[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.
____________________