[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2020 Placed on Calendar Senate (PCS)]







                                                       Calendar No. 288
109th CONGRESS
  1st Session
                                S. 2020

    To provide for reconciliation pursuant to section 202(b) of the 
       concurrent resolution on the budget for fiscal year 2006.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           November 16, 2005

  Mr. Grassley, from the Committee on Finance, reported the following 
     original bill; which was read twice and placed on the calendar

_______________________________________________________________________

                                 A BILL


 
    To provide for reconciliation pursuant to section 202(b) of the 
       concurrent resolution on the budget for fiscal year 2006.

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

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

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

Sec. 1. Short title; amendment of 1986 Code; table of contents.
 TITLE I--TAX BENEFITS FOR AREAS AFFECTED BY HURRICANES KATRINA, RITA, 
                               AND WILMA

               Subtitle A--Gulf Opportunity Zone Benefits

Sec. 101. Gulf Opportunity Zone benefits.
Sec. 102. Expansion of Hope Scholarship and Lifetime Learning Credit 
                            for students in the Gulf Opportunity Zone.
Sec. 103. Extension of special rules for mortgage revenue bonds.
     Subtitle B--Tax Benefits Related to Hurricanes Rita and Wilma

Sec. 111. Extension of certain emergency tax relief for Hurricane 
                            Katrina to Hurricanes Rita and Wilma.
               TITLE II--EXTENSION OF EXPIRING PROVISIONS

                   Subtitle A--Multi-Year Extensions

Sec. 201. Extension of increased expensing for small business.
Sec. 202. Credit for elective deferrals and IRA contributions.
Sec. 203. Above-the-line deduction for higher education.
Sec. 204. Extension and modification of new markets tax credit.
                    Subtitle B--One-Year Extensions

Sec. 211. Election to deduct State and local general sales taxes.
Sec. 212. Extension of alternative minimum tax exemption amount for 
                            individuals.
Sec. 213. Allowance of nonrefundable personal credits against regular 
                            and alternative minimum tax liability.
Sec. 214. Extension and modification of research credit.
Sec. 215. Work Opportunity Tax credit and Welfare-to-Work credit.
Sec. 216. Qualified zone academy bonds.
Sec. 217. Deduction for corporate donations of computer technology and 
                            equipment.
Sec. 218. Above-the-line deduction for certain expenses of elementary 
                            and secondary school teachers.
Sec. 219. Expensing of brownfields remediation costs.
Sec. 220. Tax incentives for investment in the District of Columbia.
Sec. 221. Indian employment tax credit.
Sec. 222. Accelerated depreciation for business property on Indian 
                            reservation.
Sec. 223. Fifteen-year straight-line cost recovery for qualified 
                            leasehold improvements and qualified 
                            restaurant improvements.
                Subtitle C--Application of EGTRRA Sunset

Sec. 231. Application of EGTRRA sunset to this title.
         TITLE III--PROVISIONS RELATING TO CHARITABLE DONATIONS

                Subtitle A--Charitable Giving Incentives

Sec. 301. Charitable deduction for nonitemizers.
Sec. 302. Tax-free distributions from individual retirement plans for 
                            charitable purposes.
Sec. 303. Modification of charitable deduction for contributions of 
                            food inventory.
Sec. 304. Basis adjustment to stock of S corporation contributing 
                            property.
Sec. 305. Modification of charitable deduction for contributions of 
                            book inventory.
Sec. 306. Modification of tax treatment of certain payments to 
                            controlling exempt organizations and public 
                            disclosure of information relating to 
                            unrelated business income.
             Subtitle B--Reforming Charitable Organizations

                        Part I--General Reforms

Sec. 311. Tax involvement by exempt organizations in tax shelter 
                            transactions.
Sec. 312. Excise tax on certain acquisitions of interests in insurance 
                            contracts in which certain exempt 
                            organizations hold an interest.
Sec. 313. Increase in penalty excise taxes on public charities, social 
                            welfare organizations, and private 
                            foundations.
Sec. 314. Reform of charitable contributions of certain easements on 
                            buildings in registered historic districts.
Sec. 315. Charitable contributions of taxidermy property.
Sec. 316. Recapture of tax benefit for charitable contributions of 
                            exempt use property not used for an exempt 
                            use.
Sec. 317. Limitation of deduction for charitable contributions of 
                            clothing and household items.
Sec. 318. Modification of substantiation and recordkeeping requirements 
                            for certain charitable contributions.
Sec. 319. Contributions of fractional interests in tangible personal 
                            property.
Sec. 320. Provisions relating to substantial and gross overstatements 
                            of valuations of charitable deduction 
                            property.
Sec. 321. Additional standards for credit counseling organizations.
        Part II--Improved Accountability of Donor Advised Funds

Sec. 331. Excise tax on sponsoring organizations of donor advised funds 
                            for failure to meet distribution 
                            requirements.
Sec. 332. Prohibited transactions.
Sec. 333. Treatment of charitable contribution deductions to donor 
                            advised funds.
Sec. 334. Returns of, and applications for recognition by, sponsoring 
                            organizations.
     Part III--Improved Accountability of Supporting Organizations

Sec. 341. Requirements for supporting organizations.
Sec. 342. Excise tax on supporting organizations for failure to meet 
                            distribution requirements.
Sec. 343. Excess benefit transactions.
Sec. 344. Excess business holdings of supporting organizations.
Sec. 345. Treatment of amounts paid to supporting organizations by 
                            private foundations.
Sec. 346. Returns of supporting organizations.
                   TITLE IV--MISCELLANEOUS PROVISIONS

Sec. 401. Restructuring of New York Liberty Zone tax credits.
Sec. 402. Modification to S corporation passive investment income 
                            rules.
Sec. 403. Modification of effective date of disregard of certain 
                            capital expenditures for purposes of 
                            qualified small issue bonds.
Sec. 404. Premiums for mortgage insurance.
                   TITLE V--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed to Curtail Tax Shelters

Sec. 501. Understatement of taxpayer's liability by income tax return 
                            preparer.
Sec. 502. Modifications of suspension of interest and penalties where 
                            Internal Revenue Service fails to contact 
                            taxpayer.
Sec. 503. Frivolous tax submissions.
                Subtitle B--Economic Substance Doctrine

Sec. 511. Clarification of economic substance doctrine.
Sec. 512. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 513. Denial of deduction for interest on underpayments 
                            attributable to noneconomic substance 
                            transactions.
   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

Sec. 521. Waiver of user fee for installment agreements using automated 
                            withdrawals.
Sec. 522. Termination of installment agreements.
Sec. 523. Partial payments required with submission of offers-in-
                            compromise.
                    Subtitle D--Penalties and Fines

Sec. 531. Increase in criminal monetary penalty limitation for the 
                            underpayment or overpayment of tax due to 
                            fraud.
Sec. 532. Doubling of certain penalties, fines, and interest on 
                            underpayments related to certain offshore 
                            financial arrangements.
Sec. 533. Denial of deduction for certain fines, penalties, and other 
                            amounts.
Sec. 534. Denial of deduction for punitive damages.
Sec. 535. Increase in penalty for bad checks and money orders.
           Subtitle E--Provisions to Discourage Expatriation

Sec. 541. Tax treatment of inverted entities.
Sec. 542. Revision of tax rules on expatriation of individuals.
                  Subtitle F--Miscellaneous Provisions

Sec. 551. Treatment of contingent payment convertible debt instruments.
Sec. 552. Grant of Treasury regulatory authority to address foreign tax 
                            credit transactions involving inappropriate 
                            separation of foreign taxes from related 
                            foreign income.
Sec. 553. Repeal of special property exception to leasing provisions of 
                            the American Jobs Creation Act of 2004.
Sec. 554. Application of earnings stripping rules to partners which are 
                            corporations.
Sec. 555. Limitation of employer deduction for certain entertainment 
                            expenses.
Sec. 556. Increase in age of minor children whose unearned income is 
                            taxed as if parent's income.
Sec. 557. Loan and redemption requirements on pooled financing 
                            requirements.
Sec. 558. Reporting of interest on tax-exempt bonds.
Sec. 559. Modification of credit for producing fuel from a 
                            nonconventional source.
Sec. 560. Modification of individual estimated tax safe harbor.
Sec. 561. Revaluation of LIFO inventories of large integrated oil 
                            companies.
Sec. 562. Elimination of amortization of geological and geophysical 
                            expenditures for major integrated oil 
                            companies.

 TITLE I--TAX BENEFITS FOR AREAS AFFECTED BY HURRICANES KATRINA, RITA, 
                               AND WILMA

               Subtitle A--Gulf Opportunity Zone Benefits

SEC. 101. GULF OPPORTUNITY ZONE BENEFITS.

    (a) In General.--Chapter 1 is amended by adding at the end the 
following new subchapter:

               ``Subchapter Z--Hurricane Relief Benefits

``Sec. 1400N. Definitions.
``Sec. 1400O. Tax benefits for Gulf Opportunity Zone.

``SEC. 1400N. DEFINITIONS.

    ``For purposes of this subchapter--
            ``(1) Gulf opportunity zone.--The term `Gulf Opportunity 
        Zone' or `GO Zone' means that portion of the Hurricane Katrina 
        disaster area determined by the President to warrant individual 
        or individual and public assistance from the Federal Government 
        under the Robert T. Stafford Disaster Relief and Emergency 
        Assistance Act by reason of Hurricane Katrina.
            ``(2) Hurricane katrina disaster area.--The term `Hurricane 
        Katrina disaster area' means an area with respect to which a 
        major disaster has been declared by the President before 
        September 14, 2005, under section 401 of such Act by reason of 
        Hurricane Katrina.
            ``(3) Rita go zone.--The term `Rita GO Zone' means that 
        portion of the Hurricane Rita disaster area determined by the 
        President to warrant individual or individual and public 
        assistance from the Federal Government under such Act by reason 
        of Hurricane Rita.
            ``(4) Hurricane rita disaster area.--The term `Hurricane 
        Rita disaster area' means an area with respect to which a major 
        disaster has been declared by the President before October 6, 
        2005, under section 401 of such Act by reason of Hurricane 
        Rita.
            ``(5) Wilma go zone.--The term `Wilma GO Zone' means that 
        portion of the Hurricane Wilma disaster area determined by the 
        President to warrant individual or individual and public 
        assistance from the Federal Government under such Act by reason 
        of Hurricane Wilma.
            ``(6) Hurricane wilma disaster area.--The term `Hurricane 
        Wilma disaster area' means an area with respect to which a 
        major disaster has been declared by the President before 
        October 25, 2005, under section 401 of such Act by reason of 
        Hurricane Wilma.

``SEC. 1400O. TAX BENEFITS FOR GULF OPPORTUNITY ZONE.

    ``(a) Special Allowance for Certain Property Acquired After August 
27, 2005.--
            ``(1) Additional allowance.--In the case of any qualified 
        Gulf Opportunity Zone property--
                    ``(A) the depreciation deduction provided by 
                section 167(a) for the taxable year in which such 
                property is placed in service shall include an 
                allowance equal to 50 percent of the adjusted basis of 
                such property, and
                    ``(B) the adjusted basis of the qualified Gulf 
                Opportunity Zone property shall be reduced by the 
                amount of such deduction before computing the amount 
                otherwise allowable as a depreciation deduction under 
                this chapter for such taxable year and any subsequent 
                taxable year.
            ``(2) Qualified gulf opportunity zone property.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `qualified Gulf 
                Opportunity Zone property' means property--
                            ``(i)(I) which is described in section 
                        168(k)(2)(A)(i), or
                            ``(II) which is nonresidential real 
                        property or residential rental property,
                            ``(ii) substantially all of the use of 
                        which is in the Gulf Opportunity Zone and is in 
                        the active conduct of a trade or business by 
                        the taxpayer in such Zone,
                            ``(iii) the original use of which in the 
                        Gulf Opportunity Zone commences with the 
                        taxpayer after August 27, 2005,
                            ``(iv) which is acquired by the taxpayer by 
                        purchase (as defined in section 179(d)) after 
                        August 27, 2005, but only if no written binding 
                        contract for the acquisition was in effect 
                        before August 28, 2005, and
                            ``(v) which is placed in service by the 
                        taxpayer on or before the termination date.
                The term `termination date' means December 31, 2007 
                (December 31, 2008, in the case of nonresidential real 
                property and residential rental property).
                    ``(B) Exceptions.--
                            ``(i) Alternative depreciation property.--
                        The term `qualified Gulf Opportunity Zone 
                        property' shall not include any property 
                        described in section 168(k)(2)(D)(i).
                            ``(ii) Tax-exempt bond-financed property.--
                        Such term shall not include any property any 
                        portion of which is financed with the proceeds 
                        of any obligation the interest on which is 
                        exempt from tax under section 103.
                            ``(iii) Qualified revitalization 
                        buildings.--Such term shall not include any 
                        qualified revitalization building with respect 
                        to which the taxpayer has elected the 
                        application of paragraph (1) or (2) of section 
                        1400I(a).
                            ``(iv) Election out.--For purposes of this 
                        subsection, rules similar to the rules of 
                        section 168(k)(2)(D)(iii) shall apply.
                    ``(C) Special rules.--For purposes of this 
                subsection, rules similar to the rules of section 
                168(k)(2)(E) shall apply, except that--
                            ``(i) clause (i) thereof shall be applied 
                        by substituting `after August 27, 2005, and 
                        before the termination date (as defined in 
                        section 1400O(a)(2))' for `after September 10, 
                        2001, and before January 1, 2005',
                            ``(ii) clauses (ii), (iii), and (iv) 
                        thereof shall be applied by substituting 
                        `August 27, 2005' for `September 10, 2001' each 
                        place it appears, and
                            ``(iii) clause (iv) thereof shall be 
                        applied by substituting `qualified Gulf 
                        Opportunity Zone property' for `qualified 
                        property'.
                    ``(D) Allowance against alternative minimum tax.--
                For purposes of this subsection, rules similar to the 
                rules of section 168(k)(2)(G) shall apply.
            ``(3) Recapture.--For purposes of this subsection, rules 
        similar to the rules under section 179(d)(10) shall apply with 
        respect to any qualified Gulf Opportunity Zone property which 
        ceases to be qualified Gulf Opportunity Zone property.
    ``(b) Increase in Expensing Under Section 179.--
            ``(1) In general.--For purposes of section 179--
                    ``(A) the $100,000 amount in section 179(b)(1) for 
                the taxable year shall be increased by the lesser of--
                            ``(i) $100,000, or
                            ``(ii) the cost of section 179 property (as 
                        defined in section 179(d)) which is qualified 
                        Gulf Opportunity Zone property placed in 
                        service during the taxable year, and
                    ``(B) the $400,000 amount in section 179(b)(2) for 
                the taxable year shall be increased by the lesser of--
                            ``(i) $600,000, or
                            ``(ii) the cost of section 179 property (as 
                        so defined) which is qualified Gulf Opportunity 
                        Zone property placed in service during the 
                        taxable year.
            ``(2) Qualified gulf opportunity zone property.--For 
        purposes of this subsection, the term `qualified Gulf 
        Opportunity Zone property' has the meaning given such term by 
        subsection (a)(2).
            ``(3) Coordination with empowerment zones and renewal 
        communities.--For purposes of sections 1397A and 1400J, 
        qualified Gulf Opportunity Zone property shall not be treated 
        as qualified zone property or qualified renewal property for 
        any taxable year, unless the taxpayer elects not to have this 
        subsection apply to all such qualified Gulf Opportunity Zone 
        property placed in service by the taxpayer during the taxable 
        year.
            ``(4) Recapture.--Rules similar to the rules under section 
        179(d)(10) shall apply with respect to any qualified Gulf 
        Opportunity Zone property which ceases to be Gulf Opportunity 
        Zone property.
    ``(c) Tax-Exempt Bond Financing.--
            ``(1) In general.--For purposes of this title, any 
        qualified Gulf Opportunity Zone Bond shall be treated as a 
        qualified bond.
            ``(2) Qualified gulf opportunity zone bond.--For purposes 
        of this subsection, the term `qualified Gulf Opportunity Zone 
        Bond' means any bond issued as part of an issue if--
                    ``(A) except as provided in paragraph (4), such 
                bond meets the applicable requirements of part IV of 
                subchapter B of this chapter,
                    ``(B) such bond is issued by the State of Alabama, 
                Louisiana, or Mississippi (or any political subdivision 
                thereof),
                    ``(C) the Governor of such State designates such 
                bond for purposes of this section, and
                    ``(D) such bond is issued after the date of the 
                enactment of this section and before January 1, 2011.
            ``(3) Limitation on aggregate amount of bonds designated.--
        The maximum aggregate face amount of bonds which may be 
        designated under this subsection shall not exceed the product 
        of $2,500 multiplied by the portion of the State population 
        which is in the Gulf Opportunity Zone (as determined on the 
        basis of the most recent census estimate of resident population 
        released by the Bureau of Census before August 28, 2005).
            ``(4) Special rules.--In applying this title to any 
        qualified Gulf Opportunity Zone Bond, the following 
        modifications shall apply:
                    ``(A) Section 143 (relating to mortgage revenue 
                bonds: qualified mortgage bond and qualified veterans' 
                mortgage bond) shall be applied--
                            ``(i) by treating any residence in the Gulf 
                        Opportunity Zone as a targeted area residence,
                            ``(ii) by applying subsection (f)(3) 
                        without regard to subparagraph (A) thereof, and
                            ``(iii) by substituting `$150,000' for 
                        `$15,000' in subsection (k)(4) thereof.
                    ``(B) Section 146 (relating to volume cap) shall 
                not apply.
                    ``(C) Section 57(a)(5) shall not apply.
            ``(5) Separate issue treatment of portions of an issue.--
        This subsection shall not apply to the portion of an issue 
        which (if issued as a separate issue) would be treated as a 
        qualified bond or as a bond that is not a private activity bond 
        (determined without regard to paragraph (1)), if the issuer 
        elects to so treat such portion.
    ``(d) Advance Refundings of Certain Tax-Exempt Bonds.--
            ``(1) In general.--With respect to a bond described in 
        paragraph (2) issued as part of an issue 90 percent (95 percent 
        in the case of a bond described in paragraph (2)(B)) or more of 
        the net proceeds (as defined in section 150(a)(3)) of which 
        were used to finance facilities located within the Gulf 
        Opportunity Zone (or property which is functionally related and 
        subordinate to facilities located within the Gulf Opportunity 
        Zone), one additional advanced refunding after the date of the 
        enactment of this section and before January 1, 2007, shall be 
        allowed under the applicable rules of section 149(d) if--
                    ``(A) the chief executive officer of the issuer of 
                the bond designates the advance refunding bond for 
                purposes of this subsection, and
                    ``(B) the requirements of paragraph (3) are met.
            ``(2) Bonds described.--A bond is described in this 
        paragraph if such bond was outstanding on August 27, 2005, and 
        is--
                    ``(A) a State or local bond (as defined in section 
                103(c)(1)) other than a private activity bond (as 
                defined in section 141(a)) issued by the State of 
                Alabama, Louisiana, or Mississippi (or any political 
                subdivision thereof), or
                    ``(B) a qualified 501(c)(3) bond (as defined in 
                section 145(a)) issued by or on behalf of any such 
                State or political subdivision.
            ``(3) Additional requirements.--The requirements of this 
        paragraph are met with respect to any advance refunding of a 
        bond described in paragraph (2) if--
                    ``(A) no advance refundings of such bond would be 
                allowed under any provision of law after August 27, 
                2005,
                    ``(B) the advance refunding bond is the only other 
                outstanding bond with respect to the refunded bond, and
                    ``(C) the requirements of section 148 are met with 
                respect to all bonds issued under this subsection.
    ``(e) Low-Income Housing Credit.--
            ``(1) Increase in state housing credit ceiling.--
                    ``(A) In general.--In the case of the State of 
                Alabama, Louisiana, or Mississippi--
                            ``(i) the amount otherwise determined under 
                        subclause (I) of section 42(h)(3)(C)(ii) for 
                        each calendar year beginning after 2005 and 
                        before 2010 shall be increased by an amount 
                        equal to 3 times the dollar amount otherwise 
                        specified for such calendar year under such 
                        subclause multiplied by the State population 
                        located in the Gulf Opportunity Zone (as 
                        determined on the basis of the most recent 
                        census estimate of resident population released 
                        by the Bureau of Census before August 28, 
                        2005), and
                            ``(ii) the unused State housing credit 
                        ceiling for such State for any calendar year 
                        under section 42(h)(3)(C)(i) shall be 
                        determined without regard to the amount of the 
                        increase determined under clause (i).
                    ``(B) Elective carryforward of unused increased 
                ceiling.--
                            ``(i) In general.--If the amount determined 
                        under section 42(h)(3)(C)(ii)(I), as increased 
                        under subparagraph (A)(i), for any calendar 
                        year for any State described in subparagraph 
                        (A) exceeds the aggregate housing credit dollar 
                        amount allocated during such calendar year by 
                        such State, such State may elect to treat as a 
                        carryforward to the following calendar year an 
                        amount equal to lesser of--
                                    ``(I) the amount of such excess, or
                                    ``(II) the amount by which the 
                                amount determined under section 
                                42(h)(3)(C)(ii)(I) for such calendar 
                                year was increased under subparagraph 
                                (A)(i)).
                            ``(ii) Use of carryforward.--If any State 
                        elects a carryforward under clause (i), any 
                        housing credit dollar amount allocated by such 
                        State during the calendar year following the 
                        calendar year in which the carryforward arose 
                        shall not be considered so allocated for 
                        purposes of section 42(h)(3)(C) and section 
                        42(h)(3)(D) to the extent such housing credit 
                        dollar amount does not exceed the amount of the 
                        carryforward elected.
            ``(2) Difficult development area.--
                    ``(A) In general.--For purposes of section 42--
                            ``(i) in the case of property placed in 
                        service during 2006, 2007, or 2008, the Gulf 
                        Opportunity Zone--
                                    ``(I) shall be treated as a 
                                difficult development area designated 
                                under subclause (I) of section 
                                42(d)(5)(C)(iii), and
                                    ``(II) shall not be taken into 
                                account for purposes of applying the 
                                limitation under subclause (II) of such 
                                section, and
                            ``(ii) subsection (b)(2)(B) thereof shall 
                        be applied with respect to any such property 
                        placed in service in the Gulf Opportunity Zone 
                        by substituting `91 percent' and `39 percent' 
                        for `70 percent' and `30 percent', 
                        respectively.
                    ``(B) Application.--Subparagraph (A) shall apply 
                only to--
                            ``(i) housing credit dollar amounts 
                        allocated during the period beginning on 
                        January 1, 2006, and ending on December 31, 
                        2008, and
                            ``(ii) buildings placed in service during 
                        such period to the extent that paragraph (1) of 
                        section 42(h) does not apply to any building by 
                        reason of paragraph (4) thereof, but only with 
                        respect to bonds issued after December 31, 
                        2005.
    ``(f) Treatment of Representations Regarding Income Eligibility for 
Purposes of Qualified Residential Rental Project Requirements.--For 
purposes of determining if any residential rental project meets the 
requirements of section 142(d)(1) and if any certification with respect 
to such project meets the requirements under section 142(d)(7), the 
operator of the project may rely on the representations of any 
individual applying for tenancy in such project that such individual's 
income will not exceed the applicable income limits of section 
142(d)(1) upon commencement of the individual's tenancy if such tenancy 
begins during the 6-month period beginning on and after the date such 
individual was displaced by reason of Hurricane Katrina.
    ``(g) Application of New Markets Tax Credit to Investments in 
Community Development Entities Serving Gulf Opportunity Zone.--For 
purposes of section 45D--
            ``(1) a qualified community development entity shall be 
        eligible for an allocation under subsection (f)(2) thereof of 
        the increase in the new markets tax credit limitation described 
        in paragraph (2) only if a significant mission of such entity 
        is the recovery and redevelopment of the Gulf Opportunity Zone,
            ``(2) the new markets tax credit limitation otherwise 
        determined under subsection (f)(1) thereof shall be increased 
        by an amount equal to--
                    ``(A) $300,000,000 for 2005 and 2006, to be 
                allocated among qualified community development 
                entities to make qualified low-income community 
                investments within the Gulf Opportunity Zone, and
                    ``(B) $400,000,000 for 2007, to be so allocated, 
                and
            ``(3) subsection (f)(3) thereof shall be applied separately 
        with respect to the amount of the increase under paragraph (2).
    ``(h) Treatment of Net Operating Losses Attributable to Gulf 
Opportunity Zone Losses.--
            ``(1) In general.--If a portion of any net operating loss 
        of the taxpayer for any taxable year is a qualified Gulf 
        Opportunity Zone loss, the following rules shall apply:
                    ``(A) Extension of carryback period.--Section 
                172(b)(1) shall be applied with respect to such 
                portion--
                            ``(i) by substituting `5 taxable years' for 
                        `2 taxable years' in subparagraph (A)(i), and
                            ``(ii) by not taking such portion into 
                        account in determining any eligible loss of the 
                        taxpayer under subparagraph (F) for the taxable 
                        year.
                    ``(B) Suspension of 90 percent amt limitation.--
                Section 56(d)(1) shall be applied by increasing the 
                amount determined under subparagraph (A)(ii)(I) thereof 
                by the sum of the carrybacks and carryovers of any net 
                operating loss attributable to such portion.
            ``(2) Qualified gulf opportunity zone loss.--For purposes 
        of paragraph (1), the term `qualified Gulf Opportunity Zone 
        loss' means the lesser of--
                    ``(A) the amount of the net operating loss for the 
                taxable year, or
                    ``(B) the aggregate amount of the following 
                deductions for such taxable year:
                            ``(i) Any deduction for any qualified Gulf 
                        Opportunity Zone casualty loss.
                            ``(ii) Any deduction for moving expenses 
                        paid or incurred after August 27, 2005, and 
                        before January 1, 2008, and allowable under 
                        this chapter to any taxpayer in connection with 
                        the employment of any individual--
                                    ``(I) whose principal place of 
                                abode was located in the Gulf 
                                Opportunity Zone before August 28, 
                                2005,
                                    ``(II) who was unable to remain in 
                                such abode as the result of Hurricane 
                                Katrina, and
                                    ``(III) whose principal place of 
                                employment with the taxpayer after such 
                                expense is located in the Gulf 
                                Opportunity Zone.
                        For purposes of this clause, the term `moving 
                        expenses' has the meaning given such term by 
                        section 217(b), except that the taxpayer's 
                        former residence and new residence may be the 
                        same residence if the initial vacating of the 
                        residence was as the result of Hurricane 
                        Katrina.
                            ``(iii) Any deduction for expenses paid or 
                        incurred after August 27, 2005, and before 
                        January 1, 2008, and allowable under this 
                        chapter to temporarily house any employee of 
                        the taxpayer whose principal place of 
                        employment is in the Gulf Opportunity Zone.
                            ``(iv) Any deduction for depreciation (or 
                        amortization in lieu of depreciation) allowable 
                        under this chapter with respect to any 
                        qualified Gulf Opportunity Zone property (as 
                        defined in subsection (a)(2)) for the taxable 
                        year such property is placed in service.
                            ``(v) Any deduction for repair expenses 
                        (including expenses for removal of debris) 
                        allowable under this chapter paid or incurred 
                        after August 27, 2005, and before January 1, 
                        2008, with respect to any damage attributable 
                        to Hurricane Katrina and in connection with 
                        property which is located in the Gulf 
                        Opportunity Zone.
            ``(3) Qualified gulf opportunity zone casualty loss.--
                    ``(A) In general.--For purposes of paragraph 
                (2)(B)(i), the term `qualified Gulf Opportunity Zone 
                casualty loss' means any uncompensated section 1231 
                loss (as defined in section 1231(a)(3)(B)) of property 
                located in the Gulf Opportunity Zone if--
                            ``(i) such loss is allowed as a deduction 
                        under section 165 for the taxable year, and
                            ``(ii) such loss is attributable to 
                        Hurricane Katrina.
                    ``(B) Reduction for gains from involuntary 
                conversion.--The amount of qualified Gulf Opportunity 
                Zone casualty loss which would (but for this 
                subparagraph) be taken into account under subparagraph 
                (A) for any taxable year shall be reduced by the amount 
                of any gain recognized by the taxpayer for such year 
                from the involuntary conversion by reason of Hurricane 
                Katrina of property located in the Gulf Opportunity 
                Zone.
                    ``(C) Coordination with general disaster loss 
                rules.--Subsection (j) and section 165(i) shall not 
                apply to any qualified Gulf Opportunity Zone casualty 
                loss to the extent such loss is taken into account 
                under this subsection.
            ``(4) Special rules.--For purposes of paragraph (1), rules 
        similar to the rules of paragraphs (2) and (3) of section 
        172(i) shall apply with respect to such portion.
    ``(i) Treatment of Public Utility Property Disaster Losses.--
            ``(1) In general.--Upon the election of the taxpayer, in 
        the case of any eligible public utility property loss--
                    ``(A) section 165(i) shall be applied by 
                substituting `the fifth taxable year immediately 
                preceding' for `the taxable year immediately 
                preceding',
                    ``(B) an application for a tentative carryback 
                adjustment of the tax for any prior taxable year 
                affected by the application of subparagraph (A) may be 
                made under section 6411, and
                    ``(C) section 6611 shall not apply to any 
                overpayment attributable to such loss.
            ``(2) Eligible public utility property loss.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `eligible public 
                utility property loss' means any loss with respect to 
                public utility property located in the Gulf Opportunity 
                Zone and attributable to Hurricane Katrina.
                    ``(B) Public utility property.--The term `public 
                utility property' has the meaning given such term by 
                section 168(i)(10) without regard to the matter 
                following subparagraph (D) thereof.
            ``(3) Waiver of limitations.--If refund or credit of any 
        overpayment of tax resulting from the application of paragraph 
        (1) is prevented at any time before the close of the 1-year 
        period beginning on the date of the enactment of this section 
        by the operation of any law or rule of law (including res 
        judicata), such refund or credit may nevertheless be made or 
        allowed if claim therefor is filed before the close of such 
        period.
    ``(j) Special Rule for Gulf Opportunity Zone Public Utility 
Casualty Losses.--
            ``(1) In general.--The amount described in section 
        172(f)(1)(A) for any taxable year shall be increased by the 
        amount of the Gulf Opportunity Zone public utility casualty 
        loss for such year.
            ``(2) Gulf opportunity zone public utility casualty loss.--
        For purposes of this subsection, the term `Gulf Opportunity 
        Zone public utility casualty loss' means any casualty loss of 
        public utility property (as defined in section 168(i)(10)) 
        located in the Gulf Opportunity Zone if--
                    ``(A) such loss is allowed as a deduction under 
                section 165 for the taxable year,
                    ``(B) such loss is attributable to Hurricane 
                Katrina, and
                    ``(C) the taxpayer elects the application of this 
                subsection with respect to such loss.
            ``(3) Reduction for gains from involuntary conversion.--The 
        amount of Gulf Opportunity Zone public utility casualty loss 
        which would (but for this paragraph) be taken into account 
        under paragraph (1) for any taxable year shall be reduced by 
        the amount of any gain recognized by the taxpayer for such year 
        from the involuntary conversion by reason of Hurricane Katrina 
        of public utility property (as so defined) located in the Gulf 
        Opportunity Zone.
            ``(4) Coordination with general disaster loss rules.--
        Subsection (h) and section 165(i) shall not apply to any Gulf 
        Opportunity Zone public utility casualty loss to the extent 
        such loss is taken into account under paragraph (1).
            ``(5) Election.--Any election under paragraph (2)(C) shall 
        be made in such manner as may be prescribed by the Secretary 
        and shall be made by the due date (including extensions of 
        time) for filing the taxpayer's return for the taxable year of 
        the loss. Such election, once made for any taxable year, shall 
        be irrevocable for such taxable year.
    ``(k) Special Rules for Small Timber Producers.--
            ``(1) Increased expensing for qualified timber property.--
        In the case of qualified timber property any portion of which 
        is located in the Gulf Opportunity Zone, in that portion of the 
        Rita GO Zone which is not part of the Gulf Opportunity Zone, or 
        in the Wilma GO Zone, the limitation under subparagraph (B) of 
        section 194(b)(1) shall be increased by the lesser of--
                    ``(A) the limitation which would (but for this 
                subsection) apply under such subparagraph, or
                    ``(B) the amount of reforestation expenditures (as 
                defined in section 194(c)(3)) paid or incurred by the 
                taxpayer with respect to such qualified timber property 
                during the specified portion of the taxable year.
            ``(2) 5 year nol carryback of certain timber losses.--For 
        purposes of determining farming loss under section 172(i), 
        income and deductions which are allocable to the specified 
        portion of the taxable year and which are attributable to 
        qualified timber property any portion of which is located in 
        the Gulf Opportunity Zone, in that portion of the Rita GO Zone 
        which is not part of the Gulf Opportunity Zone, or in the Wilma 
        GO Zone shall be treated as attributable to farming businesses.
            ``(3) Rules not applicable to certain entities.--Paragraphs 
        (1) and (2) shall not apply to any taxpayer which--
                    ``(A) is a corporation the stock of which is 
                publicly traded on an established securities market, or
                    ``(B) is a real estate investment trust.
            ``(4) Rules not applicable to large timber producers.--
        Paragraphs (1) and (2) shall not apply with respect to any 
        qualified timber property unless--
                    ``(A) such property was held by the taxpayer--
                            ``(i) on August 28, 2005, in the case of 
                        qualified timber property any portion of which 
                        is located in the Gulf Opportunity Zone,
                            ``(ii) on September 23, 2005, in the case 
                        of qualified timber property (other than 
                        property described in subclause (I)) any 
                        portion of which is located in that portion of 
                        the Rita GO Zone which is not part of the Gulf 
                        Opportunity Zone, or
                            ``(iii) on October 23, 2005, in the case of 
                        qualified timber property (other than property 
                        described in subclause (I) or (II)) any portion 
                        of which is located in the Wilma GO Zone, and
                    ``(B) such taxpayer held not more than 500 acres of 
                qualified timber property on such date.
            ``(5) Definitions.--For purposes of this subsection--
                    ``(A) Specified portion.--The term `specified 
                portion' means--
                            ``(i) in the case of qualified timber 
                        property located in the Gulf Opportunity Zone, 
                        that portion of the taxable year which is on or 
                        after August 28, 2005, and before January 1, 
                        2007,
                            ``(ii) in the case of qualified timber 
                        property located in the Rita GO Zone and no 
                        part of which is located in the Gulf 
                        Opportunity Zone, that portion of the taxable 
                        year which is on or after September 23, 2005, 
                        and before January 1, 2007, and
                            ``(iii) in the case of qualified timber 
                        property located in the Wilma GO Zone, that 
                        portion of the taxable year which is on or 
                        after October 23, 2005, and before January 1, 
                        2007.
                    ``(B) Qualified timber property.--The term 
                `qualified timber property' has the meaning given such 
                term in section 194(c)(1).
    ``(l) Expensing for Certain Demolition and Clean-Up Costs.--
            ``(1) In general.--A taxpayer may elect to treat 50 percent 
        of any qualified Gulf Opportunity Zone clean-up cost as an 
        expense which is not chargeable to capital account. Any cost so 
        treated shall be allowed as a deduction for the taxable year in 
        which such cost is paid or incurred.
            ``(2) Gulf opportunity zone clean-up cost.--For purposes of 
        this subsection, the term `Gulf Opportunity Zone clean-up cost' 
        means any amount paid or incurred during the period beginning 
        on August 28, 2005, and ending on December 31, 2007, for the 
        removal of debris from, or the demolition of structures on, 
        real property which is located in the Gulf Opportunity Zone and 
        which is--
                    ``(A) held by the taxpayer for use in a trade or 
                business or for the production of income, or
                    ``(B) property described in section 1221(a)(1) in 
                the hands of the taxpayer.
        For purposes of the preceding sentence, amounts paid or 
        incurred shall be taken into account only to the extent that 
        such amount would (but for paragraph (1)) be chargeable to 
        capital account.
    ``(m) Extension of Expensing for Environmental Remediation Costs.--
With respect to any qualified environmental remediation expenditure (as 
defined in section 198(b)) paid or incurred on or after August 28, 
2005, in connection with a qualified contaminated site located in the 
Gulf Opportunity Zone, section 198 (relating to expensing of 
environmental remediation costs) shall be applied--
            ``(1) by substituting `December 31, 2007' for `December 31, 
        2006' in subsection (h) thereof, and
            ``(2) except as provided in section 198(d)(2), by treating 
        petroleum products (as defined in section 4612(a)(3)) as a 
        hazardous substance.
    ``(n) Gulf Opportunity Zone.--For purposes of this section, the 
term `Gulf Opportunity Zone' means an area--
            ``(1) with respect to which a major disaster has been 
        declared by the President under section 401 of the Robert T. 
        Stafford Disaster Relief and Emergency Assistance Act as a 
        result of Hurricane Katrina, and
            ``(2) which is determined by the President to warrant 
        individual assistance, or individual and public assistance, 
        from the Federal Government under such Act.''
    (b) Clerical Amendments.--The table of subchapters for chapter 1 is 
amended by adding at the end the following new item:
             ``subchapter z--hurricane relief benefits.''.

SEC. 102. EXPANSION OF HOPE SCHOLARSHIP AND LIFETIME LEARNING CREDIT 
              FOR STUDENTS IN THE GULF OPPORTUNITY ZONE.

    In the case of an individual who attends an eligible educational 
institution (as defined in section 25A(f)(2) of the Internal Revenue 
Code of 1986) located in the Gulf Opportunity Zone (as defined in 
section 1400N(1) of such Code) for any taxable year beginning during 
2005 or 2006--
            (1) in applying section 25A of the Internal Revenue Code of 
        1986, the term ``qualified tuition and related expenses'' shall 
        include any costs which are qualified higher education expenses 
        (as defined in section 529(e)(3) of such Code),
            (2) each of the dollar amounts in effect under of 
        subparagraphs (A) and (B) of section 25A(b)(1) of such Code 
        shall be twice the amount otherwise in effect before the 
        application of this subsection, and
            (3) section 25A(c)(1) of such Code shall be applied by 
        substituting ``40 percent'' for ``20 percent''.

SEC. 103. EXTENSION OF SPECIAL RULES FOR MORTGAGE REVENUE BONDS.

    Section 404(d) of the Katrina Emergency Tax Relief Act of 2005 is 
amended by striking ``December 31, 2007'' and inserting ``December 31, 
2010''.

     Subtitle B--Tax Benefits Related to Hurricanes Rita and Wilma

SEC. 111. EXTENSION OF CERTAIN EMERGENCY TAX RELIEF FOR HURRICANE 
              KATRINA TO HURRICANES RITA AND WILMA.

    (a) In General.--Subchapter Z of chapter 1, as added by this Act, 
is amended by adding at the end the following new sections:

``SEC. 1400P. SPECIAL RULES FOR MORTGAGE REVENUE BONDS.

    ``(a) In General.--In the case of financing provided with respect 
to residences in the GO Zone, the Rita GO Zone, or the Wilma GO Zone, 
section 143 shall be applied--
            ``(1) by treating any residence in the GO Zone, the Rita GO 
        Zone, or the Wilma GO Zone as a targeted area residence,
            ``(2) by applying subsection (f)(3) without regard to 
        subparagraph (A) thereof, and
            ``(3) by substituting `$150,000' for `$15,000' in 
        subsection (k)(4) thereof.
    ``(b) Application.--Subsection (a) shall not apply to financing 
provided after December 31, 2010.

``SEC. . SPECIAL RULES FOR USE OF RETIREMENT FUNDS.

    ``(a) Tax-Favored Withdrawals From Retirement Plans.--
            ``(1) In general.--Section 72(t) shall not apply to any 
        qualified hurricane distribution.
            ``(2) Aggregate dollar limitation.--
                    ``(A) In general.--For purposes of this subsection, 
                the aggregate amount of distributions received by an 
                individual which may be treated as qualified hurricane 
                distributions for any taxable year shall not exceed the 
                excess (if any) of--
                            ``(i) $100,000, over
                            ``(ii) the aggregate amounts treated as 
                        qualified hurricane distributions received by 
                        such individual for all prior taxable years.
                    ``(B) Treatment of plan distributions.--If a 
                distribution to an individual would (without regard to 
                subparagraph (A)) be a qualified hurricane 
                distribution, a plan shall not be treated as violating 
                any requirement of this title merely because the plan 
                treats such distribution as a qualified hurricane 
                distribution, unless the aggregate amount of such 
                distributions from all plans maintained by the employer 
                (and any member of any controlled group which includes 
                the employer) to such individual exceeds $100,000.
                    ``(C) Controlled group.--For purposes of 
                subparagraph (B), the term `controlled group' means any 
                group treated as a single employer under subsection 
                (b), (c), (m), or (o) of section 414.
            ``(3) Amount distributed may be repaid.--
                    ``(A) In general.--Any individual who receives a 
                qualified hurricane distribution may, at any time 
                during the 3-year period beginning on the day after the 
                date on which such distribution was received, make one 
                or more contributions in an aggregate amount not to 
                exceed the amount of such distribution to an eligible 
                retirement plan of which such individual is a 
                beneficiary and to which a rollover contribution of 
                such distribution could be made under section 402(c), 
                403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as the 
                case may be.
                    ``(B) Treatment of repayments of distributions from 
                eligible retirement plans other than iras.--For 
                purposes of this title, if a contribution is made 
                pursuant to subparagraph (A) with respect to a 
                qualified hurricane distribution from an eligible 
                retirement plan other than an individual retirement 
                plan, then the taxpayer shall, to the extent of the 
                amount of the contribution, be treated as having 
                received the qualified hurricane distribution in an 
                eligible rollover distribution (as defined in section 
                402(c)(4)) and as having transferred the amount to the 
                eligible retirement plan in a direct trustee to trustee 
                transfer within 60 days of the distribution.
                    ``(C) Treatment of repayments for distributions 
                from iras.--For purposes of this title, if a 
                contribution is made pursuant to subparagraph (A) with 
                respect to a qualified hurricane distribution from an 
                individual retirement plan (as defined by section 
                7701(a)(37)), then, to the extent of the amount of the 
                contribution, the qualified hurricane distribution 
                shall be treated as a distribution described in section 
                408(d)(3) and as having been transferred to the 
                eligible retirement plan in a direct trustee to trustee 
                transfer within 60 days of the distribution.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) Qualified hurricane distribution.--Except as 
                provided in paragraph (2), the term `qualified 
                hurricane distribution' means--
                            ``(i) any distribution from an eligible 
                        retirement plan made on or after August 25, 
                        2005, and before January 1, 2007, to an 
                        individual whose principal place of abode on 
                        August 28, 2005, is located in the Hurricane 
                        Katrina disaster area and who has sustained an 
                        economic loss by reason of Hurricane Katrina,
                            ``(ii) any distribution (which is not 
                        described in clause (i)) from an eligible 
                        retirement plan made on or after September 23, 
                        2005, and before January 1, 2007, to an 
                        individual whose principal place of abode on 
                        September 23, 2005, is located in the Hurricane 
                        Rita disaster area and who has sustained an 
                        economic loss by reason of Hurricane Rita, and
                            ``(iii) any distribution (which is not 
                        described in clause (i) or (ii)) from an 
                        eligible retirement plan made on or after 
                        October 23, 2005, and before January 1, 2007, 
                        to an individual whose principal place of abode 
                        on October 23, 2005, is located in the 
                        Hurricane Wilma disaster area and who has 
                        sustained an economic loss by reason of 
                        Hurricane Wilma.
                    ``(B) Eligible retirement plan.--The term `eligible 
                retirement plan' shall have the meaning given such term 
                by section 402(c)(8)(B).
            ``(5) Income inclusion spread over 3-year period.--
                    ``(A) In general.--In the case of any qualified 
                hurricane distribution, unless the taxpayer elects not 
                to have this paragraph apply for any taxable year, any 
                amount required to be included in gross income for such 
                taxable year shall be so included ratably over the 3-
                taxable year period beginning with such taxable year.
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), rules similar to the rules of subparagraph (E) of 
                section 408A(d)(3) shall apply.
            ``(6) Special rules.--
                    ``(A) Exemption of distributions from trustee to 
                trustee transfer and withholding rules.--For purposes 
                of sections 401(a)(31), 402(f), and 3405, qualified 
                hurricane distributions shall not be treated as 
                eligible rollover distributions.
                    ``(B) Qualified hurricane distributions treated as 
                meeting plan distribution requirements.--For purposes 
                this title, a qualified hurricane distribution shall be 
                treated as meeting the requirements of sections 
                401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 
                457(d)(1)(A).
    ``(b) Recontributions of Withdrawals for Home Purchases.--
            ``(1) Recontributions.--
                    ``(A) In general.--Any individual who received a 
                qualified distribution may, during the applicable 
                period, make one or more contributions in an aggregate 
                amount not to exceed the amount of such qualified 
                distribution to an eligible retirement plan (as defined 
                in section 402(c)(8)(B)) of which such individual is a 
                beneficiary and to which a rollover contribution of 
                such distribution could be made under section 402(c), 
                403(a)(4), 403(b)(8), or 408(d)(3), as the case may be.
                    ``(B) Treatment of repayments.--Rules similar to 
                the rules of subparagraphs (B) and (C) of subsection 
                (a)(3) shall apply for purposes of this subsection.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' means any qualified Katrina distribution, 
                any qualified Rita distribution, and any qualified 
                Wilma distribution.
                    ``(B) Qualified katrina distribution.--The term 
                `qualified Katrina distribution' means any 
                distribution--
                            ``(i) described in section 
                        401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but only 
                        to the extent such distribution relates to 
                        financial hardship), 403(b)(11)(B), or 
                        72(t)(2)(F),
                            ``(ii) received after February 28, 2005, 
                        and before August 29, 2005, and
                            ``(iii) which was to be used to purchase or 
                        construct a principal residence in the 
                        Hurricane Katrina disaster area, but which was 
                        not so purchased or constructed on account of 
                        Hurricane Katrina.
                    ``(C) Qualified rita distribution.--The term 
                `qualified Rita distribution' means any distribution 
                (other than a qualified Katrina distribution)--
                            ``(i) described in section 
                        401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but only 
                        to the extent such distribution relates to 
                        financial hardship), 403(b)(11)(B), or 
                        72(t)(2)(F),
                            ``(ii) received after February 28, 2005, 
                        and before September 24, 2005, and
                            ``(iii) which was to be used to purchase or 
                        construct a principal residence in the 
                        Hurricane Rita disaster area, but which was not 
                        so purchased or constructed on account of 
                        Hurricane Rita.
                    ``(D) Qualified wilma distribution.--The term 
                `qualified Wilma distribution' means any distribution 
                (other than a qualified Katrina distribution or a 
                qualified Rita distribution)--
                            ``(i) described in section 
                        401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but only 
                        to the extent such distribution relates to 
                        financial hardship), 403(b)(11)(B), or 
                        72(t)(2)(F),
                            ``(ii) received after February 28, 2005, 
                        and before October 24, 2005, and
                            ``(iii) which was to be used to purchase or 
                        construct a principal residence in the 
                        Hurricane Wilma disaster area, but which was 
                        not so purchased or constructed on account of 
                        Hurricane Wilma.
            ``(3) Applicable period.--For purposes of this subsection, 
        the term `applicable period' means--
                    ``(A) with respect to any qualified Katrina 
                distribution, the period beginning on August 25, 2005, 
                and ending on February 28, 2006,
                    ``(B) with respect to any qualified Rita 
                distribution, the period beginning on September 23, 
                2005, and ending on February 28, 2006, and
                    ``(C) with respect to any qualified Wilma 
                distribution, the period beginning on October 23, 2005, 
                and ending on February 28, 2006.
    ``(c) Loans From Qualified Plans.--
            ``(1) Increase in limit on loans not treated as 
        distributions.--In the case of any loan from a qualified 
        employer plan (as defined under section 72(p)(4)) to a 
        qualified individual made during the applicable period--
                    ``(A) clause (i) of section 72(p)(2)(A) shall be 
                applied by substituting `$100,000' for `$50,000', and
                    ``(B) clause (ii) of such section shall be applied 
                by substituting `the present value of the 
                nonforfeitable accrued benefit of the employee under 
                the plan' for `one-half of the present value of the 
                nonforfeitable accrued benefit of the employee under 
                the plan'.
            ``(2) Delay of repayment.--In the case of a qualified 
        individual with an outstanding loan on or after the qualified 
        beginning date from a qualified employer plan (as defined in 
        section 72(p)(4))--
                    ``(A) if the due date pursuant to subparagraph (B) 
                or (C) of section 72(p)(2) for any repayment with 
                respect to such loan occurs during the period beginning 
                on the qualified beginning date and ending on December 
                31, 2006, such due date shall be delayed for 1 year,
                    ``(B) any subsequent repayments with respect to any 
                such loan shall be appropriately adjusted to reflect 
                the delay in the due date under paragraph (1) and any 
                interest accruing during such delay, and
                    ``(C) in determining the 5-year period and the term 
                of a loan under subparagraph (B) or (C) of section 
                72(p)(2), the period described in subparagraph (A) 
                shall be disregarded.
            ``(3) Qualified individual.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified individual' 
                means any qualified Hurricane Katrina individual, any 
                qualified Hurricane Rita individual, and any qualified 
                Hurricane Wilma individual.
                    ``(B) Qualified hurricane katrina individual.--The 
                term `qualified Hurricane Katrina individual' means an 
                individual whose principal place of abode on August 28, 
                2005, is located in the Hurricane Katrina disaster area 
                and who has sustained an economic loss by reason of 
                Hurricane Katrina.
                    ``(C) Qualified hurricane rita individual.--The 
                term `qualified Hurricane Rita individual' means an 
                individual (other than a qualified Hurricane Katrina 
                individual) whose principal place of abode on September 
                23, 2005, is located in the Hurricane Rita disaster 
                area and who has sustained an economic loss by reason 
                of Hurricane Rita.
                    ``(D) Qualified hurricane wilma individual.--The 
                term `qualified Hurricane Wilma individual' means an 
                individual (other than a qualified Hurricane Katrina 
                individual or a qualified Hurricane Rita individual) 
                whose principal place of abode on October 23, 2005, is 
                located in the Hurricane Wilma disaster area and who 
                has sustained an economic loss by reason of Hurricane 
                Wilma.
            ``(4) Applicable period; qualified beginning date.--For 
        purposes of this subsection--
                    ``(A) Hurricane katrina.--In the case of any 
                qualified Hurricane Katrina individual--
                            ``(i) the applicable period is the period 
                        beginning on September 24, 2005, and ending on 
                        December 31, 2006, and
                            ``(ii) the qualified beginning date is 
                        August 25, 2005.
                    ``(B) Hurricane rita.--In the case of any qualified 
                Hurricane Rita individual--
                            ``(i) the applicable period is the period 
                        beginning on the date of the enactment of this 
                        subsection and ending on December 31, 2006, and
                            ``(ii) the qualified beginning date is 
                        September 23, 2005.
                    ``(C) Hurricane wilma.--In the case of any 
                qualified Hurricane Wilma individual--
                            ``(i) the applicable period is the period 
                        beginning on the date of the enactment of this 
                        subsection and ending on December 31, 2006, and
                            ``(ii) the qualified beginning date is 
                        October 23, 2005.

``SEC. 1400R. EMPLOYMENT RELIEF.

    ``(a) Employee Retention Credit for Employers Affected by Hurricane 
Katrina.--
            ``(1) In general.--For purposes of section 38, in the case 
        of an eligible employer, the Hurricane Katrina employee 
        retention credit for any taxable year is an amount equal to 40 
        percent of the qualified wages with respect to each eligible 
        employee of such employer for such taxable year. For purposes 
        of the preceding sentence, the amount of qualified wages which 
        may be taken into account with respect to any individual shall 
        not exceed $6,000.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Eligible employer.--The term `eligible 
                employer' means any employer--
                            ``(i) which conducted an active trade or 
                        business on August 28, 2005, in the Gulf 
                        Opportunity Zone, and
                            ``(ii) with respect to whom the trade or 
                        business described in clause (i) is inoperable 
                        on any day after August 28, 2005, and before 
                        January 1, 2006, as a result of damage 
                        sustained by reason of Hurricane Katrina.
                    ``(B) Eligible employee.--The term `eligible 
                employee' means with respect to an eligible employer an 
                employee whose principal place of employment on August 
                28, 2005, with such eligible employer was in the Gulf 
                Opportunity Zone.
                    ``(C) Qualified wages.--The term `qualified wages' 
                means wages (as defined in section 51(c)(1), but 
                without regard to section 3306(b)(2)(B)) paid or 
                incurred by an eligible employer with respect to an 
                eligible employee on any day after August 28, 2005, and 
                before January 1, 2006, which occurs during the 
                period--
                            ``(i) beginning on the date on which the 
                        trade or business described in subparagraph (A) 
                        first became inoperable at the principal place 
                        of employment of the employee immediately 
                        before Hurricane Katrina, and
                            ``(ii) ending on the date on which such 
                        trade or business has resumed significant 
                        operations at such principal place of 
                        employment.
                Such term shall include wages paid without regard to 
                whether the employee performs no services, performs 
                services at a different place of employment than such 
                principal place of employment, or performs services at 
                such principal place of employment before significant 
                operations have resumed.
            ``(3) Certain rules to apply.--For purposes of this 
        subsection, rules similar to the rules of sections 51(i)(1), 
        52, and 280C(a) shall apply.
            ``(4) Employee not taken into account more than once.--An 
        employee shall not be treated as an eligible employee for 
        purposes of this subsection for any period with respect to any 
        employer if such employer is allowed a credit under section 51 
        with respect to such employee for such period.
    ``(b) Employee Retention Credit for Employers Affected by Hurricane 
Rita.--
            ``(1) In general.--For purposes of section 38, in the case 
        of an eligible employer, the Hurricane Rita employee retention 
        credit for any taxable year is an amount equal to 40 percent of 
        the qualified wages with respect to each eligible employee of 
        such employer for such taxable year. For purposes of the 
        preceding sentence, the amount of qualified wages which may be 
        taken into account with respect to any individual shall not 
        exceed $6,000.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Eligible employer.--The term `eligible 
                employer' means any employer--
                            ``(i) which conducted an active trade or 
                        business on September 23, 2005, in the Rita GO 
                        Zone, and
                            ``(ii) with respect to whom the trade or 
                        business described in clause (i) is inoperable 
                        on any day after September 23, 2005, and before 
                        January 1, 2006, as a result of damage 
                        sustained by reason of Hurricane Rita.
                    ``(B) Eligible employee.--The term `eligible 
                employee' means with respect to an eligible employer an 
                employee whose principal place of employment on 
                September 23, 2005, with such eligible employer was in 
                the Rita GO Zone.
                    ``(C) Qualified wages.--The term `qualified wages' 
                means wages (as defined in section 51(c)(1), but 
                without regard to section 3306(b)(2)(B)) paid or 
                incurred by an eligible employer with respect to an 
                eligible employee on any day after September 23, 2005, 
                and before January 1, 2006, which occurs during the 
                period--
                            ``(i) beginning on the date on which the 
                        trade or business described in subparagraph (A) 
                        first became inoperable at the principal place 
                        of employment of the employee immediately 
                        before Hurricane Rita, and
                            ``(ii) ending on the date on which such 
                        trade or business has resumed significant 
                        operations at such principal place of 
                        employment.
                Such term shall include wages paid without regard to 
                whether the employee performs no services, performs 
                services at a different place of employment than such 
                principal place of employment, or performs services at 
                such principal place of employment before significant 
                operations have resumed.
            ``(3) Certain rules to apply.--For purposes of this 
        subsection, rules similar to the rules of sections 51(i)(1), 
        52, and 280C(a) shall apply.
            ``(4) Employee not taken into account more than once.--An 
        employee shall not be treated as an eligible employee for 
        purposes of this subsection for any period with respect to any 
        employer if such employer is allowed a credit under subsection 
        (a) or section 51 with respect to such employee for such 
        period.
    ``(c) Employee Retention Credit for Employers Affected by Hurricane 
Wilma.--
            ``(1) In general.--For purposes of section 38, in the case 
        of an eligible employer, the Hurricane Wilma employee retention 
        credit for any taxable year is an amount equal to 40 percent of 
        the qualified wages with respect to each eligible employee of 
        such employer for such taxable year. For purposes of the 
        preceding sentence, the amount of qualified wages which may be 
        taken into account with respect to any individual shall not 
        exceed $6,000.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Eligible employer.--The term `eligible 
                employer' means any employer--
                            ``(i) which conducted an active trade or 
                        business on October 23, 2005, in the Wilma GO 
                        Zone, and
                            ``(ii) with respect to whom the trade or 
                        business described in clause (i) is inoperable 
                        on any day after October 23, 2005, and before 
                        January 1, 2006, as a result of damage 
                        sustained by reason of Hurricane Wilma.
                    ``(B) Eligible employee.--The term `eligible 
                employee' means with respect to an eligible employer an 
                employee whose principal place of employment on October 
                23, 2005, with such eligible employer was in the Wilma 
                GO Zone.
                    ``(C) Qualified wages.--The term `qualified wages' 
                means wages (as defined in section 51(c)(1), but 
                without regard to section 3306(b)(2)(B)) paid or 
                incurred by an eligible employer with respect to an 
                eligible employee on any day after October 23, 2005, 
                and before January 1, 2006, which occurs during the 
                period--
                            ``(i) beginning on the date on which the 
                        trade or business described in subparagraph (A) 
                        first became inoperable at the principal place 
                        of employment of the employee immediately 
                        before Hurricane Wilma, and
                            ``(ii) ending on the date on which such 
                        trade or business has resumed significant 
                        operations at such principal place of 
                        employment.
                Such term shall include wages paid without regard to 
                whether the employee performs no services, performs 
                services at a different place of employment than such 
                principal place of employment, or performs services at 
                such principal place of employment before significant 
                operations have resumed.
            ``(3) Certain rules to apply.--For purposes of this 
        subsection, rules similar to the rules of sections 51(i)(1), 
        52, and 280C(a) shall apply.
            ``(4) Employee not taken into account more than once.--An 
        employee shall not be treated as an eligible employee for 
        purposes of this subsection for any period with respect to any 
        employer if such employer is allowed a credit under subsection 
        (a) or section 51 with respect to such employee for such 
        period.

``SEC. 1400S. ADDITIONAL TAX RELIEF PROVISIONS.

    ``(a) Temporary Suspension of Limitations on Charitable 
Contributions.--
            ``(1) In general.--Except as otherwise provided in 
        paragraph (2), section 170(b) shall not apply to qualified 
        contributions and such contributions shall not be taken into 
        account for purposes of applying subsections (b) and (d) of 
        section 170 to other contributions.
            ``(2) Treatment of excess contributions.--For purposes of 
        section 170--
                    ``(A) Individuals.--In the case of an individual--
                            ``(i) Limitation.--Any qualified 
                        contribution shall be allowed only to the 
                        extent that the aggregate of such contributions 
                        does not exceed the excess of the taxpayer's 
                        contribution base (as defined in subparagraph 
                        (F) of section 170(b)(1)) over the amount of 
                        all other charitable contributions allowed 
                        under section 170(b)(1).
                            ``(ii) Carryover.--If the aggregate amount 
                        of qualified contributions made in the 
                        contribution year (within the meaning of 
                        section 170(d)(1)) exceeds the limitation of 
                        clause (i), such excess shall be added to the 
                        excess described in the portion of subparagraph 
                        (A) of such section which precedes clause (i) 
                        thereof for purposes of applying such section.
                    ``(B) Corporations.--In the case of a corporation--
                            ``(i) Limitation.--Any qualified 
                        contribution shall be allowed only to the 
                        extent that the aggregate of such contributions 
                        does not exceed the excess of the taxpayer's 
                        taxable income (as determined under paragraph 
                        (2) of section 170(b)) over the amount of all 
                        other charitable contributions allowed under 
                        such paragraph.
                            ``(ii) Carryover.--Rules similar to the 
                        rules of subparagraph (A)(ii) shall apply for 
                        purposes of this subparagraph.
            ``(3) Exception to overall limitation on itemized 
        deductions.--So much of any deduction allowed under section 170 
        as does not exceed the qualified contributions paid during the 
        taxable year shall not be treated as an itemized deduction for 
        purposes of section 68.
            ``(4) Qualified contributions.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `qualified contribution' means any charitable 
                contribution (as defined in section 170(c)) if--
                            ``(i) such contribution is paid during the 
                        period beginning on August 28, 2005, and ending 
                        on December 31, 2005, in cash to an 
                        organization described in section 170(b)(1)(A) 
                        (other than an organization described in 
                        section 509(a)(3)),
                            ``(ii) in the case of a contribution paid 
                        by a corporation, such contribution is for 
                        relief efforts related to Hurricane Katrina, 
                        Hurricane Rita, or Hurricane Wilma, and
                            ``(iii) the taxpayer has elected the 
                        application of this subsection with respect to 
                        such contribution.
                    ``(B) Exception.--Such term shall not include a 
                contribution if the contribution is for establishment 
                of a new, or maintenance in an existing, segregated 
                fund or account with respect to which the donor (or any 
                person appointed or designated by such donor) has, or 
                reasonably expects to have, advisory privileges with 
                respect to distributions or investments by reason of 
                the donor's status as a donor.
                    ``(C) Application of election to partnerships and s 
                corporations.--In the case of a partnership or S 
                corporation, the election under subparagraph (A)(iii) 
                shall be made separately by each partner or 
                shareholder.
    ``(b) Suspension of Certain Limitations on Personal Casualty 
Losses.--Paragraphs (1) and (2)(A) of section 165(h) shall not apply to 
losses described in section 165(c)(3)--
            ``(1) which arise in the Hurricane Katrina disaster area on 
        or after August 25, 2005, and which are attributable to 
        Hurricane Katrina,
            ``(2) which arise in the Hurricane Rita disaster area on or 
        after September 23, 2005, and which are attributable to 
        Hurricane Rita, or
            ``(3) which arise in the Hurricane Wilma disaster area on 
        or after October 23, 2005, and which are attributable to 
        Hurricane Wilma.
In the case of any other losses, section 165(h)(2)(A) shall be applied 
without regard to the losses referred to in the preceding sentence.''.
    (b) Conforming Amendments.--
            (1) Subsection (b) of section 38 is amended by striking 
        ``and'' at the end of paragraph (25), by striking the period at 
        the end of paragraph (26) and inserting a comma, and by adding 
        at the end the following new paragraphs:
            ``(27) the Hurricane Katrina employee retention credit 
        determined under section 1400R(a),
            ``(28) the Hurricane Rita employee retention credit 
        determined under section 1400R(b), and
            ``(29) the Hurricane Wilma employee retention credit 
        determined under section 1400R(c).''.
            (2) The table of sections for subchapter Z of chapter 1 is 
        amended by adding at the end the following new items:

        ``Sec. 1400P. Special rules for mortgage revenue bonds.
        ``Sec. 1400Q. Special rules for use of retirement funds.
        ``Sec. 140RQ. Employment relief.
        ``Sec. 1400S. Additional tax relief provisions.''.
            (3) The following provisions of the Katrina Emergency Tax 
        Relief Act of 2005 are hereby repealed:
                    (A) Title I.
                    (B) Sections 202, 301, and 402.

               TITLE II--EXTENSION OF EXPIRING PROVISIONS

                   Subtitle A--Multi-Year Extensions

SEC. 201. EXTENSION OF INCREASED EXPENSING FOR SMALL BUSINESS.

    Section 179 is amended by striking ``2008'' each place it appears 
and inserting ``2010''.

SEC. 202. CREDIT FOR ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS.

    Section 25B(h) is amended by striking ``2006'' and inserting 
``2009''.

SEC. 203. ABOVE-THE-LINE DEDUCTION FOR HIGHER EDUCATION.

    (a) In General.--Section 222(e) is amended by striking ``2005''and 
inserting ``2009''.
    (b) Conforming Amendments.--Section 222(b)(2)(B) is amended--
            (1) by striking ``a taxable year beginning in 2004 or 
        2005'' and inserting ``any taxable year beginning after 2003'', 
        and
            (2) by striking ``2004 and 2005'' and inserting ``After 
        2003''.

SEC. 204. EXTENSION AND MODIFICATION OF NEW MARKETS TAX CREDIT.

    (a) Extension.--Section 45D(f)(1)(D) is amended by striking ``and 
2007'' and inserting ``, 2007, and 2008''.
    (b) Regulations Regarding Non-Metropolitan Counties.--Section 
45D(i) is amended by striking ``and'' at the end of paragraph (4), by 
striking the period at the end of paragraph (5) and inserting ``, 
and'', and by adding at the end by the following new paragraph:
            ``(6) which ensure that non-metropolitan counties receive a 
        proportional allocation of qualified equity investments.''.

                    Subtitle B--One-Year Extensions

SEC. 211. ELECTION TO DEDUCT STATE AND LOCAL GENERAL SALES TAXES.

    Section 164(b)(5)(I) is amended by striking ``2006'' and inserting 
``2007''.

SEC. 212. EXTENSION OF ALTERNATIVE MINIMUM TAX EXEMPTION AMOUNT FOR 
              INDIVIDUALS.

    (a) In General.--Subparagraphs (A) and (B) of section 55(d)(1) are 
each amended by striking ``and 2005'' and inserting ``2005, and 2006''.
    (b) Inflation Adjustment for 2006.--Section 55(d) is amended by 
adding at the end the following new paragraph:
            ``(4) Inflation adjustment.--In the case of any taxable 
        year beginning in calendar year 2006, the $58,000 and $40,250 
        amounts contained in subparagraphs (A) and (B) of paragraph (1) 
        shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2004' for `calendar year 1992' in 
                subparagraph (B) thereof.
        Any increase determined under the preceding sentence shall be 
        rounded to the nearest multiple of $50.''.

SEC. 213. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR 
              AND ALTERNATIVE MINIMUM TAX LIABILITY.

    (a) In General.--Paragraph (2) of section 26(a) is amended--
            (1) by striking ``2005'' in the heading and inserting 
        ``2006'', and
            (2) by striking ``or 2005'' and inserting ``2005, or 
        2006''.
    (b) Conforming Provisions.--
            (1) Section 30B(g) is amended by adding at the end the 
        following new paragraph:
            ``(3) Special rule for 2006.--For purposes of any taxable 
        year beginning during 2006, the credit allowed under subsection 
        (a) (after the application of paragraph (1)) shall not exceed 
        the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under 
                subpart A and this subpart (other than this section and 
                section 30C).''.
            (2) Section 30C(d) is amended by adding at the end the 
        following new paragraph:
            ``(3) Special rule for 2006.--For purposes of any taxable 
        year beginning during 2006, the credit allowed under subsection 
        (a) (after the application of paragraph (1)) shall not exceed 
        the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under 
                subpart A and this subpart (other than this 
                section).''.
            (3) Section 904(h) is amended by striking ``or 2005'' and 
        inserting ``2005, or 2006''.
            (4) The amendments made by sections 201(b), 202(f), and 
        618(b) of the Economic Growth and Tax Relief Reconciliation Act 
        of 2001 shall not apply to taxable years beginning during 2006.

SEC. 214. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

    (a) Extension.--
            (1) In general.--Section 41(h)(1)(B) is amended by striking 
        ``2005'' and inserting ``2006''.
            (2) Conforming amendment.--Section 45C(b)(1)(D) is amended 
        by striking ``2005'' and inserting ``2006''.
    (b) Increase in Rates of Alternative Incremental Credit.--
Subparagraph (A) of section 41(c)(4) (relating to election of 
alternative incremental credit) is amended--
            (1) by striking ``2.65 percent'' and inserting ``3 
        percent'',
            (2) by striking ``3.2 percent'' and inserting ``4 
        percent'', and
            (3) by striking ``3.75 percent'' and inserting ``5 
        percent''.
    (c) Alternative Simplified Credit for Qualified Research 
Expenses.--
            (1) In general.--Subsection (c) of section 41 (relating to 
        base amount) is amended by redesignating paragraphs (5) and (6) 
        as paragraphs (6) and (7), respectively, and by inserting after 
        paragraph (4) the following new paragraph:
            ``(5) Election of alternative simplified credit.--
                    ``(A) In general.--At the election of the taxpayer, 
                the credit determined under subsection (a)(1) shall be 
                equal to 12 percent of so much of the qualified 
                research expenses for the taxable year as exceeds 50 
                percent of the average qualified research expenses for 
                the 3 taxable years preceding the taxable year for 
                which the credit is being determined.
                    ``(B) Special rule in case of no qualified research 
                expenses in any of 3 preceding taxable years.--
                            ``(i) Taxpayers to which subparagraph 
                        applies.--The credit under this paragraph shall 
                        be determined under this subparagraph if the 
                        taxpayer has no qualified research expenses in 
                        any 1 of the 3 taxable years preceding the 
                        taxable year for which the credit is being 
                        determined.
                            ``(ii) Credit rate.--The credit determined 
                        under this subparagraph shall be equal to 6 
                        percent of the qualified research expenses for 
                        the taxable year.
                    ``(C) Election.--An election under this paragraph 
                shall apply to the taxable year for which made and all 
                succeeding taxable years unless revoked with the 
                consent of the Secretary. An election under this 
                paragraph may not be made for any taxable year to which 
                an election under paragraph (4) applies.''.
            (2) Coordination with election of alternative incremental 
        credit.--
                    (A) In general.--Section 41(c)(4)(B) (relating to 
                election) is amended by adding at the end the 
                following: ``An election under this paragraph may not 
                be made for any taxable year to which an election under 
                paragraph (5) applies.''.
                    (B) Transition rule.--In the case of an election 
                under section 41(c)(4) of the Internal Revenue Code of 
                1986 which applies to the taxable year which includes 
                the date of the enactment of this Act, such election 
                shall be treated as revoked with the consent of the 
                Secretary of the Treasury if the taxpayer makes an 
                election under section 41(c)(5) of such Code (as added 
                by subsection (a)) for such year.
    (d) Funded Research.--Subparagraph (H) of section 41(d)(4) is 
amended to read as follows:
                    ``(H) Funded research.--
                            ``(i) In general.--Any funded research.
                            ``(ii) Funded research.--For purposes of 
                        clause (i), the term `funded research' means 
                        any research to the extent funded by any grant, 
                        contract, or otherwise--
                                    ``(I) by another person, or
                                    ``(II) by any governmental entity.
                            ``(iii) Treatment of payments under 
                        government contracts.--For purposes of 
                        determining the amount of funding of research 
                        under any government contract, all payments 
                        under such contract shall be taken into 
                        account, including all payments under any 
                        subcontracting agreement or similar contract 
                        which includes funding for research which would 
                        be treated as funded by a governmental entity 
                        if under the prime contract.
                            ``(iv) Exception for government contracts 
                        containing no new and significant performance 
                        specifications.--
                                    ``(I) In general.--Clause (iii) 
                                shall not apply with respect to any 
                                government contract containing no new 
                                and significant performance 
                                specifications, except if the 
                                contractor does not retain substantial 
                                rights to the research.
                                    ``(II) Treatment of contract.--For 
                                purposes of subclause (I), no contract 
                                shall be treated as having new and 
                                significant performance specifications 
                                if the contractor reasonably expects 
                                that the costs of all qualified 
                                research (including costs reasonably 
                                expected to be incurred by 
                                subcontractors and independent 
                                contractors) will not exceed 10 percent 
                                of the total costs of performing under 
                                the contract.
                                    ``(III) Treatment as separate 
                                contracts.--For purposes of subclause 
                                (II), options under a contract which 
                                may be exercised at the discretion of 
                                the governmental unit shall be treated 
                                as separate contracts.
                            ``(v) Incidental research.--Clause (iii) 
                        shall not apply to any research undertaken by 
                        any government contractor unless the research 
                        is required to meet the contract's performance 
                        specifications.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2005.

SEC. 215. WORK OPPORTUNITY TAX CREDIT AND WELFARE-TO-WORK CREDIT.

    (a) In General.--Section 51(c)(4)(B) is amended by striking 
``2005'' and inserting ``2006''.
    (b) Eligibility of Ex-Felons Determined Without Regard to Family 
Income.--Paragraph (4) of section 51(d) is amended by adding ``and'' at 
the end of subparagraph (A), by striking ``, and'' at the end of 
subparagraph (B) and inserting a period, and by striking all that 
follows subparagraph (B).
    (c) Increase in Maximum Age for Eligibility of Food Stamp 
Recipients.--Clause (i) of section 51(d)(8)(A) is amended by striking 
``25'' and inserting ``40''.
    (d) Increase in Maximum Age for Designated Community Residents.--
            (1) In general.--Paragraph (5) of section 51(d) is amended 
        to read as follows:
            ``(5) Designated community residents.--
                    ``(A) In general.--The term `designated community 
                resident' means any individual who is certified by the 
                designated local agency--
                            ``(i) as having attained age 18 but not age 
                        40 on the hiring date, and
                            ``(ii) as having his principal place of 
                        abode within an empowerment zone, enterprise 
                        community, or renewal community.
                    ``(B) Individual must continue to reside in zone or 
                community.--In the case of a designated community 
                resident, the term `qualified wages' shall not include 
                wages paid or incurred for services performed while the 
                individual's principal place of abode is outside an 
                empowerment zone, enterprise community, or renewal 
                community.''
            (2) Conforming amendment.--Subparagraph (D) of section 
        51(d)(1) is amended to read as follows:
                    ``(D) a designated community resident,''.
    (e) Consolidation of Work Opportunity Credit With Welfare-to-Work 
Credit.--
            (1) In general.--Paragraph (1) of section 51(d) is amended 
        by striking ``or'' at the end of subparagraph (G), by striking 
        the period at the end of subparagraph (H) and inserting ``, 
        or'', and by adding at the end the following new subparagraph:
                    ``(I) a long-term family assistance recipient.''
            (2) Long-term family assistance recipient.--Subsection (d) 
        of section 51 is amended by redesignating paragraphs (10) 
        through (12) as paragraphs (11) through (13), respectively, and 
        by inserting after paragraph (9) the following new paragraph:
            ``(10) Long-term family assistance recipient.--The term 
        `long-term family assistance recipient' means any individual 
        who is certified by the designated local agency--
                    ``(A) as being a member of a family receiving 
                assistance under a IV-A program (as defined in 
                paragraph (2)(B)) for at least the 18-month period 
                ending on the hiring date,
                    ``(B)(i) as being a member of a family receiving 
                such assistance for 18 months beginning after August 5, 
                1997, and
                    ``(ii) as having a hiring date which is not more 
                than 2 years after the end of the earliest such 18-
                month period, or
                    ``(C)(i) as being a member of a family which ceased 
                to be eligible for such assistance by reason of any 
                limitation imposed by Federal or State law on the 
                maximum period such assistance is payable to a family, 
                and
                    ``(ii) as having a hiring date which is not more 
                than 2 years after the date of such cessation.''
            (3) Increased credit for employment of long-term family 
        assistance recipients.--Section 51 is amended by inserting 
        after subsection (d) the following new subsection:
    ``(e) Credit for Second-Year Wages for Employment of Long-Term 
Family Assistance Recipients.--
            ``(1) In general.--With respect to the employment of a 
        long-term family assistance recipient--
                    ``(A) the amount of the work opportunity credit 
                determined under this section for the taxable year 
                shall include 50 percent of the qualified second-year 
                wages for such year, and
                    ``(B) in lieu of applying subsection (b)(3), the 
                amount of the qualified first-year wages, and the 
                amount of qualified second-year wages, which may be 
                taken into account with respect to such a recipient 
                shall not exceed $10,000 per year.
            ``(2) Qualified second-year wages.--For purposes of this 
        subsection, the term `qualified second-year wages' means 
        qualified wages--
                    ``(A) which are paid to a long-term family 
                assistance recipient, and
                    ``(B) which are attributable to service rendered 
                during the 1-year period beginning on the day after the 
                last day of the 1-year period with respect to such 
                recipient determined under subsection (b)(2).
            ``(3) Special rules for agricultural and railway labor.--If 
        such recipient is an employee to whom subparagraph (A) or (B) 
        of subsection (h)(1) applies, rules similar to the rules of 
        such subparagraphs shall apply except that--
                    ``(A) such subparagraph (A) shall be applied by 
                substituting `$10,000' for `$6,000', and
                    ``(B) such subparagraph (B) shall be applied by 
                substituting `$833.33' for `$500'.''
            (4) Repeal of separate welfare-to-work credit.--
                    (A) In general.--Section 51A is hereby repealed.
                    (B) Clerical amendment.--The table of sections for 
                subpart F of part IV of subchapter A of chapter 1 is 
                amended by striking the item relating to section 51A.
    (f) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after December 31, 
2005.

SEC. 216. QUALIFIED ZONE ACADEMY BONDS.

    (a) In General.--Paragraph (1) of section 1397E(e) is amended by 
striking ``and 2005'' and inserting ``2005, and 2006''.
    (b) Form of Private Business Contributions.--Section 1397E(d)(2)(B) 
is amended by striking ``any contribution'' and all that follows and 
inserting ``any cash or cash equivalent contribution''.
    (c) Special Rules Relating to Amortization, Expenditures, 
Arbitrage, and Reporting.--
            (1) In general.--Section 1397E is amended--
                    (A) in subsection (d)(1), by striking ``and'' at 
                the end of subparagraph (C)(iii), by striking the 
                period at the end of subparagraph (D) and inserting ``, 
                and'', and by adding at the end the following new 
                subparagraph:
                    ``(E) the issue meets the requirements of 
                subsections (f), (g), (h), and (i).'', and
                    (B) by redesignating subsections (f), (g), (h), and 
                (i) as subsection (j), (k), (l), and (m), respectively, 
                and by inserting after subsection (e) the following new 
                subsections:
    ``(f) Ratable Principal Amortization Required.--An issue shall be 
treated as meeting the requirements of this subsection if such issue 
provides for an equal amount of principal to be paid by the issuer 
during each calendar year that the issue is outstanding.
    ``(g) Special Rules Relating to Expenditures.--
            ``(1) In general.--An issue shall be treated as meeting the 
        requirements of this subsection if, as of the date of issuance, 
        the issuer reasonably expects--
                    ``(A) at least 95 percent of the proceeds from the 
                sale of the issue are to be spent for 1 or more 
                qualified purposes with respect to qualified zone 
                academies within the 5-year period beginning on the 
                date of issuance of the qualified zone academy bond,
                    ``(B) a binding commitment with a third party to 
                spend at least 10 percent of the proceeds from the sale 
                of the issue will be incurred within the 6-month period 
                beginning on the date of issuance of the qualified zone 
                academy bond, and
                    ``(C) such purposes will be completed with due 
                diligence and the proceeds from the sale of the issue 
                will be spent with due diligence.
            ``(2) Extension of period.--Upon submission of a request 
        prior to the expiration of the period described in paragraph 
        (1)(A), the Secretary may extend such period if the issuer 
        establishes that the failure to satisfy the 5-year requirement 
        is due to reasonable cause and the related purposes will 
        continue to proceed with due diligence.
            ``(3) Failure to spend required amount of bond proceeds 
        within 5 years.--To the extent that less than 95 percent of the 
        proceeds of such issue are expended by the close of the 5-year 
        period beginning on the date of issuance (or if an extension 
        has been obtained under paragraph (2), by the close of the 
        extended period), the issuer shall redeem all of the 
        nonqualified bonds within 90 days after the end of such period. 
        For purposes of this paragraph, the amount of the nonqualified 
        bonds required to be redeemed shall be determined in the same 
        manner as under section 142.
    ``(h) Special Rules Relating to Arbitrage.--An issue shall be 
treated as meeting the requirements of this subsection if the issuer 
satisfies the arbitrage requirements of section 148 with respect to 
proceeds of the issue.
    ``(i) Reporting.--Issuers of qualified academy zone bonds shall 
submit reports similar to the reports required under section 149(e).''.
            (2) Conforming amendments.--
                    (A) Section 1397E(d)(3) is amended by inserting 
                ``without regard to the requirements of subsection (f) 
                and'' after ``Such present value shall be determined''.
                    (B) Section 54(l)(3)(B) is amended by striking 
                ``section 1397E(i)'' and inserting ``section 
                1397E(l)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2005.

SEC. 217. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER TECHNOLOGY AND 
              EQUIPMENT.

    Section 170(e)(6)(G) is amended by striking ``2005'' and inserting 
``2006''.

SEC. 218. ABOVE-THE-LINE DEDUCTION FOR CERTAIN EXPENSES OF ELEMENTARY 
              AND SECONDARY SCHOOL TEACHERS.

    Subparagraph (D) of section 62(a)(2) is amended by striking ``or 
2005'' and inserting ``2005, or 2006''.

SEC. 219. EXPENSING OF BROWNFIELDS REMEDIATION COSTS.

    (a) Extension.--Subsection (h) of section 198 is amended by 
striking ``2005'' and inserting ``2006''.
    (b) Expansion.--
            (1) In general.--Section 198(d)(1) (defining hazardous 
        substance) is amended by striking ``and'' at the end of 
        subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, and'', and by adding at the 
        end the following new subparagraph:
                    ``(C) any petroleum product (as defined in section 
                4612(a)(3)).''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to expenditures paid or incurred after December 31, 
        2005.

SEC. 220. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF COLUMBIA.

    (a) Designation of Zone.--Subsection (f) of section 1400 is amended 
by striking ``2005'' both places it appears and inserting ``2006''.
    (b) Tax-Exempt Economic Development Bonds.--Subsection (b) of 
section 1400A is amended by striking ``2005'' and inserting ``2006''.
    (c) Zero Percent Capital Gains Rate.--
            (1) In general.--Subsection (b) of section 1400B is amended 
        by striking ``2006'' each place it appears and inserting 
        ``2007''.
            (2) Conforming amendments.--
                    (A) Section 1400B(e)(2) is amended--
                            (i) by striking ``2010'' and inserting 
                        ``2011'', and
                            (ii) by striking ``2010'' in the heading 
                        and inserting ``2011''.
                    (B) Section 1400B(g)(2) is amended by striking 
                ``2010'' and inserting ``2011''.
                    (C) Section 1400F(d) is amended by striking 
                ``2010'' and inserting ``2011''.
    (d) First-Time Homebuyer Credit.--Subsection (i) of section 1400C 
is amended by striking ``2006'' and inserting ``2007''.

SEC. 221. INDIAN EMPLOYMENT TAX CREDIT.

    Section 45A(f) is amended by striking ``2005'' and inserting 
``2006''.

SEC. 222. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON INDIAN 
              RESERVATION.

    Section 168(j)(8) is amended by striking ``2005'' and inserting 
``2006''.

SEC. 223. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY FOR QUALIFIED 
              LEASEHOLD IMPROVEMENTS AND QUALIFIED RESTAURANT 
              IMPROVEMENTS.

    Clauses (iv) and (v) of section 168(e)(3)(E) are each amended by 
striking ``2006'' and inserting ``2007''.

                Subtitle C--Application of EGTRRA Sunset

SEC. 231. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.

    Each amendment made by this title shall be subject to title IX of 
the Economic Growth and Tax Relief Reconciliation Act of 2001 to the 
same extent and in the same manner as the provision of such Act to 
which such amendment relates.

         TITLE III--PROVISIONS RELATING TO CHARITABLE DONATIONS

                Subtitle A--Charitable Giving Incentives

SEC. 301. CHARITABLE DEDUCTION FOR NONITEMIZERS.

    (a) In General.--Section 170 (relating to charitable, etc., 
contributions and gifts) is amended by redesignating subsection (o) as 
subsection (p) and by inserting after subsection (n) the following new 
subsection:
    ``(o) Deduction for Individuals Not Itemizing Deductions.--In the 
case of an individual who does not itemize deductions for any taxable 
year beginning after December 31, 2005, and before January 1, 2008, 
there shall be taken into account as a direct charitable deduction 
under section 63 an amount equal to the amount allowable under 
subsection (a) for the taxable year for cash contributions (determined 
without regard to any carryover).''.
    (b) Direct Charitable Deduction.--
            (1) In general.--Subsection (b) of section 63 (defining 
        taxable income) is amended by striking ``and'' at the end of 
        paragraph (1), by striking the period at the end of paragraph 
        (2) and inserting ``, and'', and by adding at the end the 
        following new paragraph:
            ``(3) the direct charitable deduction.''.
            (2) Definition.--Section 63 is amended by redesignating 
        subsection (g) as subsection (h) and by inserting after 
        subsection (f) the following new subsection:
    ``(g) Direct Charitable Deduction.--For purposes of this section, 
the term `direct charitable deduction' means that portion of the amount 
allowable under section 170(a) which is taken as a direct charitable 
deduction for the taxable year under section 170(o).''.
            (3) Conforming amendment.--Subsection (d) of section 63 is 
        amended by striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:
            ``(3) the direct charitable deduction.''.
    (c) Floor on Charitable Contributions by Individuals.--Section 
170(a) is amended by adding at the end the following new paragraph:
            ``(4) Dollar floor on charitable contributions by 
        individuals.--In the case of an individual, the charitable 
        contributions of the taxpayer for any taxable year shall be 
        taken into account for purposes of determining the deduction 
        under paragraph (1) only to the extent that the aggregate of 
        such contributions exceeds $210 ($420 in the case of a joint 
        return).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions made in taxable years beginning after December 
31, 2005.

SEC. 302. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR 
              CHARITABLE PURPOSES.

    (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end the 
following new paragraph:
            ``(8) Distributions for charitable purposes.--
                    ``(A) In general.--No amount shall be includible in 
                gross income by reason of a qualified charitable 
                distribution.
                    ``(B) Qualified charitable distribution.--For 
                purposes of this paragraph, the term `qualified 
                charitable distribution' means any distribution from an 
                individual retirement plan (other than a plan described 
                in subsection (k) or (p) of section 408)--
                            ``(i) which is made on or after the date 
                        that the individual for whose benefit the plan 
                        is maintained has attained age 70\1/2\, and
                            ``(ii) which is made directly by the 
                        trustee--
                                    ``(I) to an organization described 
                                in section 170(c), or
                                    ``(II) to a split-interest entity.
                A distribution shall be treated as a qualified 
                charitable distribution only to the extent that the 
                distribution would be includible in gross income 
                without regard to subparagraph (A) and, in the case of 
                a distribution to a split-interest entity, only if no 
                person holds an income interest in the amounts in the 
                split-interest entity attributable to such distribution 
                other than one or more of the following: the individual 
                for whose benefit such plan is maintained, the spouse 
                of such individual, or any organization described in 
                section 170(c).
                    ``(C) Contributions must be otherwise deductible.--
                For purposes of this paragraph--
                            ``(i) Direct contributions.--A distribution 
                        to an organization described in section 170(c) 
                        shall be treated as a qualified charitable 
                        distribution only if a deduction for the entire 
                        distribution would be allowable under section 
                        170 (determined without regard to subsections 
                        (a)(4) and (b) thereof and this paragraph).
                            ``(ii) Split-interest gifts.--A 
                        distribution to a split-interest entity shall 
                        be treated as a qualified charitable 
                        distribution only if a deduction for the entire 
                        value of the interest in the distribution for 
                        the use of an organization described in section 
                        170(c) would be allowable under section 170 
                        (determined without regard to subsections 
                        (a)(4) and (b) thereof and this paragraph).
                    ``(D) Application of section 72.--Notwithstanding 
                section 72, in determining the extent to which a 
                distribution is a qualified charitable distribution, 
                the entire amount of the distribution shall be treated 
                as includible in gross income without regard to 
                subparagraph (A) to the extent that such amount does 
                not exceed the aggregate amount which would have been 
                so includible if all amounts distributed from all 
                individual retirement plans were treated as 1 contract 
                under paragraph (2)(A) for purposes of determining the 
                inclusion of such distribution under section 72. Proper 
                adjustments shall be made in applying section 72 to 
                other distributions in such taxable year and subsequent 
                taxable years.
                    ``(E) Special rules for split-interest entities.--
                            ``(i) Charitable remainder trusts.--
                        Notwithstanding section 664(b), distributions 
                        made from a trust described in subparagraph 
                        (G)(i) shall be treated as ordinary income in 
                        the hands of the beneficiary to whom is paid 
                        the annuity described in section 664(d)(1)(A) 
                        or the payment described in section 
                        664(d)(2)(A).
                            ``(ii) Pooled income funds.--No amount 
                        shall be includible in the gross income of a 
                        pooled income fund (as defined in subparagraph 
                        (G)(ii)) by reason of a qualified charitable 
                        distribution to such fund, and all 
                        distributions from the fund which are 
                        attributable to qualified charitable 
                        distributions shall be treated as ordinary 
                        income to the beneficiary.
                            ``(iii) Charitable gift annuities.--
                        Qualified charitable distributions made for a 
                        charitable gift annuity shall not be treated as 
                        an investment in the contract.
                    ``(F) Denial of deduction.--Qualified charitable 
                distributions shall not be taken into account in 
                determining the deduction under section 170.
                    ``(G) Split-interest entity defined.--For purposes 
                of this paragraph, the term `split-interest entity' 
                means--
                            ``(i) a charitable remainder annuity trust 
                        or a charitable remainder unitrust (as such 
                        terms are defined in section 664(d)) which must 
                        be funded exclusively by qualified charitable 
                        distributions,
                            ``(ii) a pooled income fund (as defined in 
                        section 642(c)(5)), but only if the fund 
                        accounts separately for amounts attributable to 
                        qualified charitable distributions, and
                            ``(iii) a charitable gift annuity (as 
                        defined in section 501(m)(5)).''.
    (b) Modifications Relating to Information Returns by Certain 
Trusts.--
            (1) Returns.--Section 6034 (relating to returns by trusts 
        described in section 4947(a)(2) or claiming charitable 
        deductions under section 642(c)) is amended to read as follows:

``SEC. 6034. RETURNS BY CERTAIN TRUSTS.

    ``(a) Split-Interest Trusts.--Every trust described in section 
4947(a)(2) shall furnish such information with respect to the taxable 
year as the Secretary may by forms or regulations require.
    ``(b) Trusts Claiming Certain Charitable Deductions.--
            ``(1) In general.--Every trust not required to file a 
        return under subsection (a) but claiming a deduction under 
        section 642(c) for the taxable year shall furnish such 
        information with respect to such taxable year as the Secretary 
        may by forms or regulations prescribe, including--
                    ``(A) the amount of the deduction taken under 
                section 642(c) within such year,
                    ``(B) the amount paid out within such year which 
                represents amounts for which deductions under section 
                642(c) have been taken in prior years,
                    ``(C) the amount for which such deductions have 
                been taken in prior years but which has not been paid 
                out at the beginning of such year,
                    ``(D) the amount paid out of principal in the 
                current and prior years for the purposes described in 
                section 642(c),
                    ``(E) the total income of the trust within such 
                year and the expenses attributable thereto, and
                    ``(F) a balance sheet showing the assets, 
                liabilities, and net worth of the trust as of the 
                beginning of such year.
            ``(2) Exceptions.--Paragraph (1) shall not apply to a trust 
        for any taxable year if--
                    ``(A) all the net income for such year, determined 
                under the applicable principles of the law of trusts, 
                is required to be distributed currently to the 
                beneficiaries, or
                    ``(B) the trust is described in section 
                4947(a)(1).''.
            (2) Increase in penalty relating to filing of information 
        return by split-interest trusts.--Paragraph (2) of section 
        6652(c) (relating to returns by exempt organizations and by 
        certain trusts) is amended by adding at the end the following 
        new subparagraph:
                    ``(C) Split-interest trusts.--In the case of a 
                trust which is required to file a return under section 
                6034(a), subparagraphs (A) and (B) of this paragraph 
                shall not apply and paragraph (1) shall apply in the 
                same manner as if such return were required under 
                section 6033, except that--
                            ``(i) the 5 percent limitation in the 
                        second sentence of paragraph (1)(A) shall not 
                        apply,
                            ``(ii) in the case of any trust with gross 
                        income in excess of $250,000, the first 
                        sentence of paragraph (1)(A) shall be applied 
                        by substituting `$100' for `$20', and the 
                        second sentence thereof shall be applied by 
                        substituting `$50,000' for `$10,000', and
                            ``(iii) the third sentence of paragraph 
                        (1)(A) shall be disregarded.
                In addition to any penalty imposed on the trust 
                pursuant to this subparagraph, if the person required 
                to file such return knowingly fails to file the return, 
                such penalty shall also be imposed on such person who 
                shall be personally liable for such penalty.''.
            (3) Confidentiality of noncharitable beneficiaries.--
        Subsection (b) of section 6104 (relating to inspection of 
        annual information returns) is amended by adding at the end the 
        following new sentence: ``In the case of a trust which is 
        required to file a return under section 6034(a), this 
        subsection shall not apply to information regarding 
        beneficiaries which are not organizations described in section 
        170(c).''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to distributions made in taxable years beginning 
        after December 31, 2005, and before January 1, 2008.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to returns for taxable years beginning after 
        December 31, 2005.

SEC. 303. MODIFICATION OF CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF 
              FOOD INVENTORY.

    (a) In General.--Subparagraph (C) of section 170(e)(3) (relating to 
special rule for certain contributions of inventory and other 
property), as added by section 305 of the Katrina Emergency Tax Relief 
Act of 2005, is amended to read as follows:
                    ``(C) Special rule for contributions of food 
                inventory.--
                            ``(i) General rule.--In the case of a 
                        charitable contribution of food from any trade 
                        or business of the taxpayer, this paragraph 
                        shall be applied--
                                    ``(I) without regard to whether the 
                                contribution is made by a C 
                                corporation, and
                                    ``(II) only to food that is 
                                apparently wholesome food.
                            ``(ii) Limitation.--In the case of a 
                        taxpayer other than a C corporation, the 
                        aggregate amount of such contributions for any 
                        taxable year which may be taken into account 
                        under this section shall not exceed 10 percent 
                        of the taxpayer's aggregate net income for such 
                        taxable year from all trades or businesses from 
                        which such contributions were made for such 
                        year, computed without regard to this section.
                            ``(iii) Limitation on reduction.--In the 
                        case of any such contribution, notwithstanding 
                        subparagraph (B), the amount of the reduction 
                        determined under paragraph (1)(A) shall not 
                        exceed the amount by which the fair market 
                        value of the apparently wholesome food exceeds 
                        twice the basis of such food.
                            ``(iv) Determination of basis.--If a 
                        taxpayer--
                                    ``(I) does not account for 
                                inventories under section 471, and
                                    ``(II) is not required to 
                                capitalize indirect costs under section 
                                263A,
                        the taxpayer may elect, solely for purposes of 
                        subparagraph (B), to treat the basis of any 
                        apparently wholesome food as being equal to 25 
                        percent of the fair market value of such food.
                            ``(v) Determination of fair market value.--
                        In the case of any such contribution of 
                        apparently wholesome food which, solely by 
                        reason of internal standards of the taxpayer or 
                        lack of market, cannot or will not be sold, the 
                        fair market value of such contribution shall be 
                        determined--
                                    ``(I) without regard to such 
                                internal standards or such lack of 
                                market and
                                    ``(II) by taking into account the 
                                price at which the same or 
                                substantially the same food items (as 
                                to both type and quality) are sold by 
                                the taxpayer at the time of the 
                                contribution (or, if not so sold at 
                                such time, in the recent past).
                            ``(vi) Apparently wholesome food.--For 
                        purposes of this subparagraph, the term 
                        `apparently wholesome food' has the meaning 
                        given to such term by section 22(b)(2) of the 
                        Bill Emerson Good Samaritan Food Donation Act 
                        (42 U.S.C. 1791(b)(2)), as in effect on the 
                        date of the enactment of this subparagraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions made in taxable years beginning after December 31, 
2005, and before January 1, 2008.

SEC. 304. BASIS ADJUSTMENT TO STOCK OF S CORPORATION CONTRIBUTING 
              PROPERTY.

    (a) In General.--Paragraph (2) of section 1367(a) (relating to 
adjustments to basis of stock of shareholders, etc.) is amended by 
adding at the end the following new flush sentence:
        ``The decrease under subparagraph (B) by reason of a charitable 
        contribution (as defined in section 170(c)) of property shall 
        be the amount equal to the shareholder's pro rata share of the 
        adjusted basis of such property.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions made in taxable years beginning after December 31, 
2005, and before January 1, 2008.

SEC. 305. MODIFICATION OF CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF 
              BOOK INVENTORY.

    (a) In General.--Subparagraph (D) of section 170(e)(3) (relating to 
special rule for certain contributions of inventory and other 
property), as added by section 305 of the Katrina Emergency Tax Relief 
Act of 2005, is amended to read as follows:
                    ``(D) Special rule for contributions of book 
                inventory for educational purposes.--
                            ``(i) Contributions of book inventory.--In 
                        determining whether a qualified book 
                        contribution is a qualified contribution, 
                        subparagraph (A) shall be applied without 
                        regard to whether--
                                    ``(I) the donee is an organization 
                                described in the matter preceding 
                                clause (i) of subparagraph (A), and
                                    ``(II) the property is to be used 
                                by the donee solely for the care of the 
                                ill, the needy, or infants.
                            ``(ii) Amount of reduction.--
                        Notwithstanding subparagraph (B), the amount of 
                        the reduction determined under paragraph (1)(A) 
                        shall not exceed the amount by which the fair 
                        market value of the contributed property (as 
                        determined by the taxpayer using a bona fide 
                        published market price for such book) exceeds 
                        twice the basis of such property.
                            ``(iii) Qualified book contribution.--For 
                        purposes of this paragraph, the term `qualified 
                        book contribution' means a charitable 
                        contribution of books, but only if the 
                        requirements of clauses (iv) and (v) are met.
                            ``(iv) Identity of donee.--The requirement 
                        of this clause is met if the contribution is to 
                        an organization--
                                    ``(I) described in subclause (I) or 
                                (III) of paragraph (6)(B)(i), or
                                    ``(II) described in section 
                                501(c)(3) and exempt from tax under 
                                section 501(a) (other than a private 
                                foundation, as defined in section 
                                509(a), which is not an operating 
                                foundation, as defined in section 
                                4942(j)(3)), which is organized 
                                primarily to make books available to 
                                the general public at no cost or to 
                                operate a literacy program.
                            ``(v) Certification by donee.--The 
                        requirement of this clause is met if, in 
                        addition to the certifications required by 
                        subparagraph (A) (as modified by this 
                        subparagraph), the donee certifies in writing 
                        that--
                                    ``(I) the books are suitable, in 
                                terms of currency, content, and 
                                quantity, for use in the donee's 
                                educational programs, and
                                    ``(II) the donee will use the books 
                                in its educational programs.
                            ``(vi) Bona fide published market price.--
                        For purposes of this subparagraph, the term 
                        `bona fide published market price' means, with 
                        respect to any book, a price--
                                    ``(I) determined using the same 
                                printing and edition,
                                    ``(II) determined in the usual 
                                market in which such a book has been 
                                customarily sold by the taxpayer, and
                                    ``(III) for which the taxpayer can 
                                demonstrate to the satisfaction of the 
                                Secretary that the taxpayer customarily 
                                sold such books in arm's length 
                                transactions within 7 years preceding 
                                the contribution of such a book.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions made in taxable years beginning after December 31, 
2005, and before January 1, 2008.

SEC. 306. MODIFICATION OF TAX TREATMENT OF CERTAIN PAYMENTS TO 
              CONTROLLING EXEMPT ORGANIZATIONS AND PUBLIC DISCLOSURE OF 
              INFORMATION RELATING TO UNRELATED BUSINESS INCOME.

    (a) Modification of Section 512(B)(13).--
            (1) In general.--Paragraph (13) of section 512(b) (relating 
        to special rules for certain amounts received from controlled 
        entities) is amended by redesignating subparagraph (E) as 
        subparagraph (F) and by inserting after subparagraph (D) the 
        following new subparagraph:
                    ``(E) Paragraph to apply only to excess payments.--
                            ``(i) In general.--Subparagraph (A) shall 
                        apply only to the portion of a specified 
                        payment received or accrued by the controlling 
                        organization that exceeds the amount which 
                        would have been paid or accrued if such payment 
                        met the requirements prescribed under section 
                        482.
                            ``(ii) Addition to tax for valuation 
                        misstatements.--The tax imposed by this chapter 
                        on the controlling organization shall be 
                        increased by an amount equal to 20 percent of 
                        the larger of--
                                    ``(I) such excess determined 
                                without regard to any amendment or 
                                supplement to a return of tax, or
                                    ``(II) such excess determined with 
                                regard to all such amendments and 
                                supplements.''.
            (2) Effective date.--
                    (A) In general.--The amendment made by this 
                subsection shall apply to payments received or accrued 
                after December 31, 2000.
                    (B) Payments subject to binding contract transition 
                rule.--If the amendments made by section 1041 of the 
                Taxpayer Relief Act of 1997 did not apply to any amount 
                received or accrued in the first 2 taxable years 
                beginning on or after the date of the enactment of the 
                Taxpayer Relief Act of 1997 under any contract 
                described in subsection (b)(2) of such section, such 
                amendments also shall not apply to amounts received or 
                accrued under such contract before January 1, 2001.
    (b) Public Availability of Unrelated Business Income Tax Returns.--
            (1) In general.--Subparagraph (A) of section 6104(d)(1) is 
        amended by redesignating clauses (ii) and (iii) as clauses 
        (iii) and (iv), respectively, and by inserting after clause (i) 
        the following new clause:
                            ``(ii) any annual return filed under 
                        section 6011 which relates to any tax imposed 
                        by section 511 (relating to imposition of tax 
                        on unrelated business income of charitable, 
                        etc., organizations) by such organization,''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to returns filed after the date of the enactment of 
        this Act.
    (c) Certification of Unrelated Business Taxable Income for Certain 
Organizations.--
            (1) In general.--Section 6011, as amended by section 311 of 
        this Act, is amended by redesignating subsection (h) as 
        subsection (i) and by inserting after subsection (g) the 
        following new subsection:
    ``(h) Returns of Certain Organizations Relating to Unrelated 
Business Taxable Income.--
            ``(1) In general.--Every applicable exempt organization 
        shall include with the return under subsection (a) for the 
        taxable year a statement by an independent auditor or an 
        independent counsel which meets the requirements of paragraph 
        (2).
            ``(2) Statement.--A statement meets the requirement of this 
        paragraph if the statement--
                    ``(A) contains a certification that--
                            ``(i) the information contained in the 
                        return--
                                    ``(I) has been reviewed by the 
                                auditor or counsel, and
                                    ``(II) to the best of the auditor's 
                                or counsel's knowledge, is accurate, 
                                and
                            ``(ii) to the best of the auditor's or 
                        counsel's knowledge, the allocation of expenses 
                        between the unrelated trades and business of 
                        the organization and the activities related to 
                        the purpose or function constituting the basis 
                        of the organization's exemption under section 
                        501 complies with the requirements set forth by 
                        the Secretary under section 512, and
                    ``(B) indicates--
                            ``(i) whether the auditor or counsel has 
                        provided a tax opinion to the organization 
                        regarding--
                                    ``(I) the classification of any 
                                trade or business of the organization 
                                as an unrelated trade or business, or
                                    ``(II) the treatment of any income 
                                as unrelated business taxable income, 
                                and
                            ``(ii) a description of any material facts 
                        with respect to any such opinion.
            ``(3) Applicable exempt organization.--For purposes of this 
        subsection, the term `applicable exempt organization' means any 
        organization which--
                    ``(A) is described in section 501(c)(3),
                    ``(B) has--
                            ``(i) gross income and receipts of not less 
                        than $10,000,000 for the taxable year, or
                            ``(ii) gross assets of not less than 
                        $10,000,000 on the last day of the taxable 
                        year, and
                    ``(C) is subject to the tax imposed under section 
                511 for the taxable year.''.
            (2) Penalty.--
                    (A) In general.--Part I of subchapter B of chapter 
                68 (relating to assessable penalties), as amended by 
                section 316 of this Act, is amended by adding at the 
                end the following new section:

``SEC. 6720C. UNRELATED BUSINESS INCOME REQUIREMENTS.

    ``(a) In General.--Any applicable exempt organization (as defined 
in section 6011(h)(3)) which fails to file a statement required under 
section 6011(h) shall pay a penalty in an amount equal to \1/2\ percent 
of the gross revenue amount of such organization for the taxable year 
to which such statement relates.
    ``(b) Gross Revenue Amount.--For purposes of subsection (a), the 
term `gross revenue amount' means, with respect to any taxable year, 
the gross income and receipts of the organization determined without 
regard to any contributions or grants received by the organization.
    ``(c) Reasonable Cause.--No penalty shall be imposed under this 
section with respect to any failure if it is shown that such failure is 
due to reasonable cause.''.
                    (B) Conforming amendment.--The table of sections of 
                part I of subchapter B of chapter 68, as amended by 
                section 316 of this Act, is amended by adding after the 
                item relating to section 6720B the following new item:

        ``Sec. 6720C. Unrelated business income requirements.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to returns for taxable years beginning after the 
        date of the enactment of this Act.

             Subtitle B--Reforming Charitable Organizations

                        PART I--GENERAL REFORMS

SEC. 311. TAX INVOLVEMENT BY EXEMPT ORGANIZATIONS IN TAX SHELTER 
              TRANSACTIONS.

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

                ``Subchapter F--Tax Shelter Transactions

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

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

    ``(a) Participation in and Approval of Prohibited Transactions.--
            ``(1) Tax-exempt entity.--
                    ``(A) In general.--If any tax-exempt entity (other 
                than a tax-exempt entity described in paragraph (4), 
                (5), (6), or (7) of subsection (c)) is a party to a 
                prohibited tax shelter transaction at any time during 
                the taxable year and knows or has reason to know such 
                transaction is a prohibited tax shelter transaction, 
                such entity shall pay a tax for such taxable year in 
                the amount determined under subsection (b)(1)(A).
                    ``(B) Post-transaction determination.--If any tax-
                exempt entity (other than a tax-exempt entity described 
                in paragraph (4), (5), (6), or (7) of subsection (c)) 
                is a party to a subsequently listed transaction at any 
                time during the taxable year, such entity shall pay a 
                tax in the amount determined under subsection 
                (b)(1)(B).
            ``(2) Entity manager.--If any entity manager of a tax-
        exempt entity approves such entity as (or otherwise causes such 
        entity to be) a party to a prohibited tax shelter transaction 
        at any time during the taxable year and knows or has reason to 
        know that the transaction is a prohibited tax shelter 
        transaction, such manager shall pay a tax for such taxable year 
        in the amount determined under subsection (b)(2).
            ``(3) Reasonable cause exception.--No tax shall be imposed 
        under paragraph (1)(A) or (2) if it is shown that the 
        participation of the tax-exempt entity in the transaction was 
        not willful and was due to reasonable cause.
    ``(b) Amount of Tax.--
            ``(1) Entity.--In the case of a tax-exempt entity--
                    ``(A) In general.--The amount of the tax imposed 
                under subsection (a)(1)(A) on the entity with respect 
                to a taxable year shall be the greater of--
                            ``(i) 100 percent of the entity's net 
                        income (after taking into account any tax 
                        imposed by this subtitle with respect to the 
                        prohibited tax shelter transaction) for such 
                        taxable year which is attributable to the 
                        prohibited tax shelter transaction, or
                            ``(ii) 75 percent of the proceeds received 
                        by the entity which are attributable to the 
                        prohibited tax shelter transaction.
                    ``(B) Post-transaction determination.--The amount 
                of the tax imposed under subsection (a)(1)(B) on the 
                entity with respect to any taxable year shall be an 
                amount equal to the product of--
                            ``(i) the highest rate of tax under section 
                        11, and
                            ``(ii) the greater of--
                                    ``(I) the entity's net income 
                                (after taking into account any tax 
                                imposed by this subtitle with respect 
                                to the subsequently listed transaction) 
                                for such taxable year which is 
                                attributable to the subsequently listed 
                                transaction and which is properly 
                                allocable to the period beginning on 
                                the later of the date such transaction 
                                is identified by guidance as a listed 
                                transaction by the Secretary or the 
                                first day of the taxable year, or
                                    ``(II) 75 percent of the proceeds 
                                received by the entity which are 
                                attributable to the subsequently listed 
                                transaction and which are properly 
                                allocable to the period beginning on 
                                the later of the date such transaction 
                                is identified by guidance as a listed 
                                transaction by the Secretary or the 
                                first day of the taxable year.
            ``(2) Entity manager.--In the case of each entity manager 
        to whom subsection (a)(2) applies, the amount of the tax under 
        such subsection shall be $20,000 for each approval.
    ``(c) Tax-Exempt Entity.--For purposes of this section, the term 
`tax-exempt entity' means an entity which is--
            ``(1) described in section 501(c) or 501(d),
            ``(2) described in section 170(c) (other than an agency or 
        instrumentality of the United States) to which paragraph (1) of 
        this subsection does not apply,
            ``(3) an Indian tribal government (within the meaning of 
        section 7701(a)(40)),
            ``(4) described in paragraph (1), (2), or (3) of section 
        4979(e),
            ``(5) a program described in section 529,
            ``(6) an eligible deferred compensation plan described in 
        section 457(b) which is maintained by an employer described in 
        section 4457(e)(1)(A), or
            ``(7) an arrangement described in section 4973(a).
    ``(d) Entity Manager.--For purposes of this section, the term 
`entity manager' means--
            ``(1) with respect to a tax-exempt entity described in 
        paragraph (3) or (4) of section 501(c)--
                    ``(A) in the case of an entity other than a private 
                foundation, an organization manager (as defined in 
                section 4958(f)(2)), and
                    ``(B) in the case of a private foundation, a 
                foundation manager (as defined in section 4946(b)), and
            ``(2) in all other cases, the person with authority or 
        responsibility similar to that exercised by an officer, 
        director, or trustee of an organization.
    ``(e) Prohibited Tax Shelter Transaction; Subsequently Listed 
Transaction.--For purposes of this section--
            ``(1) Prohibited tax shelter transaction.--
                    ``(A) In general.--The term `prohibited tax shelter 
                transaction' means--
                            ``(i) any listed transaction, or
                            ``(ii) any prohibited reportable 
                        transaction if the tax-exempt entity knows or 
                        has reason to know that such transaction is a 
                        reportable transaction.
                    ``(B) Listed transaction.--The term `listed 
                transaction' has the meaning given such term by section 
                6707A(c)(2).
                    ``(C) Prohibited reportable transaction.--The term 
                `prohibited reportable transaction' means any 
                confidential transaction or any transaction with 
                contractual protection (as defined under regulations 
                prescribed by the Secretary) which is a reportable 
                transaction (as defined in section 6707A(c)(1)).
            ``(2) Subsequently listed transaction.--The term 
        `subsequently listed transaction' means any transaction to 
        which a tax-exempt entity is a party and which is determined by 
        the Secretary to be a listed transaction at any time after the 
        entity has entered into the transaction.
    ``(f) Regulatory Authority.--The Secretary is authorized to 
promulgate regulations which provide guidance regarding the 
determination of the allocation of net income of a tax-exempt entity 
attributable to a transaction to various periods, including before and 
after the listing of the transaction or the date which is 90 days after 
the date of the enactment of this section.
    ``(g) Coordination With Other Taxes and Penalties.--The tax imposed 
by this section is in addition to any other tax, addition to tax, or 
penalty imposed under this title.''.
            (2) Conforming amendment.--The table of subchapters of 
        chapter 42 is amended by adding at the end the following new 
        item:
              ``subchapter f. tax shelter transactions.''.
    (b) Disclosure Requirements.--
            (1) Disclosure by organization to the internal revenue 
        service.--
                    (A) In general.--Section 6033(a) (relating to 
                organizations required to file) is amended by 
                redesignating paragraph (2) as paragraph (3), and by 
                inserting after paragraph (1) the following new 
                paragraph:
            ``(2) Participation in certain reportable transactions.--
        Every tax-exempt entity described in section 4965(c) shall file 
        (in such form and manner and at such time as determined by the 
        Secretary) a disclosure of--
                    ``(A) such entity's participation in any prohibited 
                tax shelter transaction (as defined in section 
                4965(e)), and
                    ``(B) the identity of any other party participating 
                in such transaction which is known by such tax-exempt 
                entity.''.
                    (B) Conforming amendment.--Section 6033(a)(1) is 
                amended by striking ``paragraph (2)'' and inserting 
                ``paragraph (3)''.
            (2) Disclosure by other taxpayers to the tax-exempt 
        entity.--Section 6011 (relating to general requirement of 
        return, statement, or list) is amended by redesignating 
        subsection (g) as subsection (h) and by inserting after 
        subsection (f) the following new subsection:
    ``(g) Disclosure of Reportable Transaction to Tax-Exempt Entity.--
Any taxable party to a prohibited tax shelter transaction (as defined 
in section 4965(e)(1)) shall by statement disclose to any tax-exempt 
entity (as defined in section 4965(c)) which is a party to such 
transaction that such transaction is such a prohibited tax shelter 
transaction.''.
    (c) Penalty for Nondisclosure.--
            (1) In general.--Section 6652(c) (relating to returns by 
        exempt organizations and by certain trusts), as amended by 
        section 302, 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:
            ``(2) Disclosure under section 6033.--
                    ``(A) Penalty on organizations.--In the case of a 
                failure to file a disclosure required under section 
                6033(a)(2), there shall be paid by the tax-exempt 
                entity (the entity manager in the case of a tax-exempt 
                entity described in paragraph (4), (5), (6), or (7) of 
                section 4965(c)) $100 for each day during which such 
                failure continues. The maximum penalty under this 
                subparagraph on failures with respect to any 1 
                disclosure shall not exceed $50,000.
                    ``(B) Persons.--
                            ``(i) In general.--The Secretary may make a 
                        written demand on any tax-exempt entity subject 
                        to penalty under subparagraph (A) specifying 
                        therein a reasonable future date by which the 
                        disclosure shall be filed for purposes of this 
                        subparagraph.
                            ``(ii) Failure to comply with demand.--If 
                        any person fails to comply with any demand 
                        under clause (i) on or before the date 
                        specified in such demand, there shall be paid 
                        by such person failing to so comply $100 for 
                        each day after the expiration of the time 
                        specified in such demand during which such 
                        failure continues. The maximum penalty imposed 
                        under this subparagraph on all tax-exempt 
                        entities for failures with respect to any 1 
                        disclosure shall not exceed $10,000.
                    ``(C) Definitions.--Any term used in this section 
                which is also used in section 4965 shall have the 
                meaning given such term under section 4965.''.
            (2) Conforming amendment.--Subparagraph (A) of section 
        6652(c)(1) of such Code is amended by striking ``6033'' each 
        place it appears in the text and heading thereof and inserting 
        ``6033(a)(1)''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to transactions 
        after the date of the enactment of this Act, except that no tax 
        under section 4965(a) of the Internal Revenue Code of 1986 (as 
        added by this section) shall apply with respect to income that 
        is properly allocable to any period on or before the date which 
        is 90 days after such date of enactment.
            (2) Disclosure.--The amendments made by subsections (b) and 
        (c) shall apply to disclosures the due date for which are after 
        the date of the enactment of this Act.

SEC. 312. EXCISE TAX ON CERTAIN ACQUISITIONS OF INTERESTS IN INSURANCE 
              CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD AN 
              INTEREST.

    (a) Imposition of Tax.--
            (1) In general.--Subchapter F of chapter 42 (relating to 
        tax shelter transactions), as added by this Act, is amended by 
        adding at the end the following new section:

``SEC. 4966. EXCISE TAX ON ACQUISITION OF INTERESTS IN INSURANCE 
              CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD AN 
              INTEREST.

    ``(a) Imposition of Tax.--If there is a taxable acquisition of any 
interest in an applicable insurance contract, there is hereby imposed 
on the person acquiring the interest a tax equal to 100 percent of the 
acquisition costs of the interest.
    ``(b) Taxable Acquisition.--For purposes of this section--
            ``(1) In general.--The term `taxable acquisition' means the 
        acquisition of any direct or indirect interest in an applicable 
        insurance contract by--
                    ``(A) an applicable exempt organization, or
                    ``(B) a person other than an applicable exempt 
                organization if such interest in the hands of such 
                person is not an interest described in clause (i), 
                (ii), (iii), or (iv) of paragraph (2)(B).
            ``(2) Applicable insurance contract.--
                    ``(A) In general.--The term `applicable insurance 
                contract' means any life insurance, annuity, or 
                endowment contract with respect to which both an 
                applicable exempt organization and a person other than 
                an applicable exempt organization have directly or 
                indirectly held an interest in the contract (whether or 
                not at the same time).
                    ``(B) Exceptions.--Such term shall not include a 
                life insurance, annuity, or endowment contract if--
                            ``(i) all persons directly or indirectly 
                        holding any interest in the contract (other 
                        than applicable exempt organizations) have an 
                        insurable interest in the insured under the 
                        contract independent of any interest of an 
                        applicable exempt organization in the contract,
                            ``(ii) the sole interest in the contract of 
                        each person other than an applicable exempt 
                        organization is as a named beneficiary,
                            ``(iii) the sole interest in the contract 
                        of each person other than an applicable exempt 
                        organization is--
                                    ``(I) as a beneficiary of a trust 
                                holding an interest in the contract, 
                                but only if the person's designation as 
                                such beneficiary was made without 
                                consideration and solely on a purely 
                                gratuitous basis, or
                                    ``(II) as a trustee who holds an 
                                interest in the contract in a fiduciary 
                                capacity solely for the benefit of 
                                applicable exempt organizations or 
                                persons otherwise described in clauses 
                                (i), (ii), and (iv) or subclause (I) of 
                                this clause, or
                            ``(iv) except as provided in subparagraph 
                        (C), the sole interest in the contract of each 
                        person other than an applicable exempt 
                        organization is as a lender with respect to the 
                        contract and the contract covers only 1 
                        individual and such individual is an officer, 
                        director, or employee of the applicable exempt 
                        organization with an interest in the contract.
                    ``(C) Restrictions on exception for lenders.--
                            ``(i) Numerical limit.--The number of 
                        contracts that may be taken into account under 
                        subparagraph (B)(iv) with respect to officers, 
                        directors, or employees of the applicable 
                        exempt organization with interests in the 
                        contracts shall not exceed the greater of--
                                    ``(I) the lesser of 5 percent of 
                                the total officers, directors, and 
                                employees of the organization or 20, or
                                    ``(II) 5.
                            ``(ii) Aggregate indebtedness.--The 
                        exception under subparagraph (B)(iv) shall 
                        apply only to the extent that the aggregate 
                        amount of the indebtedness with respect to 1 or 
                        more contracts covering a single individual 
                        does not exceed $50,000.
                    ``(D) Secretarial authority.--The Secretary may 
                exempt a contract from treatment as an applicable 
                insurance contract based on specific factors, including 
                factors such as whether the transaction is at arms 
                length, whether economic benefits to the applicable 
                exempt organization substantially exceed the economic 
                benefits to all other persons with an interest in the 
                contract (determined without regard to whether, or the 
                extent to which, such organization has paid or 
                contributed with respect to the contract), and the 
                likelihood of abuse.
            ``(3) Definition and rule relating to acquisition costs.--
                    ``(A) Acquisition costs defined.--The term 
                `acquisition costs' means the direct or indirect costs 
                of acquiring an interest in an applicable insurance 
                contract. Such term shall include any fees, 
                commissions, charges, or other amounts paid in 
                connection with the acquisition, whether or not paid to 
                the issuer of the contract.
                    ``(B) Timing of payments.--Except as provided in 
                regulations, if acquisition costs of any acquisition 
                are paid or incurred in more than 1 calendar year, the 
                tax imposed by subsection (a) with respect to the 
                acquisition shall be imposed each time the costs are so 
                paid or incurred.
            ``(4) Rules relating to interests.--
                    ``(A) In general.--An interest in the contract 
                includes any right with respect to the contract, 
                whether as an owner, beneficiary, or otherwise.
                    ``(B) Indirect interests.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), an indirect interest in a contract 
                        includes an interest in an entity which 
                        directly or indirectly holds an interest in the 
                        contract.
                            ``(ii) Portfolio investments.--If an 
                        applicable exempt organization holds an 
                        interest in a contract solely because the 
                        organization holds, as part of a diversified 
                        investment strategy, a de minimis interest in 
                        an entity which directly or indirectly holds 
                        the interest in the contract, such indirect 
                        interest in the contract shall not be taken 
                        into account for purposes of this section.
                    ``(C) Exchanged contracts.--In the case of an 
                exchange of an applicable insurance contract on which 
                no gain or loss is recognized under section 1035, any 
                interest in any of the contracts involved in the 
                exchange shall be treated as an interest in all such 
                contracts.
            ``(5) Increase in interest.--If a person increases an 
        interest in an applicable insurance contract, the increase 
        shall be treated as a separate acquisition for purposes of this 
        section.
            ``(6) Prior acquisitions.--Except as provided in 
        regulations, if a person acquires an interest in a contract 
        before the contract is treated as an applicable insurance 
        contract, the acquisition shall be treated as a taxable 
        acquisition of an interest in an applicable insurance contract 
        as of the date the contract becomes an applicable insurance 
        contract.
    ``(c) Applicable Exempt Organization.--For purposes of this 
section, the term `applicable exempt organization' means--
            ``(1) an organization described in section 170(c),
            ``(2) an organization described in section 
        168(h)(2)(A)(iv), or
            ``(3) an organization not described in paragraph (1) or (2) 
        which is described in section 2055(a) or section 2522(a).
    ``(d) Tax Not Treated as Investment in the Contract.--For purposes 
of section 72, the tax imposed by this section shall not be included in 
investment in the contract.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this section. Such 
regulations may include regulations which--
            ``(1) provide, for purposes of subsection (b)(6), 
        appropriate rules for the application of this section in any 
        case where an interest is acquired before a contract becomes an 
        applicable insurance contract,
            ``(2) prevent, in cases the Secretary determines 
        appropriate, the imposition of more than one tax under this 
        section if the same interest is acquired more than once, and
            ``(3) are designed to prevent avoidance of the purposes of 
        this section, including through the use of intermediaries.''.
            (2) Conforming amendment.--The table of sections for 
        subchapter F of chapter 42, as added by this Act, is amended by 
        adding at the end the following new item:

        ``Sec. 4966. Excise tax on acquisition of interests in 
                            insurance contracts in which certain exempt 
                            organizations hold an interest.''.
    (b) Reporting Requirements.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 (relating to information concerning transactions 
        with other persons), as amended by this Act, is amended by 
        adding at the end the following new section:

``SEC. 6050V. RETURNS RELATING TO APPLICABLE INSURANCE CONTRACTS IN 
              WHICH CERTAIN EXEMPT ORGANIZATIONS HOLD INTERESTS.

    ``(a) Requirements of Reporting.--
            ``(1) Exempt organizations.--Each--
                    ``(A) applicable exempt organization which acquires 
                (within the meaning of section 4966) an interest in any 
                applicable insurance contract, and
                    ``(B) other person which makes an acquisition of 
                such an interest if such acquisition is taxable under 
                section 4966,
        shall make the return described in subsection (c).
            ``(2) Transfers.--If a person (including an applicable 
        exempt organization) acquires an interest in an applicable 
        insurance contract in an acquisition which is taxable under 
        section 4966 and then transfers such interest to 1 or more 
        other persons, each person acquiring all or a portion of such 
        interest shall make the return described in subsection (c).
    ``(b) Time for Making Return.--Any organization or person required 
to make a return under subsection (a) shall file such return at such 
time as may be established by the Secretary with respect to--
            ``(1) in the case of a person described in subsection 
        (a)(1), the calendar year in which the acquisition occurs, any 
        calendar year in which acquisition costs are paid or incurred, 
        and any other calendar years specified by the Secretary, and
            ``(2) in the case of a person described in subsection 
        (a)(2), the calendar year in which the transfer occurs.
    ``(c) Form and Manner of Returns.--A return is described in this 
subsection if such return--
            ``(1) is in such form as the Secretary prescribes,
            ``(2) in the case of--
                    ``(A) a return required under subsection (a)(1)(A), 
                contains the name, address, and taxpayer identification 
                number of the applicable exempt organization, the 
                issuer of the applicable insurance contract, and any 
                person acquiring an interest in the contract if the 
                acquisition is taxable under section 4966,
                    ``(B) a return required under subsection (a)(1)(B), 
                contains the name, address, and taxpayer identification 
                number of the person acquiring an interest in the 
                applicable insurance contract if the acquisition is 
                taxable under section 4966, any applicable exempt 
                organization holding an interest in the contract, and 
                the issuer of the contract, and
                    ``(C) a return required under subsection (a)(2), 
                contains the name, address, and taxpayer identification 
                number of the transferor and transferee, and
            ``(3) contains such other information as the Secretary may 
        prescribe.
    ``(d) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each person whose taxpayer 
identification information is required to be included in such return 
under subsection (c) a written statement showing--
            ``(1) the name and address of the person required to make 
        such return and the telephone number of the information contact 
        for such person, and
            ``(2) the taxpayer identity and other information required 
        to be shown on the return with respect to such person.
The written statement required under the preceding sentence shall be 
furnished on or before the date specified by the Secretary.
    ``(e) Definitions.--For purposes of this section, any term used in 
this section which is also used in section 4966 shall have the meaning 
given such term by section 4966.''.
            (2) Penalties.--
                    (A) In general.--Section 6724(d) is amended--
                            (i) in paragraph (1)(B), by redesignating 
                        clauses (xiii) through (xviii) as clauses (xiv) 
                        through (xix) and by inserting after clause 
                        (xii) the following new clause:
                            ``(xiii) section 6050V (relating to returns 
                        relating to applicable insurance contracts in 
                        which certain exempt organizations hold 
                        interests),'', and
                            (ii) in paragraph (3), by striking ``and'' 
                        at the end of subparagraph (C), by striking the 
                        period at the end of subparagraph (D) and 
                        inserting ``, and'', and by adding at the end 
                        the following new subparagraph:
                    ``(E) the statement required by subsection (d) of 
                section 6050V (relating to returns relating to 
                applicable insurance contracts in which certain exempt 
                organizations hold interests).''.
                    (B) Intentional disregard.--Section 6721(e)(2) is 
                amended by striking ``or'' at the end of subparagraph 
                (B), by striking ``and'' at the end of subparagraph (C) 
                and inserting ``or'', and by adding at the end the 
                following new subparagraph:
                    ``(D) in the case of a return required to be filed 
                under section 6050V, the amount of tax imposed under 
                section 4966 which has not been paid with respect to 
                items required to be included on the return, and''.
            (3) Conforming amendment.--The table of sections for 
        subpart B of part III of subchapter A of chapter 61, as amended 
        by this Act, is amended by adding at the end the following new 
        item:

        ``Sec. 6050V. Returns relating to applicable insurance 
                            contracts in which certain exempt 
                            organizations hold interests.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to contracts issued after May 3, 2005.
            (2) Reporting of existing contracts.--In the case of any 
        life insurance, annuity, or endowment contract--
                    (A) which was issued on or before May 3, 2005,
                    (B) with respect to which an applicable exempt 
                organization (as defined in section 4966 of the 
                Internal Revenue Code of 1986, as added by this 
                section) holds an interest on May 3, 2005, and
                    (C) which would be treated as an applicable 
                insurance contract (as so defined) if issued after May 
                3, 2005,
        such organization shall, not later than the date which is 1 
        year after the date of the enactment of this Act, report to the 
        Secretary of the Treasury with respect to such contract. Such 
        report shall be in such form and manner, and contain such 
        information, as the Secretary may prescribe. The Secretary 
        shall submit such reports, along with any recommendations for 
        legislation as the Secretary considers appropriate, to the 
        Committee on Ways and Means of the House of Representatives and 
        to the Committee on Finance of the Senate within 6 months of 
        the date such reports are required to be filed.

SEC. 313. INCREASE IN PENALTY EXCISE TAXES ON PUBLIC CHARITIES, SOCIAL 
              WELFARE ORGANIZATIONS, AND PRIVATE FOUNDATIONS.

    (a) Taxes on Self-Dealing and Excess Benefit Transactions.--
            (1) In general.--Section 4941(a) (relating to initial 
        taxes) is amended--
                    (A) in paragraph (1), by striking ``5 percent'' and 
                inserting ``10 percent'', and
                    (B) in paragraph (2), by striking ``2\1/2\ 
                percent'' and inserting ``5 percent''.
            (2) Increase in tax if self-dealing includes compensation 
        to disqualified person.--Section 4941(a)(1) is amended by 
        adding at the end the following new sentence: ``If the act of 
        self-dealing includes acts described in subsection (d)(1)(D), 
        `25 percent' shall be substituted for `10 percent', except that 
        the Secretary may abate under section 4962 (determined without 
        regard to the exception under subsection (b) thereof) not more 
        than 15 percentage points of such tax.''.
            (3) Increased limitation for managers on self-dealing.--
        Section 4941(c)(2) is amended by striking ``$10,000'' each 
        place it appears in the text and in the heading and inserting 
        ``$20,000''.
            (4) Increased limitation for managers on excess benefit 
        transactions.--Section 4958(d)(2) is amended by striking 
        ``$10,000'' and inserting ``$20,000''.
    (b) Taxes on Failure To Distribute Income.--Section 4942(a) 
(relating to initial tax) is amended by striking ``15 percent'' and 
inserting ``30 percent''.
    (c) Taxes on Excess Business Holdings.--Section 4943(a)(1) 
(relating to imposition) is amended by striking ``5 percent'' and 
inserting ``10 percent''.
    (d) Taxes on Investments Which Jeopardize Charitable Purpose.--
            (1) In general.--Section 4944(a) (relating to initial 
        taxes) is amended by striking ``5 percent'' both places it 
        appears and inserting ``10 percent''.
            (2) Increased limitation for managers.--Section 4944(d)(2) 
        is amended--
                    (A) by striking ``$5,000,'' and inserting 
                ``$10,000,'', and
                    (B) by striking ``$10,000.'' and inserting 
                ``$20,000.''.
    (e) Taxes on Taxable Expenditures.--
            (1) In general.--Section 4945(a) (relating to initial 
        taxes) is amended--
                    (A) in paragraph (1), by striking ``10 percent'' 
                and inserting ``20 percent'', and
                    (B) in paragraph (2), by striking ``2\1/2\ 
                percent'' and inserting ``5 percent''.
            (2) Increased limitation for managers.--Section 4945(c)(2) 
        is amended--
                    (A) by striking ``$5,000,'' and inserting 
                ``$10,000,'', and
                    (B) by striking ``$10,000.'' and inserting 
                ``$20,000.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 314. REFORM OF CHARITABLE CONTRIBUTIONS OF CERTAIN EASEMENTS ON 
              BUILDINGS IN REGISTERED HISTORIC DISTRICTS.

    (a) Special Rules With Respect to Buildings in Registered Historic 
Districts.--
            (1) In general.--Paragraph (4) of section 170(h) (relating 
        to definition of conservation purpose) is amended by 
        redesignating subparagraph (B) as subparagraph (C) and by 
        inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) Special rules with respect to buildings in 
                registered historic districts.--In the case of any 
                contribution of a qualified real property interest 
                which is a restriction with respect to the exterior of 
                a building described in subparagraph (C)(ii), such 
                contribution shall not be considered to be exclusively 
                for conservation purposes unless--
                            ``(i) such interest--
                                    ``(I) includes a restriction which 
                                preserves the entire exterior of the 
                                building (including the front, sides, 
                                rear, and height of the building), and
                                    ``(II) prohibits any change in the 
                                exterior of the building which is 
                                inconsistent with the historical 
                                character of such exterior,
                            ``(ii) the donor and donee enter into a 
                        written agreement certifying, under penalty of 
                        perjury, that the donee--
                                    ``(I) is a qualified organization 
                                (as defined in paragraph (3)) with a 
                                purpose of environmental protection, 
                                land conservation, open space 
                                preservation, or historic preservation, 
                                and
                                    ``(II) has the resources to manage 
                                and enforce the restriction and a 
                                commitment to do so, and
                            ``(iii) in the case of any contribution 
                        made in a taxable year beginning after the date 
                        of the enactment of this subparagraph, the 
                        taxpayer includes with the taxpayer's return 
                        for the taxable year of the contribution--
                                    ``(I) a qualified appraisal (within 
                                the meaning of subsection (f)(11)(E)) 
                                of the qualified property interest,
                                    ``(II) photographs of the entire 
                                exterior of the building, and
                                    ``(III) a description of all 
                                restrictions on the development of the 
                                building.''.
    (b) Disallowance of Deduction for Structures and Land in Registered 
Historic Districts.--Subparagraph (C) of section 170(h)(4), as 
redesignated by subsection (a), is amended--
            (1) by striking ``any building, structure, or land area 
        which'',
            (2) by inserting ``any building, structure, or land area 
        which'' before ``is listed'' in clause (i), and
            (3) by inserting ``any building which'' before ``is 
        located'' in clause (ii).
    (c) Filing Fee for Certain Contributions.--Subsection (f) of 
section 170 (relating to disallowance of deduction in certain cases and 
special rules) is amended by inserting at the end the following new 
paragraph:
            ``(13) Contributions of certain interests in buildings 
        located in registered historic districts.--
                    ``(A) In general.--No deduction shall be allowed 
                with respect to any contribution described in 
                subparagraph (B) unless the taxpayer includes with the 
                return for the taxable year of the contribution a $500 
                filing fee.
                    ``(B) Contribution described.--A contribution is 
                described in this subparagraph if such contribution is 
                a qualified conservation contribution (as defined in 
                subsection (h)) which is a restriction with respect to 
                the exterior of a building described in subsection 
                (h)(4)(C)(ii) and for which a deduction is claimed in 
                excess of the greater of--
                            ``(i) 3 percent of the fair market value of 
                        the building (determined immediately before 
                        such contribution), or
                            ``(ii) $10,000.
                    ``(C) Dedication of fee.--Any fee collected under 
                this paragraph shall be used for the enforcement of the 
                provisions of subsection (h).''.
    (d) Effective Date.--
            (1) Special rules for buildings in registered historic 
        districts.--The amendments made by subsection (a) shall apply 
        to contributions made after November 15, 2005.
            (2) Disallowance of deduction for structures and land.--The 
        amendments made by subsection (b) shall apply to contributions 
        made after the date of the enactment of this Act.
            (3) Filing fee.--The amendment made by subsection (c) shall 
        apply to contributions made 180 days after the date of the 
        enactment of this Act.

SEC. 315. CHARITABLE CONTRIBUTIONS OF TAXIDERMY PROPERTY.

    (a) In General.--Subsection (f) of section 170, as amended by 
section 314 of this Act, is amended by adding at the end the following 
new paragraph:
            ``(14) Contributions of taxidermy property.--
                    ``(A) Contributions of more than $500.--In the case 
                of any contribution of taxidermy property for which a 
                deduction of more than $500 is claimed, no deduction 
                shall be allowed under subsection (a) unless the donor 
                includes with the return for the taxable year in which 
                the contribution is made a photograph of the taxidermy 
                property and data with respect to the sales prices of 
                similar taxidermy property.
                    ``(B) Contributions of more than $5,000.--In the 
                case of any contribution of taxidermy property for 
                which a deduction of more than $5,000 is claimed, no 
                deduction shall be allowed under subsection (a) unless 
                the donor--
                            ``(i) notifies the Internal Revenue Service 
                        of such deduction, and
                            ``(ii) includes with the return for the 
                        taxable year in which the contribution is 
                        made--
                                    ``(I) a statement of value from the 
                                Internal Revenue Service, or
                                    ``(II) a request for a statement of 
                                value from the Internal Revenue Service 
                                and a $500 fee.
                    ``(C) Taxidermy property.--For purposes of this 
                section, the term `taxidermy property' means a mounted 
                work of art which contains any part of a dead 
                animal.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions made after November 15, 2005.

SEC. 316. RECAPTURE OF TAX BENEFIT FOR CHARITABLE CONTRIBUTIONS OF 
              EXEMPT USE PROPERTY NOT USED FOR AN EXEMPT USE.

    (a) Recapture of Deduction on Certain Sales of Exempt Use 
Property.--
            (1) In general.--Clause (i) of section 170(e)(1)(B) 
        (related to certain contributions of ordinary income and 
        capital gain property) is amended to read as follows:
                            ``(i) of tangible personal property--
                                    ``(I) if the use by the donee is 
                                unrelated to the purpose or function 
                                constituting the basis for its 
                                exemption under section 501 (or, in the 
                                case of a governmental unit, to any 
                                purpose or function described in 
                                subsection (c)), or
                                    ``(II) which is applicable property 
                                (as defined in paragraph (7)(C)) which 
                                is sold, exchanged, or otherwise 
                                disposed of by the donee before the 
                                last day of the taxable year in which 
                                the contribution was made and with 
                                respect to which the donee has not made 
                                a certification in accordance with 
                                paragraph (7)(D),''.
            (2) Dispositions after close of taxable year.--Section 
        170(e) is amended by adding at the end the following new 
        paragraph:
            ``(7) Recapture of deduction on certain dispositions of 
        exempt use property.--
                    ``(A) In general.--In the case of an applicable 
                disposition of applicable property, there shall be 
                included in the income of the donor of such property 
                for the taxable year of such donor in which the 
                applicable disposition occurs an amount equal to the 
                excess (if any) of--
                            ``(i) the amount of the deduction allowed 
                        to the donor under this section with respect to 
                        such property, over
                            ``(ii) the donor's basis in such property 
                        at the time such property was contributed.
                    ``(B) Applicable disposition.--For purposes of this 
                paragraph, the term `applicable disposition' means any 
                sale, exchange, or other disposition by the donee of 
                applicable property--
                            ``(i) after the last day of the taxable 
                        year of the donor in which such property was 
                        contributed, and
                            ``(ii) before the last day of the 3-year 
                        period beginning on the date of the 
                        contribution of such property,
                unless the donee makes a certification in accordance 
                with subparagraph (D).
                    ``(C) Applicable property.--For purposes of this 
                paragraph, the term `applicable property' means 
                charitable deduction property (as defined in section 
                6050L(a)(2)(A))--
                            ``(i) which is tangible personal property 
                        the use of which is identified by the donee as 
                        related to the purpose or function constituting 
                        the basis of the donee's exemption under 
                        section 501, and
                            ``(ii) for which a deduction in excess of 
                        the donor's basis is allowed.
                    ``(D) Certification.--A certification meets the 
                requirements of this subparagraph if it is a written 
                statement which is signed under penalty of perjury by 
                an officer of the donee organization and--
                            ``(i) which--
                                    ``(I) certifies that the use of the 
                                property by the donee was related to 
                                the purpose or function constituting 
                                the basis for the donee's exemption 
                                under section 501, and
                                    ``(II) describes how the property 
                                was used and how such use furthered 
                                such purpose or function, or
                            ``(ii) which--
                                    ``(I) states the intended use of 
                                the property by the donee at the time 
                                of the contribution, and
                                    ``(II) certifies that such intended 
                                use has become impossible or infeasible 
                                to implement.''.
    (b) Reporting Requirements.--Paragraph (1) of section 6050L(a) 
(relating to returns relating to certain dispositions of donated 
property) is amended--
            (1) by striking ``2 years'' and inserting ``3 years'', and
            (2) by striking ``and'' at the end of subparagraph (D), by 
        striking the period at the end of subparagraph (E) and 
        inserting a comma, and by inserting at the end the following:
                    ``(F) a description of the donee's use of the 
                property, and
                    ``(G) a statement indicating whether the use of the 
                property was related to the purpose or function 
                constituting the basis for the donee's exemption under 
                section 501.
        In any case in which the donee indicates that the use of 
        applicable property (as defined in section 170(e)(1)(C)) was 
        related to the purpose or function constituting the basis for 
        the exemption of the donee under section 501 under subparagraph 
        (G), the donee shall include with the return the certification 
        described in section 170(e)(7)(D) if such certification is 
        required under section 170(e)(7).''.
    (c) Penalty.--
            (1) In general.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by inserting 
        after section 6720A the following new section:

``SEC. 6720B. FRAUDULENT IDENTIFICATION OF EXEMPT USE PROPERTY.

    ``In addition to any criminal penalty provided by law, any person 
who identifies applicable property (as defined in section 170(e)(7)(C)) 
as having a use which is related to a purpose or function constituting 
the basis for the donee's exemption under section 501 and who knows 
that such property is not intended for such a use shall pay a penalty 
of $10,000.''.
            (2) Clerical amendment.--The table of sections for part I 
        of subchapter B of chapter 68 is amended by adding after the 
        item relating to section 6720A the following new item:

``Sec. 6720B. Fraudulent identification of exempt use property.''.
    (d) Effective Date.--
            (1) Recapture.--The amendments made by subsection (a) shall 
        apply to contributions after June 1, 2006.
            (2) Reporting.--The amendments made by subsection (b) shall 
        apply to returns filed after June 1, 2006.
            (3) Penalty.--The amendments made by subsection (c) shall 
        apply to identifications made after the date of the enactment 
        of this Act.

SEC. 317. LIMITATION OF DEDUCTION FOR CHARITABLE CONTRIBUTIONS OF 
              CLOTHING AND HOUSEHOLD ITEMS.

    (a) In General.--Subsection (f) of section 170, as amended by 
section 315 of this Act, is amended by adding at the end the following 
new paragraph:
            ``(15) Contributions of clothing and household items.--
                    ``(A) In general.--In the case of an individual, 
                partnership, or S corporation, the deduction allowed 
                under subsection (a) for any contribution of clothing 
                or household items with respect to which the donor has 
                obtained a qualified appraisal shall be--
                            ``(i) in the case of an item which is in 
                        good used condition or better, no more than the 
                        amount assigned to such item under subparagraph 
                        (B) for such year,
                            ``(ii) except as provided by clause (iii), 
                        in the case of an item which is not in good 
                        used condition or better, no more than 20 
                        percent of the amount assigned to such item 
                        under subparagraph (B) for such year, and
                            ``(iii) in the case of an item which is not 
                        functional with respect to the use for which it 
                        was designed, zero.
                    ``(B) Assigned values.--Each year the Secretary 
                shall publish an itemized list of clothing and 
                household items and shall assign an amount with respect 
                to each item on the list which represents the fair 
                market value of such item in good used condition.
                    ``(C) Exception for items sold by the donee.--
                Subparagraph (A) shall not apply to any contribution of 
                clothing or household items for which a deduction of 
                more than $500 is claimed if--
                            ``(i) the donee sells the clothing or 
                        household items before the earlier of--
                                    ``(I) the due date (including 
                                extensions) for filing the return of 
                                tax for the taxable year of the donor 
                                in which the contribution was made, or
                                    ``(II) the date on which such 
                                return was filed,
                            ``(ii) the donee reports the sales price of 
                        the clothing or household items to the donor, 
                        and
                            ``(iii) the amount claimed as a deduction 
                        with respect to such clothing or household 
                        items does not exceed the amount of the sales 
                        price reported to the donor.
                    ``(D) Household items.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `household 
                        items' includes furniture, furnishings, 
                        electronics, appliances, linens, and other 
                        similar items.
                            ``(ii) Excluded items.--Such term does not 
                        include--
                                    ``(I) food,
                                    ``(II) paintings, antiques, and 
                                other objects of art,
                                    ``(III) jewelry and gems, and
                                    ``(IV) collections.
                    ``(E) Special rule for pass-thru entities.--In the 
                case of a partnership or S corporation, this paragraph 
                shall be applied at the entity level, except that the 
                deduction shall be denied at the partner or shareholder 
                level.''.
    (b) Substantiation.--
            (1) Items of $100 or more.--Subparagraph (B) of section 
        170(f)(8) is amended by inserting after clause (iii) the 
        following new clause:
                            ``(iv) In the case of a contribution 
                        consisting of clothing or household items, the 
                        number of items contributed, an indication of 
                        the condition of each item, a description of 
                        the type of item contributed, and a copy of the 
                        list published under paragraph (15)(B) or an 
                        instruction on how to obtain such list.''.
            (2) Items of $500 or more.--Subparagraph (B) of section 
        170(f)(11) is amended by inserting ``, the information 
        contained in the acknowledgment required under paragraph (8) in 
        the case of any contribution of clothing or household items,'' 
        after ``a description of such property''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions made after December 31, 2006.

SEC. 318. MODIFICATION OF SUBSTANTIATION AND RECORDKEEPING REQUIREMENTS 
              FOR CERTAIN CHARITABLE CONTRIBUTIONS.

    (a) Modification of Substantiation Limitation.--Subparagraph (A) of 
section 170(f)(8) is amended by striking ``$250'' and inserting 
``$100''.
    (b) Recordkeeping Requirement.--Subsection (f) of section 170, as 
amended by section 417 of this Act, is amended by adding at the end the 
following new paragraph:
            ``(16) Recordkeeping.--No deduction shall be allowed under 
        subsection (a) for any contribution of a cash, check, or other 
        monetary gift unless the donor maintains as a record of such 
        contribution--
                    ``(A) a cancelled check, or
                    ``(B) a receipt or a letter or other written 
                communication from the donee showing the name of the 
                donee organization, the date of the contribution, and 
                the amount of the contribution.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions made in taxable years beginning after the date 
of the enactment of this Act.

SEC. 319. CONTRIBUTIONS OF FRACTIONAL INTERESTS IN TANGIBLE PERSONAL 
              PROPERTY.

    (a) Income Tax.--Section 170 (relating to charitable, etc., 
contributions and gifts), as amended by section 301 of this Act, is 
amended by redesignating subsection (p) as subsection (q) and by 
inserting after subsection (o) the following new subsection:
    ``(q) Special Rules for Fractional Gifts.--
            ``(1) Valuation of subsequent gifts.--
                    ``(A) In general.--In the case of any additional 
                contribution, the fair market value of such 
                contribution shall be determined by using the lesser 
                of--
                            ``(i) the fair market value of the property 
                        at the time of the initial fractional 
                        contribution, or
                            ``(ii) the fair market value of the 
                        property at the time of the additional 
                        contribution.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Additional contribution.--The term 
                        `additional contribution' means any charitable 
                        contribution by the taxpayer of any interest in 
                        property with respect to which the taxpayer has 
                        previously made an initial fractional 
                        contribution.
                            ``(ii) Initial fractional contribution.--
                        The term `initial fractional contribution' 
                        means, with respect to any taxpayer, the first 
                        charitable contribution of an undivided portion 
                        of the taxpayer's entire interest in any 
                        tangible personal property.
            ``(2) Recapture of deduction in certain cases.--
                    ``(A) In general.--The Secretary shall provide for 
                the recapture of an amount equal to the amount of any 
                deduction allowed under this section (plus interest) 
                with respect to any contribution of an undivided 
                interest of a taxpayer's entire interest in property in 
                any case where such property is not in the physical 
                possession of the donee during any applicable period 
                for a period of time which bears substantially the same 
                ratio to 1 year as--
                            ``(i) the percentage of the undivided 
                        interest of the donee in the property 
                        (determined on the day after such contribution 
                        was made), bears to
                            ``(ii) 100 percent.
                    ``(B) Applicable period.--For purposes of 
                subparagraph (A), the term `applicable period' means 
                any 1-year period which begins on--
                            ``(i) in the year of the contribution, the 
                        date of the contribution, and
                            ``(ii) in any subsequent calendar year, the 
                        date which corresponds to the date described in 
                        clause (i).
                    ``(C) Anti-abuse rules.--The Secretary shall 
                prescribe such regulations as necessary to prevent the 
                avoidance of the purposes of this paragraph through the 
                transfer of any such undivided interest to a third 
                party controlled by the taxpayer.''.
    (b) Estate Tax.--Section 2055 (relating to transfers for public, 
charitable, and religious uses) is amended by redesignating subsection 
(g) as subsection (h) and by inserting after subsection (f) the 
following new subsection:
    ``(g) Valuation of Subsequent Gifts.--
            ``(1) In general.--In the case of any additional 
        contribution, the fair market value of such contribution shall 
        be determined by using the lesser of--
                    ``(A) the fair market value of the property at the 
                time of the initial fractional contribution, or
                    ``(B) the fair market value of the property at the 
                time of the additional contribution.
            ``(2) Definitions.--For purposes of this paragraph--
                    ``(A) Additional contribution.--The term 
                `additional contribution' means a bequest, legacy, 
                devise, or transfer described in subsection (a) of any 
                interest in a property with respect to which the 
                decedent had previously made an initial fractional 
                contribution.
                    ``(B) Initial fractional contribution.--The term 
                `initial fractional contribution' means, with respect 
                to any decedent, any charitable contribution of an 
                undivided portion of the decedent's entire interest in 
                any tangible personal property for which a deduction 
                was allowed under section 170.''.
    (c) Gift Tax.--Section 2522 (relating to charitable and similar 
gifts) is amended by redesignating subsection (e) as subsection (f) and 
by inserting after subsection (d) the following new subsection:
    ``(e) Special Rules for Fractional Gifts.--
            ``(1) Valuation of subsequent gifts.--
                    ``(A) In general.--In the case of any additional 
                contribution, the fair market value of such 
                contribution shall be determined by using the lesser 
                of--
                            ``(i) the fair market value of the property 
                        at the time of the initial fractional 
                        contribution, or
                            ``(ii) the fair market value of the 
                        property at the time of the additional 
                        contribution.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Additional contribution.--The term 
                        `additional contribution' means any gift for 
                        which a deduction is allowed under subsection 
                        (a) or (b) of any interest in a property with 
                        respect to which the donor has previously made 
                        an initial fractional contribution.
                            ``(ii) Initial fractional contribution.--
                        The term `initial fractional contribution' 
                        means, with respect to any donor, the first 
                        gift of an undivided portion of the donor's 
                        entire interest in any tangible personal 
                        property for which a deduction is allowed under 
                        subsection (a) or (b).
            ``(2) Recapture of deduction in certain cases.--
                    ``(A) In general.--The Secretary shall provide for 
                the recapture of an amount equal to the amount of any 
                deduction allowed under this section (plus interest) 
                with respect to any contribution of an undivided 
                interest of a donor's entire interest in property in 
                any case where such property is not in the physical 
                possession of the donee during any applicable period 
                for a period of time which bears substantially the same 
                ratio to 1 year as--
                            ``(i) the percentage of the undivided 
                        interest of the donee in the property 
                        (determined on the day after such contribution 
                        was made), bears to
                            ``(ii) 100 percent.
                    ``(B) Applicable period.--For purposes of 
                subparagraph (A), the term `applicable period' means 
                any 1-year period which begins on--
                            ``(i) in the year of the contribution, the 
                        date of the contribution, and
                            ``(ii) in any subsequent calendar year, the 
                        date which corresponds to the date described in 
                        clause (i).
                    ``(C) Anti-abuse rules.--The Secretary shall 
                prescribe such regulations as necessary to prevent the 
                avoidance of the purposes of this paragraph though the 
                transfer of any such undivided interest to a third 
                party controlled by the donor.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions, bequests, and gifts made after the date of the 
enactment of this Act.

SEC. 320. PROVISIONS RELATING TO SUBSTANTIAL AND GROSS OVERSTATEMENTS 
              OF VALUATIONS OF CHARITABLE DEDUCTION PROPERTY.

    (a) Substantial and Gross Overstatements of Valuations of 
Charitable Deduction Property.--
            (1) In general.--Section 6662 (relating to imposition of 
        accuracy-related penalties) is amended by adding at the end the 
        following new subsection:
    ``(i) Special Rules for Charitable Deduction Property.--In the case 
of charitable deduction property (as defined in section 
6664(c)(3)(A))--
            ``(1) the determination under subsection (e)(1)(A) as to 
        whether there is a substantial valuation misstatement under 
        chapter 1 with respect to the value of the property shall be 
        made by substituting `150 percent' for `200 percent', and
            ``(2) the determination under subsection (h)(2)(A)(i) as to 
        whether there is a gross valuation misstatement with respect to 
        the value of the property shall be made by substituting `200 
        percent' for `400 percent' and by substituting `150 percent' 
        for `200 percent' in applying subsection (e)(1)(A) for purposes 
        of such determination.''.
            (2) Elimination of reasonable cause exception for gross 
        misstatements.--Section 6664(c)(2) (relating to reasonable 
        cause exception for underpayments) is amended by striking 
        ``paragraph (1) shall not apply unless'' and inserting 
        ``paragraph (1) shall not apply. The preceding sentence shall 
        not apply to a substantial valuation overstatement under 
        chapter 1 if''.
    (b) Penalty on Appraisers Whose Appraisals Result in Substantial or 
Gross Valuation Misstatements.--
            (1) In general.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by inserting 
        after section 6695 the following new section:

``SEC. 6695A. SUBSTANTIAL AND GROSS VALUATION MISSTATEMENTS 
              ATTRIBUTABLE TO INCORRECT APPRAISALS.

    ``(a) Imposition of Penalty.--If--
            ``(1) a person prepares an appraisal of the value of 
        property and such person knows, or reasonably should have 
        known, that the appraisal would be used in connection with a 
        return or a claim for refund, and
            ``(2) the claimed value of the property on a return or 
        claim for refund which is based on such appraisal results in a 
        substantial valuation misstatement under chapter 1 (within the 
        meaning of section 6662(e)), or a gross valuation misstatement 
        (within the meaning of section 6662(h)), with respect to such 
        property,
then such person shall pay a penalty in the amount determined under 
subsection (b).
    ``(b) Amount of Penalty.--The amount of the penalty imposed under 
subsection (a) on any person with respect to an appraisal shall be 
equal to the lesser of--
            ``(1) the greater of--
                    ``(A) 10 percent of the amount of the underpayment 
                (as defined in section 6664(a)) attributable to the 
                misstatement described in subsection (a)(2), or
                    ``(B) $1,000, or
            ``(2) 125 percent of the gross income received by the 
        person described in subsection (a)(1) from the preparation of 
        the appraisal.
    ``(c) Exception.--No penalty shall be imposed under subsection (a) 
if the person establishes to the satisfaction of the Secretary that the 
value established in the appraisal was more likely than not the proper 
value.''.
            (2) Rules applicable to penalty.--Section 6696 (relating to 
        rules applicable with respect to sections 6694 and 6695) is 
        amended--
                    (A) by striking ``6694 and 6695'' each place it 
                appears in the text and heading and inserting ``6694, 
                6695, and 6695A'', and
                    (B) by striking ``6694 or 6695'' each place it 
                appears in the text and inserting ``6694, 6695, or 
                6695A''.
            (3) Conforming amendment.--The table of sections for part I 
        of subchapter B of chapter 68 is amended by striking the item 
        relating to section 6696 and inserting the following new items:

        ``Sec. 6695A.. Substantial and gross valuation misstatements 
                            attributable to incorrect appraisals.
        ``Sec. 6696. Rules applicable with respect to sections 6694, 
                            6695, and 6695A.''.
    (c) Qualified Appraisers and Appraisals.--
            (1) In general.--Subparagraph (E) of section 170(f)(11) is 
        amended to read as follows:
                    ``(E) Qualified appraisal and appraiser.--For 
                purposes of this paragraph--
                            ``(i) Qualified appraisal.--The term 
                        `qualified appraisal' means, with respect to 
                        any property, an appraisal of such property 
                        which--
                                    ``(I) is treated for purposes of 
                                this paragraph as a qualified appraisal 
                                under regulations or other guidance 
                                prescribed by the Secretary, and
                                    ``(II) is conducted by a qualified 
                                appraiser in accordance with generally 
                                accepted appraisal standards and any 
                                regulations or other guidance 
                                prescribed under subclause (I).
                            ``(ii) Qualified appraiser.--Except as 
                        provided in clause (iii), the term `qualified 
                        appraiser' means an individual who--
                                    ``(I) has earned an appraisal 
                                designation from a recognized 
                                professional appraiser organization or 
                                has otherwise met minimum education and 
                                experience requirements set forth in 
                                regulations prescribed by the 
                                Secretary,
                                    ``(II) regularly performs 
                                appraisals for which the individual 
                                receives compensation, and
                                    ``(III) meets such other 
                                requirements as may be prescribed by 
                                the Secretary in regulations or other 
                                guidance.
                            ``(iii) Specific appraisals.--An individual 
                        shall not be treated as a qualified appraiser 
                        with respect to any specific appraisal unless--
                                    ``(I) the individual demonstrates 
                                verifiable education and experience in 
                                valuing the type of property subject to 
                                the appraisal, and
                                    ``(II) the individual has not been 
                                prohibited from practicing before the 
                                Internal Revenue Service by the 
                                Secretary under section 330(c) of title 
                                31, United States Code, at any time 
                                during the 3-year period ending on the 
                                date of the appraisal.''.
            (2) Reasonable cause exception.--Subparagraphs (B) and (C) 
        of section 6664(c)(3) are amended to read as follows:
                    ``(B) Qualified appraisal.--The term `qualified 
                appraisal' has the meaning given such term by section 
                170(f)(11)(E)(i).
                    ``(C) Qualified appraiser.--The term `qualified 
                appraiser' has the meaning given such term by section 
                170(f)(11)(E)(ii).''.
    (d) Disciplinary Actions Against Appraisers.--Section 330(c) of 
title 31, United States Code, is amended by striking ``with respect to 
whom a penalty has been assessed under section 6701(a) of the Internal 
Revenue Code of 1986''.
    (e) Effective Dates.--
            (1) Misstatement penalties.--Except as provided in 
        paragraph (3), the amendments made by subsection (a) shall 
        apply to returns filed after the date of the enactment of this 
        Act.
            (2) Appraiser provisions.--Except as provided in paragraph 
        (3), the amendments made by subsections (b), (c), and (d) shall 
        apply to appraisals prepared with respect to returns or 
        submissions filed after the date of the enactment of this Act.
            (3) Special rule for certain easements.--In the case of a 
        contribution of a qualified real property interest which is a 
        restriction with respect to the exterior of a building 
        described in section 170(h)(4)(C)(ii) of the Internal Revenue 
        Code of 1986, and an appraisal with respect to the 
        contribution, the amendments made by subsections (a) and (b) 
        shall apply to returns filed after December 16, 2004.

SEC. 321. ADDITIONAL STANDARDS FOR CREDIT COUNSELING ORGANIZATIONS.

    (a) In General.--Section 501 (relating to exemption from tax on 
corporations, certain trusts, etc.) is amended by redesignating 
subsection (q) as subsection (r) and by inserting after subsection (p) 
the following new subsection:
    ``(q) Special Rules for Credit Counseling Organizations.--
            ``(1) In general.--An organization with respect to which 
        the provision of credit counseling services is a substantial 
        purpose shall not be exempt from tax under subsection (a) 
        unless such organization is described in paragraph (3) or (4) 
        of subsection (c) and such organization is organized and 
        operated in accordance with the following requirements:
                    ``(A) The organization--
                            ``(i) provides credit counseling services 
                        tailored to the specific needs and 
                        circumstances of consumers,
                            ``(ii) makes no loans to debtors and does 
                        not negotiate the making of loans on behalf of 
                        debtors, and
                            ``(iii) does not promote, or charge any 
                        separate fee for, any service for the purpose 
                        of improving any consumer's credit record, 
                        credit history, or credit rating.
                    ``(B) The organization does not refuse to provide 
                credit counseling services to a consumer due to the 
                inability of the consumer to pay, the ineligibility of 
                the consumer for debt management plan enrollment, or 
                the unwillingness of the consumer to enroll in a debt 
                management plan.
                    ``(C) The organization establishes and implements a 
                fee policy which--
                            ``(i) requires that any fees charged to a 
                        consumer for services are reasonable, and
                            ``(ii) prohibits charging any fee based in 
                        whole or in part on a percentage of the 
                        consumer's debt, the consumer's payments to be 
                        made pursuant to a debt management plan, or the 
                        projected or actual savings to the consumer 
                        resulting from enrolling in a debt management 
                        plan.
                    ``(D) At all times the organization has a board of 
                directors or other governing body--
                            ``(i) which is controlled by persons who 
                        represent the broad interests of the public, 
                        such as public officials acting in their 
                        capacities as such, persons having special 
                        knowledge or expertise in credit or financial 
                        education, and community leaders,
                            ``(ii) not more than 20 percent of the 
                        voting power of which is vested in persons who 
                        are employed by the organization or who will 
                        benefit financially, directly or indirectly, 
                        from the organization's activities (other than 
                        through the receipt of reasonable directors' 
                        fees or the repayment of consumer debt to 
                        creditors other than the credit counseling 
                        organization or its affiliates), and
                            ``(iii) not more than 49 percent of the 
                        voting power of which is vested in persons who 
                        are employed by the organization or who will 
                        benefit financially, directly or indirectly, 
                        from the organization's activities (other than 
                        through the receipt of reasonable directors' 
                        fees).
                    ``(E) The organization does not own more than 35 
                percent of--
                            ``(i) the total combined voting power of a 
                        corporation which is in the business of lending 
                        money, repairing credit, or providing debt 
                        management plan services, payment processing, 
                        or similar services,
                            ``(ii) the profits interest of a 
                        partnership which is in the business of lending 
                        money, repairing credit, or providing debt 
                        management plan services, payment processing, 
                        or similar services, and
                            ``(iii) the beneficial interest of a trust 
                        or estate which is in the business of lending 
                        money, repairing credit, or providing debt 
                        management plan services, payment processing, 
                        or similar services.
                    ``(F) The organization receives no amount for 
                providing referrals to others for financial services 
                (including debt management services) or credit 
                counseling services to be provided to consumers, and 
                pays no amount to others for obtaining referrals of 
                consumers.
            ``(2) Requirements under subsection (c)(3).--In addition to 
        the requirements under paragraph (1), an organization with 
        respect to which the provision of credit counseling services is 
        a substantial purpose and which is described in paragraph (3) 
        of subsection (c) shall not be exempt from tax under subsection 
        (a) unless such organization is organized and operated in 
        accordance with the following requirements:
                    ``(A) The organization--
                            ``(i) charges no fees (other than nominal 
                        fees) for debt management plan services or 
                        credit counseling services and waives any fees 
                        if the consumer is unable to pay such fees, and
                            ``(ii) does not solicit contributions from 
                        consumers during the initial counseling process 
                        or while the consumer is receiving services 
                        from the organization.
                    ``(B) The activities of the organization related to 
                debt management plan services (in the aggregate) do not 
                exceed 25 percent of the total activities of the 
                organization activities measured by any of the 
                following:
                            ``(i) The time spent on activities.
                            ``(ii) The resources dedicated to 
                        activities.
                            ``(iii) The effort expended by the 
                        organization with respect to activities.
                            ``(iv) The sources of revenue of the 
                        organization.
                            ``(v) Any other measures prescribed by the 
                        Secretary.
            ``(3) Requirements under subsection (c)(4).--In addition to 
        the requirements under paragraph (1), an organization with 
        respect to which the provision of credit counseling services is 
        a substantial purpose and which is described in paragraph (4) 
        of subsection (c) shall not be exempt from tax under subsection 
        (a) unless such organization--
                    ``(A) is organized and operated such that it 
                charges no fees (other than nominal fees) for credit 
                counseling services and waives any fees if the consumer 
                is unable to pay such fees, and
                    ``(B) notifies the Secretary, in such manner as the 
                Secretary may by regulations prescribe, that it is 
                applying for recognition as a credit counseling 
                organization.
            ``(4) Secretarial authority.--The Secretary may require any 
        organization described in paragraph (1) to submit such 
        information as the Secretary requires to verify that such 
        organization meets the requirements of this section.
            ``(5) Credit counseling services; debt management plan 
        services.--For purposes of this subsection--
                    ``(A) Credit counseling services.--The term `credit 
                counseling services' means--
                            ``(i) the providing of educational 
                        information to the general public on budgeting, 
                        personal finance, financial literacy, saving 
                        and spending practices, and the sound use of 
                        consumer credit,
                            ``(ii) the assisting of individuals and 
                        families with financial problems by providing 
                        them with counseling, or
                            ``(iii) a combination of the activities 
                        described in clauses (i) and (ii).
                    ``(B) Debt management plan services.--The term 
                `debt management plan services' means services related 
                to the repayment, consolidation, or restructuring of a 
                consumer's debt, and includes the negotiation with 
                creditors of lower interest rates, the waiver or 
                reduction of fees, and the marketing and processing of 
                debt management plans.''.
    (b) Debt Management Plan Services Treated as an Unrelated 
Business.--Section 513 (relating to unrelated trade or business) is 
amended by adding at the end the following:
    ``(j) Debt Management Plan Services.--The term `unrelated trade or 
business' includes--
            ``(1) the provision of debt management plan services (as 
        defined in section 501(q)(4)(B)) by an organization described 
        in section 501(q) to the extent such services are not 
        substantially related to the provision of credit counseling 
        services (as defined in section 501(q)(4)(A)) to a consumer, 
        and
            ``(2) the provision of debt management plan services (as so 
        defined) by any organization other than an organization which 
        meets the requirements of section 501(q).''.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after the date of the enactment of this Act.
            (2) Transition rule for existing organizations.--In the 
        case of any organization described in paragraph (3) or (4) 
        section 501(c) of the Internal Revenue Code of 1986 and with 
        respect to which the provision of credit counseling services is 
        a substantial purpose on the date of the enactment of this Act, 
        the amendments made by this section shall apply to taxable 
        years beginning after the date which is 1 year after the date 
        of the enactment of this Act.

        PART II--IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS

SEC. 331. EXCISE TAX ON SPONSORING ORGANIZATIONS OF DONOR ADVISED FUNDS 
              FOR FAILURE TO MEET DISTRIBUTION REQUIREMENTS.

    (a) In General.--Chapter 42 (relating to private foundations and 
certain other tax-exempt organizations), as amended by section 311, is 
amended by adding at the end the following new subchapter:

                  ``Subchapter G--Donor Advised Funds

``Sec. 4967. Taxes on sponsoring organizations of donor advised funds 
                            for failure to meet distributions 
                            requirements.
``Sec. 4968. Taxes on prohibited distributions.
``Sec. 4969. Taxes on prohibited benefits.

``SEC. 4967. TAXES ON SPONSORING ORGANIZATIONS OF DONOR ADVISED FUNDS 
              FOR FAILURE TO MEET DISTRIBUTION REQUIREMENTS.

    ``(a) Initial Tax.--There is hereby imposed on any sponsoring 
organization a tax equal to 30 percent of each of the following 
amounts:
            ``(1) The organization level undistributed amount of such 
        sponsoring organization (other than any organization subject to 
        tax under section 4942) for any taxable year which has not been 
        distributed before the first day of the second (or any 
        succeeding) taxable year following such taxable year (if such 
        first day falls within the taxable period).
            ``(2) The fund level undistributed amount of any donor 
        advised fund of such sponsoring organization for any taxable 
        year which has not been distributed before the 121st day of the 
        first (or any succeeding) taxable year following the applicable 
        period (if such 121st day falls within the taxable period).
            ``(3) The illiquid fund undistributed amount of any 
        illiquid asset donor advised fund of such sponsoring 
        organization for any taxable year which has not been 
        distributed before the 121st day of the second (or any 
        succeeding) taxable year following such taxable year (if such 
        121st day falls within the taxable period).
    ``(b) Additional Tax.--In any case in which an initial tax is 
imposed under subsection (a) on any amount, if any portion of such 
amount remains undistributed at the close of the taxable period, there 
is hereby imposed a tax equal to 100 percent of the amount remaining 
undistributed at such time.
    ``(c) Organization Level Undistributed Amount; Fund Level 
Undistributed Amount; Illiquid Fund Undistributed Amount.--For purposes 
of this section--
            ``(1) Organization level undistributed amount.--The term 
        `organization level undistributed amount' means, with respect 
        to any sponsoring organization for any taxable year, the amount 
        by which--
                    ``(A) the organization level distributable amount 
                for such taxable year, exceeds
                    ``(B) the qualifying distributions made during such 
                taxable year and designated for the purpose of reducing 
                such amount.
            ``(2) Fund level undistributed amount.--The term `fund 
        level undistributed amount' means, with respect to any donor 
        advised fund of a sponsoring organization for any applicable 
        period, the amount by which--
                    ``(A) the fund level distributable amount for such 
                applicable period, exceeds
                    ``(B) the qualifying distributions made during such 
                applicable period and designated for the purpose of 
                reducing such amount.
            ``(3) Illiquid fund undistributed amount.--
                    ``(A) In general.--The term `illiquid fund 
                undistributed amount' means, with respect to any 
                illiquid asset donor advised fund of a sponsoring 
                organization for any taxable year, the amount by 
                which--
                            ``(i) the illiquid fund distributable 
                        amount for such taxable year, exceeds
                            ``(ii) the qualifying distributions made 
                        during such taxable year and designated for the 
                        purpose of reducing such amount.
                    ``(B) Illiquid asset donor advised fund.--The term 
                `illiquid asset donor advised fund' means for any 
                taxable year a donor advised fund the value of the 
                illiquid assets of which (as of the end of the 
                preceding taxable year) exceeds 10 percent of the value 
                of the total assets of such fund.
                    ``(C) Illiquid asset.--The term `illiquid asset' 
                means for any taxable year any asset other than cash 
                and marketable securities the value of which is held 
                for the entire taxable year as such asset or any other 
                illiquid asset.
    ``(d) Organization Level Distributable Amount; Fund Level 
Distributable Amount; Illiquid Fund Distributable Amount.--For purposes 
of this section--
            ``(1) Organization level distributable amount.--The term 
        `organization level distributable amount' means, with respect 
        to any sponsoring organization for any taxable year, an amount 
        equal to 5 percent of the fair market value of the aggregate 
        assets of all donor advised funds maintained by such 
        organization as determined on the last day of the preceding 
        taxable year (other than such funds which have been in 
        existence for less than 1 year as so determined).
            ``(2) Fund level distributable amount.--The term `fund 
        level distributable amount' means, with respect to any donor 
        advised fund of any sponsoring organization for any applicable 
        3-consecutive taxable year period, an amount equal to the 
        greater of--
                    ``(A) $250, or
                    ``(B) 2.5 percent of the greater of--
                            ``(i) the average of the sponsoring 
                        organization's required minimum initial 
                        contribution amount for such period, or
                            ``(ii) the average of the sponsoring 
                        organization's required minimum balance for 
                        such period,
                for the type of donor with respect to such donor 
                advised fund.
            ``(3) Illiquid fund distributable amount.--The term 
        `illiquid fund distributable amount' means, with respect to any 
        illiquid asset donor advised fund of any sponsoring 
        organization for any taxable year, an amount equal to 5 percent 
        of the value of the assets in such fund as determined at the 
        end of the preceding taxable year.
    ``(e) Qualifying Distribution.--For purposes of this section--
            ``(1) In general.--The term `qualifying distribution' 
        means--
                    ``(A) any amount paid by the sponsoring 
                organization from a donor advised fund to any 
                organization described in section 170(b)(1)(A) (other 
                than any organization described in section 509(a)(3) or 
                any sponsoring organization if such amount is for 
                maintenance in a donor advised fund), and
                    ``(B) any amount set aside in such donor advised 
                fund for purposes, and under procedures similar to 
                those, described in section 4942(g)(2).
        Such term shall also include any amount paid during any taxable 
        year for reasonable and necessary administrative expenses 
        charged to a donor advised fund by a sponsoring organization.
            ``(2) Distributions to sponsoring organizations.--Such term 
        shall include any distribution to a sponsoring organization.
            ``(3) Purpose of distribution.--Each qualifying 
        distribution shall be taken into account in determining whether 
        each of the requirements of paragraphs (1), (2), and (3) of 
        subsection (a) are met, except that only qualifying 
        distributions from a donor advised fund shall be taken into 
        account in determining whether the requirements of paragraphs 
        (2) and (3) of subsection (a) are met with respect to the fund.
            ``(4) Designation of taxable year.--
                    ``(A) In general.--A sponsoring organization shall 
                designate the taxable years or applicable periods with 
                respect to which any qualifying distribution shall be 
                applied for purposes of satisfying the distribution 
                requirements of such taxable year or applicable period.
                    ``(B) Carryover of excess distribution 
                designations.--If a sponsoring organization designates 
                an amount of qualifying distributions in excess of the 
                amount necessary to meet the distribution requirements 
                for all taxable years and all applicable periods, the 
                sponsoring organization may designate such excess as a 
                carryover distribution which may be applied for 
                purposes of satisfying the distribution requirements of 
                the succeeding 5 taxable years.
    ``(f) Valuation Rules.--For purposes of determining the value of 
any asset held by a donor advised fund, the following rules shall 
apply:
            ``(1) Securities for which market quotations are readily 
        available shall be valued at fair market value determined on a 
        monthly basis.
            ``(2) Cash shall be determined on an average monthly basis.
            ``(3) Any illiquid asset transferred by a donor to a 
        sponsoring organization for maintenance in such donor advised 
        fund shall be valued in an amount equal to the sum of--
                    ``(A) the value of such asset claimed by the donor 
                for purposes of determining the donor's deduction under 
                section 170, 2055, or 2522 with respect to such 
                transfer and reported by the donor to the sponsoring 
                organization (in any manner specified by the 
                Secretary), and
                    ``(B) an assumed annual rate of return of 5 percent 
                of such value.
            ``(4) Any illiquid asset purchased by such fund shall be 
        valued in an amount equal to--
                    ``(A) the purchase price paid for such asset by 
                such fund, and
                    ``(B) an assumed annual rate of return of 5 percent 
                of such value.
    ``(g) Sponsoring Organization; Donor Advised Fund.--For purposes of 
this subchapter--
            ``(1) Sponsoring organization.--The term `sponsoring 
        organization' means any organization which--
                    ``(A) is described in section 170(c) (other than in 
                paragraph (1) thereof, and without regard to paragraph 
                (2)(A) thereof), and
                    ``(B) maintains 1 or more donor advised funds.
            ``(2) Donor advised fund.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `donor advised fund' means a 
                fund or account--
                            ``(i) which is separately identified by 
                        reference to contributions of a donor or 
                        donors,
                            ``(ii) which is owned and controlled by a 
                        sponsoring organization, and
                            ``(iii) with respect to which a donor or 
                        any person appointed or designated by such 
                        person) has, or reasonably expects to have, 
                        advisory privileges with respect to the 
                        distribution or investment of amounts held in 
                        such fund or account by reason of the donor's 
                        status as a donor.
                    ``(B) Exception.--The term `donor advised fund' 
                shall not include any fund or account with respect to 
                which a person described in subparagraph (A)(iii) 
                advises as to which individuals receive grants for 
                travel, study, or other similar purposes, but only if--
                            ``(i) such person's advisory privileges are 
                        performed exclusively by such person in the 
                        person's capacity as a member of a committee 
                        appointed by the sponsoring organization,
                            ``(ii) no combination of persons described 
                        in subparagraph (A)(iii) (or persons related to 
                        such persons) control, directly or indirectly, 
                        such committee, and
                            ``(iii) all grants from such fund or 
                        account satisfy requirements similar to those 
                        described in section 4945(g) (concerning grants 
                        to individuals by private foundations).
                    ``(C) Secretarial authority.--The Secretary may 
                exempt a fund or account from treatment as a donor 
                advised fund which--
                            ``(i) is advised by committee not directly 
                        or indirectly controlled by the donor or 
                        advisor (and any related parties), or
                            ``(ii) will benefit a single identified 
                        organization or governmental entity or a single 
                        identified charitable purpose.
    ``(h) Other Definitions.--For purposes of this section--
            ``(1) Taxable period.--The term `taxable period' means, 
        with respect to the undistributed amount for any taxable year, 
        the period beginning with the first day of the taxable year and 
        ending on the earlier of--
                    ``(A) the date of mailing of a notice of deficiency 
                with respect to the tax imposed by subsection (a) under 
                section 6212, or
                    ``(B) the date on which the tax imposed by 
                subsection (a) is assessed.
            ``(2) Applicable period.--The term `applicable period' 
        means, with respect to any donor advised fund of any sponsoring 
        organization, a 3-consecutive taxable year period determined 
        under the following rules:
                    ``(A) The first applicable 3-consecutive taxable 
                year period for any donor advised fund shall begin on 
                the first day of the first taxable year of the 
                sponsoring organization beginning after the date such 
                fund has been in existence for 1 year.
                    ``(B) Any applicable 3-consecutive taxable year 
                period after the first such period shall begin on the 
                day after the termination of any preceding applicable 
                3-consecutive taxable year period with respect to such 
                donor advised fund.
    ``(i) Regulations.--The Secretary may issue such regulations as are 
necessary to carry out the purposes of this section, including 
regulations regarding--
            ``(1) the acceptable methods for calculating the 
        organization level undistributed amount for sponsoring 
        organizations,
            ``(2) the allowable adjustments in the determination of the 
        value of any illiquid asset where the asset value has declined 
        significantly after a contribution to, or purchase by, the 
        donor advised fund, and
            ``(3) the treatment or disregard of transactions designed 
        to avoid the application of the illiquid asset rules, such as 
        through exchanges of illiquid assets for other assets.

``SEC. 4968. TAXES ON PROHIBITED DISTRIBUTIONS.

    ``(a) Imposition of Taxes.--
            ``(1) On the donor or donor advisor.--There is hereby 
        imposed on the advice of any person described in section 
        4967(g)(2)(C) to have a sponsoring organization of a donor 
        advised fund make a taxable distribution from such fund a tax 
        equal to 20 percent of the amount thereof. The tax imposed by 
        this paragraph shall be paid by such person who advised the 
        sponsoring organization of the donor advised fund to make the 
        distribution.
            ``(2) On the fund management.--There is hereby imposed on 
        the agreement of any fund manager to the making of a 
        distribution, knowing that it is a taxable distribution, a tax 
        equal to 5 percent of the amount thereof, unless such agreement 
        is not willful and is due to reasonable cause. The tax imposed 
        by this paragraph shall be paid by any fund manager who agreed 
        to the making of the distribution.
    ``(b) Joint and Several Liability.--For purposes of subsection (a), 
if more than one person is liable under subsection (a)(1) or (a)(2) 
with respect to the making of a taxable distribution, all such persons 
shall be jointly and severally liable under such paragraph with respect 
to such distribution.
    ``(c) Taxable Distribution.--For purposes of this subsection, the 
term `taxable distribution' means any distribution from a donor advised 
fund to any person other than the sponsoring organization's non donor 
advised funds or accounts or organizations described in section 
170(b)(1)(A) (other than any organization described in section 
509(a)(3) or any sponsoring organization if such amount is for 
maintenance in a donor advised fund).
    ``(d) Fund Manager.--For purposes of this subchapter, the term 
`fund manager' means, with respect to any sponsoring organization of a 
donor advised fund--
            ``(1) an officer, director, or trustee of such sponsoring 
        organization (or an individual having powers or 
        responsibilities similar to those of officers, directors, or 
        trustees of the sponsoring organization), and
            ``(2) with respect to any act (or failure to act), the 
        employees of the sponsoring organization having authority or 
        responsibility with respect to such act (or failure to act).

``SEC. 4969. TAXES ON PROHIBITED BENEFITS.

    ``(a) Imposition of Taxes.--
            ``(1) On the donor, donor advisor, or related person.--
        There is hereby imposed on the advice of any person described 
        in subsection (c) to have a sponsoring organization of a donor 
        advised fund make a distribution from such fund which results 
        in such a person receiving, directly or indirectly, a more than 
        incidental benefit as a result of such distribution, a tax 
        equal to 25 percent of the amount of such distribution. The tax 
        imposed by this paragraph shall be paid by such person who 
        advised the sponsoring organization of the donor advised fund 
        to make the distribution.
            ``(2) On the recipient of the benefit.--There is hereby 
        imposed on any person described in subsection (c) who receives 
        a benefit described in paragraph (1), a tax equal to 25 percent 
        of the amount of the distribution described in paragraph (1).
            ``(3) On the fund management.--There is hereby imposed on 
        the agreement of any fund manager to the making of a 
        distribution, knowing that such distribution would confer a 
        benefit described in paragraph (1), a tax equal to 10 percent 
        of the amount of such distribution, unless such agreement is 
        not willful and is due to reasonable cause. The tax imposed by 
        this paragraph shall be paid by any fund manager who agreed to 
        the making of the distribution.
    ``(b) Joint and Several Liability.--For purposes of subsection (a), 
if more than one person is liable under subsection (a)(1), (a)(2), or 
(a)(3) with respect to the making of a distribution described in 
subsection (a), all such persons shall be jointly and severally liable 
under such paragraph with respect to such distribution.
    ``(c) Donor, Donor Advisor, or Related Person.--A person is 
described in this subsection if such person is described in section 
4958(f)(1)(D) (determined without regard to any investment advisor).''.
    (b) Abatement of Taxes Allowed.--Section 4963 is amended--
            (1) by inserting ``4967, 4968, 4969,'' after ``4958,'' each 
        place it appears in subsections (a) and (c),
            (2) by inserting ``4967,'' after ``4958,'' in subsection 
        (b),
            (3) in subsection (d)(2), by striking ``and'' at the end of 
        subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, and'', and by adding at the 
        end the following new subparagraph:
                    ``(D) in the case of the second tier tax imposed by 
                section 4967(b), reducing the amount of the 
                undistributed amount to zero.'', and
            (4) in subsection (e)(2), by redesignating subparagraphs 
        (C) and (D) as subparagraphs (E) and (F), respectively, and by 
        inserting after subparagraph (B) the following new 
        subparagraphs:
                    ``(C) in the case of section 4967(a)(1), on the 
                first day of the taxable year for which there was a 
                failure to distribute,
                    ``(D) in the case of paragraph (2) or (3) of 
                section 4967(a), on the 121st day of the taxable year 
                for which there was a failure to distribute,''.
    (c) Conforming Amendment.--The table of subchapters of chapter 42 
is amended by adding at the end the following new item:
                ``subchapter g. donor advised funds.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 332. PROHIBITED TRANSACTIONS.

    (a) Disqualified Persons.--
            (1) In general.--Paragraph (1) of section 4958(f) is 
        amended by striking ``and'' at the end of subparagraph (B), by 
        striking the period at the end of subparagraph (C) and 
        inserting ``, and'', and by adding after subparagraph (C) the 
        following new subparagraph:
                    ``(D) any person who is described in paragraph (7) 
                with respect to any sponsoring organization (as defined 
                in section 4967(g)(1)).''.
            (2) Donors, donor advisors, and investment advisors treated 
        as disqualified persons.--Section 4958(f) is amended by adding 
        at the end the following new paragraph:
            ``(7) Donors, donor advisors, and investment advisors with 
        respect to sponsoring organizations.--For purposes of paragraph 
        (1)(D)--
                    ``(A) In general.--A person is described in this 
                paragraph if such person--
                            ``(i) is described in section 
                        4967(g)(2)(C),
                            ``(ii) is an investment advisor,
                            ``(iii) is a member of the family of an 
                        individual described in clause (i) or (ii), or
                            ``(iv) is a 35-percent controlled entity 
                        (as defined in paragraph (3) by substituting 
                        `persons described in clause (i), (ii), or 
                        (iii) of paragraph (7)(A)' for `persons 
                        described in subparagraph (A) or (B) of 
                        paragraph (1)' in subparagraph (A)(i) thereof).
                    ``(B) Investment advisor.--The term `investment 
                advisor' means, with respect to any sponsoring 
                organization (as defined in section 4967(g)(1)), any 
                person (other than an employee of such organization) 
                compensated by such organization for managing the 
                investment of, or providing investment advice with 
                respect to, assets maintained in donor advised funds 
                (as defined in section 4967(g)(2)) owned by such 
                organization.''.
            (3) Donors, donor advisors, and investment advisors treated 
        as disqualified persons with respect to a sponsoring 
        organization which is a private foundation.--Section 4946(a)(1) 
        is amended by striking ``and'' at the end of subparagraph (H), 
        by striking the period at the end of subparagraph (I) and 
        inserting ``, and'', and by adding at the end the following new 
        subparagraph:
                    ``(J) a person described in section 
                4958(f)(1)(D).''.
    (b) Certain Transactions Treated as Excess Benefit Transactions.--
            (1) In general.--Section 4958(c) is amended by 
        redesignating paragraph (2) as paragraph (3) and by inserting 
        after paragraph (1) the following new paragraph:
            ``(2) Special rules for donor advised funds owned by 
        sponsoring organizations.--In the case of any donor advised 
        fund (as defined in section 4967(g)(2)) of a sponsoring 
        organization (as defined in section 4967(g)(1))--
                    ``(A) the term `excess benefit transaction' 
                includes any grant, loan, compensation, or other 
                payment provided by the sponsoring organization in 
                connection with such fund to a person described in 
                subsection (f)(1)(D) (determined without regard to any 
                investment advisor) with respect to such fund, and
                    ``(B) the term `excess benefit' includes, with 
                respect to any transaction described in subparagraph 
                (A), the amount of any such grant, loan, compensation, 
                or other payment.
        Notwithstanding the last sentence of subsection (e), a 
        sponsoring organization shall be treated as an applicable tax-
        exempt organization to the extent necessary to carry out this 
        paragraph.''.
            (2) Special rule for correction of transaction.--Section 
        4958(f)(6) is amended by inserting ``, except that in the case 
        of any correction of an excess benefit transaction described in 
        subsection (c)(2), no amount repaid in a manner prescribed by 
        the Secretary may be held in, or credited to, any donor advised 
        fund'' after ``standards''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 333. TREATMENT OF CHARITABLE CONTRIBUTION DEDUCTIONS TO DONOR 
              ADVISED FUNDS.

    (a) Income.--Section 170(f) (relating to disallowance of deduction 
in certain cases and special rules), as amended by section 318 of this 
Act, is amended by adding at the end the following new paragraph:
            ``(17) Contributions to donor advised funds.--A deduction 
        otherwise allowed under subsection (a) for any contribution to 
        a sponsoring organization (as defined in section 4967(g)(1)) to 
        be maintained in any donor advised fund (as defined in section 
        4967(g)(2)) of such organization shall only be allowed if--
                    ``(A) such sponsoring organization is not described 
                in paragraph (3), (4), or (5) of section 170(c) or 
                section 509(a)(3), and
                    ``(B) the taxpayer obtains a contemporaneous 
                written acknowledgment (determined under rules similar 
                to the rules of paragraph (8)(C)) from the sponsoring 
                organization that such organization has exclusive legal 
                control over the assets contributed.''.
    (b) Estate.--Section 2055(e) is amended by adding at the end the 
following new paragraph:
            ``(5) Contributions to donor advised funds.--A deduction 
        otherwise allowed under subsection (a) for any contribution to 
        a sponsoring organization (as defined in section 4967(g)(1)) to 
        be maintained in any donor advised fund (as defined in section 
        4967(g)(2)) of such organization shall only be allowed if--
                    ``(A) such sponsoring organization is not described 
                in paragraph (3) or (4) of subsection (a) or section 
                509(a)(3), and
                    ``(B) the taxpayer obtains a contemporaneous 
                written acknowledgment (determined under rules similar 
                to the rules of section 170(f)(8)(C)) from the 
                sponsoring organization that such organization has 
                exclusive legal control over the assets contributed.''.
    (c) Gift.--Section 2522(c) is amended by adding at the end the 
following new paragraph:
            ``(13) Contributions to donor advised funds.--A deduction 
        otherwise allowed under subsection (a) for any contribution to 
        a sponsoring organization (as defined in section 4967(g)(1)) to 
        be maintained in any donor advised fund (as defined in section 
        4967(g)(2)) of such organization shall only be allowed if--
                    ``(A) such sponsoring organization is not described 
                in paragraph (3) or (4) of subsection (a) or section 
                509(a)(3), and
                    ``(B) the taxpayer obtains a contemporaneous 
                written acknowledgment (determined under rules similar 
                to the rules of section 170(f)(8)(C)) from the 
                sponsoring organization that such organization has 
                exclusive legal control over the assets contributed.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to contributions made after the date which is 180 days after the 
date of the enactment of this Act.

SEC. 334. RETURNS OF, AND APPLICATIONS FOR RECOGNITION BY, SPONSORING 
              ORGANIZATIONS.

    (a) Matters Included on Returns.--
            (1) In general.--Section 6033 is amended by redesignating 
        subsection (h) as subsection (i) and by inserting after 
        subsection (g) the following new subsection:
    ``(h) Additional Provisions Relating to Sponsoring Organizations.--
Every organization described in section 4967(g)(1) shall, on the return 
required under subsection (a) for the taxable year--
            ``(1) list the total number of donor advised funds (as 
        defined in section 4967(g)(2)) it owns at the end of such 
        taxable year,
            ``(2) indicate the aggregate value of assets held in such 
        funds at the end of such taxable year, and
            ``(3) indicate the aggregate contributions to and grants 
        made from such funds during such taxable year.''.
            (2) Extension of statute of limitations.--Section 6501(c) 
        is amended by adding at the end the following new paragraph:
            ``(11) Donor advised funds.--If a sponsoring organization 
        (as defined in section 4967(g)(1)) fails to include on any 
        return for any taxable year any information with respect to any 
        donor advised fund of such organization which is required under 
        section 6033(h) to be included with such return, the time for 
        assessment of any tax imposed under subchapter G of chapter 42 
        with respect to any distribution from such donor advised fund 
        shall not expire before the date which is 3 years after the 
        date on which the secretary is furnished the information so 
        required.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to returns filed for taxable years ending after the 
        date of the enactment of this Act.
    (b) Matters Included on Exempt Status Application.--
            (1) In general.--Section 508 is amended by adding at the 
        end the following new subsection:
    ``(f) Additional Provisions Relating to Sponsoring Organizations.--
A sponsoring organization (as defined in section 4967(g)(1)) shall give 
notice to the Secretary (in such manner as the Secretary may provide) 
whether such organization maintains or intends to maintain donor 
advised funds (as defined in section 4967(g)(2)) and the manner in 
which such organization plans to operate such funds.''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to organizations applying for tax-exempt status 
        after the date of the enactment of this Act.

     PART III--IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS

SEC. 341. REQUIREMENTS FOR SUPPORTING ORGANIZATIONS.

    (a) Types of Supporting Organizations.--Subparagraph (B) of section 
509(a)(3) is amended to read as follows:
                    ``(B) is--
                            ``(i) operated, supervised, or controlled 
                        by one or more organizations described in 
                        paragraph (1) or (2),
                            ``(ii) supervised or controlled in 
                        connection with one or more such organizations, 
                        or
                            ``(iii) operated in connection with one or 
                        more such organizations, and''.
    (b) Requirements for Supporting Organizations.--Section 509 
(relating to private foundation defined) is amended by adding at the 
end the following new subsection:
    ``(f) Requirements for Supporting Organizations.--
            ``(1) Type iii supporting organizations.--For purposes of 
        subsection (a)(3)(B)(iii), an organization shall not be 
        considered to be operated in connection with any organization 
        described in paragraph (1) or (2) of subsection (a) unless such 
        organization meets the following requirements:
                    ``(A) Application requirement.--The organization 
                provides to the Secretary, as a part of any 
                notification filed under section 508(a) after the date 
                of the enactment of this subsection, a letter from each 
                supported organization acknowledging that the supported 
                organization has been designated by such organization 
                as a supported organization.
                    ``(B) Responsiveness.--For each taxable year 
                beginning after the date of the enactment of this 
                subsection, the organization provides to each supported 
                organization such information as the Secretary may 
                require to ensure that such organization is responsive 
                to the needs or demands of the supported organization.
                    ``(C) Supported organizations.--
                            ``(i) In general.--The organization--
                                    ``(I) is not operated in connection 
                                with more than 5 supported 
                                organizations, and
                                    ``(II) is not operated in 
                                connection with any supported 
                                organization that is not organized in 
                                the United States on any date after the 
                                date which is 180 days after the date 
                                of the enactment of this subsection.
                            ``(ii) Special rule for existing 
                        organizations.--If the organization is operated 
                        in connection with more than 5 supported 
                        organizations on the date of the enactment of 
                        this subsection--
                                    ``(I) clause (i)(I) shall not 
                                apply, and
                                    ``(II) the organization may not be 
                                operated in connection with any other 
                                organization after such date unless the 
                                total number of supported organizations 
                                is 5 or less.
                    ``(D) Contributions to donor advised funds.--The 
                organization makes no contributions to or for the use 
                of any donor advised fund (as defined in section 
                4967(g)(2)).
            ``(2) Organizations controlled by donors.--
                    ``(A) In general.--For purposes of subsection 
                (a)(3)(B), an organization shall not be considered to 
                be--
                            ``(i) operated, supervised, or controlled 
                        by any organization described in paragraph (1) 
                        or (2) of subsection (a), or
                            ``(ii) operated in connection with any 
                        organization described in paragraph (1) or (2) 
                        of subsection (a),
                if such organization accepts any gift or contribution 
                from any person described in subparagraph (B).
                    ``(B) Person described.--A person is described in 
                this subparagraph if such person is--
                            ``(i) a person (other than an organization 
                        described in paragraph (1), (2), or (4) of 
                        section 509(a)) who controls, directly or 
                        indirectly, either alone or together with 
                        persons described in clauses (ii) and (iii), 
                        the governing body of a supported organization,
                            ``(ii) a member of the family (determined 
                        under section 4958(f)(4)) of an individual 
                        described in clause (i), or
                            ``(iii) a 35-percent controlled entity (as 
                        defined in section 4958(f)(3) by substituting 
                        `persons described in clause (i) or (ii) of 
                        section 509(f)(2)(B)' for `persons described in 
                        subparagraph (A) or (B) of paragraph (1)' in 
                        subparagraph (A)(i) thereof).
            ``(3) Supported organization.--For purposes of this 
        subsection, the term `supported organization' means, with 
        respect to an organization described in subsection (a)(3), an 
        organization described in paragraph (1) or (2) of subsection 
        (a)--
                    ``(A) for whose benefit the organization described 
                in subsection (a)(3) is organized and operated, or
                    ``(B) with respect to which the organization 
                performs the functions of, or carries out the purposes 
                of.''.
    (c) Charitable Trusts Which Are Type III Supporting 
Organizations.--For purposes of section 509(a)(3)(B)(iii) of the 
Internal Revenue Code of 1986, an organization which is a trust shall 
not be considered to be operated in connection with any organization 
described in paragraph (1) or (2) of section 509(a) of such Code solely 
because--
            (1) it is a charitable trust under State law,
            (2) the supported organization (as defined in section 
        509(f)(3) of such Code) is a beneficiary of such trust, and
            (3) the supported organization (as so defined) has the 
        power to enforce the trust and compel an accounting.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 342. EXCISE TAX ON SUPPORTING ORGANIZATIONS FOR FAILURE TO MEET 
              DISTRIBUTION REQUIREMENTS.

    (a) In General.--Subchapter D of chapter 42 (relating to failure by 
certain charitable organizations to meet certain qualification 
requirements) is amended by adding at the end the following new 
section:

``SEC. 4959. TAXES ON CERTAIN SUPPORTING ORGANIZATIONS FAILING TO MEET 
              DISTRIBUTION REQUIREMENTS.

    ``(a) Initial Tax.--There is hereby imposed on the undistributed 
income of any type III supporting organization for any taxable year, 
which has not been distributed before the first day of the second (or 
any succeeding) taxable year following such taxable year (if such first 
day falls within the taxable period), a tax equal to 30 percent of the 
amount of such income remaining undistributed at the beginning of such 
second (or succeeding) taxable year.
    ``(b) Additional Tax.--In any case in which an initial tax is 
imposed under subsection (a) on the undistributed income of a type III 
supporting organization for any taxable year, if any portion of such 
income remains undistributed at the close of the taxable period, there 
is hereby imposed a tax equal to 100 percent of the amount remaining 
undistributed at such time.
    ``(c) Undistributed Income.--For purposes of this section, the term 
`undistributed income' means, with respect to any type III supporting 
organization for any taxable year as of any time, the amount by which--
            ``(1) the distributable amount for such taxable year, 
        exceeds
            ``(2) the qualifying distributions made before such time 
        out of such distributable amount.
    ``(d) Distributable Amount.--For purposes of this section--
            ``(1) In general.--the term `distributable amount' means, 
        with respect to any type III supporting organization for any 
        taxable year, an amount equal to the sum of--
                    ``(A) the greater of--
                            ``(i) 85 percent of the adjusted net income 
                        (as defined in section 4942(f)) of the type III 
                        supporting organization for the preceding 
                        taxable year, or
                            ``(ii) 5 percent of the fair market value 
                        of the aggregate assets of such organization 
                        (other than assets used or held to perform the 
                        functions of, or carry out the purposes of, a 
                        supported organization) on the last day of the 
                        preceding taxable year, and
                    ``(B) any amount received during the preceding 
                taxable year which is a repayment of amounts paid by 
                the organization in any prior taxable year to a 
                supported organization exclusively for the benefit of 
                such supported organization or to perform the functions 
                of, or carry out the purposes of such supported 
                organization.
            ``(2) Investment assets.--For purposes of paragraph 
        (1)(A)(ii), assets held for investment or for the operation of 
        an unrelated trade or business shall not be considered as 
        assets used or held to perform the functions of, or carry out 
        the purposes of, a supported organization.
    ``(e) Qualifying Distribution.--For purposes of this section--
            ``(1) In general.--The term `qualifying distribution' means 
        amounts paid by the type III supporting organization to or for 
        the use of a supported organization.
            ``(2) Administrative and operating expenses.--
        Administrative and operating expenses of a type III supporting 
        organization shall not be treated as a qualifying distribution 
        to a supported organization.
    ``(f) Treatment of Qualifying Distributions.--
            ``(1) In general.--Except as provided in paragraph (2), any 
        qualifying distribution made during a taxable year shall be 
        treated as made--
                    ``(A) first out of the undistributed income of the 
                immediately preceding taxable year (if the type III 
                supporting organization was subject to the tax imposed 
                by this section for such preceding taxable year) to the 
                extent thereof, and
                    ``(B) second out of the undistributed income for 
                the taxable year to the extent thereof.
        For purposes of this paragraph, distributions shall be taken 
        into account in the order of time in which made.
            ``(2) Correction of deficient distributions for prior 
        taxable years, etc.--In the case of any qualifying distribution 
        which (under paragraph (1)) is not treated as made out of the 
        undistributed income of the immediately preceding taxable year, 
        the type III supporting organization may elect to treat any 
        portion of such distribution as made out of the undistributed 
        income of a designated prior taxable year. The election shall 
        be made by the type III supporting organization at such time 
        and in such manner as the Secretary shall by regulations 
        prescribe.
    ``(g) Adjustment of Distributable Amount Where Distributions During 
Prior Years Have Exceeded Income.--
            ``(1)  In general.--If, for the taxable years in the 
        adjustment period for which an organization is a type III 
        supporting organization--
                    ``(A) the aggregate qualifying distributions 
                treated (under subsection (f)) as made out of the 
                undistributed income for such taxable years, exceed
                    ``(B) the distributable amounts for such taxable 
                years (determined without regard to this subsection),
        then, for purposes of this section (other than subsection (f)), 
        the distributable amount for the taxable year shall be reduced 
        by an amount equal to such excess.
            ``(2) Taxable years in adjustment period.--For purposes of 
        paragraph (1), with respect to any taxable year of a type III 
        supporting organization, the taxable years in the adjustment 
        period are the taxable years (not exceeding 5) beginning after 
        the date of the enactment of this section and immediately 
        preceding the taxable year.
    ``(h) Other Definitions.--For purposes of this section--
            ``(1) Taxable period.--The term `taxable period' means, 
        with respect to the undistributed income for any taxable year, 
        the period beginning with the first day of the taxable year and 
        ending on the earlier of--
                    ``(A) the date of mailing of a notice of deficiency 
                with respect to the tax imposed by subsection (a) under 
                section 6212, or
                    ``(B) the date on which the tax imposed by 
                subsection (a) is assessed.
            ``(2) Type iii supporting organization.--The term `type III 
        supporting organization' means an organization which meets the 
        requirements of subparagraphs (A) and (C) of section 509(a)(3) 
        and which is operated in connection with one or more 
        organizations described in paragraph (1) or (2) of section 
        509(a).
            ``(3) Supported organization.--The term `supported 
        organization' has the meaning given such term under section 
        509(f)(3).''.
    (b) Conforming Amendment.--The table of section for subchapter D of 
chapter 42 is amended by inserting after the item relating to section 
4958 the following new item:

        ``Sec. 4959. Taxes on certain supporting organizations failing 
                            to meet distribution requirements.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 343. EXCESS BENEFIT TRANSACTIONS.

    (a) In General.--Section 4958(c), as amended by section 332 of this 
Act, is amended by redesignating paragraph (3) as paragraph (4) and by 
inserting after paragraph (2) the following new paragraph:
            ``(3) Special rules for supporting organizations.--
                    ``(A) In general.--In the case of any organization 
                described in section 509(a)(3)--
                            ``(i) the term `excess benefit transaction' 
                        includes--
                                    ``(I) any grant, loan, 
                                compensation, or other payment provided 
                                by such organization to a person 
                                described in subparagraph (B), and
                                    ``(II) any loan provided by such 
                                organization to a disqualified person 
                                (other than an organization described 
                                in paragraph (1), (2), or (4) of 
                                section 509(a)), and
                            ``(ii) the term `excess benefit' includes, 
                        with respect to any transaction described in 
                        clause (i), the amount of any such grant, loan, 
                        compensation, or other payment.
                    ``(B) Person described.--A person is described in 
                this subparagraph if such person is--
                            ``(i) a substantial contributor to such 
                        organization,
                            ``(ii) a member of the family (determined 
                        under section 4958(f)(4)) of an individual 
                        described in clause (i), or
                            ``(iii) a 35-percent controlled entity (as 
                        defined in section 4958(f)(3) by substituting 
                        `persons described in clause (i) or (ii) of 
                        section 4958(c)(3)(B)' for `persons described 
                        in subparagraph (A) or (B) of paragraph (1)' in 
                        subparagraph (A)(i) thereof).
                    ``(C) Substantial contributor.--For purposes of 
                this paragraph--
                            ``(i) In general.--The term `substantial 
                        contributor' means any person who contributed 
                        or bequeathed an aggregate amount of more than 
                        $5,000 to the organization, if such amount is 
                        more than 2 percent of the total contributions 
                        and bequests received by the organization 
                        before the close of the taxable year of the 
                        organization in which the contribution or 
                        bequest is received by the organization from 
                        such person. In the case of a trust, such term 
                        also means the creator of the trust.
                            ``(ii) Exception.--Such term shall not 
                        include any organization described in paragraph 
                        (1), (2), or (4) of section 509(a).''.
    (b) Disqualified Persons.--Paragraph (1) of section 4958(f), as 
amended by section 332 of this Act, is amended by striking ``and'' at 
the end of subparagraph (D), by striking the period at the end of 
subparagraph (E) and inserting ``, and'', and by adding after 
subparagraph (D) the following new subparagraph:
                    ``(E) any person who is described in subparagraph 
                (A), (B), or (C) with respect to an organization 
                described in section 509(a)(3) which is organized and 
                operated exclusively for the benefit of, to perform the 
                functions of, or to carry out the purposes of the 
                applicable tax-exempt organization.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transactions occurring after the date of the enactment of this 
Act.

SEC. 344. EXCESS BUSINESS HOLDINGS OF SUPPORTING ORGANIZATIONS.

    (a) In General.--Section 4943 is amended by adding at the end the 
following new subsection:
    ``(e) Application of Tax to Supporting Organizations.--
            ``(1) In general.--For purposes of this section, a 
        qualified supporting organization shall be treated as a private 
        foundation.
            ``(2) Exception.--The Secretary may exempt any qualified 
        supporting organization from the application of this subsection 
        if the Secretary determines that the excess business holdings 
        of such organization are consistent with the purpose or 
        function constituting the basis for its exemption under section 
        501.
            ``(3) Qualified supporting organization.--For purposes of 
        this subsection, the term `qualified supporting organization' 
        means any--
                    ``(A) type III supporting organization (as defined 
                in section 4959(h)(2)), or
                    ``(B) any organization which meets the requirements 
                of subparagraphs (A) and (C) of section 509(a)(3) and 
                which is supervised or controlled in connection with or 
                one or more organizations described in paragraph (1) or 
                (2) of section 509(a), but only if such organization 
                accepts any gift or contribution from any person 
                described in section 509(f)(2)(B).
            ``(4) Disqualified person.--
                    ``(A) In general.--In applying this section to any 
                organization described in section 509(a)(3), the term 
                `disqualified person' means, with respect to the 
                organization--
                            ``(i) any person who was, at any time 
                        during the 5-year period ending on date 
                        described in subsection (a)(2)(A), in a 
                        position to exercise substantial influence over 
                        the affairs of the organization,
                            ``(ii) any member of the family (determined 
                        under section 4958(f)(4)) of an individual 
                        described in clause (i),
                            ``(iii) any 35-percent controlled entity 
                        (as defined in section 4958(f)(3) by 
                        substituting `persons described in clause (i) 
                        or (ii) of section 4943(e)(2)(A)' for `persons 
                        described in subparagraph (A) or (B) of 
                        paragraph (1)' in subparagraph (A)(i) thereof),
                            ``(iv) any person described in section 
                        4958(c)(3)(B)), and
                            ``(v) any organization--
                                    ``(I) which is effectively 
                                controlled (directly or indirectly) by 
                                the same person or persons who control 
                                the organization in question, or
                                    ``(II) substantially all of the 
                                contributions to which were made 
                                (directly or indirectly) by the same 
                                person or persons described in 
                                subparagraph (B) or a member of their 
                                family (within the meaning of section 
                                4946(d)) who made (directly or 
                                indirectly) substantially all of the 
                                contributions to the organization in 
                                question.
                    ``(B) Persons described.--A person is described in 
                this subparagraph if such person is--
                            ``(i) a substantial contributor to the 
                        organization (as defined in section 
                        4958(c)(3)(C)),
                            ``(ii) an officer, director, or trustee of 
                        the organization (or an individual having 
                        powers or responsibilities similar to those 
                        officers, directors, or trustees of the 
                        organization), or
                            ``(iii) an owner of more than 20 percent 
                        of--
                                    ``(I) the total combined voting 
                                power of a corporation,
                                    ``(II) the profits interest of a 
                                partnership, or
                                    ``(III) the beneficial interest of 
                                a trust or unincorporated enterprise,
                        which is a substantial contributor (as so 
                        defined) to the organization.
            ``(5) Present holdings.--For purposes of this subsection, 
        rules similar to the rules of paragraphs (4), (5), and (6) of 
        subsection (c) shall apply to organizations described in 
        section 509(a)(3), except that--
                    ``(A) `the date of the enactment of this 
                subsection' shall be substituted for `May 26, 1969' 
                each place it appears in paragraphs (4), (5), and (6), 
                and
                    ``(B) `January 1, 2007' shall be substituted for 
                `January 1, 1970' in paragraph (4)(E).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 345. TREATMENT OF AMOUNTS PAID TO SUPPORTING ORGANIZATIONS BY 
              PRIVATE FOUNDATIONS.

    (a) Qualifying Distributions.--Paragraph (4) of section 4942(g) is 
amended to read as follows:
            ``(4) Limitation on distributions by nonoperating private 
        foundations to supporting organizations.--For purposes of this 
        section, the term `qualifying distribution' shall not include 
        any amount paid by a private foundation which is not an 
        operating foundation to an organization described in section 
        509(a)(3).''.
    (b) Taxable Expenditures.--
            (1) In general.--Subsection (d) of section 4945 is amended 
        by redesignating paragraphs (4) and (5) as paragraphs (5) and 
        (6), respectively, and by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) to an organization described in section 509(a)(3),''.
            (2) Conforming amendments.--
                    (A) Section 4945(d)(5), as redesignated by 
                subparagraph (A), is amended--
                            (i) by striking ``a grant to an 
                        organization'' and inserting ``a grant to any 
                        other organization'', and
                            (ii) by striking ``paragraph (1), (2), or 
                        (3) of section 509(a)'' in subparagraph (A) and 
                        inserting ``paragraph (1) or (2) of section 
                        509(a)''.
                    (B) Section 4945(f) is amended by striking 
                ``Subsection (d)(4)'' in the last sentence thereof and 
                inserting ``Subsection (d)(5)''.
                    (C) Section 4945(h) is amended by striking 
                ``subsection (d)(4)'' and inserting ``subsection 
                (d)(5)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions and expenditures after the date of the enactment 
of this Act.

SEC. 346. RETURNS OF SUPPORTING ORGANIZATIONS.

    (a) Requirement to File Return.--Subparagraph (C) of section 
6033(a)(3), as redesignated by section 411, is amended by striking 
clause (iv) and by redesignating clauses (v) and (vi) as clauses (iv) 
and (v), respectively.
    (b) Matters Included on Returns.--Section 6033, as amended by 
section 334 of this Act, is amended by redesignating subsection (i) as 
subsection (j) and by inserting after subsection (h) the following new 
subsection:
    ``(i) Additional Provisions Relating to Supporting Organizations.--
            ``(1) In general.--Every organization described in section 
        509(a)(3) shall, on the return required under subsection (a)--
                    ``(A) list the organizations described in section 
                509(a)(3)(A) with respect to which such organization 
                provides support,
                    ``(B) indicate whether the organization meets the 
                requirements of clause (i), (ii), or (iii) of section 
                509(a)(3)(B), and
                    ``(C) certify that the organization meets the 
                requirements of section 509(a)(3)(C).
            ``(2) Type iii supporting organizations.--Every type III 
        supporting organization (as defined in section 4959(h)(2)) 
        shall indicate on the return required under subsection (a) for 
        the taxable year whether the organization has received a letter 
        from each supported organization (as defined in section 
        509(f)(3)) during the taxable year which--
                    ``(A) acknowledges that the supporting organization 
                has designated such organization as a supported 
                organization,
                    ``(B) details the type of support provided by the 
                supporting organization, and
                    ``(C) explains how such support furthers the 
                charitable purpose of the supported organization.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns filed for taxable years ending after the date of the 
enactment of this Act.

                   TITLE IV--MISCELLANEOUS PROVISIONS

SEC. 401. RESTRUCTURING OF NEW YORK LIBERTY ZONE TAX CREDITS.

    (a) In General.--Subchapter Y of chapter 1 is amended by adding at 
the end the following new section:

``SEC. 1400M. NEW YORK LIBERTY ZONE TAX CREDITS.

    ``(a) In General.--There shall be allowed as a credit against any 
taxes imposed by this title (other than by section 3111(a), section 
3403, or subtitle D) paid or incurred by any governmental unit of the 
State of New York and the City of New York, New York (including any 
agency or instrumentality thereof) for any calendar year an amount 
equal to the lesser of--
            ``(1) the total expenditures during such year by such 
        governmental unit for qualifying projects, or
            ``(2) the amount allocated to such governmental unit for 
        such calendar year under subsection (b)(2).
    ``(b) Qualifying Project.--For purposes of this section--
            ``(1) In general.--The term `qualifying project' means any 
        transportation infrastructure project, including highways, mass 
        transit systems, railroads, airports, ports, and waterways, in 
        or connecting with the New York Liberty Zone (as defined in 
        section 1400L(h)), which is designated as a qualifying project 
        under this section jointly by the Governor of the State of New 
        York and the Mayor of the City of New York, New York.
            ``(2) Dollar limitation.--
                    ``(A) In general.--The Governor of the State of New 
                York and the Mayor of the City of New York, New York, 
                shall jointly allocate to a governmental unit the 
                amount of expenditures which may be taken into account 
                under subsection (a) for any calendar year in the 
                credit period with respect to a qualifying project.
                    ``(B) Aggregate limit.--The aggregate amount which 
                may be allocated under subparagraph (A) for all 
                calendar years in the credit period shall not exceed 
                $2,000,000,000.
                    ``(C) Annual limit.--The aggregate amount which may 
                be allocated under subparagraph (A) for any calendar 
                year in the credit period shall not exceed the sum of--
                            ``(i) $200,000,000, plus
                            ``(ii) the aggregate amount authorized to 
                        be allocated under this paragraph for all 
                        preceding calendar years in the credit period 
                        which was not so allocated.
                    ``(D) Unallocated amounts at end of credit 
                period.--If, as of the close of the credit period, the 
                amount under subparagraph (B) exceeds the aggregate 
                amount allocated under subparagraph (A) for all 
                calendar years in the credit period, the Governor of 
                the State of New York and the Mayor of the City of New 
                York, New York, may jointly allocate for any calendar 
                year following the credit period for expenditures with 
                respect to qualifying projects which may be taken into 
                account under subsection (a) an amount equal to such 
                excess, reduced by the aggregate amount allocated under 
                this subparagraph for all preceding calendar years.
    ``(c) Carryover of Unused Allocations.--
            ``(1) In general.--If the amount allocated under subsection 
        (b)(2) to a governmental unit for any calendar year exceeds the 
        total expenditures for such year by such governmental unit for 
        qualifying projects, the allocation of such governmental unit 
        for the succeeding calendar year shall be increased by the 
        amount of such excess.
            ``(2) Reallocation.--If a governmental unit does not use an 
        amount allocated to it under subsection (b)(2) within the time 
        prescribed by the Governor of the State of New York and the 
        Mayor of the City of New York, New York, then such amount shall 
        after such time be treated for purposes of subsection (b)(2) in 
        the same manner as if it had never been allocated.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Credit period.--The term `credit period' means the 
        10-year period beginning on January 1, 2006.
            ``(2) Treatment of funds.--Any expenditure for a qualifying 
        project taken into account for purposes of the credit under 
        this section shall be considered State and local funds for the 
        purpose of any Federal program.
    ``(e) Regulations.--The Secretary may prescribe such regulations as 
are necessary to ensure compliance with the purposes of this 
section.''.
    (b) Termination of Certain New York Liberty Zone Benefits.--
            (1) Special allowance and expensing.--Section 
        1400L(b)(2)(A)(v) is amended by striking ``the termination 
        date'' and inserting ``the date of the enactment of the Tax 
        Relief Act of 2005 or the termination date if pursuant to a 
        binding contract in effect on such enactment date''.
            (2) Leasehold.--Section 1400L(c)(2)(B) is amended by 
        striking ``before January 1, 2007'' and inserting ``on or 
        before the date of the enactment of the Tax Relief Act of 2005 
        or before January 1, 2007, if pursuant to a binding contract in 
        effect on such enactment date''.
            (3) Replacement period.--Section 1400L(g) is amended by 
        adding at the end the following new sentence: ``The preceding 
        sentence shall apply only to any property with respect to which 
        an election under section 1033(a)(2) is made by the taxpayer 
        before the date of the enactment of the Tax Relief Act of 
        2005.''.
    (c) Conforming Amendment.--The table of sections for subchapter Y 
of chapter 1 is amended by adding at the end the following new items:

        ``Sec. 1400M. New York Liberty Zone tax credits.''.

SEC. 402. MODIFICATION TO S CORPORATION PASSIVE INVESTMENT INCOME 
              RULES.

    (a) Increased Percentage Limit.--Paragraph (2) of section 1375(a) 
is amended by striking ``25 percent'' and inserting ``60 percent''.
    (b) Repeal of Excessive Passive Income as a Termination Event.--
            (1) In general.--Section 1362(d) is amended by striking 
        paragraph (3).
            (2) Conforming amendment.--Subsection (b) of section 1375 
        is amended--
                    (A) by redesignating paragraph (4) as paragraph 
                (5), and
                    (B) by striking paragraph (3) and inserting the 
                following:
            ``(3) Passive investment income defined.--
                    ``(A) Except as otherwise provided in this 
                paragraph, the term `passive investment income' means 
                gross receipts derived from royalties, rents, 
                dividends, interest, annuities, and sales or exchanges 
                of stock or securities (gross receipts from such sales 
                or exchanges being taken into account for purposes of 
                this section only to the extent of gains therefrom).
                    ``(B) Exception for interest on notes from sales of 
                inventory.--The term `passive investment income' shall 
                not include interest on any obligation acquired in the 
                ordinary course of the corporation's trade or business 
                from its sale of property described in section 
                1221(a)(1).
                    ``(C) Treatment of certain lending or finance 
                companies.--If the S corporation meets the requirements 
                of section 542(c)(6) for the taxable year, the term 
                `passive investment income' shall not include gross 
                receipts for the taxable year which are derived 
                directly from the active and regular conduct of a 
                lending or finance business (as defined in section 
                542(d)(1)).
                    ``(D) Special rule for options and commodity 
                dealers.--
                            ``(i) In general.--In the case of any 
                        options dealer or commodities dealer, passive 
                        investment income shall be determined by not 
                        taking into account any gain or loss (in the 
                        normal course of the taxpayer's activity of 
                        dealing in or trading section 1256 contracts) 
                        from any section 1256 contract or property 
                        related to such a contract.
                            ``(ii) Definitions.--For purposes of this 
                        subparagraph--
                                    ``(I) Options dealer.--The term 
                                `options dealer' has the meaning given 
                                such term by section 1256(g)(8).
                                    ``(II) Commodities dealer.--The 
                                term `commodities dealer' means a 
                                person who is actively engaged in 
                                trading section 1256 contracts and is 
                                registered with a domestic board of 
                                trade which is designated as a contract 
                                market by the Commodities Futures 
                                Trading Commission.
                                    ``(III) Section 1256 contract.--The 
                                term `section 1256 contract' has the 
                                meaning given to such term by section 
                                1256(b).
                    ``(E) Treatment of certain dividends.--If an S 
                corporation holds stock in a C corporation meeting the 
                requirements of section 1504(a)(2), the term `passive 
                investment income' shall not include dividends from 
                such C corporation to the extent such dividends are 
                attributable to the earnings and profits of such C 
                corporation derived from the active conduct of a trade 
                or business.
                    ``(F) Exception for banks, etc.--In the case of a 
                bank (as defined in section 581), a bank holding 
                company (within the meaning of section 2(a) of the Bank 
                Holding Company Act of 1956 (12 U.S.C. 1841(a))), or a 
                financial holding company (within the meaning of 
                section 2(p) of such Act), the term `passive investment 
                income' shall not include--
                            ``(i) interest income earned by such bank 
                        or company, or
                            ``(ii) dividends on assets required to be 
                        held by such bank or company, including stock 
                        in the Federal Reserve Bank, the Federal Home 
                        Loan Bank, or the Federal Agricultural Mortgage 
                        Bank or participation certificates issued by a 
                        Federal Intermediate Credit Bank.
            ``(4) Gross receipts from sales of capital assets (other 
        than stock and securities).--In the case of dispositions of 
        capital assets (other than stock and securities), gross 
        receipts from such dispositions shall be taken into account 
        only to the extent of the capital gain net income therefrom.''.
    (c) Conforming Amendments.--
            (1) Subparagraph (J) of section 26(b)(2) is amended by 
        striking ``25 percent'' and inserting ``60 percent''.
            (2) Clause (i) of section 1042(c)(4)(A) is amended by 
        striking ``section 1362(d)(3)(C)'' and inserting ``section 
        1375(b)(3)''.
            (3) Subparagraph (B) of section 1362(f)(1) is amended by 
        striking ``or (3)''.
            (4) Clause (i) of section 1375(b)(1)(A) is amended by 
        striking ``25 percent'' and inserting ``60 percent''.
            (5) Subsection (d) of section 1375 is amended by striking 
        ``subchapter C'' both places it appears and inserting 
        ``accumulated''.
            (6) The heading for section 1375 is amended by striking 
        ``25 percent'' and inserting ``60 percent''.
            (7) The item relating to section 1375 in the table of 
        sections for part III of subchapter S of chapter 1 is amended 
        by striking ``25 percent'' and inserting ``60 percent''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 403. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF CERTAIN 
              CAPITAL EXPENDITURES FOR PURPOSES OF QUALIFIED SMALL 
              ISSUE BONDS.

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

SEC. 404. PREMIUMS FOR MORTGAGE INSURANCE.

    (a) In General.--Section 163(h)(3) (relating to qualified residence 
interest) is amended by adding at the end the following new 
subparagraph:
                    ``(E) Mortgage insurance premiums treated as 
                interest.--
                            ``(i) In general.--Premiums paid or accrued 
                        for qualified mortgage insurance by a taxpayer 
                        during the taxable year in connection with 
                        acquisition indebtedness with respect to a 
                        qualified residence of the taxpayer shall be 
                        treated for purposes of this section as 
                        interest which is qualified residence interest.
                            ``(ii) Phaseout.--The amount otherwise 
                        treated as interest under clause (i) shall be 
                        reduced (but not below zero) by 10 percent of 
                        such amount for each $1,000 ($500 in the case 
                        of a married individual filing a separate 
                        return) (or fraction thereof) that the 
                        taxpayer's adjusted gross income for the 
                        taxable year exceeds $100,000 ($50,000 in the 
                        case of a married individual filing a separate 
                        return).''.
    (b) Definition and Special Rules.--Section 163(h)(4) (relating to 
other definitions and special rules) is amended by adding at the end 
the following new subparagraphs:
                    ``(E) Qualified mortgage insurance.--The term 
                `qualified mortgage insurance' means--
                            ``(i) mortgage insurance provided by the 
                        Veterans Administration, the Federal Housing 
                        Administration, or the Rural Housing 
                        Administration, and
                            ``(ii) private mortgage insurance (as 
                        defined by section 2 of the Homeowners 
                        Protection Act of 1998 (12 U.S.C. 4901), as in 
                        effect on the date of the enactment of this 
                        subparagraph).
                    ``(F) Special rules for prepaid qualified mortgage 
                insurance.--Any amount paid by the taxpayer for 
                qualified mortgage insurance that is properly allocable 
                to any mortgage the payment of which extends to periods 
                that are after the close of the taxable year in which 
                such amount is paid shall be chargeable to capital 
                account and shall be treated as paid in such periods to 
                which so allocated. No deduction shall be allowed for 
                the unamortized balance of such account if such 
                mortgage is satisfied before the end of its term. The 
                preceding sentences shall not apply to amounts paid for 
                qualified mortgage insurance provided by the Veterans 
                Administration or the Rural Housing Administration.''.
    (c) Information Returns Relating to Mortgage Insurance.--Section 
6050H (relating to returns relating to mortgage interest received in 
trade or business from individuals) is amended by adding at the end the 
following new subsection:
    ``(h) Returns Relating to Mortgage Insurance Premiums.--
            ``(1) In general.--The Secretary may prescribe, by 
        regulations, that any person who, in the course of a trade or 
        business, receives from any individual premiums for mortgage 
        insurance aggregating $600 or more for any calendar year, shall 
        make a return with respect to each such individual. Such return 
        shall be in such form, shall be made at such time, and shall 
        contain such information as the Secretary may prescribe.
            ``(2) Statement to be furnished to individuals with respect 
        to whom information is required.--Every person required to make 
        a return under paragraph (1) shall furnish to each individual 
        with respect to whom a return is made a written statement 
        showing such information as the Secretary may prescribe. Such 
        written statement shall be furnished on or before January 31 of 
        the year following the calendar year for which the return under 
        paragraph (1) was required to be made.
            ``(3) Special rules.--For purposes of this subsection--
                    ``(A) rules similar to the rules of subsection (c) 
                shall apply, and
                    ``(B) the term `mortgage insurance' means--
                            ``(i) mortgage insurance provided by the 
                        Veterans Administration, the Federal Housing 
                        Administration, or the Rural Housing 
                        Administration, and
                            ``(ii) private mortgage insurance (as 
                        defined by section 2 of the Homeowners 
                        Protection Act of 1998 (12 U.S.C. 4901), as in 
                        effect on the date of the enactment of this 
                        subsection).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to amounts paid or accrued during the period beginning after 
December 31, 2006, and before January 1, 2008, and properly allocable 
to such period, with respect to mortgage insurance contracts issued 
after December 31, 2006.

                   TITLE V--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed to Curtail Tax Shelters

SEC. 501. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN 
              PREPARER.

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

SEC. 502. MODIFICATIONS OF SUSPENSION OF INTEREST AND PENALTIES WHERE 
              INTERNAL REVENUE SERVICE FAILS TO CONTACT TAXPAYER.

    (a) Effective Date of Exception From Suspension Rules for Certain 
Listed and Reportable Transactions.--
            (1) In general.--Paragraph (2) of section 903(d) of the 
        American Jobs Creation Act of 2004 is amended to read as 
        follows:
            ``(2) Exception for reportable or listed transactions.--
                    ``(A) In general.--The amendments made by 
                subsection (c) shall apply with respect to interest 
                accruing after October 3, 2004.
                    ``(B) Special rule for certain listed and 
                reportable transactions.--
                            ``(i) In general.--Except as provided in 
                        clause (ii) or (iii), the amendments made by 
                        subsection (c) shall also apply with respect to 
                        interest accruing on or before October 3, 2004.
                            ``(ii) Participants in settlement 
                        initiatives.--Clause (i) shall not apply to any 
                        transaction if, pursuant to a published 
                        settlement initiative which is offered by the 
                        Secretary of the Treasury to a group of 
                        similarly situated taxpayers claiming benefits 
                        from the transaction, the taxpayer has entered 
                        into a settlement agreement with respect to the 
                        tax liability arising in connection with the 
                        transaction.
                            ``(iii) Closed transactions.--Clause (i) 
                        shall not apply to a transaction if, as of July 
                        29, 2005 (May 9, 2005 in the case of a listed 
                        transaction)--
                                    ``(I) the assessment of all Federal 
                                income taxes for the taxable year in 
                                which the tax liability to which the 
                                interest relates arose is prevented by 
                                the operation of any law or rule of 
                                law, or
                                    ``(II) a closing agreement under 
                                section 7121 has been entered into with 
                                respect to the tax liability arising in 
                                connection with the transaction.''.
            (2) Effective date.--The amendment made by this subsection 
        shall take effect as if included in the provisions of the 
        American Jobs Creation Act of 2004 to which it relates.
    (b) Treatment of Amended Returns and Other Similar Notices of 
Additional Tax Owed.--
            (1) In general.--Section 6404(g)(1) (relating to 
        suspension) is amended by adding at the end the following new 
        sentence: ``If, after the return for a taxable year is filed, 
        the taxpayer provides to the Secretary 1 or more signed written 
        documents showing that the taxpayer owes an additional amount 
        of tax for the taxable year, clause (i) shall be applied by 
        substituting the date the last of the documents was provided 
        for the date on which the return is filed.''
            (2) Effective date.--The amendment made by this subsection 
        shall apply to documents provided on or after July 29, 2005.

SEC. 503. FRIVOLOUS TAX SUBMISSIONS.

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

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

                Subtitle B--Economic Substance Doctrine

SEC. 511. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

SEC. 512. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

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

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

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 40 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `40 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if--
                    ``(A) there is a lack of economic substance (within 
                the meaning of section 7701(o)(1)) for the transaction 
                giving rise to the claimed benefit or the transaction 
                was not respected under section 7701(o)(2), or
                    ``(B) the transaction fails to meet the 
                requirements of any similar rule of law.
    ``(d) Rules Applicable to Compromise of Penalty.--
            ``(1) In general.--If the 1st letter of proposed deficiency 
        which allows the taxpayer an opportunity for administrative 
        review in the Internal Revenue Service Office of Appeals has 
        been sent with respect to a penalty to which this section 
        applies, only the Commissioner of Internal Revenue may 
        compromise all or any portion of such penalty.
            ``(2) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply for purposes of paragraph 
        (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--

            ``(1) For coordination of penalty with 
            understatements under section 6662 and other 
            special rules, see section 6662A(e)
            ``(2) For reporting of penalty imposed under 
            this section to the Securities and Exchange 
            Commission, see section 6707A(e)''.
    (b) Coordination With Other Understatements and Penalties.--
            (1) The second sentence of section 6662(d)(2)(A) is amended 
        by inserting ``and without regard to items with respect to 
        which a penalty is imposed by section 6662B'' before the period 
        at the end.
            (2) Subsection (e) of section 6662A is amended--
                    (A) in paragraph (1), by inserting ``and 
                noneconomic substance transaction understatements'' 
                after ``reportable transaction understatements'' both 
                places it appears,
                    (B) in paragraph (2)(A), by inserting ``and a 
                noneconomic substance transaction understatement'' 
                after ``reportable transaction understatement'',
                    (C) in paragraph (2)(B), by inserting ``6662B or'' 
                before ``6663'',
                    (D) in paragraph (2)(C)(i), by inserting ``or 
                section 6662B'' before the period at the end,
                    (E) in paragraph (2)(C)(ii), by inserting ``and 
                section 6662B'' after ``This section'',
                    (F) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (G) by adding at the end the following new 
                paragraph:
            ``(4) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).''.
            (3) Subsection (e) of section 6707A is amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (B), and
                    (B) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction, or
                    ``(D) 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,''.
    (c) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 513. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163(m) (relating to interest on unpaid 
taxes attributable to nondisclosed reportable transactions) is 
amended--
            (1) by striking ``attributable'' and all that follows and 
        inserting the following: ``attributable to--
            ``(1) the portion of any reportable transaction 
        understatement (as defined in section 6662A(b)) with respect to 
        which the requirement of section 6664(d)(2)(A) is not met, or
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).'', and
            (2) by inserting ``and Noneconomic Substance Transactions'' 
        in the heading thereof after ``Transactions''.
    (b) Effective Date.--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.

   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

SEC. 521. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING AUTOMATED 
              WITHDRAWALS.

    (a) In General.--Section 6159 (relating to agreements for payment 
of tax liability in installments) is amended by redesignating 
subsection (e) as subsection (f) and by inserting after subsection (d) 
the following:
    ``(e) Waiver of User Fees for Installment Agreements Using 
Automated Withdrawals.--In the case of a taxpayer who enters into an 
installment agreement in which automated installment payments are 
agreed to, the Secretary shall waive the fee (if any) for entering into 
the installment agreement.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to agreements entered into on or after the date which is 180 days 
after the date of the enactment of this Act.

SEC. 522. TERMINATION OF INSTALLMENT AGREEMENTS.

    (a) In General.--Section 6159(b)(4) (relating to failure to pay an 
installment or any other tax liability when due or to provide requested 
financial information) is amended by striking ``or'' at the end of 
subparagraph (B), by redesignating subparagraph (C) as subparagraph 
(E), and by inserting after subparagraph (B) the following:
                    ``(C) to make a Federal tax deposit under section 
                6302 at the time such deposit is required to be made,
                    ``(D) to file a return of tax imposed under this 
                title by its due date (including extensions), or''.
    (b) Conforming Amendment.--The heading for section 6159(b)(4) is 
amended by striking ``Failure to pay an installment or any other tax 
liability when due or to provide requested financial information'' and 
inserting ``Failure to make payments or deposits or file returns when 
due or to provide requested financial information''.
    (c) Effective Date.--The amendments made by this section shall 
apply to failures occurring on or after the date of the enactment of 
this Act.

SEC. 523. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF OFFERS-IN-
              COMPROMISE.

    (a) In General.--Section 7122 (relating to compromises), as amended 
by this Act, is amended by redesignating subsections (c), (d), and (e) 
as subsections (d), (e), and (f), respectively, and by inserting after 
subsection (b) the following new subsection:
    ``(c) Rules for Submission of Offers-in-Compromise.--
            ``(1) Partial payment required with submission.--
                    ``(A) Lump-sum offers.--
                            ``(i) In general.--The submission of any 
                        lump-sum offer-in-compromise shall be 
                        accompanied by the payment of 20 percent of 
                        amount of such offer.
                            ``(ii) Lump-sum offer-in-compromise.--For 
                        purposes of this section, the term `lump-sum 
                        offer-in-compromise' means any offer of 
                        payments made in 5 or fewer installments.
                    ``(B) Periodic payment offers.--The submission of 
                any periodic payment offer-in-compromise shall be 
                accompanied by the payment of the amount of the first 
                proposed installment and each proposed installment due 
                during the period such offer is being evaluated for 
                acceptance and has not been rejected by the Secretary. 
                Any failure to make a payment required under the 
                preceding sentence shall be deemed a withdrawal of the 
                offer-in-compromise.
            ``(2) Rules of application.--
                    ``(A) Use of payment.--The application of any 
                payment made under this subsection to the assessed tax 
                or other amounts imposed under this title with respect 
                to such tax may be specified by the taxpayer.
                    ``(B) No user fee imposed.--Any user fee which 
                would otherwise be imposed under this section shall not 
                be imposed on any offer-in-compromise accompanied by a 
                payment required under this subsection.
                    ``(C) Waiver authority.--The Secretary may issue 
                regulations waiving any payment required under 
                paragraph (1) in a manner consistent with the practices 
                established in accordance with the requirements under 
                subsection (d)(3).''.
    (b) Additional Rules Relating to Treatment of Offers.--
            (1) Unprocessable offer if payment requirements are not 
        met.--Paragraph (3) of section 7122(d) (relating to standards 
        for evaluation of offers), as redesignated by subsection (a), 
        is amended by striking ``; and'' at the end of subparagraph (A) 
        and inserting a comma, by striking the period at the end of 
        subparagraph (B) and inserting ``, and'', and by adding at the 
        end the following new subparagraph:
                    ``(C) any offer-in-compromise which does not meet 
                the requirements of subsection (c) shall be returned to 
                the taxpayer as unprocessable.''.
            (2) Deemed acceptance of offer not rejected within certain 
        period.--Section 7122, as amended by subsection (a), is amended 
        by adding at the end the following new subsection:
    ``(g) Deemed Acceptance of Offer Not Rejected Within Certain 
Period.--Any offer-in-compromise submitted under this section shall be 
deemed to be accepted by the Secretary if such offer is not rejected by 
the Secretary before the date which is 24 months after the date of the 
submission of such offer (12 months for offers-in-compromise submitted 
after the date which is 5 years after the date of the enactment of this 
subsection). For purposes of the preceding sentence, any period during 
which any tax liability which is the subject of such offer-in-
compromise is in dispute in any judicial proceeding shall not be taken 
in to account in determining the expiration of the 24-month period (or 
12-month period, if applicable).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to offers-in-compromise submitted on and after the date which is 
60 days after the date of the enactment of this Act.

                    Subtitle D--Penalties and Fines

SEC. 531. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION FOR THE 
              UNDERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.

    (a) In General.--Section 7206 (relating to fraud and false 
statements) is amended--
            (1) by striking ``Any person who--'' and inserting ``(a) In 
        General.--Any person who--'', and
            (2) by adding at the end the following new subsection:
    ``(b) Increase in Monetary Limitation for Underpayment or 
Overpayment of Tax Due to Fraud.--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.''.
    (b) Increase in Penalties.--
            (1) Attempt to evade or defeat tax.--Section 7201 is 
        amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$500,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``5 years'' and inserting ``10 
                years''.
            (2) Willful failure to file return, supply information, or 
        pay tax.--Section 7203 is amended--
                    (A) in the first sentence--
                            (i) by striking ``Any person'' and 
                        inserting the following:
    ``(a) In General.--Any person'', and
                            (ii) by striking ``$25,000'' and inserting 
                        ``$50,000'',
                    (B) in the third sentence, by striking ``section'' 
                and inserting ``subsection'', and
                    (C) by adding at the end the following new 
                subsection:
    ``(b) Aggravated Failure to File.--
            ``(1) In general.--In the case of any failure described in 
        paragraph (2), the first sentence of subsection (a) shall be 
        applied by substituting--
                    ``(A) `felony' for `misdemeanor',
                    ``(B) `$500,000 ($1,000,000' for `$25,000 
                ($100,000', and
                    ``(C) `10 years' for `1 year'.
            ``(2) Failure described.--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 and the 
        aggregated tax liability for such period is at least 
        $100,000.''.
            (3) Fraud and false statements.--Section 7206(a) (as 
        redesignated by subsection (a)) is amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$500,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``3 years'' and inserting ``5 
                years''.
    (c) Effective Date.--The amendments made by this section shall 
apply to actions, and failures to act, occurring after the date of the 
enactment of this Act.

SEC. 532. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON 
              UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL 
              ARRANGEMENTS.

    (a) Determination of Penalty.--
            (1) In general.--Notwithstanding any other provision of 
        law, in the case of an applicable taxpayer--
                    (A) the determination as to whether any interest or 
                applicable penalty is to be imposed with respect to any 
                arrangement described in paragraph (2), or to any 
                underpayment of Federal income tax attributable to 
                items arising in connection with any such arrangement, 
                shall be made without regard to the rules of 
                subsections (b), (c), and (d) of section 6664 of the 
                Internal Revenue Code of 1986, and
                    (B) if any such interest or applicable penalty is 
                imposed, the amount of such interest or penalty shall 
                be equal to twice that determined without regard to 
                this section.
            (2) Applicable taxpayer.--For purposes of this subsection--
                    (A) In general.--The term ``applicable taxpayer'' 
                means a taxpayer which--
                            (i) has underreported its United States 
                        income tax liability with respect to any item 
                        which directly or indirectly involves--
                                    (I) any financial arrangement which 
                                in any manner relies on the use of 
                                offshore payment mechanisms (including 
                                credit, debit, or charge cards) issued 
                                by banks or other entities in foreign 
                                jurisdictions, or
                                    (II) any offshore financial 
                                arrangement (including any arrangement 
                                with foreign banks, financial 
                                institutions, corporations, 
                                partnerships, trusts, or other 
                                entities), and
                            (ii) has neither signed a closing agreement 
                        pursuant to the Voluntary Offshore Compliance 
                        Initiative established by the Department of the 
                        Treasury under Revenue Procedure 2003-11 nor 
                        voluntarily disclosed its participation in such 
                        arrangement by notifying the Internal Revenue 
                        Service of such arrangement prior to the issue 
                        being raised by the Internal Revenue Service 
                        during an examination.
                    (B) Authority to waive.--The Secretary of the 
                Treasury or the Secretary's delegate may waive the 
                application of paragraph (1) to any taxpayer if the 
                Secretary or the Secretary's delegate determines that 
                the use of such offshore payment mechanisms is 
                incidental to the transaction and, in addition, in the 
                case of a trade or business, such use is conducted in 
                the ordinary course of the type of trade or business of 
                the taxpayer.
                    (C) Issues raised.--For purposes of subparagraph 
                (A)(ii), an item shall be treated as an issue raised 
                during an examination if the individual examining the 
                return--
                            (i) communicates to the taxpayer knowledge 
                        about the specific item, or
                            (ii) has made a request to the taxpayer for 
                        information and the taxpayer could not make a 
                        complete response to that request without 
                        giving the examiner knowledge of the specific 
                        item.
    (b) Definitions and Rules.--For purposes of this section--
            (1) Applicable penalty.--The term ``applicable penalty'' 
        means any penalty, addition to tax, or fine imposed under 
        chapter 68 of the Internal Revenue Code of 1986.
            (2) Fees and expenses.--The Secretary of the Treasury may 
        retain and use an amount not in excess of 25 percent of all 
        additional interest, penalties, additions to tax, and fines 
        collected under this section to be used for enforcement and 
        collection activities of the Internal Revenue Service. The 
        Secretary shall keep adequate records regarding amounts so 
        retained and used. The amount credited as paid by any taxpayer 
        shall be determined without regard to this paragraph.
    (c) Report by Secretary.--The Secretary shall each year conduct a 
study and report to Congress on the implementation of this section 
during the preceding year, including statistics on the number of 
taxpayers affected by such implementation and the amount of interest 
and applicable penalties asserted, waived, and assessed during such 
preceding year.
    (d) Effective Date.--The provisions of this section shall apply to 
interest, penalties, additions to tax, and fines with respect to any 
taxable year if, as of the date of the enactment of this Act, the 
assessment of any tax, penalty, or interest with respect to such 
taxable year is not prevented by the operation of any law or rule of 
law.

SEC. 533. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
              AMOUNTS.

    (a) In General.--Subsection (f) of section 162 (relating to trade 
or business expenses) is amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        deduction otherwise allowable shall be allowed under this 
        chapter for any amount paid or incurred (whether by suit, 
        agreement, or otherwise) to, or at the direction of, a 
        government or entity described in paragraph (4) in relation to 
        the violation of any law or the investigation or inquiry by 
        such government or entity into the potential violation of any 
        law.
            ``(2) Exception for amounts constituting restitution or 
        paid to come into compliance with law.--Paragraph (1) shall not 
        apply to any amount which--
                    ``(A) the taxpayer establishes--
                            ``(i) constitutes restitution (including 
                        remediation of property) for damage or harm 
                        caused by or which may be caused by the 
                        violation of any law or the potential violation 
                        of any law, or
                            ``(ii) is paid to come into compliance with 
                        any law which was violated or involved in the 
                        investigation or inquiry, and
                    ``(B) is identified as restitution or as an amount 
                paid to come into compliance with the law, as the case 
                may be, in the court order or settlement agreement.
        Identification pursuant to subparagraph (B) alone shall not 
        satisfy the requirement under subparagraph (A). This paragraph 
        shall not apply to any amount paid or incurred as reimbursement 
        to the government or entity for the costs of any investigation 
        or litigation.
            ``(3) Exception for amounts paid or incurred as the result 
        of certain court orders.--Paragraph (1) shall not apply to any 
        amount paid or incurred by order of a court in a suit in which 
        no government or entity described in paragraph (4) is a party.
            ``(4) Certain nongovernmental regulatory entities.--An 
        entity is described in this paragraph if it is--
                    ``(A) a nongovernmental entity which exercises 
                self-regulatory powers (including imposing sanctions) 
                in connection with a qualified board or exchange (as 
                defined in section 1256(g)(7)), or
                    ``(B) to the extent provided in regulations, a 
                nongovernmental entity which exercises self-regulatory 
                powers (including imposing sanctions) as part of 
                performing an essential governmental function.
            ``(5) Exception for taxes due.--Paragraph (1) shall not 
        apply to any amount paid or incurred as taxes due.''.
    (b) Reporting of Deductible Amounts.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 is amended by inserting after section 6050T the 
        following new section:

``SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN FINES, PENALTIES, AND 
              OTHER AMOUNTS.

    ``(a) Requirement of Reporting.--
            ``(1) In general.--The appropriate official of any 
        government or entity which is described in section 162(f)(4) 
        which is involved in a suit or agreement described in paragraph 
        (2) shall make a return in such form as determined by the 
        Secretary setting forth--
                    ``(A) the amount required to be paid as a result of 
                the suit or agreement to which paragraph (1) of section 
                162(f) applies,
                    ``(B) any amount required to be paid as a result of 
                the suit or agreement which constitutes restitution or 
                remediation of property, and
                    ``(C) any amount required to be paid as a result of 
                the suit or agreement for the purpose of coming into 
                compliance with any law which was violated or involved 
                in the investigation or inquiry.
            ``(2) Suit or agreement described.--
                    ``(A) In general.--A suit or agreement is described 
                in this paragraph if--
                            ``(i) it is--
                                    ``(I) a suit with respect to a 
                                violation of any law over which the 
                                government or entity has authority and 
                                with respect to which there has been a 
                                court order, or
                                    ``(II) an agreement which is 
                                entered into with respect to a 
                                violation of any law over which the 
                                government or entity has authority, or 
                                with respect to an investigation or 
                                inquiry by the government or entity 
                                into the potential violation of any law 
                                over which such government or entity 
                                has authority, and
                            ``(ii) the aggregate amount involved in all 
                        court orders and agreements with respect to the 
                        violation, investigation, or inquiry is $600 or 
                        more.
                    ``(B) Adjustment of reporting threshold.--The 
                Secretary may adjust the $600 amount in subparagraph 
                (A)(ii) as necessary in order to ensure the efficient 
                administration of the internal revenue laws.
            ``(3) Time of filing.--The return required under this 
        subsection shall be filed not later than--
                    ``(A) 30 days after the date on which a court order 
                is issued with respect to the suit or the date the 
                agreement is entered into, as the case may be, or
                    ``(B) the date specified Secretary.
    ``(b) Statements to Be Furnished to Individuals Involved in the 
Settlement.--Every person required to make a return under subsection 
(a) shall furnish to each person who is a party to the suit or 
agreement a written statement showing--
            ``(1) the name of the government or entity, and
            ``(2) the information supplied to the Secretary under 
        subsection (a)(1).
The written statement required under the preceding sentence shall be 
furnished to the person at the same time the government or entity 
provides the Secretary with the information required under subsection 
(a).
    ``(c) Appropriate Official Defined.--For purposes of this section, 
the term `appropriate official' means the officer or employee having 
control of the suit, investigation, or inquiry or the person 
appropriately designated for purposes of this section.''.
            (2) Conforming amendment.--The table of sections for 
        subpart B of part III of subchapter A of chapter 61 is amended 
        by inserting after the item relating to section 6050T the 
        following new item:

``Sec. 6050U. Information with respect to certain fines, penalties, and 
                            other amounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred on or after the date of the enactment 
of this Act, except that such amendments shall not apply to amounts 
paid or incurred under any binding order or agreement entered into 
before such date. Such exception shall not apply to an order or 
agreement requiring court approval unless the approval was obtained 
before such date.

SEC. 534. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

    (a) Disallowance of Deduction.--
            (1) In general.--Section 162(g) (relating to treble damage 
        payments under the antitrust laws) is amended--
                    (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively,
                    (B) by striking ``If'' and inserting:
            ``(1) Treble damages.--If'', and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) Punitive damages.--No deduction shall be allowed 
        under this chapter for any amount paid or incurred for punitive 
        damages in connection with any judgment in, or settlement of, 
        any action. This paragraph shall not apply to punitive damages 
        described in section 104(c).''.
            (2) Conforming amendment.--The heading for section 162(g) 
        is amended by inserting ``or Punitive Damages'' after ``Laws''.
    (b) Inclusion in Income of Punitive Damages Paid by Insurer or 
Otherwise.--
            (1) In general.--Part II of subchapter B of chapter 1 
        (relating to items specifically included in gross income) is 
        amended by adding at the end the following new section:

``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.

    ``Gross income shall include any amount paid to or on behalf of a 
taxpayer as insurance or otherwise by reason of the taxpayer's 
liability (or agreement) to pay punitive damages.''.
            (2) Reporting requirements.--Section 6041 (relating to 
        information at source) is amended by adding at the end the 
        following new subsection:
    ``(f) Section to Apply to Punitive Damages Compensation.--This 
section shall apply to payments by a person to or on behalf of another 
person as insurance or otherwise by reason of the other person's 
liability (or agreement) to pay punitive damages.''.
            (3) Conforming amendment.--The table of sections for part 
        II of subchapter B of chapter 1 is amended by adding at the end 
        the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to damages paid or incurred on or after the date of the enactment 
of this Act.

SEC. 535. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY ORDERS.

    (a) In General.--Section 6657 (relating to bad checks) is amended--
            (1) by striking ``$750'' and inserting ``$1,250'', and
            (2) by striking ``$15'' and inserting ``$25''.
    (b) Effective Date.--The amendments made by this section apply to 
checks or money orders received after the date of the enactment of this 
Act.

           Subtitle E--Provisions to Discourage Expatriation

SEC. 541. TAX TREATMENT OF INVERTED ENTITIES.

    (a) In General.--Section 7874 is amended--
            (1) by striking ``March 4, 2003'' in subsection 
        (a)(2)(B)(i) and in the matter following subsection 
        (a)(2)(B)(iii) and inserting ``March 20, 2002'',
            (2) by striking ``at least 60 percent'' in subsection 
        (a)(2)(B)(ii) and inserting ``more than 50 percent'',
            (3) by striking ``80 percent'' in subsection (b) and 
        inserting ``at least 80 percent'',
            (4) by striking ``60 percent'' in subsection (b) and 
        inserting ``more than 50 percent'',
            (5) by adding at the end of subsection (a)(2) the following 
        new sentence: ``Except as provided in regulations, an 
        acquisition of properties of a domestic corporation shall not 
        be treated as described in subparagraph (B) if none of the 
        corporation's stock was readily tradeable on an established 
        securities market at any time during the 4-year period ending 
        on the date of the acquisition.'', and
            (6) by redesignating subsection (g) as subsection (h) and 
        by inserting after subsection (f) the following new subsection:
    ``(g) Special Rules Applicable to Expatriated Entities.--
            ``(1) Increases in accuracy-related penalties.--In the case 
        of any underpayment of tax of an expatriated entity--
                    ``(A) section 6662(a) shall be applied with respect 
                to such underpayment by substituting `30 percent' for 
                `20 percent', and
                    ``(B) if such underpayment is attributable to one 
                or more gross valuation understatements, the increase 
                in the rate of penalty under section 6662(h) shall be 
                to 50 percent rather than 40 percent.
            ``(2) Modifications of limitation on interest deduction.--
        In the case of an expatriated entity, section 163(j) shall be 
        applied--
                    ``(A) without regard to paragraph (2)(A)(ii) 
                thereof, and
                    ``(B) by substituting `25 percent' for `50 percent' 
                each place it appears in paragraph (2)(B) thereof.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after March 20, 2002.

SEC. 542. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
is amended by inserting after section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rules.--For purposes of this subtitle--
            ``(1) Mark to market.--Except as provided in subsections 
        (d) and (f), all property of a covered expatriate to whom this 
        section applies shall be treated as sold on the day before the 
        expatriation date for its fair market value.
            ``(2) Recognition of gain or loss.--In the case of any sale 
        under paragraph (1)--
                    ``(A) notwithstanding any other provision of this 
                title, any gain arising from such sale shall be taken 
                into account for the taxable year of the sale, and
                    ``(B) any loss arising from such sale shall be 
                taken into account for the taxable year of the sale to 
                the extent otherwise provided by this title, except 
                that section 1091 shall not apply to any such loss.
        Proper adjustment shall be made in the amount of any gain or 
        loss subsequently realized for gain or loss taken into account 
        under the preceding sentence.
            ``(3) Exclusion for certain gain.--
                    ``(A) In general.--The amount which, but for this 
                paragraph, would be includible in the gross income of 
                any individual by reason of this section shall be 
                reduced (but not below zero) by $600,000. For purposes 
                of this paragraph, allocable expatriation gain taken 
                into account under subsection (f)(2) shall be treated 
                in the same manner as an amount required to be 
                includible in gross income.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of an 
                        expatriation date occurring in any calendar 
                        year after 2005, the $600,000 amount under 
                        subparagraph (A) shall be increased by an 
                        amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year, 
                                determined by substituting `calendar 
                                year 2004' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $1,000, such amount shall be rounded to the 
                        next lower multiple of $1,000.
            ``(4) Election to continue to be taxed as united states 
        citizen.--
                    ``(A) In general.--If a covered expatriate elects 
                the application of this paragraph--
                            ``(i) this section (other than this 
                        paragraph and subsection (i)) shall not apply 
                        to the expatriate, but
                            ``(ii) in the case of property to which 
                        this section would apply but for such election, 
                        the expatriate shall be subject to tax under 
                        this title in the same manner as if the 
                        individual were a United States citizen.
                    ``(B) Requirements.--Subparagraph (A) shall not 
                apply to an individual unless the individual--
                            ``(i) provides security for payment of tax 
                        in such form and manner, and in such amount, as 
                        the Secretary may require,
                            ``(ii) consents to the waiver of any right 
                        of the individual under any treaty of the 
                        United States which would preclude assessment 
                        or collection of any tax which may be imposed 
                        by reason of this paragraph, and
                            ``(iii) complies with such other 
                        requirements as the Secretary may prescribe.
                    ``(C) Election.--An election under subparagraph (A) 
                shall apply to all property to which this section would 
                apply but for the election and, once made, shall be 
                irrevocable. Such election shall also apply to property 
                the basis of which is determined in whole or in part by 
                reference to the property with respect to which the 
                election was made.
    ``(b) Election to Defer Tax.--
            ``(1) In general.--If the taxpayer elects the application 
        of this subsection with respect to any property treated as sold 
        by reason of subsection (a), the payment of the additional tax 
        attributable to such property shall be postponed until the due 
        date of the return for the taxable year in which such property 
        is disposed of (or, in the case of property disposed of in a 
        transaction in which gain is not recognized in whole or in 
        part, until such other date as the Secretary may prescribe).
            ``(2) Determination of tax with respect to property.--For 
        purposes of paragraph (1), the additional tax attributable to 
        any property is an amount which bears the same ratio to the 
        additional tax imposed by this chapter for the taxable year 
        solely by reason of subsection (a) as the gain taken into 
        account under subsection (a) with respect to such property 
        bears to the total gain taken into account under subsection (a) 
        with respect to all property to which subsection (a) applies.
            ``(3) Termination of postponement.--No tax may be postponed 
        under this subsection later than the due date for the return of 
        tax imposed by this chapter for the taxable year which includes 
        the date of death of the expatriate (or, if earlier, the time 
        that the security provided with respect to the property fails 
        to meet the requirements of paragraph (4), unless the taxpayer 
        corrects such failure within the time specified by the 
        Secretary).
            ``(4) Security.--
                    ``(A) In general.--No election may be made under 
                paragraph (1) with respect to any property unless 
                adequate security is provided to the Secretary with 
                respect to such property.
                    ``(B) Adequate security.--For purposes of 
                subparagraph (A), security with respect to any property 
                shall be treated as adequate security if--
                            ``(i) it is a bond in an amount equal to 
                        the deferred tax amount under paragraph (2) for 
                        the property, or
                            ``(ii) the taxpayer otherwise establishes 
                        to the satisfaction of the Secretary that the 
                        security is adequate.
            ``(5) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer consents to the waiver 
        of any right under any treaty of the United States which would 
        preclude assessment or collection of any tax imposed by reason 
        of this section.
            ``(6) Elections.--An election under paragraph (1) shall 
        only apply to property described in the election and, once 
        made, is irrevocable. An election may be made under paragraph 
        (1) with respect to an interest in a trust with respect to 
        which gain is required to be recognized under subsection 
        (f)(1).
            ``(7) Interest.--For purposes of section 6601--
                    ``(A) the last date for the payment of tax shall be 
                determined without regard to the election under this 
                subsection, and
                    ``(B) section 6621(a)(2) shall be applied by 
                substituting `5 percentage points' for `3 percentage 
                points' in subparagraph (B) thereof.
    ``(c) Covered Expatriate.--For purposes of this section--
            ``(1) In general.--Except as provided in paragraph (2), the 
        term `covered expatriate' means an expatriate.
            ``(2) Exceptions.--An individual shall not be treated as a 
        covered expatriate if--
                    ``(A) the individual--
                            ``(i) became at birth a citizen of the 
                        United States and a citizen of another country 
                        and, as of the expatriation date, continues to 
                        be a citizen of, and is taxed as a resident of, 
                        such other country, and
                            ``(ii) has not been a resident of the 
                        United States (as defined in section 
                        7701(b)(1)(A)(ii)) during the 5 taxable years 
                        ending with the taxable year during which the 
                        expatriation date occurs, or
                    ``(B)(i) the individual's relinquishment of United 
                States citizenship occurs before such individual 
                attains age 18\\1/2\\, and
                    ``(ii) the individual has been a resident of the 
                United States (as so defined) for not more than 5 
                taxable years before the date of relinquishment.
    ``(d) Exempt Property; Special Rules for Pension Plans.--
            ``(1) Exempt property.--This section shall not apply to the 
        following:
                    ``(A) United states real property interests.--Any 
                United States real property interest (as defined in 
                section 897(c)(1)), other than stock of a United States 
                real property holding corporation which does not, on 
                the day before the expatriation date, meet the 
                requirements of section 897(c)(2).
                    ``(B) Specified property.--Any property or interest 
                in property not described in subparagraph (A) which the 
                Secretary specifies in regulations.
            ``(2) Special rules for certain retirement plans.--
                    ``(A) In general.--If a covered expatriate holds on 
                the day before the expatriation date any interest in a 
                retirement plan to which this paragraph applies--
                            ``(i) such interest shall not be treated as 
                        sold for purposes of subsection (a)(1), but
                            ``(ii) an amount equal to the present value 
                        of the expatriate's nonforfeitable accrued 
                        benefit shall be treated as having been 
                        received by such individual on such date as a 
                        distribution under the plan.
                    ``(B) Treatment of subsequent distributions.--In 
                the case of any distribution on or after the 
                expatriation date to or on behalf of the covered 
                expatriate from a plan from which the expatriate was 
                treated as receiving a distribution under subparagraph 
                (A), the amount otherwise includible in gross income by 
                reason of the subsequent distribution shall be reduced 
                by the excess of the amount includible in gross income 
                under subparagraph (A) over any portion of such amount 
                to which this subparagraph previously applied.
                    ``(C) Treatment of subsequent distributions by 
                plan.--For purposes of this title, a retirement plan to 
                which this paragraph applies, and any person acting on 
                the plan's behalf, shall treat any subsequent 
                distribution described in subparagraph (B) in the same 
                manner as such distribution would be treated without 
                regard to this paragraph.
                    ``(D) Applicable plans.--This paragraph shall apply 
                to--
                            ``(i) any qualified retirement plan (as 
                        defined in section 4974(c)),
                            ``(ii) an eligible deferred compensation 
                        plan (as defined in section 457(b)) of an 
                        eligible employer described in section 
                        457(e)(1)(A), and
                            ``(iii) to the extent provided in 
                        regulations, any foreign pension plan or 
                        similar retirement arrangements or programs.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Expatriate.--The term `expatriate' means--
                    ``(A) any United States citizen who relinquishes 
                citizenship, and
                    ``(B) any long-term resident of the United States 
                who--
                            ``(i) ceases to be a lawful permanent 
                        resident of the United States (within the 
                        meaning of section 7701(b)(6)), or
                            ``(ii) commences to be treated as a 
                        resident of a foreign country under the 
                        provisions of a tax treaty between the United 
                        States and the foreign country and who does not 
                        waive the benefits of such treaty applicable to 
                        residents of the foreign country.
            ``(2) Expatriation date.--The term `expatriation date' 
        means--
                    ``(A) the date an individual relinquishes United 
                States citizenship, or
                    ``(B) in the case of a long-term resident of the 
                United States, the date of the event described in 
                clause (i) or (ii) of paragraph (1)(B).
            ``(3) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing United States citizenship on the 
        earliest of--
                    ``(A) the date the individual renounces such 
                individual's United States nationality before a 
                diplomatic or consular officer of the United States 
                pursuant to paragraph (5) of section 349(a) of the 
                Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
                    ``(B) the date the individual furnishes to the 
                United States Department of State a signed statement of 
                voluntary relinquishment of United States nationality 
                confirming the performance of an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of section 
                349(a) of the Immigration and Nationality Act (8 U.S.C. 
                1481(a)(1)-(4)),
                    ``(C) the date the United States Department of 
                State issues to the individual a certificate of loss of 
                nationality, or
                    ``(D) the date a court of the United States cancels 
                a naturalized citizen's certificate of naturalization.
        Subparagraph (A) or (B) shall not apply to any individual 
        unless the renunciation or voluntary relinquishment is 
        subsequently approved by the issuance to the individual of a 
        certificate of loss of nationality by the United States 
        Department of State.
            ``(4) Long-term resident.--The term `long-term resident' 
        has the meaning given to such term by section 877(e)(2).
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        an individual is determined under paragraph (3) to hold an 
        interest in a trust on the day before the expatriation date--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets on the day before the 
                expatriation date for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (C)(ii). In determining the amount of such 
        distribution, proper adjustments shall be made for liabilities 
        of the trust allocable to an individual's share in the trust.
            ``(2) Special rules for interests in qualified trusts.--
                    ``(A) In general.--If the trust interest described 
                in paragraph (1) is an interest in a qualified trust--
                            ``(i) paragraph (1) and subsection (a) 
                        shall not apply, and
                            ``(ii) in addition to any other tax imposed 
                        by this title, there is hereby imposed on each 
                        distribution with respect to such interest a 
                        tax in the amount determined under subparagraph 
                        (B).
                    ``(B) Amount of tax.--The amount of tax under 
                subparagraph (A)(ii) shall be equal to the lesser of--
                            ``(i) the highest rate of tax imposed by 
                        section 1(e) for the taxable year which 
                        includes the day before the expatriation date, 
                        multiplied by the amount of the distribution, 
                        or
                            ``(ii) the balance in the deferred tax 
                        account immediately before the distribution 
                        determined without regard to any increases 
                        under subparagraph (C)(ii) after the 30th day 
                        preceding the distribution.
                    ``(C) Deferred tax account.--For purposes of 
                subparagraph (B)(ii)--
                            ``(i) Opening balance.--The opening balance 
                        in a deferred tax account with respect to any 
                        trust interest is an amount equal to the tax 
                        which would have been imposed on the allocable 
                        expatriation gain with respect to the trust 
                        interest if such gain had been included in 
                        gross income under subsection (a).
                            ``(ii) Increase for interest.--The balance 
                        in the deferred tax account shall be increased 
                        by the amount of interest determined (on the 
                        balance in the account at the time the interest 
                        accrues), for periods after the 90th day after 
                        the expatriation date, by using the rates and 
                        method applicable under section 6621 for 
                        underpayments of tax for such periods, except 
                        that section 6621(a)(2) shall be applied by 
                        substituting `5 percentage points' for `3 
                        percentage points' in subparagraph (B) thereof.
                            ``(iii) Decrease for taxes previously 
                        paid.--The balance in the tax deferred account 
                        shall be reduced--
                                    ``(I) by the amount of taxes 
                                imposed by subparagraph (A) on any 
                                distribution to the person holding the 
                                trust interest, and
                                    ``(II) in the case of a person 
                                holding a nonvested interest, to the 
                                extent provided in regulations, by the 
                                amount of taxes imposed by subparagraph 
                                (A) on distributions from the trust 
                                with respect to nonvested interests not 
                                held by such person.
                    ``(D) Allocable expatriation gain.--For purposes of 
                this paragraph, the allocable expatriation gain with 
                respect to any beneficiary's interest in a trust is the 
                amount of gain which would be allocable to such 
                beneficiary's vested and nonvested interests in the 
                trust if the beneficiary held directly all assets 
                allocable to such interests.
                    ``(E) Tax deducted and withheld.--
                            ``(i) In general.--The tax imposed by 
                        subparagraph (A)(ii) shall be deducted and 
                        withheld by the trustees from the distribution 
                        to which it relates.
                            ``(ii) Exception where failure to waive 
                        treaty rights.--If an amount may not be 
                        deducted and withheld under clause (i) by 
                        reason of the distributee failing to waive any 
                        treaty right with respect to such 
                        distribution--
                                    ``(I) the tax imposed by 
                                subparagraph (A)(ii) shall be imposed 
                                on the trust and each trustee shall be 
                                personally liable for the amount of 
                                such tax, and
                                    ``(II) any other beneficiary of the 
                                trust shall be entitled to recover from 
                                the distributee the amount of such tax 
                                imposed on the other beneficiary.
                    ``(F) Disposition.--If a trust ceases to be a 
                qualified trust at any time, a covered expatriate 
                disposes of an interest in a qualified trust, or a 
                covered expatriate holding an interest in a qualified 
                trust dies, then, in lieu of the tax imposed by 
                subparagraph (A)(ii), there is hereby imposed a tax 
                equal to the lesser of--
                            ``(i) the tax determined under paragraph 
                        (1) as if the day before the expatriation date 
                        were the date of such cessation, disposition, 
                        or death, whichever is applicable, or
                            ``(ii) the balance in the tax deferred 
                        account immediately before such date.
                Such tax shall be imposed on the trust and each trustee 
                shall be personally liable for the amount of such tax 
                and any other beneficiary of the trust shall be 
                entitled to recover from the covered expatriate or the 
                estate the amount of such tax imposed on the other 
                beneficiary.
                    ``(G) Definitions and special rules.--For purposes 
                of this paragraph--
                            ``(i) Qualified trust.--The term `qualified 
                        trust' means a trust which is described in 
                        section 7701(a)(30)(E).
                            ``(ii) Vested interest.--The term `vested 
                        interest' means any interest which, as of the 
                        day before the expatriation date, is vested in 
                        the beneficiary.
                            ``(iii) Nonvested interest.--The term 
                        `nonvested interest' means, with respect to any 
                        beneficiary, any interest in a trust which is 
                        not a vested interest. Such interest shall be 
                        determined by assuming the maximum exercise of 
                        discretion in favor of the beneficiary and the 
                        occurrence of all contingencies in favor of the 
                        beneficiary.
                            ``(iv) Adjustments.--The Secretary may 
                        provide for such adjustments to the bases of 
                        assets in a trust or a deferred tax account, 
                        and the timing of such adjustments, in order to 
                        ensure that gain is taxed only once.
                            ``(v) Coordination with retirement plan 
                        rules.--This subsection shall not apply to an 
                        interest in a trust which is part of a 
                        retirement plan to which subsection (d)(2) 
                        applies.
            ``(3) Determination of beneficiaries' interest in trust.--
                    ``(A) Determinations under paragraph (1).--For 
                purposes of paragraph (1), a beneficiary's interest in 
                a trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
                protector or any similar adviser.
                    ``(B) Other determinations.--For purposes of this 
                section--
                            ``(i) Constructive ownership.--If a 
                        beneficiary of a trust is a corporation, 
                        partnership, trust, or estate, the 
                        shareholders, partners, or beneficiaries shall 
                        be deemed to be the trust beneficiaries for 
                        purposes of this section.
                            ``(ii) Taxpayer return position.--A 
                        taxpayer shall clearly indicate on its income 
                        tax return--
                                    ``(I) the methodology used to 
                                determine that taxpayer's trust 
                                interest under this section, and
                                    ``(II) if the taxpayer knows (or 
                                has reason to know) that any other 
                                beneficiary of such trust is using a 
                                different methodology to determine such 
                                beneficiary's trust interest under this 
                                section.
    ``(g) Termination of Deferrals, Etc.--In the case of any covered 
expatriate, notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate on the day before the expatriation 
        date, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply on the day before the expatriation date and the unpaid 
        portion of such tax shall be due and payable at the time and in 
        the manner prescribed by the Secretary.
    ``(h) Imposition of Tentative Tax.--
            ``(1) In general.--If an individual is required to include 
        any amount in gross income under subsection (a) for any taxable 
        year, there is hereby imposed, immediately before the 
        expatriation date, a tax in an amount equal to the amount of 
        tax which would be imposed if the taxable year were a short 
        taxable year ending on the expatriation date.
            ``(2) Due date.--The due date for any tax imposed by 
        paragraph (1) shall be the 90th day after the expatriation 
        date.
            ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
        shall be treated as a payment of the tax imposed by this 
        chapter for the taxable year to which subsection (a) applies.
            ``(4) Deferral of tax.--The provisions of subsection (b) 
        shall apply to the tax imposed by this subsection to the extent 
        attributable to gain includible in gross income by reason of 
        this section.
    ``(i) Special Liens for Deferred Tax Amounts.--
            ``(1) Imposition of lien.--
                    ``(A) In general.--If a covered expatriate makes an 
                election under subsection (a)(4) or (b) which results 
                in the deferral of any tax imposed by reason of 
                subsection (a), the deferred amount (including any 
                interest, additional amount, addition to tax, 
                assessable penalty, and costs attributable to the 
                deferred amount) shall be a lien in favor of the United 
                States on all property of the expatriate located in the 
                United States (without regard to whether this section 
                applies to the property).
                    ``(B) Deferred amount.--For purposes of this 
                subsection, the deferred amount is the amount of the 
                increase in the covered expatriate's income tax which, 
                but for the election under subsection (a)(4) or (b), 
                would have occurred by reason of this section for the 
                taxable year including the expatriation date.
            ``(2) Period of lien.--The lien imposed by this subsection 
        shall arise on the expatriation date and continue until--
                    ``(A) the liability for tax by reason of this 
                section is satisfied or has become unenforceable by 
                reason of lapse of time, or
                    ``(B) it is established to the satisfaction of the 
                Secretary that no further tax liability may arise by 
                reason of this section.
            ``(3) Certain rules apply.--The rules set forth in 
        paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
        with respect to the lien imposed by this subsection as if it 
        were a lien imposed by section 6324A.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Inclusion in Income of Gifts and Bequests Received by United 
States Citizens and Residents From Expatriates.--Section 102 (relating 
to gifts, etc. not included in gross income) is amended by adding at 
the end the following new subsection:
    ``(d) Gifts and Inheritances From Covered Expatriates.--
            ``(1) In general.--Subsection (a) shall not exclude from 
        gross income the value of any property acquired by gift, 
        bequest, devise, or inheritance from a covered expatriate after 
        the expatriation date. For purposes of this subsection, any 
        term used in this subsection which is also used in section 877A 
        shall have the same meaning as when used in section 877A.
            ``(2) Exceptions for transfers otherwise subject to estate 
        or gift tax.--Paragraph (1) shall not apply to any property if 
        either--
                    ``(A) the gift, bequest, devise, or inheritance 
                is--
                            ``(i) shown on a timely filed return of tax 
                        imposed by chapter 12 as a taxable gift by the 
                        covered expatriate, or
                            ``(ii) included in the gross estate of the 
                        covered expatriate for purposes of chapter 11 
                        and shown on a timely filed return of tax 
                        imposed by chapter 11 of the estate of the 
                        covered expatriate, or
                    ``(B) no such return was timely filed but no such 
                return would have been required to be filed even if the 
                covered expatriate were a citizen or long-term resident 
                of the United States.''.
    (c) Definition of Termination of United States Citizenship.--
Section 7701(a) is amended by adding at the end the following new 
paragraph:
            ``(49) Termination of united states citizenship.--
                    ``(A) In general.--An individual shall not cease to 
                be treated as a United States citizen before the date 
                on which the individual's citizenship is treated as 
                relinquished under section 877A(e)(3).
                    ``(B) Dual citizens.--Under regulations prescribed 
                by the Secretary, subparagraph (A) shall not apply to 
                an individual who became at birth a citizen of the 
                United States and a citizen of another country.''.
    (d) Ineligibility for Visa or Admission to United States.--
            (1) In general.--Section 212(a)(10)(E) of the Immigration 
        and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
        read as follows:
                    ``(E) Former citizens not in compliance with 
                expatriation revenue provisions.--Any alien who is a 
                former citizen of the United States who relinquishes 
                United States citizenship (within the meaning of 
                section 877A(e)(3) of the Internal Revenue Code of 
                1986) and who is not in compliance with section 877A of 
                such Code (relating to expatriation) is 
                inadmissible.''.
            (2) Availability of information.--
                    (A) In general.--Section 6103(l) (relating to 
                disclosure of returns and return information for 
                purposes other than tax administration) is amended by 
                adding at the end the following new paragraph:
            ``(21) Disclosure to deny visa or admission to certain 
        expatriates.--Upon written request of the Attorney General or 
        the Attorney General's delegate, the Secretary shall disclose 
        whether an individual is in compliance with section 877A (and 
        if not in compliance, any items of noncompliance) to officers 
        and employees of the Federal agency responsible for 
        administering section 212(a)(10)(E) of the Immigration and 
        Nationality Act solely for the purpose of, and to the extent 
        necessary in, administering such section 212(a)(10)(E).''.
                    (B) Safeguards.--Section 6103(p)(4) (relating to 
                safeguards) is amended by striking ``or (20)'' each 
                place it appears and inserting ``(20), or (21)''.
            (3) Effective dates.--The amendments made by this 
        subsection shall apply to individuals who relinquish United 
        States citizenship on or after the date of the enactment of 
        this Act.
    (e) Conforming Amendments.--
            (1) Section 877 is amended by adding at the end the 
        following new subsection:
    ``(h) Application.--This section shall not apply to an expatriate 
(as defined in section 877A(e)) whose expatriation date (as so defined) 
occurs on or after the date of the enactment of this subsection.''.
            (2) Section 2107 is amended by adding at the end the 
        following new subsection:
    ``(f) Application.--This section shall not apply to any expatriate 
subject to section 877A.''.
            (3) Section 2501(a)(3) is amended by adding at the end the 
        following new subparagraph:
                    ``(C) Application.--This paragraph shall not apply 
                to any expatriate subject to section 877A.''.
            (4) Section 6039G(a) is amended by inserting ``or 877A'' 
        after ``section 877(b)''.
            (5) The second sentence of section 6039G(d) is amended by 
        inserting ``or who relinquishes United States citizenship 
        (within the meaning of section 877A(e)(3))'' after ``section 
        877(a))''.
    (f) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 is amended by inserting after the 
item relating to section 877 the following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.
    (g) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates 
        (within the meaning of section 877A(e) of the Internal Revenue 
        Code of 1986, as added by this section) whose expatriation date 
        (as so defined) occurs on or after the date of the enactment of 
        this Act.
            (2) Gifts and bequests.--Section 102(d) of the Internal 
        Revenue Code of 1986 (as added by subsection (b)) shall apply 
        to gifts and bequests received on or after the date of the 
        enactment of this Act, from an individual or the estate of an 
        individual whose expatriation date (as so defined) occurs after 
        such date.
            (3) Due date for tentative tax.--The due date under section 
        877A(h)(2) of the Internal Revenue Code of 1986, as added by 
        this section, shall in no event occur before the 90th day after 
        the date of the enactment of this Act.

                  Subtitle F--Miscellaneous Provisions

SEC. 551. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT INSTRUMENTS.

    (a) In General.--Section 1275(d) (relating to regulation authority) 
is amended--
            (1) by striking ``The Secretary'' and inserting the