[Congressional Record Volume 149, Number 91 (Thursday, June 19, 2003)]
[House]
[Pages H5562-H5597]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         TAXPAYER PROTECTION AND IRS ACCOUNTABILITY ACT OF 2003

  The SPEAKER pro tempore. Pursuant to the order of the House of 
Wednesday, June 18, 2003, proceedings will now resume on the bill (H.R. 
1528) to amend the Internal Revenue Code of 1986 to protect taxpayers 
and ensure accountability of the Internal Revenue Service.
  The Clerk read the title of the bill.
  The SPEAKER pro tempore. When proceedings were postponed on that day, 
all time for debate on the bill had expired.
  Mr. PORTMAN. Mr. Speaker, the legislation before the Committee 
contains important improvements in taxpayer rights and IRS 
accountability. This bill is very similar to legislation approved by 
the House twice in 2002.
  Practically all the taxpayer provisions in the bill are based on 
recommendations by the Joint Committee on Taxation, the Treasury 
Department, the IRS, the National Taxpayer Advocate, and on hearings 
held by the Ways and Means Subcommittee on Oversight during the past 
several years.
  The provisions also are consistent with, and in some cases are a 
refinement of, the IRS Restructuring and Reform Act of 1998 that 
enacted important taxpayer protections and reforms of the IRS.
  Just to mention some of the provisions in the bill before us today:
  1. It encourages greater use of the more efficient electronic filing 
by taxpayers.
  2. It authorizes more support for Low Income Taxpayer Clinics to help 
provide legal assistance to more low-income citizens involved in 
disputes with the IRS.
  3. It ensures that taxpayers receive the confidentiality they 
deserve, by reforming the punishment for code of conduct violations by 
IRS employees, and providing for dismissal of IRS staff who browse tax 
records without authorization.
  4. It adjusts the so-called ``ten deadly sins'' in other ways to give 
the Commissioner more discretion.
  5. It reforms penalty and interest provisions by raising the safe 
harbor for failure to pay estimated taxes and allowing taxpayers to 
enter into installment agreements for less than the full amount of 
their tax liability, and it includes many other pro-taxpayer 
provisions.
  The bill has a small revenue impact. The Joint Committee on Taxation 
estimates that it will raise $607 million over 5 years and lose $352 
million over 10 years.
  Our colleagues, Oversight Subcommittee Chairman Amo Houghton and 
ranking member Earl Pomeroy played key roles in constructing this 
legislation and we appreciate their efforts.
  One new provision allows individuals greater access to the healthcare 
tax credit previously adopted as part of the Trade Act. Individuals 
would be permitted to waive certain requirements in TAA and thus 
receive coverage under state based healthcare plans. This is a short 
transition measure, effective for less than two years, and 
will increase the availability of qualified health insurance for 
individuals who would otherwise not have access to such coverage.

  Another new provision would extend the joint House-Senate review of 
the Internal Revenue Service.
  Let me provide some details on this provision, as it was not 
considered in the Ways and Means Committee. This legislation would 
reauthorization for 5 additional years, the annual joint review of the 
strategic plans and budget of the IRS. Unlike other federal agencies, 
the IRS is subject to oversight by six committees of Congress and the 
Joint Committee on Taxation. The National Commission on Restructuring 
the IRS, that I co-chaired, recognized that the IRS would be better 
managed if the committees that share primary jurisdiction over the IRS 
budget and IRS administration coordinated their efforts. The Joint 
Review grew out of a recommendation by the National Commission.
  While the Joint Review has met the objective of coordinating 
Congressional oversight of the IRS, the original legislation imposed a 
burden on the Joint Committee on Taxation to report on every aspect of 
the IRS's budget and strategic plans on an annual basis, even when the 
Joint Review hearing has focused on a more narrow set of issues. The 
reauthorizing language that is included in this legislation therefore 
allows the JCT to confine its annual report to the issues addressed at 
the annual Joint Review hearing. It is anticipated that the topics to 
be addressed at the Joint Review will be decided well in advance of the 
annual hearing by the JCT Chairman, in consultation with the staff of 
the JCT and the six participating committees.
  I believe it is important to continue the joint review, and this 
provision will increase the focus on key areas of the IRS that need 
attention by the relevant committees of Congress.
  In summary, Mr. Speaker, this is a good bill. I urge my colleagues to 
support this legislation that promotes common sense solutions to some 
of the most frustrating and time-consuming aspects of our tax system.
  Mr. BACA. Mr. Speaker, I rise in opposition to H.R. 1528--the 
Taxpayer Protection and IRS Accountability Act. This bill contains an 
amendment that will hurt the thousands of workers entitled to the 
health benefits under the Trade Adjustment Assistance Act. These 
benefits were created so that workers who lost their jobs to overseas 
labor could have access to healthcare.
  But instead making sure that American workers are protected or that 
our working families are protected, Republicans are cutting those few 
benefits workers have to help them during times of unemployment. Don't 
they care about the hardworking Americans? Why are Republicans passing 
tax cuts for the wealthy and cutting benefits that help those that need 
it most?
  One of the most devastating effects of job loss is the loss of health 
care coverage. These health credits pay 65 percent of the cost of 
health care premiums for unemployed workers. The McCrery amendment 
allows workers to keep these health credits, but only if they surrender 
all consumer protections. This is wrong! Workers need consumer 
protections because the health credits are useless otherwise.
  What about the middle-aged welder with a heart condition who will be 
deemed uninsurable because he has a ``pre-existing'' condition?
  What about the engineer who will have to pay twice as much for his 
health insurance?
  What about the foreman whose routine illness is no longer covered?
  This is part of the Republican plan to leave American workers behind. 
American workers deserve better! They deserve to have jobs available 
here in America and they deserve access to healthcare!
  Mr. Speaker, I urge my colleagues to please join me in opposing this 
bill unless the McCrery amendment is taken out.
  Mr. MOORE. Mr. Speaker, I rise in opposition to H.R. 1528 and in 
support of the Democratic substitute.
  I strongly support the underlying purpose of this bill--protecting 
taxpayers and increasing the fairness, efficiency and confidentiality 
of our tax system. I intended to vote in favor of this bill. 
Unfortunately, the majority party has attached an unrelated provision 
to this bill that will make it more difficult for thousands of working 
Americans to obtain health coverage.
  Mr. Speaker, under the Trade Adjustment Assistance (TAA) program, 
workers who lose their jobs as a result of competition from foreign 
trade can receive a tax credit for 65 percent of health insurance 
premiums for the taxpayer and his or her family. The TAA program also 
contains consumer protections designed to ensure that everyone eligible 
for the tax credit can actually claim it, regardless of age or health 
status. Like many of my colleagues, I have supported free trade 
legislation in part because of the protections the TAA program provides 
for workers who are adversely affected by foreign trade.

[[Page H5563]]

  Now the majority party is seeking to repeal TAA protections in the 
name of ``consumer choice.'' In reality, the controversial consumer 
choice provisions of H.R. 1528 will allow individual to waive TAA 
consumer protections, which will, in turn, give insurers the leverage 
necessary to ``cherry pick'' healthy workers while excluding those most 
in need of care. Only young and healthy workers are likely to take 
advantage of this provision. The end result will be that older workers 
and workers with health problems will be left without any options for 
affordable health coverage. Further, this provision will undermine 
efforts currently underway in many states to negotiate health coverage 
for thousands of TAA-eligible workers.
  I am truly saddened that the majority party has inserted this 
extraneous provision in a good and otherwise non-controversial bill. 
The health care protections included in the TAA program were formulated 
through months of bipartisan negotiation and compromise. In a single 
partisan act, the majority party has reneged on its promises and placed 
the health coverage of thousands of our most vulnerable families in 
jeopardy.
  Mr. Speaker, I support the underlying purpose of this bill. In 
addition to reforming the penalty and interest sections of the Internal 
Revenue Code, the bill also provides new safeguards against unfair IRS 
collection procedures and improves the efficiency of tax 
administration. More specifically, the bill will grant a first-time 
penalty waiver to individual taxpayers in cases where minor negligence 
results in liability that is disproportionate and unreasonable. This 
legislation will also enhance the efficiency of the tax system by 
allowing electronic filers until April 30th to file their individual 
income tax returns. Additionally, the legislation will protect taxpayer 
confidentiality by limiting IRS inspection of tax return preparers and 
allowing taxpayers to consult with the National Taxpayer Advocate on a 
confidential basis.
  Mr. Speaker, I urge my colleagues to support the substitute which 
contains the taxpayer protections of the base bill while preserving TAA 
consumer protections for working Americans.


    Amendment in the Nature of a Substitute Offered by Mr. McDermott

  Mr. McDERMOTT. Mr. Speaker, I offer an amendment in the nature of a 
substitute.
  The SPEAKER pro tempore. Is the gentleman the designee of the 
gentleman from New York (Mr. Rangel)?
  Mr. McDERMOTT. Yes, Mr. Speaker.
  The SPEAKER pro tempore. The Clerk will designate the amendment in 
the nature of a substitute.
  The text of the amendment in the nature of a substitute is as 
follows:

       Amendment in the nature of a substitute offered by Mr. 
     McDermott:
       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. SHORT TITLE; REFERENCE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Taxpayer 
     and Fairness Protection Act of 2003''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; reference; table of contents.

             TITLE I--ELIMINATION OF ABUSIVE TAX STRATEGIES

Sec. 101. Findings and purpose.

                        Subtitle A--Tax Shelters

          Part I--Provisions Designed to Curtail Tax Shelters

Sec. 111. Clarification of economic substance doctrine.
Sec. 112. Penalty for failing to disclose reportable transaction.
Sec. 113. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 114. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 115. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 116. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 117. Disclosure of reportable transactions.
Sec. 118. Modifications to penalty for failure to register tax 
              shelters.
Sec. 119. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 120. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 121. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 122. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 123. Frivolous tax submissions.
Sec. 124. Regulation of individuals practicing before the Department of 
              Treasury.
Sec. 125. Penalty on promoters of tax shelters.
Sec. 126. Statute of limitations for taxable years for which listed 
              transactions not reported.
Sec. 127. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.

                       Part II--Other Provisions

Sec. 131. Limitation on transfer or importation of built-in losses.
Sec. 132. Disallowance of certain partnership loss transfers.
Sec. 133. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.
Sec. 134. Repeal of special rules for FASITS.
Sec. 135. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 136. Expanded authority to disallow tax benefits under section 
              269.
Sec. 137. Modifications of certain rules relating to controlled foreign 
              corporations.
Sec. 138. Basis for determining loss always reduced by nontaxed portion 
              of dividends.
Sec. 139. Affirmation of consolidated return regulation authority.

Subtitle B--Prevention of corporate expatriation to avoid United States 
                               income tax

Sec. 151. Prevention of corporate expatriation to avoid United States 
              income tax.

          TITLE II--SIMPLIFICATION OF EARNED INCOME TAX CREDIT

Sec. 201. Simplification of earned income tax credit.
Sec. 202. Profiling of earned income tax credit beneficiaries.

         TITLE III--TAXPAYER PROTECTIONS AND IRS ACCOUNTABILITY

                Subtitle A--Penalty and Interest Reforms

Sec. 301. Failure to pay estimated tax penalty converted to interest 
              charge on accumulated unpaid balance.
Sec. 302. Abatement of interest.
Sec. 303. Deposits made to suspend running of interest on potential 
              underpayments.
Sec. 304. Expansion of interest netting for individuals.
Sec. 305. Waiver of certain penalties for first-time unintentional 
              minor errors.
Sec. 306. Frivolous tax submissions.
Sec. 307. Clarification of application of Federal tax deposit penalty.

             Subtitle B--Fairness of Collection Procedures

Sec. 311. Partial payment of tax liability in installment agreements.
Sec. 312. Extension of time for return of property.
Sec. 313. Individuals held harmless on wrongful levy, etc., on 
              individual retirement plan.
Sec. 314. Seven-day threshold on tolling of statute of limitations 
              during tax review.
Sec. 315. Study of liens and levies.

                 Subtitle C--Tax Administration Reforms

Sec. 331. Revisions relating to termination of employment of Internal 
              Revenue Service employees for misconduct.
Sec. 332. Confirmation of authority of tax court to apply doctrine of 
              equitable recoupment.
Sec. 333. Jurisdiction of Tax Court over collection due process cases.
Sec. 334. Office of Chief Counsel review of offers in compromise.
Sec. 335. Access of National Taxpayer Advocate to independent legal 
              counsel.
Sec. 336. Payment of motor fuel excise tax refunds by direct deposit.
Sec. 337. Family business tax simplification.
Sec. 338. Suspension of tax-exempt status of terrorist organizations.
Sec. 339. Tax refund anticipation loans.
Sec. 340. Fairness in tax audit coverage.

               Subtitle D--Confidentiality and Disclosure

Sec. 341. Collection activities with respect to joint return 
              disclosable to either spouse based on oral request.
Sec. 342. Taxpayer representatives not subject to examination on sole 
              basis of representation of taxpayers.
Sec. 343. Disclosure in judicial or administrative tax proceedings of 
              return and return information of persons who are not 
              party to such proceedings.
Sec. 344. Prohibition of disclosure of taxpayer identification 
              information with respect to disclosure of accepted 
              offers-in-compromise.
Sec. 345. Compliance by contractors with confidentiality safeguards.
Sec. 346. Higher standards for requests for and consents to disclosure.
Sec. 347. Notice to taxpayer concerning administrative determination of 
              browsing; annual report.

[[Page H5564]]

Sec. 348. Expanded disclosure in emergency circumstances.
Sec. 349. Disclosure of taxpayer identity for tax refund purposes.
Sec. 350. Disclosure to State officials of proposed actions related to 
              section 501(c)(3) organizations.
Sec. 351. Confidentiality of taxpayer communications with the Office of 
              the Taxpayer Advocate.

                       Subtitle E--Miscellaneous

Sec. 361. Clarification of definition of church tax inquiry.
Sec. 362. Expansion of declaratory judgment remedy to tax-exempt 
              organizations.
Sec. 363. Employee misconduct report to include summary of complaints 
              by category.
Sec. 364. Annual report on awards of costs and certain fees in 
              administrative and court proceedings.
Sec. 365. Annual report on abatement of penalties.
Sec. 366. Better means of communicating with taxpayers.
Sec. 367. Explanation of statute of limitations and consequences of 
              failure to file.
Sec. 368. Amendment to Treasury auction reforms.
Sec. 369. Enrolled agents.
Sec. 370. Financial management service fees.
Sec. 371. Extension of Internal Revenue Service user fees.

                Subtitle F--Low-Income Taxpayer Clinics

Sec. 381. Low-income taxpayer clinics.
Sec. 382. Matching grants to low income return preparation clinics.

                       TITLE IV--CHILD TAX CREDIT

Sec. 401. Acceleration of increase in refundability of the child tax 
              credit.
Sec. 402. Reduction in marriage penalty in child tax credit.
Sec. 403. Application of EGTRRA sunset to this section.

                  TITLE V--UNIFORM DEFINITION OF CHILD

Sec. 501. Uniform definition of child, etc.
Sec. 502. Modifications of definition of head of household.
Sec. 503. Modifications of dependent care credit.
Sec. 504. Modifications of child tax credit.
Sec. 505. Modifications of earned income credit.
Sec. 506. Modifications of deduction for personal exemption for 
              dependents.
Sec. 507. Technical and conforming amendments.
Sec. 508. Effective date.

         TITLE VI--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

Sec. 601. Exclusion of gain from sale of a principal residence by a 
              member of the Uniformed Services or the Foreign Service.
Sec. 602. Exclusion from gross income of certain death gratuity 
              payments.
Sec. 603. Exclusion for amounts received under Department of Defense 
              homeowners assistance program.
Sec. 604. Expansion of combat zone filing rules to contingency 
              operations.
Sec. 605. Modification of membership requirement for exemption from tax 
              for certain veterans' organizations.
Sec. 606. Clarification of the treatment of certain dependent care 
              assistance programs.
Sec. 607. Clarification relating to exception from additional tax on 
              certain distributions from qualified tuition programs, 
              etc. on account of attendance at military academy.
Sec. 608. Suspension of tax-exempt status of terrorist organizations.
Sec. 609. Above-the-line deduction for overnight travel expenses of 
              National Guard and Reserve members.
Sec. 610. Tax relief and assistance for families of Space Shuttle 
              Columbia heroes.

                      TITLE VII--OTHER PROVISIONS

Sec. 701. Revision of tax rules on expatriation.
Sec. 702. Extension of Customs user fees.

             TITLE I--ELIMINATION OF ABUSIVE TAX STRATEGIES

     SEC. 101. FINDINGS AND PURPOSE.

       (a) Findings.--The Congress hereby finds that:
       (1) Many corporate tax shelter transactions are complicated 
     ways of accomplishing nothing aside from claimed tax 
     benefits, and the legal opinions justifying those 
     transactions take an inappropriately narrow and restrictive 
     view of well-developed court doctrines under which--
       (A) the taxation of a transaction is determined in 
     accordance with its substance and not merely its form,
       (B) transactions which have no significant effect on the 
     taxpayer's economic or beneficial interests except for tax 
     benefits are treated as sham transactions and disregarded,
       (C) transactions involving multiple steps are collapsed 
     when those steps have no substantial economic meaning and are 
     merely designed to create tax benefits,
       (D) transactions with no business purpose are not given 
     effect, and
       (E) in the absence of a specific congressional 
     authorization, it is presumed that Congress did not intend a 
     transaction to result in a negative tax where the taxpayer's 
     economic position or rate of return is better after tax than 
     before tax.
       (2) Permitting aggressive and abusive tax shelters not only 
     results in large revenue losses but also undermines voluntary 
     compliance with the Internal Revenue Code of 1986.
       (b) Purpose.--The purpose of this title is to eliminate 
     abusive tax shelters by denying tax attributes claimed to 
     arise from transactions that do not meet a heightened 
     economic substance requirement and by repealing the provision 
     that permits legal opinions to be used to avoid penalties on 
     tax underpayments resulting from transactions without 
     significant economic substance or business purpose.

                        Subtitle A--Tax Shelters

          Part I--Provisions Designed to Curtail Tax Shelters

     SEC. 111. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (m) as subsection (n) and by inserting after 
     subsection (l) the following new subsection:
       ``(m) Clarification of Economic Substance Doctrine; etc.--
       ``(1) General rules.--
       ``(A) In general.--In applying the economic substance 
     doctrine, the determination of whether a transaction has 
     economic substance shall be made as provided in this 
     paragraph.
       ``(B) Definition of economic substance.--For purposes of 
     subparagraph (A)--
       ``(i) In general.--A transaction has economic substance 
     only if--

       ``(I) the transaction changes in a meaningful way (apart 
     from Federal tax effects and, if there is any Federal tax 
     effects, also apart from any foreign, State, or local tax 
     effects) the taxpayer's economic position, and
       ``(II) the taxpayer has a substantial nontax purpose for 
     entering into such transaction and the transaction is a 
     reasonable means of accomplishing such purpose.

       ``(ii) Special rule where taxpayer relies on profit 
     potential.--A transaction shall not be treated as having 
     economic substance by reason of having a potential for profit 
     unless--

       ``(I) the present value of the reasonably expected pre-tax 
     profit from the transaction is substantial in relation to the 
     present value of the expected net tax benefits that would be 
     allowed if the transaction were respected, and
       ``(II) the reasonably expected pre-tax profit from the 
     transaction exceeds a risk-free rate of return.

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).
       ``(2) Special rules for transactions with tax-indifferent 
     parties.--
       ``(A) Special rules for financing transactions.--The form 
     of a transaction which is in substance the borrowing of money 
     or the acquisition of financial capital directly or 
     indirectly from a tax-indifferent party shall not be 
     respected if the present value of the deductions to be 
     claimed with respect to the transaction is substantially in 
     excess of the present value of the anticipated economic 
     returns of the person lending the money or providing the 
     financial capital. A public offering shall be treated as a 
     borrowing, or an acquisition of financial capital, from a 
     tax-indifferent party if it is reasonably expected that at 
     least 50 percent of the offering will be placed with tax-
     indifferent parties.
       ``(B) Artificial income shifting and basis adjustments.--
     The form of a transaction with a tax-indifferent party shall 
     not be respected if--
       ``(i) it results in an allocation of income or gain to the 
     tax-indifferent party in excess of such party's economic 
     income or gain, or
       ``(ii) it results in a basis adjustment or shifting of 
     basis on account of overstating the income or gain of the 
     tax-indifferent party.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or entity not subject to tax imposed 
     by subtitle A. A person shall be treated as a tax-indifferent 
     party with respect to a transaction if the items taken into 
     account with respect to the transaction have no substantial 
     impact on such person's liability under subtitle A.
       ``(C) Substantial nontax purpose.--In applying subclause 
     (II) of paragraph (1)(B)(i), 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.
       ``(D) 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.

[[Page H5565]]

       ``(E) Treatment of lessors.--In applying subclause (I) of 
     paragraph (1)(B)(ii) to the lessor of tangible property 
     subject to a lease, the expected net tax benefits shall not 
     include the benefits of depreciation, or any tax credit, with 
     respect to the leased property and subclause (II) of 
     paragraph (1)(B)(ii) shall be disregarded in determining 
     whether any of such benefits are allowable.
       ``(4) Other common law doctrines not affected.--Except as 
     specifically provided in this subsection, the provisions of 
     this subsection shall not be construed as altering or 
     supplanting any other rule of law, and the requirements of 
     this subsection shall be construed as being in addition to 
     any such other rule of law.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection. Such regulations may include 
     exemptions from the application of this subsection.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after February 13, 
     2003.

     SEC. 112. PENALTY FOR FAILING TO DISCLOSE REPORTABLE 
                   TRANSACTION.

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

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

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

     the requirement to pay such penalty shall be disclosed in 
     such reports filed by such person for such periods as the 
     Secretary shall specify. Failure to make a disclosure in 
     accordance with the preceding sentence shall be treated as a 
     failure to which the penalty under subsection (b)(2) applies.
       ``(f) Coordination With Other Penalties.--The penalty 
     imposed by this section is in addition to any penalty imposed 
     under this title.''
       (b) Conforming Amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by inserting after 
     the item relating to section 6707 the following:

``Sec. 6707A. Penalty for failure to include reportable transaction 
              information with return or statement.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to returns and statements the due date for which 
     is after the date of the enactment of this Act.

     SEC. 113. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS 
                   AND OTHER REPORTABLE TRANSACTIONS HAVING A 
                   SIGNIFICANT TAX AVOIDANCE PURPOSE.

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

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

       ``(a) Imposition of Penalty.--If a taxpayer has a 
     reportable transaction understatement for any taxable year, 
     there shall be added to the tax an amount equal to 20 percent 
     of the amount of such understatement.
       ``(b) Reportable Transaction Understatement.--For purposes 
     of this section--
       ``(1) In general.--The term `reportable transaction 
     understatement' means the sum of--
       ``(A) the product of--
       ``(i) the amount of the increase (if any) in taxable income 
     which results from a difference between the proper tax 
     treatment of an item to which this section applies and the 
     taxpayer's treatment of such item (as shown on the taxpayer's 
     return of tax), and
       ``(ii) the highest rate of tax imposed by section 1 
     (section 11 in the case of a taxpayer which is a 
     corporation), and
       ``(B) the amount of the decrease (if any) in the aggregate 
     amount of credits determined under subtitle A which results 
     from a difference between the taxpayer's treatment of an item 
     to which this section applies (as shown on the taxpayer's 
     return of tax) and the proper tax treatment of such item.

     For purposes of subparagraph (A), any reduction of the excess 
     of deductions allowed for the taxable year over gross income 
     for such year, and any reduction in the amount of capital 
     losses which would (without regard to section 1211) be 
     allowed for such year, shall be treated as an increase in 
     taxable income.
       ``(2) Items to which section applies.--This section shall 
     apply to any item which is attributable to--
       ``(A) any listed transaction, and
       ``(B) any reportable transaction (other than a listed 
     transaction) if a significant purpose of such transaction is 
     the avoidance or evasion of Federal income tax.
       ``(c) Higher Penalty for Nondisclosed Listed and Other 
     Avoidance Transactions.--
       ``(1) In general.--Subsection (a) shall be applied by 
     substituting `30 percent' for `20 percent' with respect to 
     the portion of any reportable transaction understatement with 
     respect to which the requirement of section 6664(d)(2)(A) is 
     not met.
       ``(2) Rules applicable to compromise of penalty.--
       ``(A) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which paragraph (1) 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(B) Applicable rules.--The rules of paragraphs (3), (4), 
     and (5) of section 6707A(d) shall apply for purposes of 
     subparagraph (A).

[[Page H5566]]

       ``(d) Definitions of Reportable and Listed Transactions.--
     For purposes of this section, the terms `reportable 
     transaction' and `listed transaction' have the respective 
     meanings given to such terms by section 6707A(c).
       ``(e) Special Rules.--
       ``(1) Coordination with penalties, etc., on other 
     understatements.--In the case of an understatement (as 
     defined in section 6662(d)(2))--
       ``(A) the amount of such understatement (determined without 
     regard to this paragraph) shall be increased by the aggregate 
     amount of reportable transaction understatements and 
     noneconomic substance transaction understatements for 
     purposes of determining whether such understatement is a 
     substantial understatement under section 6662(d)(1), and
       ``(B) the addition to tax under section 6662(a) shall apply 
     only to the excess of the amount of the substantial 
     understatement (if any) after the application of subparagraph 
     (A) over the aggregate amount of reportable transaction 
     understatements and noneconomic substance transaction 
     understatements.
       ``(2) Coordination with other penalties.--
       ``(A) Application of fraud penalty.--References to an 
     underpayment in section 6663 shall be treated as including 
     references to a reportable transaction understatement and a 
     noneconomic substance transaction understatement.
       ``(B) No double penalty.--This section shall not apply to 
     any portion of an understatement on which a penalty is 
     imposed under section 6662B or 6663.
       ``(3) Special rule for amended returns.--Except as provided 
     in regulations, in no event shall any tax treatment included 
     with an amendment or supplement to a return of tax be taken 
     into account in determining the amount of any reportable 
     transaction understatement or noneconomic substance 
     transaction understatement if the amendment or supplement is 
     filed after the earlier of the date the taxpayer is first 
     contacted by the Secretary regarding the examination of the 
     return or such other date as is specified by the Secretary.
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).
       ``(5) Cross reference.--

  ``For reporting of section 6662A(c) penalty to the Securities and 
Exchange Commission, see section 6707A(e).''

       (b) Determination of Other Understatements.--Subparagraph 
     (A) of section 6662(d)(2) is amended by adding at the end the 
     following flush sentence:
     ``The excess under the preceding sentence shall be determined 
     without regard to items to which section 6662A applies and 
     without regard to items with respect to which a penalty is 
     imposed by section 6662B.''
       (c) Reasonable Cause Exception.--
       (1) In general.--Section 6664 is amended by adding at the 
     end the following new subsection:
       ``(d) Reasonable Cause Exception for Reportable Transaction 
     Understatements.--
       ``(1) In general.--No penalty shall be imposed under 
     section 6662A with respect to any portion of a reportable 
     transaction understatement if it is shown that there was a 
     reasonable cause for such portion and that the taxpayer acted 
     in good faith with respect to such portion.
       ``(2) Special rules.--Paragraph (1) shall not apply to any 
     reportable transaction understatement unless--
       ``(A) the relevant facts affecting the tax treatment of the 
     item are adequately disclosed in accordance with the 
     regulations prescribed under section 6011,
       ``(B) there is or was substantial authority for such 
     treatment, and
       ``(C) the taxpayer reasonably believed that such treatment 
     was more likely than not the proper treatment.
     A taxpayer failing to adequately disclose in accordance with 
     section 6011 shall be treated as meeting the requirements of 
     subparagraph (A) if the penalty for such failure was 
     rescinded under section 6707A(d).
       ``(3) Rules relating to reasonable belief.--For purposes of 
     paragraph (2)(C)--
       ``(A) In general.--A taxpayer shall be treated as having a 
     reasonable belief with respect to the tax treatment of an 
     item only if such belief--
       ``(i) is based on the facts and law that exist at the time 
     the return of tax which includes such tax treatment is filed, 
     and
       ``(ii) relates solely to the taxpayer's chances of success 
     on the merits of such treatment and does not take into 
     account the possibility that a return will not be audited, 
     such treatment will not be raised on audit, or such treatment 
     will be resolved through settlement if it is raised.
       ``(B) Certain opinions may not be relied upon.--
       ``(i) In general.--An opinion of a tax advisor may not be 
     relied upon to establish the reasonable belief of a taxpayer 
     if--

       ``(I) the tax advisor is described in clause (ii), or
       ``(II) the opinion is described in clause (iii).

       ``(ii) Disqualified tax advisors.--A tax advisor is 
     described in this clause if the tax advisor--

       ``(I) is a material advisor (within the meaning of section 
     6111(b)(1)) who participates in the organization, management, 
     promotion, or sale of the transaction or who is related 
     (within the meaning of section 267(b) or 707(b)(1)) to any 
     person who so participates,
       ``(II) is compensated directly or indirectly by a material 
     advisor with respect to the transaction,
       ``(III) has a fee arrangement with respect to the 
     transaction which is contingent on all or part of the 
     intended tax benefits from the transaction being sustained, 
     or
       ``(IV) as determined under regulations prescribed by the 
     Secretary, has a continuing financial interest with respect 
     to the transaction.

       ``(iii) Disqualified opinions.--For purposes of clause (i), 
     an opinion is disqualified if the opinion--

       ``(I) is based on unreasonable factual or legal assumptions 
     (including assumptions as to future events),
       ``(II) unreasonably relies on representations, statements, 
     findings, or agreements of the taxpayer or any other person,
       ``(III) does not identify and consider all relevant facts, 
     or
       ``(IV) fails to meet any other requirement as the Secretary 
     may prescribe.''

       (2) Conforming amendment.--The heading for subsection (c) 
     of section 6664 is amended by inserting ``for Underpayments'' 
     after ``Exception''.
       (d) Conforming Amendments.--
       (1) Subparagraph (C) of section 461(i)(3) is amended by 
     striking ``section 6662(d)(2)(C)(iii)'' and inserting 
     ``section 1274(b)(3)(C)''.
       (2) Paragraph (3) of section 1274(b) is amended--
       (A) by striking ``(as defined in section 
     6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
       (B) by adding at the end the following new subparagraph:
       ``(C) Tax shelter.--For purposes of subparagraph (B), the 
     term `tax shelter' means--
       ``(i) a partnership or other entity,
       ``(ii) any investment plan or arrangement, or
       ``(iii) any other plan or arrangement,
     if a significant purpose of such partnership, entity, plan, 
     or arrangement is the avoidance or evasion of Federal income 
     tax.''
       (3) Section 6662(d)(2) is amended by striking subparagraphs 
     (C) and (D).
       (4) Section 6664(c)(1) is amended by striking ``this part'' 
     and inserting ``section 6662 or 6663''.
       (5) Subsection (b) of section 7525 is amended by striking 
     ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
     1274(b)(3)(C)''.
       (6)(A) The heading for section 6662 is amended to read as 
     follows:

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

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

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

     SEC. 114. 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(m)(1)) for the transaction giving 
     rise to the claimed tax benefit or the transaction was not 
     respected under section 7701(m)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable To Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty

[[Page H5567]]

     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 (3), (4), 
     and (5) of section 6707A(d) shall apply for purposes of 
     paragraph (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

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

``Sec. 6662B. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after February 13, 
     2003.

     SEC. 115. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY 
                   FOR NONREPORTABLE TRANSACTIONS.

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

     SEC. 116. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES 
                   RELATING TO TAXPAYER COMMUNICATIONS.

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

     SEC. 117. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

       ``(a) In General.--Each material advisor with respect to 
     any reportable transaction shall make a return (in such form 
     as the Secretary may prescribe) setting forth--
       ``(1) information identifying and describing the 
     transaction,
       ``(2) information describing any potential tax benefits 
     expected to result from the transaction, and
       ``(3) such other information as the Secretary may 
     prescribe.

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

``Sec. 6111. Disclosure of reportable transactions.''

       (2)(A) So much of section 6112 as precedes subsection (c) 
     thereof is amended to read as follows:

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

       ``(a) In General.--Each material advisor (as defined in 
     section 6111) with respect to any reportable transaction (as 
     defined in section 6707A(c)) shall maintain, in such manner 
     as the Secretary may by regulations prescribe, a list--
       ``(1) identifying each person with respect to whom such 
     advisor acted as such a material advisor with respect to such 
     transaction, and
       ``(2) containing such other information as the Secretary 
     may by regulations require.

     This section shall apply without regard to whether a material 
     advisor is required to file a return under section 6111 with 
     respect to such transaction.''
       (B) Section 6112 is amended by redesignating subsection (c) 
     as subsection (b).
       (C) Section 6112(b), as redesignated by subparagraph (B), 
     is amended--
       (i) by inserting ``written'' before ``request'' in 
     paragraph (1)(A), and
       (ii) by striking ``shall prescribe'' in paragraph (2) and 
     inserting ``may prescribe''.
       (D) The item relating to section 6112 in the table of 
     sections for subchapter B of chapter 61 is amended to read as 
     follows:

``Sec. 6112. Material advisors of reportable transactions must keep 
              lists of advisees.''

       (3)(A) The heading for section 6708 is amended to read as 
     follows:

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

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

``Sec. 6708. Failure to maintain lists of advisees with respect to 
              reportable transactions.''

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

     SEC. 118. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER 
                   TAX SHELTERS.

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

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

       ``(a) In General.--If a person who is required to file a 
     return under section 6111(a) with respect to any reportable 
     transaction--
       ``(1) fails to file such return on or before the date 
     prescribed therefor, or
       ``(2) files false or incomplete information with the 
     Secretary with respect to such transaction,

     such person shall pay a penalty with respect to such return 
     in the amount determined under subsection (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     penalty imposed under subsection (a) with respect to any 
     failure shall be $50,000.
       ``(2) Listed transactions.--The penalty imposed under 
     subsection (a) with respect to any listed transaction shall 
     be an amount equal to the greater of--
       ``(A) $200,000, or
       ``(B) 50 percent of the gross income derived by such person 
     with respect to aid, assistance, or advice which is provided 
     with respect to the reportable transaction before the date 
     the return including the transaction is filed under section 
     6111.
     Subparagraph (B) shall be applied by substituting `75 
     percent' for `50 percent' in the case of an intentional 
     failure or act described in subsection (a).
       ``(c) Rescission Authority.--The provisions of section 
     6707A(d) (relating to authority of Commissioner to rescind 
     penalty) shall apply to any penalty imposed under this 
     section.

[[Page H5568]]

       ``(d) Reportable and Listed Transactions.--The terms 
     `reportable transaction' and `listed transaction' have the 
     respective meanings given to such terms by section 
     6707A(c).''.
       (b) Clerical Amendment.--The item relating to section 6707 
     in the table of sections for part I of subchapter B of 
     chapter 68 is amended by striking ``tax shelters'' and 
     inserting ``reportable transactions''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns the due date for which is after the 
     date of the enactment of this Act.

     SEC. 119. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN 
                   LISTS OF INVESTORS.

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

     SEC. 120. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT 
                   RELATED TO TAX SHELTERS AND REPORTABLE 
                   TRANSACTIONS.

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

     the court may enjoin such person from engaging in such 
     conduct or in any other activity subject to penalty under 
     this title.
       ``(c) Specified Conduct.--For purposes of this section, the 
     term `specified conduct' means any action, or failure to take 
     action, subject to penalty under section 6700, 6701, 6707, or 
     6708.''
       (b) Conforming Amendments.--
       (1) The heading for section 7408 is amended to read as 
     follows:

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

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

``Sec. 7408. Actions to enjoin specified conduct related to tax 
              shelters and reportable transactions.''

       (c) Effective Date.--The amendment made by this section 
     shall take effect on the day after the date of the enactment 
     of this Act.

     SEC. 121. 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. 122. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN 
                   FINANCIAL ACCOUNTS.

       (a) In General.--Section 5321(a)(5) of title 31, United 
     States Code, is amended to read as follows:
       ``(5) Foreign financial agency transaction violation.--
       ``(A) Penalty authorized.--The Secretary of the Treasury 
     may impose a civil money penalty on any person who violates, 
     or causes any violation of, any provision of section 5314.
       ``(B) Amount of penalty.--
       ``(i) In general.--Except as provided in subparagraph (C), 
     the amount of any civil penalty imposed under subparagraph 
     (A) shall not exceed $5,000.
       ``(ii) Reasonable cause exception.--No penalty shall be 
     imposed under subparagraph (A) with respect to any violation 
     if--

       ``(I) such violation was due to reasonable cause, and
       ``(II) the amount of the transaction or the balance in the 
     account at the time of the transaction was properly reported.

       ``(C) Willful violations.--In the case of any person 
     willfully violating, or willfully causing any violation of, 
     any provision of section 5314--
       ``(i) the maximum penalty under subparagraph (B)(i) shall 
     be increased to the greater of--

       ``(I) $25,000, or
       ``(II) the amount (not exceeding $100,000) determined under 
     subparagraph (D), and

       ``(ii) subparagraph (B)(ii) shall not apply.
       ``(D) Amount.--The amount determined under this 
     subparagraph is--
       ``(i) in the case of a violation involving a transaction, 
     the amount of the transaction, or
       ``(ii) in the case of a violation involving a failure to 
     report the existence of an account or any identifying 
     information required to be provided with respect to an 
     account, the balance in the account at the time of the 
     violation.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to violations occurring after the date of the 
     enactment of this Act.

     SEC. 123. 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

[[Page H5569]]

     that any portion of a request for a hearing under this 
     section or section 6320 meets the requirement of clause (i) 
     or (ii) of section 6702(b)(2)(A), then the Secretary may 
     treat such portion as if it were never submitted and such 
     portion shall not be subject to any further administrative or 
     judicial review.''
       (2) Preclusion from raising frivolous issues at hearing.--
     Section 6330(c)(4) is amended--
       (A) by striking ``(A)'' and inserting ``(A)(i)'';
       (B) by striking ``(B)'' and inserting ``(ii)'';
       (C) by striking the period at the end of the first sentence 
     and inserting ``; or''; and
       (D) by inserting after subparagraph (A)(ii) (as so 
     redesignated) the following:
       ``(B) the issue meets the requirement of clause (i) or (ii) 
     of section 6702(b)(2)(A).''
       (3) Statement of grounds.--Section 6330(b)(1) is amended by 
     striking ``under subsection (a)(3)(B)'' and inserting ``in 
     writing under subsection (a)(3)(B) and states the grounds for 
     the requested hearing''.
       (c) Treatment of Frivolous Requests for Hearings Upon 
     Filing of Notice of Lien.--Section 6320 is amended--
       (1) in subsection (b)(1), by striking ``under subsection 
     (a)(3)(B)'' and inserting ``in writing under subsection 
     (a)(3)(B) and states the grounds for the requested hearing'', 
     and
       (2) in subsection (c), by striking ``and (e)'' and 
     inserting ``(e), and (g)''.
       (d) Treatment of Frivolous Applications for Offers-in-
     Compromise and Installment Agreements.--Section 7122 is 
     amended by adding at the end the following new subsection:
       ``(e) Frivolous Submissions, etc.--Notwithstanding any 
     other provision of this section, if the Secretary determines 
     that any portion of an application for an offer-in-compromise 
     or installment agreement submitted under this section or 
     section 6159 meets the requirement of clause (i) or (ii) of 
     section 6702(b)(2)(A), then the Secretary may treat such 
     portion as if it were never submitted and such portion shall 
     not be subject to any further administrative or judicial 
     review.''
       (e) Clerical Amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by striking the item 
     relating to section 6702 and inserting the following new 
     item:

``Sec. 6702. Frivolous tax submissions.''

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

     SEC. 124. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE 
                   DEPARTMENT OF TREASURY.

       (a) Censure; Imposition of Penalty.--
       (1) In general.--Section 330(b) of title 31, United States 
     Code, is amended--
       (A) by inserting ``, or censure,'' after ``Department'', 
     and
       (B) by adding at the end the following new flush sentence:

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

     SEC. 125. PENALTY ON PROMOTERS OF TAX SHELTERS.

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

     SEC. 126. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   LISTED TRANSACTIONS NOT REPORTED.

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

     SEC. 127. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND 
                   NONECONOMIC SUBSTANCE TRANSACTIONS.

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

                       Part II--Other Provisions

     SEC. 131. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN 
                   LOSSES.

       (a) In General.--Section 362 (relating to basis to 
     corporations) is amended by adding at the end the following 
     new subsection:
       ``(e) Limitations on Built-In Losses.--
       ``(1) Limitation on importation of built-in losses.--
       ``(A) In general.--If in any transaction described in 
     subsection (a) or (b) there would (but for this subsection) 
     be an importation of a net built-in loss, the basis of each 
     property described in subparagraph (B) which is acquired in 
     such transaction shall (notwithstanding subsections (a) and 
     (b)) be its fair market value immediately after such 
     transaction.
       ``(B) Property described.--For purposes of subparagraph 
     (A), property is described in this paragraph if--
       ``(i) gain or loss with respect to such property is not 
     subject to tax under this subtitle in the hands of the 
     transferor immediately before the transfer, and
       ``(ii) gain or loss with respect to such property is 
     subject to such tax in the hands of the transferee 
     immediately after such transfer.

     In any case in which the transferor is a partnership, the 
     preceding sentence shall be applied by treating each partner 
     in such partnership as holding such partner's proportionate 
     share of the property of such partnership.
       ``(C) Importation of net built-in loss.--For purposes of 
     subparagraph (A), there is an importation of a net built-in 
     loss in a transaction if the transferee's aggregate adjusted 
     bases of property described in subparagraph (B) which is 
     transferred in such transaction would (but for this 
     paragraph) exceed the fair market value of such property 
     immediately after such transaction.''
       ``(2) Limitation on transfer of built-in losses in section 
     351 transactions.--
       ``(A) In general.--If--
       ``(i) property is transferred in any transaction which is 
     described in subsection (a) and which is not described in 
     paragraph (1) of this subsection, and
       ``(ii) the transferee's aggregate adjusted bases of the 
     property so transferred would (but for this paragraph) exceed 
     the fair market value of such property immediately after such 
     transaction,

     then, notwithstanding subsection (a), the transferee's 
     aggregate adjusted bases of the property so transferred shall 
     not exceed the fair market value of such property immediately 
     after such transaction.
       ``(B) Allocation of basis reduction.--The aggregate 
     reduction in basis by reason of subparagraph (A) shall be 
     allocated among the property so transferred in proportion to 
     their respective built-in losses immediately before the 
     transaction.
       ``(C) Exception for transfers within affiliated group.--
     Subparagraph (A) shall not apply to any transaction if the 
     transferor owns stock in the transferee meeting the 
     requirements of section 1504(a)(2). In the case of property 
     to which subparagraph (A) does not apply by reason of the 
     preceding sentence, the transferor's basis in the stock 
     received for such property shall not exceed its fair market 
     value immediately after the transfer.''
       (b) Comparable Treatment Where Liquidation.--Paragraph (1) 
     of section 334(b) (relating to liquidation of subsidiary) is 
     amended to read as follows:
       ``(1) In general.--If property is received by a corporate 
     distributee in a distribution in a complete liquidation to 
     which section 332 applies (or in a transfer described in 
     section 337(b)(1)), the basis of such property in the

[[Page H5570]]

     hands of such distributee shall be the same as it would be in 
     the hands of the transferor; except that the basis of such 
     property in the hands of such distributee shall be the fair 
     market value of the property at the time of the 
     distribution--
       ``(A) in any case in which gain or loss is recognized by 
     the liquidating corporation with respect to such property, or
       ``(B) in any case in which the liquidating corporation is a 
     foreign corporation, the corporate distributee is a domestic 
     corporation, and the corporate distributee's aggregate 
     adjusted bases of property described in section 362(e)(1)(B) 
     which is distributed in such liquidation would (but for this 
     subparagraph) exceed the fair market value of such property 
     immediately after such liquidation.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act.

     SEC. 132. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.

       (a) Treatment of Contributed Property With Built-In Loss.--
     Paragraph (1) of section 704(c) 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:
       ``(C) if any property so contributed has a built-in loss--
       ``(i) such built-in loss shall be taken into account only 
     in determining the amount of items allocated to the 
     contributing partner, and
       ``(ii) except as provided in regulations, in determining 
     the amount of items allocated to other partners, the basis of 
     the contributed property in the hands of the partnership 
     shall be treated as being equal to its fair market value 
     immediately after the contribution.

     For purposes of subparagraph (C), the term `built-in loss' 
     means the excess of the adjusted basis of the property 
     (determined without regard to subparagraph (C)(ii)) over its 
     fair market value immediately after the contribution.''
       (b) Adjustment to Basis of Partnership Property on Transfer 
     of Partnership Interest if There Is Substantial Built-In 
     Loss.--
       (1) Adjustment required.--Subsection (a) of section 743 
     (relating to optional adjustment to basis of partnership 
     property) is amended by inserting before the period ``or 
     unless the partnership has a substantial built-in loss 
     immediately after such transfer''.
       (2) Adjustment.--Subsection (b) of section 743 is amended 
     by inserting ``or with respect to which there is a 
     substantial built-in loss immediately after such transfer'' 
     after ``section 754 is in effect''.
       (3) Substantial built-in loss.--Section 743 is amended by 
     adding at the end the following new subsection:
       ``(d) Substantial Built-In Loss.--
       ``(1) In general.--For purposes of this section, a 
     partnership has a substantial built-in loss with respect to a 
     transfer of an interest in a partnership if the transferee 
     partner's proportionate share of the adjusted basis of the 
     partnership property exceeds by more than $250,000 the basis 
     of such partner's interest in the partnership.
       ``(2) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out the purposes 
     of paragraph (1) and section 734(d), including regulations 
     aggregating related partnerships and disregarding property 
     acquired by the partnership in an attempt to avoid such 
     purposes.''
       (4) Clerical amendments.--
       (A) The section heading for section 743 is amended to read 
     as follows:

     ``SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE 
                   SECTION 754 ELECTION OR SUBSTANTIAL BUILT-IN 
                   LOSS.''

       (B) The table of sections for subpart C of part II of 
     subchapter K of chapter 1 is amended by striking the item 
     relating to section 743 and inserting the following new item:

``Sec. 743. Adjustment to basis of partnership property where section 
              754 election or substantial built-in loss.''

       (c) Adjustment to Basis of Undistributed Partnership 
     Property if There Is Substantial Basis Reduction.--
       (1) Adjustment required.--Subsection (a) of section 734 
     (relating to optional adjustment to basis of undistributed 
     partnership property) is amended by inserting before the 
     period ``or unless there is a substantial basis reduction''.
       (2) Adjustment.--Subsection (b) of section 734 is amended 
     by inserting ``or unless there is a substantial basis 
     reduction'' after ``section 754 is in effect''.
       (3) Substantial basis reduction.--Section 734 is amended by 
     adding at the end the following new subsection:
       ``(d) Substantial Basis Reduction.--
       ``(1) In general.--For purposes of this section, there is a 
     substantial basis reduction with respect to a distribution if 
     the sum of the amounts described in subparagraphs (A) and (B) 
     of subsection (b)(2) exceeds $250,000.
       ``(2) Regulations.--

  ``For regulations to carry out this subsection, see section 
743(d)(2).''

       (4) Clerical amendments.--
       (A) The section heading for section 734 is amended to read 
     as follows:

     ``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP 
                   PROPERTY WHERE SECTION 754 ELECTION OR 
                   SUBSTANTIAL BASIS REDUCTION.''

       (B) The table of sections for subpart B of part II of 
     subchapter K of chapter 1 is amended by striking the item 
     relating to section 734 and inserting the following new item:

``Sec. 734. Adjustment to basis of undistributed partnership property 
              where section 754 election or substantial basis 
              reduction.''

       (d) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to contributions made after the date of the 
     enactment of this Act.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to transfers after the date of the enactment of 
     this Act.
       (3) Subsection (c).--The amendments made by subsection (c) 
     shall apply to distributions after the date of the enactment 
     of this Act.

     SEC. 133. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK 
                   HELD BY PARTNERSHIP IN CORPORATE PARTNER.

       (a) In General.--Section 755 is amended by adding at the 
     end the following new subsection:
       ``(c) No Allocation of Basis Decrease to Stock of Corporate 
     Partner.--In making an allocation under subsection (a) of any 
     decrease in the adjusted basis of partnership property under 
     section 734(b)--
       ``(1) no allocation may be made to stock in a corporation 
     which is a partner in the partnership, and
       ``(2) any amount not allocable to stock by reason of 
     paragraph (1) shall be allocated under subsection (a) to 
     other partnership property.

     Gain shall be recognized to the partnership to the extent 
     that the amount required to be allocated under paragraph (2) 
     to other partnership property exceeds the aggregate adjusted 
     basis of such other property immediately before the 
     allocation required by paragraph (2).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions after the date of the enactment 
     of this Act.

     SEC. 134. REPEAL OF SPECIAL RULES FOR FASITS.

       (a) In General.--Part V of subchapter M of chapter 1 
     (relating to financial asset securitization investment 
     trusts) is hereby repealed.
       (b) Conforming Amendments.--
       (1) Paragraph (6) of section 56(g) is amended by striking 
     ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (2) Clause (ii) of section 382(l)(4)(B) is amended by 
     striking ``a REMIC to which part IV of subchapter M applies, 
     or a FASIT to which part V of subchapter M applies,'' and 
     inserting ``or a REMIC to which part IV of subchapter M 
     applies,''.
       (3) Paragraph (1) of section 582(c) is amended by striking 
     ``, and any regular interest in a FASIT,''.
       (4) Subparagraph (E) of section 856(c)(5) is amended by 
     striking the last sentence.
       (5) Paragraph (5) of section 860G(a) is amended by adding 
     ``and'' at the end of subparagraph (B), by striking ``, and'' 
     at the end of subparagraph (C) and inserting a period, and by 
     striking subparagraph (D).
       (6) Subparagraph (C) of section 1202(e)(4) is amended by 
     striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (7) Subparagraph (C) of section 7701(a)(19) is amended by 
     adding ``and'' at the end of clause (ix), by striking ``, 
     and'' at the end of clause (x) and inserting a period, and by 
     striking clause (xi).
       (8) The table of parts for subchapter M of chapter 1 is 
     amended by striking the item relating to part V.
       (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 December 31, 2003.
       (2) Exception for existing fasits.--
       (A) In general.--Paragraph (1) shall not apply to any FASIT 
     in existence on the date of the enactment of this Act.
       (B) Transfer of additional assets not permitted.--Except as 
     provided in regulations prescribed by the Secretary of the 
     Treasury or the Secretary's delegate, subparagraph (A) shall 
     cease to apply as of the earliest date after the date of the 
     enactment of this Act that any property is transferred to the 
     FASIT.

     SEC. 135. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON 
                   CONVERTIBLE DEBT.

       (a) In General.--Paragraph (2) of section 163(l) is amended 
     by striking ``or a related party'' and inserting ``or equity 
     held by the issuer (or any related party) in any other 
     person''.
       (b) Conforming Amendment.--Paragraph (3) of section 163(l) 
     is amended by striking ``or a related party'' in the material 
     preceding subparagraph (A) and inserting ``or any other 
     person''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after the date of the 
     enactment of this Act.

     SEC. 136. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER 
                   SECTION 269.

       (a) In General.--Subsection (a) of section 269 (relating to 
     acquisitions made to evade or avoid income tax) is amended to 
     read as follows:
       ``(a) In General.--If--
       ``(1)(A) any person acquires stock in a corporation, or

[[Page H5571]]

       ``(B) any corporation acquires, directly or indirectly, 
     property of another corporation and the basis of such 
     property, in the hands of the acquiring corporation, is 
     determined by reference to the basis in the hands of the 
     transferor corporation, and
       ``(2) the principal purpose for which such acquisition was 
     made is evasion or avoidance of Federal income tax by 
     securing the benefit of a deduction, credit, or other 
     allowance,

     then the Secretary may disallow such deduction, credit, or 
     other allowance.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to stock and property acquired after February 13, 
     2003.

     SEC. 137. MODIFICATIONS OF CERTAIN RULES RELATING TO 
                   CONTROLLED FOREIGN CORPORATIONS.

       (a) Limitation on Exception From PFIC Rules for United 
     States Shareholders of Controlled Foreign Corporations.--
     Paragraph (2) of section 1297(e) (relating to passive 
     investment company) is amended by adding at the end the 
     following flush sentence:

     ``Such term shall not include any period if there is only a 
     remote likelihood of an inclusion in gross income under 
     section 951(a)(1)(A)(i) of subpart F income of such 
     corporation for such period.''
       (b) Determination of Pro Rata Share of Subpart F Income.--
     Subsection (a) of section 951 (relating to amounts included 
     in gross income of United States shareholders) is amended by 
     adding at the end the following new paragraph:
       ``(4) Special rules for determining pro rata share of 
     subpart f income.--The pro rata share under paragraph (2) 
     shall be determined by disregarding--
       ``(A) any rights lacking substantial economic effect, and
       ``(B) stock owned by a shareholder who is a tax-indifferent 
     party (as defined in section 7701(m)(3)) if the amount which 
     would (but for this paragraph) be allocated to such 
     shareholder does not reflect such shareholder's economic 
     share of the earnings and profits of the corporation.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years on controlled foreign 
     corporation beginning after February 13, 2003, and to taxable 
     years of United States shareholder in which or with which 
     such taxable years of controlled foreign corporations end.

     SEC. 138. BASIS FOR DETERMINING LOSS ALWAYS REDUCED BY 
                   NONTAXED PORTION OF DIVIDENDS.

       (a) In General.--Section 1059 (relating to corporate 
     shareholder's basis in stock reduced by nontaxed portion of 
     extraordinary dividends) is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Basis for Determining Loss Always Reduced by Nontaxed 
     Portion of Dividends.--The basis of stock in a corporation 
     (for purposes of determining loss) shall be reduced by the 
     nontaxed portion of any dividend received with respect to 
     such stock if this section does not otherwise apply to such 
     dividend.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to dividends received after the date of the 
     enactment of this Act.

     SEC. 139. AFFIRMATION OF CONSOLIDATED RETURN REGULATION 
                   AUTHORITY.

       (a) In General.--Section 1502 (relating to consolidated 
     return regulations) is amended by adding at the end the 
     following new sentence: ``In prescribing such regulations, 
     the Secretary may prescribe rules applicable to corporations 
     filing consolidated returns under section 1501 that are 
     different from other provisions of this title that would 
     apply if such corporations filed separate returns.''
       (b) Result Not Overturned.--Notwithstanding subsection (a), 
     the Internal Revenue Code of 1986 shall be construed by 
     treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in 
     effect on January 1, 2001) as being inapplicable to the type 
     of factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
       (c) Effective Date.--The provisions of this section shall 
     apply to taxable years beginning before, on, or after the 
     date of the enactment of this Act.

Subtitle B--Prevention of Corporate Expatriation to Avoid United States 
                               Income Tax

     SEC. 151. PREVENTION OF CORPORATE EXPATRIATION TO AVOID 
                   UNITED STATES INCOME TAX.

       (a) In General.--Paragraph (4) of section 7701(a) (defining 
     domestic) is amended to read as follows:
       ``(4) Domestic.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `domestic' when applied to a corporation or 
     partnership means created or organized in the United States 
     or under the law of the United States or of any State unless, 
     in the case of a partnership, the Secretary provides 
     otherwise by regulations.
       ``(B) Certain corporations treated as domestic.--
       ``(i) In general.--The acquiring corporation in a corporate 
     expatriation transaction shall be treated as a domestic 
     corporation.
       ``(ii) Corporate expatriation transaction.--For purposes of 
     this subparagraph, the term `corporate expatriation 
     transaction' means any transaction if--

       ``(I) a nominally foreign corporation (referred to in this 
     subparagraph as the `acquiring corporation') acquires, as a 
     result of such transaction, directly or indirectly 
     substantially all of the properties held directly or 
     indirectly by a domestic corporation, and
       ``(II) immediately after the transaction, more than 80 
     percent of the stock (by vote or value) of the acquiring 
     corporation is held by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation.

       ``(iii) Lower stock ownership requirement in certain 
     cases.--Subclause (II) of clause (ii) shall be applied by 
     substituting `50 percent' for `80 percent' with respect to 
     any nominally foreign corporation if--

       ``(I) such corporation does not have substantial business 
     activities (when compared to the total business activities of 
     the expanded affiliated group) in the foreign country in 
     which or under the law of which the corporation is created or 
     organized, and
       ``(II) the stock of the corporation is publicly traded and 
     the principal market for the public trading of such stock is 
     in the United States.

       ``(iv) Partnership transactions.--The term `corporate 
     expatriation transaction' includes any transaction if--

       ``(I) a nominally foreign corporation (referred to in this 
     subparagraph as the `acquiring corporation') acquires, as a 
     result of such transaction, directly or indirectly properties 
     constituting a trade or business of a domestic partnership,
       ``(II) immediately after the transaction, more than 80 
     percent of the stock (by vote or value) of the acquiring 
     corporation is held by former partners of the domestic 
     partnership or related foreign partnerships (determined 
     without regard to stock of the acquiring corporation which is 
     sold in a public offering related to the transaction), and
       ``(III) the acquiring corporation meets the requirements of 
     subclauses (I) and (II) of clause (iii).

       ``(v) Special rules.--For purposes of this subparagraph--

       ``(I) a series of related transactions shall be treated as 
     1 transaction, and
       ``(II) stock held by members of the expanded affiliated 
     group which includes the acquiring corporation shall not be 
     taken into account in determining ownership.

       ``(vi) Other definitions.--For purposes of this 
     subparagraph--

       ``(I) Nominally foreign corporation.--The term `nominally 
     foreign corporation' means any corporation which would (but 
     for this subparagraph) be treated as a foreign corporation.
       ``(II) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)).
       ``(III) Related foreign partnership.--A foreign partnership 
     is related to a domestic partnership if they are under common 
     control (within the meaning of section 482), or they shared 
     the same trademark or tradename.''

       (b) Effective Dates.--
       (1) In general.--The amendment made by this section shall 
     apply to corporate expatriation transactions completed after 
     September 11, 2001.
       (2) Special rule.--The amendment made by this section shall 
     also apply to corporate expatriation transactions completed 
     on or before September 11, 2001, but only with respect to 
     taxable years of the acquiring corporation beginning after 
     December 31, 2003.

          TITLE II--SIMPLIFICATION OF EARNED INCOME TAX CREDIT

     SEC. 201. SIMPLIFICATION OF EARNED INCOME TAX CREDIT.

       (a) Repeal of Denial of Credit Where Investment Income.--
     Section 32 is amended by striking subsection (i).
       (b) Earned Income To Include Only Amounts Includible in 
     Gross Income.--Section 32(c)(2)(B) is amended by striking 
     ``and'' at the end of clause (iv), by striking the period at 
     the end of clause (v) and inserting ``, and'', and by adding 
     at the end the following new clause:

     ``(vi) the requirement under subparagraph (A)(i) that an 
     amount be includible in gross income shall not apply if such 
     amount is exempt from tax under section 7873 or is derived 
     directly from restricted and allotted land under the Act of 
     February 8, 1887 (commonly known as the Indian General 
     Allotment Act) (25 U.S.C. 331 et seq.) or from land held 
     under Acts or treaties containing an exception provision 
     similar to the Indian General Allotment Act.''
       (c) Modification of Joint Return Requirement.--Subsection 
     (d) of section 32 is amended to read as follows:
       ``(d) Married Individuals.--
       ``(1) In general.--If the taxpayer is married at the close 
     of the taxable year, the credit shall be allowed under 
     subsection (a) only if the taxpayer and his spouse file a 
     joint return for the taxable year.
       ``(2) Marital status.--For purposes of paragraph (1), an 
     individual legally separated from his spouse under a decree 
     of divorce or of separate maintenance shall not be considered 
     as married.
       ``(3) Certain married individuals living apart.--For 
     purposes of paragraph (1), if--
       ``(A) an individual --
       ``(i) is married and files a separate return, and
       ``(ii) has a qualifying child who is a son, daughter, 
     stepson, or stepdaughter of such individual, and
       ``(B) during the last 6 months of such taxable year, such 
     individual and such individual's spouse do not have the same 
     principal place of abode,

[[Page H5572]]

     such individual shall not be considered as married.''
       (d) Expansion of Mathematical Error Authority.--Paragraph 
     (2) of section 6213(g) is amended by striking ``and'' at the 
     end of subparagraph (K), by striking the period at the end of 
     subparagraph (L) and inserting ``, and'', and by inserting 
     after subparagraph (L) the following new subparagraph:
       ``(M) the entry on the return claiming the credit under 
     section 32 with respect to a child if, according to the 
     Federal Case Registry of Child Support Orders established 
     under section 453(h) of the Social Security Act, the taxpayer 
     is a noncustodial parent of such child.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 202. PROFILING OF EARNED INCOME TAX CREDIT 
                   BENEFICIARIES.

       (a) Findings.--The Congress hereby finds that:
       (1) Current law authorizes the Internal Revenue Service to 
     impose additional earned income tax credit eligibility 
     requirements, such as the current recertification program, 
     only in cases in which a taxpayer has made prior improper 
     claims of the earned income tax credit.
       (2) The Internal Revenue Service is planning to implement 
     an earned income tax credit precertification program that 
     differs from what is authorized under current law in that it 
     would apply to taxpayers who fall within broad categories 
     even though they made no prior improper claims for the 
     credit.
       (3) There is no precedent in the Internal Revenue Code of 
     1986 for denying or delaying a tax refund that is apparently 
     properly claimed on a tax return merely because the taxpayer 
     meets a certain profile.
       (4) The proposed earned income tax credit precertification 
     program is an affront to our sense of fairness because 
     compliant taxpayers are treated differently solely by reason 
     of differing family structures or relationships and solely by 
     reason of the fact that they are claiming a tax benefit 
     designed to assist the working poor.
       (5) No other family-related tax benefit, such as the 
     dependency exemption or child tax credit, is subject to such 
     a precertification requirement; and there is no such 
     precertification requirement for abusive tax shelters 
     purchased by corporations or for tax benefits claimed by 
     higher income individuals.
       (b) Proposed EITC Profiling Not Permitted.--The Internal 
     Revenue Service shall not implement any system of 
     precertification for the earned income tax credit that 
     applies to taxpayers who have not made prior improper claims 
     unless such a system is hereafter specifically authorized by 
     law.

         TITLE III--TAXPAYER PROTECTIONS AND IRS ACCOUNTABILITY

                Subtitle A--Penalty and Interest Reforms

     SEC. 301. FAILURE TO PAY ESTIMATED TAX PENALTY CONVERTED TO 
                   INTEREST CHARGE ON ACCUMULATED UNPAID BALANCE.

       (a) Penalty Moved to Interest Chapter of Code.--The 
     Internal Revenue Code of 1986 is amended by redesignating 
     section 6654 as section 6641 and by moving section 6641 (as 
     so redesignated) from part I of subchapter A of chapter 68 to 
     the end of subchapter E of chapter 67 (as added by subsection 
     (e)(1) of this section).
       (b) Penalty Converted to Interest Charge.--The heading and 
     subsections (a) and (b) of section 6641 (as so redesignated) 
     are amended to read as follows:

     ``SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY 
                   ESTIMATED INCOME TAX.

       ``(a) In General.--Interest shall be paid on any 
     underpayment of estimated tax by an individual for a taxable 
     year for each day of such underpayment. The amount of such 
     interest for any day shall be the product of the underpayment 
     rate established under subsection (b)(2) multiplied by the 
     amount of the underpayment.
       ``(b) Amount of Underpayment; Interest Rate.--For purposes 
     of subsection (a)--
       ``(1) Amount.--The amount of the underpayment on any day 
     shall be the excess of--
       ``(A) the sum of the required installments for the taxable 
     year the due dates for which are on or before such day, over
       ``(B) the sum of the amounts (if any) of estimated tax 
     payments made on or before such day on such required 
     installments.
       ``(2) Determination of interest rate.--
       ``(A) In general.--The underpayment rate with respect to 
     any day in an installment underpayment period shall be the 
     underpayment rate established under section 6621 for the 
     first day of the calendar quarter in which such installment 
     underpayment period begins.
       ``(B) Installment underpayment period.--For purposes of 
     subparagraph (A), the term `installment underpayment period' 
     means the period beginning on the day after the due date for 
     a required installment and ending on the due date for the 
     subsequent required installment (or in the case of the 4th 
     required installment, the 15th day of the 4th month following 
     the close of a taxable year).
       ``(C) Daily rate.--The rate determined under subparagraph 
     (A) shall be applied on a daily basis and shall be based on 
     the assumption of 365 days in a calendar year.
       ``(3) Termination of estimated tax interest.--No day after 
     the end of the installment underpayment period for the 4th 
     required installment specified in paragraph (2)(B) for a 
     taxable year shall be treated as a day of underpayment with 
     respect to such taxable year.''.
       (c) Increase in Safe Harbor Where Tax is Small.--
       (1) In general.--Clause (i) of section 6641(d)(1)(B) (as so 
     redesignated) is amended to read as follows:
       ``(i) the lesser of--

       ``(I) 90 percent of the tax shown on the return for the 
     taxable year (or, if no return is filed, 90 percent of the 
     tax for such year), or
       ``(II) the tax shown on the return for the taxable year 
     (or, if no return is filed, the tax for such year) reduced 
     (but not below zero) by $1,600, or''.

       (2) Conforming amendment.--Subsection (e) of section 6641 
     (as so redesignated) is amended by striking paragraph (1) and 
     redesignating paragraphs (2) and (3) as paragraphs (1) and 
     (2), respectively.
       (d) Conforming Amendments.--
       (1) Paragraphs (1) and (2) of subsection (e) (as 
     redesignated by subsection (c)(2)) and subsection (h) of 
     section 6641 (as so designated) are each amended by striking 
     ``addition to tax'' each place it occurs and inserting 
     ``interest''.
       (2) Section 167(g)(5)(D) is amended by striking ``6654'' 
     and inserting ``6641''.
       (3) Section 460(b)(1) is amended by striking ``6654'' and 
     inserting ``6641''.
       (4) Section 3510(b) is amended--
       (A) by striking ``section 6654'' in paragraph (1) and 
     inserting ``section 6641'';
       (B) by amending paragraph (2)(B) to read as follows:
       ``(B) no interest would be required to be paid (but for 
     this section) under 6641 for such taxable year by reason of 
     the $1,600 amount specified in section 
     6641(d)(1)(B)(i)(II).'';
       (C) by striking ``section 6654(d)(2)'' in paragraph (3) and 
     inserting ``section 6641(d)(2)''; and
       (D) by striking paragraph (4).
       (5) Section 6201(b)(1) is amended by striking ``6654'' and 
     inserting ``6641''.
       (6) Section 6601(h) is amended by striking ``6654'' and 
     inserting ``6641''.
       (7) Section 6621(b)(2)(B) is amended by striking ``addition 
     to tax under section 6654'' and inserting ``interest required 
     to be paid under section 6641''.
       (8) Section 6622(b) is amended--
       (A) by striking ``Penalty for'' in the heading; and
       (B) by striking ``addition to tax under section 6654 or 
     6655'' and inserting ``interest required to be paid under 
     section 6641 or addition to tax under section 6655''.
       (9) Section 6658(a) is amended--
       (A) by striking ``6654, or 6655'' and inserting ``or 6655, 
     and no interest shall be required to be paid under section 
     6641,''; and
       (B) by inserting ``or paying interest'' after ``the tax'' 
     in paragraph (2)(B)(ii).
       (10) Section 6665(b) is amended--
       (A) in the matter preceding paragraph (1) by striking ``, 
     6654,''; and
       (B) in paragraph (2) by striking ``6654 or''.
       (11) Section 7203 is amended by striking ``section 6654 or 
     6655'' and inserting ``section 6655 or interest required to 
     be paid under section 6641''.
       (e) Clerical Amendments.--
       (1) Chapter 67 is amended by inserting after subchapter D 
     the following:

  ``Subchapter E--Interest on Failure by Individual to Pay Estimated 
                               Income Tax

``Sec. 6641. Interest on failure by individual to pay estimated income 
              tax.''.

       (2) The table of subchapters for chapter 67 is amended by 
     adding at the end the following new items:

``Subchapter D. Notice requirements.
``Subchapter E. Interest on failure by individual to pay estimated 
              income tax.''.

       (3) The table of sections for part I of subchapter A of 
     chapter 68 is amended by striking the item relating to 
     section 6654.
       (f) Effective Date.--The amendments made by this section 
     shall apply to installment payments for taxable years 
     beginning after December 31, 2003.

     SEC. 302. ABATEMENT OF INTEREST.

       (a) Abatement of Interest With Respect to Erroneous Refund 
     Check Without Regard to Size of Refund.--Paragraph (2) of 
     section 6404(e) is amended by striking ``unless--'' and all 
     that follows and inserting ``unless the taxpayer (or a 
     related party) has in any way caused such erroneous 
     refund.''.
       (b) Abatement of Interest to Extent Interest is 
     Attributable to Taxpayer Reliance on Written Statements of 
     the IRS.--Subsection (f) of section 6404 is amended--
       (1) in the subsection heading, by striking ``Penalty or 
     Addition'' and inserting ``Interest, Penalty, or Addition''; 
     and
       (2) in paragraph (1) and in subparagraph (B) of paragraph 
     (2), by striking ``penalty or addition'' and inserting 
     ``interest, penalty, or addition''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to interest accruing on or after the 
     date of the enactment of this Act.

     SEC. 303. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS.

       (a) In General.--Subchapter A of chapter 67 (relating to 
     interest on underpayments) is amended by adding at the end 
     the following new section:

[[Page H5573]]

     ``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS, ETC.

       ``(a) Authority To Make Deposits Other Than As Payment of 
     Tax.--A taxpayer may make a cash deposit with the Secretary 
     which may be used by the Secretary to pay any tax imposed 
     under subtitle A or B or chapter 41, 42, 43, or 44 which has 
     not been assessed at the time of the deposit. Such a deposit 
     shall be made in such manner as the Secretary shall 
     prescribe.
       ``(b) No Interest Imposed.--To the extent that such deposit 
     is used by the Secretary to pay tax, for purposes of section 
     6601 (relating to interest on underpayments), the tax shall 
     be treated as paid when the deposit is made.
       ``(c) Return of Deposit.--Except in a case where the 
     Secretary determines that collection of tax is in jeopardy, 
     the Secretary shall return to the taxpayer any amount of the 
     deposit (to the extent not used for a payment of tax) which 
     the taxpayer requests in writing.
       ``(d) Payment of Interest.--
       ``(1) In general.--For purposes of section 6611 (relating 
     to interest on overpayments), a deposit which is returned to 
     a taxpayer shall be treated as a payment of tax for any 
     period to the extent (and only to the extent) attributable to 
     a disputable tax for such period. Under regulations 
     prescribed by the Secretary, rules similar to the rules of 
     section 6611(b)(2) shall apply.
       ``(2) Disputable tax.--
       ``(A) In general.--For purposes of this section, the term 
     `disputable tax' means the amount of tax specified at the 
     time of the deposit as the taxpayer's reasonable estimate of 
     the maximum amount of any tax attributable to disputable 
     items.
       ``(B) Safe harbor based on 30-day letter.--In the case of a 
     taxpayer who has been issued a 30-day letter, the maximum 
     amount of tax under subparagraph (A) shall not be less than 
     the amount of the proposed deficiency specified in such 
     letter.
       ``(3) Other definitions.--For purposes of paragraph (2)--
       ``(A) Disputable item.--The term `disputable item' means 
     any item of income, gain, loss, deduction, or credit if the 
     taxpayer--
       ``(i) has a reasonable basis for its treatment of such 
     item, and
       ``(ii) reasonably believes that the Secretary also has a 
     reasonable basis for disallowing the taxpayer's treatment of 
     such item.
       ``(B) 30-day letter.--The term `30-day letter' means the 
     first letter of proposed deficiency which allows the taxpayer 
     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals.
       ``(4) Rate of interest.--The rate of interest allowable 
     under this subsection shall be the Federal short-term rate 
     determined under section 6621(b), compounded daily.
       ``(e) Use of Deposits.--
       ``(1) Payment of tax.--Except as otherwise provided by the 
     taxpayer, deposits shall be treated as used for the payment 
     of tax in the order deposited.
       ``(B) Returns of deposits.--Deposits shall be treated as 
     returned to the taxpayer on a last-in, first-out basis.''.
       (b) Clerical Amendment.--The table of sections for 
     subchapter A of chapter 67 is amended by adding at the end 
     the following new item:

``Sec. 6603. Deposits made to suspend running of interest on potential 
              underpayments, etc.''.

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to deposits made after the date of the enactment of 
     this Act.
       (2) Coordination with deposits made under revenue procedure 
     84-58.--In the case of an amount held by the Secretary of the 
     Treasury or his delegate on the date of the enactment of this 
     Act as a deposit in the nature of a cash bond deposit 
     pursuant to Revenue Procedure 84-58, the date that the 
     taxpayer identifies such amount as a deposit made pursuant to 
     section 6603 of the Internal Revenue Code (as added by this 
     Act) shall be treated as the date such amount is deposited 
     for purposes of such section 6603.

     SEC. 304. EXPANSION OF INTEREST NETTING FOR INDIVIDUALS.

       (a) In General.--Subsection (d) of section 6621 (relating 
     to elimination of interest on overlapping periods of tax 
     overpayments and underpayments) is amended by adding at the 
     end the following: ``Solely for purposes of the preceding 
     sentence, section 6611(e) shall not apply in the case of an 
     individual.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to interest accrued after December 31, 2003.

     SEC. 305. WAIVER OF CERTAIN PENALTIES FOR FIRST-TIME 
                   UNINTENTIONAL MINOR ERRORS.

       (a) In General.--Section 6651 (relating to failure to file 
     tax return or to pay tax) is amended by adding at the end the 
     following new subsection:
       ``(i) Treatment of First-Time Unintentional Minor Errors.--
       ``(1) In general.--In the case of a return of tax imposed 
     by subtitle A filed by an individual, the Secretary may waive 
     an addition to tax under subsection (a) if--
       ``(A) the individual has a history of compliance with the 
     requirements of this title,
       ``(B) it is shown that the failure is due to an 
     unintentional minor error,
       ``(C) the penalty would be grossly disproportionate to the 
     action or expense that would have been needed to avoid the 
     error, and imposing the penalty would be against equity and 
     good conscience,
       ``(D) waiving the penalty would promote compliance with the 
     requirements of this title and effective tax administration, 
     and
       ``(E) the taxpayer took all reasonable steps to remedy the 
     error promptly after discovering it.
       ``(2) Exceptions.--Paragraph (1) shall not apply if--
       ``(A) the Secretary has waived any addition to tax under 
     this subsection with respect to any prior failure by such 
     individual,
       ``(B) the failure is a mathematical or clerical error (as 
     defined in section 6213(g)(2)), or
       ``(C) the failure is the lack of a required signature.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on January 1, 2004.

     SEC. 306. 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 is based on a position which the 
     Secretary has identified as frivolous under subsection (c).
       ``(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 7811 (relating to taxpayer assistance 
     orders),
       ``(II) section 6159 (relating to agreements for payment of 
     tax liability in installments), or
       ``(III) section 7122 (relating to compromises).

       ``(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) 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.''.

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

     SEC. 307. CLARIFICATION OF APPLICATION OF FEDERAL TAX DEPOSIT 
                   PENALTY.

       Nothing in section 6656 of the Internal Revenue Code of 
     1986 shall be construed to permit the percentage specified in 
     subsection (b)(1)(A)(iii) thereof to apply other than in a 
     case where the failure is for more than 15 days.

             Subtitle B--Fairness of Collection Procedures

     SEC. 311. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT 
                   AGREEMENTS.

       (a) In General.--
       (1) Section 6159(a) (relating to authorization of 
     agreements) is amended--
       (A) by striking ``satisfy liability for payment of'' and 
     inserting ``make payment on'', and
       (B) by inserting ``full or partial'' after ``facilitate''.
       (2) Section 6159(c) (relating to Secretary required to 
     enter into installment agreements in certain cases) is 
     amended in the

[[Page H5574]]

     matter preceding paragraph (1) by inserting ``full'' before 
     ``payment''.
       (b) Requirement To Review Partial Payment Agreements Every 
     Two Years.--Section 6159 is amended by redesignating 
     subsections (d) and (e) as subsections (e) and (f), 
     respectively, and inserting after subsection (c) the 
     following new subsection:
       ``(d) Secretary Required To Review Installment Agreements 
     for Partial Collection Every Two Years.--In the case of an 
     agreement entered into by the Secretary under subsection (a) 
     for partial collection of a tax liability, the Secretary 
     shall review the agreement at least once every 2 years.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     of the enactment of this Act.

     SEC. 312. EXTENSION OF TIME FOR RETURN OF PROPERTY.

       (a) Extension of Time for Return of Property Subject to 
     Levy.--Subsection (b) of section 6343 (relating to return of 
     property) is amended by striking ``9 months'' and inserting 
     ``2 years''.
       (b) Period of Limitation on Suits.--Subsection (c) of 
     section 6532 (relating to suits by persons other than 
     taxpayers) is amended--
       (1) in paragraph (1) by striking ``9 months'' and inserting 
     ``2 years'', and
       (2) in paragraph (2) by striking ``9-month'' and inserting 
     ``2-year''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to--
       (1) levies made after the date of the enactment of this 
     Act, and
       (2) levies made on or before such date if the 9-month 
     period has not expired under section 6343(b) of the Internal 
     Revenue Code of 1986 (without regard to this section) as of 
     such date.

     SEC. 313. INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC., 
                   ON INDIVIDUAL RETIREMENT PLAN.

       (a) In General.--Section 6343 (relating to authority to 
     release levy and return property) is amended by adding at the 
     end the following new subsection:
       ``(f) Individuals Held Harmless on Wrongful Levy, etc. on 
     Individual Retirement Plan.--
       ``(1) In general.--If the Secretary determines that an 
     individual retirement plan has been levied upon in a case to 
     which subsection (b) or (d)(2)(A) applies, an amount equal to 
     the sum of--
       ``(A) the amount of money returned by the Secretary on 
     account of such levy, and
       ``(B) interest paid under subsection (c) on such amount of 
     money,

     may be deposited into an individual retirement plan (other 
     than an endowment contract) to which a rollover from the plan 
     levied upon is permitted.
       ``(2) Treatment as rollover.--The distribution on account 
     of the levy and any deposit under paragraph (1) with respect 
     to such distribution shall be treated for purposes of this 
     title as if such distribution and deposit were part of a 
     rollover described in section 408(d)(3)(A)(i); except that--
       ``(A) interest paid under subsection (c) shall be treated 
     as part of such distribution and as not includible in gross 
     income,
       ``(B) the 60-day requirement in such section shall be 
     treated as met if the deposit is made not later than the 60th 
     day after the day on which the individual receives an amount 
     under paragraph (1) from the Secretary, and
       ``(C) such deposit shall not be taken into account under 
     section 408(d)(3)(B).
       ``(3) Refund, etc., of income tax on levy.--If any amount 
     is includible in gross income for a taxable year by reason of 
     a levy referred to in paragraph (1) and any portion of such 
     amount is treated as a rollover under paragraph (2), any tax 
     imposed by chapter 1 on such portion shall not be assessed, 
     and if assessed shall be abated, and if collected shall be 
     credited or refunded as an overpayment made on the due date 
     for filing the return of tax for such taxable year.
       ``(4) Interest.--Notwithstanding subsection (d), interest 
     shall be allowed under subsection (c) in a case in which the 
     Secretary makes a determination described in subsection 
     (d)(2)(A) with respect to a levy upon an individual 
     retirement plan.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts paid under subsections (b), (c), and 
     (d)(2)(A) of section 6343 of the Internal Revenue Code of 
     1986 after December 31, 2003.

     SEC. 314. SEVEN-DAY THRESHOLD ON TOLLING OF STATUTE OF 
                   LIMITATIONS DURING TAX REVIEW.

       (a) In General.--Section 7811(d)(1) (relating to suspension 
     of running of period of limitation) is amended by inserting 
     after ``application,'' the following: ``but only if the date 
     of such decision is at least 7 days after the date of the 
     taxpayer's application''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to applications filed after the date of the 
     enactment of this Act.

     SEC. 315. STUDY OF LIENS AND LEVIES.

       The Secretary of the Treasury, or the Secretary's delegate, 
     shall conduct a study of the practices of the Internal 
     Revenue Service concerning liens and levies. The study shall 
     examine--
       (1) the declining use of liens and levies by the Internal 
     Revenue Service, and
       (2) the practicality of recording liens and 
     levying against property in cases in which the cost of such 
     actions exceeds the amount to be realized from such property.

     Not later than 1 year after the date of the enactment of this 
     Act, the Secretary shall submit such study to the Committee 
     on Ways and Means of the House of Representatives and the 
     Committee on Finance of the Senate.

                 Subtitle C--Tax Administration Reforms

     SEC. 331. REVISIONS RELATING TO TERMINATION OF EMPLOYMENT OF 
                   INTERNAL REVENUE SERVICE EMPLOYEES FOR 
                   MISCONDUCT.

       (a) In General.--Subchapter A of chapter 80 (relating to 
     application of internal revenue laws) is amended by inserting 
     after section 7804 the following new section:

     ``SEC. 7804A. DISCIPLINARY ACTIONS FOR MISCONDUCT.

       ``(a) Disciplinary Actions.--
       ``(1) In general.--Subject to subsection (c), the 
     Commissioner shall take an action in accordance with the 
     guidelines established under paragraph (2) against any 
     employee of the Internal Revenue Service if there is a final 
     administrative or judicial determination that such employee 
     committed any act or omission described under subsection (b) 
     in the performance of the employee's official duties or where 
     a nexus to the employee's position exists.
       ``(2) Guidelines.--The Commissioner shall issue guidelines 
     for determining the appropriate level of discipline, up to 
     and including termination of employment, for committing any 
     act or omission described under subsection (b).
       ``(b) Acts or Omissions.--The acts or omissions described 
     under this subsection are--
       ``(1) willful failure to obtain the required approval 
     signatures on documents authorizing the seizure of a 
     taxpayer's home, personal belongings, or business assets;
       ``(2) willfully providing a false statement under oath with 
     respect to a material matter involving a taxpayer or taxpayer 
     representative;
       ``(3) with respect to a taxpayer or taxpayer 
     representative, the willful violation of--
       ``(A) any right under the Constitution of the United 
     States;
       ``(B) any civil right established under--
       ``(i) title VI or VII of the Civil Rights Act of 1964;
       ``(ii) title IX of the Education Amendments of 1972;
       ``(iii) the Age Discrimination in Employment Act of 1967;
       ``(iv) the Age Discrimination Act of 1975;
       ``(v) section 501 or 504 of the Rehabilitation Act of 1973; 
     or
       ``(vi) title I of the Americans with Disabilities Act of 
     1990; or
       ``(C) the Internal Revenue Service policy on unauthorized 
     inspection of returns or return information;
       ``(4) willfully falsifying or destroying documents to 
     conceal mistakes made by any employee with respect to a 
     matter involving a taxpayer or taxpayer representative;
       ``(5) assault or battery on a taxpayer or taxpayer 
     representative, but only if there is a criminal conviction, 
     or a final adverse judgment by a court in a civil case, with 
     respect to the assault or battery;
       ``(6) willful violations of this title, Department of the 
     Treasury regulations, or policies of the Internal Revenue 
     Service (including the Internal Revenue Manual) for the 
     purpose of retaliating against, or harassing, a taxpayer or 
     taxpayer representative;
       ``(7) willful misuse of the provisions of section 6103 for 
     the purpose of concealing information from a congressional 
     inquiry;
       ``(8) willful failure to file any return of tax required 
     under this title on or before the date prescribed therefor 
     (including any extensions) when a tax is due and owing, 
     unless such failure is due to reasonable cause and not due to 
     willful neglect;
       ``(9) willful understatement of Federal tax liability, 
     unless such understatement is due to reasonable cause and not 
     due to willful neglect; and
       ``(10) threatening to audit a taxpayer, or to take other 
     action under this title, for the purpose of extracting 
     personal gain or benefit.
       ``(c) Determinations of Commissioner.--
       ``(1) In general.--The Commissioner may take a personnel 
     action other than a disciplinary action provided for in the 
     guidelines under subsection (a)(2) for an act or omission 
     described under subsection (b).
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may not be delegated to any other officer. 
     The Commissioner, in his sole discretion, may establish a 
     procedure to determine if an individual should be referred to 
     the Commissioner for a determination by the Commissioner 
     under paragraph (1).
       ``(3) No appeal.--Notwithstanding any other provision of 
     law, any determination of the Commissioner under this 
     subsection may not be reviewed in any administrative or 
     judicial proceeding. A finding that an act or omission 
     described under subsection (b) occurred may be reviewed.
       ``(d) Definition.--For the purposes of the provisions 
     described in clauses (i), (ii), and (iv) of subsection 
     (b)(3)(B), references to a program or activity regarding 
     Federal financial assistance or an education program or 
     activity receiving Federal financial assistance shall include 
     any program or activity conducted by the Internal Revenue 
     Service for a taxpayer.
       ``(e) Annual Report.--The Commissioner shall submit to 
     Congress annually a report on disciplinary actions under this 
     section.''.

[[Page H5575]]

       (b) Clerical Amendment.--The table of sections for chapter 
     80 is amended by inserting after the item relating to section 
     7804 the following new item:

``Sec. 7804A. Disciplinary actions for misconduct.''.

       (c) Repeal of Superseded Section.--Section 1203 of the 
     Internal Revenue Service Restructuring and Reform Act of 1998 
     (Public Law 105-206; 112 Stat. 720) is repealed.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 332. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY 
                   DOCTRINE OF EQUITABLE RECOUPMENT.

       (a) Confirmation of Authority of Tax Court To Apply 
     Doctrine of Equitable Recoupment.--Subsection (b) of section 
     6214 (relating to jurisdiction over other years and quarters) 
     is amended by adding at the end the following new sentence: 
     ``Notwithstanding the preceding sentence, the Tax Court may 
     apply the doctrine of equitable recoupment to the same extent 
     that it is available in civil tax cases before the district 
     courts of the United States and the United States Court of 
     Federal Claims.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to any action or proceeding in the Tax Court with 
     respect to which a decision has not become final (as 
     determined under section 7481 of the Internal Revenue Code of 
     1986) as of the date of the enactment of this Act.

     SEC. 333. JURISDICTION OF TAX COURT OVER COLLECTION DUE 
                   PROCESS CASES.

       (a) In General.--Section 6330(d)(1) (relating to judicial 
     review of determination) is amended to read as follows:
       ``(1) Judicial review of determination.--The person may, 
     within 30 days of a determination under this section, appeal 
     such determination to the Tax Court (and the Tax Court shall 
     have jurisdiction with respect to such matter).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to judicial appeals filed after the date of the 
     enactment of this Act.

     SEC. 334. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS IN 
                   COMPROMISE.

       (a) In General.--Section 7122(b) (relating to record) is 
     amended by striking ``Whenever a compromise'' and all that 
     follows through ``his delegate'' and inserting ``If the 
     Secretary determines that an opinion of the General Counsel 
     for the Department of the Treasury, or the Counsel's 
     delegate, is required with respect to a compromise, there 
     shall be placed on file in the office of the Secretary such 
     opinion''.
       (b) Conforming Amendments.--Section 7122(b) is amended by 
     striking the second and third sentences.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted or pending on 
     or after the date of the enactment of this Act.

     SEC. 335. ACCESS OF NATIONAL TAXPAYER ADVOCATE TO INDEPENDENT 
                   LEGAL COUNSEL.

       Clause (i) of section 7803(c)(2)(D) (relating to personnel 
     actions) is amended by striking ``and'' at the end of 
     subclause (I), by striking the period at the end of subclause 
     (II) and inserting ``, and'', and by adding at the end the 
     following new subclause:

       ``(III) appoint a counsel in the Office of the Taxpayer 
     Advocate to report solely to the National Taxpayer 
     Advocate.''.

     SEC. 336. PAYMENT OF MOTOR FUEL EXCISE TAX REFUNDS BY DIRECT 
                   DEPOSIT.

       (a) In General.--Subchapter II of chapter 33 of title 31, 
     United States Code, is amended by adding at the end the 
     following new section:

     ``Sec. 3337. Payment of motor fuel excise tax refunds by 
       direct deposit

       ``The Secretary of the Treasury shall make payments under 
     sections 6420, 6421, and 6427 of the Internal Revenue Code of 
     1986 by electronic funds transfer (as defined in section 
     3332(j)(1)) if the person who is entitled to the payment--
       ``(1) elects to receive the payment by electronic funds 
     transfer; and
       ``(2) satisfies the requirements of section 3332(g) with 
     respect to such payment at such time and in such manner as 
     the Secretary may require.''.
       (b) Clerical Amendment.--The table of sections for 
     subchapter II of chapter 33 of title 31, United States Code, 
     is amended by adding at the end the following new item:

``3337. Payment of motor fuel excise tax refunds by direct deposit.''.

     SEC. 337. FAMILY BUSINESS TAX SIMPLIFICATION.

       (a) In General.--Section 761 (defining terms for purposes 
     of partnerships) is amended by redesignating subsection (f) 
     as subsection (g) and by inserting after subsection (e) the 
     following new subsection:
       ``(f) Qualified Joint Venture.--
       ``(1) In general.--In the case of a qualified joint venture 
     conducted by a husband and wife who file a joint return for 
     the taxable year, for purposes of this title--
       ``(A) such joint venture shall not be treated as a 
     partnership,
       ``(B) all items of income, gain, loss, deduction, and 
     credit shall be divided between the spouses in accordance 
     with their respective interests in the venture, and
       ``(C) each spouse shall take into account such spouse's 
     respective share of such items as if they were attributable 
     to a trade or business conducted by such spouse as a sole 
     proprietor.
       ``(2) Qualified joint venture.--For purposes of paragraph 
     (1), the term `qualified joint venture' means any joint 
     venture involving the conduct of a trade or business if--
       ``(A) the only members of such joint venture are a husband 
     and wife,
       ``(B) both spouses materially participate (within the 
     meaning of section 469(h) without regard to paragraph (5) 
     thereof) in such trade or business, and
       ``(C) both spouses elect the application of this 
     subsection.''.
       (b) Net Earnings From Self-Employment.--
       (1) Subsection (a) of section 1402 (defining net earnings 
     from self-employment) is amended by striking ``and'' at the 
     end of paragraph (14), by striking the period at the end of 
     paragraph (15) and inserting ``; and'', and by inserting 
     after paragraph (15) the following new paragraph:
       ``(16) notwithstanding the preceding provisions of this 
     subsection, each spouse's share of income or loss from a 
     qualified joint venture shall be taken into account as 
     provided in section 761(f) in determining net earnings from 
     self-employment of such spouse.''.
       (2) Subsection (a) of section 211 of the Social Security 
     Act (defining net earnings from self-employment) is amended 
     by striking ``and'' at the end of paragraph (14), by striking 
     the period at the end of paragraph (15) and inserting ``; 
     and'', and by inserting after paragraph (15) the following 
     new paragraph:
       ``(16) Notwithstanding the preceding provisions of this 
     subsection, each spouse's share of income or loss from a 
     qualified joint venture shall be taken into account as 
     provided in section 761(f) of the Internal Revenue Code of 
     1986 in determining net earnings from self-employment of such 
     spouse.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 338. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST 
                   ORGANIZATIONS.

       (a) In General.--Section 501 (relating to exemption from 
     tax on corporations, certain trusts, etc.) is amended by 
     redesignating subsection (p) as subsection (q) and by 
     inserting after subsection (o) the following new subsection:
       ``(p) Suspension of Tax-Exempt Status of Terrorist 
     Organizations.--
       ``(1) In general.--The exemption from tax under subsection 
     (a) with respect to any organization described in paragraph 
     (2), and the eligibility of any organization described in 
     paragraph (2) to apply for recognition of exemption under 
     subsection (a), shall be suspended during the period 
     described in paragraph (3).
       ``(2) Terrorist organizations.--An organization is 
     described in this paragraph if such organization is 
     designated or otherwise individually identified--
       ``(A) under section 212(a)(3)(B)(vi)(II) or 219 of the 
     Immigration and Nationality Act as a terrorist organization 
     or foreign terrorist organization,
       ``(B) in or pursuant to an Executive order which is related 
     to terrorism and issued under the authority of the 
     International Emergency Economic Powers Act or section 5 of 
     the United Nations Participation Act of 1945 for the purpose 
     of imposing on such organization an economic or other 
     sanction, or
       ``(C) in or pursuant to an Executive order issued under the 
     authority of any Federal law if--
       ``(i) the organization is designated or otherwise 
     individually identified in or pursuant to such Executive 
     order as supporting or engaging in terrorist activity (as 
     defined in section 212(a)(3)(B) of the Immigration and 
     Nationality Act) or supporting terrorism (as defined in 
     section 140(d)(2) of the Foreign Relations Authorization Act, 
     Fiscal Years 1988 and 1989); and
       ``(ii) such Executive order refers to this subsection.
       ``(3) Period of suspension.--With respect to any 
     organization described in paragraph (2), the period of 
     suspension--
       ``(A) begins on the later of--
       ``(i) the date of the first publication of a designation or 
     identification described in paragraph (2) with respect to 
     such organization, or
       ``(ii) the date of the enactment of this subsection, and
       ``(B) ends on the first date that all designations and 
     identifications described in paragraph (2) with respect to 
     such organization are rescinded pursuant to the law or 
     Executive order under which such designation or 
     identification was made.
       ``(4) Denial of deduction.--No deduction shall be allowed 
     under section 170, 545(b)(2), 556(b)(2), 642(c), 2055, 
     2106(a)(2), or 2522 for any contribution to an organization 
     described in paragraph (2) during the period described in 
     paragraph (3).
       ``(5) Denial of administrative or judicial challenge of 
     suspension or denial of deduction.--Notwithstanding section 
     7428 or any other provision of law, no organization or other 
     person may challenge a suspension under paragraph (1), a 
     designation or identification described in paragraph (2), the 
     period of suspension described in paragraph (3), or a denial 
     of a deduction under paragraph (4) in any administrative or 
     judicial proceeding relating to the Federal tax liability of 
     such organization or other person.
       ``(6) Erroneous designation.--
       ``(A) In general.--If--
       ``(i) the tax exemption of any organization described in 
     paragraph (2) is suspended under paragraph (1),
       ``(ii) each designation and identification described in 
     paragraph (2) which has been

[[Page H5576]]

     made with respect to such organization is determined to be 
     erroneous pursuant to the law or Executive order under which 
     such designation or identification was made, and
       ``(iii) the erroneous designations and identifications 
     result in an overpayment of income tax for any taxable year 
     by such organization,

     credit or refund (with interest) with respect to such 
     overpayment shall be made.
       ``(B) Waiver of limitations.--If the credit or refund of 
     any overpayment of tax described in subparagraph (A)(iii) is 
     prevented at any time by the operation of any law or rule of 
     law (including res judicata), such credit or refund may 
     nevertheless be allowed or made if the claim therefor is 
     filed before the close of the 1-year period beginning on the 
     date of the last determination described in subparagraph 
     (A)(ii).
       ``(7) Notice of suspensions.--If the tax exemption of any 
     organization is suspended under this subsection, the Internal 
     Revenue Service shall update the listings of tax-exempt 
     organizations and shall publish appropriate notice to 
     taxpayers of such suspension and of the fact that 
     contributions to such organization are not deductible during 
     the period of such suspension.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to designations made before, on, or after the 
     date of the enactment of this Act.

     SEC. 339. TAX REFUND ANTICIPATION LOANS.

       The Secretary of the Treasury may not provide any direct 
     deposit indicator with respect to a taxpayer to any tax 
     return preparer, financial institution, or other person that 
     charges taxpayers interest rates (including fees) on refund 
     anticipation loans in excess of the consumer loan usury rate 
     limit of the State in which the taxpayer is domiciled.

     SEC. 340. FAIRNESS IN TAX AUDIT COVERAGE.

       (a) Mandatory Audits of High Risk Taxpayers.--The Secretary 
     of the Treasury shall conduct audits of all taxpayers whom 
     the Secretary determines are likely to have--
       (1) an unpaid Federal income tax liability of more than 
     $1,000,000, or
       (2) to have unreported income or structured transactions 
     which are considered by the Secretary to be high risk.
       (b) Rate of Audits.--The Secretary of the Treasury shall 
     conduct audits of high income taxpayers likely to owe taxes 
     at a rate which is not less than the rate at which the 
     Secretary conducts audits of low income taxpayers likely to 
     owe taxes.

               Subtitle D--Confidentiality and Disclosure

     SEC. 341. COLLECTION ACTIVITIES WITH RESPECT TO JOINT RETURN 
                   DISCLOSABLE TO EITHER SPOUSE BASED ON ORAL 
                   REQUEST.

       (a) In General.--Paragraph (8) of section 6103(e) (relating 
     to disclosure of collection activities with respect to joint 
     return) is amended by striking ``in writing'' the first place 
     it appears.
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.

     SEC. 342. TAXPAYER REPRESENTATIVES NOT SUBJECT TO EXAMINATION 
                   ON SOLE BASIS OF REPRESENTATION OF TAXPAYERS.

       (a) In General.--Paragraph (1) of section 6103(h) (relating 
     to disclosure to certain Federal officers and employees for 
     purposes of tax administration, etc.) is amended--
       (1) by striking ``Returns'' and inserting the following:
       ``(A) In general.--Returns'', and
       (2) by adding at the end the following new subparagraph:
       ``(B) Taxpayer representatives.--Notwithstanding 
     subparagraph (A), the return of the representative of a 
     taxpayer whose return is being examined by an officer or 
     employee of the Department of the Treasury shall not be open 
     to inspection by such officer or employee on the sole basis 
     of the representative's relationship to the taxpayer unless a 
     supervisor of such officer or employee has approved the 
     inspection of the return of such representative on a basis 
     other than by reason of such relationship.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date which is 180 days after the 
     date of the enactment of this Act.

     SEC. 343. DISCLOSURE IN JUDICIAL OR ADMINISTRATIVE TAX 
                   PROCEEDINGS OF RETURN AND RETURN INFORMATION OF 
                   PERSONS WHO ARE NOT PARTY TO SUCH PROCEEDINGS.

       (a) In General.--Paragraph (4) of section 6103(h) (relating 
     to disclosure to certain Federal officers and employees for 
     purposes of tax administration, etc.) is amended by adding at 
     the end the following new subparagraph:
       ``(B) Disclosure in judicial or administrative tax 
     proceedings of return and return information of persons not 
     party to such proceedings.--
       ``(i) Notice.--Return or return information of any person 
     who is not a party to a judicial or administrative proceeding 
     described in this paragraph shall not be disclosed under 
     clause (ii) or (iii) of subparagraph (A) until after the 
     Secretary makes a reasonable effort to give notice to such 
     person and an opportunity for such person to request the 
     deletion of matter from such return or return information, 
     including any of the items referred to in paragraphs (1) 
     through (7) of section 6110(c). Such notice shall include a 
     statement of the issue or issues the resolution of which is 
     the reason such return or return information is sought. In 
     the case of S corporations, partnerships, estates, and 
     trusts, such notice shall be made at the entity level.
       ``(ii) Disclosure limited to pertinent portion.--The only 
     portion of a return or return information described in clause 
     (i) which may be disclosed under subparagraph (A) is that 
     portion of such return or return information that directly 
     relates to the resolution of an issue in such proceeding.
       ``(iii) Exceptions.--Clause (i) shall not apply--

       ``(I) to any civil action under section 7407, 7408, or 
     7409,
       ``(II) to any ex parte proceeding for obtaining a search 
     warrant, order for entry on premises or safe deposit boxes, 
     or similar ex parte proceeding,
       ``(III) to disclosure of third party return information by 
     indictment or criminal information, or
       ``(IV) if the Attorney General or the Attorney General's 
     delegate determines that the application of such clause would 
     seriously impair a criminal tax investigation or 
     proceeding.''.

       (b) Conforming Amendments.--Paragraph (4) of section 
     6103(h) is amended by--
       (1) by striking ``proceedings.--A return'' and inserting 
     ``proceedings.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     a return'';
       (2) by redesignating subparagraphs (A), (B), (C), and (D) 
     as clauses (i), (ii), (iii), and (iv), respectively; and
       (3) in the matter following clause (iv) (as so 
     redesignated), by striking ``subparagraph (A), (B), or (C)'' 
     and inserting ``clause (i), (ii), or (iii)'' and by moving 
     such matter 2 ems to the right.
       (c) Effective Date.--The amendments made by this section 
     shall apply to proceedings commenced after the date of the 
     enactment of this Act.

     SEC. 344. PROHIBITION OF DISCLOSURE OF TAXPAYER 
                   IDENTIFICATION INFORMATION WITH RESPECT TO 
                   DISCLOSURE OF ACCEPTED OFFERS-IN-COMPROMISE.

       (a)  General.--Paragraph (1) of section 6103(k) (relating 
     to disclosure of certain returns and return information for 
     tax administrative purposes) is amended by inserting ``(other 
     than the taxpayer's address and TIN)'' after ``Return 
     information''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to disclosures made after the date of the 
     enactment of this Act.

     SEC. 345. COMPLIANCE BY CONTRACTORS WITH CONFIDENTIALITY 
                   SAFEGUARDS.

       (a) In General.--Section 6103(p) (relating to State law 
     requirements) is amended by adding at the end the following 
     new paragraph:
       ``(9) Disclosure to contractors and other agents.--
     Notwithstanding any other provision of this section, no 
     return or return information shall be disclosed to any 
     contractor or other agent of a Federal, State, or local 
     agency unless such agency, to the satisfaction of the 
     Secretary--
       ``(A) has requirements in effect which require each such 
     contractor or other agent which would have access to returns 
     or return information to provide safeguards (within the 
     meaning of paragraph (4)) to protect the confidentiality of 
     such returns or return information,
       ``(B) agrees to conduct an annual, on-site review (mid-
     point review in the case of contracts of less than 1 year in 
     duration) of each such contractor or other agent to determine 
     compliance with such requirements,
       ``(C) submits the findings of the most recent review 
     conducted under subparagraph (B) to the Secretary as part of 
     the report required by paragraph (4)(E), and
       ``(D) certifies to the Secretary for the most recent annual 
     period that each such contractor or other agent is in 
     compliance with all such requirements.

     The certification required by subparagraph (D) shall include 
     the name and address of each contractor and other agent, a 
     description of the contract of the contractor or other agent 
     with the agency, and the duration of such contract.''.
       (b) Conforming Amendment.--Subparagraph (B) of section 
     6103(p)(8) is amended by inserting ``or paragraph (9)'' after 
     ``subparagraph (A)''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to disclosures made after December 31, 2003.
       (2) Certifications.--The first certification under section 
     6103(p)(9)(D) of the Internal Revenue Code of 1986, as added 
     by subsection (a), shall be made with respect to calendar 
     year 2004.

     SEC. 346. HIGHER STANDARDS FOR REQUESTS FOR AND CONSENTS TO 
                   DISCLOSURE.

       (a) In General.--Subsection (c) of section 6103 (relating 
     to disclosure of returns and return information to designee 
     of taxpayer) is amended by adding at the end the following 
     new paragraphs:
       ``(2) Requirements for valid requests and consents.--A 
     request for or consent to disclosure under paragraph (1) 
     shall only be valid for purposes of this section, sections 
     7213, 7213A, and 7431 if--
       ``(A) at the time of execution, such request or consent 
     designates a recipient of such disclosure and is dated, and
       ``(B) at the time such request or consent is submitted to 
     the Secretary, the submitter of

[[Page H5577]]

     such request or consent certifies, under penalty of perjury, 
     that such request or consent complied with subparagraph (A).
       ``(3) Restrictions on persons obtaining information.--Any 
     person shall, as a condition for receiving return or return 
     information under paragraph (1)--
       ``(A) ensure that such return and return information is 
     kept confidential,
       ``(B) use such return and return information only for the 
     purpose for which it was requested, and
       ``(C) not disclose such return and return information 
     except to accomplish the purpose for which it was requested, 
     unless a separate consent from the taxpayer is obtained.
       ``(4) Requirements for form prescribed by secretary.--For 
     purposes of this subsection, the Secretary shall prescribe a 
     form for requests and consents which shall--
       ``(A) contain a warning, prominently displayed, informing 
     the taxpayer that the form should not be signed unless it is 
     completed,
       ``(B) state that if the taxpayer believes there is an 
     attempt to coerce him to sign an incomplete or blank form, 
     the taxpayer should report the matter to the Treasury 
     Inspector General for Tax Administration, and
       ``(C) contain the address and telephone number of the 
     Treasury Inspector General for Tax Administration.''.
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Treasury Inspector General for Tax 
     Administration shall submit a report to the Congress on 
     compliance with the designation and certification 
     requirements applicable to requests for or consent to 
     disclosure of returns and return information under section 
     6103(c) of the Internal Revenue Code of 1986, as amended by 
     subsection (a). Such report shall--
       (1) evaluate (on the basis of random sampling) whether--
       (A) the amendment made by subsection (a) is achieving the 
     purposes of this section;
       (B) requesters and submitters for such disclosure are 
     continuing to evade the purposes of this section and, if so, 
     how; and
       (C) the sanctions for violations of such requirements are 
     adequate; and
       (2) include such recommendations that the Treasury 
     Inspector General for Tax Administration considers necessary 
     or appropriate to better achieve the purposes of this 
     section.
       (c) Conforming Amendments.--
       (1) Section 6103(c) is amended by striking ``Taxpayer.--The 
     Secretary'' and inserting ``Taxpayer.--
       ``(1) In General.--The Secretary''.
       (2) Section 7213(a)(1) is amended by striking ``section 
     6103(n)'' and inserting ``subsections (c) and (n) of section 
     6103''.
       (3) Section 7213A(a)(1)(B) is amended by striking 
     ``subsection (l)(18) or (n) of section 6103'' and inserting 
     ``subsection (c), (l)(18), or (n) of section 6103''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to requests and consents made after 3 months 
     after the date of the enactment of this Act.

     SEC. 347. NOTICE TO TAXPAYER CONCERNING ADMINISTRATIVE 
                   DETERMINATION OF BROWSING; ANNUAL REPORT.

       (a) Notice to Taxpayer.--Subsection (e) of section 7431 
     (relating to notification of unlawful inspection and 
     disclosure) is amended by adding at the end the following: 
     ``The Secretary shall also notify such taxpayer if the 
     Treasury Inspector General for Tax Administration 
     substantiates that such taxpayer's return or return 
     information was inspected or disclosed in violation of any of 
     the provisions specified in paragraph (1), (2), or (3).''.
       (b) Reports.--Subsection (p) of section 6103 (relating to 
     procedure and recordkeeping), is amended by adding at the end 
     the following new paragraph:
       ``(10) Report on unauthorized disclosure and inspection.--
     As part of the report required by paragraph (3)(C) for each 
     calendar year, the Secretary shall furnish information 
     regarding the unauthorized disclosure and inspection of 
     returns and return information, including the number, status, 
     and results of--
       ``(A) administrative investigations,
       ``(B) civil lawsuits brought under section 7431 (including 
     the amounts for which such lawsuits were settled and the 
     amounts of damages awarded), and
       ``(C) criminal prosecutions.''.
       (c) Effective Date.--
       (1) Notice.--The amendment made by subsection (a) shall 
     apply to determinations made after the date of the enactment 
     of this Act.
       (2) Reports.--The amendment made by subsection (b) shall 
     apply to calendar years ending after the date of the 
     enactment of this Act.

     SEC. 348. EXPANDED DISCLOSURE IN EMERGENCY CIRCUMSTANCES.

       (a) In General.--Section 6103(i)(3)(B) (relating to danger 
     of death or physical injury) is amended by striking ``or 
     State'' and inserting ``, State, or local''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 349. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX REFUND 
                   PURPOSES.

       (a) In General.--Paragraph (1) of section 6103(m) (relating 
     to disclosure of taxpayer identity information) is amended by 
     striking ``and other media'' and by inserting ``, other 
     media, and through any other means of mass communication,''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 350. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS 
                   RELATED TO SECTION 501(C)(3) ORGANIZATIONS.

       (a) In General.--Subsection (c) of section 6104 is amended 
     by striking paragraph (2) and inserting the following new 
     paragraphs:
       ``(2) Disclosure of proposed actions.--
       ``(A) Specific notifications.--In the case of an 
     organization to which paragraph (1) applies, the Secretary 
     may disclose to the appropriate State officer--
       ``(i) a notice of proposed refusal to recognize such 
     organization as an organization described in section 
     501(c)(3) or a notice of proposed revocation of such 
     organization's recognition as an organization exempt from 
     taxation,
       ``(ii) the issuance of a letter of proposed deficiency of 
     tax imposed under section 507 or chapter 41 or 42, and
       ``(iii) the names, addresses, and taxpayer identification 
     numbers of organizations that have applied for recognition as 
     organizations described in section 501(c)(3).
       ``(B) Additional disclosures.--Returns and return 
     information of organizations with respect to which 
     information is disclosed under subparagraph (A) may be made 
     available for inspection by or disclosed to an appropriate 
     State officer.
       ``(C) Procedures for disclosure.--Information may be 
     inspected or disclosed under subparagraph (A) or (B) only--
       ``(i) upon written request by an appropriate State officer, 
     and
       ``(ii) for the purpose of, and only to the extent necessary 
     in, the administration of State laws regulating such 
     organizations.

     Such information may only be inspected by or disclosed to a 
     person other than the appropriate State officer if such 
     person is an officer or employee of the State and is 
     designated by the appropriate State officer to receive the 
     returns or return information under this paragraph on behalf 
     of the appropriate State officer.
       ``(D) Disclosures other than by request.--The Secretary may 
     make available for inspection or disclose returns and return 
     information of an organization to which paragraph (1) applies 
     to an appropriate State officer of any State if the Secretary 
     determines that such inspection or disclosure may facilitate 
     the resolution of State or Federal issues relating to the 
     tax-exempt status of such organization.
       ``(3) Use in administrative and judicial civil 
     proceedings.--Returns and return information disclosed 
     pursuant to this subsection may be disclosed in 
     administrative and judicial civil proceedings pertaining to 
     the enforcement of State laws regulating such organizations 
     in a manner prescribed by the Secretary similar to that for 
     tax administration proceedings under section 6103(h)(4).
       ``(4) No disclosure if impairment.--Returns and return 
     information shall not be disclosed under this subsection, or 
     in any proceeding described in paragraph (3), to the extent 
     that the Secretary determines that such disclosure would 
     seriously impair Federal tax administration.
       ``(5) Definitions.--For purposes of this subsection--
       ``(A) Return and return information.--The terms `return' 
     and `return information' have the respective meanings given 
     to such terms by section 6103(b).
       ``(B) Appropriate state officer.--The term `appropriate 
     State officer' means--
       ``(i) the State attorney general, or
       ``(ii) any other State official charged with overseeing 
     organizations of the type described in section 501(c)(3).''.
       (b) Conforming Amendments.--
       (1) Subparagraph (A) of section 6103(p)(3) is amended by 
     inserting ``and section 6104(c)'' after ``section'' in the 
     first sentence.
       (2) Paragraph (4) of section 6103(p) is amended--
       (A) in the matter preceding subparagraph (A), by inserting 
     ``, or any appropriate State officer (as defined in section 
     6104(c)),'' before ``or any other person'',
       (B) in subparagraph (F)(i), by inserting ``or any 
     appropriate State officer (as defined in section 6104(c)),'' 
     before ``or any other person'', and
       (C) in the matter following subparagraph (F), by inserting 
     ``, an appropriate State officer (as defined in section 
     6104(c)),'' after ``including an agency'' each place it 
     appears.
       (3) Paragraph (2) of section 7213(a) is amended by 
     inserting ``or under section 6104(c)'' after ``6103''.
       (4) Paragraph (2) of section 7213A(a) is amended by 
     inserting ``or 6104(c)'' after ``6103''.
       (5) Paragraph (2) of section 7431(a) is amended by 
     inserting ``(including any disclosure in violation of section 
     6104(c))'' after ``6103''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act 
     but shall not apply to requests made before such date.

     SEC. 351. CONFIDENTIALITY OF TAXPAYER COMMUNICATIONS WITH THE 
                   OFFICE OF THE TAXPAYER ADVOCATE.

       (a) In General.--Subsection (c) of section 7803 is amended 
     by adding at the end the following new paragraph:
       ``(5) Confidentiality of taxpayer information.--
       ``(A) In general.--To the extent authorized by the National 
     Taxpayer Advocate or pursuant to guidance issued under 
     subparagraph (B), any officer or employee of the Office of 
     the Taxpayer Advocate may withhold from the Internal Revenue 
     Service and the

[[Page H5578]]

     Department of Justice any information provided by, or 
     regarding contact with, any taxpayer.
       ``(B) Issuance of guidance.--In consultation with the Chief 
     Counsel for the Internal Revenue Service and subject to the 
     approval of the Commissioner of Internal Revenue, the 
     National Taxpayer Advocate may issue guidance regarding the 
     circumstances (including with respect to litigation) under 
     which, and the persons to whom, employees of the Office of 
     the Taxpayer Advocate shall not disclose information obtained 
     from a taxpayer. To the extent to which any provision of the 
     Internal Revenue Manual would require greater disclosure by 
     employees of the Office of the Taxpayer Advocate than the 
     disclosure required under such guidance, such provision shall 
     not apply.
       ``(C) Employee protection.--Section 7214(a)(8) shall not 
     apply to any failure to report knowledge or information if--
       ``(i) such failure to report is authorized under 
     subparagraph (A), and
       ``(ii) such knowledge or information is not of fraud 
     committed by a person against the United States under any 
     revenue law.''.
       (b) Conforming Amendment.--Subparagraph (A) of section 
     7803(c)(4) is amended by inserting ``and'' at the end of 
     clause (ii), by striking ``; and'' at the end of clause (iii) 
     and inserting a period, and by striking clause (iv).

                       Subtitle E--Miscellaneous

     SEC. 361. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.

       Subsection (i) of section 7611 (relating to section not to 
     apply to criminal investigations, etc.) is amended by 
     striking ``or'' at the end of paragraph (4), by striking the 
     period at the end of paragraph (5) and inserting ``, or'', 
     and by inserting after paragraph (5) the following:
       ``(6) information provided by the Secretary related to the 
     standards for exemption from tax under this title and the 
     requirements under this title relating to unrelated business 
     taxable income.''.

     SEC. 362. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-
                   EXEMPT ORGANIZATIONS.

       (a) In General.--Paragraph (1) of section 7428(a) (relating 
     to creation of remedy) is amended--
       (1) in subparagraph (B) by inserting after ``509(a))'' the 
     following: ``or as a private operating foundation (as defined 
     in section 4942(j)(3))''; and
       (2) by amending subparagraph (C) to read as follows:
       ``(C) with respect to the initial qualification or 
     continuing qualification of an organization as an 
     organization described in subsection (c) (other than 
     paragraph (3)) or (d) of section 501 which is exempt from tax 
     under section 501(a), or''.
       (b) Court Jurisdiction.--Subsection (a) of section 7428 is 
     amended in the material following paragraph (2) by striking 
     ``United States Tax Court, the United States Claims Court, or 
     the district court of the United States for the District of 
     Columbia'' and inserting the following: ``United States Tax 
     Court (in the case of any such determination or failure) or 
     the United States Claims Court or the district court of the 
     United States for the District of Columbia (in the case of a 
     determination or failure with respect to an issue referred to 
     in subparagraph (A) or (B) of paragraph (1)),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to pleadings filed with respect to determinations 
     (or requests for determinations) made after the date of the 
     enactment of this Act.

     SEC. 363. EMPLOYEE MISCONDUCT REPORT TO INCLUDE SUMMARY OF 
                   COMPLAINTS BY CATEGORY.

       (a) In General.--Clause (ii) of section 7803(d)(2)(A) is 
     amended by inserting before the semicolon at the end the 
     following: ``, including a summary (by category) of the 10 
     most common complaints made and the number of such common 
     complaints''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply with respect to reporting periods ending after 
     the date of the enactment of this Act.

     SEC. 364. ANNUAL REPORT ON AWARDS OF COSTS AND CERTAIN FEES 
                   IN ADMINISTRATIVE AND COURT PROCEEDINGS.

       Not later than 3 months after the close of each Federal 
     fiscal year after fiscal year 2003, the Treasury Inspector 
     General for Tax Administration shall submit a report to 
     Congress which specifies for such year--
       (1) the number of payments made by the United States 
     pursuant to section 7430 of the Internal Revenue Code of 1986 
     (relating to awarding of costs and certain fees);
       (2) the amount of each such payment;
       (3) an analysis of any administrative issue giving rise to 
     such payments; and
       (4) changes (if any) which will be implemented as a result 
     of such analysis and other changes (if any) recommended by 
     the Treasury Inspector General for Tax Administration as a 
     result of such analysis.

     SEC. 365. ANNUAL REPORT ON ABATEMENT OF PENALTIES.

       Not later than 6 months after the close of each Federal 
     fiscal year after fiscal year 2003, the Treasury Inspector 
     General for Tax Administration shall submit a report to 
     Congress on abatements of penalties under the Internal 
     Revenue Code of 1986 during such year, including information 
     on the reasons and criteria for such abatements.

     SEC. 366. BETTER MEANS OF COMMUNICATING WITH TAXPAYERS.

       Not later than 18 months after the date of the enactment of 
     this Act, the Treasury Inspector General for Tax 
     Administration shall submit a report to Congress evaluating 
     whether technological advances, such as e-mail and facsimile 
     transmission, permit the use of alternative means for the 
     Internal Revenue Service to communicate with taxpayers.

     SEC. 367. EXPLANATION OF STATUTE OF LIMITATIONS AND 
                   CONSEQUENCES OF FAILURE TO FILE.

       The Secretary of the Treasury or the Secretary's delegate 
     shall, as soon as practicable but not later than 180 days 
     after the date of the enactment of this Act, revise the 
     statement required by section 6227 of the Omnibus Taxpayer 
     Bill of Rights (Internal Revenue Service Publication No. 1), 
     and any instructions booklet accompanying a general income 
     tax return form for taxable years beginning after 2002 
     (including forms 1040, 1040A, 1040EZ, and any similar or 
     successor forms relating thereto), to provide for an 
     explanation of--
       (1) the limitations imposed by section 6511 of the Internal 
     Revenue Code of 1986 on credits and refunds; and
       (2) the consequences under such section 6511 of the failure 
     to file a return of tax.

     SEC. 368. AMENDMENT TO TREASURY AUCTION REFORMS.

       (a) In General.--Clause (i) of section 202(c)(4)(B) of the 
     Government Securities Act Amendments of 1993 (31 U.S.C. 3121 
     note) is amended by inserting before the semicolon ``(or, if 
     earlier, at the time the Secretary releases the minutes of 
     the meeting in accordance with paragraph (2))''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to meetings held after the date of the enactment 
     of this Act.

     SEC. 369. ENROLLED AGENTS.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7528. ENROLLED AGENTS.

       ``(a) In General.--The Secretary may prescribe such 
     regulations as may be necessary to regulate the conduct of 
     enrolled agents in regards to their practice before the 
     Internal Revenue Service.
       ``(b) Use of Credentials.--Any enrolled agents properly 
     licensed to practice as required under rules promulgated 
     under section (a) herein shall be allowed to use the 
     credentials or designation as `enrolled agent', `EA', or 
     `E.A.'.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     77 is amended by adding at the end the following new item:

``Sec. 7528. Enrolled agents.''.

       (c) Prior Regulations.--Nothing in the amendments made by 
     this section shall be construed to have any effect on part 10 
     of title 31, Code of Federal Regulations, or any other 
     Federal rule or regulation issued before the date of the 
     enactment of this Act.

     SEC. 370. FINANCIAL MANAGEMENT SERVICE FEES.

       Notwithstanding any other provision of law, the Financial 
     Management Service may charge the Internal Revenue Service, 
     and the Internal Revenue Service may pay the Financial 
     Management Service, a fee sufficient to cover the full cost 
     of implementing a continuous levy program under subsection 
     (h) of section 6331 of the Internal Revenue Code of 1986. Any 
     such fee shall be based on actual levies made and shall be 
     collected by the Financial Management Service by the 
     retention of a portion of amounts collected by levy pursuant 
     to that subsection. Amounts received by the Financial 
     Management Service as fees under that subsection shall be 
     deposited into the account of the Department of the Treasury 
     under section 3711(g)(7) of title 31, United States Code, and 
     shall be collected and accounted for in accordance with the 
     provisions of that section. The amount credited against the 
     taxpayer's liability on account of the continuous levy shall 
     be the amount levied, without reduction for the amount paid 
     to the Financial Management Service as a fee.

     SEC. 371. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7529. INTERNAL REVENUE SERVICE USER FEES.

       ``(a) General Rule.--The Secretary shall establish a 
     program requiring the payment of user fees for--
       ``(1) requests to the Internal Revenue Service for ruling 
     letters, opinion letters, and determination letters, and
       ``(2) other similar requests.
       ``(b) Program Criteria.--
       ``(1) In general.--The fees charged under the program 
     required by subsection (a)--
       ``(A) shall vary according to categories (or subcategories) 
     established by the Secretary,
       ``(B) shall be determined after taking into account the 
     average time for (and difficulty of) complying with requests 
     in each category (and subcategory), and
       ``(C) shall be payable in advance.
       ``(2) Exemptions, etc.--
       ``(A) In general.--The Secretary shall provide for such 
     exemptions (and reduced fees) under such program as the 
     Secretary determines to be appropriate.
       ``(B) Exemption for certain requests regarding pension 
     plans.--The Secretary shall not require payment of user fees 
     under such program for requests for determination

[[Page H5579]]

     letters with respect to the qualified status of a pension 
     benefit plan maintained solely by 1 or more eligible 
     employers or any trust which is part of the plan. The 
     preceding sentence shall not apply to any request--
       ``(i) made after the later of--

       ``(I) the fifth plan year the pension benefit plan is in 
     existence, or
       ``(II) the end of any remedial amendment period with 
     respect to the plan beginning within the first 5 plan years, 
     or

       ``(ii) made by the sponsor of any prototype or similar plan 
     which the sponsor intends to market to participating 
     employers.
       ``(C) Definitions and special rules.--For purposes of 
     subparagraph (B)--
       ``(i) Pension benefit plan.--The term `pension benefit 
     plan' means a pension, profit-sharing, stock bonus, annuity, 
     or employee stock ownership plan.
       ``(ii) Eligible employer.--The term `eligible employer' 
     means an eligible employer (as defined in section 
     408(p)(2)(C)(i)(I)) which has at least 1 employee who is not 
     a highly compensated employee (as defined in section 414(q)) 
     and is participating in the plan. The determination of 
     whether an employer is an eligible employer under 
     subparagraph (B) shall be made as of the date of the request 
     described in such subparagraph.
       ``(iii) Determination of average fees charged.--For 
     purposes of any determination of average fees charged, any 
     request to which subparagraph (B) applies shall not be taken 
     into account.
       ``(3) Average fee requirement.--The average fee charged 
     under the program required by subsection (a) shall not be 
     less than the amount determined under the following table:

                                                                Average
``Category                                                          Fee
  Employee plan ruling and opinion............................$250 ....

  Exempt organization ruling..................................$350 ....

  Employee plan determination.................................$300 ....

  Exempt organization determination...........................$275 ....

  Chief counsel ruling........................................$200.....

       ``(c) Termination.--No fee shall be imposed under this 
     section with respect to requests made after September 30, 
     2013.''.
       (b) Conforming Amendments.--
       (1) The table of sections for chapter 77 is amended by 
     adding at the end the following new item:

``Sec. 7529. Internal Revenue Service user fees.''.
       (2) Section 10511 of the Revenue Act of 1987 is repealed.
       (3) Section 620 of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is repealed.
       (c) Limitations.--Notwithstanding any other provision of 
     law, any fees collected pursuant to section 7527 of the 
     Internal Revenue Code of 1986, as added by subsection (a), 
     shall not be expended by the Internal Revenue Service unless 
     provided by an appropriations Act.
       (d) Effective Date.--The amendments made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.

                Subtitle F--Low-Income Taxpayer Clinics

     SEC. 381. LOW-INCOME TAXPAYER CLINICS.

       (a) Limitation on Amount of Grants.--Paragraph (1) of 
     section 7526(c) (relating to special rules and limitations) 
     is amended by striking ``$6,000,000 per year'' and inserting 
     ``$9,000,000 for 2004, $12,000,000 for 2005, and $15,000,000 
     for each year thereafter''.
       (b) Promotion of Clinics.--Section 7526(c) is amended by 
     adding at the end the following new paragraph:
       ``(6) Promotion of clinics.--The Secretary is authorized to 
     promote the benefits of and encourage the use of low-income 
     taxpayer clinics through the use of mass communications, 
     referrals, and other means.''.
       (c) Use of Grants for Overhead Expenses Prohibited.--
     Section 7526(c), as amended by subsection (b), is further 
     amended by adding at the end the following new paragraph:
       ``(7) Use of grants for overhead expenses prohibited.--No 
     grant made under this section may be used for the general 
     overhead expenses of any institution sponsoring a qualified 
     low-income taxpayer clinic.''.
       (d) Eligible Clinics.--
       (1) In general.--Paragraph (2) of section 7526(b) is 
     amended to read as follows:
       ``(2) Eligible clinic.--The term `eligible clinic' means--
       ``(A) any clinical program at an accredited law, business, 
     or accounting school in which students represent low-income 
     taxpayers in controversies arising under this title; and
       ``(B) any organization described in section 501(c) and 
     exempt from tax under section 501(a) which satisfies the 
     requirements of paragraph (1) through representation of 
     taxpayers or referral of taxpayers to qualified 
     representatives.''.
       (2) Conforming amendment.--Subparagraph (A) of section 
     7526(b)(1) is amended by striking ``means a clinic'' and 
     inserting ``means an eligible clinic''.

     SEC. 382. MATCHING GRANTS TO LOW INCOME RETURN PREPARATION 
                   CLINICS.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by inserting after section 7526 the 
     following new section:

     ``SEC. 7526A. LOW INCOME RETURN PREPARATION CLINICS.

       ``(a) In General.--The Secretary may, subject to the 
     availability of appropriated funds, make grants to provide 
     matching funds for the development, expansion, or 
     continuation of qualified return preparation clinics.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Qualified return preparation clinic.--
       ``(A) In general.--The term `qualified return preparation 
     clinic' means an eligible clinic which--
       ``(i) does not charge more than a nominal fee for its 
     services (except for reimbursement of actual costs incurred), 
     and
       ``(ii) operates programs which assist low-income taxpayers 
     in preparing and filing their Federal income tax returns, 
     including schedules reporting sole proprietorship or farm 
     income.
       ``(B) Assistance to low-income taxpayers.--A clinic is 
     treated as assisting low-income taxpayers under subparagraph 
     (A)(ii) if at least 90 percent of the taxpayers assisted by 
     the clinic have incomes which do not exceed 250 percent of 
     the poverty level, as determined in accordance with criteria 
     established by the Director of the Office of Management and 
     Budget.
       ``(2) Eligible clinic.--The term `eligible clinic' 
     includes--
       ``(A) a clinical program at an eligible educational 
     institution (as defined in section 529(e)(5)) which satisfies 
     the requirements of paragraph (1) through student assistance 
     of taxpayers in return preparation and filing, and
       ``(B) an organization described in section 501(c) and 
     exempt from tax under section 501(a) which satisfies the 
     requirements of paragraph (1).
       ``(c) Special Rules and Limitations.--
       ``(1) Aggregate limitation.--Unless otherwise provided by 
     specific appropriation, the Secretary shall not allocate more 
     than $10,000,000 per year (exclusive of costs of 
     administering the program) to grants under this section.
       ``(2) Other applicable rules.--Rules similar to the rules 
     under paragraphs (2) through (7) of section 7526(c) shall 
     apply with respect to the awarding of grants to qualified 
     return preparation clinics.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     77 is amended by inserting after the item relating to section 
     7526 the following new item:

``Sec. 7526A. Low income return preparation clinics.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to grants made after the date of the enactment of 
     this Act.

                       TITLE IV--CHILD TAX CREDIT

     SEC. 401. ACCELERATION OF INCREASE IN REFUNDABILITY OF THE 
                   CHILD TAX CREDIT.

       (a) Acceleration of Refundability.--
       (1) In general.--Section 24(d)(1)(B)(i) of the Internal 
     Revenue Code of 1986 (relating to portion of credit 
     refundable) is amended by striking ``(10 percent in the case 
     of taxable years beginning before January 1, 2005)''.
       (2) Advance payment.--Subsection (b) of section 6429 of 
     such Code (relating to advance payment of portion of 
     increased child credit for 2003) is amended by striking 
     ``and'' at the end of paragraph (2), by striking the period 
     at the end of paragraph (3) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(4) section 24(d)(1)(B)(i) applied without regard to the 
     first parenthetical therein.''.
       (3) Earned income includes combat pay.--Section 24(d)(1) of 
     such Code is amended by adding at the end the following new 
     sentence: ``For purposes of subparagraph (B), any amount 
     excluded from gross income by reason of section 112 shall be 
     treated as earned income which is taken into account in 
     computing taxable income for the taxable year.''.
       (b) Effective Dates.--
       (1) Subsections (a)(1) and (a)(3).--The amendments made by 
     subsections (a)(1) and (a)(3) shall apply to taxable years 
     beginning after December 31, 2002.
       (2) Subsection (a)(2).--The amendments made by subsection 
     (a)(2) shall take effect as if included in the amendments 
     made by section 101(b) of the Jobs and Growth Tax Relief 
     Reconciliation Act of 2003.

     SEC. 402. REDUCTION IN MARRIAGE PENALTY IN CHILD TAX CREDIT.

       (a) In General.--Section 24(b)(2) of the Internal Revenue 
     Code of 1986 (defining threshold amount) is amended--
       (1) by inserting ``($115,000 for taxable years beginning in 
     2008 or 2009, and $150,000 for taxable years beginning in 
     2010)'' after ``$110,000'', and
       (2) by striking ``$55,000'' in subparagraph (C) and 
     inserting ``\1/2\ of the amount in effect under subparagraph 
     (A)''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 403. APPLICATION OF EGTRRA SUNSET TO THIS SECTION.

       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 V--UNIFORM DEFINITION OF CHILD

     SEC. 501. UNIFORM DEFINITION OF CHILD, ETC.

       Section 152 of the Internal Revenue Code of 1986 is amended 
     to read as follows:

[[Page H5580]]

     ``SEC. 152. DEPENDENT DEFINED.

       ``(a) In General.--For purposes of this subtitle, the term 
     `dependent' means--
       ``(1) a qualifying child, or
       ``(2) a qualifying relative.
       ``(b) Exceptions.--For purposes of this section--
       ``(1) Dependents ineligible.--If an individual is a 
     dependent of a taxpayer for any taxable year of such taxpayer 
     beginning in a calendar year, such individual shall be 
     treated as having no dependents for any taxable year of such 
     individual beginning in such calendar year.
       ``(2) Married dependents.--An individual shall not be 
     treated as a dependent of a taxpayer under subsection (a) if 
     such individual has made a joint return with the individual's 
     spouse under section 6013 for the taxable year beginning in 
     the calendar year in which the taxable year of the taxpayer 
     begins.
       ``(3) Citizens or nationals of other countries.--
       ``(A) In general.--The term `dependent' does not include an 
     individual who is not a citizen or national of the United 
     States unless such individual is a resident of the United 
     States or a country contiguous to the United States.
       ``(B) Exception for adopted child.--Subparagraph (A) shall 
     not exclude any child of a taxpayer (within the meaning of 
     subsection (f)(1)(B)) from the definition of `dependent' if--
       ``(i) for the taxable year of the taxpayer, the child's 
     principal place of abode is the home of the taxpayer, and
       ``(ii) the taxpayer is a citizen or national of the United 
     States.
       ``(c) Qualifying Child.--For purposes of this section--
       ``(1) In general.--The term `qualifying child' means, with 
     respect to any taxpayer for any taxable year, an individual--
       ``(A) who bears a relationship to the taxpayer described in 
     paragraph (2),
       ``(B) who has the same principal place of abode as the 
     taxpayer for more than one-half of such taxable year,
       ``(C) who meets the age requirements of paragraph (3), and
       ``(D) who has not provided over one-half of such 
     individual's own support for the calendar year in which the 
     taxable year of the taxpayer begins.
       ``(2) Relationship test.--For purposes of paragraph (1)(A), 
     an individual bears a relationship to the taxpayer described 
     in this paragraph if such individual is--
       ``(A) a child of the taxpayer or a descendant of such a 
     child, or
       ``(B) a brother, sister, stepbrother, or stepsister of the 
     taxpayer or a descendant of any such relative.
       ``(3) Age requirements.--
       ``(A) In general.--For purposes of paragraph (1)(C), an 
     individual meets the requirements of this paragraph if such 
     individual--
       ``(i) has not attained the age of 19 as of the close of the 
     calendar year in which the taxable year of the taxpayer 
     begins, or
       ``(ii) is a student who has not attained the age of 24 as 
     of the close of such calendar year.
       ``(B) Special rule for disabled.--In the case of an 
     individual who is permanently and totally disabled (as 
     defined in section 22(e)(3)) at any time during such calendar 
     year, the requirements of subparagraph (A) shall be treated 
     as met with respect to such individual.
       ``(4) Special rule relating to 2 or more claiming 
     qualifying child.--
       ``(A) In general.--Except as provided in subparagraph (B) 
     and subsection (e), if (but for this paragraph) an individual 
     may be and is claimed as a qualifying child by 2 or more 
     taxpayers for a taxable year beginning in the same calendar 
     year, such individual shall be treated as the qualifying 
     child of the taxpayer who is--
       ``(i) a parent of the individual, or
       ``(ii) if clause (i) does not apply, the taxpayer with the 
     highest adjusted gross income for such taxable year.
       ``(B) More than 1 parent claiming qualifying child.--If the 
     parents claiming any qualifying child do not file a joint 
     return together, such child shall be treated as the 
     qualifying child of--
       ``(i) the parent with whom the child resided for the 
     longest period of time during the taxable year, or
       ``(ii) if the child resides with both parents for the same 
     amount of time during such taxable year, the parent with the 
     highest adjusted gross income.
       ``(d) Qualifying Relative.--For purposes of this section--
       ``(1) In general.--The term `qualifying relative' means, 
     with respect to any taxpayer for any taxable year, an 
     individual--
       ``(A) who bears a relationship to the taxpayer described in 
     paragraph (2),
       ``(B) whose gross income for the calendar year in which 
     such taxable year begins is less than the exemption amount 
     (as defined in section 151(d)),
       ``(C) with respect to whom the taxpayer provides over one-
     half of the individual's support for the calendar year in 
     which such taxable year begins, and
       ``(D) who is not a qualifying child of such taxpayer or of 
     any other taxpayer for any taxable year beginning in the 
     calendar year in which such taxable year begins.
       ``(2) Relationship.--For purposes of paragraph (1)(A), an 
     individual bears a relationship to the taxpayer described in 
     this paragraph if the individual is any of the following with 
     respect to the taxpayer:
       ``(A) A child or a descendant of a child.
       ``(B) A brother, sister, stepbrother, or stepsister.
       ``(C) The father or mother, or an ancestor of either.
       ``(D) A stepfather or stepmother.
       ``(E) A son or daughter of a brother or sister of the 
     taxpayer.
       ``(F) A brother or sister of the father or mother of the 
     taxpayer.
       ``(G) A son-in-law, daughter-in-law, father-in-law, mother-
     in-law, brother-in-law, or sister-in-law.
       ``(H) An individual (other than an individual who at any 
     time during the taxable year was the spouse, determined 
     without regard to section 7703, of the taxpayer) who, for the 
     taxable year of the taxpayer, has as such individual's 
     principal place of abode the home of the taxpayer and is a 
     member of the taxpayer's household.
       ``(3) Special rule relating to multiple support 
     agreements.--For purposes of paragraph (1)(C), over one-half 
     of the support of an individual for a calendar year shall be 
     treated as received from the taxpayer if--
       ``(A) no one person contributed over one-half of such 
     support,
       ``(B) over one-half of such support was received from 2 or 
     more persons each of whom, but for the fact that any such 
     person alone did not contribute over one-half of such 
     support, would have been entitled to claim such individual as 
     a dependent for a taxable year beginning in such calendar 
     year,
       ``(C) the taxpayer contributed over 10 percent of such 
     support, and
       ``(D) each person described in subparagraph (B) (other than 
     the taxpayer) who contributed over 10 percent of such support 
     files a written declaration (in such manner and form as the 
     Secretary may by regulations prescribe) that such person will 
     not claim such individual as a dependent for any taxable year 
     beginning in such calendar year.
       ``(4) Special rule relating to income of handicapped 
     dependents.--
       ``(A) In general.--For purposes of paragraph (1)(B), the 
     gross income of an individual who is permanently and totally 
     disabled (as defined in section 22(e)(3)) at any time during 
     the taxable year shall not include income attributable to 
     services performed by the individual at a sheltered workshop 
     if--
       ``(i) the availability of medical care at such workshop is 
     the principal reason for the individual's presence there, and
       ``(ii) the income arises solely from activities at such 
     workshop which are incident to such medical care.
       ``(B) Sheltered workshop defined.--For purposes of 
     subparagraph (A), the term `sheltered workshop' means a 
     school--
       ``(i) which provides special instruction or training 
     designed to alleviate the disability of the individual, and
       ``(ii) which is operated by an organization described in 
     section 501(c)(3) and exempt from tax under section 501(a), 
     or by a State, a possession of the United States, any 
     political subdivision of any of the foregoing, the United 
     States, or the District of Columbia.
       ``(5) Special support test in case of students.--For 
     purposes of paragraph (1)(C), in the case of an individual 
     who is--
       ``(A) a child of the taxpayer, and
       ``(B) a student,
     amounts received as scholarships for study at an educational 
     organization described in section 170(b)(1)(A)(ii) shall not 
     be taken into account in determining whether such individual 
     received more than one-half of such individual's support from 
     the taxpayer.
       ``(6) Special rules for support.--For purposes of this 
     subsection--
       ``(A) payments to a spouse which are includible in the 
     gross income of such spouse under section 71 or 682 shall not 
     be treated as a payment by the payor spouse for the support 
     of any dependent,
       ``(B) amounts expended for the support of a child or 
     children shall be treated as received from the noncustodial 
     parent (as defined in subsection (e)(3)(B)) to the extent 
     that such parent provided amounts for such support, and
       ``(C) in the case of the remarriage of a parent, support of 
     a child received from the parent's spouse shall be treated as 
     received from the parent.
       ``(e) Special Rule for Divorced Parents.--
       ``(1) In general.--Notwithstanding subsection (c)(4) or 
     (d)(1)(C), if--
       ``(A) a child receives over one-half of the child's support 
     during the calendar year from the child's parents--
       ``(i) who are divorced or legally separated under a decree 
     of divorce or separate maintenance,
       ``(ii) who are separated under a written separation 
     agreement, or
       ``(iii) who live apart at all times during the last 6 
     months of the calendar year, and
       ``(B) such child is in the custody of 1 or both of the 
     child's parents for more than \1/2\ of the calendar year,
     such child shall be treated as being the qualifying child or 
     qualifying relative of the noncustodial parent for a calendar 
     year if the requirements described in paragraph (2) are met.
       ``(2) Requirements.--For purposes of paragraph (1), the 
     requirements described in this paragraph are met if--
       ``(A) a decree of divorce or separate maintenance or 
     written separation agreement between the parents applicable 
     to the taxable year beginning in such calendar year provides 
     that--

[[Page H5581]]

       ``(i) the noncustodial parent shall be entitled to any 
     deduction allowable under section 151 for such child, or
       ``(ii) the custodial parent will sign a written declaration 
     (in such manner and form as the Secretary may prescribe) that 
     such parent will not claim such child as a dependent for such 
     taxable year, and
       ``(B) in the case of such an agreement executed before 
     January 1, 1985, the noncustodial parent provides at least 
     $600 for the support of such child during such calendar year.
       ``(3) Custodial parent and noncustodial parent.--For 
     purposes of this subsection--
       ``(A) Custodial parent.--The term `custodial parent' means 
     the parent with whom a child shared the same principal place 
     of abode for the greater portion of the calendar year.
       ``(B) Noncustodial parent.--The term `noncustodial parent' 
     means the parent who is not the custodial parent.
       ``(4) Exception for multiple-support agreements.--This 
     subsection shall not apply in any case where over one-half of 
     the support of the child is treated as having been received 
     from a taxpayer under the provision of subsection (d)(3).
       ``(f) Other Definitions and Rules.--For purposes of this 
     section--
       ``(1) Child defined.--
       ``(A) In general.--The term `child' means an individual who 
     is--
       ``(i) a son, daughter, stepson, or stepdaughter of the 
     taxpayer, or
       ``(ii) an eligible foster child of the taxpayer.
       ``(B) Adopted child.--In determining whether any of the 
     relationships specified in subparagraph (A)(i) or paragraph 
     (4) exists, a legally adopted individual of the taxpayer, or 
     an individual who is placed with the taxpayer by an 
     authorized placement agency for adoption by the taxpayer, 
     shall be treated as a child of such individual by blood.
       ``(C) Eligible foster child.--For purposes of subparagraph 
     (A)(ii), the term `eligible foster child' means an individual 
     who is placed with the taxpayer by an authorized placement 
     agency or by judgment, decree, or other order of any court of 
     competent jurisdiction.
       ``(2) Student defined.--The term `student' means an 
     individual who during each of 5 calendar months during the 
     calendar year in which the taxable year of the taxpayer 
     begins--
       ``(A) is a full-time student at an educational organization 
     described in section 170(b)(1)(A)(ii), or
       ``(B) is pursuing a full-time course of institutional on-
     farm training under the supervision of an accredited agent of 
     an educational organization described in section 
     170(b)(1)(A)(ii) or of a State or political subdivision of a 
     State.
       ``(3) Place of abode.--An individual shall not be treated 
     as having the same principal place of abode of the taxpayer 
     if at any time during the taxable year of the taxpayer the 
     relationship between the individual and the taxpayer is in 
     violation of local law.
       ``(4) Brother and sister.--The terms `brother' and `sister' 
     include a brother or sister by the half blood.
       ``(5) Treatment of missing children.--
       ``(A) In general.--Solely for the purposes referred to in 
     subparagraph (B), a child of the taxpayer--
       ``(i) who is presumed by law enforcement authorities to 
     have been kidnapped by someone who is not a member of the 
     family of such child or the taxpayer, and
       ``(ii) who had, for the taxable year in which the 
     kidnapping occurred, the same principal place of abode as the 
     taxpayer for more than one-half of the portion of such year 
     before the date of the kidnapping,
     shall be treated as meeting the requirement of subsection 
     (c)(1)(B) with respect to a taxpayer for all taxable years 
     ending during the period that the individual is kidnapped.
       ``(B) Purposes.--Subparagraph (A) shall apply solely for 
     purposes of determining--
       ``(i) the deduction under section 151(c),
       ``(ii) the credit under section 24 (relating to child tax 
     credit),
       ``(iii) whether an individual is a surviving spouse or a 
     head of a household (as such terms are defined in section 2), 
     and
       ``(iv) the earned income credit under section 32.
       ``(C) Comparable treatment of certain qualifying 
     relatives.--For purposes of this section, a child of the 
     taxpayer--
       ``(i) who is presumed by law enforcement authorities to 
     have been kidnapped by someone who is not a member of the 
     family of such child or the taxpayer, and
       ``(ii) who was (without regard to this paragraph) a 
     qualifying relative of the taxpayer for the portion of the 
     taxable year before the date of the kidnapping,
     shall be treated as a qualifying relative of the taxpayer for 
     all taxable years ending during the period that the child is 
     kidnapped.
       ``(D) Termination of treatment.--Subparagraphs (A) and (C) 
     shall cease to apply as of the first taxable year of the 
     taxpayer beginning after the calendar year in which there is 
     a determination that the child is dead (or, if earlier, in 
     which the child would have attained age 18).
       ``(6) Cross references.--

``For provision treating child as dependent of both parents for 
purposes of certain provisions, see sections 105(b), 132(h)(2)(B), and 
213(d)(5).''.

     SEC. 502. MODIFICATIONS OF DEFINITION OF HEAD OF HOUSEHOLD.

       (a) Head of Household.--Clause (i) of section 2(b)(1)(A) of 
     the Internal Revenue Code of 1986 is amended to read as 
     follows:
       ``(i) a qualifying child of the individual (as defined in 
     section 152(c), determined without regard to section 152(e)), 
     but not if such child--

       ``(I) is married at the close of the taxpayer's taxable 
     year, and
       ``(II) is not a dependent of such individual by reason of 
     section 152(b)(2) or 152(b)3), or both, or''.

       (b) Conforming Amendments.--
       (1) Section 2(b)(2) of the Internal Revenue Code of 1986 is 
     amended by striking subparagraph (A) and by redesignating 
     subparagraphs (B), (C), and (D) as subparagraphs (A), (B), 
     and (C), respectively.
       (2) Clauses (i) and (ii) of section 2(b)(3)(B) of such Code 
     are amended to read as follows:
       ``(i) subparagraph (H) of section 152(d)(2), or
       ``(ii) paragraph (3) of section 152(d).''.

     SEC. 503. MODIFICATIONS OF DEPENDENT CARE CREDIT.

       (a) In General.--Section 21(a)(1) of the Internal Revenue 
     Code of 1986 is amended by striking ``In the case of an 
     individual who maintains a household which includes as a 
     member one or more qualifying individuals (as defined in 
     subsection (b)(1))'' and inserting ``In the case of an 
     individual for which there are 1 or more qualifying 
     individuals (as defined in subsection (b)(1)) with respect to 
     such individual''.
       (b) Qualifying Individual.--Paragraph (1) of section 21(b) 
     of the Internal Revenue Code of 1986 is amended to read as 
     follows:
       ``(1) Qualifying individual.--The term `qualifying 
     individual' means--
       ``(A) a dependent of the taxpayer (as defined in section 
     152(a)(1)) who has not attained age 13,
       ``(B) a dependent of the taxpayer who is physically or 
     mentally incapable of caring for himself or herself and who 
     has the same principal place of abode as the taxpayer for 
     more than one-half of such taxable year, or
       ``(C) the spouse of the taxpayer, if the spouse is 
     physically or mentally incapable of caring for himself or 
     herself and who has the same principal place of abode as the 
     taxpayer for more than one-half of such taxable year.''.
       (c) Conforming Amendment.--Paragraph (1) of section 21(e) 
     of the Internal Revenue Code of 1986 is amended to read as 
     follows:
       ``(1) Place of abode.--An individual shall not be treated 
     as having the same principal place of abode of the taxpayer 
     if at any time during the taxable year of the taxpayer the 
     relationship between the individual and the taxpayer is in 
     violation of local law.''.

     SEC. 504. MODIFICATIONS OF CHILD TAX CREDIT.

       (a) In General.--Paragraph (1) of section 24(c) of the 
     Internal Revenue Code of 1986 is amended to read as follows:
       ``(1) In general.--The term `qualifying child' means a 
     qualifying child of the taxpayer (as defined in section 
     152(c)) who has not attained age 17.''.
       (b) Conforming Amendment.--Section 24(c)(2) of the Internal 
     Revenue Code of 1986 is amended by striking ``the first 
     sentence of section 152(b)(3)'' and inserting ``subparagraph 
     (A) of section 152(b)(3)''.

     SEC. 505. MODIFICATIONS OF EARNED INCOME CREDIT.

       (a) Qualifying Child.--Paragraph (3) of section 32(c) of 
     the Internal Revenue Code of 1986 is amended to read as 
     follows:
       ``(3) Qualifying child.--
       ``(A) In general.--The term `qualifying child' means a 
     qualifying child of the taxpayer (as defined in section 
     152(c), determined without regard to paragraph (1)(D) thereof 
     and section 152(e)).
       ``(B) Married individual.--The term `qualifying child' 
     shall not include an individual who is married as of the 
     close of the taxpayer's taxable year unless the taxpayer is 
     entitled to a deduction under section 151 for such taxable 
     year with respect to such individual (or would be so entitled 
     but for section 152(e)).
       ``(C) Place of abode.--For purposes of subparagraph (A), 
     the requirements of section 152(c)(1)(B) shall be met only if 
     the principal place of abode is in the United States.
       ``(D) Identification requirements.--
       ``(i) In general.--A qualifying child shall not be taken 
     into account under subsection (b) unless the taxpayer 
     includes the name, age, and TIN of the qualifying child on 
     the return of tax for the taxable year.
       ``(ii) Other methods.--The Secretary may prescribe other 
     methods for providing the information described in clause 
     (i).''.
       (b) Conforming Amendments.--
       (1) Section 32(c)(1) of the Internal Revenue Code of 1986 
     is amended by striking subparagraph (C) and by redesignating 
     subparagraphs (D), (E), (F), and (G) as subparagraphs (C), 
     (D), (E), and (F), respectively.
       (2) Section 32(c)(4) of such Code is amended by striking 
     ``(3)(E)'' and inserting ``(3)(C)''.
       (3) Section 32(m) of such Code is amended by striking 
     ``subsections (c)(1)(F)'' and inserting ``subsections 
     (c)(1)(E)''.

     SEC. 506. MODIFICATIONS OF DEDUCTION FOR PERSONAL EXEMPTION 
                   FOR DEPENDENTS.

       Subsection (c) of section 151 of the Internal Revenue Code 
     of 1986 is amended to read as follows:
       ``(c) Additional Exemption for Dependents.--An exemption of 
     the exemption amount for each individual who is a dependent 
     (as defined in section 152) of the taxpayer for the taxable 
     year.''.

     SEC. 507. TECHNICAL AND CONFORMING AMENDMENTS.

       (1) Section 2(a)(1)(B)(i) of such Code is amended by 
     inserting ``, determined without

[[Page H5582]]

     regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof'' 
     after ``section 152''.
       (2) Section 21(e)(5) of the Internal Revenue Code of 1986 
     is amended--
       (A) by striking ``paragraph (2) or (4) of'' in subparagraph 
     (A), and
       (B) by striking ``within the meaning of section 152(e)(1)'' 
     and inserting ``as defined in section 152(e)(3)(A)''.
       (3) Section 21(e)(6)(B) of such Code is amended by striking 
     ``section 151(c)(3)'' and inserting ``section 152(f)(1)''.
       (4) Section 25B(c)(2)(B) of such Code is amended by 
     striking ``151(c)(4)'' and inserting ``152(f)(2)''.
       (5)(A) Subparagraphs (A) and (B) of section 51(i)(1) of 
     such Code are each amended by striking ``paragraphs (1) 
     through (8) of section 152(a)'' both places it appears and 
     inserting ``subparagraphs (A) through (G) of section 
     152(d)(2)''.
       (B) Section 51(i)(1)(C) of such Code is amended by striking 
     ``152(a)(9)'' and inserting ``152(d)(2)(H)''.
       (6) Section 72(t)(2)(D)(i)(III) of such Code is amended by 
     inserting ``, determined without regard to subsections 
     (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 
     152''.
       (7) Section 72(t)(7)(A)(iii) of such Code is amended by 
     striking ``151(c)(3)'' and inserting ``152(f)(1)''.
       (8) Section 42(i)(3)(D)(ii)(I) of such Code is amended by 
     inserting ``, determined without regard to subsections 
     (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 
     152''.
       (9) Subsections (b) and (c)(1) of section 105 of such Code 
     are amended by inserting ``, determined without regard to 
     subsections (b)(1), (b)(2), and (d)(1)(B) thereof'' after 
     ``section 152''.
       (10) Section 120(d)(4) of such Code is amended by inserting 
     ``(determined without regard to subsections (b)(1), (b)(2), 
     and (d)(1)(B) thereof)'' after ``section 152''.
       (11) Section 125(e)(1)(D) of such Code is amended by 
     inserting ``, determined without regard to subsections 
     (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 
     152''.
       (12) Section 129(c)(2) of such Code is amended by striking 
     ``151(c)(3)'' and inserting ``152(f)(1)''.
       (13) The first sentence of section 132(h)(2)(B) of such 
     Code is amended by striking ``151(c)(3)'' and inserting 
     ``152(f)(1)''.
       (14) Section 153 of such Code is amended by striking 
     paragraph (1) and by redesignating paragraphs (2), (3), and 
     (4) as paragraphs (1), (2), and (3), respectively.
       (15) Section 170(g)(1) of such Code is amended by inserting 
     ``(determined without regard to subsections (b)(1), (b)(2), 
     and (d)(1)(B) thereof)'' after ``section 152''.
       (16) Section 170(g)(3) of such Code is amended by striking 
     ``paragraphs (1) through (8) of section 152(a)'' and 
     inserting ``subparagraphs (A) through (G) of section 
     152(d)(2)''.
       (17) Section 213(a) of such Code is amended by inserting 
     ``, determined without regard to subsections (b)(1), (b)(2), 
     and (d)(1)(B) thereof'' after ``section 152''.
       (18) The second sentence of section 213(d)(11) of such Code 
     is amended by striking ``paragraphs (1) through (8) of 
     section 152(a)'' and inserting ``subparagraphs (A) through 
     (G) of section 152(d)(2)''.
       (19) Section 220(d)(2)(A) of such Code is amended by 
     inserting ``, determined without regard to subsections 
     (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 
     152''.
       (20) Section 221(d)(4) of such Code is amended by inserting 
     ``(determined without regard to subsections (b)(1), (b)(2), 
     and (d)(1)(B) thereof)'' after ``section 152''.
       (21) Section 529(e)(2)(B) of such Code is amended by 
     striking ``paragraphs (1) through (8) of section 152(a)'' and 
     inserting ``subparagraphs (A) through (G) of section 
     152(d)(2)''.
       (22) Section 2032A(c)(7)(D) of such Code is amended by 
     striking ``section 151(c)(4)'' and inserting ``section 
     152(f)(2)''.
       (23) Section 2057(d)(2)(B) of such Code is amended by 
     inserting ``, determined without regard to subsections 
     (b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 
     152''.
       (24) Section 7701(a)(17) of such Code is amended by 
     striking ``152(b)(4), 682,'' and inserting ``682''.
       (25) Section 7702B(f)(2)(C)(iii) of such Code is amended by 
     striking ``paragraphs (1) through (8) of section 152(a)'' and 
     inserting ``subparagraphs (A) through (G) of section 
     152(d)(2)''.
       (26) Section 7703(b)(1) of such Code is amended--
       (A) by striking ``151(c)(3)'' and inserting ``152(f)(1)'', 
     and
       (B) by striking ``paragraph (2) or (4) of''.

     SEC. 508. EFFECTIVE DATE.

       The amendments made by this title shall apply to taxable 
     years beginning after December 31, 2003.

         TITLE VI--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

     SEC. 601. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                   RESIDENCE BY A MEMBER OF THE UNIFORMED SERVICES 
                   OR THE FOREIGN SERVICE.

       (a) In General.--Subsection (d) of section 121 (relating to 
     exclusion of gain from sale of principal residence) is 
     amended by redesignating paragraph (9) as paragraph (10) and 
     by inserting after paragraph (8) the following new paragraph:
       ``(9) Members of uniformed services and foreign service.--
       ``(A) In general.--At the election of an individual with 
     respect to a property, the running of the 5-year period 
     described in subsections (a) and (c)(1)(B) and paragraph (7) 
     of this subsection with respect to such property shall be 
     suspended during any period that such individual or such 
     individual's spouse is serving on qualified official extended 
     duty as a member of the uniformed services or of the Foreign 
     Service of the United States.
       ``(B) Maximum period of suspension.--The 5-year period 
     described in subsection (a) shall not be extended more than 
     10 years by reason of subparagraph (A).
       ``(C) Qualified official extended duty.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified official extended 
     duty' means any extended duty while serving at a duty station 
     which is at least 50 miles from such property or while 
     residing under Government orders in Government quarters.
       ``(ii) Uniformed services.--The term `uniformed services' 
     has the meaning given such term by section 101(a)(5) of title 
     10, United States Code, as in effect on the date of the 
     enactment of this paragraph.
       ``(iii) Foreign service of the united states.--The term 
     `member of the Foreign Service of the United States' has the 
     meaning given the term `member of the Service' by paragraph 
     (1), (2), (3), (4), or (5) of section 103 of the Foreign 
     Service Act of 1980, as in effect on the date of the 
     enactment of this paragraph.
       ``(iv) Extended duty.--The term `extended duty' means any 
     period of active duty pursuant to a call or order to such 
     duty for a period in excess of 90 days or for an indefinite 
     period.
       ``(D) Special rules relating to election.--
       ``(i) Election limited to 1 property at a time.--An 
     election under subparagraph (A) with respect to any property 
     may not be made if such an election is in effect with respect 
     to any other property.
       ``(ii) Revocation of election.--An election under 
     subparagraph (A) may be revoked at any time.''.
       (b) Effective Date; Special Rule.--
       (1) Effective date.--The amendments made by this section 
     shall take effect as if included in the amendments made by 
     section 312 of the Taxpayer Relief Act of 1997.
       (2) Waiver of limitations.--If refund or credit of any 
     overpayment of tax resulting from the amendments made by this 
     section is prevented at any time before the close of the 1-
     year period beginning on the date of the enactment of this 
     Act 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.

     SEC. 602. EXCLUSION FROM GROSS INCOME OF CERTAIN DEATH 
                   GRATUITY PAYMENTS.

       (a) In General.--Subsection (b)(3) of section 134 (relating 
     to certain military benefits) is amended by adding at the end 
     the following new subparagraph:
       ``(C) Exception for death gratuity adjustments made by 
     law.--Subparagraph (A) shall not apply to any adjustment to 
     the amount of death gratuity payable under chapter 75 of 
     title 10, United States Code, which is pursuant to a 
     provision of law enacted after September 9, 1986.''.
       (b) Conforming Amendment.--Subparagraph (A) of section 
     134(b)(3) is amended by striking ``subparagraph (B)'' and 
     inserting ``subparagraphs (B) and (C)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to deaths occurring after September 
     10, 2001.

     SEC. 603. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF 
                   DEFENSE HOMEOWNERS ASSISTANCE PROGRAM.

       (a) In General.--Section 132(a) (relating to the exclusion 
     from gross income of certain fringe benefits) is amended by 
     striking ``or'' at the end of paragraph (6), by striking the 
     period at the end of paragraph (7) and inserting ``, or'', 
     and by adding at the end the following new paragraph:
       ``(8) qualified military base realignment and closure 
     fringe.''.
       (b) Qualified Military Base Realignment and Closure 
     Fringe.--Section 132 is amended by redesignating subsection 
     (n) as subsection (o) and by inserting after subsection (m) 
     the following new subsection:
       ``(n) Qualified Military Base Realignment and Closure 
     Fringe.--For purposes of this section--
       ``(1) In general.--The term `qualified military base 
     realignment and closure fringe' means 1 or more payments 
     under the authority of section 1013 of the Demonstration 
     Cities and Metropolitan Development Act of 1966 (42 U.S.C. 
     3374) (as in effect on the date of the enactment of this 
     subsection) to offset the adverse effects on housing values 
     as a result of a military base realignment or closure.
       ``(2) Limitation.--With respect to any property, such term 
     shall not include any payment referred to in paragraph (1) to 
     the extent that the sum of all of such payments related to 
     such property exceeds the maximum amount described in clause 
     (1) of subsection (c) of such section (as in effect on such 
     date).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made after the date of the enactment 
     of this Act.

     SEC. 604. EXPANSION OF COMBAT ZONE FILING RULES TO 
                   CONTINGENCY OPERATIONS.

       (a) In General.--Section 7508(a) (relating to time for 
     performing certain acts postponed by reason of service in 
     combat zone) is amended--

[[Page H5583]]

       (1) by inserting ``, or when deployed outside the United 
     States away from the individual's permanent duty station 
     while participating in an operation designated by the 
     Secretary of Defense as a contingency operation (as defined 
     in section 101(a)(13) of title 10, United States Code) or 
     which became such a contingency operation by operation of 
     law'' after ``section 112'',
       (2) by inserting in the first sentence ``or at any time 
     during the period of such contingency operation'' after ``for 
     purposes of such section'',
       (3) by inserting ``or operation'' after ``such an area'', 
     and
       (4) by inserting ``or operation'' after ``such area''.
       (b) Conforming Amendments.--
       (1) Section 7508(d) is amended by inserting ``or 
     contingency operation'' after ``area''.
       (2) The heading for section 7508 is amended by inserting 
     ``or contingency operation'' after ``combat zone''.
       (3) The item relating to section 7508 in the table of 
     sections for chapter 77 is amended by inserting ``or 
     contingency operation'' after ``combat zone''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any period for performing an act which has not 
     expired before the date of the enactment of this Act.

     SEC. 605. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR 
                   EXEMPTION FROM TAX FOR CERTAIN VETERANS' 
                   ORGANIZATIONS.

       (a) In General.--Subparagraph (B) of section 501(c)(19) 
     (relating to list of exempt organizations) is amended by 
     striking ``or widowers'' and inserting ``, widowers, 
     ancestors, or lineal descendants''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 606. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT 
                   CARE ASSISTANCE PROGRAMS.

       (a) In General.--Section 134(b) (defining qualified 
     military benefit) is amended by adding at the end the 
     following new paragraph:
       ``(4) Clarification of certain benefits.--For purposes of 
     paragraph (1), such term includes any dependent care 
     assistance program (as in effect on the date of the enactment 
     of this paragraph) for any individual described in paragraph 
     (1)(A).''.
       (b) Conforming Amendments.--
       (1) Section 134(b)(3)(A), as amended by section 602, is 
     amended by inserting ``and paragraph (4)'' after 
     ``subparagraphs (B) and (C)''.
       (2) Section 3121(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (3) Section 3306(b)(13) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (4) Section 3401(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
       (d) No Inference.--No inference may be drawn from the 
     amendments made by this section with respect to the tax 
     treatment of any amounts under the program described in 
     section 134(b)(4) of the Internal Revenue Code of 1986 (as 
     added by this section) for any taxable year beginning before 
     January 1, 2003.

     SEC. 607. CLARIFICATION RELATING TO EXCEPTION FROM ADDITIONAL 
                   TAX ON CERTAIN DISTRIBUTIONS FROM QUALIFIED 
                   TUITION PROGRAMS, ETC. ON ACCOUNT OF ATTENDANCE 
                   AT MILITARY ACADEMY.

       (a) In General.--Subparagraph (B) of section 530(d)(4) 
     (relating to exceptions from additional tax for distributions 
     not used for educational purposes) is amended by striking 
     ``or'' at the end of clause (iii), by redesignating clause 
     (iv) as clause (v), and by inserting after clause (iii) the 
     following new clause:
       ``(iv) made on account of the attendance of the designated 
     beneficiary at the United States Military Academy, the United 
     States Naval Academy, the United States Air Force Academy, 
     the United States Coast Guard Academy, or the United States 
     Merchant Marine Academy, to the extent that the amount of the 
     payment or distribution does not exceed the costs of advanced 
     education (as defined by section 2005(e)(3) of title 10, 
     United States Code, as in effect on the date of the enactment 
     of this section) attributable to such attendance, or''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 608. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST 
                   ORGANIZATIONS.

       (a) In General.--Section 501 (relating to exemption from 
     tax on corporations, certain trusts, etc.) is amended by 
     redesignating subsection (p) as subsection (q) and by 
     inserting after subsection (o) the following new subsection:
       ``(p) Suspension of Tax-Exempt Status of Terrorist 
     Organizations.--
       ``(1) In general.--The exemption from tax under subsection 
     (a) with respect to any organization described in paragraph 
     (2), and the eligibility of any organization described in 
     paragraph (2) to apply for recognition of exemption under 
     subsection (a), shall be suspended during the period 
     described in paragraph (3).
       ``(2) Terrorist organizations.--An organization is 
     described in this paragraph if such organization is 
     designated or otherwise individually identified--
       ``(A) under section 212(a)(3)(B)(vi)(II) or 219 of the 
     Immigration and Nationality Act as a terrorist organization 
     or foreign terrorist organization,
       ``(B) in or pursuant to an Executive order which is related 
     to terrorism and issued under the authority of the 
     International Emergency Economic Powers Act or section 5 of 
     the United Nations Participation Act of 1945 for the purpose 
     of imposing on such organization an economic or other 
     sanction, or
       ``(C) in or pursuant to an Executive order issued under the 
     authority of any Federal law if--
       ``(i) the organization is designated or otherwise 
     individually identified in or pursuant to such Executive 
     order as supporting or engaging in terrorist activity (as 
     defined in section 212(a)(3)(B) of the Immigration and 
     Nationality Act) or supporting terrorism (as defined in 
     section 140(d)(2) of the Foreign Relations Authorization Act, 
     Fiscal Years 1988 and 1989); and
       ``(ii) such Executive order refers to this subsection.
       ``(3) Period of suspension.--With respect to any 
     organization described in paragraph (2), the period of 
     suspension--
       ``(A) begins on the later of--
       ``(i) the date of the first publication of a designation or 
     identification described in paragraph (2) with respect to 
     such organization, or
       ``(ii) the date of the enactment of this subsection, and
       ``(B) ends on the first date that all designations and 
     identifications described in paragraph (2) with respect to 
     such organization are rescinded pursuant to the law or 
     Executive order under which such designation or 
     identification was made.
       ``(4) Denial of deduction.--No deduction shall be allowed 
     under any provision of this title, including sections 170, 
     545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), and 2522, 
     with respect to any contribution to an organization described 
     in paragraph (2) during the period described in paragraph 
     (3).
       ``(5) Denial of administrative or judicial challenge of 
     suspension or denial of deduction.--Notwithstanding section 
     7428 or any other provision of law, no organization or other 
     person may challenge a suspension under paragraph (1), a 
     designation or identification described in paragraph (2), the 
     period of suspension described in paragraph (3), or a denial 
     of a deduction under paragraph (4) in any administrative or 
     judicial proceeding relating to the Federal tax liability of 
     such organization or other person.
       ``(6) Erroneous designation.--
       ``(A) In general.--If--
       ``(i) the tax exemption of any organization described in 
     paragraph (2) is suspended under paragraph (1),
       ``(ii) each designation and identification described in 
     paragraph (2) which has been made with respect to such 
     organization is determined to be erroneous pursuant to the 
     law or Executive order under which such designation or 
     identification was made, and
       ``(iii) the erroneous designations and identifications 
     result in an overpayment of income tax for any taxable year 
     by such organization,
     credit or refund (with interest) with respect to such 
     overpayment shall be made.
       ``(B) Waiver of limitations.--If the credit or refund of 
     any overpayment of tax described in subparagraph (A)(iii) is 
     prevented at any time by the operation of any law or rule of 
     law (including res judicata), such credit or refund may 
     nevertheless be allowed or made if the claim therefor is 
     filed before the close of the 1-year period beginning on the 
     date of the last determination described in subparagraph 
     (A)(ii).
       ``(7) Notice of Suspensions.--If the tax exemption of any 
     organization is suspended under this subsection, the Internal 
     Revenue Service shall update the listings of tax-exempt 
     organizations and shall publish appropriate notice to 
     taxpayers of such suspension and of the fact that 
     contributions to such organization are not deductible during 
     the period of such suspension.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to designations made before, on, or after the 
     date of the enactment of this Act.

     SEC. 609. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT TRAVEL 
                   EXPENSES OF NATIONAL GUARD AND RESERVE MEMBERS.

       (a) Deduction Allowed.--Section 162 (relating to certain 
     trade or business expenses) is amended by redesignating 
     subsection (p) as subsection (q) and inserting after 
     subsection (o) the following new subsection:
       ``(p) Treatment of Expenses of Members of Reserve Component 
     of Armed Forces of the United States.--For purposes of 
     subsection (a)(2), in the case of an individual who performs 
     services as a member of a reserve component of the Armed 
     Forces of the United States at any time during the taxable 
     year, such individual shall be deemed to be away from home in 
     the pursuit of a trade or business for any period during 
     which such individual is away from home in connection with 
     such service.''.
       (b) Deduction Allowed Whether or Not Taxpayer Elects To 
     Itemize.--Section 62(a)(2) (relating to certain trade and 
     business deductions of employees) is amended by adding at the 
     end the following new subparagraph:
       ``(E) Certain expenses of members of reserve components of 
     the armed forces of the united states.--The deductions 
     allowed by section 162 which consist of expenses, determined 
     at a rate not in excess of the rates

[[Page H5584]]

     for travel expenses (including per diem in lieu of 
     subsistence) authorized for employees of agencies under 
     subchapter I of chapter 57 of title 5, United States Code, 
     paid or incurred by the taxpayer in connection with the 
     performance of services by such taxpayer as a member of a 
     reserve component of the Armed Forces of the United States 
     for any period during which such individual is more than 100 
     miles away from home in connection with such services.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 2002.

     SEC. 610. TAX RELIEF AND ASSISTANCE FOR FAMILIES OF SPACE 
                   SHUTTLE COLUMBIA HEROES.

       (a) Income Tax Relief.--
       (1) In general.--Subsection (d) of section 692 (relating to 
     income taxes of members of Armed Forces and victims of 
     certain terrorist attacks on death) is amended by adding at 
     the end the following new paragraph:
       ``(5) Relief with respect to astronauts.--The provisions of 
     this subsection shall apply to any astronaut whose death 
     occurs in the line of duty, except that paragraph (3)(B) 
     shall be applied by using the date of the death of the 
     astronaut rather than September 11, 2001.''.
       (2) Conforming amendments.--
       (A) Section 5(b)(1) is amended by inserting ``, 
     astronauts,'' after ``forces''.
       (B) Section 6013(f)(2)(B) is amended by inserting ``, 
     astronauts,'' after ``Forces''.
       (3) Clerical amendments.--
       (A) The heading of section 692 is amended by inserting ``, 
     ASTRONAUTS,'' after ``FORCES''.
       (B) The item relating to section 692 in the table of 
     sections for part II of subchapter J of chapter 1 is amended 
     by inserting ``, astronauts,'' after ``Forces''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply with respect to any astronaut whose death occurs 
     after December 31, 2002.
       (b) Death Benefit Relief.--
       (1) In general.--Subsection (i) of section 101 (relating to 
     certain death benefits) is amended by adding at the end the 
     following new paragraph:
       ``(4) Relief with respect to astronauts.--The provisions of 
     this subsection shall apply to any astronaut whose death 
     occurs in the line of duty.''.
       (2) Clerical amendment.--The heading for subsection (i) of 
     section 101 is amended by inserting ``or Astronauts'' after 
     ``Victims''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid after December 31, 2002, with 
     respect to deaths occurring after such date.
       (c) Estate Tax Relief.--
       (1) In general.--Section 2201(b) (defining qualified 
     decedent) is amended by striking ``and'' at the end of 
     paragraph (1)(B), by striking the period at the end of 
     paragraph (2) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(3) any astronaut whose death occurs in the line of 
     duty.''.
       (2) Clerical amendments.--
       (A) The heading of section 2201 is amended by inserting ``, 
     DEATHS OF ASTRONAUTS,'' after ``FORCES''.
       (B) The item relating to section 2201 in the table of 
     sections for subchapter C of chapter 11 is amended by 
     inserting ``, deaths of astronauts,'' after ``Forces''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to estates of decedents dying after December 31, 
     2002.

                      TITLE VII--OTHER PROVISIONS

     SEC. 701. REVISION OF TAX RULES ON EXPATRIATION.

       (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 2003, 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 2002' 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

[[Page H5585]]

     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

[[Page H5586]]

     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:
       ``(48) 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).''.
       (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:
       ``(19) 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.--
       (i) Technical amendments.--Paragraph (4) of section 6103(p) 
     of the Internal Revenue Code of 1986, as amended by section 
     202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 
     116 Stat. 961), is amended by striking ``or (17)'' after 
     ``any other person described in subsection (l)(16)'' each 
     place it appears and inserting ``or (18)''.
       (ii) Conforming amendments.--Section 6103(p)(4) (relating 
     to safeguards), as amended by clause (i), is amended by 
     striking ``or (18)'' after ``any other person described in 
     subsection (l)(16)'' each place it appears and inserting 
     ``(18), or (19)''.
       (3) Effective dates.--
       (A) In general.--Except as provided in subparagraph (B), 
     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.
       (B) Technical amendments.--The amendments made by paragraph 
     (2)(B)(i) shall take effect as if included in the amendments 
     made by section 202(b)(2)(B) of the Trade Act of 2002 (Public 
     Law 107-210; 116 Stat. 961).
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(g) 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 February 5, 2003.''.
       (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:

[[Page H5587]]

       ``(F) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4)(A) Paragraph (1) of section 6039G(d) is amended by 
     inserting ``or 877A'' after ``section 877''.
       (B) The second sentence of section 6039G(e) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after 
     ``877(a))''.
       (C) Section 6039G(f) is amended by inserting ``or 
     877A(e)(2)(B)'' after ``877(e)(1)''.
       (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 February 
     5, 2003.
       (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 February 5, 2003, 
     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.

     SEC. 702. EXTENSION OF CUSTOMS USER FEES.

       Section 13031(j)(3) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended 
     by striking ``September 30, 2003'' and inserting ``March 31, 
     2010''.

  The SPEAKER pro tempore. Pursuant to House Resolution 282, the 
gentleman from Washington (Mr. McDermott) and a Member opposed each 
will control 30 minutes.
  The Chair recognizes the gentleman from Washington (Mr. McDermott).
  Mr. McDERMOTT. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, the amendment that is at the desk on H.R. 1528 is a 
fairly comprehensive amendment to the bill which we discussed 
yesterday. The first thing is that my amendment would delete the 
controversial provisions contained in the underlying bill which would 
eliminate consumer protections that this Congress provided less than 1 
year ago when it enacted the Trade Promotion Act. I think that there 
are many Members who voted for the fast track bill with the belief that 
this was in it and now less than a year later we are back taking it 
out.

                              {time}  1145

  I think that is an important part of this amendment.
  The second thing is this amendment would provide the recently 
increased family credit for 12 million children and 6 million families. 
We passed it out of here and it has gone to an uncertain future in a 
conference committee. I read there is some debate among the Members of 
the conference committee about who is going to chair it. We could put 
this issue to rest with this amendment today.
  The third part of the amendment is to stop the delay of tax benefits 
for our military and relief to families of the astronauts killed in the 
Columbia disaster. I think that this is one of those issues where we 
all agree, it has been sitting there and somehow it does not get done, 
and I think it is time for us to move on.
  Fourth, the amendment will prohibit the Internal Revenue Service from 
implementing a pre-certification program for Earned Income Tax Credit 
recipients. I think this is a needed and important change in the IRS. 
It is the only place that we have such a thing where we make people 
send in their money reports before they even get the benefit, rather 
than letting them make application for it and then figuring out if 
there is some question.
  Fifth, my amendment would also contain provisions addressing the 
abusive corporate tax shelters which we have talked about in the past.
  Finally, this adds taxpayer protections designed to assist low and 
middle-class taxpayers in complying with the tax law.
  It is a fairly comprehensive amendment, but I think it is a good one, 
and it does a number of things which we ought to do when we are passing 
this bill.
  Mr. Speaker, I reserve the balance of my time.
  Mr. PORTMAN. Mr. Speaker, I rise in opposition to the substitute.
  The SPEAKER pro tempore (Mr. Quinn). The gentleman from Ohio is 
recognized for 30 minutes.
  Mr. PORTMAN. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise today in part to remind us as to where we are in 
this process. Yesterday we talked about the underlying legislation, 
which is a very good combination of taxpayer protections and health 
care protections for workers. I think it would be helpful to start by 
reviewing that, only because I think by adding this substitute, we 
would jeopardize so many of those good provisions.
  Yesterday, we talked a little about the importance of moving quickly 
on those provisions. After all, these are the result of over 2 years of 
work by the Taxpayer Advocate, by the Internal Revenue Service, by the 
Treasury Department itself, and by the Committee on Ways and Means, 
based on oversight hearings, to basically strengthen and protect the 
rights of average, honest taxpayers.
  Let me give you an example of some the things in the underlying 
legislation. It prohibits IRS employees from unauthorized browsing of 
tax returns. We do have a series of prohibitions in the Code. This is 
not one of them. It would now make browsing of your tax return or mine 
part of those prohibitions. This is very important, and, again, it is 
based on good testimony we have had from the IRS and some obvious 
problems that have resulted from unauthorized browsing.
  It also simplifies tax filing in a number of ways. One I really like 
is it helps the mom-and-pop businesses of America. It says that now-
married spouses would be allowed to file a sole proprietor return who 
are in business, which is a Schedule C, instead of a partnership 
return.
  This is far simpler. It allows for spouses to account separately for 
their respective self-employment income from the business. It allows 
family businesses to take full advantage, therefore, of Social Security 
and Medicare, and, at the same time, greatly simplify tax filing.
  Again, this comes out of hard work by people at the Joint Tax 
Committee, at the Treasury Department and elsewhere, to try to figure 
out ways to simplify our current system.
  It also, very importantly, extends the filing deadline for E-filers 
to April 30. This one is not only added to, therefore making it more 
difficult to enact, but it is actually substituted, it is replaced, it 
is eliminated in the substitute.
  Let me just talk about that for a second. It says if you are willing 
to be an E-filer, you have until April 30. Why is this so important? It 
is important because we need to add another incentive to encourage 
people to electronically file.
  Electronic filing is in the interests of taxpayers, and it is in the 
interests of the IRS. This is something over the last 6 years as we 
have reviewed the IRS through a commission, and then through the 
legislative process, we had a total consensus on, that it is absolutely 
critical that we encourage electronic filing.
  We have gone from 15 percent to about 41 percent, but the 
Congressionally set goal of 80 percent electronic filing is not going 
to make it unless we provide some new incentives. This is one well 
worth undertaking.
  Why? Right now there is about a 22 percent error rate, Mr. Speaker, 
if you can believe it, when you file your tax return by paper. Twenty-
two percent of the time there is an error. That is unacceptable to any 
of us. Eleven percent of that error, half of it, is caused by the IRS, 
largely transposing numbers, where they take a paper return and 
transpose the numbers from paper on to a computer.
  That does not happen with electronic filing, obviously, because you 
are electronically filing straight into the computer.
  Second, the other 11 percent, about half, is caused by the taxpayer.
  Electronic filing, the error rate is far less than 1 percent. This 
obviously saves the IRS a lot of money and is very good for the tax 
system, because you are going to have fewer people who will be filing 
by paper and, therefore, fewer IRS employees are necessary and

[[Page H5588]]

great efficiencies are put in place at less than half the cost to the 
IRS.
  But, more important to me, is it helps the taxpayers dramatically. 
Think of the downstream costs when there is a error, when you get that 
letter from the IRS saying we have got an error in your return. You 
think you did it right, it turns out you did it right, but because of 
the error, you then get into sometimes a long, protracted back and 
forth with the IRS. Sometimes it becomes quite controversial and adds 
up with interest and penalties and so on.
  So electronic filing has to be encouraged, and I am concerned that 
the substitute takes this out altogether. By the way, this program we 
just put in place for 3 years, so we try it as a pilot. Any other ideas 
we would welcome. At our bipartisan hearings, we had a lot of 
discussion about this, and we talked about a lot of ideas. This is one 
where we seemed to have reached a consensus.
  The underlying bill also allows taxpayers who otherwise pay nothing 
to be able to settle their debts with the IRS over a period of time 
without being forced to pay the entire amount. Again, this comes from a 
careful vetting with the Joint Tax Committee and the IRS. It is a 
partial pay installment plan which will help us get through a lot of 
the existing controversies out there with the IRS. It is a common sense 
solution to some big collection problems that the IRS is now facing, so 
they can devote more of their resources toward enforcement and toward 
collection, and not so much resources in trying to resolve some of 
these very tough accounts.
  It also allows the IRS to waive what are now unfair penalties for 
honest taxpayers who make innocent mistakes. For example, if a taxpayer 
mails his return in on April 15, as he or she should, with a check, and 
the check is for the right amount, the balance due, but he mistakenly 
puts on only $1.40 in postage rather than $1.50 in postage, instead of 
being assessed a failure to file penalty, which can add up to thousands 
of dollars, under this legislation the IRS could waive those penalties 
for taxpayers, those who have a good history of compliance. It is a 
common sense provision that will help taxpayers. Again, it is long 
overdue and is supported by the IRS.
  We also importantly increase the funding for low income taxpayer 
clinics. This is something we started back in the reforms of 1998. They 
have worked.
  These low income taxpayer clinics help with regard to individuals who 
have a controversy with the IRS. We increase the authorization in this 
legislation to $9 million for 2004, $12 million for 2005 and $15 
million for 2006 and subsequent years.
  We also provide for additional help here to help individuals for whom 
English is a second language to be able to deal better with the IRS. I 
like these taxpayer clinics, they are working well, and again, this is 
something that would be jeopardized in the underlying legislation by 
loading it up with much more controversial items that have not been 
vetted.
  Finally, the gentleman from Washington mentioned the health care 
credit waiver. The problem with not having this in place is that 12,000 
families are not going to be able to get health care, and that is based 
on the Joint Tax estimate.

  All we are saying is we had provisions in place in the Trade Act to 
allow these people to access health care with a 65 percent refundable 
credit, but, unfortunately, probably up to 21 States, maybe not that 
many, but some States, up to 21 States, are not going to have 
provisions in place to allow them to access that, because we require 
there be State plans, we require there be certain provisions in these 
plans, and not all of these States have gone to those provisions yet.
  We want simply an 18-month bridge to be sure these 12,000 families 
can get their health care. That seems to me to be a reasonable 
solution. In the Committee on Ways and Means, we had a lot of 
discussion about this. I think the Committee on Ways and Means majority 
and majority staff worked in a responsible way to try to address those 
concerns. We changed the legislation between the time it was reported 
out of committee and now in a few significant ways, including making it 
only 18 months, making it truly a bridge, including limiting the 
provisions to just two, guaranteed issue and preexisting conditions, 
and I think this is an improvement in the legislation.
  We also said it would not apply to those States where they did have a 
compliant plan. So it really narrowed it and limited it in response to 
specific concerns raised by my colleagues on the other side of the 
aisle, and I think that should be taken into account as we look at this 
legislation today, because we did go to the extra mile to try to meet 
those concerns.
  The bottom line for me, Mr. Speaker, is that this is great 
legislation, the underlying legislation. The substitute adds, as I 
count it, another 160 pages to this legislation, which is only 75 pages 
in the underlying bill, maybe more than that, because it cuts out some 
of the 75 pages. By adding all these new provisions, most of which have 
really not been vetted, we are really again jeopardizing the good 
legislation that is in here.
  I am going to later talk about some of the provisions that are in the 
substitute that actually trouble me. It is not just new provisions that 
have not been vetted, but some are bad policy, in my view, particularly 
with regard to the earned income tax the gentleman talked about.
  We now have a 30 percent error rate, we are told by GAO. It was 25 
percent the last time I looked. Now they say it is 30 percent. Even 25 
percent, that is wholly unacceptable. I think that is agreed to, I 
would hope, on both sides of the aisle. A 25, 30 percent error rate, we 
are talking about $10 billion a year is mispaid under the EITC. Now, if 
we had a 25 or 30 percent error rate, even a 10 percent error rate in a 
social welfare program, we would be up in arms, as would the States. It 
is outrageous. There is no program that has that kind of error rate. 
Yet we are putting up with a 25 percent or 30 percent, we are told 30 
percent by GAO, error rate in the Earned Income Tax Credit, and at a 
minimum, I think the IRS should be given the flexibility to be able to 
work towards some kind of a system where you are certifying whether 
people actually qualify for the credit or not.
  I would love to hear the ideas from the other side of the aisle as to 
what they would do about this. I think this is one where if continue to 
ignore it, continue to say no, we are going to tie the IRS's hands, 
even when they show flexibility as to how they are going to deal with 
it, what is going to happen? You are going to lose tremendous support 
for the EITC.
  I can tell you my constituents back home, who are Federal income 
taxpayers who support the EITC through their Federal taxes they send to 
Washington, even if they think the EITC is generally a good idea, they 
are not going to think that if they believe that 30 percent of that 
money is being misspent.
  Some of it is fraud, some of it is because it is too complicated. But 
at a minimum, we should give the IRS the tools to be able to go and 
reduce that error rate. Otherwise we have to figure out another way to 
support people who are working who want to be able offset their payroll 
taxes and other taxes, because some people who get the EITC have their 
entire income tax offset, their entire payroll tax offset, and they are 
still collecting EITC.
  We need to be sure that program is working and working well if we are 
going to have it continue to be strongly supported by the folks who do 
pay income taxes, and others, who look at this and say this is 
unacceptable. So I would hope that that provision would not be included 
in a substitute.
  Mr. Speaker, I will talk about more of the other provisions as we 
proceed with the debate.
  Mr. Speaker, I reserve the balance of my time.
  Mr. McDERMOTT. Mr. Speaker, I yield 4 minutes to the gentleman from 
Michigan (Mr. Levin).
  (Mr. LEVIN asked and was given permission to revise and extend his 
remarks.)
  Mr. LEVIN. Mr. Speaker, I want to talk about the health provision. It 
is unfortunate that the Republican majority insists on inserting this 
provision in this bill. The TAA provisions were carefully crafted. Many 
relied on them for their vote. And now the majority is taking a step 
away from them.
  In the legislation there were protections for beneficiaries, four of 
them, if

[[Page H5589]]

they could not get COBRA, a requirement that States develop these plans 
with these four protections.
  Now, essentially what they are saying is that provision can be 
changed and individuals can buy insurance individually without those 
protections. This is going to undermine the negotiations that are 
continuing now for the completion of State plans. The younger, more 
healthy people will buy this insurance without the protections. It will 
reduce the incentive of insurance companies to work this out with 
States.
  But then it was said yesterday that State legislatures do not meet 
every year, that some only meet every 2 years, so that is an inhibition 
on working this out. It does not take State legislative action to work 
out these plans. As has been true in a number of States, it can be done 
without action by the State legislature.
  This a voluntary plan, and what is going to happen if this amendment 
is allowed, and I do not think it could pass the Senate, is that there 
will be selection by the younger and more healthy, leaving the 
insurance availability to older workers that will be too expensive, or 
there will be no availability whatsoever.

                              {time}  1200

  So this is a change that matters. This is another example of an 
erosion of a safety net that was worked out carefully between the two 
parties.
  Now, look, the gentleman from North Dakota (Mr. Pomeroy) said to 
people on your side, we will sit down and talk about finding a 
resolution to this, and a few of us suggested we would join. The answer 
was, well, we will only talk to the gentleman from North Dakota (Mr. 
Pomeroy). We will not let your staff in any meeting. I know that 
directly. And then there was no discussion with the gentleman from 
North Dakota (Mr. Pomeroy).
  So essentially, what you did was to go into some room and make a 
decision that you were going to change a TAA provision for people who 
were laid off. This is trade adjustment assistance for people who are 
unemployed because of the impact of trade.
  So if you really cared enough, you would sit down and work this out. 
Instead, you inserted it in a bill that has IRS provisions, and the 
gentleman from Ohio (Mr. Portman) talks about how laudable they are. 
Well, they are laudable provisions, so why put an anchor around them, 
and why pull back from something that you yourselves negotiated with 
people on this side to provide health protection for people laid off 
through no fault of their own?
  So this is enough of a flaw, in my judgment, for people to vote 
against this bill. This is turning your back on what you agreed to, 
without even being willing to sit down and try to work it out with the 
minority. This is turning your backs on thousands of people who need 
health coverage, and I urge that we take the steps to take this out of 
the bill and not wait for the Senate to do it. Support the substitute 
that has been offered by the gentleman from New York (Mr. Rangel) and 
now being managed by the gentleman from Washington (Mr. McDermott).
  Mr. PORTMAN. Mr. Speaker, I yield such time as she may consume to the 
gentlewoman from Connecticut (Mrs. Johnson), the Chair of the 
Subcommittee on Health.
  Mrs. JOHNSON of Connecticut. Mr. Speaker, I thank my colleague for 
yielding me this time.
  This bill is not turning our back; it is facing reality. To pass the 
substitute would be turning your back on 12,000 people who live in 
States that do not yet have compliant programs and, therefore, will not 
be able to get the 65 percent subsidy of premiums that we offer now to 
people who are uninsured by reasons of trade competition.
  This is a temporary waiver just to give States more time to get 
compliant plans in place. It only runs through December of 2004. That 
is only basically a little over a year from the time they were supposed 
to have their plans up and running. It does not supersede State law 
relating to consumer insurance protections. So anything a State thought 
was important for consumer protection and health plans is there. It is 
there for whatever plans are developed for these 12,000 people; it is 
there for everyone else in the State. We do not override State 
protections.
  We are providing a temporary waiver so that for the very first time 
in our country, a certain group of people who are unemployed will have 
tremendous help in buying health insurance during that period of 
unemployment. It is disgraceful that we were not able to do this for 
all of the unemployed, but that will be the next step, and then all of 
the uninsured. But this is an extremely important initiative, because 
it sets up the structure through which we can deliver a two-thirds 
subsidy of premium to the uninsured in America.
  There has long been, historically, bipartisan support for that kind 
of initiative to enable people who are uninsured or who do not make 
enough to pay for insurance or who are unemployed, to be able to have 
the personal security of health insurance, going way back to the debate 
stimulated by President Clinton's proposal. The bipartisan alternative 
that actually had a majority of the support in this House, our former 
colleague Roy Rowland and our former colleague and minority leader Bob 
Michel introduced a bipartisan initiative, and key to that was the 
delivery of these direct subsidies for the purchase of premiums.
  Now, later on, once we get the system set up, we can think about 
whether some people need a higher subsidy than other people relative to 
income, but setting this system up is imperative. And in the 21 States 
that have not yet been able to set up a compliant program, if you are 
unemployed as a result of trade dislocation, you have a right to this; 
but you can only exercise it if you have COBRA, which most of the 
unemployed people in small businesses do not have by definition, or if 
your spouse works for a company that has family coverage.
  Now, to say to the other unemployed people that have a right under 
Federal law that you cannot exercise that right because your State has 
not been able to work through the issues of developing a compliant 
program is simply wrong. So this waiver only allows a simpler process 
for those compliant plans to develop; it makes it simpler for a little 
over a year while they develop the more complex, but fully compliant 
program.
  So talk about turning your back. All we are trying to do here is face 
reality so we will not turn our back on the 12,000 people to whom we 
granted deep premium assistance so they can buy insurance during a 
period of unemployment, so that they can realize that benefit under the 
law. And if we do not pass this amendment, then they will not have 
access to the very benefits that we gave them. That would be 
outrageous.
  Our job is to assure that the needs of the people are met; and when 
there is a glitch, to develop a way around that glitch and, in this 
case, it is a temporary waiver so that ultimately everybody will have 
the access we guaranteed them, the subsidies we guaranteed them to 
compliant plans. It is a small adjustment. It is facing reality. If we 
do not face reality, we turn our backs on these 12,000 Americans, 
unemployed as a result of trade dislocation.
  Mr. McDERMOTT. Mr. Speaker, I yield myself such time as I may 
consume.
  The gentlewoman from Connecticut calls it a small adjustment. I would 
call it a gutting of the program. If you allow an insurance company to 
screen people out on the basis of preexisting conditions, which is what 
this amendment does, of course it will be simpler. They just look down 
your history. If you are over 50 years old, you will never get access 
to this. And the people who are losing their jobs here are not 20 years 
old. They are people who are in steel industries and other industries 
where the existence of a preexisting condition is very common.
  So to say that the insurance company does not have to have that 
consumer protection, there is no guaranteed issue and they can use 
preexisting conditions is simply to give the insurance industry the 
ability to cherry pick the young and leave the others by the side of 
the road.
  Mr. Speaker, I yield 3 minutes to the gentleman from Massachusetts 
(Mr. Neal).
  Mr. NEAL of Massachusetts. Mr. Speaker, I thank the gentleman for 
yielding me this time.
  The American people are hearing the phrase ``mission accomplished'' a 
lot

[[Page H5590]]

these days. However, they are not hearing it much from this Republican 
Congress. Today we debate a bill which could have passed with more than 
400 votes on taxpayer rights. And then we could have proclaimed, 
mission accomplished.
  However, for some unknown reason, this bill now says the consumers 
need to waive basic protections in order to get health insurance. That 
means that these employees who have lost their health insurance and 
lost their jobs must now accept insurance, but only if they waive 
coverage for preexisting conditions. Worsening basic health 
protections, for this Congress, once again: mission accomplished.
  There are many things in this underlying bill that I supported before 
this killer provision was added. One of my constituents has even been a 
victim of these nonsensical IRS problems. Her retirement account was 
wrongfully levied by the IRS, but now the IRS cannot return it. It 
defies logic, could and should be fixed today. However, now that this 
basic IRS bill has been hobbled by an anticonsumer provision, 
unfortunately, we cannot say ``mission accomplished.''
  The substitute we are considering today would provide for all of 
these basic taxpayer rights without harming consumer health 
protections. Further, the substitute includes the Senate-passed child 
tax credit, which millions of lower-income families are counting on. 
The substitute also includes the Armed Forces Tax Fairness Act, yet 
another bill that this House leadership has been sitting on.
  If we pass this substitute today, then we can leave and honestly tell 
the American people, ``mission accomplished.'' Relief for working 
families: mission accomplished. We could tell those fighting soldiers 
and their families: mission accomplished.
  Support the substitute and vote down the short-sighted Republican 
bill.
  Mr. McDERMOTT. Mr. Speaker, I yield 3 minutes to the gentleman from 
California (Mr. Becerra).
  Mr. BECERRA. Mr. Speaker, I thank the gentleman for yielding me this 
time.
  The original purpose behind H.R. 1528 was good. When we take a look 
at the title, the Taxpayer Protection and IRS Accountability Act of 
2003 and we take a look at the provisions that relate to protections 
for our taxpayers and accountability for the IRS, it is good. In fact, 
it was bipartisan. There was full agreement on both sides of the aisle 
that these were measures that would help American taxpayers file their 
returns, do it right, and get back the money they deserve.
  But what has happened to the bill, now that it is on the floor, is 
that it is no longer just a bill about taxpayer protections and IRS 
accountability. Somehow, in a bill that is supposed to relate to 
taxpayer protection and IRS accountability, there is a provision that 
has been put in here that has nothing to do with any of those things, 
and that is what Members on this side of the aisle keep talking about; 
a provision that deals with health care. Not just any kind of health 
care; it is health care for working Americans who have lost their jobs 
as a result of trade adjustments that have occurred that have made them 
lose their jobs, in other words, companies that have left America to go 
elsewhere to do their production and American workers who are now out 
of work. Out of work means likely out of health care. Out of health 
care is something that no American wants to be without.
  So what we did a year ago was pass legislation that said, okay, for 
those folks under the Trade Adjustment Assistance Act, we are going to 
make some provisions to provide some help to those Americans who lost 
their jobs. It is also an addition for some people who are now retired 
on pensions.
  The provision in this bill takes that out. It denies protections, 
consumer protections that we are providing to unemployed workers and 
pensioners. Why? Apparently, to make it easier for certain States. Why 
are you making it easier for certain States to exclude American workers 
who lost their jobs because American companies went abroad?
  This is a bill that could pass with 435 votes if it dealt with the 
taxpayer protections and IRS accountability, period. But instead, here 
we go, a provision has been added, not through a voting committee, not 
through a voting of the full House of Representatives, but rather in 
the dark of night. All of those folks who are watching on C-SPAN today 
are saying, why do they not want to vote for this bill? It is about 
protecting us as taxpayers. Because the folks watching C-SPAN will 
never see the provision that was added to this bill that has nothing to 
do with taxpayer protection and that most folks on that side of the 
aisle will not talk about, because they only want to talk about the 
Taxpayer Protection Act, not about the fact that we are denying 
thousands of American workers who lost their jobs, through no fault of 
their own, and now they are going to be out of the health care that we 
told them a year ago that we could get them.
  And why? Because some States are saying they cannot come up with a 
program to deal with it. Most of the States have done it or are well on 
their way for providing a program that is necessary for those folks to 
qualify. A few States are lagging behind, and what we are doing is 
because there are a few States that say they cannot do it, we are going 
to deny it to everyone. That is why the substitute should get the vote 
and the full support of all Members of the House.

                              {time}  1215

  Mr. McDERMOTT. Mr. Speaker, I yield 3 minutes to the gentlewoman from 
Connecticut (Ms. DeLauro).
  Ms. DeLAURO. Mr. Speaker, I rise in strong support of the Rangel 
substitute. For nearly a month now, 6.5 million families, 12 million 
children have been shut out of a tax credit that they deserve. I am 
talking about how this majority secretly eliminated the child tax 
credits for families who earn between $10,500 and $26,625 from the tax 
bill that passed this House last month. People who work, people who pay 
taxes, sales tax, property tax, excise tax, payroll taxes, 8 percent of 
their income.
  Instead of simply restoring that provision, the majority in the House 
of Representatives cynically passed a $82 billion bill for a $3.5 
billion fix. Do you know why? It is because they know the legislation 
will never pass the other body.
  To the Republican majority, these families are just another 
bargaining chip in their endless quest to cut taxes for the most 
privileged Americans. The majority's leader and the chairman of the 
Committee on Ways and Means have said that helping these families is 
not their priority, that they are not sure whether or not we will even 
begin the conversation between the House of Representatives and the 
other body to begin to work things out.
  But there should be no greater priority of this House than helping 
the families of 6.5 million families, 12 million children. They are 
hard working. They are tax paying. They are waiting for the relief that 
was promised to them. They also include 200,000 military families, men 
and women who are fighting a war, losing their lives in Iraq. We are 
now losing almost a GI a day in the war in Iraq and yes, it is their 
families, their children will not see this tax credit that they were 
promised.
  Quite simply, we must pass this substitute. It includes language from 
the other body's bill that would ensure that these 6.5 million 
families, 12 million children receive tax relief just like the 25 
million other families who are going to benefit from the child tax 
credit. It also requires that the IRS halt work on an unfair action 
that they will deny the earned income tax credit that millions of 
families who have rightfully earned.
  The Republican majority has no problem with wealthy individuals or 
companies who paid no taxes. Enron paid no taxes the last 4 out of 5 
years. They have no problems with those companies that go overseas only 
for the purpose of not paying their financial obligations and their 
taxes to the U.S. government, and they have no problem with this. And 
yet those military families, those individuals who may lose their life, 
cannot get $400 in a tax credit, in fact, that they were promised.
  What is wrong? This does not reflect the values of the United Nations 
of America. What underlies their thinking when they make these 
decisions? It is not what the great American tradition is all about.

[[Page H5591]]

  I urge my colleagues to support the Rangel substitute. It protects 
tax-paying families who work hard. They play by the rules. They have 
earned this tax relief. Restoring it to them is the right thing to do. 
It is the fair thing to do.
  Mr. PORTMAN. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I find the gentlewoman's comments a little puzzling 
listening because on the one hand, my colleagues are arguing it was 
wrong to put the important health care credit into the IRS reforms 
which are so important and so widely viewed as popular and the 
appropriate thing to do, and then the gentlewoman is saying but let us 
add something else to this mix, another 160 pages of controversial, and 
for a large part of them, untested, proposals. None of these substitute 
proposals to my knowledge have been reported out of the Senate Finance 
Committee. They have not even dealt with inversions, for instance. We 
have legislation sitting over there in the energy bill for weeks and so 
the gentlewoman says, well, we need to add child credit to this to get 
it done.
  If you want the child credit issue to be resolved, and our side on 
the aisle, agree it ought to be resolved. In fact, we came up with a 
good balanced proposal to provide relief who do not have any income tax 
liability, have no federal income tax liability, to increase an 
existing 10 percent refundable credit for the child care that is going 
to the same families now. We said it ought to be taken to 15 percent 
immediately rather than waiting until 2005, when it is going to happen 
anyway.
  We said, if you are going to make that permanent, the 15 percent on 
the refundable side, again, for people who do not have Federal income 
tax liability, and many of whom do not have payroll tax liability, then 
at the least, we ought to be sure that those people who do have Federal 
income tax liability have their $1,000 credit which we have now 
provided them until 2005, to continue as well, at least until 2010.
  The President wanted to continue it until 2013. We said, as a 
balance, let us go ahead with the child credit for the refundable part 
and let us go ahead with making sure that those who do pay income taxes 
also get some benefit after 2005 as we would be doing for those who do 
not have income tax liabilities.
  We think that is a fair and balanced proposal. That has just been 
sent over to the Senate and it is being worked out between the House 
and the Senate. Conferees are being named. We are trying to work 
through this process to try to get to a solution to resolve the child 
credit issue. And yet the gentlewoman says, this will make more sense 
to get it resolved to add it to these extremely controversial, as we 
will talk about in a moment, and untested proposals that have not even 
been reported out of the Senate Finance Committee, much less subject to 
hearings, and none have been reported out of the Committee on Ways and 
Means. I do not know how that helps us get on to child credit.
  Let me talk about some of the other provisions the gentlewoman talked 
about.
  The next provision was the inversion provision. Well, as the 
gentleman from Massachusetts, who spoke about inversion knows, we also 
passed an inversion provision on this floor and we included it in 
legislation that is sitting in the Senate, which provides specifically 
for a 2-year moratorium on inversions. We think that is the right way 
to go. There is some bipartisan support for that. The gentleman, 
instead is saying, let us go ahead and load up this bill with something 
more controversial that provides for a retroactive provision under 
inversion. So it would actually undue transaction which were entered 
into lawfully 30 or 40 years ago and you are now going back and 
penalizing.
  We have dealt with the inversion issue. We have done it in a 
bipartisan way. It had some bipartisan support. And here we come up 
with this new idea again which would actually be retroactive on 
perfectly legal transactions. We do not think that is the right way to 
go. Instead, we think we ought to be having a moratorium in place and 
looking at the underlying causes as to why companies leave the United 
States. We are doing that very aggressively. Maybe too aggressively for 
some on both sides of the aisle. But in the fixed ETI bill, which deals 
with particularly the Europeans, but more generally our competitive 
position as Americans, it takes very aggressive action and it is going 
through the process of hearings now and will be before this Congress, I 
believe, in the next month, which says let us deal with the underlying 
causes. Why do companies leave? We do not want foreign corporations to 
come buy our companies.
  I personally believe that would be the result of the inversion 
provision that is in this substitute. Rather, let us deal with these 
underlying causes. Let us make it better for companies to stay here, 
employ American workers, stay headquartered in this country.
  Finally, there has been a lot of discussion about the refundable tax 
credit that is in the underlying bill and why that is not a good idea. 
Again, it deals with the very simple issue of 12,000 families cannot 
get health care unless we do this. We want to provide health care. Do a 
bridge program. We dealt with three concerns that were raised in the 
Committee on Ways and Means by the other side of the aisle. Those 
issues have been addressed. It is still not acceptable to some of my 
colleagues. I understand that.
  But in terms of the legislation, the gentleman from Michigan earlier 
said that it allows people to go to the individual market and that is 
wrong. It does not. That is the point. It continues to require they go 
to the State options. That is what the Democrats in the Senate insisted 
on back in 2002. That is what we are sticking to. If that were not the 
case, if we were allowing people to go to the individual market, we 
would not have a problem here, would we?
  The problem is that up to 21 States have not changed their State 
plans adequately to allow people who have been displaced because of 
trade to be able to access health care. So we are saying during a 
bridge while those State gets up to speed and make their programs 
compliant, we ought to allow them to have access to health care. The 
State options, again, was not something that we particularly felt was 
the best policy, but it was something that was insisted upon. Now let 
us make it work. That is all we are saying.
  Mr. Speaker, I reserve the balance of my time.
  Mr. McDERMOTT. Mr. Speaker, how much time remains on both sides?
  The SPEAKER pro tempore (Mr. Quinn). The gentleman from Washington 
(Mr. McDermott) has 14\1/2\ minutes remaining. The gentleman from Ohio 
(Mr. Portman) has 9\1/2\ minutes remaining.
  Mr. McDERMOTT. Mr. Speaker, I yield 30 seconds to the gentlewoman 
from Connecticut (Ms. DeLauro).
  Ms. DeLAURO. Mr. Speaker, I will make two quick points. One, I think 
my colleagues on the other side of the aisle and so described by Senate 
aides, Republican Senate aides and personnel who have said that, in 
fact, they passed this bill in the House because they knew it was never 
going to go anywhere in the Senate about addressing the child tax 
issue. That is 12 million children that were promised and 6.5 million 
families.
  The second issue so that everyone understands, the fact of the matter 
is that we have not closed the loophole on those corporations that go 
overseas for the ostensible purpose for paying no taxes to the Federal 
government. They set up a shell corporation, and then they even have 
the audacity to come back and try to contract with the Federal 
Government on homeland security.
  They do not pay their taxes. We do not let anyone else get away with 
that. Let us do something about the child tax credit.
  Mr. McDERMOTT. Mr. Speaker, I yield 3 minutes to the gentlewoman from 
California (Ms. Solis).
  (Ms. SOLIS asked and was given permission to revise and extend her 
remarks.)
  Ms. SOLIS. Mr. Speaker, I thank the gentleman for yielding me time.
  Mr. Speaker, I rise also to express my strong support for the Rangel 
substitute and to thank the ranking member for his continual struggle 
for equitable and just tax laws.
  Just tax laws are fiscally responsible and fairly allocated. Nowhere 
is this injustice of the Republican leadership better illustrated than 
in the shrewd treatment of the child tax credit. To

[[Page H5592]]

ensure at all costs that the rich campaign donors will get the maximum 
tax credits, Republicans cut out 200,000 military families that they 
just sent to war, these men and women that are serving abroad. They cut 
out working families. They cut out single working mothers. They cut out 
hard working people from all over the world who come to America to seek 
a better life and play by the rules and pay taxes.
  I looked at my district in Los Angeles, San Gabriel Valley and East 
Los Angeles, and saw that one out of four families would get no tax 
relief. In fact, in my own district, I do not even have one single 
millionaire. So there you go. People pay in but they do not get 
anything out. And I saw that instead they would be saddled with the 
huge debts of tax. For years to come their children have to bear this. 
They would lose essential health care services.
  And today in our Committee on Energy and Commerce, we are debating 
the demise, the demise of Medicare, services that are so vital and 
important to the health of our senior citizens. With less money for 
infrastructure and environmental protections and Social Security, that 
is what the Republicans want to talk about.
  And I am happy that along with my Democratic colleagues, we cried out 
the last few weeks against this injustice and the country listened to 
us. In fact, the other body and the President responded by agreeing to 
restore the child tax credit. But these folks on the other side, they 
do not want to listen. They think that somehow nobody is paying 
attention. They use the child tax credit to try to make a $400 billion 
deficit even bigger. There you go. They take, they take, they take, but 
they do not give back.
  I implore my colleagues to please, across the aisle, please support 
the Rangel substitute.
  Mr. PORTMAN. Mr. Speaker, I yield 3\1/2\ minutes to the gentleman 
from Illinois (Mr. Weller), my colleague on the Committee on Ways and 
Means.
  (Mr. WELLER asked and was given permission to revise and extend his 
remarks.)
  Mr. WELLER. Mr. Speaker, let us take a few minutes here and actually 
focus on the legislation before us today because those who represent 21 
States may want to pay very close attention to the legislative proposal 
that the Democratic side is offering as a substitute to that which is 
before us today. Because if you vote for the Democrat substitute, 
workers who have been dislocated, workers who have lost their jobs as a 
result of trade action or are eligible for trade adjustment assistance 
or are benefitting from the PBGC programs to help those who are 
dislocated, if you vote for the Democratic substitute, these dislocated 
workers in your State will be shortchanged because they will be denied 
help when it comes to obtaining health care coverage for themselves and 
their families.
  Let me note these States, and I urge my colleagues to listen very 
carefully, because if you come from one of these 21 States and you vote 
for the Democrat substitute, it is workers in your own State who will 
be hurt by the Democrat substitute: The States of Alabama, Arizona, 
Delaware, Georgia, Hawaii, Idaho, Iowa, Kentucky, Mississippi, 
Missouri, Nevada, New Jersey, New Mexico, Oklahoma, Oregon, Rhode 
Island, South Dakota, Utah, Washington State, Wisconsin and Wyoming.

                              {time}  1230

  Again, my colleagues, if you represent one of these 21 States and you 
vote for the Democrat substitute, it is workers in your State who get 
hurt because the Democrat substitute takes away the help that we have 
in this legislation to help workers who are dislocated and desperately 
need health care coverage for themselves and their families.
  Now, the Democrats have used a lot of rhetoric to distract all of us 
from the real intent of their legislation, which is to remove this help 
for these dislocated workers. Let me tell you why it is so important. 
In last year's trade act legislation, we provided a groundbreaking 
refundable 65 percent tax credit for health insurance purchased by 
those eligible Trade Adjustment Assistance and PBGC beneficiaries. The 
credit can be used to buy coverage through COBRA, one's spouse's 
coverage, or under very limited circumstances, the individual market. 
If these choices are not available, the insurance must be purchased 
through state-based options, including risk pools, State employee 
programs, and State contracts with private insurance that must 
guarantee issuance of insurance without preexisting condition limits.
  What we have discovered is that States are not uniformly moving ahead 
to develop compliant programs. Twenty-nine States have made 
initiatives. I am proud to say my State of Illinois, in a bipartisan 
effort, has worked to protect their workers. That is why this 
legislation is so important today. Because, again, if you are from the 
21 States where your legislature and your Governor have not put a 
program in place to help these workers, they are cut out; and their 
opportunity to get health care coverage is taken away if you support 
the Democrat substitute. That is what this is all about.
  Vote ``no'' on the Democrat substitute to take away help for 
dislocated workers that need health care and vote ``yes'' on final 
passage to help these workers that need help.
  Mr. McDERMOTT. Mr. Speaker, I yield 3 minutes to the gentleman from 
Michigan (Mr. Levin).
  (Mr. LEVIN asked and was given permission to revise and extend his 
remarks.)
  Mr. LEVIN. Mr. Speaker, the gentleman from Illinois has repeated a 
claim that was made earlier by the gentlewoman from Connecticut, and it 
simply is wrong. Under the legislation that was passed here, the States 
are mandated to provide this coverage. Most of the States are providing 
it or are negotiating agreements with insurance carriers. There are 
only a small number of States with a much smaller number of employees 
who are constituents or residents who have not done this yet. They can 
provide this insurance, for example, by modifying their risk pools 
rules. It does not take legislation. It does not take an act by the 
Governor and by the State legislature. They can take this action.
  Now, look, we offered to sit down with the majority and work this 
out. For example, there could have been an alternative that if any 
State did not live up to the mandate, there could be insurance through 
the Federal plan. That was just one idea. But the majority refused to 
sit down with us to work this out. And what this is is backtracking. 
What this is is a foot in the door away from State plans, in addition 
to other plans that could be bought through COBRA and to allow 
individuals to buy individual insurance without the protections that 
are guaranteed in the legislation.
  So what is going to happen is there will be cherrypicking and a lot 
of employees are going to be left with only more expensive insurance to 
buy. That is the basic principle here. The basic principle. There is a 
State mandate. The States are fully capable of carrying them out, and 
the majority is using the fact that a few States or some States have 
not yet acted to essentially create this vacuum. That is what the 
majority is utilizing to change the kind of insurance that is going to 
be purchased by a number of the more healthy people covered by TAA, 
leaving everybody else in a worse situation.
  So, look, there is a State mandate here. The States can carry this 
out. And if you think not, and we offered to get a quick study of this, 
sit down with us and try to figure out an answer to a problem that I 
think does not really exist. You do not like these approaches that are 
based on State plans, on governmental plans. You prefer individual 
insurance where people can be cherrypicked by insurance companies. That 
is not the policy embedded in the TAA that was passed here. We should 
not turn our backs on what was passed here just a few months ago.
  Mr. PORTMAN. Mr. Speaker, I yield 3 minutes to the gentleman from 
Florida (Mr. Foley), my colleague on the Committee on Ways and Means.
  Mr. FOLEY. Mr. Speaker, I thank the gentleman from Ohio for yielding 
me this time and for his leadership on this issue. I want to respond 
briefly relative to the mandate which is constantly mentioned 
throughout the debate. We do not mandate that the States adopt. In 
fact, the Treasury has been working with the States to try and find 
ways for compliance.

[[Page H5593]]

  Obviously, in some States it requires legislative consent, and many 
of the legislators have returned home to their districts. Some are 
working with private providers, Blue Cross/Blue Shield and others, 
getting a waiver for them to make the changes to comply. So I think we 
have to make certain as we discuss this issue it does not sound like a 
forced issue on the States. We are working cooperatively with those 
States.
  Mr. Speaker, the amendment of the gentleman from Washington would in 
fact delete the health care provisions contained in the bill before the 
House. These provisions are extremely important and reflect a good- 
faith effort to make sure the previously adopted 65 percent tax credit 
for health insurance purchased by eligible TAA and PBGC beneficiaries 
is able to be used by all qualified individuals.
  What will the effect of the Democratic amendment be? It will 
virtually deny tens of thousands of laid-off workers any chance of 
getting the 65 percent tax credit for payments they made for health 
care. It will mean in about 21 States, which was mentioned by my 
colleague, the gentleman from Illinois (Mr. Weller), in 21 States there 
would be no qualified plan and, consequently, no tax credit for laid-
off workers. So their amendment is, in our view, antiworker and 
antihealth care.
  Let me restate the effect of removing from the bill the health care 
provision. The waiver provision will mean substantial numbers of 
additional policies will be in place for workers and their families 
while States continue, again let me underscore, States continue to work 
on developing compliant program options. Not mandates, develop 
compliant program options.
  According to the Joint Committee on Taxation, an additional 12,000 
individuals will exercise the waiver option in 2004 and utilize the tax 
credit to obtain health insurance for themselves and their families 
that would not be available under present law. A lot of families would 
be covered under this option.
  The choice here is clear: if we do not provide TAA and PBGC 
beneficiaries with an option they control in States which do not offer 
compliant policy, these people will simply be unable to take advantage 
of health insurance tax credits. We intend in our bill to provide a 
benefit to these eligible individuals when we pass the trade act.
  Let me inform my colleagues that we changed and improved the 
provisions that are now in the committee bill. First, the waiver will 
apply only to preexisting conditions and guaranteed-issue protections. 
It is narrowly tailored to remove obstacles to an individual's access 
to a qualified option. Second, the waiver will only apply in States 
that do not have a qualified option. Thus, the provision would benefit 
those who have no other opportunity to obtain health care coverage. And 
third, the waiver period is shorter. The waiver is a temporary 
provision designed to provide immediate access to health care tax 
credits. It is only available until December 31, 2004, which will allow 
States time to establish a qualified insurance plan.
  Mr. McDERMOTT. Mr. Speaker, I yield myself such time as I may 
consume.
  Listening to the other side, Mr. Speaker, I do not quite know where 
to start. It is not very often that the public gets a clear view of the 
naked desire of the Republican Party to not do something while 
appearing to do it. These taxpayer provisions to protect taxpayers 
could have passed 12 months ago; but at that time, a year ago, they 
stuck in a poison pill amendment, and it died in the Senate.
  Now, if they had only done it once, no one would have seen what was 
going on there. They passed the taxpayer bill, they put this amendment 
in, and they knew it would never come back; and that was the end of it. 
But they did not learn from that. They had the people fooled that they 
cared about taxpayers. But now they have come back a second time, and 
they do the same thing over again. They could have put a bill out here 
that everybody would have passed, that would have had 435 votes for it; 
but they had to put another poison pill in.
  They know this is not going to get through the Senate because, first 
of all, it was part of the fast track bill and votes were obtained from 
people on both sides of the aisle around the belief that they were 
going to look after workers' rights in trade negotiations. One of the 
things that happens is people lose their health care benefits when they 
lose their job because of trade. So we took care of that. And now my 
Republican colleagues come in here, and what is really amazing is they 
believe in devolution; that everything should be put down to the 
States; and what they are basically saying is that we are rewarding the 
States that have not done anything.
  Most States have acted under the bill and provided programs. They 
have followed all the rules. But we do have some laggards. Maybe my 
colleagues want to read that list again. Those laggards, those slothful 
ones, whatever they are, that do not care about their people, or 
whatever it is, they have not acted; and yet my colleagues are saying, 
okay, okay, we understand you really do care, so we are going to get 
rid of all the rules. What kind of incentive, what kind of message is 
that to send to the States? Hang back, do not do it, and we will change 
it to fit you; right?
  Now, that is no message to send. And the real message here is, and I 
do not know anybody who wants to see this, this bill occurred because 
the Republicans would not allow them to use COBRA or Medicaid. When 
these negotiations were going on, we wanted to put these people into 
Medicaid, give them coverage there, or allow them to extend their 
COBRA. But my Republican colleagues said oh, no, no, no, no, we have a 
new plan. We believe that tax credits are the answer. So we will give 
them 65 percent of the premium tax credit, and they will be able to go 
out and buy. And lo and behold it did not work.
  This is kind of the reverse of that movie called ``Field of Dreams'': 
If you build it, they will come. Well, the Republicans said if we build 
this tax credit around health insurance, they will come; and they have 
not come. So now they are saying, well, we are going to tweak it a 
little bit here and take away the consumer protections. And I think 
that is not fair. It makes it pretty hard to deal with the other side 
when one year they are saying they are going to do one thing, and in 
less than a year they are back here taking it out. What can we believe 
from them? Did my colleagues not think it was a good idea last time, so 
they just let it go through in order to get fast track, because they 
knew they could come back and repeal it? What was going on?
  I think my Republican colleagues ought to ask themselves what kind of 
a message it sends from their side to us when they want us to work on a 
bipartisan basis. We do not work very often on a bipartisan basis; but 
when we do, on the fast track bill, the Republicans undercut it the 
next time they stand up. In my view, that is not the way this body 
should operate.
  Now, what are some of the other things that are in here that we took 
out? We took out some things that the Republicans had in their taxpayer 
bill. We took out the ability to have tax-free interest on 
overpayments. If we look at the scoring of this bill, if we look at 
what the CBO said, they said they think a billion dollars is going to 
be paid in overpayments. Now, why would anybody overpay their taxes? 
Well, if this bill passes, they would get tax-free interest because the 
government has to pay interest on overpayments that are given back. It 
has always been taxable, but now it would not be. The CBO's estimate is 
that a billion dollars is going to be put into tax-free bonds, 
basically, in the IRS.
  Now, my view is that is not necessary. And the other thing is, my 
colleagues talk about wanting to revise the Tax Code, yet they come out 
here with a bill that is going to complicate it some more. They are 
going to give some people 2 more weeks. For what?

                              {time}  1245

  For 2 years they are going to give people who file electronically two 
more weeks. I asked the staff, where did this come from? Who asked for 
this?
  Mr. Speaker, no accountants that I know want two different dates. It 
turns out this is a provision that the last Treasury Secretary kind of 
thought was a great idea. Guys, he is gone. Let this idea go away. It 
is a bad idea. We do not need any more confusion in tax filing than we 
already have today.
  Finally, this issue of children. I do not know why they continue to 
tar

[[Page H5594]]

themselves with their own brush. They say they care about kids, and 
then they pass a bill through here that does not give the benefit to 
the poorest of the kids, not the poorest, the ones just above the 
poorest. Their folks make between $15,000 and $28,000, and they say to 
them, you do not get this money, this child tax credit. But they are 
willing to give it to people making $80,000, $90,000 all of the way up 
to $150,000. I do not know why Republicans would want to have that 
image.
  I stand over here and think, why would they be doing this? All I can 
think of is they thought it was an engine that would be able to drag 
some things through Congress which they could not get any other way. It 
makes no sense at all. If they really cared about these kids, they 
would pass this bill and with this amendment on it, and it would go 
into law immediately.
  I know the other side does not like the provision about companies 
that run away, but we are over there rebuilding Iraq, and some of the 
very companies that left the country and have established another 
office someplace else, the Cayman Islands or Bermuda or wherever, have 
the gall to come back here and bid on contracts to rebuild Iraq. They 
are willing to pay no taxes in this country, and then take American 
taxpayer money and make profit off it in Iraq. It is unbelievable that 
the other side of the aisle would set up a system like that unless they 
had friends in the oil industry or concrete-laying or dam-building or 
airport-rebuilding. All those issues are in this bill, and I say we 
should adopt this amendment if we want to protect the taxpayers. This 
amendment in the nature of a substitute would get through the Senate.
  Mr. PORTMAN. Mr. Speaker, I yield myself the balance of my time.
  Mr. Speaker, I think we have seen why this effort today is more 
politics than it is practical. We are now talking about Iraq. We have 
loaded this bill up with Iraq, and somehow that is going to get through 
the Senate. The reality is we have about 160 pages of new provisions 
here that have not been through the Committee on Ways and Means 
process, have not been reported out of the Senate Finance Committee; 
and they are, therefore, going to drag down all of the other good 
legislation in the underlying bill. We are talking about the substitute 
for good legislation.
  The gentleman from Washington has talked about the child credit. Here 
is the reality. If we really want the child credit to get resolved, to 
be sure we were giving fair and balanced relief to families with kids, 
Members would not tack it onto this, raising every issue from 
inversions to Iraq. Members would instead want to make that a 
streamlined process, as we did here in the House recently where we said 
we ought to be able to provide people who do not have Federal income 
tax liability with a little help, more help than we are already giving 
them because all those families already get help, thanks to 
Republicans, because in 2001 we passed tax legislation that for the 
first time ever, unlike what the Democrats did for the previous 40-plus 
years when they controlled this place, we provided tax credits that 
were refundable to people who do not pay Federal income taxes.
  The Democrats are saying now we ought to increase that refundability, 
which is scheduled to happen anyway in 2005, and instead what we ought 
to do, we ought not provide relief to people who do pay income taxes. 
That is absurd. We ought to do both. We are willing to increase it to 
15 percent, but for the Democrats to say but if you pay income taxes, 
you do not get the $1,000 credit, that makes no sense at all. That is 
what they want to do.
  Anyhow, that issue should not be on this bill because this bill has 
now become so complicated with this Democrat substitute that it would, 
if the Democrat substitute passed, not be able to make it through the 
Senate. The underlying legislation here is the result of years of work 
by people who are concerned about ordinary taxpayers and how to make 
our tax system work better. That is what it is. It is great 
legislation.
  The provision the gentleman criticized earlier is from the 
bipartisan, bicameral joint tax committee. There are anti-abuse 
provisions in it. He misreads the provision or he thinks it is not good 
law because he thinks taxpayers ought to be saddled with more liability 
than they should be.
  Let me talk about some of the great provisions that are in here that 
would not happen if this substitute goes through because we are not 
going to get this bill through if the substitute is part of it. We 
would not have an end to this first time penalty. Right now, even the 
most conscientious taxpayers who put a $1.40 stamp on their tax return 
envelope rather than $1.50, those people now end up having a penalty 
against them for minor errors, and we would not be able to fix that if 
the substitute goes through.
  Second, there would be no relief on the estimated tax penalty. We 
would still have people who are charged interest and have to pay tax, 
additional interest and penalties just for how they quarterly file 
their taxes. There would be no simplified filing for family businesses. 
There would be no prohibition and increased penalties for unauthorized 
browsing. How could Members be against that? Do Members think the IRS 
employees ought to be able to browse?
  And with regard to the so-called 10 deadly sins, we help the IRS and 
its employees to improve morale by reforming that and doing what the 
IRS commissioners strongly believe we ought to do, give them some 
flexibility.
  Mr. Speaker, the bottom line is we ought not to take these good 
provisions down because of a health care credit. All it does is provide 
12,000 families with the ability to access health care, that and the 
good IRS provisions ought to go. The substitute ought to be voted down. 
I urge my colleagues to vote no on the substitute and yes on the 
underlying bill.
  The SPEAKER pro tempore (Mr. Quinn). All time for debate has expired.
  Pursuant to House Resolution 282, the previous question is ordered on 
the bill and on the amendment in the nature of a substitute offered by 
the gentleman from Washington (Mr. McDermott).
  The question is on the amendment in the nature of a substitute 
offered by the gentleman from Washington (Mr. McDermott).
  The question was taken; and the Speaker pro tempore announced that 
the noes appeared to have it.
  Mr. McDERMOTT. Mr. Speaker, I object to the vote on the ground that a 
quorum is not present and make the point of order that a quorum is not 
present.
  The SPEAKER pro tempore. Evidently a quorum is not present.
  The Sergeant at Arms will notify absent Members.
  The vote was taken by electronic device, and there were--yeas 196, 
nays 226, not voting 12, as follows:

                             [Roll No. 291]

                               YEAS--196

     Abercrombie
     Ackerman
     Alexander
     Allen
     Andrews
     Baca
     Baird
     Baldwin
     Ballance
     Becerra
     Bell
     Berkley
     Berman
     Berry
     Bishop (GA)
     Bishop (NY)
     Blumenauer
     Boswell
     Boucher
     Boyd
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Capps
     Capuano
     Cardin
     Cardoza
     Carson (OK)
     Case
     Clay
     Clyburn
     Cooper
     Cramer
     Crowley
     Cummings
     Davis (AL)
     Davis (CA)
     Davis (FL)
     Davis (IL)
     Davis (TN)
     DeFazio
     DeGette
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley (CA)
     Doyle
     Edwards
     Emanuel
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank (MA)
     Frost
     Gonzalez
     Gordon
     Green (TX)
     Grijalva
     Gutierrez
     Harman
     Hill
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley (OR)
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind
     Kucinich
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lofgren
     Lowey
     Lucas (KY)
     Lynch
     Majette
     Maloney
     Markey
     Marshall
     Matheson
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McIntyre
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Michaud
     Millender-McDonald
     Miller (NC)
     Miller, George
     Mollohan
     Moore
     Moran (VA)
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Peterson (MN)
     Pomeroy
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Ross
     Rothman

[[Page H5595]]


     Roybal-Allard
     Ruppersberger
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanchez, Loretta
     Sanders
     Sandlin
     Schakowsky
     Schiff
     Scott (GA)
     Scott (VA)
     Serrano
     Sherman
     Skelton
     Slaughter
     Snyder
     Solis
     Spratt
     Stark
     Stenholm
     Strickland
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson (CA)
     Tierney
     Towns
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Van Hollen
     Velazquez
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Wexler
     Woolsey
     Wu
     Wynn

                               NAYS--226

     Aderholt
     Akin
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Bereuter
     Biggert
     Bilirakis
     Bishop (UT)
     Blackburn
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Bono
     Boozman
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cantor
     Capito
     Carter
     Castle
     Chabot
     Chocola
     Coble
     Cole
     Collins
     Cox
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Emerson
     English
     Everett
     Feeney
     Ferguson
     Flake
     Fletcher
     Foley
     Forbes
     Fossella
     Franks (AZ)
     Frelinghuysen
     Gallegly
     Garrett (NJ)
     Gerlach
     Gibbons
     Gilchrest
     Gillmor
     Gingrey
     Goode
     Goodlatte
     Goss
     Granger
     Graves
     Green (WI)
     Greenwood
     Gutknecht
     Hall
     Harris
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Hobson
     Hoekstra
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Isakson
     Issa
     Istook
     Janklow
     Jenkins
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Latham
     LaTourette
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lucas (OK)
     Manzullo
     McCotter
     McCrery
     McHugh
     McInnis
     McKeon
     Mica
     Miller (FL)
     Miller, Gary
     Moran (KS)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pearce
     Pence
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reynolds
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Royce
     Ryan (WI)
     Ryun (KS)
     Saxton
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Smith (MI)
     Smith (TX)
     Souder
     Stearns
     Sullivan
     Sweeney
     Tancredo
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Upton
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Young (AK)
     Young (FL)

                             NOT VOTING--12

     Cannon
     Carson (IN)
     Conyers
     Costello
     Delahunt
     Gephardt
     Hastings (FL)
     Kleczka
     Miller (MI)
     Smith (NJ)
     Smith (WA)
     Thompson (MS)


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mrs. Emerson) (during the vote). Members are 
advised that 2 minutes remain in this vote.

                              {time}  1312

  Messrs. BLUNT, EVERETT, OTTER and Mrs. CUBIN changed their vote from 
``yea'' to ``nay.''
  Ms. KAPTUR, Mr. HONDA and Ms. JACKSON-LEE of Texas changed their vote 
from ``nay'' to ``yea.''
  So the amendment in the nature of a substitute was rejected.
  The result of the vote was announced as above recorded.
  The SPEAKER pro tempore. The question is on the engrossment and third 
reading of the bill.
  The bill was ordered to be engrossed and read a third time, and was 
read the third time.


              Motion to Recommit Offered by Mr. Visclosky

  Mr. VISCLOSKY. Madam Speaker, I offer a motion to recommit.
  The SPEAKER pro tempore. Is the gentleman opposed to the bill?
  Mr. VISCLOSKY. Madam Speaker, I am in its present form.
  The SPEAKER pro tempore. The Clerk will report the motion to 
recommit.
  The Clerk read as follows:

       Mr. Visclosky moves to recommit the bill H.R. 1528 to the 
     Committee on Ways and Means with instructions to report the 
     same back to the House forthwith with the following 
     amendments:
       Strike section 309 of the bill and insert the following new 
     section (and amend the table of contents accordingly):

     SEC. 309. HEALTH CARE TAX CREDIT ENHANCEMENT.

       (a) Decrease in Age Eligibility Requirement.--Subparagraph 
     (A) of section 35(c)(4) (defining eligible PBGC pension 
     recipient) is amended by striking ``age 55'' and inserting 
     ``age 50''.
       (b) Repeal of 3-Month Requirement of Existing Coverage.--
     Clause (i) of section 35(e)(2)(B) (defining qualifying 
     individual) is amended by striking ``9801(c)'' and inserting 
     ``9801(c) (prior to the employment separation necessary to 
     attain the status of an eligible individual)''.
       (c) Eligibility of Spouse of Certain Individuals Entitled 
     to Medicare.--Subsection (b) of section 35 (defining eligible 
     coverage month) is amended by adding at the end the 
     following:
       ``(3) Special rule for spouse of individual entitled to 
     Medicare.--Any month which would be an eligible coverage 
     month with respect to a taxpayer (determined without regard 
     to subsection (f)(2)(A)) shall be an eligible coverage month 
     for any spouse of such taxpayer.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to months beginning after September 30, 2003.

  Mr. VISCLOSKY (during the reading). Madam Speaker, I ask unanimous 
consent that the motion to recommit be considered as read and printed 
in the Record.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Indiana?
  There was no objection.
  The SPEAKER pro tempore. The gentleman from Indiana is recognized for 
5 minutes in support of his motion.

                              {time}  1315

  Mr. VISCLOSKY. Madam Speaker, I thank my colleagues for their 
attention. H.R. 1528, from my perspective, and in its current form, 
does not adequately address the needs of tens of thousands of workers 
who have lost their health benefits. I believe that section 309 would, 
in fact, hurt retirees by rolling back consumer protections currently 
in place. I do think it is unacceptable to now constrict the number of 
individuals eligible for health care tax credits.
  The motion to recommit is based on title I of H.R. 1999, which has 
111 bipartisan co-sponsors; and I believe title I represents a positive 
proactive solution to the health care problems retirees and other 
workers who have lost their jobs face. The motion to recommit builds 
upon the progress we made in the Trade Promotion Authority in this 
area. It does not create a new health area tax credit. It does not 
create a new Federal program; but rather, it removes obstacles in the 
current program to include more individuals, individual U.S. citizens 
who need assistance. The motion lowers the eligibility age from the 
current age of 55 to 50. The motion to recommit also allows spouses to 
receive the tax credit if they would otherwise be eligible and the 
recipient is over 64 years of age and receiving Medicare. Currently 
spouses of eligible individuals can receive the health care tax credit 
only while the eligible individual is between the ages of 55 and 64.
  And, finally, it allows the last 3 months of health care before TAA 
qualification or the PBGC takeover to count as a 3-month preexisting 
coverage requirement. Currently an eligible individual must pay full 
price for health care for 3 months before receiving the health care tax 
credit.
  This measure will help retirees from a wide range of industry, 
including textiles, airline mechanics, and other manufacturing firms 
whose pensions, including 2,800 firms, have been taken over by the 
PBGC.
  While many industry employees who have lost their jobs will be 
benefited, the industry I am most familiar with is the United States 
steel industry. Since 1998, 208,000 steelworkers have lost their health 
insurance; 51,000 of them are ineligible for Medicare. Many of these 
individuals are simply unable to afford health insurance at full cost, 
leaving them without modest health care coverage.
  This is not free coverage. I just want to ensure that retirees that 
were hurt by unfair trade or other circumstances beyond their control 
economically get back just a little bit of what they used to have that 
was taken away from them.
  I testified before the Committee on Rules 2 days ago on this measure 
wanting to offer an amendment, and one

[[Page H5596]]

question asked of me is, is there a cost? And I would respond to that 
question by saying there is a cost. There is a cost in doing nothing. 
In yesterday's Post Tribune from Gary Indiana, there was a headline 
that said more than 10,000 Bethlehem and LTD retirees find themselves 
without health insurance.
  Let me talk about one lucky individual, a gentleman who retired from 
Bethlehem Steel within the last year who had to make a decision about 
whether or not he would keep his health care from Bethlehem Steel or 
secure it through a public job that he had in Porter County, Indiana. 
Larry Sheets made the decision to take the insurance with a public 
entity in Porter County, Indiana. At the time, I thought he was wrong 
because of the health care provided by the company. After Mr. Sheets 
made his decision and after Bethlehem Steel had their health care 
canceled, he developed leukemia and within the last several weeks was 
released from Northwestern Hospital. He is alive today because he had 
health insurance. If he had decided the other way, to keep his health 
care from Bethlehem Steel, he would not have had any health care when 
he developed leukemia, and he would not be back from the hospital 
today. He would be dead.
  There is a cost in doing nothing. We have a government to help people 
who through no fault of their own have developed a problem, and I would 
hope that we still retain in this Chamber and in this country a heart 
that is generous and willing to help our citizens when they need it.
  Mr. McCRERY. Madam Speaker, I rise in opposition to the motion to 
recommit.
  The SPEAKER pro tempore (Mrs. Emerson). The gentleman from Louisiana 
(Mr. McCrery) is recognized for 5 minutes.
  Mr. McCRERY. Madam Speaker, the motion before us would basically make 
a bad situation worse, much worse. For those unemployed workers who do 
not have access to COBRA benefits, they depend upon the States to 
confect with insurance companies or through a State employee plan or 
through a high-risk pool a plan of insurance that comports with the 
provisions of the trade bill we adopted in the last Congress. The 
problem for some unemployed workers now is that their States have not 
yet perfected those plans; so if they do not have COBRA availability, 
they have nothing on which they could use their 65 percent health 
insurance tax credit. Nothing. It is not available to them.
  Right now we think by August about 30 States will have implemented a 
plan of insurance which will be available to unemployed workers that do 
not have COBRA. If this motion to recommit were to be adopted, made 
law, we would have zero States, not 30, zero States that would have 
insurance plans in place for those unemployed workers. Actually, we 
might have two. We might have two States. We are not sure. Maybe two 
out of 50 would have in place a plan that would be available for the 
tax credit for these unemployed workers.
  So I would urge this House to not make a bad situation worse. I would 
urge the House to adopt the underlying bill with the provision in it 
that will give some hope to those unemployed workers who do not have 
COBRA, who did not work for a big company, to get some health insurance 
for them and their families.
  Besides making a bad situation worse, the policy contained in the 
motion to recommit is simply bad policy. If we want to encourage 
employers to provide health insurance, there has got to be health 
insurance available. If we want the States to provide a plan of health 
insurance so that unemployed workers can take advantage of the tax 
credit, then we do not want to destroy the fundamentals of the 
insurance system which this motion to recommit would do. HIPAA, passed 
by Congress several years ago, addressed this issue of portability of 
health insurance and said in order to maintain a vibrant health 
insurance industry, we have got to provide for some prior coverage 
before a person can get insurance without being subject to guaranteed 
issue and preexisting conditions clauses in those contracts.
  So the Congress said they have got to have 18 months' prior coverage, 
and they must not have lost that coverage more than 63 days ago. This 
motion to recommit would say never mind the 63 days, they could have 
had prior coverage 20 years ago. What that would mean is people would 
just wait to get insurance until they get sick. Obviously, that 
destroys the whole concept of insurance, and for that reason this would 
be terrible policy if we are interested in keeping a private health 
insurance system in this country.
  So, Madam Speaker, I would urge a ``no'' vote on this motion to 
recommit, a ``yes'' vote on the underlying bill.
  The SPEAKER pro tempore. Without objection, the previous question is 
ordered on the motion to recommit.
  There was no objection.
  The SPEAKER pro tempore. The question is on the motion to recommit.
  The question was taken; and the Speaker pro tempore announced that 
the noes appeared to have it.


                             Recorded Vote

  Mr. VISCLOSKY. Madam Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The SPEAKER pro tempore. Pursuant to clause 9 of rule XX, the Chair 
will reduce to 5 minutes the minimum time for any electronic vote on 
the question of final passage.
  The vote was taken by electronic device, and there were--ayes 199, 
noes 226, not voting 9, as follows:

                             [Roll No. 292]

                               AYES--199

     Abercrombie
     Ackerman
     Alexander
     Allen
     Andrews
     Baca
     Baird
     Baldwin
     Ballance
     Becerra
     Bell
     Berkley
     Berman
     Berry
     Bishop (GA)
     Bishop (NY)
     Blumenauer
     Boswell
     Boucher
     Boyd
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Capps
     Capuano
     Cardin
     Cardoza
     Carson (OK)
     Case
     Clay
     Clyburn
     Cooper
     Cramer
     Crowley
     Cummings
     Davis (AL)
     Davis (CA)
     Davis (FL)
     Davis (IL)
     Davis (TN)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley (CA)
     Doyle
     Edwards
     Emanuel
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank (MA)
     Frost
     Gonzalez
     Gordon
     Green (TX)
     Grijalva
     Gutierrez
     Hall
     Harman
     Hill
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley (OR)
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind
     Kucinich
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lofgren
     Lowey
     Lucas (KY)
     Lynch
     Majette
     Maloney
     Markey
     Marshall
     Matheson
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McIntyre
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Michaud
     Millender-McDonald
     Miller (NC)
     Miller, George
     Mollohan
     Moore
     Moran (VA)
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Peterson (MN)
     Pomeroy
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Ross
     Rothman
     Roybal-Allard
     Ruppersberger
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanchez, Loretta
     Sanders
     Sandlin
     Schakowsky
     Schiff
     Scott (GA)
     Scott (VA)
     Serrano
     Sherman
     Skelton
     Slaughter
     Snyder
     Solis
     Spratt
     Stark
     Stenholm
     Strickland
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson (CA)
     Thompson (MS)
     Tierney
     Towns
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Van Hollen
     Velazquez
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Wexler
     Woolsey
     Wu
     Wynn

                               NOES--226

     Aderholt
     Akin
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Bereuter
     Biggert
     Bilirakis
     Bishop (UT)
     Blackburn
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Bono
     Boozman
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Carter
     Castle
     Chabot
     Chocola
     Coble
     Cole
     Collins
     Cox
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Emerson
     English
     Everett
     Feeney
     Ferguson
     Flake
     Fletcher
     Foley
     Forbes
     Fossella
     Franks (AZ)
     Frelinghuysen
     Gallegly
     Garrett (NJ)
     Gerlach
     Gibbons
     Gilchrest
     Gillmor
     Gingrey
     Goode
     Goodlatte
     Goss
     Granger
     Graves
     Green (WI)
     Greenwood
     Gutknecht
     Harris
     Hart
     Hastings (WA)
     Hayes

[[Page H5597]]


     Hayworth
     Hefley
     Hensarling
     Herger
     Hobson
     Hoekstra
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Isakson
     Issa
     Istook
     Janklow
     Jenkins
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Latham
     LaTourette
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lucas (OK)
     Manzullo
     McCotter
     McCrery
     McHugh
     McInnis
     McKeon
     Mica
     Miller (FL)
     Miller, Gary
     Moran (KS)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pearce
     Pence
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reynolds
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Royce
     Ryan (WI)
     Ryun (KS)
     Saxton
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Smith (MI)
     Smith (TX)
     Souder
     Stearns
     Sullivan
     Sweeney
     Tancredo
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Upton
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Young (AK)
     Young (FL)

                             NOT VOTING--9

     Carson (IN)
     Conyers
     Costello
     Gephardt
     Hastings (FL)
     Kleczka
     Miller (MI)
     Smith (NJ)
     Smith (WA)


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mrs. Emerson) (during the vote). There are 2 
minutes remaining to vote.

                              {time}  1346

  Mr. RUPPERSBERGER changed his vote from ``no'' to ``aye.''
  So the motion to recommit was rejected.
  The result of the vote was announced as above recorded.
  The SPEAKER pro tempore. The question is on the passage of the bill.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.


                             Recorded Vote

  Mr. PRICE of North Carolina. Madam Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The SPEAKER pro tempore. This will be a 5-minute vote.
  The vote was taken by electronic device, and there were--ayes 252, 
noes 170, not voting 12, as follows:

                             [Roll No. 293]

                               AYES--252

     Aderholt
     Akin
     Alexander
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Bereuter
     Biggert
     Bilirakis
     Bishop (NY)
     Bishop (UT)
     Blackburn
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Bono
     Boozman
     Boswell
     Boyd
     Bradley (NH)
     Brady (TX)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Cardoza
     Carson (OK)
     Carter
     Case
     Castle
     Chabot
     Chocola
     Coble
     Cole
     Collins
     Cramer
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis (AL)
     Davis (TN)
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeFazio
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Doolittle
     Dreier
     Duncan
     Dunn
     Edwards
     Ehlers
     Emerson
     Engel
     English
     Everett
     Feeney
     Ferguson
     Flake
     Fletcher
     Foley
     Forbes
     Fossella
     Franks (AZ)
     Frelinghuysen
     Gallegly
     Garrett (NJ)
     Gerlach
     Gibbons
     Gilchrest
     Gillmor
     Gingrey
     Goodlatte
     Goss
     Granger
     Graves
     Green (WI)
     Greenwood
     Gutknecht
     Hall
     Harris
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Hobson
     Hoekstra
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Isakson
     Israel
     Issa
     Istook
     Janklow
     Jenkins
     John
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Latham
     LaTourette
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     Lipinski
     LoBiondo
     Lucas (KY)
     Lucas (OK)
     Manzullo
     Marshall
     Matheson
     McCarthy (NY)
     McCotter
     McCrery
     McHugh
     McInnis
     McIntyre
     McKeon
     Mica
     Miller (FL)
     Miller, Gary
     Moran (KS)
     Moran (VA)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pearce
     Pence
     Peterson (MN)
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reynolds
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Royce
     Ryan (WI)
     Ryun (KS)
     Saxton
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Skelton
     Smith (MI)
     Smith (TX)
     Souder
     Stearns
     Stenholm
     Sullivan
     Sweeney
     Tancredo
     Tauzin
     Taylor (MS)
     Taylor (NC)
     Terry
     Thomas
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Turner (TX)
     Upton
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Wu
     Young (AK)
     Young (FL)

                               NOES--170

     Abercrombie
     Ackerman
     Allen
     Andrews
     Baca
     Baird
     Baldwin
     Ballance
     Becerra
     Bell
     Berkley
     Berman
     Berry
     Bishop (GA)
     Blumenauer
     Boucher
     Brady (PA)
     Brown, Corrine
     Capps
     Capuano
     Cardin
     Clay
     Clyburn
     Cooper
     Crowley
     Cummings
     Davis (CA)
     Davis (FL)
     Davis (IL)
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley (CA)
     Doyle
     Emanuel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank (MA)
     Frost
     Gonzalez
     Goode
     Gordon
     Green (TX)
     Grijalva
     Gutierrez
     Harman
     Hill
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley (OR)
     Hoyer
     Inslee
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind
     Kucinich
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lofgren
     Lowey
     Lynch
     Majette
     Maloney
     Markey
     Matsui
     McCarthy (MO)
     McCollum
     McDermott
     McGovern
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Michaud
     Millender-McDonald
     Miller (NC)
     Miller, George
     Mollohan
     Moore
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Pomeroy
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Ross
     Rothman
     Roybal-Allard
     Ruppersberger
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanchez, Loretta
     Sanders
     Sandlin
     Schakowsky
     Schiff
     Scott (GA)
     Scott (VA)
     Serrano
     Sherman
     Slaughter
     Snyder
     Solis
     Spratt
     Stark
     Strickland
     Stupak
     Tanner
     Tauscher
     Thompson (CA)
     Thompson (MS)
     Tierney
     Towns
     Udall (CO)
     Udall (NM)
     Van Hollen
     Velazquez
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Wexler
     Woolsey
     Wynn

                             NOT VOTING--12

     Brown (OH)
     Burns
     Carson (IN)
     Conyers
     Costello
     Cox
     Gephardt
     Hastings (FL)
     Kleczka
     Miller (MI)
     Smith (NJ)
     Smith (WA)


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mrs. Emerson) (during the vote). There are 2 
minutes left on this vote.

                              {time}  1352

  Mr. MORAN of Virginia changed his vote from ``aye'' to ``no.''
  So the bill was passed.
  The result of the vote was announced as above recorded.
  A motion to reconsider was laid on the table.

                          ____________________