a), over</text></clause>
<clause id="HAE11598C639A4EBC8D92B41CF29EA0D1"><enum>(ii)</enum><text>the amount of the credit allowed under this subpart by reason of subparagraph (A), shall be treated as a credit allowed under subpart B for such taxable year and not under this subpart.</text></clause></subparagraph></paragraph></subsection>
<subsection id="HE11F629C08064CB0BF775097C389B700"><enum>(c)</enum><header>Definitions and special rules</header><text>For purposes of this section—</text>
<paragraph id="HCF77D49030C84C848DFA57466F807CAF"><enum>(1)</enum><header>Eligible individual</header>
<subparagraph id="H8564BDC36CB34CCAA0C8125BBBAA74B5"><enum>(A)</enum><header>In general</header><text>The term <term>eligible individual</term> means any individual who has a qualifying child for the taxable year.</text></subparagraph>
<subparagraph id="HAC6216E471E74C17B04F03009091004E"><enum>(B)</enum><header>Individual who is qualifying child ineligible</header><text>If an individual is the qualifying child of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall not be treated as an eligible individual for any taxable year of such individual beginning in such calendar year.</text></subparagraph>
<subparagraph id="H6AA34D8DB4E2471781B938C8A0C6085E"><enum>(C)</enum><header>Exception for individual claiming benefits under section <enum-in-header>911</enum-in-header></header><text>The term <term>eligible individual</term> does not include any individual who claims the benefits of section 911 (relating to citizens or residents living abroad) for the taxable year.</text></subparagraph>
<subparagraph id="HA7CAEF1412084CDB8276C3A75394D6FF"><enum>(D)</enum><header>Limitation on eligibility of nonresident aliens</header><text>The term <term>eligible individual</term> shall not include any individual who is a nonresident alien individual for any portion of the taxable year unless such individual is treated for such taxable year as a resident of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.</text></subparagraph>
<subparagraph id="H99649FCF89EC46FA9421ADA93200A0E1"><enum>(E)</enum><header>Identification number requirement</header><text>No credit shall be allowed under this section to an eligible individual who does not include on the return of tax for the taxable year—</text>
<clause id="HA320788924ED4E09B5795E224429004D"><enum>(i)</enum><text>such individual’s taxpayer identification number, and</text></clause>
<clause id="H96BEDD0F323B490400C2740715971050"><enum>(ii)</enum><text>if the individual is married (within the meaning of section 7703), the taxpayer identification number of such individual’s spouse.</text></clause></subparagraph>
<subparagraph id="H709A7A9419FC4E9A8D8B5332F8902637"><enum>(F)</enum><header>Individuals who do not include TIN, etc., of any qualifying child</header><text>No credit shall be allowed under this section to any eligible individual who has one or more qualifying children if no qualifying child of such individual is taken into account under subsection (b) by reason of paragraph (2)(B).</text></subparagraph></paragraph>
<paragraph id="HCD52E32E6CC944C3B927A11C13F3B6B7"><enum>(2)</enum><header>Qualifying child</header>
<subparagraph id="H3DAA09649FD44690B76C591F8060B162"><enum>(A)</enum><header>In general</header><text display-inline="yes-display-inline">The term <term>qualifying child</term> has the meaning given such term by section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof.</text></subparagraph>
<subparagraph id="HBE4C348BF8F6440C8100A7D92DEBC8B1"><enum>(B)</enum><header>Identification requirements</header>
<clause id="H723A03B260284D9488DFCE449E5726FE"><enum>(i)</enum><header>In general</header><text>A qualifying child shall not be taken into account under subsection (b) unless the taxpayer includes the name, age, and TIN of the qualifying child on the return of tax for the taxable year.</text></clause>
<clause id="H6BAAAA2E0B47403EBB717183AA007300"><enum>(ii)</enum><header>Other methods</header><text>The Secretary may prescribe other methods for providing the information described in clause (i).</text></clause></subparagraph>
<subparagraph id="H8195629966824FABBDBE51B21E31F979"><enum>(C)</enum><header>Abode must be in the United States</header><text>An individual shall not be treated as a qualifying child for purposes of this section unless the principal place of abode of such individual is in the United States.</text></subparagraph></paragraph>
<paragraph id="H519E3CECACBF4CDAA0ABEE05BEEFF61D"><enum>(3)</enum><header>Modified adjusted gross income</header><text>The term <term>modified adjusted gross income</term> means adjusted gross income—</text>
<subparagraph id="H78152F872BE7471C94CBCC004EAF6643"><enum>(A)</enum><text>determined without regard to sections 135, 137, 221, 911, 931, and 933, and</text></subparagraph>
<subparagraph id="HA54D28CF98464A7486EDB4DC25D4EA3"><enum>(B)</enum><text>increased by the amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.</text></subparagraph></paragraph></subsection>
<subsection id="H09F434940046419183061671B0BE2123"><enum>(d)</enum><header>Married individuals</header><text>In the case of an individual who is married (within the meaning of section 7703), this section shall apply only if a joint return is filed for the taxable year under section 6013.</text></subsection>
<subsection id="HA15B26A83C7941999800C5DE3D084BA7"><enum>(e)</enum><header>Taxable year must be full taxable year</header><text>Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.</text></subsection>
<subsection id="H344794BB96EA41CF9C161C65848700FE"><enum>(f)</enum><header>Inflation adjustments</header>
<paragraph id="H23975CE00C2C46B9ABDF0419DB1CCA9E"><enum>(1)</enum><header>In general</header><text>In the case of any taxable year beginning after 2006, each of the dollar amounts in subsection (b)(1)(B) shall be increased by an amount equal to—</text>
<subparagraph id="H04846D0B2D454571BF9D81BA11FA8F03"><enum>(A)</enum><text>such dollar amount, multiplied by</text></subparagraph>
<subparagraph id="H30E1D134331442BBAC17EED8733816BF"><enum>(B)</enum><text>the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting <quote>calendar year 2005</quote> for <quote>calendar year 1992</quote> in subparagraph (B) thereof.</text></subparagraph></paragraph>
<paragraph id="HFE27D162AD334931BDFFDCFDBFFC996"><enum>(2)</enum><header>Rounding</header><text>If any dollar amount in subsection (b)(1)(B) after being increased under paragraph (1) is not a multiple of $1,000, such dollar amount shall be rounded to the nearest multiple of $1,000.</text></paragraph></subsection>
<subsection id="H421EEE007B7840E093E3168DEB50A114"><enum>(i)</enum><header>Coordination with certain means-tested programs</header><text>For purposes of—</text>
<paragraph id="H9EEDB4D4AFD34E7DA77CB4F831945A5"><enum>(1)</enum><text>the <act-name parsable-cite="USHA">United States Housing Act of 1937</act-name>,</text></paragraph>
<paragraph id="H0177E5E3EF8646F9AF67F3356B75C69"><enum>(2)</enum><text>title V of the <act-name parsable-cite="HA49">Housing Act of 1949</act-name>,</text></paragraph>
<paragraph id="HB38D7AB8A882416A84671759F0678DBF"><enum>(3)</enum><text>section 101 of the <act-name parsable-cite="HUDA">Housing and Urban Development Act</act-name> of 1965,</text></paragraph>
<paragraph id="H445C93A26E3C4C74AE4DE642E8277BFF"><enum>(4)</enum><text>sections 221(d)(3), 235, and 236 of the <act-name parsable-cite="NHA">National Housing Act</act-name>, and</text></paragraph>
<paragraph id="H334CBF9C95E841E9884821BD053DD35"><enum>(5)</enum><text>the <act-name parsable-cite="FSA77">Food Stamp Act of 1977,</act-name></text></paragraph><continuation-text continuation-text-level="subsection">any refund made to an individual (or the spouse of an individual) by reason of this section, and any payment made to such individual (or such spouse) by an employer under section 3507, shall not be treated as income (and shall not be taken into account in determining resources for the month of its receipt and the following month).</continuation-text></subsection>
<subsection id="H2CCB4C147A0D414C8801E68CF2ABB934"><enum>(j)</enum><header>Identification numbers</header><text>Solely for purposes of subsections (c)(1)(F) and (c)(3)(D), a taxpayer identification number means a social security number issued to an individual by the Social Security Administration (other than a social security number issued pursuant to clause (II) (or that portion of clause (III) that relates to clause (II)) of section 205(c)(2)(B)(i) of the <act-name parsable-cite="SSA">Social Security Act</act-name>).</text></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H612C64DE727342BDBD2062E32826769F"><enum>(b)</enum><header>Repeals of other provisions</header>
<paragraph id="H42E938BF281D4FD28B3149B297564B58"><enum>(1)</enum><header>Child credit</header><text>Section 24 is hereby repealed.</text></paragraph>
<paragraph id="H6FD9DA4F648B4D2BADB38D959B5393C8"><enum>(2)</enum><header>Deduction for exemption for dependents disallowed to credit recipients</header><text>Subsection (c) of <external-xref legal-doc="usc" parsable-cite="usc/26/151">section 151</external-xref> is amended by adding at the end the following new sentence: <quote>No exemption shall be allowed under this section for a dependent for a taxable year if a credit is allowed under section 32 with respect to such dependent for such taxable year.</quote>.</text></paragraph></subsection>
<subsection id="H8BC13111E5964DC4820403F555A88C6B"><enum>(c)</enum><header>Conforming amendments</header>
<paragraph id="HB219EC86339842E99C003B1CD97CB533"><enum>(1)</enum><header>Amendments relating to repeal of child credit</header>
<subparagraph id="H541E5960C33C4AF383108E707EF6E1B"><enum>(A)</enum><text>Sections 25(e)(1)(C) and 1400C(d) are both amended by striking <quote>24,</quote>.</text></subparagraph>
<subparagraph id="H334F6F59AA0A4E68AD6D96069600E246"><enum>(B)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/501">Section 501(c)(26)</external-xref> is amended by inserting <quote>(as in effect before the enactment of the <short-title>Fair Flat Tax Act of 2006</short-title>)</quote> after <quote>section 24(c)</quote>.</text></subparagraph>
<subparagraph id="H78A756E5DDA549359FCB987B6D659E52"><enum>(C)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/6213">Section 6213(g)(2)</external-xref> is amended—</text>
<clause id="HCA93C5DB38014B97BDD9D4A905CBBE94"><enum>(i)</enum><text>by striking subparagraph (I), and</text></clause>
<clause id="HAD6B3E6D3508437CB28302CBE4B002B"><enum>(ii)</enum><text>in subparagraph (L), by striking <quote>21, 24, or 32</quote> and inserting <quote>21 or 32</quote>.</text></clause></subparagraph></paragraph>
<paragraph id="HE740B348BAD346AFBF2ED52F55A9D3DF"><enum>(2)</enum><header>Amendments relating to repeal of deduction for exemption for dependents</header>
<subparagraph id="HD8E31312B0F14B82B300E2ED61868F09"><enum>(A)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/2">Section 2(a)</external-xref> is amended by striking <quote>a deduction for the taxable year under section 151</quote> and inserting <quote>a credit for the taxable year under section 32</quote>.</text></subparagraph>
<subparagraph id="HC2F98C63EB844280BCA7B334A0CA3E7"><enum>(B)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/2">Section 2(b)</external-xref> is amended by striking <quote>a deduction for the taxable year for such person under section 151</quote> and inserting <quote>a credit for the taxable year for such person under section 32</quote>.</text></subparagraph>
<subparagraph id="HBDE6AFC06CB646039FEFAACD476EE025"><enum>(C)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/21">Section 21(b)(1)(A)</external-xref> is amended by striking <quote>a deduction under section 151(c)</quote> and inserting <quote>a credit under section 32</quote>.</text></subparagraph>
<subparagraph id="HCFEC4CDC855C44FB91F3B42FF8A433DA"><enum>(D)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/21">Section 21(e)(6)(A)</external-xref> is amended by striking <quote>deduction under section 151(c)</quote> and inserting <quote>credit under section 32</quote>.</text></subparagraph>
<subparagraph id="HE7E595CAE95743DAA4B33D3CDBB8CAA"><enum>(E)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/25B">Section 25B(c)(2)(A)</external-xref> is amended by striking <quote>deduction under section 151</quote> and inserting <quote>credit under section 32</quote>.</text></subparagraph>
<subparagraph id="H2EDD006E54B6421E8D6721F2FBFD7F5F"><enum>(F)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/35">Section 35(d)(1)(B)</external-xref> is amended by striking <quote>deduction under section 151(c)</quote> and inserting <quote>credit under section 32</quote>.</text></subparagraph>
<subparagraph id="H51217ADBE3664D2A8F25B0D3EC428B00"><enum>(G)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/35">Section 35(g)(4)</external-xref> is amended by striking <quote>deduction under section 151</quote> and inserting <quote>credit under section 32</quote>.</text></subparagraph>
<subparagraph id="HE482D8A94ADC40C90084BD9F153CA146"><enum>(H)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/63">Section 63(c)(5)</external-xref> is amended by striking <quote>deduction under section 151</quote> and inserting <quote>credit under section 32</quote>.</text></subparagraph>
<subparagraph id="H3425A88B5D1E44FB811F56CE51BCCB6D"><enum>(I)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/129">Section 129(c)(1)</external-xref> is amended by striking <quote>deduction is allowable under section 151(c) (relating to personal exemptions for dependents) </quote> and inserting <quote>credit is allowable under section 32 (relating to simplified family credit)</quote>.</text></subparagraph>
<subparagraph id="HC41A8DF242C14523977CFC138DD5AEA0"><enum>(J)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/135">Section 135(c)(2)(A)(iii)</external-xref> is amended by striking <quote>deduction under section 151</quote> and inserting <quote>credit under section 32</quote>.</text></subparagraph>
<subparagraph id="H24F00FA21CF344DB9782AB104C007DAF"><enum>(K)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/220">Section 220(b)(6)</external-xref> is amended by striking <quote>deduction under section 151</quote> and inserting <quote>credit under section 32</quote>.</text></subparagraph>
<subparagraph id="H1F2F21A31BA14920B611FC3346C67D10"><enum>(L)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/221">Section 221(c)</external-xref> is amended by striking <quote>deduction under section 151</quote> and inserting <quote>credit under section 32</quote>.</text></subparagraph>
<subparagraph id="H25D391D1BE4C49388EDC5D33D234357"><enum>(M)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/2032A">Section 2032A(c)(7)(D)</external-xref> is amended by striking <quote>section 151(c)(4)</quote> and inserting <quote>section 32(c)(3)(F)</quote>.</text></subparagraph>
<subparagraph id="H66347E8607F649A0BAEBFED74354F71E"><enum>(N)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/6012">Section 6012(a)(1)(A)</external-xref> is amended by striking <quote>an exemption for such spouse under section 151(c)</quote> and inserting <quote>a credit for such spouse under section 32</quote>.</text></subparagraph>
<subparagraph id="H2403558494124F83ABCF57AE45C0B2A0"><enum>(O)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/7703">Section 7703(b)(1)</external-xref> is amended by striking <quote>deduction for the taxable year under section 151</quote> and inserting <quote>credit for the taxable year under section 32</quote>.</text></subparagraph></paragraph></subsection>
<subsection id="H8779D6DC7C71418F81AB21F72F7DC1CD"><enum>(d)</enum><header>Clerical amendment</header><text>The table of sections for subpart C of part IV of subchapter A of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by striking the item relating to section 32 and inserting the following:</text>
<quoted-block style="OLC" id="HBCAC7A2A92014C91AFD530C9F40BB93">
<toc regeneration="no-regeneration">
<toc-entry level="section">Sec. 32. Simplified family credit.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H2D0DDE2A5152405EA04354C428F35CF4"><enum>(e)</enum><header>Effective date</header>
<paragraph id="HA9783A8D3CE449A4B160242E9C6600C9"><enum>(1)</enum><header>In general</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2005.</text></paragraph>
<paragraph id="H237AFF13BCD24569B551003700079215"><enum>(2)</enum><header>Transitional rule for noncustodial parents</header>
<subparagraph id="HB5E65CD4D7444E7BB706CF28F5001B25"><enum>(A)</enum><header>In general</header><text>If, on the last day of the taxable year, an eligible individual is the noncustodial parent of a qualifying child, the Internal Revenue Code of 1986 shall be applied to such individual without regard to the amendments made by this section.</text></subparagraph>
<subparagraph id="HD1768B4B3999404AA14D355DBA48D5DE"><enum>(B)</enum><header>Definitions</header><text>For purposes of subparagraph (A), the terms <term>eligible individual</term> and <term>qualifying child</term> shall have the meanings given such terms by <external-xref legal-doc="usc" parsable-cite="usc/26/32">section 32(c)</external-xref> of the Internal Revenue Code of 1986 (as amended by this section).</text></subparagraph></paragraph>
<paragraph id="H0764C2C5C78247E2AF705D06046CE3A9"><enum>(3)</enum><header>Taxpayers held harmless</header><text>In the case of a taxpayer who, for the first taxable year ending after the date of the enactment of this Act, would be allowed a deduction of the exemption amount under <external-xref legal-doc="usc" parsable-cite="usc/26/151">section 151(c)</external-xref> of the Internal Revenue Code of 1986 (determined without regard to the amendments made by this section) with respect to any dependent of the taxpayer, the taxpayer may elect to apply the Internal Revenue Code of 1986 with respect to such dependent as if amendments made by this section had not been enacted.</text></paragraph></subsection></section>
<section id="H47B40741F014422098BB838D3F5E2C7D"><enum>104.</enum><header>Expanded access to college</header>
<subsection id="H2E2D9026FC01472684CE6B0099BBF5"><enum>(a)</enum><header>Replacement with refundable credit for higher education expenses</header><text>Subpart C of part IV of subchapter A of chapter 1 (relating to refundable credits) is amended by redesignating section 36 as section 37 and by inserting after section 35 the following new section:</text>
<quoted-block style="OLC" id="HF459D9AF2589495599BD034CFF2D7D63" display-inline="no-display-inline">
<section id="H132FEA21C3FD48D192797200B6BD9EFC"><enum>36.</enum><header>Higher education expenses</header>
<subsection id="H85B654B6C9AC4B90BAD915A3247267EE"><enum>(a)</enum><header>Allowance of credit</header><text display-inline="yes-display-inline">In the case of an individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year the amount equal to the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to the eligible student during any academic period beginning in such taxable year).</text></subsection>
<subsection id="HC2AF160D663245908D20E7301476094F"><enum>(b)</enum><header>Limitations</header>
<paragraph id="H0D6E44EEF64C4BEEBBD5505B6592DF00"><enum>(1)</enum><header>Dollar limitation</header><text>The amount allowed as a credit under subsection (a) for a taxable year shall not exceed $3,000.</text></paragraph>
<paragraph id="H05A64EF46B7C4A7EBFDA9154AAE3976D"><enum>(2)</enum><header>Academic limitations</header><text>Expenses may not be taken into account under subsection (a) with respect to an eligible student for an academic year if—</text>
<subparagraph id="HAE5CD275098D4AC59E328B4FE353F24B"><enum>(A)</enum><text display-inline="yes-display-inline">in the case of a program at the undergraduate level, expenses have been taken into account under this section in all prior taxable years with respect to such student for any program at the undergraduate level for the full-time equivalent of 4 academic years, and</text></subparagraph>
<subparagraph id="H98C6EE61BE144E4BA8E456EFDCC40725"><enum>(B)</enum><text display-inline="yes-display-inline">in the case of a program at the graduate level, expenses have been taken into account under this section in all prior taxable years with respect to such student for any program at the graduate level for the full-time equivalent of 2 academic years.</text></subparagraph><continuation-text continuation-text-level="paragraph">For purposes of the preceding sentence, the determination of full-time equivalent of academic years shall be under regulations issued by the Secretary.</continuation-text></paragraph></subsection>
<subsection id="H81826D0CDBB642A796D256BA2426DF6B"><enum>(c)</enum><header>Eligible student</header><text display-inline="yes-display-inline">For purposes of this subsection, the term <term>eligible student</term> means, with respect to any academic period, a student who—</text>
<paragraph id="H0CC95FA236084C8A9DDC1ECD7FAD9026"><enum>(1)</enum><text>meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (<external-xref legal-doc="usc" parsable-cite="usc/20/1091">20 U.S.C. 1091(a)(1)</external-xref>), as in effect on the date of the enactment of this section, and</text></paragraph>
<paragraph id="H3E37080433DA43BB9361E71C207ABCF"><enum>(2)</enum><text>is carrying at least 1/2 the normal full-time work load for the course of study the student is pursuing.</text></paragraph></subsection>
<subsection id="H2ECEC5DD2BA04C8381F57332A1A9899D"><enum>(d)</enum><header>Election not to have section apply</header><text>A taxpayer may elect not to have this section apply with respect to the qualified tuition and related expenses of an individual for any taxable year.</text></subsection>
<subsection id="H60CE4A8E59E242F2A62BB1C9A7BC746F"><enum>(e)</enum><header>Definitions</header><text display-inline="yes-display-inline">For purposes of this section—</text>
<paragraph id="HEF1F731EC8F44BA6A049BB67CCE727B4"><enum>(1)</enum><header>Qualified tuition and related expenses</header>
<subparagraph id="HC5CFFA6B9A554A69AB00C0E8014CB400"><enum>(A)</enum><header>In general</header><text>The term <term>qualified tuition and related expenses</term> means tuition and fees required for the enrollment or attendance of—</text>
<clause id="HB38A621C6ED54A4DAA5DAC5789B0FD72"><enum>(i)</enum><text>the taxpayer, </text></clause>
<clause id="H2B5218B60A7A41BC85A59F9D01EF9E41"><enum>(ii)</enum><text>the taxpayer's spouse, or </text></clause>
<clause id="H4B635DD320D24EA6A6E8A8C302621F8D"><enum>(iii)</enum><text>any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, at an eligible educational institution for courses of instruction of such individual at such institution. </text></clause></subparagraph>
<subparagraph id="H181CB287DF3A4459002BA4E214023DCC"><enum>(B)</enum><header>Exception for education involving sports, etc</header><text>Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual's degree program. </text></subparagraph>
<subparagraph id="HDE6CC98381114C8D8E8E18D1FEECD965"><enum>(C)</enum><header>Exception for nonacademic fees</header><text>Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual’s academic course of instruction. </text></subparagraph></paragraph>
<paragraph id="H7FE57EBB64344CD5A8FB43EC63F7E7E4"><enum>(2)</enum><header>Eligible educational institution</header><text>The term <term>eligible educational institution</term> means an institution—</text>
<subparagraph id="H425BC1C90B054B77902BEBDA664D6E06"><enum>(A)</enum><text>which is described in section 481 of the Higher Education Act of 1965 (<external-xref legal-doc="usc" parsable-cite="usc/20/1088">20 U.S.C. 1088</external-xref>), as in effect on the date of the enactment of this section, and </text></subparagraph>
<subparagraph id="H030F054C37F9466E837495CCDAB16695"><enum>(B)</enum><text>which is eligible to participate in a program under title IV of such Act.</text></subparagraph></paragraph>
<paragraph id="HF892F67C94824CFC8FBA4349D047D779"><enum>(3)</enum><header>Academic year</header><text display-inline="yes-display-inline">The term <term>academic year</term> has the meaning given such term by section 481(a)(2) of the Higher Education Act of 1965 (<external-xref legal-doc="usc" parsable-cite="usc/20/1088">20 U.S.C. 1088(a)(2)</external-xref>). </text></paragraph></subsection>
<subsection id="HB7B0F33A2B024A3CB329CF1826DF454D"><enum>(f)</enum><header>Special rules</header>
<paragraph id="H453F16FAB37043F4966D829C7525F48B"><enum>(1)</enum><header>Identification requirement</header><text>No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year. </text></paragraph>
<paragraph id="HAECC26816D4E42CE8E593F53AF09269C"><enum>(2)</enum><header>Adjustment for certain scholarships, etc</header><text>The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced by the sum of any amounts paid for the benefit of such individual which are allocable to such period as—</text>
<subparagraph id="HD746DA57A7B74A4883CEA285BAC60998"><enum>(A)</enum><text>a qualified scholarship which is excludable from gross income under section 117, </text></subparagraph>
<subparagraph id="HC34298A855B142B290D5EDF52D36B670"><enum>(B)</enum><text>an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/10/1606">chapter 1606</external-xref> of title 10, United States Code, and </text></subparagraph>
<subparagraph id="H0DAA2B5F443343A4B4CB270000C8D6EA"><enum>(C)</enum><text>a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a) for such individual’s educational expenses, or attributable to such individual’s enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States. </text></subparagraph></paragraph>
<paragraph id="H0EF3A0543AC2404AB342A4ADBF3FB7F"><enum>(3)</enum><header>Treatment of expenses paid by dependent</header><text>If a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins—</text>
<subparagraph id="H1A71C8BE6612487CB9AFFB9B001BF59E"><enum>(A)</enum><text>no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year, and </text></subparagraph>
<subparagraph id="H4B1146F2560B44D0A37EF3352D29FA7C"><enum>(B)</enum><text>qualified tuition and related expenses paid by such individual during such individual's taxable year shall be treated for purposes of this section as paid by such other taxpayer. </text></subparagraph></paragraph>
<paragraph id="H88DE9EA9875248FA810710CCB0D8B698"><enum>(4)</enum><header>Treatment of certain prepayments</header><text>If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year. </text></paragraph>
<paragraph id="H5AA14CC1B5B14E5BB5208D1F1F02FC00"><enum>(5)</enum><header>Denial of double benefit</header><text>No credit shall be allowed under this section for any expense for which a deduction is allowed under any other provision of this chapter. </text></paragraph>
<paragraph id="HCBF6D4C737E4464F9BD8F779C97BE7A3"><enum>(6)</enum><header>No credit for married individuals filing separate returns</header><text>If the taxpayer is a married individual (within the meaning of section 7703, this section shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year. </text></paragraph>
<paragraph id="H2804F40E33254A028679D4E508A33DA2"><enum>(7)</enum><header>Nonresident aliens</header><text>If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. </text></paragraph></subsection>
<subsection id="H9DF3EDF0CC264412A400E0ED3CAC5950"><enum>(g)</enum><header>Regulations</header><text>The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any amount which was taken into account in determining the amount of such credit.</text></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="HA75974CEDFA547B881A72256D3F11537"><enum>(b)</enum><header>Repeal of certain credits, exclusions, and deductions relating to higher education expenses</header><text>The following sections of the Internal Revenue Code of 1986 are hereby repealed:</text>
<paragraph id="HED29BB6675FE406D815CDBD4E5A72500"><enum>(1)</enum><text>Section 25A (relating to Hope and Lifetime Learning Credits).</text></paragraph>
<paragraph id="H0D1D48EEE8DE4699946BB383E271257"><enum>(2)</enum><text>Section 127 (relating to educational assistance programs).</text></paragraph>
<paragraph id="H176F4F9E32D34B65B359F274FA242CB3"><enum>(3)</enum><text>Section 222 (relating to qualified tuition and related expenses).</text></paragraph>
<paragraph id="H31D5AA1CB03E43B9B35BA720A27926EB"><enum>(4)</enum><text>Section 117(d) (relating to qualified tuition reduction).</text></paragraph></subsection>
<subsection id="H2E0ED39FBBC048D298294C84C76EA6C8"><enum>(c)</enum><header>Technical and conforming amendments</header>
<paragraph id="H3DBD8C93FB824F34BE72FAFBC0074C1"><enum>(1)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/62">Section 62(a)</external-xref> is amended by striking paragraph (18).</text></paragraph>
<paragraph id="HF5C6B01EB06042A3B430C4606EC44314"><enum>(2)</enum><text>The following sections are amended by striking <quote>222,</quote>: 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), 199(d)(2)(A), 219(g)(3)(A)(2), 221(b)(2)(C)(i), and 469(i)(F).</text></paragraph>
<paragraph id="H905FA3F534DC4FDD925BFE3EFB3671D5"><enum>(3)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/51A">Section 51A(b)(5)(B)</external-xref> is amended by inserting <quote>or</quote> after clause (ii), by striking clause (iii), and by redesignating clause (iv) as clause (iii).</text></paragraph>
<paragraph id="H3EB9AE4DC0AA4FE100AC4317269C4500"><enum>(4)</enum><text>Sections 125(f), 221(d)(2)(A), 414(n)(3)(C), 3121(a)(18), 3401(a)(18), and 6039D(d)(1) are each amended by striking <quote>127,</quote>.</text></paragraph>
<paragraph id="H1CF3C59901F54A408FC50879006EBE74"><enum>(5)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/132">Section 132(j)(8)</external-xref> is amended by striking <quote>which are not excludable from gross income under section 127</quote>.</text></paragraph>
<paragraph id="HB077A0F5594D483DAD913E3879B2F0C3"><enum>(6)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/137">Section 137(c)(2)</external-xref> is amended by inserting <quote>(as in effect on the date of enactment of the <short-title>Fair Flat Tax Act of 2006</short-title>)</quote> after <quote>127(b)</quote>.</text></paragraph>
<paragraph id="H3E298FF056B64CBCBFEAC263073C92F3"><enum>(7)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/1397">Section 1397(a)(2)(A)</external-xref> is amended by striking clause (i).</text></paragraph>
<paragraph id="H3FD0F76E74D34CEC89DCEA12FF1BED19"><enum>(8)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/3306">Section 3306(b)(13)</external-xref> is amended by striking <quote>127, or</quote>.</text></paragraph>
<paragraph id="H2B1F371CD9994077BA6F1887D1B726E"><enum>(9)</enum><text>Subparagraph (B) of <external-xref legal-doc="usc" parsable-cite="usc/26/72">section 72(t)(7)</external-xref> is amended by striking <quote>section 25A(g)(2)</quote> and inserting <quote>section 36(c)(3)(B)(2)(v)(I)</quote>.</text></paragraph>
<paragraph id="HDA6D5936B7F5478DA41188DABB2C1551"><enum>(10)</enum><text>Subparagraph (A) of <external-xref legal-doc="usc" parsable-cite="usc/26/135">section 135(d)(2)</external-xref> is amended by striking <quote>section 25A</quote> and inserting <quote>section 36</quote>.</text></paragraph>
<paragraph id="HDD74139BA8A84ECFA725CEA300B5BE4"><enum>(11)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/221">Section 221(e)</external-xref> is amended—</text>
<subparagraph id="H2A3F75AA2B4B4B398E5280BF4D3818FE"><enum>(A)</enum><text display-inline="yes-display-inline">in paragraph (2)(B), by striking <quote>section 25A(g)(2)</quote> and inserting <quote>section 36(c)(3)(B)(2)(v)(I)</quote> and by striking <quote>section 25A(f)(2)</quote> and inserting <quote>section 36(c)(3)(B)(2)(v)(I)</quote>, and</text></subparagraph>
<subparagraph id="HDACB8E72FFCF4E8F96949DD434C38248"><enum>(B)</enum><text>in paragraph (3), by striking <quote>section 25A(b)(3)</quote> and inserting <quote>section 36(c)</quote>.</text></subparagraph></paragraph>
<paragraph id="HE00D2D5DB2DD47568F4BC4037840E273"><enum>(12)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/529">Section 529</external-xref> is amended—</text>
<subparagraph id="H1DC4F2EDC5754030B2DA31A049E702B3"><enum>(A)</enum><text>by amending clause (v) of subsection (c)(3)(B) to read as follows:</text>
<quoted-block style="OLC" id="H718900F15D3C4DF69BEE396D522392B3" display-inline="no-display-inline">
<clause id="H0B51DD78F85C43C6B6DC7FEC5EBF3B1"><enum>(v)</enum><header>Coordination with scholarships and higher education refundable credit</header><text display-inline="yes-display-inline">The total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced with respect to an individual for an academic period—</text>
<subclause id="H6B65BF349921419A9E0007CA847F7D43"><enum>(I)</enum><text display-inline="yes-display-inline"> by the sum of any amounts paid for the benefit of such individual which are allocable to such period as—</text>
<item id="H0FA1F8E6F97A476600E990DDDABC2464"><enum>(aa)</enum><text>a qualified scholarship which is excludable from gross income under section 117, </text></item>
<item id="HE948D9D828A449649F47D2413D9C10D8"><enum>(bb)</enum><text>an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/10/1606">chapter 1606</external-xref> of title 10, United States Code, and </text></item>
<item id="H075026F6F2D24021BF64F1F97E1F1EAF"><enum>(cc)</enum><text>a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a) for such individual’s educational expenses, or attributable to such individual’s enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States, and </text></item></subclause>
<subclause id="HAEE2E5551C4B406FB8F76FF7835B6328"><enum>(II)</enum><text>by the amount of such expenses which were taken into account in determining the credit allowed to the taxpayer or any other person under section 36.</text></subclause></clause><after-quoted-block>, and</after-quoted-block></quoted-block></subparagraph>
<subparagraph id="HD267A17BFC844734992C59E23645008F"><enum>(B)</enum><text>in subsection (e)(3)(B)(i) by striking <quote>section 25A(b)(3)</quote> and inserting <quote>section 36(c)</quote>.</text></subparagraph></paragraph>
<paragraph id="H815FA219F02245F8BE83A3D3FE24C4B"><enum>(13)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/530">Section 530(d)</external-xref> is amended—</text>
<subparagraph id="H7ACC6CA8696C421FB9F1E67313AE42FC"><enum>(A)</enum><text display-inline="yes-display-inline">in paragraph (2)(C)(i)(I) by striking <quote>section 25A(g)(2)</quote> and inserting <quote>section 36(c)(3)(B)(2)(v)(I)</quote>,</text></subparagraph>
<subparagraph id="HEA2ADF2A12B24337A7D62E8C61A931E"><enum>(B)</enum><text>in paragraph (2)(C)(i)(II) by striking <quote>section 25A</quote> and inserting <quote>section 36</quote>, and</text></subparagraph>
<subparagraph id="HA22FBA9B27704FB5A67932A09D933B00"><enum>(C)</enum><text display-inline="yes-display-inline">in paragraph (4)(B)(iii) by striking <quote>section 25A(g)(2)</quote> and inserting <quote>section 36(c)(3)(B)(2)(v)(I)</quote>.</text></subparagraph></paragraph>
<paragraph id="HA9D5571521094878861DB5E4C4CF76C2"><enum>(14)</enum><text>Subsection (e) of <external-xref legal-doc="usc" parsable-cite="usc/26/6050S">section 6050S</external-xref> is amended by striking <quote>section 25A (without regard to subsection (g)(2) thereof)</quote> and inserting <quote>section 36 (without regard to clause (v)(I) of subsection (c)(3)(B)(2) thereof)</quote>.</text></paragraph>
<paragraph id="H7F94C965270740DBB8A2FC78577C89A8"><enum>(15)</enum><text>Subparagraph (J) of <external-xref legal-doc="usc" parsable-cite="usc/26/6213">section 6213(g)(2)</external-xref> is amended by striking <quote>section 25A(g)(1)</quote> and inserting <quote>section 36(f)(1)</quote>.</text></paragraph>
<paragraph id="H4EF055FB077946BD9760B04131E1E76B"><enum>(16)</enum><text>Paragraph (2) of <external-xref legal-doc="usc" parsable-cite="usc/31/1324">section 1324(b)</external-xref> of title 31, United States Code, is amended by inserting <quote>or 36</quote> after <quote>section 35</quote>.</text></paragraph>
<paragraph id="HB0AD05A31A6C47B0A7A0494838DB8D3B"><enum>(17)</enum><text>The table of sections for subpart C of part IV of subchapter A of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by redesignating the item relating to section 36 as an item relating to section 37 and by inserting after the item relating to section 35 the following new item:</text>
<quoted-block style="OLC" display-inline="no-display-inline" id="H889595ED010A45868779CBE700210062">
<toc container-level="quoted-block-container" quoted-block="no-quoted-block" lowest-level="section" regeneration="yes-regeneration" lowest-bolded-level="division-lowest-bolded" idref="HF459D9AF2589495599BD034CFF2D7D63">
<toc-entry level="section" idref="H132FEA21C3FD48D192797200B6BD9EFC">Sec. 36. Higher education expenses</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block></paragraph>
<paragraph id="H5C495A68F99E4BBF8B1B023B8995B31B"><enum>(18)</enum><text>The table of sections for subpart A of such part IV is amended by striking the item relating to section 25A.</text></paragraph>
<paragraph id="HEB10690FD4C844E1889799C3E6FE4C00"><enum>(19)</enum><text>The table of sections for part III of subchapter B of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by striking the item relating to section 127.</text></paragraph>
<paragraph id="H8F0014C6CFEE4475BE4375002C903B40"><enum>(20)</enum><text>The table of sections for part VII of subchapter B of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by striking the item relating to section 222.</text></paragraph></subsection>
<subsection id="H2887ECF4502A45FCBE33B0F8BA102576"><enum>(d)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2005.</text></subsection></section>
<section id="HFDB5671EC1714D1C93CC69E6513CB4C8"><enum>105.</enum><header>Deduction for mortgage interest whether or not individual itemizes</header>
<subsection id="H04721E52679C4BBAADFC538D47BAB100"><enum>(a)</enum><header>In general</header><text>Subsection (a) of section 62 (defining adjusted gross income) is amended by redesignating paragraph (19) (as added by section 703(a) of the American Jobs Creation Act of 2004) as paragraph (20) and by inserting after paragraph (20) (as so redesignated) the following new paragraph:</text>
<quoted-block id="H3D14D7AD53CB47A4889E4722183D632C" style="OLC">
<paragraph id="HC5888FCA13C6423F91E7047F012A665"><enum>(21)</enum><header>Qualified residence interest</header><text>The deduction allowed under section 163 by reason of subsection (h)(2)(D) thereof.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H00A52048D4A8435EAD65009975B8C0CD"><enum>(b)</enum><header> Effective date</header><text display-inline="yes-display-inline">The amendment made by subsection (a) shall apply to interest paid in taxable years beginning after the date of the enactment of this Act.</text></subsection></section>
<section id="H5BD61B71E50A4D68006961D34492EC50" display-inline="no-display-inline"><enum>106.</enum><header>Universal pension accounts</header>
<subsection id="HFC10202DD9AC4C6C8F475155425BCFB3"><enum>(a)</enum><header>Deduction for contributions</header>
<paragraph id="H5242ACB8ADEA44888EEF150095C000B3"><enum>(1)</enum><header>In general</header><text>Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by inserting after section 219 the following new section:</text>
<quoted-block style="OLC" id="HB1D2EAC0C0614A8397A08D4BC3036325" display-inline="no-display-inline">
<section id="HF6289B8B4C784A69A636EB7C797EED0"><enum>219A.</enum><header>Contributions to Universal Pension Accounts</header>
<subsection id="H23375CE48ED4489384B68472F7192B57"><enum>(a)</enum><header>Allowance of deduction</header><text display-inline="yes-display-inline">In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified universal pension contributions of the individual for the taxable year. </text></subsection>
<subsection id="HFB17D01A634E4B3D89DE00DE7D20355C"><enum>(b)</enum><header>Maximum amount of deduction</header>
<paragraph id="H8067707D622F4EE8BF8889B45317C772"><enum>(1)</enum><header>In general</header><text>The amount allowable as a deduction under subsection (a) to any individual for any taxable year shall not exceed the lesser of—</text>
<subparagraph id="H82396423DB3541D5B8258089D7BF7182"><enum>(A)</enum><text>the deductible amount, or </text></subparagraph>
<subparagraph id="HF4FC8D2615D24D06A89456DF34A02E23"><enum>(B)</enum><text>an amount equal to the compensation includible in the individual’s gross income for such taxable year.</text></subparagraph></paragraph>
<paragraph id="HA6CEF2D8929E4AA990FD2D125C46F370"><enum>(2)</enum><header>Deductible amount</header><text>For purposes of paragraph (1)(A), the deductible amount shall be determined in accordance with the following table:</text>
<table table-type="2-General" align-to-level="paragraph" frame="none" line-rules="no-gen" rule-weights="4.4.4.4.4.17" blank-lines-before="1" subformat="S6211">
<tgroup cols="2" ttitle-size="0" thead-tbody-ldg-size="10.10.10" grid-typeface="1.1" offset-from-left="48"><colspec colname="col1" coldef="txt" min-data-value="50" colsep="1" colwidth="78"/><colspec colname="col2" coldef="fig" min-data-value="10" colsep="1" colwidth="93"/><thead>
<row><entry colname="col1" align="center" rowsep="0"><bold>For taxable years beginning in calendar year—</bold></entry><entry colname="col2" align="center" rowsep="0"><bold>The deductible amount is—</bold></entry></row></thead>
<tbody>
<row><entry colname="col1" align="left" rowsep="0" stub-definition="txt-ldr" stub-hierarchy="1">2006 or 2007</entry><entry colname="col2" align="right" rowsep="0" leader-modify="force-ldr">$4,000</entry></row>
<row><entry colname="col1" align="left" rowsep="0" stub-definition="txt-ldr" stub-hierarchy="1">2008 or thereafter</entry><entry colname="col2" align="right" rowsep="0" leader-modify="force-ldr">$5,000.</entry></row></tbody></tgroup></table></paragraph>
<paragraph id="H55D5D93F843344F300FB3985DAF13519"><enum>(3)</enum><header>Cost-of-living adjustment</header>
<subparagraph id="HB4C6BE93499E4852A5D4D560021B1CD"><enum>(A)</enum><header>In general</header><text>In the case of any taxable year beginning in a calendar year after 2008, the $5,000 amount in paragraph (2) shall be increased by an amount equal to—</text>
<clause id="H36CA4995D4F44C8B9C69325CCCA6F3A5"><enum>(i)</enum><text>such dollar amount, multiplied by </text></clause>
<clause id="HF1D682FC5ABA47C1BA92F20838499547"><enum>(ii)</enum><text>the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting <quote>calendar year 2007</quote> for <quote>calendar year 1992</quote> in subparagraph (B) thereof. </text></clause></subparagraph>
<subparagraph id="HD1FEB0AD5351417E9F33C0BB63E14663"><enum>(B)</enum><header>Rounding</header><text>If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500.</text> </subparagraph></paragraph></subsection>
<subsection id="H10742EF5EE94484D8F2987EE474CE4A6" display-inline="no-display-inline"><enum>(c)</enum><header>Limitation based on adjusted gross income</header>
<paragraph id="HDC50A00767C94738A780B22BB5350072"><enum>(1)</enum><header>In general</header><text>The deductible amount otherwise applicable under subsection (b) for any taxable year shall be reduced (but not below zero) by the amount determined under paragraph (2).</text></paragraph>
<paragraph id="H66F112D48D354FE98EF5375D448CE3C6"><enum>(2)</enum><header>Amount of reduction</header>
<subparagraph id="H32985571CEDD402D8812BEE0DEEC2455"><enum>(A)</enum><header>In general</header><text>The amount determined under this paragraph with respect to any dollar limitation shall be the amount which bears the same ratio to such limitation as—</text>
<clause id="H2E832283A66B4037B8C84D162F6CD19D"><enum>(i)</enum><text>the excess of—</text>
<subclause id="HB3508B12C46C4DE9A2D095A2A5A3CD98"><enum>(I)</enum><text>the taxpayer’s adjusted gross income for such taxable year, over</text></subclause>
<subclause id="H0D4A7D6D78F848A7A18800BCDDC6A532"><enum>(II)</enum><text>the applicable dollar amount, bears to</text></subclause></clause>
<clause id="HECABAA1E6C984A9B8FC582C44758A290" display-inline="no-display-inline"><enum>(ii)</enum><text display-inline="yes-display-inline">$15,000 ($10,000 in the case of a joint return or a married individual filing a separate return).</text></clause></subparagraph>
<subparagraph id="HA946E58F761F44ADA3A6FA6FBC2061C3" display-inline="no-display-inline"><enum>(B)</enum><header>Applicable dollar amount</header><text display-inline="yes-display-inline">For purposes of subparagraph (A), the applicable dollar amount is—</text>
<clause id="H3D42B40783C64E208F26F1BAE839E0E3"><enum>(i)</enum><text>in the case of a taxpayer filing a joint return, $150,000, </text></clause>
<clause id="H5EADEF67EAAC48B2AE2E758987CF06DC"><enum>(ii)</enum><text>in the case of any other taxpayer (other than a married individual filing a separate return), $95,000, and </text></clause>
<clause id="H4BB86D98788247C09BB05B5148D098"><enum>(iii)</enum><text>in the case of a married individual filing a separate return, zero. </text></clause></subparagraph>
<subparagraph id="HC6F49F6ADDCB4FD793437E9DC8F047FE"><enum>(C)</enum><header>No reduction below $200 until complete phase-out</header><text>No dollar limitation shall be reduced below $200 under subparagraph (A) unless (without regard to this subparagraph) such limitation is reduced to zero.</text></subparagraph>
<subparagraph id="H145323B95E264952916FDCEEB598C3D0"><enum>(D)</enum><header>Rounding</header><text>Any amount determined under this paragraph which is not a multiple of $10 shall be rounded to the next lowest $10.</text></subparagraph></paragraph>
<paragraph id="H32C95A5204BB4781AD0770A3AC4B2306"><enum>(3)</enum><header>Adjusted gross income</header><text>For purposes of this subsection, adjusted gross income of any taxpayer shall be determined—</text>
<subparagraph id="HAA6D3993C82D49F79C7FEC522CFA7CA7"><enum>(A)</enum><text>after application of sections 86, 219, and 469, and</text></subparagraph>
<subparagraph id="H97B848CAFF4A47FCBCE221DFC000521F"><enum>(B)</enum><text>without regard to sections 135, 137, 221, and 911 or the deduction allowable under this section.</text></subparagraph></paragraph>
<paragraph id="H275B239E65EC4D77B861DF8221CA72E"><enum>(4)</enum><header>Married individuals filing separate returns</header>
<subparagraph id="HE56F3A6D6BE443D7ACF6F49834929C47"><enum>(A)</enum><header>In general</header><text>In the case of a married individual filing a separate return, the amount applicable under paragraph (2)(A)(i)(II) is zero.</text></subparagraph>
<subparagraph id="HCF58A04C0F2D436399B747DD3599E8B9"><enum>(B)</enum><header>Special rule for married individuals filing separately and living apart</header><text>A husband and wife who—</text>
<clause id="HAA80CB5E2F65478EB266572494B24B06"><enum>(i)</enum><text>file separate returns for any taxable year, and</text></clause>
<clause id="H791FCB164C984CD9AEE900B200BEACF8"><enum>(ii)</enum><text>live apart at all times during such taxable year,</text></clause><continuation-text continuation-text-level="subparagraph">shall not be treated as married individuals for purposes of this subsection.</continuation-text></subparagraph></paragraph> </subsection>
<subsection id="H19523CCAF9674517B68532AD65AB1D21" display-inline="no-display-inline"><enum>(d)</enum><header>Special rules for certain married individuals</header>
<paragraph id="H91F22F4830134B12B46BC2083ED466F8"><enum>(1)</enum><header>In general</header><text>In the case of an individual to whom this paragraph applies for the taxable year, the limitation of paragraph (1) of subsection (b) shall be equal to the lesser of—</text>
<subparagraph id="HCA8F03214AA546A98C38E4B813F63181"><enum>(A)</enum><text>the dollar amount in effect under subsection (b)(1)(A) for the taxable year, or</text></subparagraph>
<subparagraph id="H840BC906AAAF400EADA48B8DAFD73422"><enum>(B)</enum><text>the sum of—</text>
<clause id="H4E8A3D4916814B299C0028D3B6429C3F"><enum>(i)</enum><text>the compensation includible in such individual’s gross income for the taxable year, plus</text></clause>
<clause id="HABAA18A8E3AE40A4A904954C2933AE68"><enum>(ii)</enum><text>the compensation includible in the gross income of such individual’s spouse for the taxable year reduced by the amount allowed as a deduction under subsection (a) to such spouse for such taxable year.</text></clause></subparagraph></paragraph>
<paragraph id="H8E8D7792E39946D2B28D0448B84FF462"><enum>(2)</enum><header>Individuals to whom paragraph (1) applies</header><text>Paragraph (1) shall apply to any individual if—</text>
<subparagraph id="H3225BC2031D5463D98D2D49E40859159"><enum>(A)</enum><text>such individual files a joint return for the taxable year, and</text></subparagraph>
<subparagraph id="HA6263A96E294438185E45D0043DE5762"><enum>(B)</enum><text>the amount of compensation (if any) includible in such individual’s gross income for the taxable year is less than the compensation includible in the gross income of such individual’s spouse for the taxable year.</text></subparagraph></paragraph></subsection>
<subsection id="H643906FB1990416F8CFDAA8644EA6F6B"><enum>(e)</enum><header>Qualified universal pension contributions</header><text display-inline="yes-display-inline">For purposes of this section, the term <term>qualified universal pension contribution</term> means any amount paid in cash for the taxable year by or on behalf of an individual to a Universal PensionAccount for such individual’s benefit.</text></subsection>
<subsection id="H82A5F0756A0146F98B5FCBCECFEF737" display-inline="no-display-inline"><enum>(f)</enum><header>Other definitions and special rules</header>
<paragraph id="H642AB7EB9335498A8881DE99DFE98DE7"><enum>(1)</enum><header>Attainment of age 70<fraction>1/2</fraction></header><text>No deduction shall be allowed under this section with respect to any qualified retirement contribution for the benefit of an individual if such individual has attained age 70<fraction>1/2</fraction> before the close of such individual’s taxable year for which the contribution was made.</text></paragraph>
<paragraph id="HCD122137D0D4448EB7EBBA4BB3188CFF"><enum>(2)</enum><header>Recontributed amounts</header><text display-inline="yes-display-inline">No deduction shall be allowed under this section with respect to a rollover contribution to a Universal Pension Account. </text></paragraph>
<paragraph id="HC04803B32A0A4D6C92ADC6DB5692CFAB"><enum>(3)</enum><header>Denial of deduction for amount contributed to inherited accounts</header><text>No deduction shall be allowed under this section with respect to any amount paid to an inherited Universal Pension Account.</text></paragraph> </subsection>
<subsection id="HD58132D96F2E4CA4ABD432F22F00111E"><enum>(g)</enum><header>Other definitions and special rules</header>
<paragraph id="HB9F02CDECAD44CCC820499DD23C54C41" display-inline="no-display-inline"><enum>(1)</enum><header>Compensation</header><text>For purposes of this section, the term <term>compensation</term> has the meaning given to such term by section 219(f)(1).</text></paragraph>
<paragraph id="H3E34F5FD5C374CBAAFDB77975D71C483"><enum>(2)</enum><header>Married individuals</header><text>The maximum deduction under subsection (b) shall be computed separately for each individual, and this section shall be applied without regard to any community property laws.</text></paragraph>
<paragraph id="H130C284DE6054E8E8CDD465FA96CEF7E"><enum>(3)</enum><header>Time when contributions deemed made</header><text>A taxpayer shall be deemed to have made a contribution to a Universal Pension Account on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).</text></paragraph>
<paragraph id="H5969B11997B04242A0E000B23512845E"><enum>(4)</enum><header>Employer payments</header><text>For purposes of this title, any amount paid by an employer to a Universal Pension Account shall be treated as payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401(c)(1)) includible in the employee’s gross income in the taxable year for which the amount was contributed, whether or not a deduction for such payment is allowable under this section to the employee.</text></paragraph>
<paragraph id="HDFBD47143C4B4BD7BBAEAF87F9A3DECC"><enum>(5)</enum><header>Excess contributions treated as contribution made during subsequent year for which there is an unused limitation</header><text>A rule similar to the rule of section 219(f)(5) shall apply for purposes of this section.</text></paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block></paragraph>
<paragraph id="HA83AE6EBD16047DD9B5B053B26CD89C7"><enum>(2)</enum><header>Deduction allowed whether or not taxpayer itemizes deductions</header><text>Subsection (a) of <external-xref legal-doc="usc" parsable-cite="usc/26/62">section 62</external-xref> is amended by inserting after paragraph (20) the following new paragraph:</text>
<quoted-block id="HFC230DCD20DB4C6E87EB00DBE55BB1E5">
<paragraph id="HAE0B48A81499454FBD56AF618FADA2D3"><enum>(21)</enum><header>Contributions to Universal Pension Accounts</header><text>The deduction allowed by section 219A.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></paragraph>
<paragraph id="H583E7B70D2CA43B8A43B4C3F226332FF"><enum>(3)</enum><header>Technical amendments</header>
<subparagraph id="HBEE6C50C53A942F1939153001DEC0145"><enum>(A)</enum><text>Subparagraph (B) of <external-xref legal-doc="usc" parsable-cite="usc/26/135">section 135(c)(4)</external-xref> is amended by striking <quote>and 219</quote> and inserting <quote>219, and 219A</quote>.</text></subparagraph>
<subparagraph id="HED956729868F455F93A15E00002DCC3C"><enum>(B)</enum><text>Subparagraph (B) of <external-xref legal-doc="usc" parsable-cite="usc/26/137">section 137(b)(3)</external-xref> is amended by inserting <quote>219A,</quote> after <quote>219,</quote>.</text></subparagraph>
<subparagraph id="HAE10142DF89A44308D505737346FEED7"><enum>(C)</enum><text display-inline="yes-display-inline">Subparagraph (A) of <external-xref legal-doc="usc" parsable-cite="usc/26/199">section 199(d)(2)</external-xref> is amended by inserting <quote>219A,</quote> after <quote>219,</quote>.</text></subparagraph>
<subparagraph id="HDC3B8F8400F14C8881F1280103735673"><enum>(D)</enum><text>Clause (ii) of <external-xref legal-doc="usc" parsable-cite="usc/26/219">section 219(g)(3)(A)</external-xref> is amended by inserting <quote>219A,</quote> after <quote>137,</quote>.</text></subparagraph>
<subparagraph id="H759D8EABD4E54F0A99CCCB6B0D0E8B7"><enum>(E)</enum><text>Clause (ii) of <external-xref legal-doc="usc" parsable-cite="usc/26/221">section 221(b)(2)(C)</external-xref> is amended by inserting <quote>219A,</quote> after <quote>219,</quote>.</text></subparagraph>
<subparagraph id="H3B85B01B57C34F428E5B6C0000ADB937"><enum>(F)</enum><text>Clause (ii) of <external-xref legal-doc="usc" parsable-cite="usc/26/222">section 222(b)(2)(C)</external-xref> is amended by inserting <quote>219A,</quote> after <quote>219,</quote>.</text></subparagraph>
<subparagraph id="HACC336C94B2B4A978F522F805351E8AA"><enum>(G)</enum><text>Clause (iii) of <external-xref legal-doc="usc" parsable-cite="usc/26/469">section 469(i)(3)(F)</external-xref> is amended by inserting <quote>219A,</quote> after <quote>219,</quote>.</text></subparagraph> </paragraph>
<paragraph id="H0EE3E1FEDFDE48B394DB00D9DBAD50B9"><enum>(4)</enum><header>Clerical amendment</header><text>The table of sections for part VII of subchapter B of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by inserting after the item relating to section 219 the following new item:</text>
<quoted-block style="OLC" id="H0FD31A1313B84CA5A96BE2570932A150" display-inline="no-display-inline">
<toc container-level="quoted-block-container" quoted-block="no-quoted-block" lowest-level="section" idref="HB1D2EAC0C0614A8397A08D4BC3036325" regeneration="yes-regeneration" lowest-bolded-level="division-lowest-bolded">
<toc-entry idref="HF6289B8B4C784A69A636EB7C797EED0" level="section">Sec. 219A. Contributions to Universal Pension Accounts.</toc-entry> </toc><after-quoted-block>.</after-quoted-block></quoted-block> </paragraph></subsection>
<subsection id="HFD537F2C6AA34AF800EDFC685B5D529E"><enum>(b)</enum><header>Universal Pension Accounts</header>
<paragraph id="H6B036C3DA15C4D71937FB9000000D17B"><enum>(1)</enum><header>In general</header><text>Subpart A of part I of subchapter D of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by inserting after section 408A the following new section:</text>
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<section id="HAC3327DC7E3441678987EDD3529603EA"><enum>408B.</enum><header>Universal Pension Accounts</header>
<subsection id="HC1893E82E4F7441D99312200DB350457"><enum>(a)</enum><header>In general</header><text>For purposes of this title, the term <term>Universal Pension Account</term> means a trust created or organized in the United States for the exclusive benefit of an individual or such individual’s beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:</text>
<paragraph id="HE0368B6CF32F4E9799D9B3001EC161A5"><enum>(1)</enum><text>Except in the case of a rollover contribution described in subsection (b)(3) or in section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the deductible amount in effect for such taxable year under section 219A(b)(2).</text></paragraph>
<paragraph id="HEF763DD5964740C69634CAE5EED753"><enum>(2)</enum><text>The trustee is a bank (as defined in section 408(n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.</text></paragraph>
<paragraph id="H2A80598463D5477B911400D907EF6908"><enum>(3)</enum><text>No part of the trust funds will be invested in life insurance contracts.</text></paragraph>
<paragraph id="HBD1675B85861477197549F28F89FDCE6"><enum>(4)</enum><text>The interest of an individual in the balance in such individual’s account is nonforfeitable.</text></paragraph>
<paragraph id="HDD3FF52F73684FADA1169953D1E72FD0"><enum>(5)</enum><text>The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.</text></paragraph>
<paragraph id="HE5A93A8514AC4164AC72892B1CE97C6D"><enum>(6)</enum><text>Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of an individual for whose benefit the trust is maintained.</text></paragraph></subsection>
<subsection id="H62B6D06E3EDE425F8BD13D62E9035AF"><enum>(b)</enum><header>Tax treatment of distributions</header>
<paragraph id="H7DED913C400B47908CC8554DA55546CF"><enum>(1)</enum><header>In general</header><text>Except as otherwise provided in this subsection, any amount distributed out of a Universal Pension Account shall be included in gross income by the distributee without regard to basis.</text></paragraph>
<paragraph id="H08838C9F0ACA4013BC21FC8F60B2070"><enum>(2)</enum><header>Exception for immediate annuities</header><text>If any distribution is a part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of such distributee and such distributee’s designated beneficiary, the amount includible in gross income under paragraph (1) shall be determined in the manner provided under section 72. The rules of section 408(d)(2) shall apply for purposes of the preceding sentence.</text></paragraph>
<paragraph id="HB5802FD469854D7E95D104C6BB332DFC"><enum>(3)</enum><header>Exception for rollovers</header>
<subparagraph id="H6F02BBAACC7C45D6952B0028FBBDB433"><enum>(A)</enum><header>In general</header><text>Paragraph (1) shall not apply to any amount distributed out of a Universal Pension Account to the individual for whose benefit the account is maintained if the entire amount received (including money and any other property) is paid into a Universal Pension Account (other than an endowment contract) for the benefit of such individual not later than the 60th day after the day on which the individual receives the distribution.</text></subparagraph>
<subparagraph id="HB6F5B1E749D54B4CA4D100CBE821EF49"><enum>(B)</enum><header>Limitation</header><text>This paragraph does not apply to any amount described in subparagraph (A) received by an individual from a Universal Pension Account if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from a Universal Pension Account which was not includible in such individual’s gross income because of the application of this paragraph.</text></subparagraph>
<subparagraph id="HC4173442E745404CB28D7B0010DD008D"><enum>(C)</enum><header>Special rules</header><text>Rules similar to the rules of subparagraphs (C), (D), (E), (F), and (I) of section 408(d)(3) shall apply for purposes of this paragraph.</text></subparagraph></paragraph>
<paragraph id="H587651DEFDEA428A93BB55C6009453A8"><enum>(4)</enum><header>Exception for qualified distributions</header>
<subparagraph id="H07F681F0186E4EDEAA7281FCB7986D46"><enum>(A)</enum><header>Distributions for higher education expenses</header><text>Paragraph (1) shall not apply to distributions to an individual to the extent such distributions do not exceed the qualified higher education expenses (as defined in section 72(t)(7)) of the taxpayer for the taxable year.</text></subparagraph>
<subparagraph id="H3FEC4C03056F4C7B0099D495AC2BA8E3"><enum>(B)</enum><header>Distributions for first home purchases</header><text>Paragraph (1) shall not apply to distributions to an individual which are qualified first-time homebuyer distributions (as defined in section 72(t)(8)).</text></subparagraph></paragraph>
<paragraph id="HD9E56D3BE75C4C66947CBA2E46074E52"><enum>(5)</enum><header>Other distributions</header><text>Rules similar to the rules of paragraphs (4) and (6) of section 408(d) shall apply for purposes of this subsection.</text></paragraph></subsection>
<subsection id="HFD681FA468EA45F980C5FF1FE08163D"><enum>(c)</enum><header>Tax treatment of accounts</header>
<paragraph id="H2DB499FCD1FE4CB80038A5DDAF410006"><enum>(1)</enum><header>Exemption from tax</header><text>Any Universal Pension Account is exempt from taxation under this subtitle unless such account has ceased to be a Universal Pension Account by reason of paragraph (2). Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).</text></paragraph>
<paragraph id="H53462DE188CF45389C4CB4681E09007E"><enum>(2)</enum><header>Loss of exemption for prohibited transaction</header><text>Rules similar to the rules of section 408(e)(2) shall apply for purposes of this subsection.</text></paragraph>
<paragraph id="HE3445923BF3345AE976E27BDFA00E117"><enum>(3)</enum><header>Effect of pledging Account as security; purchase of endowment contract; commingling amounts in certain common trust funds and common investment funds</header><text>Rules similar to the rules of paragraphs (4), (5), and (6) of section 408(e) shall apply for purposes of this subsection.</text></paragraph></subsection>
<subsection id="H1FE9A6ADDE9947E0BEB54B1124132FCD"><enum>(d)</enum><header>Rollovers permitted from IRA’s, etc</header><text>Solely for purposes of determining whether any rollover may be made to a Universal Pension Account, a Universal Pension Account shall be treated as if it were an individual retirement plan. No amount may be distributed in a rollover other than to a Universal Pension Account.</text></subsection>
<subsection id="H482EFF660BC84D67B6D656358C96E8F5"><enum>(e)</enum><header>Special rules</header>
<paragraph id="HD8B9FB0A5393480CAB3758637134A693"><enum>(1)</enum><header>Community property laws</header><text>This section shall be applied without regard to any community property laws.</text></paragraph>
<paragraph id="H5693604634EA40E3AF00C7C253F589F"><enum>(2)</enum><header>Custodial accounts</header><text>Rules similar to the rules of section 408(g) shall apply for purposes of this subsection.</text></paragraph>
<paragraph id="H26AB2CC03DF94BD0B25E8704ACC6ECDD"><enum>(3)</enum><header>Investment in collectibles treated as distributions</header><text>The acquisition by a Universal Pension Account of any collectible (as defined in section 408(m)) shall be treated (for purposes of this section and section 402) as a distribution from such account in an amount equal to the cost to such account of such collectible.</text></paragraph></subsection>
<subsection id="HD9E9E0F1345545138F69818EC4D48EF2"><enum>(f)</enum><header>Reports</header><text>The trustee of a Universal Pension Account shall make such reports regarding such Account to the Secretary and to the individuals for whom the Account is, or is to be, maintained with respect to contributions (and the years to which they relate), distributions, aggregating $10 or more in any calendar year and such other matters as the Secretary may require. The reports required by this subsection—</text>
<paragraph id="HDA7B23F072E04F6B8EEE6574D318556D"><enum>(1)</enum><text>shall be filed at such time and in such manner as the Secretary prescribes, and</text></paragraph>
<paragraph id="H58B8166C143C45A889B47D453BA7DD41"><enum>(2)</enum><text>shall be furnished to individuals—</text>
<subparagraph id="H367D8B4EB66B478AA563DADA06E62D59"><enum>(A)</enum><text>not later than January 31 of the calendar year following the calendar year to which such reports relate, and</text></subparagraph>
<subparagraph id="H38288F6C6C5345548340224338944896"><enum>(B)</enum><text>in such manner as the Secretary prescribes.</text></subparagraph></paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block></paragraph>
<paragraph id="H7A971008EC684F49AB80ECA82FC7703E"><enum>(2)</enum><header>Technical amendments</header>
<subparagraph id="H7F769C91DA924EB9B13B5081F35B9C4E"><enum>(A)</enum><header>Excess contributions</header>
<clause id="H6531F933A754478181B05812D7DAF69D"><enum>(i)</enum><header>In general</header><text>Subsection (a) of <external-xref legal-doc="usc" parsable-cite="usc/26/4973">section 4973</external-xref> is amended by redesignating paragraphs (2), (3), and (4) as paragraphs (3), (4), and (5), respectively, and by inserting after paragraph (1) the following new paragraph:</text>
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<paragraph id="H3A551F1C889540139FC6842142F09111"><enum>(2)</enum><text>a Universal Pension Account (as defined in section 408B),</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></clause>
<clause id="H912B69D8C49845F0AFB8E0C32D74A170"><enum>(ii)</enum><header>Determination of excess</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/4973">Section 4973</external-xref> is amended by adding at the end the following new subsection:</text>
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<subsection id="H97066EACAE344738A84DF07DE7AE50CF"><enum>(i)</enum><header>Excess Contributions to Universal Pension Accounts</header><text display-inline="yes-display-inline">Rules similar to the rules under subsection (b) shall apply to any Universal Pension Account (as defined in section 408B).</text> </subsection><after-quoted-block>.</after-quoted-block></quoted-block></clause></subparagraph>
<subparagraph id="H8A45D6DE4EA74EB6BC669CD7E0199777"><enum>(B)</enum><header>Early withdrawal penalty, etc</header><text>Subsection (c) of <external-xref legal-doc="usc" parsable-cite="usc/26/4974">section 4974</external-xref> is amended by striking <quote>or</quote> at the end of paragraph (4), by striking the period at the end of paragraph (5) and inserting <quote>, or</quote>, and by inserting after paragraph (5) the following new paragraph:</text>
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<paragraph id="H1EB9419164154FE7BF5C2F9913FCFB36"><enum>(6)</enum><text>a Universal Pension Account described in section 408B.</text></paragraph><after-quoted-block>. </after-quoted-block></quoted-block></subparagraph>
<subparagraph id="H8453C7E8FBD945BC94647930908B96CC"><enum>(C)</enum><header>Prohibited transactions</header>
<clause id="H4066A6B409C9470781CFC09F007784B"><enum>(i)</enum><header>In general</header><text>Paragraph (1) of <external-xref legal-doc="usc" parsable-cite="usc/26/4975">section 4975(e)</external-xref> is amended by redesignating subparagraphs (D), (E), and (F) as subparagraphs (E), (F), and (G), respectively, and by inserting after subparagraph (C) the following new subparagraph:</text>
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<subparagraph id="H0CA348AFC0184BF8832681F41ED1A912"><enum>(D)</enum><text>a Universal Pension Account described in section 408B,</text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block></clause>
<clause id="H13CB20CE30F2476599817F7FC05D5B96"><enum>(ii)</enum><header>Exception</header><text>Subsection (c) of <external-xref legal-doc="usc" parsable-cite="usc/26/4975">section 4975</external-xref> is amended by adding at the end the following new paragraph:</text>
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<paragraph id="H47E2588E42C24448A89FB5A0E922EA58"><enum>(5)</enum><header>Special rule for Universal Pension Accounts</header><text>An individual for whose benefit a Universal Pension Account is established shall be exempt from the tax imposed by this section with respect to any transaction concerning such Account (which would otherwise be taxable under this section) if section 408B(d)(2) applies with respect to such transaction.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></clause></subparagraph>
<subparagraph id="HD339F6AE6F7E456BA75067E681B52C88"><enum>(D)</enum><header>Failure to provide reports</header><text>Paragraph (2) of section 6693(a) (relating to failure to provide reports on individual retirement accounts or annuities) is amended by redesignating subparagraphs (C) and (D) as subparagraphs (D) and (E), respectively, and by inserting after subparagraph (B) the following new subparagraph:</text>
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<subparagraph id="H76C3C9322E4F4883B5155746931D76D2"><enum>(C)</enum><text>a Universal Pension Account described in section 408B,</text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block></subparagraph>
<subparagraph id="H5BB08B64E57C44F280E432D2FE41EF13"><enum>(E)</enum><header>W–2 reporting</header><text>Subsection (a) of <external-xref legal-doc="usc" parsable-cite="usc/26/6051">section 6051</external-xref> is amended by striking <quote>and</quote> at the end of paragraph (10), by striking the period at the end of paragraph (11) and inserting <quote>, and</quote>, and by inserting after paragraph (11) the following new paragraph:</text>
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<paragraph id="HA2418DE9EBB6440180B1FA3F59327E7E"><enum>(12)</enum><text>the total amount of elective employer contributions under section 408B(f)(2)(A).</text></paragraph><after-quoted-block>. </after-quoted-block></quoted-block></subparagraph>
<subparagraph id="H8527FDEB73B14CF1AA93730031C932A3"><enum>(F)</enum><header>Other technical amendments</header><text>The following provisions are each amended by inserting <quote>408B(f),</quote> after <quote>408(p),</quote>:</text>
<clause id="H3FDA5CA8C8654A7C8277FE89CD40E421"><enum>(i)</enum><text>Subsections (b) and (c) of section 414.</text></clause>
<clause id="HD2F7F4E7D897488FB489A5FC44DE2333"><enum>(ii)</enum><text>Section 414(m)(4)(B).</text></clause>
<clause id="H6DEE4C6C85E542B1A8A133C921D2C6E6"><enum>(iii)</enum><text>Section 414(n)(3)(B).</text></clause>
<clause id="HF4FF276FEE394ACFB857BD1DF1537B64"><enum>(iv)</enum><text>Section 414(u)(1)(C).</text></clause></subparagraph>
<subparagraph id="HF37472B04A024934A4C670D4B5CA4654"><enum>(G)</enum><header>Elective contributions subject to FICA and FUTA</header>
<clause id="HD300EA6F5AEF4C369190336D8F009845"><enum>(i)</enum><text>Paragraph (5) of <external-xref legal-doc="usc" parsable-cite="usc/26/3121">section 3121(a)</external-xref> is amended by striking <quote>or</quote> at the end of subparagraph (H), by striking the semicolon at the end of subparagraph (I) and inserting <quote>, or</quote>, and by adding at the end the following new subparagraph:</text>
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<subparagraph id="HBF40B2C8B3414A6EBDF2D467E1983C00"><enum>(J)</enum><text>under an arrangement to which section 408B(f) applies, other than any elective contributions under paragraph (2)(A) thereof;</text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block></clause>
<clause id="H7E958926697A4ACDA8C57B81B96CD466"><enum>(ii)</enum><text>Paragraph (4) of section 209(a) of the <act-name parsable-cite="SSA">Social Security Act</act-name> is amended by adding at the end <quote>or (J) under an arrangement to which section 408B(f) of such Code applies, other than any elective contributions under paragraph (2)(A) thereof;</quote>.</text></clause>
<clause id="H1F3C1DA1A1514F28A6955254D7E219C0"><enum>(iii)</enum><text>Paragraph (5) of <external-xref legal-doc="usc" parsable-cite="usc/26/3306">section 3306(b)</external-xref> is amended by striking <quote>or</quote> at the end of subparagraph (G), by striking the semicolon at the end of subparagraph (H) and inserting <quote>, or</quote>, and by adding at the end the following new subparagraph:</text>
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<subparagraph id="H1452249FB6E74F02B0F4F6FF96351E00"><enum>(I)</enum><text>under an arrangement to which section 408B(f) applies, other than any elective contributions under paragraph (2)(A) thereof;</text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block></clause>
<clause id="HF39F7A806F614B29B7D6F839CBC3D0B2"><enum>(iv)</enum><text>Paragraph (12) of <external-xref legal-doc="usc" parsable-cite="usc/26/3401">section 3401(a)</external-xref> is amended by adding at the end the following new subparagraph:</text>
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<subparagraph id="H707BA78DC77A495F89A4DF77EC6783BC"><enum>(F)</enum><text>under an arrangement to which section 408B(f) applies; or</text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block></clause></subparagraph></paragraph>
<paragraph id="H73FDACBA096847DE9698F4A5D0337D37"><enum>(3)</enum><header>Clerical amendment</header><text>The table of sections for subpart A of part I of subchapter D of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by inserting after the item relating to section 408A the following new item:</text>
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<toc-entry idref="HAC3327DC7E3441678987EDD3529603EA" level="section">Sec. 408B. Universal Pension Accounts.</toc-entry> </toc><after-quoted-block>.</after-quoted-block></quoted-block></paragraph></subsection>
<subsection id="H8E9571F249E140D989E0671E86A67E61"><enum>(c)</enum><header>Termination of contributions to individual retirement plans, including Roth IRA’s</header>
<paragraph id="HD6D7CE92A709432295C12C62676DF2B1"><enum>(1)</enum><text>Subsection (a) of <external-xref legal-doc="usc" parsable-cite="usc/26/408">section 408</external-xref> is amended by adding at the end the following new paragraph:</text>
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<paragraph id="HFD0859A8797B48D5AAD688F3646E77B"><enum>(7)</enum><text>No contribution (other than a rollover contribution referred to in paragraph (1)) shall be accepted for any taxable year beginning after December 31, 2005, unless such account is a simplified employee pension or a simple retirement account.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></paragraph>
<paragraph id="H51943269E1CA465B86E7D361564891B3"><enum>(2)</enum><text>Subsection (b) of <external-xref legal-doc="usc" parsable-cite="usc/26/408">section 408</external-xref> is amended by inserting after paragraph (4) the following new paragraph:</text>
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<paragraph id="H58F3B4B36627457582CF62665BB1A2EF"><enum>(5)</enum><text>No contribution shall be accepted for any taxable year beginning after December 31, 2005, unless such annuity is a simplified employee pension or a simple retirement account.</text></paragraph><after-quoted-block>. </after-quoted-block></quoted-block></paragraph></subsection>
<subsection id="HD8D77926C5944502BC12BDC842FE153"><enum>(d)</enum><header>Credit for small employers maintaining salary reduction arrangements for Universal Pension Accounts</header>
<paragraph id="H38E5FDF28DFB4C5FBAC448DBAC6E227F"><enum>(1)</enum><header>In general</header><text>Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits) is amended by adding at the end the following new section:</text>
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<section id="H68524F2938954BB6AFDC6998E65FD79E"><enum>45N.</enum><header>Small employer Universal Pension Account costs</header>
<subsection id="H92566B61E5FC483F9429F90D153569C"><enum>(a)</enum><header>General rule</header><text>For purposes of section 38, in the case of an eligible employer, the small employer Universal Pension Account cost credit determined under this section for any taxable year is the aggregate of the amount determined under subsection (b) for each employee participating in an arrangement meeting the requirements of section 408B(f).</text></subsection>
<subsection id="H57A6CF7E100C4958999E1CD0F296DEF7"><enum>(b)</enum><header>Amount of credit</header><text>The amount of the credit determined under this section for any taxable year with respect to an employee shall be—</text>
<paragraph id="HDFFAA1DD2D50474AB665A9C8F18B3E70"><enum>(1)</enum><text>$50 for the taxable year which includes the date that the arrangement referred to subsection (a) becomes effective,</text></paragraph>
<paragraph id="HAB9A7868E01F479EA027BB107AA15B"><enum>(2)</enum><text>$20 for each of the 3 taxable years following the taxable year described in paragraph (1), and</text></paragraph>
<paragraph id="H7C2BD132C9BD42CBAF568B1C00CA9492"><enum>(3)</enum><text>zero for any other taxable year.</text></paragraph></subsection>
<subsection id="H267242A2CE7548FE9D5E3E00B1F63A9"><enum>(c)</enum><header>Eligible employer</header><text>For purposes of this section, the term <term>eligible employer</term> means, with respect to any taxable year, an employer which had no more than 100 employees on a typical business day during the most recent calendar year ending before such taxable year. For purposes of the preceding sentence, all persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (n) or (o) of section 414, shall be treated as one person.</text></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block></paragraph>
<paragraph id="HDE3BA46B99794B6FAE8186AD1E802E8E"><enum>(2)</enum><header>Credit allowed as part of general business credit</header><text>Section 38(b) (defining current year business credit) is amended by striking <quote>plus</quote> at the end of paragraph (25), by striking the period at the end of paragraph (26) and inserting <quote>, plus</quote>, and by adding at the end the following new paragraph:</text>
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<paragraph id="H2BDD4FDDA8B84C7E8F82FA5481040330"><enum>(27)</enum><text>in the case of an eligible employer (as defined in section 45J(c)), the small employer Universal Pension Account cost credit determined under section 45J(a).</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></paragraph>
<paragraph id="H8EC9B31314EE42CCA51D2735CB65CCB2"><enum>(3)</enum><header>Clerical amendment</header><text>The table of sections for subpart D of part IV of subchapter A of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/1">chapter 1</external-xref> is amended by adding at the end the following new item:</text>
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<toc-entry idref="H68524F2938954BB6AFDC6998E65FD79E" level="section">Sec. 45N. Small employer Universal Pension Account costs</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block></paragraph></subsection>
<subsection id="HBC9653CB9B374B2CA3EE44BD3700BD52"><enum>(e)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2005.</text></subsection></section>
<section id="H9B9F2C151F4D4AE485D1A6A903890717"><enum>107.</enum><header>Repeal of individual alternative minimum tax</header>
<subsection id="H306E2C2FF4A04F6A880008E6D609B124"><enum>(a)</enum><header>In general</header><text>Section 55(a) (relating to alternative minimum tax imposed) is amended by adding at the end the following new flush sentence:</text>
<quoted-block style="OLC" id="HFB7B899A0656429D82A96C00BFBC55BC" display-inline="no-display-inline">
<quoted-block-continuation-text quoted-block-continuation-text-level="subsection">For purposes of this title, the tentative minimum tax on any taxpayer other than a corporation for any taxable year beginning after December 31, 2005, shall be zero.</quoted-block-continuation-text><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H0E9B40FD19164BA093B11BB7B9955660"><enum>(b)</enum><header>Modification of limitation on use of credit for prior year minimum tax liability</header><text>Subsection (c) of section 53 (relating to credit for prior year minimum tax liability) is amended to read as follows:</text>
<quoted-block id="H6A38CB8956A540138612BA2C10C9BF4">
<subsection id="H5209290BFE4D4E0CBCD1C1002E40E041"><enum>(c)</enum><header>Limitation</header>
<paragraph id="H025A3BFA29EC43A8B5C8AE6BFEF1AD65"><enum>(1)</enum><header>In general</header><text>Except as provided in paragraph (2), the credit allowable under subsection (a) for any taxable year shall not exceed the excess (if any) of—</text>
<subparagraph id="HD58AD379D5374B09BCC32428D0B0303"><enum>(A)</enum><text>the regular tax liability of the taxpayer for such taxable year reduced by the sum of the credits allowable under subparts A, B, D, E, and F of this part, over</text></subparagraph>
<subparagraph id="H51ECE1768BCD40538BD02D20470059C1"><enum>(B)</enum><text>the tentative minimum tax for the taxable year.</text></subparagraph></paragraph>
<paragraph id="HD636BE7B01F34D8787C6FB6C00CBE080"><enum>(2)</enum><header>Taxable years beginning after 2005</header><text>In the case of any taxable year beginning after 2005, the credit allowable under subsection (a) to a taxpayer other than a corporation for any taxable year shall not exceed 90 percent of the regular tax liability of the taxpayer for such taxable year reduced by the sum of the credits allowable under subparts A, B, D, E, and F of this part.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H30724D3BA9FE4E7E9040CFDD19CFEF35"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2005.</text></subsection></section>
<enum>II</enum><header>Income tax reforms</header>
<subtitle id="HDCBA812C272B4DF6BDF4038735607714"><enum>A</enum><header>Provisions Relating to Corporate and business income tax</header>
<section id="H9D2805A4A41D40069F9694CE7889F6AA"><enum>201.</enum><header>Corporate flat tax</header>
<subsection id="H30DEC1A4A6D54E4E82EEF122464912DD"><enum>(a)</enum><header>In general</header><text>Subsection (b) of section 11 (relating to tax imposed) is amended to read as follows:</text>
<quoted-block id="HF89E07B9031846AC9B4B1B00F5D3323F">
<subsection id="H10A09C58C41B4E8DBBD5361FCB5D65"><enum>(b)</enum><header>Amount of tax</header><text>The amount of tax imposed by subsection (a) shall be equal to 35 percent of the taxable income.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H1C0C516608F741CAA13D134FC681FEF0"><enum>(b)</enum><header>Conforming amendments</header>
<paragraph id="H8416FE6DB9DE4ED3AAD17B12DFD48617"><enum>(1)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/280C">Section 280C(c)(3)(B)(ii)(II)</external-xref> is amended by striking <quote>maximum rate of tax under section 11(b)(1)</quote> and inserting <quote>rate of tax under section 11(b)</quote>.</text></paragraph>
<paragraph id="H114B9824442D4901A4028CD319DD4375"><enum>(2)</enum><text>Sections 860E(e)(2)(B), 860E(e)(6)(A)(ii), 860K(d)(2)(A)(ii), 860K(e)(1)(B)(ii), 1446(b)(2)(B), and 7874(e)(1)(B) are each amended by striking <quote>highest rate of tax specified in section 11(b)(1)</quote> and inserting <quote>rate of tax specified in section 11(b)</quote>.</text></paragraph>
<paragraph id="H88C138C1A6474AB89EF84BF8A4382EF7"><enum>(3)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/904">Section 904(b)(3)(D)(ii)</external-xref> is amended by striking <quote>(determined without regard to the last sentence of section 11(b)(1))</quote>.</text></paragraph>
<paragraph id="HDD57555DF8494B169FB673F8897EA0DB"><enum>(4)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/962">Section 962</external-xref> is amended by striking subsection (c) and by redesignating subsection (d) as subsection (c).</text></paragraph>
<paragraph id="HB39C0A06FBD24865AA4C8BFD887693A6"><enum>(5)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/1201">Section 1201(a)</external-xref> is amended by striking <quote>(determined without regard to the last 2 sentences of section 11(b)(1))</quote>.</text></paragraph>
<paragraph id="H27E2D5E932024AC5A6FEA8E5FDA008F"><enum>(6)</enum><text><external-xref legal-doc="usc" parsable-cite="usc/26/1561">Section 1561(a)</external-xref> is amended—</text>
<subparagraph id="HCA23D15903D74034ADD9EE9E5449A32B"><enum>(A)</enum><text>by striking paragraph (1) and by redesignating paragraphs (2), (3), and (4) as paragraphs (1), (2), and (3), respectively,</text></subparagraph>
<subparagraph id="HF658BF9CF55644678900ED046E4E6257"><enum>(B)</enum><text>by striking <quote>The amounts specified in paragraph (1), the</quote> and inserting <quote>The</quote>,</text></subparagraph>
<subparagraph id="H906A39FA3D5F46EE965E4F13D30066FA"><enum>(C)</enum><text>by striking <quote>paragraph (2)</quote> and inserting <quote>paragraph (1)</quote>,</text></subparagraph>
<subparagraph id="H409A4AB4E6A042FEBCAC0089741FD2A7"><enum>(D)</enum><text>by striking <quote>paragraph (3)</quote> both places it appears and inserting <quote>paragraph (2)</quote>,</text></subparagraph>
<subparagraph id="HE6A16D20CD494C48A168DE2100F5B582"><enum>(E)</enum><text>by striking <quote>paragraph (4)</quote> and inserting <quote>paragraph (3)</quote>, and</text></subparagraph>
<subparagraph id="H34AE8233D15E4531A47EBB316900E1B8"><enum>(F)</enum><text>by striking the fourth sentence.</text></subparagraph></paragraph>
<paragraph id="HA198627CFBB44F26B4443BBCCAF56467"><enum>(7)</enum><text>Subsection (b) of <external-xref legal-doc="usc" parsable-cite="usc/26/1561">section 1561</external-xref> is amended to read as follows:</text>
<quoted-block id="HC68BF177417E4525A3F57E4BDDA8711E">
<subsection id="H7421A817127A481D82E51ED800CA1040"><enum>(b)</enum><header>Certain short taxable years</header><text>If a corporation has a short taxable year which does not include a December 31 and is a component member of a controlled group of corporations with respect to such taxable year, then for purposes of this subtitle, the amount to be used in computing the accumulated earnings credit under section 535(c)(2) and (3) of such corporation for such taxable year shall be the amount specified in subsection (a)(1) divided by the number of corporations which are component members of such group on the last day of such taxable year. For purposes of the preceding sentence, section 1563(b) shall be applied as if such last day were substituted for December 31.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block></paragraph></subsection>
<subsection id="H539A34A24B6C4D0BBFAFFB705FEA2702"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2005.</text></subsection></section>
<section id="HF79D57DC574B42ECBBBAA357FA34EBAF" section-type="subsequent-section" display-inline="no-display-inline"><enum>202.</enum><header>Treatment of travel on corporate aircraft</header>
<subsection id="H165B5D34549A45208F5428C858822DC5"><enum>(a)</enum><header>In general</header><text>Section 162 (relating to trade or business expenses) is amended by redesignating subsection (q) as subsection (r) and b inserting after subsection (p) the following new subsection:</text>
<quoted-block id="H49A02654404740B99C24C2DE3F2CCCA">
<subsection id="HB5E2267437AF42F8B598A5F2CED7DEF2"><enum>(q)</enum><header>Treatment of travel on corporate aircraft</header><text>The rate at which an amount allowable as a deduction under this chapter for the use of an aircraft owned by the taxpayer is determined shall not exceed the rate at which an amount paid or included in income by an employee of such taxpayer for the personal use of such aircraft is determined.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H7DC274653CD6481A98171456A14C2ED9"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to taxable years beginning after December 31, 2005.</text></subsection></section>
<section id="H45295D2CE8264CE18DCDED7E1ED342A" display-inline="no-display-inline" section-type="subsequent-section"><enum>203.</enum><header>Valuation of employee personal use of noncommercial aircraft</header>
<subsection id="H073F77F6744544090093F651861C185F"><enum>(a)</enum><header>In general</header><text>For purposes of Federal income tax inclusion, the value of any employee personal use of noncommercial aircraft shall equal the excess (if any) of—</text>
<paragraph id="H1E04360182EB480C92DA22D5B3DB3088"><enum>(1)</enum><text>greater of—</text>
<subparagraph id="HEDFDFFFA94D74376AFE4E1B69C05ECF"><enum>(A)</enum><text>the fair market value of such use, or</text></subparagraph>
<subparagraph id="H62419CA3B35E4B6C887D00CC7E274834"><enum>(B)</enum><text>the actual cost of such use (including all fixed and variable costs), over</text></subparagraph></paragraph>
<paragraph id="H424151A32CA04179A49D01299DA8165C"><enum>(2)</enum><text>any amount paid by or on behalf of such employee for such use.</text></paragraph></subsection>
<subsection id="H7524DCF8F8DF432A9135DB97551418AD"><enum>(b)</enum><header>Effective date</header><text>Subsection (a) shall apply to use after the date of the enactment of this Act.</text></subsection></section>
<section id="H7B9DB7A27DF14E70B1B21F62627BC447"><enum>204.</enum><header>Elimination of tax expenditures that subsidize inefficiencies in the health care system</header><text display-inline="no-display-inline">Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury shall report to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives recommendations regarding the elimination of Federal tax incentives which subsidize inefficiencies in the health care system and if eliminated would result in Federal budget savings of not less than $10,000,000,000 annually.</text></section>
<section id="HEF1253C53452485FAD111CD0A9EB39A1"><enum>205.</enum><header>Pass-through business entity transparency</header><text display-inline="no-display-inline">Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury shall report to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives regarding the implementation of additional reporting requirements with respect to any pass-through entity with the goal of the reduction of tax avoidance through the use of such entities, In addition, the Secretary shall develop procedures to share such report data with State revenue agencies under the disclosure requirements of <external-xref legal-doc="usc" parsable-cite="usc/26/6103">section 6103(d)</external-xref> of the Internal Revenue Code of 1986.</text></section>
<section id="HEB0349732D4B430CB2EE1814A1F5DA85"><enum>206.</enum><header>Broker reporting of customer's basis in securities transactions</header>
<subsection id="HA79B688C2DFB40F583CC476D4D14138"><enum>(a)</enum><header>In general</header><text>Section 6045 (relating to returns of brokers) is amended by adding at the end the following new subsection:</text>
<quoted-block id="HD3DF92EC97714801B0A2BF00A2FA93F3">
<subsection id="H014E57D2D011410DAF00FDEE4C6B2021"><enum>(g)</enum><header>Additional information required in the case of securities transactions</header>
<paragraph id="HB33A49EF21774EE39FAFF20048D4DCF0"><enum>(1)</enum><header>In general</header><text>If a broker is otherwise required to make a return under subsection (a) with respect to any applicable security, the broker shall include in such return the information described in paragraph (2).</text></paragraph>
<paragraph id="HC9AB7DCDF5DD4E4C00CE12F0C2EC1DE1"><enum>(2)</enum><header>Additional information required</header>
<subparagraph id="H150C96E3899845F7A543004CFAF2D100"><enum>(A)</enum><header>In general</header><text>The information required under paragraph (1) to be shown on a return with respect to an applicable security of a customer shall include for each reported applicable security the customer's adjusted basis in such security.</text></subparagraph>
<subparagraph id="H3F411C88182A470FB400A567DB282F92"><enum>(B)</enum><header>Exemption from requirement</header><text>The Secretary shall issue such regulations or guidance as necessary concerning the application of the requirement under subparagraph (A) in cases in which a broker in making a return does not have sufficient information to meet such requirement with respect to the reported applicable security. Such regulations or guidance may—</text>
<clause id="H14A74A8157F14CC59DD3A4A74B6FFB7D"><enum>(i)</enum><text>require such other information related to such adjusted basis as the Secretary may prescribe, and</text></clause>
<clause id="H19D9B475E2654A348508006DEBE85F93"><enum>(ii)</enum><text>exempt classes of cases in which the broker does not have sufficient information to meet either the requirement under subparagraph (A) or the requirement under clause (i).</text></clause></subparagraph></paragraph>
<paragraph id="H370C71029B584D2A87EC994D87F0D058"><enum>(3)</enum><header>Information transfers</header><text>To the extent provided in regulations, there shall be such exchanges of information between brokers as such regulations may require for purposes of enabling such brokers to meet the requirements of this subsection.</text></paragraph>
<paragraph id="HA9AF1A0465794345AB1618A397FF6281"><enum>(4)</enum><header>Definitions</header><text>For purposes of this subsection, the term <term>applicable security</term> means any—</text>
<subparagraph id="H0F0CB049203C4F63B400F672EB32AF8F"><enum>(A)</enum><text>security described in subparagraph (A) or (C) of section 475(c)(2),</text></subparagraph>
<subparagraph id="H58761FF39301427AB447BC5DFD9400C4"><enum>(B)</enum><text>interest in a regulated investment company (as defined in section 851), or</text></subparagraph>
<subparagraph id="HAF7251869ADF4088854FE2776EE81FF9"><enum>(C)</enum><text>other financial instrument designated in regulations prescribed by the Secretary.</text></subparagraph></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H7A11D9E998854F4B812E16BB843C0631"><enum>(b)</enum><header>Effective date</header><text>The amendment made by this section shall apply to returns the due date for which (determined without regard to extensions) is after December 31, 2008, with respect to securities acquired after December 31, 2007.</text></subsection></section>
<section id="H23B76621C00F4FFC998CD9C25115AAAC"><enum>207.</enum><header>Repeal of lower cost or market inventory method</header>
<subsection id="H2FDC14328E1648A2ADF4E600D8A021BD"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Section 471 (relating to general rule for inventories) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:</text>
<quoted-block style="OLC" id="H618CEB51DEAE480DAD2B4B05DCF42876" display-inline="no-display-inline">
<subsection id="HCAE9A41BD35E4A0C0063009C6C60584B"><enum>(c)</enum><header>Prohibition on use of lower cost or market method</header>
<paragraph id="H0889C4F91B824912B0457EDF087F5F24"><enum>(1)</enum><header>In general</header><text>For any taxable year beginning after December 31, 2006, a taxpayer may not use any method which values inventories at cost or market, whichever is lower.</text></paragraph>
<paragraph id="HBA38A86C971B490EBB924563D7CC14CE"><enum>(2)</enum><header>3-year averaging for increases in inventory value</header><text display-inline="yes-display-inline">In the case of a taxpayer that used a method which values inventories at cost or market, whichever is lower, for the taxable year ending with or within December 31, 2006, the beginning inventory for the first taxable year beginning after such date shall be valued both with and without the application of paragraph (1). Any change in the inventory amount resulting from the application of the preceding sentence shall be taken into account ratably in each of the 3 taxable years beginning with the first taxable year for which the method described in subsection (b) is first used.</text></paragraph>
<paragraph id="H9B4874E0FE9145439F05C061B7004576"><enum>(3)</enum><header>Certain adjustments not to apply</header><text display-inline="yes-display-inline">Section 481 shall not apply with respect to any change in the method of accounting which is required by this subsection.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="HE69F16C1590A4A88B0CBAD3121EB318D"><enum>(b)</enum><header>Effective date</header><text>The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2006.</text></subsection></section>
<section id="HD1860A9B93354707B445A47373C7A91E"><enum>208.</enum><header>Imposition of withholding on certain payments made by government entities</header>
<subsection id="H66DA9CDDD1354080B01D01A0EF995374"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline"><external-xref legal-doc="usc" parsable-cite="usc/26/3402">Section 3402</external-xref> is amended by adding at the end the following new subsection:</text>
<quoted-block style="OLC" id="HF5E443EB11D64F73AD9744FE5F30341" display-inline="no-display-inline">
<subsection id="H67E35837027D46679D7B507D9B9569A"><enum>(t)</enum><header>Extension of Withholding to Certain Payments Made by Government Entities</header>
<paragraph id="H7337655A036742A098027D57FEB7F514"><enum>(1)</enum><header>General rule</header><text>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 for goods and services which is subject to withholding shall deduct and withhold form such payment a tax in an amount equal to 3 percent of such payment. </text></paragraph>
<paragraph id="HACE5F492F0854DC7B4A04525EDEC42"><enum>(2)</enum><header>Exceptions</header><text>Paragraph (1) shall not apply to any payment—</text>
<subparagraph id="H4CEFB62B829A4FFFA8424D22E97649AA"><enum>(A)</enum><text>except as provided in subparagraph (B), which is subject to withholding under any other provision of this chapter or chapter 3, </text></subparagraph>
<subparagraph id="HF3B8BFAB9DAD4A758127EE5616A8887"><enum>(B)</enum><text>which is subject to withholding under section 3406 and from which amounts are being withheld under such section, </text></subparagraph>
<subparagraph id="HCA63BDA96015468CB342E63C98917C49"><enum>(C)</enum><text>of interest, </text></subparagraph>
<subparagraph id="HC0560C67DA9A49048F9808CD0070B76F"><enum>(D)</enum><text>for real property, </text></subparagraph>
<subparagraph id="H3EE93BC1F8624B60959C5D90E9A21F7D"><enum>(E)</enum><text>to any tax-exempt entity, foreign government, or other entity subject to the requirements of paragraph (1), </text></subparagraph>
<subparagraph id="H1C4A59BA0A6F4D6DA5895C7DB2937299"><enum>(F)</enum><text>made pursuant to a classified or confidential contract (as defined in section 6050M(e)(3)), and </text></subparagraph>
<subparagraph id="HE919BCA9FDF54D84AB5B78D73BD5F87D"><enum>(G)</enum><text>made by a political subdivision of a State (or any instrumentality thereof) which makes less than $100,000,000 of such payments annually. </text></subparagraph></paragraph>
<paragraph id="H77FA036D4D20400AA9F751D01C28EB10"><enum>(3)</enum><header>Coordination with other sections</header><text>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 of any payment for goods and services which is subject to withholding shall be treated as if such payments were wages paid by an employer to an employee.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="HF175418A793D4421B28EA64350322574"><enum>(b)</enum><header>Effective date</header><text>The amendment made by this section shall apply to payments made after December 31, 2006.</text></subsection></section></subtitle>
<subtitle id="HC6F9E1C7BFDF4814A5ED8865005606EB"><enum>B</enum><header>Provisions designed to curtail tax shelters</header>
<section id="HCF9100530DA94420A54211B875B6F0BE"><enum>211.</enum><header>Penalty for promoting abusive tax shelters</header>
<subsection id="HFE2959EE281B461FBCF373369354A4A1"><enum>(a)</enum><header>Penalty for Promoting Abusive Tax Shelters</header><text>Section 6700 (relating to promoting abusive tax shelters, etc.) is amended—</text>
<paragraph id="HE1C4F9A8C8854A9288D8B0C382DD9F3"><enum>(1)</enum><text>by redesignating subsections (b) and (c) as subsections (d) and (e), respectively,</text></paragraph>
<paragraph id="HAC3A7E2929B4410286D7886E651DC5AE"><enum>(2)</enum><text>by striking <quote>a penalty</quote> and all that follows through the period in the first sentence of subsection (a) and inserting <quote>a penalty determined under subsection (b)</quote>, and</text></paragraph>
<paragraph id="H86F903EB4BE744F9A63D136C446E8832"><enum>(3)</enum><text>by inserting after subsection (a) the following new subsections:</text>
<quoted-block id="HBE6CA083E9FA4AAA86215C68FB66F78" style="OLC">
<subsection id="HC28E0C5FE0684F38BE9F6BAA8B506CAD"><enum>(b)</enum><header>Amount of Penalty; Calculation of Penalty; Liability for Penalty</header>
<paragraph id="H4084133C22414CD98F73467400EBB8F9"><enum>(1)</enum><header>Amount of penalty</header><text>The amount of the penalty imposed by subsection (a) shall be 100 percent of the gross income derived (or to be derived) from such activity by the person or persons subject to such penalty.</text></paragraph>
<paragraph id="H59C39730242843B8AB37C959E72962B"><enum>(2)</enum><header>Calculation of penalty</header><text>The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of an activity described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who participated in such an activity.</text></paragraph>
<paragraph id="HB5EC74C0AF64466FB200002FDA00E253"><enum>(3)</enum><header>Liability for penalty</header><text>If more than 1 person is liable under subsection (a) with respect to such activity, all such persons shall be jointly and severally liable for the penalty under such subsection.</text></paragraph></subsection>
<subsection id="H0034FCD4D94D40FEBB6ECA4154B8E200"><enum>(c)</enum><header>Penalty Not Deductible</header><text>The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block></paragraph></subsection>
<subsection id="HF9BFBC9C7C9F4848B68D25095B922C9B"><enum>(b)</enum><header>Conforming amendment</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/6700">Section 6700(a)</external-xref> is amended by striking the last sentence.</text></subsection>
<subsection id="HA0D70397C5B94DD0A73F9CC200F5A889"><enum>(c)</enum><header>Effective date</header><text>The amendments made by this section shall apply to the activities described in paragraphs (1) and (2) of <external-xref legal-doc="usc" parsable-cite="usc/26/6700">section 6700(a)</external-xref> of the Internal Revenue Code of 1986 and after the date of the enactment of this Act.</text></subsection></section>
<section id="H215F662F462642BC851597EC000824C"><enum>212.</enum><header>Penalty for aiding and abetting the understatement of tax liability</header>
<subsection id="HB841FE01770E4BFF857E46F002365715"><enum>(a)</enum><header>In general</header><text>Section 6701(a) (relating to imposition of penalty) is amended—</text>
<paragraph id="H3EC59DC06C8942F9851560CA39F719F0"><enum>(1)</enum><text>by inserting <quote>, or tax liability reflected in,</quote> after <quote>the preparation or presentation of</quote> in paragraph (1),</text></paragraph>
<paragraph id="H24744A7D09FD4409B43D23952E005025"><enum>(2)</enum><text>by inserting <quote>aid, assistance, procurement, or advice with respect to such</quote> before <quote>portion</quote> both places it appears in paragraphs (2) and (3), and</text></paragraph>
<paragraph id="H9C154ACE7D64417C8B2292D0E3E5666E"><enum>(3)</enum><text>by inserting <quote>instance of aid, assistance, procurement, or advice or each such</quote> before <quote>document</quote> in the matter following paragraph (3).</text></paragraph></subsection>
<subsection id="H989974D00A21473C9761233F305C187D"><enum>(b)</enum><header>Amount of penalty</header><text>Subsection (b) of section 6701 (relating to penalties for aiding and abetting understatement of tax liability) is amended to read as follows:</text>
<quoted-block id="H4E68A4799BCC40D9902FCB926FBB34C1" style="OLC">
<subsection id="H12AD646E036A4546B711EF9CC06630E2"><enum>(b)</enum><header>Amount of Penalty; Calculation of Penalty; Liability for Penalty</header><text></text>
<paragraph id="H9498798FCAE349F588A3BEC6FD503B35"><enum>(1)</enum><header>Amount of penalty</header><text>The amount of the penalty imposed by subsection (a) shall be 100 percent of the gross income derived (or to be derived) from such aid, assistance, procurement, or advice provided by the person or persons subject to such penalty.</text></paragraph>
<paragraph id="HC6DACEB6D88540A6B56E11F5C2C51328"><enum>(2)</enum><header>Calculation of penalty</header><text>The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of aid, assistance, procurement, or advice described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who made such an understatement of the liability for tax.</text></paragraph>
<paragraph id="HD96916F02A6C485887B4AAA99347BB44"><enum>(3)</enum><header>Liability for penalty</header><text>If more than 1 person is liable under subsection (a) with respect to providing such aid, assistance, procurement, or advice, all such persons shall be jointly and severally liable for the penalty under such subsection.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H2F91B40C1836431EB565FB1D0448F272"><enum>(c)</enum><header>Penalty not deductible</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/6701">Section 6701</external-xref> is amended by adding at the end the following new subsection:</text>
<quoted-block id="H16EA655BFF7749FD956C8F21C3DEEBC4" style="OLC">
<subsection id="HD39DA203B433410CA2ADDB039340AC19"><enum>(g)</enum><header>Penalty not deductible</header><text>The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H87C85AB316E9455AB300C3CE6C55FEF1"><enum>(d)</enum><header>Effective date</header><text>The amendments made by this section shall apply to the activities described in <external-xref legal-doc="usc" parsable-cite="usc/26/6701">section 6701(a)</external-xref> of the Internal Revenue Code of 1986 after the date of the enactment of this Act.</text></subsection></section>
<section id="H432FF921FE2E43E1B385C63B1690F89D"><enum>213.</enum><header>Increase in criminal monetary penalty limitation for the underpayment or overpayment of tax due to fraud</header>
<subsection id="HBD1581916E054341A4058BDED01C46A5"><enum>(a)</enum><header>In General</header><text>Section 7206 (relating to fraud and false statements) is amended—</text>
<paragraph id="H0C239419A20D4A18A8D263762154DD82"><enum>(1)</enum><text>by striking <quote>Any person who—</quote> and inserting <quote>(a) <header-in-text level="subsection" style="OLC">In General</header-in-text>.—Any person who—</quote>, and</text></paragraph>
<paragraph id="HB1777BE7727340A2BA00EC3F73C17184"><enum>(2)</enum><text>by adding at the end the following new subsection:</text>
<quoted-block id="H9D86246FFC7445B7AFCAF2A469DBAD62" style="OLC">
<subsection id="HA993016EDC1B4C98AEA5B70000597F4F"><enum>(b)</enum><header>Increase in monetary limitation for underpayment or overpayment of tax due to fraud</header><text>If any portion of any underpayment (as defined in section 6664(a)) or overpayment (as defined in section 6401(a)) of tax required to be shown on a return is attributable to fraudulent action described in subsection (a), the applicable dollar amount under subsection (a) shall in no event be less than an amount equal to such portion. A rule similar to the rule under section 6663(b) shall apply for purposes of determining the portion so attributable.</text></subsection><after-quoted-block>.</after-quoted-block></quoted-block></paragraph></subsection>
<subsection id="HD695685A66FB4752AE3D6C6C365F7214"><enum>(b)</enum><header>Increase in penalties</header><text></text>
<paragraph id="H78255614B1FD4678B24121000000C911"><enum>(1)</enum><header>Attempt to evade or defeat tax</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/7201">Section 7201</external-xref> is amended—</text>
<subparagraph id="HD592F8FF618348D4A0D0099CEF6C700"><enum>(A)</enum><text>by striking <quote>$100,000</quote> and inserting <quote>$500,000</quote>,</text></subparagraph>
<subparagraph id="H9A794E4C74584F208EC1923089FDF27D"><enum>(B)</enum><text>by striking <quote>$500,000</quote> and inserting <quote>$1,000,000</quote>, and</text></subparagraph>
<subparagraph id="H6F44E78F9C0D40AF884637F0CA6B9FD1"><enum>(C)</enum><text>by striking <quote>5 years</quote> and inserting <quote>10 years</quote>.</text></subparagraph></paragraph>
<paragraph id="H6E6E2D45C1FB4216004C22C45F91D9FA"><enum>(2)</enum><header>Willful failure to file return, supply information, or pay tax</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/7203">Section 7203</external-xref> is amended—</text>
<subparagraph id="HD6B0ECEC7BDE48748E5FBC9EA54FC7BC"><enum>(A)</enum><text>in the first sentence—</text>
<clause id="H5863DF0D81B2461FA64CD9ACA5DD00C0"><enum>(i)</enum><text>by striking <quote>Any person</quote> and inserting the following:</text>
<quoted-block id="H8D72577DDE454D37AA0085497F074478" style="OLC">
<subsection id="HFE2457AF7FE646588551DC124228FB47"><enum>(a)</enum><header>In general</header><text>Any person</text></subsection><after-quoted-block>, and</after-quoted-block></quoted-block></clause>
<clause id="H6B7E87902D1F41368B86F2AD47BFD1DD"><enum>(ii)</enum><text>by striking <quote>$25,000</quote> and inserting <quote>$50,000</quote>,</text></clause></subparagraph>
<subparagraph id="H53D854B2717146C8BE81E07F00D1131E"><enum>(B)</enum><text>in the third sentence, by striking <quote>section</quote> and inserting <quote>subsection</quote>, and</text></subparagraph>
<subparagraph id="H4B85106C21D940079EF5696C93283678"><enum>(C)</enum><text>by adding at the end the following new subsection:</text>
<quoted-block style="OLC" id="HFEA33851CAE04301007C9B76EAB3F17" display-inline="no-display-inline">
<subsection id="H3BD05430519D40C6B184172CC361F81F"><enum>(b)</enum><header>Aggravated failure to file</header>
<paragraph id="H8265A6A6E88D4E9980F46F887B7D654D"><enum>(1)</enum><header>In general</header><text>In the case of any failure described in paragraph (2), the first sentence of subsection (a) shall be applied by substituting—</text>
<subparagraph id="HD7125B23A7CE4997877075F91F1B1994"><enum>(A)</enum><text><quote>felony</quote> for <quote>misdemeanor</quote></text></subparagraph>
<subparagraph id="H4E6427BF09E04043BB07CCEEDC14DDC3"><enum>(B)</enum><text><quote>$500,000 ($1,000,000</quote> for <quote>$25,000 ($100,000</quote>, and</text></subparagraph>
<subparagraph id="HB42E6FC057FA4542973DC96F54AD8E1E"><enum>(C)</enum><text><quote>10 years</quote> for <quote>1 year</quote>.</text></subparagraph></paragraph>
<paragraph id="H302D135B51964220A848F7CBCD97E41"><enum>(2)</enum><header>Failure described</header><text>A failure described in this paragraph is a failure to make a return described in subsection (a) for a period of 3 or more consecutive taxable years.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subparagraph></paragraph>
<paragraph id="HEE5281A67C084CB283001C92E910B5F6"><enum>(3)</enum><header>Fraud and false statements</header><text display-inline="yes-display-inline">Section 7206(a) (as redesignated by subsection (a)) is amended—</text>
<subparagraph id="HE5490B9D760748D08B664B26BEA880E9"><enum>(A)</enum><text>by striking <quote>$100,000</quote> and inserting <quote>$500,000</quote>,</text></subparagraph>
<subparagraph id="H154AB7DD1BAC46EBA0D9237E0813C215"><enum>(B)</enum><text>by striking <quote>$500,000</quote> and inserting <quote>$1,000,000</quote>, and</text></subparagraph>
<subparagraph id="H7409038C5201447F9EE3F35B9990CD3F"><enum>(C)</enum><text>by striking <quote>3 years</quote> and inserting <quote>5 years</quote>.</text></subparagraph></paragraph></subsection>
<subsection id="HE61C7398F1C64FCD8DA365C4D0DA0929"><enum>(c)</enum><header>Effective date</header><text display-inline="yes-display-inline">The amendments made by this section shall apply to actions, and failures to act, occurring after the date of the enactment of this Act.</text></subsection></section></subtitle>
<subtitle id="HB3466B89420547E4AE04169E466719D4"><enum>C</enum><header>Economic Substance Doctrine</header>
<section id="HBD7B1C84B84744DAA22D131F4B467F68" section-type="subsequent-section" display-inline="no-display-inline"><enum>221.</enum><header>Clarification of economic substance doctrine</header>
<subsection id="HFD70481E5BEA45B5B096E31200A3D271"><enum>(a)</enum><header>In general</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/7701">Section 7701</external-xref> is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:</text>
<quoted-block id="H22E59660363249398EF53B23B2F22117">
<subsection id="H0D42D57553C3416ABA2D3C5E633FAABD"><enum>(o)</enum><header>Clarification of economic substance doctrine; etc</header>
<paragraph id="H88A675147FF24FCC81FAFAC09081ADF2"><enum>(1)</enum><header>General rules</header>
<subparagraph id="H7959BF14D94E47178FA390A35FA2D1D7"><enum>(A)</enum><header>In general</header><text>In any case in which a court determines that the economic substance doctrine is relevant for purposes of this title to a transaction (or series of transactions), such transaction (or series of transactions) shall have economic substance only if the requirements of this paragraph are met.</text></subparagraph>
<subparagraph id="HBF9AEBD062B84AF88437CB12753BAFD5"><enum>(B)</enum><header>Definition of economic substance</header><text>For purposes of subparagraph (A)—</text>
<clause id="H892D31AC6A784B2DBE9CE6458B8576A5"><enum>(i)</enum><header>In general</header><text>A transaction has economic substance only if—</text>
<subclause id="H58C55B47CA5745B1969312A7C231D732"><enum>(I)</enum><text>the transaction changes in a meaningful way (apart from Federal tax effects) the taxpayer’s economic position, and</text></subclause>
<subclause id="H3DB8687D26B543ACBB5B677ED9DB7D9B"><enum>(II)</enum><text>the taxpayer has a substantial nontax purpose for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose.</text></subclause><continuation-text continuation-text-level="clause">In applying subclause (II), a purpose of achieving a financial accounting benefit shall not be taken into account in determining whether a transaction has a substantial nontax purpose if the origin of such financial accounting benefit is a reduction of income tax.</continuation-text></clause>
<clause id="H692D5F32028A423E8E6E2500A5A8BDAF"><enum>(ii)</enum><header>Special rule where taxpayer relies on profit potential</header><text>A transaction shall not be treated as having economic substance by reason of having a potential for profit unless—</text>
<subclause id="H57C79438124545258559896376A6D98F"><enum>(I)</enum><text>the present value of the reasonably expected pre-tax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected, and</text></subclause>
<subclause id="HD74C62AE493444AEAE54B65DC4995251"><enum>(II)</enum><text>the reasonably expected pre-tax profit from the transaction exceeds a risk-free rate of return.</text></subclause></clause></subparagraph>
<subparagraph indent="subparagraph" id="HABD7F990A1E64F65B5C1E08E7B4EB053"><enum>(C)</enum><header>Treatment of fees and foreign taxes</header><text>Fees and other transaction expenses and foreign taxes shall be taken into account as expenses in determining pre-tax profit under subparagraph (B)(ii).</text></subparagraph></paragraph>
<paragraph id="H6BB60A6043764E3E8965DA13A852EED5"><enum>(2)</enum><header>Special rules for transactions with tax-indifferent parties</header>
<subparagraph id="H853149F25CB147059B198EB2C79471B1"><enum>(A)</enum><header>Special rules for financing transactions</header><text>The form of a transaction which is in substance the borrowing of money or the acquisition of financial capital directly or indirectly from a tax-indifferent party shall not be respected if the present value of the deductions to be claimed with respect to the transaction is substantially in excess of the present value of the anticipated economic returns of the person lending the money or providing the financial capital. A public offering shall be treated as a borrowing, or an acquisition of financial capital, from a tax-indifferent party if it is reasonably expected that at least 50 percent of the offering will be placed with tax-indifferent parties.</text></subparagraph>
<subparagraph id="H77226D7F37BE45ADB6C54EAC1C43BDD9"><enum>(B)</enum><header>Artificial income shifting and basis adjustments</header><text>The form of a transaction with a tax-indifferent party shall not be respected if—</text>
<clause id="H092A04A87542496E003BFEA31041FF5"><enum>(i)</enum><text>it results in an allocation of income or gain to the tax-indifferent party in excess of such party’s economic income or gain, or</text></clause>
<clause id="H48D8206957314753B888E51F97ED3F53"><enum>(ii)</enum><text>it results in a basis adjustment or shifting of basis on account of overstating the income or gain of the tax-indifferent party.</text></clause></subparagraph></paragraph>
<paragraph id="HB1A01856759F4674A595D9F55BA4DD27"><enum>(3)</enum><header>Definitions and special rules</header><text>For purposes of this subsection—</text>
<subparagraph id="HF8A78107D24B4E1899AFD4C302F0D3DA"><enum>(A)</enum><header>Economic substance doctrine</header><text>The term <term>economic substance doctrine</term> means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.</text></subparagraph>
<subparagraph id="H25CA13110CC440EBB476D9F96F02ACD1"><enum>(B)</enum><header>Tax-indifferent party</header><text>The term <term>tax-indifferent party</term> means any person or entity not subject to tax imposed by subtitle A. A person shall be treated as a tax-indifferent party with respect to a transaction if the items taken into account with respect to the transaction have no substantial impact on such person’s liability under subtitle A.</text></subparagraph>
<subparagraph id="H481EE30CC6064515A128BC00E68E7F94"><enum>(C)</enum><header>Exception for personal transactions of individuals</header><text>In the case of an individual, this subsection shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.</text></subparagraph>
<subparagraph id="H3469B340B5D5442592DC3B17A100A200"><enum>(D)</enum><header>Treatment of lessors</header><text>In applying paragraph (1)(B)(ii) to the lessor of tangible property subject to a lease—</text>
<clause id="H8E45271C810443829D3B3627D6FFE6BE"><enum>(i)</enum><text>the expected net tax benefits with respect to the leased property shall not include the benefits of—</text>
<subclause id="H5EE0E59D983C485C9400221ECC558C96"><enum>(I)</enum><text>depreciation,</text></subclause>
<subclause id="HFB672B1305B14ED8ABF4A4C48EE11C93"><enum>(II)</enum><text>any tax credit, or</text></subclause>
<subclause id="H3FB2127325494F5BBAF71C601C6E8300"><enum>(III)</enum><text>any other deduction as provided in guidance by the Secretary, and</text></subclause></clause>
<clause id="HA7BEFC9591A943DDB57DF2A066127B07"><enum>(ii)</enum><text>subclause (II) of paragraph (1)(B)(ii) shall be disregarded in determining whether any of such benefits are allowable.</text></clause></subparagraph></paragraph>
<paragraph id="H49407A6CE8C046D3905DE0522DB51772"><enum>(4)</enum><header>Other common law doctrines not affected</header><text>Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law, and the requirements of this subsection shall be construed as being in addition to any such other rule of law.</text></paragraph>
<paragraph id="H27EB8B70C1FE49B4B8C5BE86BA19087"><enum>(5)</enum><header>Regulations</header><text>The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. Such regulations may include exemptions from the application of this subsection.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H81E1B36C8FB3434A91F235BA4FEA8D9"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.</text></subsection></section>
<section id="H0E79046BE8D440AA8B4DB693344D1701" section-type="subsequent-section" display-inline="no-display-inline"><enum>222.</enum><header>Penalty for understatements attributable to transactions lacking economic substance, etc</header>
<subsection id="HA9FFC55720014F35BE6EEE17B317DE8"><enum>(a)</enum><header>In general</header><text>Subchapter A of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/68">chapter 68</external-xref> is amended by inserting after section 6662A the following new section:</text>
<quoted-block id="HECB81E2C23C04D7E86B777B367F9DAD">
<section id="H591DACA942B84C58A8A17DC79CECA98D"><enum>6662B.</enum><header>Penalty for understatements attributable to Transactions lacking economic substance, etc</header>
<subsection id="H6C730A2897A04A1C896128432F2FB054"><enum>(a)</enum><header>Imposition of penalty</header><text>If a taxpayer has an noneconomic substance transaction understatement for any taxable year, there shall be added to the tax an amount equal to 40 percent of the amount of such understatement.</text></subsection>
<subsection id="HD21F5CE8FAC047EDA2F33B80ED9BCC38"><enum>(b)</enum><header>Reduction of penalty for disclosed Transactions</header><text>Subsection (a) shall be applied by substituting <quote>20 percent</quote> for <quote>40 percent</quote> with respect to the portion of any noneconomic substance transaction understatement with respect to which the relevant facts affecting the tax treatment of the item are adequately disclosed in the return or a statement attached to the return.</text></subsection>
<subsection id="HDB28C77F6CF848B39E43B4936C33E670"><enum>(c)</enum><header>Noneconomic substance transaction understatement</header><text>For purposes of this section—</text>
<paragraph id="HB2502B2EE6A8471F9832D2D6F753A98"><enum>(1)</enum><header>In general</header><text>The term <term>noneconomic substance transaction understatement</term> means any amount which would be an understatement under section 6662A(b)(1) if section 6662A were applied by taking into account items attributable to noneconomic substance transactions rather than items to which section 6662A would apply without regard to this paragraph.</text></paragraph>
<paragraph id="H107140136131445A87C8B100DCCC13E2"><enum>(2)</enum><header>Noneconomic substance transaction</header><text>The term <term>noneconomic substance transaction</term> means any transaction if—</text>
<subparagraph id="H2D4BA7E4120D4E03AD6159CA965DABB9"><enum>(A)</enum><text>there is a lack of economic substance (within the meaning of section 7701(o)(1)) for the transaction giving rise to the claimed benefit or the transaction was not respected under section 7701(o)(2), or</text></subparagraph>
<subparagraph id="H8D543F42AE13427FA3CC54EB944F2804"><enum>(B)</enum><text>the transaction fails to meet the requirements of any similar rule of law.</text></subparagraph></paragraph></subsection>
<subsection id="H93C598016FC84DA8BB45269DD9006BBE"><enum>(d)</enum><header>Rules applicable to compromise of penalty</header>
<paragraph id="H0C25A97C8C794B949BECA5616C0493D7"><enum>(1)</enum><header>In general</header><text>If the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals has been sent with respect to a penalty to which this section applies, only the Commissioner of Internal Revenue may compromise all or any portion of such penalty.</text></paragraph>
<paragraph id="HA8914A5D79364D2E9B49846E281DD6C4"><enum>(2)</enum><header>Applicable rules</header><text>The rules of paragraphs (2) and (3) of section 6707A(d) shall apply for purposes of paragraph (1).</text></paragraph></subsection>
<subsection id="HB32097420DAF43DCAEE8E627B4209515"><enum>(e)</enum><header>Coordination with other penalties</header><text>Except as otherwise provided in this part, the penalty imposed by this section shall be in addition to any other penalty imposed by this title.</text></subsection>
<subsection id="HA231013DEDE046E881A8DDD6743D472F"><enum>(f)</enum><header>Cross references</header>
<paragraph id="HC20E9AA7A3324963BB12AE6E1F21FCB"><enum>(1)</enum><text>For coordination of penalty with understatements under section 6662 and other special rules, see section 6662A(e).</text></paragraph>
<paragraph id="HA219F774679A48A1B72DCDB862B1900"><enum>(2)</enum><text>For reporting of penalty imposed under this section to the Securities and Exchange Commission, see section 6707A(e).</text> </paragraph></subsection></section><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="HDC0393A459454F74A07BE3E2F6FCE8B7"><enum>(b)</enum><header>Coordination with other understatements and penalties</header>
<paragraph id="H99138BB9EE814C2EB0C75D68F6D9E412"><enum>(1)</enum><text>The second sentence of <external-xref legal-doc="usc" parsable-cite="usc/26/6662">section 6662(d)(2)(A)</external-xref> is amended by inserting <quote>and without regard to items with respect to which a penalty is imposed by section 6662B</quote> before the period at the end.</text></paragraph>
<paragraph id="HE0A1AFAC5F8E4C20BF7067407B66F8A4"><enum>(2)</enum><text>Subsection (e) of <external-xref legal-doc="usc" parsable-cite="usc/26/6662A">section 6662A</external-xref> is amended—</text>
<subparagraph id="H1A85F0F56150400B8E87E0EFF400D38B"><enum>(A)</enum><text>in paragraph (1), by inserting <quote>and noneconomic substance transaction understatements</quote> after <quote>reportable transaction understatements</quote> both places it appears,</text></subparagraph>
<subparagraph id="H32F621486084425F9EF8ACE96B98DED7"><enum>(B)</enum><text>in paragraph (2)(A), by inserting <quote>and a noneconomic substance transaction understatement</quote> after <quote>reportable transaction understatement</quote>,</text></subparagraph>
<subparagraph id="H775B0A20C96148559595C9DAB6DE6486"><enum>(C)</enum><text>in paragraph (2)(B), by inserting <quote>6662B or</quote> before <quote>6663</quote>,</text></subparagraph>
<subparagraph id="H5723DCEB40FB49FA9E493CC075487A9"><enum>(D)</enum><text>in paragraph (2)(C)(i), by inserting <quote>or section 6662B</quote> before the period at the end,</text></subparagraph>
<subparagraph id="HCE4896ADABDE4FF1BC53D9D722E3254F"><enum>(E)</enum><text>in paragraph (2)(C)(ii), by inserting <quote>and section 6662B</quote> after <quote>This section</quote>,</text></subparagraph>
<subparagraph id="H79DF8FCF7F0F425D92D00ACB3CD6E00"><enum>(F)</enum><text>in paragraph (3), by inserting <quote>or noneconomic substance transaction understatement</quote> after <quote>reportable transaction understatement</quote>, and</text></subparagraph>
<subparagraph id="H15D6E7A082C24CE6A0FB2050673CCE08"><enum>(G)</enum><text>by adding at the end the following new paragraph:</text>
<quoted-block id="H546F9F014327405A9156D8F575A3834D">
<paragraph id="H4E187BFAF5A74867A78B1EFAB745D02F"><enum>(4)</enum><header>Noneconomic substance transaction understatement</header><text>For purposes of this subsection, the term <term>noneconomic substance transaction understatement</term> has the meaning given such term by section 6662B(c).</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></subparagraph></paragraph>
<paragraph id="H59C0AFE468CB402FBBB23C2DB1287443"><enum>(3)</enum><text>Subsection (e) of <external-xref legal-doc="usc" parsable-cite="usc/26/6707A">section 6707A</external-xref> is amended—</text>
<subparagraph id="H497B022B5E1F4FAC98B65C594B69F4D2"><enum>(A)</enum><text>by striking <quote>or</quote> at the end of subparagraph (B), and</text></subparagraph>
<subparagraph id="H178910B72E374BABB2D9A0FC06E09E5D"><enum>(B)</enum><text>by striking subparagraph (C) and inserting the following new subparagraphs:</text>
<quoted-block id="HE5AD7AF847A34C54B59413F484DDF0E8">
<subparagraph id="H69B0046D0D9948BFA0DD863F440558B5"><enum>(C)</enum><text>is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction, or</text></subparagraph>
<subparagraph id="H043A79C2D801460ABC99DE00D21F6853"><enum>(D)</enum><text>is required to pay a penalty under section 6662(h) with respect to any transaction and would (but for section 6662A(e)(2)(C)) have been subject to penalty under section 6662A at a rate prescribed under section 6662A(c) or under section 6662B,</text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block></subparagraph></paragraph></subsection>
<subsection id="H3438ADF1ABCB454591EAFCB322CCCD2F"><enum>(c)</enum><header>Clerical amendment</header><text>The table of sections for part II of subchapter A of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/68">chapter 68</external-xref> is amended by inserting after the item relating to section 6662A the following new item:</text>
<quoted-block style="USC" id="HCDFDBAE2CE8C45DE869B9B22076BA1DB">
<toc regeneration="no-regeneration">
<toc-entry level="section">Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H63BF7535D2394E35BD82484821B7CFC7"><enum>(d)</enum><header>Effective date</header><text>The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.</text></subsection></section>
<section id="HB0A92A06E5384E4681EE8E3E603D882" display-inline="no-display-inline" section-type="subsequent-section"><enum>223.</enum><header>Denial of deduction for interest on underpayments attributable to noneconomic substance transactions</header>
<subsection id="H0F84D52CADCE45DAB7DB209DBB6C3D4D"><enum>(a)</enum><header>In general</header><text>Section 163(m) (relating to interest on unpaid taxes attributable to nondisclosed reportable transactions) is amended—</text>
<paragraph id="HAB53A2A80E2943B3B71B00DC6281B652"><enum>(1)</enum><text>by striking “attributable” and all that follows and inserting the following: “attributable to—</text>
<quoted-block id="HF6291C5B821B442E9B06EA1DFA88C7BF">
<paragraph id="HB380E81F24AC40FF94A9FCA445D87837"><enum>(1)</enum><text>the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A) is not met, or</text></paragraph>
<paragraph id="H1C05EE02D37249F1B46C459ED236B603"><enum>(2)</enum><text>any noneconomic substance transaction understatement (as defined in section 6662B(c)).</text></paragraph><after-quoted-block>, and</after-quoted-block></quoted-block></paragraph>
<paragraph id="H1EAB7045DA3A44A6819EE12208F5ADC"><enum>(2)</enum><text>by inserting <quote>And Noneconomic Substance Transactions</quote> in the heading thereof after <quote>Transactions</quote>.</text></paragraph></subsection>
<subsection id="H249BED3744FF4D8EA8145807028324D1"><enum>(b)</enum><header>Effective date</header><text>The amendments made by this section shall apply to transactions after the date of the enactment of this Act in taxable years ending after such date.</text></subsection></section> </subtitle>
<subtitle id="H31684F19016643FB825480B77228BA00"><enum>D</enum><header>Provisions Relating to Oil and Gas</header>
<section id="HADA3EB560E9B4B519DE075008C85BF2F"><enum>231.</enum><header>Elimination of amortization of geological and geophysical expenditures for major integrated oil companies</header>
<subsection id="HA791FE595E2E466DABCC2C91CF00BE5B"><enum>(a)</enum><header>In General</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/167">Section 167(h)</external-xref> is amended by adding at the end the following new paragraph:</text>
<quoted-block id="HA66D0CD512B04387BBA10849908DAA6E" style="OLC">
<paragraph id="H11597A46DD2A42DCA8C5ED01CE9F21C1"><enum>(5)</enum><header>Nonapplication to major integrated oil companies</header><text>This subsection shall not apply with respect to any expenses paid or incurred for any taxable year by any integrated oil company (as defined in section 291(b)(4)) which has an average daily worldwide production of crude oil of at least 500,000 barrels for such taxable year.</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="HB342BEA5935E4EFCB2501101FEC88BA9"><enum>(b)</enum><header>Effective Date</header><text>The amendment made by this section shall take effect as if included in the amendment made by section 1329(a) of the Energy Policy Act of 2005.</text></subsection></section>
<section id="HEADAFD3DC9BA40E6BE339FAB0526D4F7"><enum>232.</enum><header>Revaluation of lifo inventories of large integrated oil companies</header>
<subsection id="H6DB7A1F377B9495BADC1E0B5FBCB66C2"><enum>(a)</enum><header>General Rule</header><text>Notwithstanding any other provision of law, if a taxpayer is an applicable integrated oil company for its last taxable year ending in calendar year 2005, the taxpayer shall—</text>
<paragraph id="H09BCD28D9C4A4F8C924122196E1157B9"><enum>(1)</enum><text>increase, effective as of the close of such taxable year, the value of each historic LIFO layer of inventories of crude oil, natural gas, or any other petroleum product (within the meaning of section 4611) by the layer adjustment amount, and</text></paragraph>
<paragraph id="H8F86D4971508402FA29F98416B553E34"><enum>(2)</enum><text>decrease its cost of goods sold for such taxable year by the aggregate amount of the increases under paragraph (1).</text></paragraph><continuation-text continuation-text-level="subsection">If the aggregate amount of the increases under paragraph (1) exceed the taxpayer’s cost of goods sold for such taxable year, the taxpayer’s gross income for such taxable year shall be increased by the amount of such excess.</continuation-text></subsection>
<subsection id="H239AF980DC7047BAA64DC825590078D7"><enum>(b)</enum><header>Layer Adjustment Amount</header><text>For purposes of this section—</text>
<paragraph id="H12167AB5F2BC47E79FF576D200C5E711"><enum>(1)</enum><header>In general</header><text>The term <term>layer adjustment amount</term> means, with respect to any historic LIFO layer, the product of—</text>
<subparagraph id="HE4E489819FBB45A0B8069B00FB999448"><enum>(A)</enum><text>$18.75, and</text></subparagraph>
<subparagraph id="HC9D0639143BE4BE190D7842EDA7E18F1"><enum>(B)</enum><text>the number of barrels of crude oil (or in the case of natural gas or other petroleum products, the number of barrel-of-oil equivalents) represented by the layer.</text></subparagraph></paragraph>
<paragraph id="HBF52EDBD8DCE40079700DBE34F8CE9"><enum>(2)</enum><header>Barrel-of-oil equivalent</header><text>The term <term>barrel-of-oil equivalent</term> has the meaning given such term by section 29(d)(5) (as in effect before its redesignation by the Energy Tax Incentives Act of 2005).</text></paragraph></subsection>
<subsection id="HBA7F0E0982F24B80A3173161D26E9C3E"><enum>(c)</enum><header>Application of requirement</header><text></text>
<paragraph id="HC79158E1CE584591A1A6FD66E868A697"><enum>(1)</enum><header>No change in method of accounting</header><text>Any adjustment required by this section shall not be treated as a change in method of accounting.</text></paragraph>
<paragraph id="H63F8E8DF0EDA43338FF8DF4F205998F"><enum>(2)</enum><header>Underpayments of estimated tax</header><text>No addition to the tax shall be made under <external-xref legal-doc="usc" parsable-cite="usc/26/6655">section 6655</external-xref> of the Internal Revenue Code of 1986 (relating to failure by corporation to pay estimated tax) with respect to any underpayment of an installment required to be paid with respect to the taxable year described in subsection (a) to the extent such underpayment was created or increased by this section.</text></paragraph></subsection>
<subsection id="HE197FCF093F24EC9A65D5DF49384E853"><enum>(d)</enum><header>Applicable Integrated Oil Company</header><text>For purposes of this section, the term <term>applicable integrated oil company</term> means an integrated oil company (as defined in <external-xref legal-doc="usc" parsable-cite="usc/26/291">section 291(b)(4)</external-xref> of the Internal Revenue Code of 1986) which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005. For purposes of this subsection, all persons treated as a single employer under subsections (a) and (b) of <external-xref legal-doc="usc" parsable-cite="usc/26/52">section 52</external-xref> of the Internal Revenue Code of 1986 shall be treated as 1 person and, in the case of a short taxable year, the rule under section 448(c)(3)(B) shall apply.</text></subsection></section></subtitle>
<subtitle id="HB3A8F176E5F44B5A9961C5CFDC658125"><enum>E</enum><header>Uniform Definition of Child</header>
<section id="H589508F4328645EA9E00EAC8AF426D41"><enum>241.</enum><header>Repeal of uniform definition of child and restoration of prior rule</header>
<subsection id="H5F2F242653144FD389C7921552C1F149"><enum>(a)</enum><header>In general</header><text display-inline="yes-display-inline">Title II of the Working Families Tax Relief Act of 2004 (relating to uniform definition of child), and the amendments made by such title, are hereby repealed.</text></subsection>
<subsection id="HFEF0B29ECDFF4EFBBA78B09BDFF2D3D3"><enum>(b)</enum><header>Administration of Internal Revenue Code of 1986</header><text display-inline="yes-display-inline">The Internal Revenue Code of 1986 shall be applied and administered as if the provisions, and amendments, specified in subsection (a) had never been enacted.</text></subsection>
<subsection id="HFE17BC85315E4FFFAA588137C7AFC36"><enum>(c)</enum><header>Conforming amendment</header><text>Section 32(c)(2)(A), as added by section 102 of this Act, is amended to read as follows:</text>
<quoted-block style="OLC" id="HC3FA2D966E254DBF9C3DC464AA8FEDEF" display-inline="no-display-inline">
<paragraph id="H2758EB5595284D90B15FE1D3C4F30AD"><enum>(2)</enum><header>Qualifying child</header>
<subparagraph id="H8E866DF33CED40FDB3ED005D1FD19031"><enum>(A)</enum><header>In general</header><text>The term <term>qualifying child</term> means any individual if—</text>
<clause id="H298FA2D144B24836BAEA7682843DCC15"><enum>(i)</enum><text>the taxpayer is allowed a deduction under section 151 (determined without regard to paragraphs (1)(A) and (2) of subsection (c) and subsection 152(e)), with respect to such individual for the taxable year, and </text></clause>
<clause id="H2BB3173796784E84A1B4B8956F9B2704"><enum>(ii)</enum><text>such individual bears a relationship to the taxpayer described in paragraph (1), (2), or (3) of section 152(a). </text></clause></subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H80594D644FC84C0187E2D2ABAAD7015"><enum>(d)</enum><header>Effective date</header><text>This section shall apply to taxable years beginning after December 31, 2006.</text></subsection></section></subtitle>
<subtitle id="HA2120F21BA0B43ED90008EA06E883B43"><enum>F</enum><header>Other Revenue Provisions</header>
<section id="H5CDAAF3A8E3A4CCB8F8F35FA285BB3D3"><enum>251.</enum><header>Inflation adjustment of tax on distilled spirits, beer, wine, and tobacco</header>
<subsection id="H1BD9497A170B4976A68E78659D5B0536"><enum>(a)</enum><header>Distilled spirits</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/5001">Section 5001</external-xref> is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:</text>
<quoted-block style="OLC" id="H34CC69EA67244F51B1D5303FC7004008" display-inline="no-display-inline">
<subsection id="H128EB22035994B15B367008600906BA9"><enum>(c)</enum><header>Adjustment of tax rates for inflation</header> <text>In the case of any calendar year beginning after 2006, each of the rates of tax in subsection (a), and the dollar amount in section 5010(a)(1)(A), shall be increased by an amount equal to—</text>
<paragraph id="H74C33664F3B54959ABB9F64083C779A"><enum>(1)</enum><text>such rate of tax or dollar amount (as the case may be), multiplied by </text></paragraph>
<paragraph id="HF259024F1CC745929F411CD05CCC4D7C"><enum>(2)</enum><text>the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting <quote>calendar year 2005</quote> for <quote>calendar year 1992</quote> in subparagraph (B) thereof.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H013D2D33D8904169BAE57745AFFBEA38"><enum>(b)</enum><header>Wine</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/5041">Section 5041</external-xref> is amended by adding at the end the following new subsection:</text>
<quoted-block style="OLC" display-inline="no-display-inline" id="H8F2E3B152250424B9079A4CBB479FF7C">
<subsection id="H69724484A72243ECB4283E5ECA7E6DE8"><enum>(g)</enum><header>Adjustment of tax rates for inflation</header> <text>In the case of any calendar year beginning after 2006, each of the rates of tax in subsection (b) shall be increased by an amount equal to—</text>
<paragraph id="H3F0796D85E724FC5A11CECA6F291B0A5"><enum>(1)</enum><text>such rate of tax, multiplied by </text></paragraph>
<paragraph id="HF556DAD55DEC465F9D86353D77D911EA"><enum>(2)</enum><text>the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting <quote>calendar year 2005</quote> for <quote>calendar year 1992</quote> in subparagraph (B) thereof.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H405D209221D7449EBB862B4089473372"><enum>(c)</enum><header>Beer</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/5041">Section 5041</external-xref> is amended by adding at the end the following new subsection:</text>
<quoted-block style="OLC" display-inline="no-display-inline" id="H9B0E936187B04503B51C4D6F4D786BC4">
<subsection id="H7E434C554E82403FA3003261A8D7344"><enum>(d)</enum><header>Adjustment of tax rates for inflation</header> <text>In the case of any calendar year beginning after 2006, each of the rates of tax in subsection (a) shall be increased by an amount equal to—</text>
<paragraph id="HC42882913EF7464EBBB00C967DB4B77"><enum>(1)</enum><text>such rate of tax, multiplied by </text></paragraph>
<paragraph id="H4E98B32382F44BA29132CAA7DC739E5C"><enum>(2)</enum><text>the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting <quote>calendar year 2005</quote> for <quote>calendar year 1992</quote> in subparagraph (B) thereof.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H8E0B88F572B24A37BFF8E6B9E014EB00"><enum>(d)</enum><header>Tobacco products</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/5701">Section 5701</external-xref> is amended by adding at the end the following new subsection:</text>
<quoted-block style="OLC" display-inline="no-display-inline" id="HD04AC643CA1E48B58B342504BE5DD149">
<subsection id="H9F8BBF33DADA4281A6D139E62BC00BE"><enum>(i)</enum><header>Adjustment of tax rates for inflation</header> <text>In the case of any calendar year beginning after 2006, each of the rates of tax in subsections (a), (b), (c), (d), (e), (f), and (g) shall be increased by an amount equal to—</text>
<paragraph id="HF2EF981361014976906B412781E37244"><enum>(1)</enum><text>such rate of tax or dollar amount (as the case may be), multiplied by </text></paragraph>
<paragraph id="HA480044AB2D440B480CCC8D56845076F"><enum>(2)</enum><text>the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting <quote>calendar year 2005</quote> for <quote>calendar year 1992</quote> in subparagraph (B) thereof.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H894388B9C80B4AAE968E92F2A6F8C7A2"><enum>(e)</enum><header>Effective date</header><text>The amendments made by this section shall apply to years beginning after December 31, 2006.</text></subsection></section>
<section id="H6E2A83BF825049F9A8CFDAEE2376C7E3"><enum>252.</enum><header>Termination of various exclusions, exemptions, deductions, and credits</header>
<subsection id="H54AA764368A94BC683CA015138868BCA"><enum>(a)</enum><header>In general</header><text>Subchapter C of chapter 90 (relating to provisions affecting more than one subtitle) is amended by adding at the end the following new section:</text>
<quoted-block style="OLC" id="H8B62828E950D471C861DAFEC08951F87" display-inline="no-display-inline">
<section id="H9E2AE8017B7B4E5881BBF1475F43F4E"><enum>7875.</enum><header>Termination of certain provisions</header><text display-inline="no-display-inline">The following provisions shall not apply to taxable years beginning after December 31, 2005:</text>
<paragraph id="HB307CBF1C47244AA99BE0092D9C9D0A4"><enum>(1)</enum><text>Section 44 (relating to credit for expenditures to provide access to disabled individuals).</text></paragraph>
<paragraph id="H5C28CCCE47AF46C5B26915C1E927325F"><enum>(2)</enum><text>Section 62(a)(2)(D) (relating to deduction for certain expenses of elementary and secondary school teachers).</text></paragraph>
<paragraph id="HADC26F8C8144496ABDF13F542CC01743"><enum>(3)</enum><text>Section 67 (relating to 2-percent floor on miscellaneous itemized deductions).</text></paragraph>
<paragraph id="H7DE30DCD8E4043C7A52E5FE349DFD759"><enum>(4)</enum><text>Section 74(c) (relating to exclusion of certain employee achievement awards).</text></paragraph>
<paragraph id="H5498FBC6640349C1B15B3FBB645042F2"><enum>(5)</enum><text>Section 79 (relating to exclusion of group-term life insurance purchased for employees).</text></paragraph>
<paragraph id="H589F339B045A4BFEBFE45532E860E95F"><enum>(6)</enum><text>Section 104(a)(1) (relating to exclusion of workmen’s compensation).</text></paragraph>
<paragraph id="H2CB4F30C6B6049B6A7845EE6A1DF7214"><enum>(7)</enum><text>Section 104(a)(2) (relating to exclusion of damages for physical injuries and sickness).</text></paragraph>
<paragraph id="H0B4323616AC24F7FB9D050288417E1B3"><enum>(8)</enum><text>Section 107 (relating to exclusion of rental value of parsonages).</text></paragraph>
<paragraph id="H28B612CF6F18472B9916834300B494B9"><enum>(9)</enum><text>Section 119 (relating to exclusion of meals or lodging furnished for the convenience of the employer).</text></paragraph>
<paragraph id="HD99DAFF7BBF54B7FBE71B61684ADD37C"><enum>(10)</enum><text>Section 125 (relating to exclusion of cafeteria plan benefits).</text></paragraph>
<paragraph id="H2A4F786EB64A4A98832F01E8AA1505BF"><enum>(11)</enum><text>Section 132 (relating to certain fringe benefits), except with respect to subsection (a)(5) thereof (relating to exclusion of qualified transportation fringe).</text></paragraph>
<paragraph id="H13BD5CE22A4C40F2B2A1C109B5550040"><enum>(12)</enum><text>Section 163(h)(4)(A)(i)(II) (relating to definition of qualified residence).</text></paragraph>
<paragraph id="HEF29B100E01A4B00AE84087DC1D9D330"><enum>(13)</enum><text>Section 165(d) (relating to deduction for wagering losses).</text></paragraph>
<paragraph id="HBAF95BE64ADA4716BB15244CE210AE76"><enum>(14)</enum><text>Section 217 (relating to deduction for moving expenses).</text></paragraph>
<paragraph id="HE2C68EBE06784C4CB82F38A56CF14FCE"><enum>(15)</enum><text>Section 454 (relating to deferral of tax on obligations issued at discount).</text></paragraph>
<paragraph id="HA30597612927447DBC97EFE6F28FD658"><enum>(16)</enum><text>Section 501(c)(9) (relating to tax-exempt status of voluntary employees’ beneficiary associations).</text></paragraph>
<paragraph id="H8AC445763E3847EFAE360859BB18E46"><enum>(17)</enum><text>Section 911 (relating to exclusion of earned income of citizens or residents of the United States living abroad).</text></paragraph>
<paragraph id="H903A936AA228462C962547E68BAFF203"><enum>(18)</enum><text>Section 912 (relating to exemption for certain allowances).</text></paragraph></section><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H891ADED34B4649FC989FBA36D1A7B29B"><enum>(b)</enum><header>Conforming amendment</header><text display-inline="yes-display-inline">The table of sections for subchapter C of <external-xref legal-doc="usc-chapter" parsable-cite="usc-chapter/26/90">chapter 90</external-xref> is amended by adding at the end the following new item: </text>
<quoted-block style="OLC" id="H5C358C324410461C843F29C4F8E671F3" display-inline="no-display-inline">
<toc regeneration="no-regeneration">
<toc-entry level="section">Sec. 7875. Termination of certain provisions.</toc-entry></toc><after-quoted-block>.</after-quoted-block></quoted-block></subsection></section>
<section id="H94BA40B7E2EB4017AA4DE77D8998152"><enum>253.</enum><header>Termination of various preferential treatments</header>
<subsection id="HCAE6894F156B46EE957567679E082CD2"><enum>(a)</enum><header>In General</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/7875">Section 7875</external-xref>, as added by <external-xref legal-doc="usc" parsable-cite="usc/26/106">section 106,</external-xref> is amended—</text>
<paragraph id="H9EF20250B4BB4327A8CEFABDA04D6F1"><enum>(1)</enum><text>by inserting <quote>(or transactions in the case of sections referred to in paragraphs (21), (22), (23), (24), and (27))</quote> after <quote>taxable years beginning</quote>, and</text></paragraph>
<paragraph id="H8EE1A949EAB345F9A241522300B4CF99"><enum>(2)</enum><text>by adding at the end the following new paragraphs:</text>
<quoted-block id="H22970120248141CCA12D22865811CBEE" style="OLC">
<paragraph id="H82942734FF104C20B9EB3B5BA8DFC04F"><enum>(19)</enum><text>Section 43 (relating to enhanced oil recovery credit).</text></paragraph>
<paragraph id="H9A1042A801D0478BBC04CB63CD0858D4"><enum>(20)</enum><text>Section 263(c) (relating to intangible drilling and development costs in the case of oil and gas wells and geothermal wells).</text></paragraph>
<paragraph id="HE41FAA625A1A4E4B9E41A7BAF247A054"><enum>(21)</enum><text>Section 382(l)(5) (relating to exception from net operating loss limitations for corporations in bankruptcy proceeding).</text></paragraph>
<paragraph id="HFDEE3B8353AE433B9900AE45E38CFF1D"><enum>(22)</enum><text>Section 451(i) (relating to special rules for sales or dispositions to implement Federal Energy Regulatory Commission or State electric restructuring policy).</text></paragraph>
<paragraph id="HB8052933772F43CAA1A5B77976F5DF57"><enum>(23)</enum><text>Section 453A (relating to special rules for nondealers), but only with respect to the dollar limitation under subsection (b)(1) thereof and subsection (b)(3) thereof (relating to exception for personal use and farm property).</text></paragraph>
<paragraph id="H10C07D0E60CF4785A44B3FD876B3000"><enum>(24)</enum><text>Section 460(e)(1) (relating to special rules for long-term home construction contracts or other short-term construction contracts).</text></paragraph>
<paragraph id="H59EA5175990A4164AB05004B1326A29B"><enum>(25)</enum><text>Section 613A (relating to percentage depletion in case of oil and gas wells).</text></paragraph>
<paragraph id="H3D1148850CEF47C4BA52C82C685268E6"><enum>(26)</enum><text>Section 616 (relating to development costs).</text></paragraph>
<paragraph id="H9EA013D851EE43D2978154B3BAE0CA92"><enum>(27)</enum><text>Sections 861(a)(6), 862(a)(6), 863(b)(2), 863(b)(3), and 865(b) (relating to inventory property sales source rule exception).</text></paragraph><after-quoted-block>.</after-quoted-block></quoted-block></paragraph></subsection>
<subsection id="H5CC7788184034743AB12A01E56B5E07B"><enum>(b)</enum><header>Full tax rate on Nuclear Decommissioning Reserve Fund</header><text>Subparagraph (B) of <external-xref legal-doc="usc" parsable-cite="usc/26/468A">section 468A(e)(2)</external-xref> is amended to read as follows:</text>
<quoted-block id="HAE60883F8259435BB9A1ED99C2257170" style="OLC">
<subparagraph id="H0D34948B915F437AACA45BAAD259FBC9"><enum>(B)</enum><header>Rate of tax</header><text>For purposes of subparagraph (A), the rate set forth in this subparagraph is 35 percent.</text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="HA82A1AD31E7F42B396ECE5D1FCF3CDC7"><enum>(c)</enum><header>Deferral of active income of controlled foreign corporations</header><text>Section 952 (relating to subpart F income defined) is amended by adding at the end the following new subsection:</text>
<quoted-block id="H1DAFDC936575474AB6B2BDC740C032FB" style="OLC">
<subsection id="H1838FB5CE0754E50006C29D00000C38D"><enum>(e)</enum><header>Special application of subpart</header>
<paragraph id="HB98E71E1F34C4E43A0E686C02C8F12DF"><enum>(1)</enum><header>In general</header><text>For taxable years beginning after December 31, 2005, notwithstanding any other provision of this subpart, the term <term>subpart F income</term> means, in the case of any controlled foreign corporation, the income of such corporation derived from any foreign country.</text></paragraph>
<paragraph id="H0F6D8734A55641458E6E829460C00063"><enum>(2)</enum><header>Applicable rules</header><text>Rules similar to the rules under the last sentence of subsection (a) and subsection (d) shall apply to this subsection.</text></paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="H1DB1FCE087904B2780626896F3A595E"><enum>(d)</enum><header>Deferral of active financing income</header><text><external-xref legal-doc="usc" parsable-cite="usc/26/953">Section 953(e)(10)</external-xref> is amended—</text>
<paragraph id="H4324017992AB4759A3F66CC051FEAA4B"><enum>(1)</enum><text>by striking <quote>2006</quote> and inserting <quote>2005</quote>, and</text></paragraph>
<paragraph id="H6706248F43074CB3A2597DF22F069964"><enum>(2)</enum><text>by striking <quote>2007</quote> and inserting <quote>2006</quote>.</text></paragraph></subsection>
<subsection id="HC6DC633AE69749E19247FF00A8B15BC9"><enum>(e)</enum><header>Depreciation on Equipment in Excess of Alternative Depreciation System</header><text>Section 168(g)(1) (relating to alternative depreciation system) is amended by striking <quote>and</quote> at the end of subparagraph (D), by adding <quote>and</quote> at the end of subparagraph (E), and by inserting after subparagraph (E) the following new subparagraph:</text>
<quoted-block id="H988974B3D8CA479CB987847EDFB8F4C0" style="OLC">
<subparagraph id="H1829E3F48DE84D5FBEC3F88597649087"><enum>(F)</enum><text>notwithstanding subsection (a), any tangible property placed in service after December 31, 2005,</text></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block></subsection>
<subsection id="HE558DBBF943E4BA8B8AD8CC0BB52B2D"><enum>(f)</enum><header>Effective Date</header><text>The amendments made by subsections (b), (c), and (d) shall apply to taxable years beginning after December 31, 2005.</text></subsection></section></subtitle>
<enum>III</enum><header>Technical and conforming amendments; sunset</header>
<section id="H07E0520AE6D2486686EBBCB3DC1DDBE"><enum>301.</enum><header>Technical and conforming amendments</header><text display-inline="no-display-inline">The Secretary of the Treasury or the Secretary’s delegate shall not later than 90 days after the date of the enactment of this Act, submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a draft of any technical and conforming changes in the Internal Revenue Code of 1986 which are necessary to reflect throughout such Code the purposes of the provisions of, and amendments made by, this Act.</text></section>
<section id="H90FD6811D7184A6A89B274FE7E3DD24"><enum>302.</enum><header>Sunset</header>
<subsection id="H117B458164944E51AE00E476DF00CF13"><enum>(a)</enum><header>In general</header><text>All provisions of, and amendments made by, this Act shall not apply to taxable years beginning after December 31, 2010.</text></subsection>
<subsection id="H43EDCD9CA95A4A4B8941174449C8DE4F"><enum>(b)</enum><header>Application of Code</header><text>The Internal Revenue Code of 1986 shall be applied and administered to taxable years described in subsection (a) as if the provisions of, and amendments made by, this Act had never been enacted.</text></subsection></section>