[Congressional Record Volume 150, Number 15 (Monday, February 9, 2004)]
[Senate]
[Pages S724-S756]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           TEXT OF AMENDMENTS
SA 2273. Mr. SESSIONS submitted an amendment intended to be proposed by 
 him to the bill S. 1072, to authorize funds for Federal-aid highways, 
highway safety programs, and transit programs, and for other purposes; 
           which was ordered to lie on the table; as follows:

       At the appropriate place, insert the following:

     SEC. __. LIMITATION ON THE APPLICATION OF THE DAVIS-BACON 
                   ACT.

       The provisions of subchapter IV of chapter 31 of title 40, 
     United States Code (40 U.S.C. 3141 et seq.), commonly known 
     as the Davis-Bacon Act, shall not apply to projects that 
     receive funding under this Act (or an amendment made by this 
     Act).
                                 ______
                                 
  SA 2274. Mr. DAYTON submitted an amendment intended to be proposed by 
him to the bill S. 1072, to authorize funds for Federal-aid highways, 
highway safety programs, and transit programs, and for other purposes; 
which was ordered to lie on the table; as follows:

       On page 880, before line 7, insert the following:

     SEC. 16__. FEDERAL AGENCY ETHANOL-BLENDED GASOLINE AND 
                   BIODIESEL PURCHASING REQUIREMENT.

       Title III of the Energy Policy Act of 1992 is amended by 
     striking section 306 (42 U.S.C. 13215) and inserting the 
     following:

     ``SEC. 306. FEDERAL AGENCY ETHANOL-BLENDED GASOLINE AND 
                   BIODIESEL PURCHASING REQUIREMENT.

       ``(a) Ethanol-Blended Gasoline.--The head of each Federal 
     agency shall ensure that, in areas in which ethanol-blended 
     gasoline is available, the Federal agency purchases ethanol-
     blended gasoline containing at least 10 percent ethanol (or 
     the highest available percentage of ethanol), rather than 
     nonethanol-blended gasoline, for use in vehicles used by the 
     agency.
       ``(b) Biodiesel.--
       ``(1) Definition of biodiesel.--In this subsection, the 
     term `biodiesel' has the meaning given the term in section 
     312(f).
       ``(2) Requirement.--The head of each Federal agency shall 
     ensure that--
       ``(A) as of the date that is 5 years after the date of 
     enactment of this paragraph, in areas in which biodiesel is 
     available, the Federal agency purchases biodiesel-blended 
     diesel fuel that contains at least 5 percent biodiesel (or 
     the highest available percentage of biodiesel), rather than 
     nonbiodiesel-blended diesel fuel, for use in vehicles used by 
     the agency; and
       ``(B) as of the date that is 10 years after the date of 
     enactment of this paragraph, in areas in which biodiesel is 
     available, the Federal agency purchases biodiesel-blended 
     diesel fuel that contains at least 10 percent biodiesel (or 
     the highest available percentage of biodiesel), rather than 
     nonbiodiesel-blended diesel fuel, for use in vehicles used by 
     the agency.''.
                                 ______
                                 
  SA 2275. Mr. DAYTON submitted an amendment intended to be proposed by 
him to the bill S. 1072, to authorize funds for Federal-aid highways, 
highway safety programs, and transit programs, and for other purposes; 
which was ordered to lie on the table; as follows:

       At the appropriate place insert the following:

     SEC. __. INCENTIVES FOR BIODIESEL.

       (a) Credit for Biodiesel Used as a Fuel.--
       (1) In general.--Subpart D of part IV of subchapter A of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     business related credits) is amended by inserting after 
     section 40 the following new section:

     ``SEC. 40A. BIODIESEL USED AS FUEL.

       ``(a) General Rule.--For purposes of section 38, the 
     biodiesel fuels credit determined under this section for the 
     taxable year is an amount equal to the biodiesel mixture 
     credit.
       ``(b) Definition of Biodiesel Mixture Credit.--For purposes 
     of this section--
       ``(1) Biodiesel mixture credit.--
       ``(A) In general.--The biodiesel mixture credit of any 
     taxpayer for any taxable year

[[Page S725]]

     is the sum of the products of the biodiesel mixture rate for 
     each qualified biodiesel mixture and the number of gallons of 
     such mixture of the taxpayer for the taxable year.
       ``(B) Biodiesel mixture rate.--For purposes of subparagraph 
     (A), the biodiesel mixture rate for each qualified biodiesel 
     mixture shall be 1 cent for each whole percentage point (not 
     exceeding 20 percentage points) of biodiesel in such mixture.
       ``(2) Qualified biodiesel mixture.--
       ``(A) In general.--The term `qualified biodiesel mixture' 
     means a mixture of diesel and biodiesel which--
       ``(i) is sold by the taxpayer producing such mixture to any 
     person for use as a fuel, or
       ``(ii) is used as a fuel by the taxpayer producing such 
     mixture.
       ``(B) Sale or use must be in trade or business, etc.--
     Biodiesel used in the production of a qualified biodiesel 
     mixture shall be taken into account--
       ``(i) only if the sale or use described in subparagraph (A) 
     is in a trade or business of the taxpayer, and
       ``(ii) for the taxable year in which such sale or use 
     occurs.
       ``(C) Casual off-farm production not eligible.--No credit 
     shall be allowed under this section with respect to any 
     casual off-farm production of a qualified biodiesel mixture.
       ``(c) Coordination With Exemption From Excise Tax.--The 
     amount of the credit determined under this section with 
     respect to any biodiesel shall, under regulations prescribed 
     by the Secretary, be properly reduced to take into account 
     any benefit provided with respect to such biodiesel solely by 
     reason of the application of section 4041(n) or section 
     4081(f).
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Biodiesel defined.--
       ``(A) In general.--The term `biodiesel' means the monoalkyl 
     esters of long chain fatty acids derived from virgin 
     vegetable oils for use in compressional-ignition (diesel) 
     engines. Such term shall include esters derived from 
     vegetable oils from corn, soybeans, sunflower seeds, 
     cottonseeds, canola, crambe, rapeseeds, safflowers, 
     flaxseeds, rice bran, and mustard seeds.
       ``(B) Registration requirements.--Such term shall only 
     include a biodiesel which meets--
       ``(i) the registration requirements for fuels and fuel 
     additives established by the Environmental Protection Agency 
     under section 211 of the Clean Air Act (42 U.S.C. 7545), and
       ``(ii) the requirements of the American Society of Testing 
     and Materials D6751.
       ``(2) Biodiesel mixture not used as a fuel, etc.--
       ``(A) Imposition of tax.--If--
       ``(i) any credit was determined under this section with 
     respect to biodiesel used in the production of any qualified 
     biodiesel mixture, and
       ``(ii) any person--

       ``(I) separates the biodiesel from the mixture, or
       ``(II) without separation, uses the mixture other than as a 
     fuel,

     then there is hereby imposed on such person a tax equal to 
     the product of the biodiesel mixture rate applicable under 
     subsection (b)(1)(B) and the number of gallons of the 
     mixture.
       ``(B) Applicable laws.--All provisions of law, including 
     penalties, shall, insofar as applicable and not inconsistent 
     with this section, apply in respect of any tax imposed under 
     subparagraph (A) as if such tax were imposed by section 4081 
     and not by this chapter.
       ``(3) Pass-thru in the case of estates and trusts.--Under 
     regulations prescribed by the Secretary, rules similar to the 
     rules of subsection (d) of section 52 shall apply.
       ``(e) Election To Have Biodiesel Fuels Credit Not Apply.--
       ``(1) In general.--A taxpayer may elect to have this 
     section not apply for any taxable year.
       ``(2) Time for making election.--An election under 
     paragraph (1) for any taxable year may be made (or revoked) 
     at any time before the expiration of the 3-year period 
     beginning on the last date prescribed by law for filing the 
     return for such taxable year (determined without regard to 
     extensions).
       ``(3) Manner of making election.--An election under 
     paragraph (1) (or revocation thereof) shall be made in such 
     manner as the Secretary may by regulations prescribe.''.
       ``(f) Termination.--This section shall not apply to any 
     fuel sold after December 31, 2013.''.
       (2) Credit treated as part of general business credit.--
     Section 38(b) of such Code is amended by striking ``plus'' at 
     the end of paragraph (14), by striking the period at the end 
     of paragraph (15) and inserting ``, plus'', and by adding at 
     the end the following new paragraph:
       ``(16) the biodiesel fuels credit determined under section 
     40A.''.
       (3) Conforming amendments.--
       (A) Section 39(d) of such Code is amended by adding at the 
     end the following new paragraph:
       ``(11) No carryback of biodiesel fuels credit before 
     january 1, 2003.--No portion of the unused business credit 
     for any taxable year which is attributable to the biodiesel 
     fuels credit determined under section 40A may be carried back 
     to a taxable year beginning before January 1, 2003.''.
       (B) Section 196(c) of such Code is amended by striking 
     ``and'' at the end of paragraph (9), by striking the period 
     at the end of paragraph (10), and by adding at the end the 
     following new paragraph:
       ``(11) the biodiesel fuels credit determined under section 
     40A.''.
       (C) Section 6501(m) of such Code is amended by inserting 
     ``40A(e),'' after ``40(f),''.
       (D) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1 of such Code is amended by adding 
     after the item relating to section 40 the following new item:

``Sec. 40A. Biodiesel used as fuel.''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2003.
       (b) Reduction of Motor Fuel Excise Taxes on Biodiesel 
     Mixtures.--
       (1) In general.--Section 4081 of the Internal Revenue Code 
     of 1986 (relating to manufacturers tax on petroleum products) 
     is amended by adding at the end the following new subsection:
       ``(f) Biodiesel Mixtures.--Under regulations prescribed by 
     the Secretary--
       ``(1) In general.--In the case of the removal or entry of a 
     qualified biodiesel mixture, the rate of tax under subsection 
     (a) shall be the otherwise applicable rate reduced by the 
     biodiesel mixture rate (if any) applicable to the mixture.
       ``(2) Tax prior to mixing.--
       ``(A) In general.--In the case of the removal or entry of 
     diesel fuel for use in producing at the time of such removal 
     or entry a qualified biodiesel mixture, the rate of tax under 
     subsection (a) shall be the otherwise applicable rate, 
     reduced by the amount determined under subparagraph (B).
       ``(B) Applicable reduction.--For purposes of subparagraph 
     (A), the amount determined under this subparagraph is an 
     amount equal to the biodiesel mixture rate for the qualified 
     biodiesel mixture to be produced from the diesel fuel, 
     divided by a percentage equal to 100 percent minus the 
     percentage of biodiesel which will be in the mixture.
       ``(3) Definitions.--For purposes of this subsection, any 
     term used in this subsection which is also used in section 
     40A shall have the meaning given such term by section 40A.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (6) and (7) of subsection (c) shall apply for 
     purposes of this subsection.''.
       (2) Conforming amendments.--
       (A) Section 4041 of such Code is amended by adding at the 
     end the following new subsection:
       ``(n) Biodiesel Mixtures.--Under regulations prescribed by 
     the Secretary, in the case of the sale or use of a qualified 
     biodiesel mixture (as defined in section 40A(b)(2)), the 
     rates under paragraphs (1) and (2) of subsection (a) shall be 
     the otherwise applicable rates, reduced by any applicable 
     biodiesel mixture rate (as defined in section 
     40A(b)(1)(B)).''.
       (B) Section 6427 of such Code is amended by redesignating 
     subsection (p) as subsection (q) and by inserting after 
     subsection (o) the following new subsection:
       ``(p) Biodiesel Mixtures.--Except as provided in subsection 
     (k), if any diesel fuel on which tax was imposed by section 
     4081 at a rate not determined under section 4081(f) is used 
     by any person in producing a qualified biodiesel mixture (as 
     defined in section 40A(b)(2)) which is sold or used in such 
     person's trade or business, the Secretary shall pay (without 
     interest) to such person an amount equal to the per gallon 
     applicable biodiesel mixture rate (as defined in section 
     40A(b)(1)(B)) with respect to such fuel.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to any fuel sold after December 31, 2003, and 
     before January 1, 2014.
       (c) Highway Trust Fund Held Harmless.--There are hereby 
     transferred (from time to time) from the funds of the 
     Commodity Credit Corporation amounts equivalent to the 
     reductions that would occur (but for this subsection) in the 
     receipts of the Highway Trust Fund by reason of the 
     amendments made by this section. Such transfers shall be made 
     on the basis of estimates made by the Secretary of the 
     Treasury and adjustments shall be made to subsequent 
     transfers to reflect any errors in the estimates.
                                 ______
                                 
  SA 2276. Mr. DORGAN proposed an amendment to the bill S. 1072, to 
authorize funds for Federal-aid highways, highway safety programs, and 
transit programs, and for other purposes; as follows:

       At the appropriate place insert the following:

     SEC. 1409. OPEN CONTAINER REQUIREMENTS.

       Section 154 of title 23, United States Code, is amended by 
     striking subsection (c) and inserting the following:
       ``(c) Transfer of Funds.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, the Secretary shall withhold the applicable percentage 
     for the fiscal year of the amount required to be apportioned 
     for Federal-aid highways to any State under each of 
     paragraphs (1), (3), and (4) of section 104(b), if a State 
     has not enacted or is not enforcing a provision described in 
     subsection (b), as follows:

The applicable percentage is:
 2 percent.r 2008......................................................
 2 percent.r 2009......................................................
 2 percent.r 2010......................................................
 2 percent.r 2011 and each subsequent fiscal year......................
       ``(2) Restoration.--If (during the 4-year period beginning 
     on the date the apportionment for any State is reduced in 
     accordance

[[Page S726]]

     with this subsection) the Secretary determines that the State 
     has enacted and is enforcing a provision described in 
     subsection (b), the apportionment of the State shall be 
     increased by an amount equal to the amount of the reduction 
     made during the 4-year period.''.
                                 ______
                                 
  SA 2277. Ms. COLLINS submitted an amendment intended to be proposed 
by her to the bill S. 1072, to authorize funds for Federal-aid 
highways, highway safety programs0, and transit prorams, and for other 
purposes; which was ordered to lie on the table; as follows:

       On page 177, after line 7, add the following:

     SEC. 3044. INDEPENDENT TRANSPORTATION NETWORK GRANT PROGRAM.

       (a) In General.--Chapter 53, as amended by this Act, is 
     further amended by adding at the end the following:

     ``Sec. 5341. Independent transportation network grant program

       ``(a) Grants Authorized.--
       ``(1) In general.--The Secretary is authorized to award 
     grants to eligible entities to plan and implement community-
     based, non-profit transportation services (referred to in 
     this section as a `service') to provide affordable 
     transportation for elderly individuals and individuals with 
     visual impairments.
       ``(2) Maximum amounts.--
       ``(A) Planning grants.--The Secretary shall not award a 
     planning grant under subsection (b) in an amount which 
     exceeds $25,000.
       ``(B) Implementation grants.--The Secretary shall not award 
     an implementation grant under subsection (c) in an amount 
     which exceeds $500,000.
       ``(3) Eligible entities.--States, units of local 
     government, and non-profit organizations are eligible for 
     grants under this section.
       ``(b) Planning Grants.--
       ``(1) Application.--
       ``(A) In general.--Each eligible entity desiring a planning 
     grant under this section shall submit an application to the 
     Secretary at such time, in such manner, and containing such 
     information as the Secretary may reasonably require.
       ``(B) Selection criteria.--The Secretary, in consultation 
     with the Federal Transit Administrator, shall authorize 
     ITNAmerica to periodically convene a diverse panel of experts 
     who are familiar with the ITN business model, which shall 
     select successful grantees based on--
       ``(i) the economic sustainability of the proposed service;
       ``(ii) community participation in the development of the 
     service; and
       ``(iii) need for transportation services within the 
     geographic area of the service.
       ``(2) Use of funds.--Planning grants awarded under this 
     section shall be used to--
       ``(A) assess the transportation needs of elderly 
     individuals and individuals with visual impairments within 
     the geographic area of the service;
       ``(B) identify the resources available within the community 
     to meet the needs described in subparagraph (A); and
       ``(C) develop a detailed business plan for the 
     implementation of a service.
       ``(c) Implementation Grants.--
       ``(1) Application.--
       ``(A) In general.--Each planning grant recipient shall 
     submit an application for an implementation grant to the 
     Secretary that contains a detailed business plan for the 
     implementation of a service.
       ``(B) Selection criteria.--The Secretary, in consultation 
     with the Federal Transit Administrator, shall authorize 
     ITNAmerica to periodically convene a diverse panel of experts 
     who are familiar with the ITN business model, which shall 
     select successful grantees based on--
       ``(i) the economic sustainability of the proposed service;
       ``(ii) community participation in the development of the 
     service; and
       ``(iii) need for transportation services within the 
     geographic area of the service.
       ``(2) Use of funds.--Implementation grants awarded under 
     this section may be used to--
       ``(A) recruit transportation volunteers;
       ``(B) acquire and repair used automobiles; and
       ``(C) provide transportation services for elderly 
     individuals and individuals with visual impairments within 
     the geographic area of the service.
       ``(d) Matching Requirement.--Not more than 50 percent of 
     the amount expended on any activity funded through a planning 
     grant or implementation grant under this section may be 
     derived from government funds.
       ``(e) ITNAmerica.--
       ``(1) Administrative and technical support.--The Secretary 
     shall award a grant to ITNAmerica to provide administrative 
     and technical support to the other grantees under this 
     section.
       ``(2) Annual conference.--ITNAmerica shall convene a 
     conference during each of the fiscal years 2007, 2008, and 
     2009 to provide an opportunity for service directors to share 
     ideas and strategies.
       ``(3) Reporting requirements.--Not later than 60 days after 
     the end of each fiscal year for which it received financial 
     assistance under this subsection, ITNAmerica shall submit a 
     report to the Secretary regarding any activities funded under 
     this subsection.
       ``(f) Authorization of Appropriations.--
       ``(1) Planning grants.--There are authorized to be 
     appropriated to the Secretary for planning grants under 
     subsection (b)--
       ``(A) $2,500,000 for fiscal year 2005;
       ``(B) $1,350,000 for fiscal year 2006;
       ``(C) $1,100,000 for fiscal year 2007;
       ``(D) $1,000,000 for fiscal year 2008; and
       ``(E) $800,000 for fiscal year 2009.
       ``(2) Implementation grants.--There are authorized to be 
     appropriated to the Secretary for implementation grants under 
     subsection (c)--
       ``(A) $1,000,000 for fiscal year 2005;
       ``(B) $2,350,000 for fiscal year 2006;
       ``(C) $2,800,000 for fiscal year 2007;
       ``(D) $3,200,000 for fiscal year 2008; and
       ``(E) $3,600,000 for fiscal year 2009.
       ``(3) Administrative and technical support.--There are 
     authorized to be appropriated to the Secretary for the 
     administrative and technical support grant under subsection 
     (e)--
       ``(A) $1,500,000 for fiscal year 2005;
       ``(B) $1,300,000 for fiscal year 2006;
       ``(C) $1,100,000 for fiscal year 2007;
       ``(D) $700,000 for fiscal year 2008; and
       ``(E) $600,000 for fiscal year 2009.''.
       (b) Conforming Amendment.--The table of sections for 
     chapter 53 is amended by adding at the end the following:

``5341. Independent transportation network grant program.''.
                                 ______
                                 
  SA 2278. Ms. SNOWE (for herself and Ms. Collins) submitted an 
amendment intended to be proposed by her to the bill S. 1072, to 
authorize funds for Federal-aid highways, highway safety programs, and 
transit programs, and for other purposes; which was ordered to lie on 
the table; as follows:

       At the end of subtitle D of title I, add the following:

     SEC. 1409. COMMERCIAL TRUCK HIGHWAY SAFETY DEMONSTRATION 
                   PROGRAM.

       (a) Short Title.--This section may be cited as the 
     ``Commercial Truck Highway Safety Demonstration Program Act 
     of 2004''.
       (b) Findings.--Congress makes the following findings:
       (1) Public safety on the highways of the United States is a 
     paramount concern of all who use the highways and all who 
     prescribe public policy for the use of those highways, 
     including public policy on the operation of heavy commercial 
     trucks on highways.
       (2) Federal highway funding law effectively imposes a limit 
     of 80,000 pounds on the weight of vehicles permitted to use 
     Interstate System highways.
       (3) The administration of this law in Maine has forced 
     heavy tractor-trailer and tractor-semitrailer combination 
     vehicles traveling into Maine from neighboring States and 
     Canada to divert onto small State and local roads where 
     higher vehicle weight limits apply under Maine law.
       (4) The diversion of those vehicles onto such roads causes 
     significant economic hardships and safety challenges for 
     small communities located along those roads.
       (5) Permitting heavy commercial vehicles, including tanker 
     trucks carrying hazardous material and fuel oil, to travel on 
     Interstate System highways in Maine--
       (A) would enhance public safety by reducing--
       (i) the number of heavy vehicles that use town and city 
     streets in Maine; and
       (ii) as a result, the number of dangerous interactions 
     between those heavy vehicles and such other vehicles as 
     school buses and private vehicles; and
       (B) would reduce the net highway maintenance costs in Maine 
     because the Interstate System highways, unlike the secondary 
     roads of Maine, are built to accommodate heavy vehicles and 
     are, therefore, more durable.
       (c) Definitions.--In this section:
       (1) Covered interstate system highway.--
       (A) In general.--The term ``covered Interstate System 
     highway'' means a highway within the State of Maine that is 
     designated as a route on the Interstate System, except as 
     provided in subparagraph (B).
       (B) Exception.--The term does not include any portion of 
     highway that, as of the date of the enactment of this 
     section, is exempted from the requirements of subsection (a) 
     of section 127 of title 23, United States Code, by the last 
     sentence of such subsection.
       (2) Interstate system.--The term ``Interstate System'' has 
     the meaning given that term in section 101(a) of title 23, 
     United States Code.
       (d) Maine Truck Safety Demonstration Program.--The 
     Secretary of Transportation shall carry out a program, in the 
     administration of this section, to demonstrate the effects on 
     the safety of the overall highway network in the State of 
     Maine that would result from permitting vehicles described in 
     subsection (e)(2) to be operated on the Interstate System 
     highways within the State.
       (e) Waiver of Highway Funding Reduction Relating to Weight 
     of Vehicles Using Interstate System Highways.--
       (1) Prohibition relating to certain vehicles.--
     Notwithstanding section 127(a) of title 23, United States 
     Code, the total amount of funds apportioned to the State of 
     Maine under section 104(b)(1) of such title for any period 
     may not be reduced under such section 127(a) on the basis 
     that the State of Maine permits a vehicle described in 
     paragraph (2) to use a covered Interstate System highway.

[[Page S727]]

       (2) Combination vehicles in excess of 80,000 pounds.--A 
     vehicle referred to in paragraph (1) is a vehicle having a 
     weight in excess of 80,000 pounds that--
       (A) consists of a 3-axle tractor unit hauling a single 
     trailer or semitrailer; and
       (B) does not exceed any vehicle weight limitation that is 
     applicable under the laws of the State of Maine to the 
     operation of such vehicle on highways in Maine not in the 
     Interstate System, as such laws are in effect on the date of 
     the enactment of this section.
       (3) Effective date and termination.--
       (A) Effective date.--
       (i) Date of satisfaction of administrative conditions by 
     maine.--The prohibition in paragraph (1) shall take effect on 
     the date on which the Secretary of Transportation notifies 
     the Commissioner of Transportation of the State of Maine in 
     writing that--

       (I) the Secretary has received the plan described in 
     subsection (f)(1); and
       (II) the Commissioner has established a highway safety 
     committee as described in subsection (f)(2) and has 
     promulgated rules and procedures for the collection of 
     highway safety data as described in subsection (f)(3).

       (ii) Permanent effect.--After taking effect, the 
     prohibition in paragraph (1) shall remain in effect unless 
     terminated under subparagraph (B).
       (B) Contingent termination.--The prohibition in paragraph 
     (1) shall terminate 3 years after the effective date 
     applicable under subparagraph (A) if, before the end of such 
     3-year period, the Secretary of Transportation--
       (i) determines that--

       (I) operation of vehicles described in paragraph (2) on 
     covered Interstate System highways in Maine has adversely 
     affected safety on the overall highway network in Maine; or
       (II) the Commissioner of Transportation of the State of 
     Maine has failed faithfully to use the highway safety 
     committee as described in subsection (f)(2)(A) or to collect 
     data as described in subsection (f)(3); and

       (ii) publishes the determination, together with the date of 
     the termination of the prohibition, in the Federal Register.
       (4) Consultation regarding termination for safety.--In 
     making a determination under paragraph (3)(B)(i)(I), the 
     Secretary of Transportation shall consult with the highway 
     safety committee established by the Commissioner in 
     accordance with subsection (f).
       (f) Responsibilities of the State of Maine.--For the 
     purposes of subsection (e), the State of Maine satisfies the 
     conditions of this subsection if the Commissioner of 
     Transportation of the State of Maine--
       (1) submits to the Secretary of Transportation a plan for 
     satisfying the conditions set forth in paragraphs (2) and 
     (3);
       (2) establishes and chairs a highway safety committee 
     that--
       (A) the Commissioner uses to review the data collected 
     pursuant to paragraph (3); and
       (B) consists of representatives of--
       (i) agencies of the State of Maine that have 
     responsibilities related to highway safety;
       (ii) municipalities of the State of Maine;
       (iii) organizations that have evaluation or promotion of 
     highway safety among their principal purposes; and
       (iv) the commercial trucking industry; and
       (3) collects data on the net effects that the operation of 
     vehicles described in subsection (e)(2) on covered Interstate 
     System highways have on the safety of the overall highway 
     network in Maine, including the net effects on single-vehicle 
     and multiple-vehicle collision rates for such vehicles.
                                 ______
                                 
  SA 2279. Mr. WARNER (for himself, Mrs. Clinton, Mr. DeWine, and Mrs. 
Murray) submitted an amendment intended to be proposed by him to the 
bill S. 1072, to authorize funds for Federal-aid highways, highway 
safety programs, and transit programs, and for other purposes; which 
was ordered to lie on the table; as follows:

       On page 733, between lines 10 and 11, insert the following:
       ``(3) Primary safety belt law.--The term `primary safety 
     belt law' means a law that authorizes a law enforcement 
     officer to issue a citation for the failure of the operator 
     of, or any passenger in, a motor vehicle to wear a safety 
     belt as required by State law, based solely on that failure 
     and without regard to whether there is any other violation of 
     law.
       On page 733, line 11, strike ``(3)'' and insert ``(4)''.
       On page 733, line 23, strike ``(4)'' and insert ``(5)''.
       On page 734, line 4, strike ``(5)'' and insert ``(6)''.
       On page 741, strike line 7 and insert the following:

     ``made available under this section shall be 90 percent.
       ``(h) Use of Funds.--
       ``(1) Projects under section 402.--For fiscal year 2005 and 
     each fiscal year thereafter, 10 percent of the funds made 
     available to a State under this section shall be obligated 
     for projects under section 402, unless by October 1 of the 
     fiscal year, the State--
       ``(A) has in effect a primary safety belt law; or
       ``(B) demonstrates that the safety belt use rate in the 
     State is at least 90 percent.
       ``(2) Withholding.--
       ``(A) In general.--For fiscal year 2007, the Secretary 
     shall withhold 2 percent, and for each fiscal year 
     thereafter, the Secretary shall withhold 4 percent, of the 
     funds apportioned to a State under paragraphs (1), (3), and 
     (4) of section 104(b) and section 144 if, by October 1 of 
     that fiscal year, the State does not--
       ``(i) have in effect a primary safety belt law; or
       ``(ii) demonstrate that the safety belt use rate in the 
     State is at least 90 percent.
       ``(B) Restoration.--If, by the date that is 3 years after 
     the date on which funds are withheld from a State under 
     subparagraph (A), the State has in effect a primary safety 
     belt law or has demonstrated that the safety belt use rate in 
     the State is at least 90 percent, the apportionment of the 
     State shall be increased by the amount withheld.
       ``(C) Lapse.--If, by the date that is 3 years after the 
     date on which funds are withheld from a State under 
     subparagraph (A), the State does not have in effect a primary 
     safety belt law or has not demonstrated that the safety belt 
     use rate in the State is at least 90 percent, the amount 
     withheld shall lapse.''.
                                 ______
                                 
  SA 2280. Mr. GRASSLEY (for himself and Mr. Baucus) submitted an 
amendment intended to be proposed by him to the bill S. 1072, to 
authorize funds for Federal-aid highways, highway safety programs, and 
transit programs, and for other purposes; which was ordered to lie on 
the table; as follows:

       After title IV insert the following:

     TITLE V--HIGHWAY REAUTHORIZATION AND EXCISE TAX SIMPLIFICATION

     SEC. 5000. SHORT TITLE; AMENDMENT OF 1986 CODE.

       (a) Short Title.--This title may be cited as the ``Highway 
     Reauthorization and Excise Tax Simplification Act of 2004''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this title 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.

                 Subtitle A--Trust Fund Reauthorization

     SEC. 5001. EXTENSION OF HIGHWAY TRUST FUND AND AQUATIC 
                   RESOURCES TRUST FUND EXPENDITURE AUTHORITY AND 
                   RELATED TAXES.

       (a) Highway Trust Fund Expenditure Authority.--
       (1) Highway account.--Paragraph (1) of section 9503(c) 
     (relating to transfers from Highway Trust Fund for certain 
     repayments and credits) is amended--
       (A) in the matter before subparagraph (A), by striking 
     ``March 1, 2004'' and inserting ``October 1, 2009'',
       (B) by striking ``or'' at the end of subparagraph (E),
       (C) by striking the period at the end of subparagraph (F) 
     and inserting ``, or'',
       (D) by inserting after subparagraph (F), the following new 
     subparagraph:
       ``(G) authorized to be paid out of the Highway Trust Fund 
     under the Safe, Accountable, Flexible, and Efficient 
     Transportation Equity Act of 2004.'', and
       (E) in the matter after subparagraph (G), as added by 
     subparagraph (D), by striking ``Surface Transportation 
     Extension Act of 2003'' and inserting ``Safe, Accountable, 
     Flexible, and Efficient Transportation Equity Act of 2004''.
       (2) Mass transit account.--Paragraph (3) of section 9503(e) 
     (relating to establishment of Mass Transit Account) is 
     amended--
       (A) in the matter before subparagraph (A), by striking 
     ``March 1, 2004'' and inserting ``October 1, 2009'',
       (B) by striking ``or'' at the end of subparagraph (C),
       (C) by striking the period at the end of subparagraph (D) 
     and inserting ``, or'',
       (D) by inserting after subparagraph (D), the following new 
     subparagraph:
       ``(E) the Safe, Accountable, Flexible, and Efficient 
     Transportation Equity Act of 2004,'', and
       (E) in the matter after subparagraph (E), as added by 
     subparagraph (D), by striking ``Surface Transportation 
     Extension Act of 2003'' and inserting ``Safe, Accountable, 
     Flexible, and Efficient Transportation Equity Act of 2004''.
       (3) Exception to limitation on transfers.--Subparagraph (B) 
     of section 9503(b)(5) (relating to limitation on transfers to 
     Highway Trust Fund) is amended by striking ``March 1, 2004'' 
     and inserting ``October 1, 2009''.
       (b) Aquatic Resources Trust Fund Expenditure Authority.--
       (1) Sport fish restoration account.--Paragraph (2) of 
     section 9504(b) (relating to Sport Fish Restoration Account) 
     is amended by striking ``Surface Transportation Extension Act 
     of 2003'' each place it appears and inserting ``Safe, 
     Accountable, Flexible, and Efficient Transportation Equity 
     Act of 2004''.
       (2) Boat safety account.--Section 9504(c) (relating to 
     expenditures from Boat Safety Account) is amended--
       (A) by striking ``March 1, 2004'' and inserting ``October 
     1, 2009'', and
       (B) by striking ``Surface Transportation Extension Act of 
     2003'' and inserting ``Safe, Accountable, Flexible, and 
     Efficient Transportation Equity Act of 2004''.
       (3) Exception to limitation on transfers.--Paragraph (2) of 
     section 9504(d) (relating to limitation on transfers to 
     Aquatic Resources Trust Fund) is amended by striking ``March 
     1, 2004'' and inserting ``October 1, 2009''.
       (4) Technical correction.--The last sentence of paragraph 
     (2) of section 9504(b) is

[[Page S728]]

     amended by striking ``subparagraph (B)'', and inserting 
     ``subparagraph (C)''.
       (c) Extension of Taxes.--
       (1) In general.--The following provisions are each amended 
     by striking ``2005'' each place it appears and inserting 
     ``2009'':
       (A) Section 4041(a)(1)(C)(iii)(I) (relating to rate of tax 
     on certain buses).
       (B) Section 4041(a)(2)(B) (relating to rate of tax on 
     special motor fuels).
       (C) Section 4041(m)(1)(A) (relating to certain alcohol 
     fuels produced from natural gas).
       (D) Section 4051(c) (relating to termination of tax on 
     heavy trucks and trailers).
       (E) Section 4071(d) (relating to termination of tax on 
     tires).
       (F) Section 4081(d)(1) (relating to termination of tax on 
     gasoline, diesel fuel, and kerosene).
       (G) Section 4481(e) (relating to period tax in effect).
       (H) Section 4482(c)(4) (relating to taxable period).
       (I) Section 4482(d) (relating to special rule for taxable 
     period in which termination date occurs).
       (2) Floor stocks refunds.--Section 6412(a)(1) (relating to 
     floor stocks refunds) is amended--
       (A) by striking ``2005'' each place it appears and 
     inserting ``2009'', and
       (B) by striking ``2006'' each place it appears and 
     inserting ``2010''.
       (d) Extension of Certain Exemptions.--The following 
     provisions are each amended by striking ``2005'' and 
     inserting ``2009'':
       (1) Section 4221(a) (relating to certain tax-free sales).
       (2) Section 4483(g) (relating to termination of exemptions 
     for highway use tax).
       (e) Extension of Deposits Into, and Certain Transfers From, 
     Trust Fund.--
       (1) In general.--Subsections (b), (c)(2), (c)(3), 
     (c)(4)(A)(i), and (c)(5)(A) of section 9503 (relating to the 
     Highway Trust Fund) are amended--
       (A) by striking ``2005'' each place it appears and 
     inserting ``2009'', and
       (B) by striking ``2006'' each place it appears and 
     inserting ``2010''.
       (2) Conforming amendments to land and water conservation 
     fund.--Section 201(b) of the Land and Water Conservation Fund 
     Act of 1965 (16 U.S.C. 460l-11(b)) is amended--
       (A) by striking ``2003'' and inserting ``2007'', and
       (B) by striking ``2004'' each place it appears and 
     inserting ``2008''.
       (f) Extension of Tax Benefits for Qualified Methanol and 
     Ethanol Fuel Produced From Coal.--Section 4041(b)(2) 
     (relating to qualified methanol and ethanol fuel) is 
     amended--
       (1) by striking ``2007'' in subparagraph (C)(ii) and 
     inserting ``2010'', and
       (2) by striking ``October 1, 2007'' in subparagraph (D) and 
     inserting ``January 1, 2011''.
       (g) Prohibition on Use of Highway Account for Rail 
     Projects.--Section 9503(c) (relating to transfers from 
     Highway Trust Fund for certain repayments and credits) is 
     amended by adding at the end the following new paragraph:
       ``(6) Prohibition on use of highway account for rail 
     projects.--With respect to projects beginning after the date 
     of the enactment of this paragraph, no amount shall be 
     available from the Highway Account (as defined in subsection 
     (e)(5)(B)) for any rail project.''.
       (h) Highway Trust Fund Expenditures for Highway Use Tax 
     Evasion Projects.--From amounts available in the Highway 
     Trust Fund, there is authorized to be expended such sums as 
     are necessary for highway use tax evasion projects.
       (i) Effective Date.--The amendments made by and provisions 
     of this section shall take effect on the date of the 
     enactment of this Act.

     SEC. 5002. FULL ACCOUNTING OF FUNDS RECEIVED BY THE HIGHWAY 
                   TRUST FUND.

       (a) In General.--Section 9503(c) (relating to transfers 
     from Highway Trust Fund for certain repayments and credits), 
     as amended by section 5001 of this Act, is amended by 
     striking paragraph (2) and redesignating paragraphs (3), (4), 
     (5), and (6) as paragraphs (2), (3), (4), and (5), 
     respectively.
       (b) Interest on Unexpended Balances Credited to Trust 
     Fund.--Section 9503 (relating to the Highway Trust Fund) is 
     amended by striking subsection (f).
       (c) Conforming Amendments.--
       (1) Section 9503(b)(4)(D) is amended by striking 
     ``paragraph (4)(D) or (5)(B)'' and inserting ``paragraph 
     (3)(D) or (4)(B)''.
       (2) Paragraph (2) of section 9503(c) (as redesignated by 
     subsection (a)) is amended by adding at the end the following 
     new sentence: ``The amounts payable from the Highway Trust 
     Fund under this paragraph shall be determined by taking into 
     account only the portion of the taxes which are deposited 
     into the Highway Trust Fund.''.
       (3) Section 9504(a)(2) is amended by striking ``section 
     9503(c)(4), section 9503(c)(5)'' and inserting ``section 
     9503(c)(3), section 9503(c)(4)''.
       (4) Paragraph (2) of section 9504(b), as amended by section 
     5001 of this Act, is amended by striking ``section 
     9503(c)(5)'' and inserting ``section 9503(c)(4)''.
       (5) Section 9504(e) is amended by striking ``section 
     9503(c)(4)'' and inserting ``section 9503(c)(3)''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to amounts paid 
     for which no transfer from the Highway Trust Fund has been 
     made before April 1, 2004.
       (2) Interest credited.--The amendment made by subsection 
     (b) shall take effect on the date of the enactment of this 
     Act.

     SEC. 5003. MODIFICATION OF ADJUSTMENTS OF APPORTIONMENTS.

       (a) In General.--Section 9503(d) (relating to adjustments 
     for apportionments) is amended--
       (1) by striking ``24-month'' in paragraph (1)(B) and 
     inserting ``48-month'', and
       (2) by striking ``2 years''' in the heading for paragraph 
     (3) and inserting ``4 years'''.
       (b) Measurement of Net Highway Receipts.--Section 9503(d) 
     is amended by redesignating paragraph (6) as paragraph (7) 
     and by inserting after paragraph (5) the following new 
     paragraph:
       ``(6) Measurement of net highway receipts.--For purposes of 
     making any estimate under paragraph (1) of net highway 
     receipts for periods ending after the date specified in 
     subsection (b)(1), the Secretary shall treat--
       ``(A) each expiring provision of subsection (b) which is 
     related to appropriations or transfers to the Highway Trust 
     Fund to have been extended through the end of the 48-month 
     period referred to in paragraph (1)(B), and
       ``(B) with respect to each tax imposed under the sections 
     referred to in subsection (b)(1), the rate of such tax during 
     the 48-month period referred to in paragraph (1)(B) to be the 
     same as the rate of such tax as in effect on the date of such 
     estimate.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

            Subtitle B--Volumetric Ethanol Excise Tax Credit

     SEC. 5101. SHORT TITLE.

       This subtitle may be cited as the ``Volumetric Ethanol 
     Excise Tax Credit (VEETC) Act of 2004''.

     SEC. 5102. ALCOHOL AND BIODIESEL EXCISE TAX CREDIT AND 
                   EXTENSION OF ALCOHOL FUELS INCOME TAX CREDIT.

       (a) In General.--Subchapter B of chapter 65 (relating to 
     rules of special application) is amended by inserting after 
     section 6425 the following new section:

     ``SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.

       ``(a) Allowance of Credits.--There shall be allowed as a 
     credit against the tax imposed by section 4081 an amount 
     equal to the sum of--
       ``(1) the alcohol fuel mixture credit, plus
       ``(2) the biodiesel mixture credit.
       ``(b) Alcohol Fuel Mixture Credit.--
       ``(1) In general.--For purposes of this section, the 
     alcohol fuel mixture credit is the product of the applicable 
     amount and the number of gallons of alcohol used by the 
     taxpayer in producing any alcohol fuel mixture for sale or 
     use in a trade or business of the taxpayer.
       ``(2) Applicable amount.--For purposes of this subsection--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the applicable amount is 52 cents (51 cents in the case of 
     any sale or use after 2004).
       ``(B) Mixtures not containing ethanol.--In the case of an 
     alcohol fuel mixture in which none of the alcohol consists of 
     ethanol, the applicable amount is 60 cents.
       ``(3) Alcohol fuel mixture.--For purposes of this 
     subsection, the term `alcohol fuel mixture' means a mixture 
     of alcohol and a taxable fuel which--
       ``(A) is sold by the taxpayer producing such mixture to any 
     person for use as a fuel,
       ``(B) is used as a fuel by the taxpayer producing such 
     mixture, or
       ``(C) is removed from the refinery by a person producing 
     such mixture.
       ``(4) Other definitions.--For purposes of this subsection--
       ``(A) Alcohol.--The term `alcohol' includes methanol and 
     ethanol but does not include--
       ``(i) alcohol produced from petroleum, natural gas, or coal 
     (including peat), or
       ``(ii) alcohol with a proof of less than 190 (determined 
     without regard to any added denaturants).
     Such term also includes an alcohol gallon equivalent of ethyl 
     tertiary butyl ether or other ethers produced from such 
     alcohol.
       ``(B) Taxable fuel.--The term `taxable fuel' has the 
     meaning given such term by section 4083(a)(1).
       ``(5) Termination.--This subsection shall not apply to any 
     sale, use, or removal for any period after December 31, 2010.
       ``(c) Biodiesel Mixture Credit.--
       ``(1) In general.--For purposes of this section, the 
     biodiesel mixture credit is the product of the applicable 
     amount and the number of gallons of biodiesel used by the 
     taxpayer in producing any biodiesel mixture for sale or use 
     in a trade or business of the taxpayer.
       ``(2) Applicable amount.--For purposes of this subsection--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the applicable amount is 50 cents.
       ``(B) Amount for agri-biodiesel.--In the case of any 
     biodiesel which is agri-biodiesel, the applicable amount is 
     $1.00.
       ``(3) Biodiesel mixture.--For purposes of this section, the 
     term `biodiesel mixture' means a mixture of biodiesel and 
     diesel fuel (as defined in section 4083(a)(3)), determined 
     without regard to any use of kerosene, which--

[[Page S729]]

       ``(A) is sold by the taxpayer producing such mixture to any 
     person for use as a fuel,
       ``(B) is used as a fuel by the taxpayer producing such 
     mixture, or
       ``(C) is removed from the refinery by a person producing 
     such mixture.
       ``(4) Certification for biodiesel.--No credit shall be 
     allowed under this section unless the taxpayer obtains a 
     certification (in such form and manner as prescribed by the 
     Secretary) from the producer of the biodiesel which 
     identifies the product produced and the percentage of 
     biodiesel and agri-biodiesel in the product.
       ``(5) Other definitions.--Any term used in this subsection 
     which is also used in section 40A shall have the meaning 
     given such term by section 40A.
       ``(6) Termination.--This subsection shall not apply to any 
     sale, use, or removal for any period after December 31, 2006.
       ``(d) Mixture not used as a fuel, etc.--
       ``(1) Imposition of tax.--If--
       ``(A) any credit was determined under this section with 
     respect to alcohol or biodiesel used in the production of any 
     alcohol fuel mixture or biodiesel mixture, respectively, and
       ``(B) any person--
       ``(i) separates the alcohol or biodiesel from the mixture, 
     or
       ``(ii) without separation, uses the mixture other than as a 
     fuel,

     then there is hereby imposed on such person a tax equal to 
     the product of the applicable amount and the number of 
     gallons of such alcohol or biodiesel.
       ``(2) Applicable laws.--All provisions of law, including 
     penalties, shall, insofar as applicable and not inconsistent 
     with this section, apply in respect of any tax imposed under 
     paragraph (1) as if such tax were imposed by section 4081 and 
     not by this section.
       ``(e) Coordination With Exemption From Excise Tax.--Rules 
     similar to the rules under section 40(c) shall apply for 
     purposes of this section.''.
       (b) Registration Requirement.--Section 4101(a)(1) (relating 
     to registration), as amended by sections 5211 and 5242 of 
     this Act, is amended by inserting ``and every person 
     producing or importing biodiesel (as defined in section 
     40A(d)(1)) or alcohol (as defined in section 6426(b)(4)(A))'' 
     after ``4081''.
       (c) Additional Amendments.--
       (1) Section 40(c) is amended by striking ``subsection 
     (b)(2), (k), or (m) of section 4041, section 4081(c), or 
     section 4091(c)'' and inserting ``section 4041(b)(2), section 
     6426, or section 6427(e)''.
       (2) Paragraph (4) of section 40(d) is amended to read as 
     follows:
       ``(4) Volume of alcohol.--For purposes of determining under 
     subsection (a) the number of gallons of alcohol with respect 
     to which a credit is allowable under subsection (a), the 
     volume of alcohol shall include the volume of any denaturant 
     (including gasoline) which is added under any formulas 
     approved by the Secretary to the extent that such denaturants 
     do not exceed 5 percent of the volume of such alcohol 
     (including denaturants).''.
       (3) Section 40(e)(1) is amended--
       (A) by striking ``2007'' in subparagraph (A) and inserting 
     ``2010'', and
       (B) by striking ``2008'' in subparagraph (B) and inserting 
     ``2011''.
       (4) Section 40(h) is amended--
       (A) by striking ``2007'' in paragraph (1) and inserting 
     ``2010'', and
       (B) by striking ``, 2006, or 2007'' in the table contained 
     in paragraph (2) and inserting ``through 2010''.
       (5) Section 4041(b)(2)(B) is amended by striking ``a 
     substance other than petroleum or natural gas'' and inserting 
     ``coal (including peat)''.
       (6) Section 4041 is amended by striking subsection (k).
       (7) Section 4081 is amended by striking subsection (c).
       (8) Paragraph (2) of section 4083(a) is amended to read as 
     follows:
       ``(2) Gasoline.--The term `gasoline'--
       ``(A) includes any gasoline blend, other than qualified 
     methanol or ethanol fuel (as defined in section 
     4041(b)(2)(B)), partially exempt methanol or ethanol fuel (as 
     defined in section 4041(m)(2)), or a denatured alcohol, and
       ``(B) includes, to the extent prescribed in regulations--
       ``(i) any gasoline blend stock, and
       ``(ii) any product commonly used as an additive in gasoline 
     (other than alcohol).
     For purposes of subparagraph (B)(i), the term `gasoline blend 
     stock' means any petroleum product component of gasoline.''.
       (9) Section 6427 is amended by inserting after subsection 
     (d) the following new subsection:
       ``(e) Alcohol or Biodiesel Used To Produce Alcohol Fuel and 
     Biodiesel Mixtures or Used as Fuels.--Except as provided in 
     subsection (k)--
       ``(1) Used to produce a mixture.--If any person produces a 
     mixture described in section 6426 in such person's trade or 
     business, the Secretary shall pay (without interest) to such 
     person an amount equal to the alcohol fuel mixture credit or 
     the biodiesel mixture credit with respect to such mixture.
       ``(2) Used as fuel.--If alcohol (as defined in section 
     40(d)(1)) or biodiesel (as defined in section 40A(d)(1)) or 
     agri-biodiesel (as defined in section 40A(d)(2)) which is not 
     in a mixture described in section 6426--
       ``(A) is used by any person as a fuel in a trade or 
     business, or
       ``(B) is sold by any person at retail to another person and 
     placed in the fuel tank of such person's vehicle,
     the Secretary shall pay (without interest) to such person an 
     amount equal to the alcohol credit (as determined under 
     section 40(b)(2)) or the biodiesel credit (as determined 
     under section 40A(b)(2)) with respect to such fuel.
       ``(3) Coordination with other repayment provisions.--No 
     amount shall be payable under paragraph (1) with respect to 
     any mixture with respect to which an amount is allowed as a 
     credit under section 6426.
       ``(4) Termination.--This subsection shall not apply with 
     respect to--
       ``(A) any alcohol fuel mixture (as defined in section 
     6426(b)(3)) or alcohol (as so defined) sold or used after 
     December 31, 2010, and
       ``(B) any biodiesel mixture (as defined in section 
     6426(c)(3)) or biodiesel (as so defined) or agri-biodiesel 
     (as so defined) sold or used after December 31, 2006.''.
       (10) Section 6427(i)(3) is amended--
       (A) by striking ``subsection (f)'' both places it appears 
     in subparagraph (A) and inserting ``subsection (e)(1)'',
       (B) by striking ``gasoline, diesel fuel, or kerosene used 
     to produce a qualified alcohol mixture (as defined in section 
     4081(c)(3))'' in subparagraph (A) and inserting ``a mixture 
     described in section 6426'',
       (C) by adding at the end of subparagraph (A) the following 
     new flush sentence:
     ``In the case of an electronic claim, this subparagraph shall 
     be applied without regard to clause (i).'',
       (D) by striking ``subsection (f)(1)'' in subparagraph (B) 
     and inserting ``subsection (e)(1)'',
       (E) by striking ``20 days of the date of the filing of such 
     claim'' in subparagraph (B) and inserting ``45 days of the 
     date of the filing of such claim (20 days in the case of an 
     electronic claim)'', and
       (F) by striking ``alcohol mixture'' in the heading and 
     inserting ``alcohol fuel and biodiesel mixture''.
       (11) Section 9503(b)(1) is amended by adding at the end the 
     following new flush sentence:
     ``For purposes of this paragraph, taxes received under 
     sections 4041 and 4081 shall be determined without reduction 
     for credits under section 6426.''.
       (12) Section 9503(b)(4), as amended by section 5101 of this 
     Act, is amended--
       (A) by adding ``or'' at the end of subparagraph (C),
       (B) by striking the comma at the end of subparagraph 
     (D)(iii) and inserting a period, and
       (C) by striking subparagraphs (E) and (F).
       (13) The table of sections for subchapter B of chapter 65 
     is amended by inserting after the item relating to section 
     6425 the following new item:

``Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.''.
       (14) Tariff schedule.--Headings 9901.00.50 and 9901.00.52 
     of the Harmonized Tariff Schedule of the United States (19 
     U.S.C. 3007) are each amended in the effective period column 
     by striking ``10/1/2007'' each place it appears and inserting 
     ``1/1/2011''.
       (d) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to fuel sold or used after September 30, 2004.
       (2) Registration requirement.--The amendment made by 
     subsection (b) shall take effect on April 1, 2005.
       (3) Extension of alcohol fuels credit.--The amendments made 
     by paragraphs (3), (4), and (14) of subsection (c) shall take 
     effect on the date of the enactment of this Act.
       (4) Repeal of general fund retention of certain alcohol 
     fuels taxes.--The amendments made by subsection (c)(12) shall 
     apply to fuel sold or used after September 30, 2003.
       (e) Format for Filing.--The Secretary of the Treasury shall 
     describe the electronic format for filing claims described in 
     section 6427(i)(3)(B) of the Internal Revenue Code of 1986 
     (as amended by subsection (c)(10)(C)) not later than 
     September 30, 2004.

     SEC. 5103. BIODIESEL INCOME TAX CREDIT.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business related credits) is amended 
     by inserting after section 40 the following new section:

     ``SEC. 40A. BIODIESEL USED AS FUEL.

       ``(a) General Rule.--For purposes of section 38, the 
     biodiesel fuels credit determined under this section for the 
     taxable year is an amount equal to the sum of--
       ``(1) the biodiesel mixture credit, plus
       ``(2) the biodiesel credit.
       ``(b) Definition of Biodiesel Mixture Credit and Biodiesel 
     Credit.--For purposes of this section--
       ``(1) Biodiesel mixture credit.--
       ``(A) In general.--The biodiesel mixture credit of any 
     taxpayer for any taxable year is 50 cents for each gallon of 
     biodiesel used by the taxpayer in the production of a 
     qualified biodiesel mixture.
       ``(B) Qualified biodiesel mixture.--The term `qualified 
     biodiesel mixture' means a mixture of biodiesel and diesel 
     fuel (as defined in section 4083(a)(3)), determined without 
     regard to any use of kerosene, which--
       ``(i) is sold by the taxpayer producing such mixture to any 
     person for use as a fuel, or
       ``(ii) is used as a fuel by the taxpayer producing such 
     mixture.
       ``(C) Sale or use must be in trade or business, etc.--
     Biodiesel used in the production of a qualified biodiesel 
     mixture shall be taken into account--
       ``(i) only if the sale or use described in subparagraph (B) 
     is in a trade or business of the taxpayer, and

[[Page S730]]

       ``(ii) for the taxable year in which such sale or use 
     occurs.
       ``(D) Casual off-farm production not eligible.--No credit 
     shall be allowed under this section with respect to any 
     casual off-farm production of a qualified biodiesel mixture.
       ``(2) Biodiesel credit.--
       ``(A) In general.--The biodiesel credit of any taxpayer for 
     any taxable year is 50 cents for each gallon of biodiesel 
     which is not in a mixture with diesel fuel and which during 
     the taxable year--
       ``(i) is used by the taxpayer as a fuel in a trade or 
     business, or
       ``(ii) is sold by the taxpayer at retail to a person and 
     placed in the fuel tank of such person's vehicle.
       ``(B) User credit not to apply to biodiesel sold at 
     retail.--No credit shall be allowed under subparagraph (A)(i) 
     with respect to any biodiesel which was sold in a retail sale 
     described in subparagraph (A)(ii).
       ``(3) Credit for agri-biodiesel.--In the case of any 
     biodiesel which is agri-biodiesel, paragraphs (1)(A) and 
     (2)(A) shall be applied by substituting `$1.00' for `50 
     cents'.
       ``(4) Certification for biodiesel.--No credit shall be 
     allowed under this section unless the taxpayer obtains a 
     certification (in such form and manner as prescribed by the 
     Secretary) from the producer or importer of the biodiesel 
     which identifies the product produced and the percentage of 
     biodiesel and agri-biodiesel in the product.
       ``(c) Coordination With Credit Against Excise Tax.--The 
     amount of the credit determined under this section with 
     respect to any biodiesel shall be properly reduced to take 
     into account any benefit provided with respect to such 
     biodiesel solely by reason of the application of section 6426 
     or 6427(e).
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Biodiesel.--The term `biodiesel' means the monoalkyl 
     esters of long chain fatty acids derived from plant or animal 
     matter which meet--
       ``(A) the registration requirements for fuels and fuel 
     additives established by the Environmental Protection Agency 
     under section 211 of the Clean Air Act (42 U.S.C. 7545), and
       ``(B) the requirements of the American Society of Testing 
     and Materials D6751.
       ``(2) Agri-biodiesel.--The term `agri-biodiesel' means 
     biodiesel derived solely from virgin oils, including esters 
     derived from virgin vegetable oils from corn, soybeans, 
     sunflower seeds, cottonseeds, canola, crambe, rapeseeds, 
     safflowers, flaxseeds, rice bran, and mustard seeds, and from 
     animal fats.
       ``(3) Mixture or biodiesel not used as a fuel, etc.--
       ``(A) Mixtures.--If--
       ``(i) any credit was determined under this section with 
     respect to biodiesel used in the production of any qualified 
     biodiesel mixture, and
       ``(ii) any person--

       ``(I) separates the biodiesel from the mixture, or

       ``(II) without separation, uses the mixture other than as a 
     fuel,

     then there is hereby imposed on such person a tax equal to 
     the product of the rate applicable under subsection (b)(1)(A) 
     and the number of gallons of such biodiesel in such mixture.
       ``(B) Biodiesel.--If--
       ``(i) any credit was determined under this section with 
     respect to the retail sale of any biodiesel, and
       ``(ii) any person mixes such biodiesel or uses such 
     biodiesel other than as a fuel,

     then there is hereby imposed on such person a tax equal to 
     the product of the rate applicable under subsection (b)(2)(A) 
     and the number of gallons of such biodiesel.
       ``(C) Applicable laws.--All provisions of law, including 
     penalties, shall, insofar as applicable and not inconsistent 
     with this section, apply in respect of any tax imposed under 
     subparagraph (A) or (B) as if such tax were imposed by 
     section 4081 and not by this chapter.
       ``(4) Pass-thru in the case of estates and trusts.--Under 
     regulations prescribed by the Secretary, rules similar to the 
     rules of subsection (d) of section 52 shall apply.
       ``(e) Termination.--This section shall not apply to any 
     sale or use after December 31, 2006.''.
       (b) Credit Treated as Part of General Business Credit.--
     Section 38(b) (relating to current year business credit) is 
     amended by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following 
     new paragraph:
       ``(16) the biodiesel fuels credit determined under section 
     40A(a).''.
       (c) Conforming Amendments.--
       (1) Section 39(d) is amended by adding at the end the 
     following new paragraph:
       ``(11) No carryback of biodiesel fuels credit before 
     effective date.--No portion of the unused business credit for 
     any taxable year which is attributable to the biodiesel fuels 
     credit determined under section 40A may be carried back to a 
     taxable year ending on or before September 30, 2004.''.
       (2)(A) Section 87 is amended to read as follows:

     ``SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS.

       ``Gross income includes--
       ``(1) the amount of the alcohol fuels credit determined 
     with respect to the taxpayer for the taxable year under 
     section 40(a), and
       ``(2) the biodiesel fuels credit determined with respect to 
     the taxpayer for the taxable year under section 40A(a).''.
       (B) The item relating to section 87 in the table of 
     sections for part II of subchapter B of chapter 1 is amended 
     by striking ``fuel credit'' and inserting ``and biodiesel 
     fuels credits''.
       (3) Section 196(c) is amended by striking ``and'' at the 
     end of paragraph (9), by striking the period at the end of 
     paragraph (10) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(11) the biodiesel fuels credit determined under section 
     40A(a).''.
       (4) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1 is amended by adding after the item 
     relating to section 40 the following new item:

``Sec. 40A. Biodiesel used as fuel.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to fuel produced, and sold or used, after 
     September 30, 2004, in taxable years ending after such date.

                   Subtitle C--Fuel Fraud Prevention

     SEC. 5200. SHORT TITLE.

       This subtitle may be cited as the ``Fuel Fraud Prevention 
     Act of 2004''.

                       PART I--AVIATION JET FUEL

     SEC. 5211. TAXATION OF AVIATION-GRADE KEROSENE.

       (a) Rate of Tax.--
       (1) In general.--Subparagraph (A) of section 4081(a)(2) is 
     amended by striking ``and'' at the end of clause (ii), by 
     striking the period at the end of clause (iii) and inserting 
     ``, and'', and by adding at the end the following new clause:
       ``(iv) in the case of aviation-grade kerosene, 21.8 cents 
     per gallon.''.
       (2) Commercial aviation.--Paragraph (2) of section 4081(a) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(C) Taxes imposed on fuel used in commercial aviation.--
     In the case of aviation-grade kerosene which is removed from 
     any refinery or terminal directly into the fuel tank of an 
     aircraft for use in commercial aviation, the rate of tax 
     under subparagraph (A)(iv) shall be 4.3 cents per gallon.''.
       (3) Nontaxable uses.--
       (A) In general.--Section 4082 is amended by redesignating 
     subsections (e) and (f) as subsections (f) and (g), 
     respectively, and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Aviation-Grade Kerosene.--In the case of aviation-
     grade kerosene which is exempt from the tax imposed by 
     section 4041(c) (other than by reason of a prior imposition 
     of tax) and which is removed from any refinery or terminal 
     directly into the fuel tank of an aircraft, the rate of tax 
     under section 4081(a)(2)(A)(iv) shall be zero.''.
       (B) Conforming amendments.--
       (i) Subsection (b) of section 4082 is amended by adding at 
     the end the following new flush sentence: ``The term 
     `nontaxable use' does not include the use of aviation-grade 
     kerosene in an aircraft.''.
       (ii) Section 4082(d) is amended by striking paragraph (1) 
     and by redesignating paragraphs (2) and (3) as paragraphs (1) 
     and (2), respectively.
       (4) Nonaircraft use of aviation-grade kerosene.--
       (A) In general.--Subparagraph (B) of section 4041(a)(1) is 
     amended by adding at the end the following new sentence: 
     ``This subparagraph shall not apply to aviation-grade 
     kerosene.''.
       (B) Conforming amendment.--The heading for paragraph (1) of 
     section 4041(a) is amended by inserting ``and kerosene'' 
     after ``diesel fuel''.
       (b) Commercial Aviation.--Section 4083 is amended 
     redesignating subsections (b) and (c) as subsections (c) and 
     (d), respectively, and by inserting after subsection (a) the 
     following new subsection:
       ``(b) Commercial Aviation.--For purposes of this subpart, 
     the term `commercial aviation' means any use of an aircraft 
     in a business of transporting persons or property for 
     compensation or hire by air, unless properly allocable to any 
     transportation exempt from the taxes imposed by section 4261 
     and 4271 by reason of section 4281 or 4282 or by reason of 
     section 4261(h).''.
       (c) Refunds.--
       (1) In general.--Paragraph (4) of section 6427(l) is 
     amended to read as follows:
       ``(4) Refunds for aviation-grade kerosene.--
       ``(A) No refund of certain taxes on fuel used in commercial 
     aviation.--In the case of aviation-grade kerosene used in 
     commercial aviation (as defined in section 4083(b)) (other 
     than supplies for vessels or aircraft within the meaning of 
     section 4221(d)(3)), paragraph (1) shall not apply to so much 
     of the tax imposed by section 4081 as is attributable to--
       ``(i) the Leaking Underground Storage Tank Trust Fund 
     financing rate imposed by such section, and
       ``(ii) so much of the rate of tax specified in section 
     4081(a)(2)(A)(iv) as does not exceed 4.3 cents per gallon.
       ``(B) Payment to ultimate, registered vendor.--With respect 
     to aviation-grade kerosene, if the ultimate purchaser of such 
     kerosene waives (at such time and in such form and manner as 
     the Secretary shall prescribe) the right to payment under 
     paragraph (1) and assigns such right to the ultimate vendor, 
     then the Secretary shall pay the amount which would be paid 
     under paragraph (1) to such ultimate vendor, but only if such 
     ultimate vendor--
       ``(i) is registered under section 4101, and
       ``(ii) meets the requirements of subparagraph (A), (B), or 
     (D) of section 6416(a)(1).''.

[[Page S731]]

       (2) Time for filing claims.--Paragraph (4) of section 
     6427(i) is amended by striking ``subsection (l)(5)'' and 
     inserting ``paragraph (4)(B) or (5) of subsection (l)''.
       (3) Conforming amendment.--Subparagraph (B) of section 
     6427(l)(2) is amended to read as follows:
       ``(B) in the case of aviation-grade kerosene--
       ``(i) any use which is exempt from the tax imposed by 
     section 4041(c) other than by reason of a prior imposition of 
     tax, or
       ``(ii) any use in commercial aviation (within the meaning 
     of section 4083(b)).''.
       (d) Repeal of Prior Taxation of Aviation Fuel.--
       (1) In general.--Part III of subchapter A of chapter 32 is 
     amended by striking subpart B and by redesignating subpart C 
     as subpart B.
       (2) Conforming amendments.--
       (A) Section 4041(c) is amended to read as follows:
       ``(c) Aviation-Grade Kerosene.--
       ``(1) In general.--There is hereby imposed a tax upon 
     aviation-grade kerosene--
       ``(A) sold by any person to an owner, lessee, or other 
     operator of an aircraft for use in such aircraft, or
       ``(B) used by any person in an aircraft unless there was a 
     taxable sale of such fuel under subparagraph (A).
       ``(2) Exemption for previously taxed fuel.--No tax shall be 
     imposed by this subsection on the sale or use of any 
     aviation-grade kerosene if tax was imposed on such liquid 
     under section 4081 and the tax thereon was not credited or 
     refunded.
       ``(3) Rate of tax.--The rate of tax imposed by this 
     subsection shall be the rate of tax specified in section 
     4081(a)(2)(A)(iv) which is in effect at the time of such sale 
     or use.''.
       (B) Section 4041(d)(2) is amended by striking ``section 
     4091'' and inserting ``section 4081''.
       (C) Section 4041 is amended by striking subsection (e).
       (D) Section 4041 is amended by striking subsection (i).
       (E) Section 4041(m)(1) is amended to read as follows:
       ``(1) In general.--In the case of the sale or use of any 
     partially exempt methanol or ethanol fuel, the rate of the 
     tax imposed by subsection (a)(2) shall be--
       ``(A) after September 30, 1997, and before September 30, 
     2009--
       ``(i) in the case of fuel none of the alcohol in which 
     consists of ethanol, 9.15 cents per gallon, and
       ``(ii) in any other case, 11.3 cents per gallon, and
       ``(B) after September 30, 2009--
       ``(i) in the case of fuel none of the alcohol in which 
     consists of ethanol, 2.15 cents per gallon, and
       ``(ii) in any other case, 4.3 cents per gallon.''.
       (F) Sections 4101(a), 4103, 4221(a), and 6206 are each 
     amended by striking ``, 4081, or 4091'' and inserting ``or 
     4081''.
       (G) Section 6416(b)(2) is amended by striking ``4091 or''.
       (H) Section 6416(b)(3) is amended by striking ``or 4091'' 
     each place it appears.
       (I) Section 6416(d) is amended by striking ``or to the tax 
     imposed by section 4091 in the case of refunds described in 
     section 4091(d)''.
       (J) Section 6427 is amended by striking subsection (f).
       (K) Section 6427(j)(1) is amended by striking ``, 4081, and 
     4091'' and inserting ``and 4081''.
       (L)(i) Section 6427(l)(1) is amended to read as follows:
       ``(1) In general.--Except as otherwise provided in this 
     subsection and in subsection (k), if any diesel fuel or 
     kerosene on which tax has been imposed by section 4041 or 
     4081 is used by any person in a nontaxable use, the Secretary 
     shall pay (without interest) to the ultimate purchaser of 
     such fuel an amount equal to the aggregate amount of tax 
     imposed on such fuel under section 4041 or 4081, as the case 
     may be, reduced by any refund paid to the ultimate vendor 
     under paragraph (4)(B).''.
       (ii) Paragraph (5)(B) of section 6427(l) is amended by 
     striking ``Paragraph (1)(A) shall not apply to kerosene'' and 
     inserting ``Paragraph (1) shall not apply to kerosene (other 
     than aviation-grade kerosene)''.
       (M) Subparagraph (B) of section 6724(d)(1) is amended by 
     striking clause (xv) and by redesignating the succeeding 
     clauses accordingly.
       (N) Paragraph (2) of section 6724(d) is amended by striking 
     subparagraph (W) and by redesignating the succeeding 
     subparagraphs accordingly.
       (O) Paragraph (1) of section 9502(b) is amended by adding 
     ``and'' at the end of subparagraph (B) and by striking 
     subparagraphs (C) and (D) and inserting the following new 
     subparagraph:
       ``(C) section 4081 with respect to aviation gasoline and 
     aviation-grade kerosene, and''.
       (P) The last sentence of section 9502(b) is amended to read 
     as follows:

     ``There shall not be taken into account under paragraph (1) 
     so much of the taxes imposed by section 4081 as are 
     determined at the rate specified in section 4081(a)(2)(B).''.
       (Q) Subsection (b) of section 9508 is amended by striking 
     paragraph (3) and by redesignating paragraphs (4) and (5) as 
     paragraphs (3) and (4), respectively.
       (R) Section 9508(c)(2)(A) is amended by striking ``sections 
     4081 and 4091'' and inserting ``section 4081''.
       (S) The table of subparts for part III of subchapter A of 
     chapter 32 is amended to read as follows:

``Subpart A. Motor and aviation fuels.
``Subpart B. Special provisions applicable to fuels tax.''.
       (T) The heading for subpart A of part III of subchapter A 
     of chapter 32 is amended to read as follows:

                ``Subpart A--Motor and Aviation Fuels''.

       (U) The heading for subpart B of part III of subchapter A 
     of chapter 32 is amended to read as follows:

       ``Subpart B--Special Provisions Applicable to Fuels Tax''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to aviation-grade kerosene removed, entered, or 
     sold after September 30, 2004.
       (f) Floor Stocks Tax.--
       (1) In general.--There is hereby imposed on aviation-grade 
     kerosene held on October 1, 2004, by any person a tax equal 
     to--
       (A) the tax which would have been imposed before such date 
     on such kerosene had the amendments made by this section been 
     in effect at all times before such date, reduced by
       (B) the tax imposed before such date under section 4091 of 
     the Internal Revenue Code of 1986, as in effect on the day 
     before the date of the enactment of this Act.
       (2) Liability for tax and method of payment.--
       (A) Liability for tax.--The person holding the kerosene on 
     October 1, 2004, to which the tax imposed by paragraph (1) 
     applies shall be liable for such tax.
       (B) Method and time for payment.--The tax imposed by 
     paragraph (1) shall be paid at such time and in such manner 
     as the Secretary of the Treasury shall prescribe, including 
     the nonapplication of such tax on de minimis amounts of 
     kerosene.
       (3) Transfer of floor stock tax revenues to trust funds.--
     For purposes of determining the amount transferred to any 
     trust fund, the tax imposed by this subsection shall be 
     treated as imposed by section 4081 of the Internal Revenue 
     Code of 1986--
       (A) at the Leaking Underground Storage Tank Trust Fund 
     financing rate under such section to the extent of 0.1 cents 
     per gallon, and
       (B) at the rate under section 4081(a)(2)(A)(iv) to the 
     extent of the remainder.
       (4) Held by a person.--For purposes of this section, 
     kerosene shall be considered as held by a person if title 
     thereto has passed to such person (whether or not delivery to 
     the person has been made).
       (5) Other laws applicable.--All provisions of law, 
     including penalties, applicable with respect to the tax 
     imposed by section 4081 of such Code shall, insofar as 
     applicable and not inconsistent with the provisions of this 
     subsection, apply with respect to the floor stock tax imposed 
     by paragraph (1) to the same extent as if such tax were 
     imposed by such section.

     SEC. 5212. TRANSFER OF CERTAIN AMOUNTS FROM THE AIRPORT AND 
                   AIRWAY TRUST FUND TO THE HIGHWAY TRUST FUND TO 
                   REFLECT HIGHWAY USE OF JET FUEL.

       (a) In General.--Section 9502(d) is amended by adding at 
     the end the following new paragraph:
       ``(7) Transfers from the trust fund to the highway trust 
     fund to reflect highway use of jet fuel.--
       ``(A) In general.--The Secretary shall pay from the Airport 
     and Airway Trust Fund into the Highway Trust Fund--
       ``(i) $395,000,000 in fiscal year 2005,
       ``(ii) $425,000,000 in fiscal year 2006,
       ``(iii) $429,000,000 in fiscal year 2007,
       ``(iv) $432,000,000 in fiscal year 2008, and
       ``(v) $435,000,000 in fiscal year 2009.
       ``(B) Amounts transferred to mass transit account.--The 
     Secretary shall transfer 11 percent of the amounts paid into 
     the Highway Trust Fund under subparagraph (A) to the Mass 
     Transit Account established under section 9503(e).''.
       (b) Conforming Amendments.--
       (1) Subsection (a) of section 9503 is amended--
       (A) by striking ``appropriated or credited'' and inserting 
     ``paid, appropriated, or credited'', and
       (B) by striking ``or section 9602(b)'' and inserting ``, 
     section 9502(d)(7), or section 9602(b)''.
       (2) Subsection (e)(1) of section 9503 is amended by 
     striking ``or section 9602(b)'' and inserting ``, section 
     9502(d)(7), or section 9602(b)''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

                           PART II--DYED FUEL

     SEC. 5221. DYE INJECTION EQUIPMENT.

       (a) In General.--Section 4082(a)(2) (relating to exemptions 
     for diesel fuel and kerosene) is amended by inserting ``by 
     mechanical injection'' after ``indelibly dyed''.
       (b) Dye Injector Security.--Not later than June 30, 2004, 
     the Secretary of the Treasury shall issue regulations 
     regarding mechanical dye injection systems described in the 
     amendment made by subsection (a), and such regulations shall 
     include standards for making such systems tamper resistant.
       (c) Penalty for Tampering With or Failing To Maintain 
     Security Requirements for Mechanical Dye Injection Systems.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by adding after 
     section 6715 the following new section:

[[Page S732]]

     ``SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY 
                   REQUIREMENTS FOR MECHANICAL DYE INJECTION 
                   SYSTEMS.

       ``(a) Imposition of Penalty--
       ``(1) Tampering.--If any person tampers with a mechanical 
     dye injection system used to indelibly dye fuel for purposes 
     of section 4082, then such person shall pay a penalty in 
     addition to the tax (if any).
       ``(2) Failure to maintain security requirements.--If any 
     operator of a mechanical dye injection system used to 
     indelibly dye fuel for purposes of section 4082 fails to 
     maintain the security standards for such system as 
     established by the Secretary, then such operator shall pay a 
     penalty.
       ``(b) Amount of Penalty.--The amount of the penalty under 
     subsection (a) shall be--
       ``(1) for each violation described in paragraph (1), the 
     greater of--
       ``(A) $25,000, or
       ``(B) $10 for each gallon of fuel involved, and
       ``(2) for each--
       ``(A) failure to maintain security standards described in 
     paragraph (2), $1,000, and
       ``(B) failure to correct a violation described in paragraph 
     (2), $1,000 per day for each day after which such violation 
     was discovered or such person should have reasonably known of 
     such violation.
       ``(c) Joint and Several Liability.--
       ``(1) In general.--If a penalty is imposed under this 
     section on any business entity, each officer, employee, or 
     agent of such entity or other contracting party who willfully 
     participated in any act giving rise to such penalty shall be 
     jointly and severally liable with such entity for such 
     penalty.
       ``(2) Affiliated groups.--If a business entity described in 
     paragraph (1) is part of an affiliated group (as defined in 
     section 1504(a)), the parent corporation of such entity shall 
     be jointly and severally liable with such entity for the 
     penalty imposed under this section.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by adding after the 
     item related to section 6715 the following new item:

``Sec. 6715A. Tampering with or failing to maintain security 
              requirements for mechanical dye injection systems.''.
       (d) Effective Date.--The amendments made by subsections (a) 
     and (c) shall take effect 180 days after the date on which 
     the Secretary issues the regulations described in subsection 
     (b).

     SEC. 5222. ELIMINATION OF ADMINISTRATIVE REVIEW FOR TAXABLE 
                   USE OF DYED FUEL.

       (a) In General.--Section 6715 is amended by inserting at 
     the end the following new subsection:
       ``(e) No Administrative Appeal for Third and Subsequent 
     Violations.--In the case of any person who is found to be 
     subject to the penalty under this section after a chemical 
     analysis of such fuel and who has been penalized under this 
     section at least twice after the date of the enactment of 
     this subsection, no administrative appeal or review shall be 
     allowed with respect to such finding except in the case of a 
     claim regarding--
       ``(1) fraud or mistake in the chemical analysis, or
       ``(2) mathematical calculation of the amount of the 
     penalty.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to penalties assessed after the date of the 
     enactment of this Act.

     SEC. 5223. PENALTY ON UNTAXED CHEMICALLY ALTERED DYED FUEL 
                   MIXTURES.

       (a) In General.--Section 6715(a) (relating to dyed fuel 
     sold for use or used in taxable use, etc.) is amended by 
     striking ``or'' in paragraph (2), by inserting ``or'' at the 
     end of paragraph (3), and by inserting after paragraph (3) 
     the following new paragraph:
       ``(4) any person who has knowledge that a dyed fuel which 
     has been altered as described in paragraph (3) sells or holds 
     for sale such fuel for any use which the person knows or has 
     reason to know is not a nontaxable use of such fuel,''.
       (b) Conforming Amendment.--Section 6715(a)(3) is amended by 
     striking ``alters, or attempts to alter,'' and inserting 
     ``alters, chemically or otherwise, or attempts to so 
     alter,''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 5224. TERMINATION OF DYED DIESEL USE BY INTERCITY BUSES.

       (a) In General.--Paragraph (3) of section 4082(b) (relating 
     to nontaxable use) is amended to read as follows:
       ``(3) any use described in section 
     4041(a)(1)(C)(iii)(II).''.
       (b) Ultimate Vendor Refund.--Subsection (b) of section 6427 
     is amended by adding at the end the following new paragraph:
       ``(4) Refunds for use of diesel fuel in certain intercity 
     buses.--
       ``(A) In general.--With respect to any fuel to which 
     paragraph (2)(A) applies, if the ultimate purchaser of such 
     fuel waives (at such time and in such form and manner as the 
     Secretary shall prescribe) the right to payment under 
     paragraph (1) and assigns such right to the ultimate vendor, 
     then the Secretary shall pay the amount which would be paid 
     under paragraph (1) to such ultimate vendor, but only if such 
     ultimate vendor--
       ``(i) is registered under section 4101, and
       ``(ii) meets the requirements of subparagraph (A), (B), or 
     (D) of section 6416(a)(1).
       ``(B) Credit cards.--For purposes of this paragraph, if the 
     sale of such fuel is made by means of a credit card, the 
     person extending credit to the ultimate purchaser shall be 
     deemed to be the ultimate vendor.''.
       (c) Payment of Refunds.--Subparagraph (A) of section 
     6427(i)(4), as amended by section 5211 of this Act, is 
     amended by inserting ``subsections (b)(4) and'' after ``filed 
     under''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to fuel sold after September 30, 2004.

       PART III--MODIFICATION OF INSPECTION OF RECORDS PROVISIONS

     SEC. 5231. AUTHORITY TO INSPECT ON-SITE RECORDS.

       (a) In General.--Section 4083(d)(1)(A) (relating to 
     administrative authority), as amended by section 5211 of this 
     Act, is amended by striking ``and'' at the end of clause (i) 
     and by inserting after clause (ii) the following new clause:
       ``(iii) inspecting any books and records and any shipping 
     papers pertaining to such fuel, and''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 5232. ASSESSABLE PENALTY FOR REFUSAL OF ENTRY.

       (a) In General.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties), as amended by section 
     5221 of this Act, is amended by adding at the end the 
     following new section:

     ``SEC. 6717. REFUSAL OF ENTRY.

       ``(a) In General.--In addition to any other penalty 
     provided by law, any person who refuses to admit entry or 
     refuses to permit any other action by the Secretary 
     authorized by section 4083(d)(1) shall pay a penalty of 
     $1,000 for such refusal.
       ``(b) Joint and Several Liability.--
       ``(1) In general.--If a penalty is imposed under this 
     section on any business entity, each officer, employee, or 
     agent of such entity or other contracting party who willfully 
     participated in any act giving rise to such penalty shall be 
     jointly and severally liable with such entity for such 
     penalty.
       ``(2) Affiliated groups.--If a business entity described in 
     paragraph (1) is part of an affiliated group (as defined in 
     section 1504(a)), the parent corporation of such entity shall 
     be jointly and severally liable with such entity for the 
     penalty imposed under this section.
       ``(c) Reasonable Cause Exception.--No penalty shall be 
     imposed under this section with respect to any failure if it 
     is shown that such failure is due to reasonable cause.''.
       (b) Conforming Amendments.--
       (1) Section 4083(d)(3), as amended by section 5211 of this 
     Act, is amended--
       (A) by striking ``entry.--The penalty'' and inserting: 
     ``entry.--
       ``(A) Forfeiture.--The penalty'', and
       (B) by adding at the end the following new subparagraph:
       ``(B) Assessable penalty.--For additional assessable 
     penalty for the refusal to admit entry or other refusal to 
     permit an action by the Secretary authorized by paragraph 
     (1), see section 6717.''.
       (2) The table of sections for part I of subchapter B of 
     chapter 68, as amended by section 5221 of this Act, is 
     amended by adding at the end the following new item:

``Sec. 6717. Refusal of entry.''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

            PART IV--REGISTRATION AND REPORTING REQUIREMENTS

     SEC. 5241. REGISTRATION OF PIPELINE OR VESSEL OPERATORS 
                   REQUIRED FOR EXEMPTION OF BULK TRANSFERS TO 
                   REGISTERED TERMINALS OR REFINERIES.

       (a) In General.--Section 4081(a)(1)(B) (relating to 
     exemption for bulk transfers to registered terminals or 
     refineries) is amended--
       (1) by inserting ``by pipeline or vessel'' after 
     ``transferred in bulk'', and
       (2) by inserting ``, the operator of such pipeline or 
     vessel,'' after ``the taxable fuel''.
       (b) Civil Penalty for Carrying Taxable Fuels by 
     Nonregistered Pipelines or Vessels.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties), as amended by section 
     5232 of this Act, is amended by adding at the end the 
     following new section:

     ``SEC. 6718. CARRYING TAXABLE FUELS BY NONREGISTERED 
                   PIPELINES OR VESSELS.

       ``(a) Imposition of Penalty.--If any person knowingly 
     transfers any taxable fuel (as defined in section 4083(a)(1)) 
     in bulk pursuant to section 4081(a)(1)(B) to an unregistered, 
     such person shall pay a penalty in addition to the tax (if 
     any).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     amount of the penalty under subsection (a) on each act shall 
     be an amount equal to the greater of--
       ``(A) $10,000, or
       ``(B) $1 per gallon.
       ``(2) Multiple violations.--In determining the penalty 
     under subsection (a) on any person, paragraph (1) shall be 
     applied by increasing the amount in paragraph (1) by the 
     product of such amount and the number of prior penalties (if 
     any) imposed by this section on such person (or a related 
     person or any predecessor of such person or related person).
       ``(c) Joint and Several Liability.--
       ``(1) In general.--If a penalty is imposed under this 
     section on any business entity,

[[Page S733]]

     each officer, employee, or agent of such entity or other 
     contracting party who willfully participated in any act 
     giving rise to such penalty shall be jointly and severally 
     liable with such entity for such penalty.
       ``(2) Affiliated groups.--If a business entity described in 
     paragraph (1) is part of an affiliated group (as defined in 
     section 1504(a)), the parent corporation of such entity shall 
     be jointly and severally liable with such entity for the 
     penalty imposed under this section.
       ``(d) Reasonable Cause Exception.--No penalty shall be 
     imposed under this section with respect to any failure if it 
     is shown that such failure is due to reasonable cause.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68, as amended by section 5232 of 
     this Act, is amended by adding at the end the following new 
     item:

``Sec. 6718. Carrying taxable fuels by nonregistered pipelines or 
              vessels.''.

       (c) Publication of Registered Persons.--Not later than June 
     30, 2004, the Secretary of the Treasury shall publish a list 
     of persons required to be registered under section 4101 of 
     the Internal Revenue Code of 1986.
       (d) Effective Date.--The amendments made by subsections (a) 
     and (b) shall take effect on October 1, 2004.

     SEC. 5242. DISPLAY OF REGISTRATION.

       (a) In General.--Subsection (a) of section 4101 (relating 
     to registration) is amended--
       (1) by striking ``Every'' and inserting the following:
       ``(1) In general.--Every'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Display of registration.--Every operator of a vessel 
     required by the Secretary to register under this section 
     shall display proof of registration through an electronic 
     identification device prescribed by the Secretary on each 
     vessel used by such operator to transport any taxable 
     fuel.''.
       (b) Civil Penalty for Failure to Display Registration.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties), as amended by section 
     5241 of this Act, is amended by adding at the end the 
     following new section:

     ``SEC. 6719. FAILURE TO DISPLAY REGISTRATION OF VESSEL.

       ``(a) Failure to Display Registration.--Every operator of a 
     vessel who fails to display proof of registration pursuant to 
     section 4101(a)(2) shall pay a penalty of $500 for each such 
     failure. With respect to any vessel, only one penalty shall 
     be imposed by this section during any calendar month.
       ``(b) Multiple Violations.--In determining the penalty 
     under subsection (a) on any person, subsection (a) shall be 
     applied by increasing the amount in subsection (a) by the 
     product of such amount and the number of prior penalties (if 
     any) imposed by this section on such person (or a related 
     person or any predecessor of such person or related person).
       ``(c) Reasonable Cause Exception.--No penalty shall be 
     imposed under this section with respect to any failure if it 
     is shown that such failure is due to reasonable cause.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68, as amended by section 5241 of 
     this Act, is amended by adding at the end the following new 
     item:

``Sec. 6719. Failure to display registration of vessel.''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

     SEC. 5243. REGISTRATION OF PERSONS WITHIN FOREIGN TRADE 
                   ZONES, ETC..

       (a) In General.--Section 4101(a), as amended by section 
     5242 of this Act, is amended by redesignating paragraph (2) 
     as paragraph (3), and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Registration of persons within foreign trade zones, 
     etc..--The Secretary shall require registration by any person 
     which--
       ``(A) operates a terminal or refinery within a foreign 
     trade zone or within a customs bonded storage facility, or
       ``(B) holds an inventory position with respect to a taxable 
     fuel in such a terminal.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

     SEC. 5244. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO 
                   REPORT.

       (a) Increased Penalty.--Subsection (a) of section 7272 
     (relating to penalty for failure to register) is amended by 
     inserting ``($10,000 in the case of a failure to register 
     under section 4101)'' after ``$50''.
       (b) Increased Criminal Penalty.--Section 7232 (relating to 
     failure to register under section 4101, false representations 
     of registration status, etc.) is amended by striking 
     ``$5,000'' and inserting ``$10,000''.
       (c) Assessable Penalty for Failure to Register.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties), as amended by section 
     5242 of this Act, is amended by adding at the end the 
     following new section:

     ``SEC. 6720. FAILURE TO REGISTER.

       ``(a) Failure to Register.--Every person who is required to 
     register under section 4101 and fails to do so shall pay a 
     penalty in addition to the tax (if any).
       ``(b) Amount of Penalty.--The amount of the penalty under 
     subsection (a) shall be--
       ``(1) $10,000 for each initial failure to register, and
       ``(2) $1,000 for each day thereafter such person fails to 
     register.
       ``(c) Reasonable Cause Exception.--No penalty shall be 
     imposed under this section with respect to any failure if it 
     is shown that such failure is due to reasonable cause.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68, as amended by section 5242 of 
     this Act, is amended by adding at the end the following new 
     item:

``Sec. 6720. Failure to register.''.

       (d) Assessable Penalty for Failure to Report.--
       (1) In general.--Part II of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by adding at 
     the end the following new section:

     ``SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 
                   4101.

       ``(a) In General.--In the case of each failure described in 
     subsection (b) by any person with respect to a vessel or 
     facility, such person shall pay a penalty of $10,000 in 
     addition to the tax (if any).
       ``(b) Failures Subject to Penalty.--For purposes of 
     subsection (a), the failures described in this subsection 
     are--
       ``(1) any failure to make a report under section 4101(d) on 
     or before the date prescribed therefor, and
       ``(2) any failure to include all of the information 
     required to be shown on such report or the inclusion of 
     incorrect information.
       ``(c) Reasonable Cause Exception.--No penalty shall be 
     imposed under this section with respect to any failure if it 
     is shown that such failure is due to reasonable cause.''.
       (2) Clerical amendment.--The table of sections for part II 
     of subchapter B of chapter 68 is amended by adding at the end 
     the following new item:

``Sec. 6725. Failure to report information under section 4101.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to failures pending or occurring after September 
     30, 2004.

     SEC. 5245. INFORMATION REPORTING FOR PERSONS CLAIMING CERTAIN 
                   TAX BENEFITS.

       (a) In General.--Subpart C of part III of subchapter A of 
     chapter 32 is amended by adding at the end the following new 
     section:

     ``SEC. 4104. INFORMATION REPORTING FOR PERSONS CLAIMING 
                   CERTAIN TAX BENEFITS.

       ``(a) In General.--The Secretary shall require any person 
     claiming tax benefits--
       ``(1) under the provisions of section 34, 40, and 40A to 
     file a return at the time such person claims such benefits 
     (in such manner as the Secretary may prescribe), and
       ``(2) under the provisions of section 4041(b)(2), 6426, or 
     6427(e) to file a monthly return (in such manner as the 
     Secretary may prescribe).
       ``(b) Contents of Return.--Any return filed under this 
     section shall provide such information relating to such 
     benefits and the coordination of such benefits as the 
     Secretary may require to ensure the proper administration and 
     use of such benefits.
       ``(c) Enforcement.--With respect to any person described in 
     subsection (a) and subject to registration requirements under 
     this title, rules similar to rules of section 4222(c) shall 
     apply with respect to any requirement under this section.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart C of part III of subchapter A of chapter 32 is 
     amended by adding at the end the following new item:

``Sec. 4104. Information reporting for persons claiming certain tax 
              benefits.''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

                            PART V--IMPORTS

     SEC. 5251. TAX AT POINT OF ENTRY WHERE IMPORTER NOT 
                   REGISTERED.

       (a) Tax at Point of Entry Where Importer Not Registered.--
       (1) In general.--Subpart C of part III of subchapter A of 
     chapter 31, as amended by section 5245 of this Act, is 
     amended by adding at the end the following new section:

     ``SEC. 4105. TAX AT ENTRY WHERE IMPORTER NOT REGISTERED.

       ``(a) In General.--Any tax imposed under this part on any 
     person not registered under section 4101 for the entry of a 
     fuel into the United States shall be imposed at the time and 
     point of entry.
       ``(b) Enforcement of Assessment.--If any person liable for 
     any tax described under subsection (a) has not paid the tax 
     or posted a bond, the Secretary may--
       ``(1) seize the fuel on which the tax is due, or
       ``(2) detain any vehicle transporting such fuel,

     until such tax is paid or such bond is filed.
       ``(c) Levy of Fuel.--If no tax has been paid or no bond has 
     been filed within 5 days from the date the Secretary seized 
     fuel pursuant to subsection (b), the Secretary may sell such 
     fuel as provided under section 6336.''.
       (2) Conforming amendment.--The table of sections for 
     subpart C of part III of subchapter A of chapter 31 of the 
     Internal Revenue Code of 1986, as amended by section 5245 of 
     this Act, is amended by adding after the last item the 
     following new item:


[[Page S734]]


``Sec. 4105. Tax at entry where importer not registered.''.

       (b) Denial of Entry Where Tax Not Paid.--The Secretary of 
     Homeland Security is authorized to deny entry into the United 
     States of any shipment of a fuel which is taxable under 
     section 4081 of the Internal Revenue Code of 1986 if the 
     person entering such shipment fails to pay the tax imposed 
     under such section or post a bond in accordance with the 
     provisions of section 4105 of such Code.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 5252. RECONCILIATION OF ON-LOADED CARGO TO ENTERED 
                   CARGO.

       (a) In General.--Subsection (a) of section 343 of the Trade 
     Act of 2002 is amended by inserting at the end the following 
     new paragraph:
       ``(4) In General.--Subject to paragraphs (2) and (3), not 
     later than 1 year after the enactment of this paragraph, the 
     Secretary of Homeland Security, together with the Secretary 
     of the Treasury, shall promulgate regulations providing for 
     the transmission to the Internal Revenue Service, through an 
     electronic data interchange system, of information pertaining 
     to cargo of taxable fuels (as defined in section 4083 of the 
     Internal Revenue Code of 1986) destined for importation into 
     the United States prior to such importation.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

                   PART VI--MISCELLANEOUS PROVISIONS

     SEC. 5261. TAX ON SALE OF DIESEL FUEL WHETHER SUITABLE FOR 
                   USE OR NOT IN A DIESEL-POWERED VEHICLE OR 
                   TRAIN.

       (a) In General.--Section 4083(a)(3) is amended--
       (1) by striking ``The term'' and inserting the following:
       ``(A) In general.--The term'', and
       (2) by inserting at the end the following new subparagraph:
       ``(B) Liquid sold as diesel fuel.--The term `diesel fuel' 
     includes any liquid which is sold as or offered for sale as a 
     fuel in a diesel-powered highway vehicle or a diesel-powered 
     train.''.
       (b) Conforming Amendments.--
       (1) Section 40A(b)(1)(B), as amended by section 5103 of 
     this Act, is amended by striking ``4083(a)(3)'' and inserting 
     ``4083(a)(3)(A)''.
       (2) Section 6426(c)(3), as added by section 5102 of this 
     Act, is amended by striking ``4083(a)(3)'' and inserting 
     ``4083(a)(3)(A)''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 5262. MODIFICATION OF ULTIMATE VENDOR REFUND CLAIMS WITH 
                   RESPECT TO FARMING.

       (a) In General.--
       (1) Refunds.--Section 6427(l) is amended by adding at the 
     end the following new paragraph:
       ``(6) Registered vendors permitted to administer certain 
     claims for refund of diesel fuel and kerosene sold to 
     farmers.--
       ``(A) In general.--In the case of diesel fuel or kerosene 
     used on a farm for farming purposes (within the meaning of 
     section 6420(c)), paragraph (1) shall not apply to the 
     aggregate amount of such diesel fuel or kerosene if such 
     amount does not exceed 500 gallons (as determined under 
     subsection (i)(5)(A)(iii)).
       ``(B) Payment to ultimate vendor.--The amount which would 
     (but for subparagraph (A)) have been paid under paragraph (1) 
     with respect to any fuel shall be paid to the ultimate vendor 
     of such fuel, if such vendor--
       ``(i) is registered under section 4101, and
       ``(ii) meets the requirements of subparagraph (A), (B), or 
     (D) of section 6416(a)(1).''.
       (2) Filing of claims.--Section 6427(i) is amended by 
     inserting at the end the following new paragraph:
       ``(5) Special rule for vendor refunds with respect to 
     farmers.--
       ``(A) In general.--A claim may be filed under subsection 
     (l)(6) by any person with respect to fuel sold by such person 
     for any period--
       ``(i) for which $200 or more ($100 or more in the case of 
     kerosene) is payable under subsection (l)(6),
       ``(ii) which is not less than 1 week, and
       ``(iii) which is for not more than 500 gallons for each 
     farmer for which there is a claim.

     Notwithstanding subsection (l)(1), paragraph (3)(B) shall 
     apply to claims filed under the preceding sentence.
       ``(B) Time for filing claim.--No claim filed under this 
     paragraph shall be allowed unless filed on or before the last 
     day of the first quarter following the earliest quarter 
     included in the claim.''.
       (3) Conforming amendments.--
       (A) Section 6427(l)(5)(A) is amended to read as follows:
       ``(A) In general.--Paragraph (1) shall not apply to diesel 
     fuel or kerosene used by a State or local government.''.
       (B) The heading for section 6427(l)(5) is amended by 
     striking ``farmers and''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to fuels sold for nontaxable use after the date 
     of the enactment of this Act.

     SEC. 5263. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.

       (a) In General.--Paragraph (4) of section 6416(a) (relating 
     to abatements, credits, and refunds) is amended to read as 
     follows:
       ``(4) Registered ultimate vendor to administer credits and 
     refunds of gasoline tax.--
       ``(A) In general.--For purposes of this subsection, if an 
     ultimate vendor purchases any gasoline on which tax imposed 
     by section 4081 has been paid and sells such gasoline to an 
     ultimate purchaser described in subparagraph (C) or (D) of 
     subsection (b)(2) (and such gasoline is for a use described 
     in such subparagraph), such ultimate vendor shall be treated 
     as the person (and the only person) who paid such tax, but 
     only if such ultimate vendor is registered under section 
     4101. For purposes of this subparagraph, if the sale of 
     gasoline is made by means of a credit card, the person 
     extending the credit to the ultimate purchaser shall be 
     deemed to be the ultimate vendor.
       ``(B) Timing of claims.--The procedure and timing of any 
     claim under subparagraph (A) shall be the same as for claims 
     under section 6427(i)(4), except that the rules of section 
     6427(i)(3)(B) regarding electronic claims shall not apply 
     unless the ultimate vendor has certified to the Secretary for 
     the most recent quarter of the taxable year that all ultimate 
     purchasers of the vendor are certified and entitled to a 
     refund under subparagraph (C) or (D) of subsection (b)(2).''.
       (b) Credit Card Purchases of Diesel Fuel or Kerosene by 
     State and Local Governments.--Section 6427(l)(5)(C) (relating 
     to nontaxable uses of diesel fuel, kerosene, and aviation 
     fuel), as amended by section 5252 of this Act, is amended by 
     adding at the end the following new sentence: ``For purposes 
     of this subparagraph, if the sale of diesel fuel or kerosene 
     is made by means of a credit card, the person extending the 
     credit to the ultimate purchaser shall be deemed to be the 
     ultimate vendor.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

     SEC. 5264. TWO-PARTY EXCHANGES.

       (a) In General.--Subpart C of part III of subchapter A of 
     chapter 32, as amended by section 5251 of this Act, is 
     amended by adding at the end the following new section:

     ``SEC. 4106. TWO-PARTY EXCHANGES.

       ``(a) In General.--In a two-party exchange, the delivering 
     person shall not be liable for the tax imposed under of 
     section 4081(a)(1)(A)(ii).
       ``(b) Two-Party Exchange.--The term `two-party exchange' 
     means a transaction, other than a sale, in which taxable fuel 
     is transferred from a delivering person registered under 
     section 4101 as a taxable fuel registrant to a receiving 
     person who is so registered where all of the following occur:
       ``(1) The transaction includes a transfer from the 
     delivering person, who holds the inventory position for 
     taxable fuel in the terminal as reflected in the records of 
     the terminal operator.
       ``(2) The exchange transaction occurs before or 
     contemporaneous with completion of removal across the rack 
     from the terminal by the receiving person.
       ``(3) The terminal operator in its books and records treats 
     the receiving person as the person that removes the product 
     across the terminal rack for purposes of reporting the 
     transaction to the Secretary.
       ``(4) The transaction is the subject of a written 
     contract.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart C of part III of subchapter A of chapter 32, as 
     amended by section 5251 of this Act, is amended by adding 
     after the last item the following new item:

``Sec. 4106. Two-party exchanges.''.

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

     SEC. 5265. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.

       (a) No Proration of Tax Unless Vehicle Is Destroyed or 
     Stolen.--
       (1) In general.--Section 4481(c) (relating to proration of 
     tax) is amended to read as follows:
       ``(c) Proration of Tax Where Vehicle Sold, Destroyed, or 
     Stolen.--
       ``(1) In general.--If in any taxable period a highway motor 
     vehicle is sold, destroyed, or stolen before the first day of 
     the last month in such period and not subsequently used 
     during such taxable period, the tax shall be reckoned 
     proportionately from the first day of the month in such 
     period in which the first use of such highway motor vehicle 
     occurs to and including the last day of the month in which 
     such highway motor vehicle was sold, destroyed, or stolen.
       ``(2) Destroyed.--For purposes of paragraph (1), a highway 
     motor vehicle is destroyed if such vehicle is damaged by 
     reason of an accident or other casualty to such an extent 
     that it is not economic to rebuild.''.
       (2) Conforming amendments.--
       (A) Section 6156 (relating to installment payment of tax on 
     use of highway motor vehicles) is repealed.
       (B) The table of sections for subchapter A of chapter 62 is 
     amended by striking the item relating to section 6156.
       (b) Display of Tax Certificate.--Paragraph (2) of section 
     4481(d) (relating to one tax liability for period) is amended 
     to read as follows:
       ``(2) Display of tax certificate.--Every taxpayer which 
     pays the tax imposed under this section with respect to a 
     highway motor vehicle shall, not later than 1 month after the 
     due date of the return of tax with respect

[[Page S735]]

     to each taxable period, receive and display on such vehicle 
     an electronic identification device prescribed by the 
     Secretary.''.
       (c) Electronic Filing.--Section 4481, as amended by section 
     5001 of this Act, is amended by redesignating subsection (e) 
     as subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Electronic Filing.--Any taxpayer who files a return 
     under this section with respect to 25 or more vehicles for 
     any taxable period shall file such return electronically.''.
       (d) Repeal of Reduction in Tax for Certain Trucks.--Section 
     4483 of the Internal Revenue Code of 1986 is amended by 
     striking subsection (f).
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable 
     periods beginning after the date of the enactment of this 
     Act.
       (2) Subsection (b).--The amendment made by subsection (b) 
     shall take effect on October 1, 2005.

     SEC. 5266. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO 
                   THE HIGHWAY TRUST FUND.

       (a) In General.--Subsection (b) of section 9503 (relating 
     to transfer to Highway Trust Fund of amounts equivalent to 
     certain taxes), as amended by section 5001 of this Act, is 
     amended by redesignating paragraph (5) as paragraph (6) and 
     inserting after paragraph (4) the following new paragraph:
       ``(5) Certain penalties.--There are hereby appropriated to 
     the Highway Trust Fund amounts equivalent to the penalties 
     assessed under sections 6715, 6715A, 6717, 6718, 6719, 6720, 
     6725, 7232, and 7272 (but only with regard to penalties under 
     such section related to failure to register under section 
     4101).''.
       (b) Conforming Amendments.--
       (1) The heading of subsection (b) of section 9503 is 
     amended by inserting ``and Penalties'' after ``Taxes''.
       (2) The heading of paragraph (1) of section 9503(b) is 
     amended by striking ``In general'' and inserting ``Certain 
     taxes''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to penalties assessed after October 1, 2004.

     SEC. 5267. NONAPPLICATION OF EXPORT EXEMPTION TO DELIVERY OF 
                   FUEL TO MOTOR VEHICLES REMOVED FROM UNITED 
                   STATES.

       (a) In General.--Section 4221(d)(2) (defining export) is 
     amended by adding at the end the following new sentence: 
     ``Such term does not include the delivery of a taxable fuel 
     (as defined in section 4083(a)(1)) into a fuel tank of a 
     motor vehicle which is shipped or driven out of the United 
     States.''.
       (b) Conforming Amendments.--
       (1) Section 4041(g) (relating to other exemptions) is 
     amended by adding at the end the following new sentence: 
     ``Paragraph (3) shall not apply to the sale for delivery of a 
     liquid into a fuel tank of a motor vehicle which is shipped 
     or driven out of the United States.''.
       (2) Clause (iv) of section 4081(a)(1)(A) (relating to tax 
     on removal, entry, or sale) is amended by inserting ``or at a 
     duty-free sales enterprise (as defined in section 555(b)(8) 
     of the Tariff Act of 1930)'' after ``section 4101''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales or deliveries made after the date of the 
     enactment of this Act.

                     PART VII--TOTAL ACCOUNTABILITY

     SEC. 5271. TOTAL ACCOUNTABILITY.

       (a) Taxation of Reportable Liquids.--
       (1) In general.--Section 4081(a), as amended by this Act, 
     is amended--
       (A) by inserting ``or reportable liquid'' after ``taxable 
     fuel'' each place it appears, and
       (B) by inserting ``such liquid'' after ``such fuel'' in 
     paragraph (1)(A)(iv).
       (2) Rate of tax.--Subparagraph (A) of section 4081(a)(2), 
     as amended by section 5211 of this Act, is amended by 
     striking ``and'' at the end of clause (iii), by striking the 
     period at the end of clause (iv) and inserting ``, and'', and 
     by adding at the end the following new clause:
       ``(v) in the case of reportable liquids, the rate 
     determined under section 4083(c)(2).''.
       (3) Exemption.--Section 4081(a)(1) is amended by adding at 
     the end the following new subparagraph:
       ``(C) Exemption for registered transfers of reportable 
     liquids.--The tax imposed by this paragraph shall not apply 
     to any removal, entry, or sale of a reportable liquid if--
       ``(i) such removal, entry, or sale is to a registered 
     person who certifies that such liquid will not be used as a 
     fuel or in the production of a fuel, or
       ``(ii) the sale is to the ultimate purchaser of such 
     liquid.''.
       (4) Reportable liquids.--Section 4083, as amended by this 
     Act, is amended by redesignating subsections (c) and (d) (as 
     redesignated by section 5211 of this Act) as subsections (d) 
     and (e), respectively, and by inserting after subsection (b) 
     the following new section:
       ``(c) Reportable Liquid.--For purposes of this subpart--
       ``(1) In general.--The term `reportable liquid' means any 
     petroleum-based liquid other than a taxable fuel.
       ``(2) Taxation.--
       ``(A) Gasoline blend stocks and additives.--Gasoline blend 
     stocks and additives which are reportable liquids (as defined 
     in paragraph (1)) shall be subject to the rate of tax under 
     clause (i) of section 4081(a)(2)(A).
       ``(B) Other reportable liquids.--Any reportable liquid (as 
     defined in paragraph (1)) not described in subparagraph (A) 
     shall be subject to the rate of tax under clause (iii) of 
     section 4081(a)(2)(A).''.
       (5) Conforming amendments.--
       (A) Section 4081(e) is amended by inserting ``or reportable 
     liquid'' after ``taxable fuel''.
       (B) Section 4083(d) (relating to certain use defined as 
     removal), as redesignated by paragraph (4), is amended by 
     inserting ``or reportable liquid'' after ``taxable fuel''.
       (C) Section 4083(e)(1) (relating to administrative 
     authority), as redesignated by paragraph (4), is amended--
       (i) in subparagraph (A)--

       (I) by inserting ``or reportable liquid'' after ``taxable 
     fuel'', and
       (II) by inserting ``or such liquid'' after ``such fuel'' 
     each place it appears, and

       (ii) in subparagraph (B), by inserting ``or any reportable 
     liquid'' after ``any taxable fuel''.
       (D) Section 4101(a)(2), as added by section 5243 of this 
     Act, is amended by inserting ``or a reportable liquid'' after 
     ``taxable fuel''.
       (E) Section 4101(a)(3), as added by section 5242 of this 
     Act and redesignated by section 5243 of this Act, is amended 
     by inserting ``or any reportable liquid'' before the period 
     at the end.
       (F) Section 4102 is amended by inserting ``or any 
     reportable liquid'' before the period at the end.
       (G)(i) Section 6718, as added by section 5241 of this Act, 
     is amended--
       (I) in subsection (a), by inserting ``or any reportable 
     liquid (as defined in section 4083(c)(1))'' after `` section 
     4083(a)(1))'', and
       (II) in the heading, by inserting ``or reportable liquids'' 
     after ``taxable fuel''.
       (ii) The item relating to section 6718 in table of sections 
     for part I of subchapter B of chapter 68, as added by section 
     5241 of this Act, is amended by inserting ``or reportable 
     liquids'' after ``taxable fuels''.
       (H) Section 6427(h) is amended to read as follows:
       ``(h) Gasoline Blend Stocks or Additives and Reportable 
     Liquids.--Except as provided in subsection (k)--
       ``(1) if any gasoline blend stock or additive (within the 
     meaning of section 4083(a)(2)) is not used by any person to 
     produce gasoline and such person establishes that the 
     ultimate use of such gasoline blend stock or additive is not 
     to produce gasoline, or
       ``(2) if any reportable liquid (within the meaning of 
     section 4083(c)(1)) is not used by any person to produce a 
     taxable fuel and such person establishes that the ultimate 
     use of such reportable liquid is not to produce a taxable 
     fuel,

     then the Secretary shall pay (without interest) to such 
     person an amount equal to the aggregate amount of the tax 
     imposed on such person with respect to such gasoline blend 
     stock or additive or such reportable fuel.''.
       (I) Section 7232, as amended by this Act, is amended by 
     inserting ``or reportable liquid (within the meaning of 
     section 4083(c)(1))'' after ``section 4083)''.
       (J) Section 343 of the Trade Act of 2002, as amended by 
     section 5252 of this Act, is amended by inserting ``and 
     reportable liquids (as defined in section 4083(c)(1) of such 
     Code)'' after ``Internal Revenue Code of 1986)''.
       (b) Dyed Diesel.--Section 4082(a) 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 
     inserting after paragraph (3) the following new paragraph:
       ``(4) which is removed, entered, or sold by a person 
     registered under section 4101.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to reportable liquids (as defined in section 
     4083(c) of the Internal Revenue Code) and fuel sold or used 
     after September 30, 2004.

     SEC. 5272. EXCISE TAX REPORTING.

       (a) In General.--Part II of subchapter A of chapter 61 is 
     amended by adding at the end the following new subpart:


                   ``Subpart E--Excise Tax Reporting

     ``SEC. 6025. RETURNS RELATING TO FUEL TAXES.

       ``(a) In General.--The Secretary shall require any person 
     liable for the tax imposed under Part III of subchapter A of 
     chapter 32 to file a return of such tax on a monthly basis.
       ``(b) Information Included With Return.--The Secretary 
     shall require any person filing a return under subsection (a) 
     to provide information regarding any refined product (whether 
     or not such product is taxable under this title) removed from 
     a terminal during the period for which such return 
     applies.''.
       (b) Conforming Amendment.--The table of parts for 
     subchapter A of chapter 61 is amended by adding at the end 
     the following new item:

``Subpart E--Excise Tax Reporting''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to fuel sold or used after September 30, 2004.

     SEC. 5273. INFORMATION REPORTING.

       (a) In General.--Section 4101(d) is amended by adding at 
     the end the following new flush sentence:

     ``The Secretary shall require reporting under the previous 
     sentence with respect to taxable fuels removed, entered, or 
     transferred from any refinery, pipeline, or vessel which is 
     registered under this section.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply on October 1, 2004.

[[Page S736]]

               Subtitle D--Definition of Highway Vehicle

     SEC. 5301. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE 
                   MACHINERY.

       (a) Exemption From Tax on Heavy Trucks and Trailers Sold at 
     Retail.--
       (1) In general.--Section 4053 (relating to exemptions) is 
     amended by adding at the end the following new paragraph:
       ``(8) Mobile machinery.--Any vehicle which consists of a 
     chassis--
       ``(A) to which there has been permanently mounted (by 
     welding, bolting, riveting, or other means) machinery or 
     equipment to perform a construction, manufacturing, 
     processing, farming, mining, drilling, timbering, or similar 
     operation if the operation of the machinery or equipment is 
     unrelated to transportation on or off the public highways,
       ``(B) which has been specially designed to serve only as a 
     mobile carriage and mount (and a power source, where 
     applicable) for the particular machinery or equipment 
     involved, whether or not such machinery or equipment is in 
     operation, and
       ``(C) which, by reason of such special design, could not, 
     without substantial structural modification, be used as a 
     component of a vehicle designed to perform a function of 
     transporting any load other than that particular machinery or 
     equipment or similar machinery or equipment requiring such a 
     specially designed chassis.''.
       (2) Effective date.--The amendment made by this subsection 
     shall take effect on the day after the date of the enactment 
     of this Act.
       (b) Exemption From Tax on Use of Certain Vehicles.--
       (1) In general.--Section 4483 (relating to exemptions) is 
     amended by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Exemption for Mobile Machinery.--No tax shall be 
     imposed by section 4481 on the use of any vehicle described 
     in section 4053(8).''.
       (2) Effective date.--The amendments made by this subsection 
     shall take effect on the day after the date of the enactment 
     of this Act.
       (d) Exemption From Fuel Taxes.--
       (1) In general.--Section 6421(e)(2) (defining off-highway 
     business use) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Uses in mobile machinery.--
       ``(i) In general.--The term `off-highway business use' 
     shall include any use in a vehicle which meets the 
     requirements described in clause (ii).
       ``(ii) Requirements for mobile machinery.--The requirements 
     described in this clause are--

       ``(I) the design-based test, and
       ``(II) the use-based test.

       ``(iii) Design-based test.--For purposes of clause (ii)(I), 
     the design-based test is met if the vehicle consists of a 
     chassis--

       ``(I) to which there has been permanently mounted (by 
     welding, bolting, riveting, or other means) machinery or 
     equipment to perform a construction, manufacturing, 
     processing, farming, mining, drilling, timbering, or similar 
     operation if the operation of the machinery or equipment is 
     unrelated to transportation on or off the public highways,
       ``(II) which has been specially designed to serve only as a 
     mobile carriage and mount (and a power source, where 
     applicable) for the particular machinery or equipment 
     involved, whether or not such machinery or equipment is in 
     operation, and
       ``(III) which, by reason of such special design, could not, 
     without substantial structural modification, be used as a 
     component of a vehicle designed to perform a function of 
     transporting any load other than that particular machinery or 
     equipment or similar machinery or equipment requiring such a 
     specially designed chassis.

       ``(iv) Use-based test.--For purposes of clause (ii)(II), 
     the use-based test is met if the use of the vehicle on public 
     highways was less than 5,000 miles during the taxpayer's 
     taxable year.
       ``(v) Special rule for use by certain tax-exempt 
     organizations.--In the case of any use in a vehicle by an 
     organization which is described in section 501(c) and exempt 
     from tax under section 501(a), clause (ii) shall be applied 
     without regard to subclause (II) thereof.''.
       (2) Annual refund of tax paid.--Section 6427(i)(2) 
     (relating to exceptions) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Nonapplication of paragraph.--This paragraph shall 
     not apply to any fuel used in any off-highway business use 
     described in section 6421(e)(2)(C).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 5302. MODIFICATION OF DEFINITION OF OFF-HIGHWAY VEHICLE.

       (a) In General.--Section 7701(a) (relating to definitions) 
     is amended by adding at the end the following new paragraph:
       ``(48) Off-highway vehicles.--
       ``(A) Off-highway transportation vehicles.--
       ``(i) In general.--A vehicle shall not be treated as a 
     highway vehicle if such vehicle is specially designed for the 
     primary function of transporting a particular type of load 
     other than over the public highway and because of this 
     special design such vehicle's capability to transport a load 
     over the public highway is substantially limited or impaired.
       ``(ii) Determination of vehicle's design.--For purposes of 
     clause (i), a vehicle's design is determined solely on the 
     basis of its physical characteristics.
       ``(iii) Determination of substantial limitation or 
     impairment.--For purposes of clause (i), in determining 
     whether substantial limitation or impairment exists, account 
     may be taken of factors such as the size of the vehicle, 
     whether such vehicle is subject to the licensing, safety, and 
     other requirements applicable to highway vehicles, and 
     whether such vehicle can transport a load at a sustained 
     speed of at least 25 miles per hour. It is immaterial that a 
     vehicle can transport a greater load off the public highway 
     than such vehicle is permitted to transport over the public 
     highway.
       ``(B) Nontransportation trailers and semitrailers.--A 
     trailer or semitrailer shall not be treated as a highway 
     vehicle if it is specially designed to function only as an 
     enclosed stationary shelter for the carrying on of an off-
     highway function at an off-highway site.''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendment made by this section shall take effect on the date 
     of the enactment of this Act.
       (2) Fuel taxes.--With respect to taxes imposed under 
     subchapter B of chapter 31 and part III of subchapter A of 
     chapter 32, the amendment made by this section shall apply to 
     taxable periods beginning after the date of the enactment of 
     this Act.

            Subtitle E--Excise Tax Reform and Simplification

                      PART I--HIGHWAY EXCISE TAXES

     SEC. 5401. DEDICATION OF GAS GUZZLER TAX TO HIGHWAY TRUST 
                   FUND.

       (a) In General.--Section 9503(b)(1) (relating to transfer 
     to Highway Trust Fund of amounts equivalent to certain 
     taxes), as amended by section 5101 of this Act, is amended by 
     redesignating subparagraphs (C), (D), and (E) as 
     subparagraphs (D), (E), and (F), respectively, and by 
     inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) section 4064 (relating to gas guzzler tax),''.
       (b) Uniform Application of Tax.--Subparagraph (A) of 
     section 4064(b)(1) (defining automobile) is amended by 
     striking the second sentence.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 5402. REPEAL CERTAIN EXCISE TAXES ON RAIL DIESEL FUEL 
                   AND INLAND WATERWAY BARGE FUELS.

       (a) Taxes on Trains.--
       (1) In general.--Subparagraph (A) of section 4041(a)(1) is 
     amended by striking ``or a diesel-powered train'' each place 
     it appears and by striking ``or train''.
       (2) Conforming amendments.--
       (A) Subparagraph (C) of section 4041(a)(1), as amended by 
     section 5001 of this Act, is amended by striking clause (ii) 
     and by redesignating clause (iii) as clause (ii).
       (B) Subparagraph (C) of section 4041(b)(1) is amended by 
     striking all that follows ``section 6421(e)(2)'' and 
     inserting a period.
       (C) Subsection (d) of section 4041 is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Diesel fuel used in trains.--There is hereby imposed 
     a tax of 0.1 cent per gallon on any liquid other than 
     gasoline (as defined in section 4083)--
       ``(A) sold by any person to an owner, lessee, or other 
     operator of a diesel-powered train for use as a fuel in such 
     train, or
       ``(B) used by any person as a fuel in a diesel-powered 
     train unless there was a taxable sale of such fuel under 
     subparagraph (A).

     No tax shall be imposed by this paragraph on the sale or use 
     of any liquid if tax was imposed on such liquid under section 
     4081.''.
       (D) Subsection (f) of section 4082 is amended by striking 
     ``section 4041(a)(1)'' and inserting ``subsections (d)(3) and 
     (a)(1) of section 4041, respectively''.
       (E) Subparagraphs (A) and (B) of section 4083(a)(3), as 
     amended by section 5261 of this Act, are amended by striking 
     ``or a diesel-powered train''.
       (F) Paragraph (3) of section 6421(f) is amended to read as 
     follows:
       ``(3) Gasoline used in trains.--In the case of gasoline 
     used as a fuel in a train, this section shall not apply with 
     respect to the Leaking Underground Storage Tank Trust Fund 
     financing rate under section 4081.''.
       (G) Paragraph (3) of section 6427(l) is amended to read as 
     follows:
       ``(3) Refund of certain taxes on fuel used in diesel-
     powered trains.--For purposes of this subsection, the term 
     `nontaxable use' includes fuel used in a diesel-powered 
     train. The preceding sentence shall not apply to the tax 
     imposed by section 4041(d) and the Leaking Underground 
     Storage Tank Trust Fund financing rate under section 4081 
     except with respect to fuel sold for exclusive use by a State 
     or any political subdivision thereof.''.
       (b) Fuel Used on Inland Waterways.--
       (1) In general.--Paragraph (1) of section 4042(b) is 
     amended by adding ``and'' at the

[[Page S737]]

     end of subparagraph (A), by striking ``, and'' at the end of 
     subparagraph (B) and inserting a period, and by striking 
     subparagraph (C).
       (2) Conforming amendment.--Paragraph (2) of section 4042(b) 
     is amended by striking subparagraph (C).
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

                     PART II--AQUATIC EXCISE TAXES

     SEC. 5411. ELIMINATION OF AQUATIC RESOURCES TRUST FUND AND 
                   TRANSFORMATION OF SPORT FISH RESTORATION 
                   ACCOUNT.

       (a) Simplification of Funding for Boat Safety Account.--
       (1) In general.--Section 9503(c)(3) (relating to transfers 
     from Trust Fund for motorboat fuel taxes), as redesignated by 
     section 5002 of this Act, is amended--
       (A) by striking ``Fund--'' and all that follows through 
     ``shall be transferred'' in subparagraph (B) and inserting 
     ``Fund which is attributable to motorboat fuel taxes shall be 
     transferred'', and
       (B) by striking subparagraph (A), and
       (C) by redesignating subparagraphs (B) through (E) as 
     subparagraphs (A) through (D), respectively.
       (2) Conforming amendments.--
       (A) Section 9503(b)(4), as amended by section 5102 of this 
     Act, is amended--
       (i) by adding ``or'' at the end of subparagraph (B),
       (ii) by striking the comma at the end of subparagraph (C) 
     and inserting a period, and
       (iii) by striking subparagraph (D).
       (B) Subparagraph (B) of section 9503(c)(3), as redesignated 
     by section 5002 of this Act and subsection (a)(3), is 
     amended--
       (i) by striking ``account'' in the heading and inserting 
     ``trust fund'',
       (ii) by striking ``or (B)'' in clause (ii), and
       (iii) by striking ``Account in the Aquatic Resources''.
       (C) Subparagraph (C) of section 9503(c)(3), as redesignated 
     by section 5002 of this Act and subsection (a)(3), is amended 
     by striking ``, but only to the extent such taxes are 
     deposited into the Highway Trust Fund''.
       (D) Paragraph (4) of section 9503(c), as redesignated by 
     section 5002 of this Act, is amended--
       (i) by striking ``Account in the Aquatic Resources'' in 
     subparagraph (A), and
       (ii) by striking ``, but only to the extent such taxes are 
     deposited into the Highway Trust Fund'' in subparagraph (B).
       (b) Merging of Accounts.--
       (1) In general.--Subsection (a) of section 9504 is amended 
     to read as follows:
       ``(a) Creation of Trust Fund.--There is hereby established 
     in the Treasury of the United States a trust fund to be known 
     as the `Sport Fish Restoration Trust Fund'. Such Trust Fund 
     shall consist of such amounts as may be appropriated, 
     credited, or paid to it as provided in this section, section 
     9503(c)(3), section 9503(c)(4), or section 9602(b).''.
       (2) Conforming amendments.--
       (A) Subsection (b) of section 9504 is amended--
       (i) by striking ``Account'' in the heading and inserting 
     ``Trust Fund'',
       (ii) by striking ``Account'' both places it appears in 
     paragraphs (1) and (2) and inserting ``Trust Fund'', and
       (iii) by striking ``account'' both places it appears in the 
     headings for paragraphs (1) and (2) and inserting ``trust 
     fund''.
       (B) Subsection (d) of section 9504, as amended by section 
     5001 of this Act, is amended--
       (i) by striking ``Aquatic Resources'' in the heading,
       (ii) by striking ``any Account in the Aquatic Resources'' 
     in paragraph (1) and inserting ``the Sports Fish 
     Restoration'', and
       (iii) by striking ``any such Account'' in paragraph (1) and 
     inserting ``such Trust Fund''.
       (C) Subsection (e) of section 9504, as amended by section 
     5002 of this Act, is amended by striking ``Boat Safety 
     Account and Sport Fish Restoration Account'' and inserting 
     ``Sport Fish Restoration Trust Fund''.
       (D) Section 9504 is amended by striking ``AQUATIC 
     RESOURCES'' in the heading and inserting ``SPORT FISH 
     RESTORATION''.
       (E) The item relating to section 9504 in the table of 
     sections for subchapter A of chapter 98 is amended by 
     striking ``aquatic resources'' and inserting ``sport fish 
     restoration''.
       (c) Phaseout of Boat Safety Account.--Subsection (c) of 
     section 9504 is amended to read as follows:
       ``(c) Expenditures From Boat Safety Account.--Amounts 
     remaining in the Boat Safety Account on October 1, 2004, and 
     amounts thereafter credited to the Account under section 
     9602(b), shall be available, as provided by appropriation 
     Acts, for making expenditures before October 1, 2009, to 
     carry out the purposes of section 13106 of title 46, United 
     States Code (as in effect on the date of the enactment of the 
     Safe, Accountable, Flexible, and Efficient Transportation 
     Equity Act of 2004).''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

     SEC. 5412. EXEMPTION OF LED DEVICES FROM SONAR DEVICES 
                   SUITABLE FOR FINDING FISH.

       (a) In General.--Section 4162(b) (defining sonar device 
     suitable for finding fish) is amended by striking ``or'' at 
     the end of paragraph (3), by striking the period at the end 
     of paragraph (4) and inserting ``, or'', and by adding at the 
     end the following new paragraph:
       ``(5) an LED display.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer after September 30, 2004.

     SEC. 5413. REPEAL OF HARBOR MAINTENANCE TAX ON EXPORTS.

       (a) In General.--Subsection (d) of section 4462 (relating 
     to definitions and special rules) is amended to read as 
     follows:
       ``(d) Nonapplicability of Tax to Exports.--The tax imposed 
     by section 4461(a) shall not apply to any port use with 
     respect to any commercial cargo to be exported from the 
     United States.''.
       (b) Conforming Amendments.--
       (1) Section 4461(c)(1) is amended by adding ``or'' at the 
     end of subparagraph (A), by striking subparagraph (B), and by 
     redesignating subparagraph (C) as subparagraph (B).
       (2) Section 4461(c)(2) is amended by striking ``imposed--'' 
     and all that follows through ``in any other case,'' and 
     inserting ``imposed''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect before, on, and after the date of the 
     enactment of this Act.

     SEC. 5414. CAP ON EXCISE TAX ON CERTAIN FISHING EQUIPMENT.

       (a) In General.--Paragraph (1) of section 4161(a) (relating 
     to sport fishing equipment) is amended to read as follows:
       ``(1) Imposition of tax.--
       ``(A) In general.--There is hereby imposed on the sale of 
     any article of sport fishing equipment by the manufacturer, 
     producer, or importer a tax equal to 10 percent of the price 
     for which so sold.
       ``(B) Limitation on tax imposed on fishing rods and 
     poles.--The tax imposed by subparagraph (A) on any fishing 
     rod or pole shall not exceed $10.''.
       (b) Conforming Amendments.--Section 4161(a)(2) is amended 
     by striking ``paragraph (1)'' both places it appears and 
     inserting ``paragraph (1)(A)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer after September 30, 2004.

     SEC. 5415. REDUCTION IN RATE OF TAX ON PORTABLE AERATED BAIT 
                   CONTAINERS.

       (a) In General.--Section 4161(a)(2)(A) (relating to 3 
     percent rate of tax for electric outboard motors and sonar 
     devices suitable for finding fish) is amended by inserting 
     ``or a portable aerated bait container'' after ``fish''.
       (b) Conforming Amendment.--The heading of section 
     4161(a)(2) is amended by striking ``electric outboard motors 
     and sonar devices suitable for finding fish'' and inserting 
     ``certain sport fishing equipment''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer after September 30, 2004.

                     PART III--AERIAL EXCISE TAXES

     SEC. 5421. CLARIFICATION OF EXCISE TAX EXEMPTIONS FOR 
                   AGRICULTURAL AERIAL APPLICATORS AND EXEMPTION 
                   FOR FIXED-WING AIRCRAFT ENGAGED IN FORESTRY 
                   OPERATIONS.

       (a) No Waiver by Farm Owner, Tenant, or Operator 
     Necessary.--Subparagraph (B) of section 6420(c)(4) (relating 
     to certain farming use other than by owner, etc.) is amended 
     to read as follows:
       ``(B) if the person so using the gasoline is an aerial or 
     other applicator of fertilizers or other substances and is 
     the ultimate purchaser of the gasoline, then subparagraph (A) 
     of this paragraph shall not apply and the aerial or other 
     applicator shall be treated as having used such gasoline on a 
     farm for farming purposes.''.
       (b) Exemption Includes Fuel Used Between Airfield and 
     Farm.--Section 6420(c)(4), as amended by subsection (a), is 
     amended by adding at the end the following new flush 
     sentence:

     ``For purposes of this paragraph, in the case of an aerial 
     applicator, gasoline shall be treated as used on a farm for 
     farming purposes if the gasoline is used for the direct 
     flight between the airfield and 1 or more farms.''.
       (c) Exemption from Tax on Air Transportation of Persons for 
     Forestry Purposes Extended to Fixed-Wing Aircraft.--
     Subsection (f) of section 4261 (relating to tax on air 
     transportation of persons) is amended to read as follows:
       ``(f) Exemption for Certain Uses.--No tax shall be imposed 
     under subsection (a) or (b) on air transportation--
       ``(1) by helicopter for the purpose of transporting 
     individuals, equipment, or supplies in the exploration for, 
     or the development or removal of, hard minerals, oil, or gas, 
     or
       ``(2) by helicopter or by fixed-wing aircraft for the 
     purpose of the planting, cultivation, cutting, or 
     transportation of, or caring for, trees (including logging 
     operations),
     but only if the helicopter or fixed-wing aircraft does not 
     take off from, or land at, a facility eligible for assistance 
     under the Airport and Airway Development Act of 1970, or 
     otherwise use services provided pursuant to section 44509 or 
     44913(b) or subchapter I of chapter 471 of title 49, United 
     States Code, during such use. In the case of helicopter 
     transportation described in paragraph (1), this subsection 
     shall be applied by treating each flight segment as a 
     distinct flight.''.

[[Page S738]]

       (d) Effective Date.--The amendments made by this section 
     shall apply to fuel use or air transportation after the date 
     of the enactment of this Act.

     SEC. 5422. MODIFICATION OF RURAL AIRPORT DEFINITION.

       (a) In General.--Section 4261(e)(1)(B) (defining rural 
     airport) is amended--
       (1) by inserting ``(in the case of any airport described in 
     clause (ii)(III), on flight segments of at least 100 miles)'' 
     after ``by air'' in clause (i), and
       (2) by striking the period at the end of subclause (II) of 
     clause (ii) and inserting ``, or'', and by adding at the end 
     of clause (ii) the following new subclause:

       ``(III) is not connected by paved roads to another 
     airport.''.

       (b) Effective Date.--The amendments made by this section 
     shall take effect on April 1, 2004.

     SEC. 5423. EXEMPTION FROM TICKET TAXES FOR TRANSPORTATION 
                   PROVIDED BY SEAPLANES.

       (a) In General.--Section 4261 (relating to imposition of 
     tax) is amended by redesignating subsection (i) as subsection 
     (j) and by inserting after subsection (h) the following new 
     subsection:
       ``(i) Exemption for Seaplanes.--No tax shall be imposed by 
     this section or section 4271 on any air transportation by a 
     seaplane with respect to any segment consisting of a takeoff 
     from, and a landing on, water, but only if the places at 
     which such takeoff and landing occur have not received and 
     are not receiving financial assistance from the Airport and 
     Airways Trust Fund.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transportation beginning after March 31, 2004.

     SEC. 5424. CERTAIN SIGHTSEEING FLIGHTS EXEMPT FROM TAXES ON 
                   AIR TRANSPORTATION.

       (a) In General.--Section 4281 (relating to small aircraft 
     on nonestablished lines) is amended by adding at the end the 
     following new sentence: ``For purposes of this section, an 
     aircraft shall not be considered as operated on an 
     established line if such aircraft is operated on a flight the 
     sole purpose of which is sightseeing.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to transportation beginning on or 
     after the date of the enactment of this Act, but shall not 
     apply to any amount paid before such date for such 
     transportation.

                PART IV--ALCOHOLIC BEVERAGE EXCISE TAXES

     SEC. 5431. REPEAL OF SPECIAL OCCUPATIONAL TAXES ON PRODUCERS 
                   AND MARKETERS OF ALCOHOLIC BEVERAGES.

       (a) Repeal of Occupational Taxes.--
       (1) In general.--The following provisions of part II of 
     subchapter A of chapter 51 (relating to occupational taxes) 
     are hereby repealed:
       (A) Subpart A (relating to proprietors of distilled spirits 
     plants, bonded wine cellars, etc.).
       (B) Subpart B (relating to brewer).
       (C) Subpart D (relating to wholesale dealers) (other than 
     sections 5114 and 5116).
       (D) Subpart E (relating to retail dealers) (other than 
     section 5124).
       (E) Subpart G (relating to general provisions) (other than 
     sections 5142, 5143, 5145, and 5146).
       (2) Nonbeverage domestic drawback.--Section 5131 is amended 
     by striking ``, on payment of a special tax per annum,''.
       (3) Industrial use of distilled spirits.--Section 5276 is 
     hereby repealed.
       (b) Conforming Amendments.--
       (1)(A) The heading for part II of subchapter A of chapter 
     51 and the table of subparts for such part are amended to 
     read as follows:

                  ``PART II--MISCELLANEOUS PROVISIONS

``Subpart A. Manufacturers of stills.
``Subpart B. Nonbeverage domestic drawback claimants.
``Subpart C. Recordkeeping by dealers.
``Subpart D. Other provisions.''.
       (B) The table of parts for such subchapter A is amended by 
     striking the item relating to part II and inserting the 
     following new item:

``Part II. Miscellaneous provisions.''.
       (2) Subpart C of part II of such subchapter (relating to 
     manufacturers of stills) is redesignated as subpart A.
       (3)(A) Subpart F of such part II (relating to nonbeverage 
     domestic drawback claimants) is redesignated as subpart B and 
     sections 5131 through 5134 are redesignated as sections 5111 
     through 5114, respectively.
       (B) The table of sections for such subpart B, as so 
     redesignated, is amended--
       (i) by redesignating the items relating to sections 5131 
     through 5134 as relating to sections 5111 through 5114, 
     respectively, and
       (ii) by striking ``and rate of tax'' in the item relating 
     to section 5111, as so redesignated.
       (C) Section 5111, as redesignated by subparagraph (A), is 
     amended--
       (i) by striking ``and rate of tax'' in the section heading,
       (ii) by striking the subsection heading for subsection (a), 
     and
       (iii) by striking subsection (b).
       (4) Part II of subchapter A of chapter 51 is amended by 
     adding after subpart B, as redesignated by paragraph (3), the 
     following new subpart:

                 ``Subpart C--Recordkeeping by Dealers

``Sec. 5121. Recordkeeping by wholesale dealers.
``Sec. 5122. Recordkeeping by retail dealers.
``Sec. 5123. Preservation and inspection of records, and entry of 
              premises for inspection.''.
       (5)(A) Section 5114 (relating to records) is moved to 
     subpart C of such part II and inserted after the table of 
     sections for such subpart.
       (B) Section 5114 is amended--
       (i) by striking the section heading and inserting the 
     following new heading:

     ``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',

     and
       (ii) by redesignating subsection (c) as subsection (d) and 
     by inserting after subsection (b) the following new 
     subsection:
       ``(c) Wholesale Dealers.--For purposes of this part--
       ``(1) Wholesale dealer in liquors.--The term `wholesale 
     dealer in liquors' means any dealer (other than a wholesale 
     dealer in beer) who sells, or offers for sale, distilled 
     spirits, wines, or beer, to another dealer.
       ``(2) Wholesale dealer in beer.--The term `wholesale dealer 
     in beer' means any dealer who sells, or offers for sale, 
     beer, but not distilled spirits or wines, to another dealer.
       ``(3) Dealer.--The term `dealer' means any person who 
     sells, or offers for sale, any distilled spirits, wines, or 
     beer.
       ``(4) Presumption in case of sale of 20 wine gallons or 
     more.--The sale, or offer for sale, of distilled spirits, 
     wines, or beer, in quantities of 20 wine gallons or more to 
     the same person at the same time, shall be presumptive 
     evidence that the person making such sale, or offer for sale, 
     is engaged in or carrying on the business of a wholesale 
     dealer in liquors or a wholesale dealer in beer, as the case 
     may be. Such presumption may be overcome by evidence 
     satisfactorily showing that such sale, or offer for sale, was 
     made to a person other than a dealer.''.
       (C) Paragraph (3) of section 5121(d), as so redesignated, 
     is amended by striking ``section 5146'' and inserting 
     ``section 5123''.
       (6)(A) Section 5124 (relating to records) is moved to 
     subpart C of part II of subchapter A of chapter 51 and 
     inserted after section 5121.
       (B) Section 5124 is amended--
       (i) by striking the section heading and inserting the 
     following new heading:

     ``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',

       (ii) by striking ``section 5146'' in subsection (c) and 
     inserting ``section 5123'', and
       (iii) by redesignating subsection (c) as subsection (d) and 
     inserting after subsection (b) the following new subsection:
       ``(c) Retail Dealers.--For purposes of this section--
       ``(1) Retail dealer in liquors.--The term `retail dealer in 
     liquors' means any dealer (other than a retail dealer in beer 
     or a limited retail dealer) who sells, or offers for sale, 
     distilled spirits, wines, or beer, to any person other than a 
     dealer.
       ``(2) Retail dealer in beer.--The term `retail dealer in 
     beer' means any dealer (other than a limited retail dealer) 
     who sells, or offers for sale, beer, but not distilled 
     spirits or wines, to any person other than a dealer.
       ``(3) Limited retail dealer.--The term `limited retail 
     dealer' means any fraternal, civic, church, labor, 
     charitable, benevolent, or ex-servicemen's organization 
     making sales of distilled spirits, wine or beer on the 
     occasion of any kind of entertainment, dance, picnic, bazaar, 
     or festival held by it, or any person making sales of 
     distilled spirits, wine or beer to the members, guests, or 
     patrons of bona fide fairs, reunions, picnics, carnivals, or 
     other similar outings, if such organization or person is not 
     otherwise engaged in business as a dealer.
       ``(4) Dealer.--The term `dealer' has the meaning given such 
     term by section 5121(c)(3).''.
       (7) Section 5146 is moved to subpart C of part II of 
     subchapter A of chapter 51, inserted after section 5122, and 
     redesignated as section 5123.
       (8) Part II of subchapter A of chapter 51 is amended by 
     inserting after subpart C the following new subpart:

                     ``Subpart D--Other Provisions

``Sec. 5131. Packaging distilled spirits for industrial uses.
``Sec. 5132. Prohibited purchases by dealers.''.
       (9) Section 5116 is moved to subpart D of part II of 
     subchapter A of chapter 51, inserted after the table of 
     sections, redesignated as section 5131, and amended by 
     inserting ``(as defined in section 5121(c))'' after 
     ``dealer'' in subsection (a).
       (10) Subpart D of part II of subchapter A of chapter 51 is 
     amended by adding at the end thereof the following new 
     section:

     ``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

       ``(a) In General.--Except as provided in regulations 
     prescribed by the Secretary, it shall be unlawful for a 
     dealer to purchase distilled spirits for resale from any 
     person other than a wholesale dealer in liquors who is 
     required to keep the records prescribed by section 5121.
       ``(b) Limited Retail Dealers.--A limited retail dealer may 
     lawfully purchase distilled spirits for resale from a retail 
     dealer in liquors.
       ``(c) Penalty and Forfeiture.--

  ``For penalty and forfeiture provisions applicable to violations of 
subsection (a), see sections 5687 and 7302.''.

       (11) Subsection (b) of section 5002 is amended--

[[Page S739]]

       (A) by striking ``section 5112(a)'' and inserting ``section 
     5121(c)(3)'',
       (B) by striking ``section 5112'' and inserting ``section 
     5121(c)'',
       (C) by striking ``section 5122'' and inserting ``section 
     5122(c)''.
       (12) Subparagraph (A) of section 5010(c)(2) is amended by 
     striking ``section 5134'' and inserting ``section 5114''.
       (13) Subsection (d) of section 5052 is amended to read as 
     follows:
       ``(d) Brewer.--For purposes of this chapter, the term 
     `brewer' means any person who brews beer or produces beer for 
     sale. Such term shall not include any person who produces 
     only beer exempt from tax under section 5053(e).''.
       (14) The text of section 5182 is amended to read as 
     follows:
       ``For provisions requiring recordkeeping by wholesale 
     liquor dealers, see section 5121, and by retail liquor 
     dealers, see section 5122.''.
       (15) Subsection (b) of section 5402 is amended by striking 
     ``section 5092'' and inserting ``section 5052(d)''.
       (16) Section 5671 is amended by striking ``or 5091''.
       (17)(A) Part V of subchapter J of chapter 51 is hereby 
     repealed.
       (B) The table of parts for such subchapter J is amended by 
     striking the item relating to part V.
       (18)(A) Sections 5142, 5143, and 5145 are moved to 
     subchapter D of chapter 52, inserted after section 5731, 
     redesignated as sections 5732, 5733, and 5734, respectively, 
     and amended by striking ``this part'' each place it appears 
     and inserting ``this subchapter''.
       (B) Section 5732, as redesignated by subparagraph (A), is 
     amended by striking ``(except the tax imposed by section 
     5131)'' each place it appears.
       (C) Paragraph (2) of section 5733(c), as redesignated by 
     subparagraph (A), is amended by striking ``liquors'' both 
     places it appears and inserting ``tobacco products and 
     cigarette papers and tubes''.
       (D) The table of sections for subchapter D of chapter 52 is 
     amended by adding at the end thereof the following:

``Sec. 5732. Payment of tax.
``Sec. 5733. Provisions relating to liability for occupational taxes.
``Sec. 5734. Application of State laws.''.
       (E) Section 5731 is amended by striking subsection (c) and 
     by redesignating subsection (d) as subsection (c).
       (19) Subsection (c) of section 6071 is amended by striking 
     ``section 5142'' and inserting ``section 5732''.
       (20) Paragraph (1) of section 7652(g) is amended--
       (A) by striking ``subpart F'' and inserting ``subpart B'', 
     and
       (B) by striking ``section 5131(a)'' and inserting ``section 
     5111''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on July 1, 2004, but shall not apply to 
     taxes imposed for periods before such date.

     SEC. 5432. SUSPENSION OF LIMITATION ON RATE OF RUM EXCISE TAX 
                   COVER OVER TO PUERTO RICO AND VIRGIN ISLANDS.

       (a) In General.--Section 7652(f)(1) (relating to limitation 
     on cover over of tax on distilled spirits) is amended by 
     striking ``January 1, 2004'' and inserting ``October 1, 2004, 
     and $13.50 in the case of distilled spirits brought into the 
     United States after September 30, 2004, and before January 1, 
     2006''.
       (b) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     apply to articles containing distilled spirits brought into 
     the United States after December 31, 2003.
       (2) Special rule.--
       (A) In general.--After September 30, 2004, the treasury of 
     Puerto Rico shall make a Conservation Trust Fund transfer 
     within 30 days from the date of each cover over payment to 
     such treasury under section 7652(e) of the Internal Revenue 
     Code of 1986.
       (B) Conservation trust fund transfer.--
       (i) In general.--For purposes of this paragraph, the term 
     ``Conservation Trust Fund transfer'' means a transfer to the 
     Puerto Rico Conservation Trust Fund of an amount equal to 50 
     cents per proof gallon of the taxes imposed under section 
     5001 or section 7652 of such Code on distilled spirits that 
     are covered over to the treasury of Puerto Rico under section 
     7652(e) of such Code.
       (ii) Treatment of transfer.--Each Conservation Trust Fund 
     transfer shall be treated as principal for an endowment, the 
     income from which to be available for use by the Puerto Rico 
     Conservation Trust Fund for the purposes for which the Trust 
     Fund was established.
       (iii) Result of nontransfer.--

       (I) In general.--Upon notification by the Secretary of the 
     Interior that a Conservation Trust Fund transfer has not been 
     made by the treasury of Puerto Rico, the Secretary of the 
     Treasury shall, except as provided in subclause (II), deduct 
     and withhold from the next cover over payment to be made to 
     the treasury of Puerto Rico under section 7652(e) of such 
     Code an amount equal to the appropriate Conservation Trust 
     Fund transfer and interest thereon at the underpayment rate 
     established under section 6621 of such Code as of the due 
     date of such transfer. The Secretary of the Treasury shall 
     transfer such amount deducted and withheld, and the interest 
     thereon, directly to the Puerto Rico Conservation Trust Fund.
       (II) Good cause exception.--If the Secretary of the 
     Interior finds, after consultation with the Governor of 
     Puerto Rico, that the failure by the treasury of Puerto Rico 
     to make a required transfer was for good cause, and notifies 
     the Secretary of the Treasury of the finding of such good 
     cause before the due date of the next cover over payment 
     following the notification of nontransfer, then the Secretary 
     of the Treasury shall not deduct the amount of such 
     nontransfer from any cover over payment.

       (C) Puerto rico conservation trust fund.--For purposes of 
     this paragraph, the term ``Puerto Rico Conservation Trust 
     Fund'' means the fund established pursuant to a Memorandum of 
     Understanding between the United States Department of the 
     Interior and the Commonwealth of Puerto Rico, dated December 
     24, 1968.

                       PART V--SPORT EXCISE TAXES

     SEC. 5441. CUSTOM GUNSMITHS.

       (a) Small Manufacturers Exempt From Firearms Excise Tax.--
     Section 4182 (relating to exemptions) is amended by 
     redesignating subsection (c) as subsection (d) and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Small Manufacturers, Etc.--
       ``(1) In general.--The tax imposed by section 4181 shall 
     not apply to any article described in such section if 
     manufactured, produced, or imported by a person who 
     manufactures, produces, and imports less than 50 of such 
     articles during the calendar year.
       ``(2) Controlled groups.--All persons treated as a single 
     employer for purposes of subsection (a) or (b) of section 52 
     shall be treated as one person for purposes of paragraph 
     (1).''.
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to articles sold by the manufacturer, producer, or 
     importer on or after the date which is the first day of the 
     month beginning at least 2 weeks after the date of the 
     enactment of this Act.
       (2) No inference.--Nothing in the amendments made by this 
     section shall be construed to create any inference with 
     respect to the proper tax treatment of any sales before the 
     effective date of such amendments.

     SEC. 5442. MODIFIED TAXATION OF IMPORTED ARCHERY PRODUCTS.

       (a) Bows.--Paragraph (1) of section 4161(b) (relating to 
     bows) is amended to read as follows:
       ``(1) Bows.--
       ``(A) In general.--There is hereby imposed on the sale by 
     the manufacturer, producer, or importer of any bow which has 
     a peak draw weight of 30 pounds or more, a tax equal to 11 
     percent of the price for which so sold.
       ``(B) Archery equipment.--There is hereby imposed on the 
     sale by the manufacturer, producer, or importer--
       ``(i) of any part or accessory suitable for inclusion in or 
     attachment to a bow described in subparagraph (A), and
       ``(ii) of any quiver or broadhead suitable for use with an 
     arrow described in paragraph (2),
     a tax equal to 11 percent of the price for which so sold.''.
       (b) Arrows.--Subsection (b) of section 4161 (relating to 
     bows and arrows, etc.) is amended by redesignating paragraph 
     (3) as paragraph (4) and inserting after paragraph (2) the 
     following:
       ``(3) Arrows.--
       ``(A) In general.--There is hereby imposed on the sale by 
     the manufacturer, producer, or importer of any arrow, a tax 
     equal to 12 percent of the price for which so sold.
       ``(B) Exception.--In the case of any arrow of which the 
     shaft or any other component has been previously taxed under 
     paragraph (1) or (2)--
       ``(i) section 6416(b)(3) shall not apply, and
       ``(ii) the tax imposed by subparagraph (A) shall be an 
     amount equal to the excess (if any) of--

       ``(I) the amount of tax imposed by this paragraph 
     (determined without regard to this subparagraph), over
       ``(II) the amount of tax paid with respect to the tax 
     imposed under paragraph (1) or (2) on such shaft or 
     component.

       ``(C) Arrow.--For purposes of this paragraph, the term 
     `arrow' means any shaft described in paragraph (2) to which 
     additional components are attached.''.
       (c) Conforming Amendments.--Section 4161(b)(2) is amended--
       (1) by inserting ``(other than broadheads)'' after 
     ``point'', and
       (2) by striking ``Arrows.--'' in the heading and inserting 
     ``Arrow components.--''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer after the date of the enactment of this Act.

     SEC. 5443. TREATMENT OF TRIBAL GOVERNMENTS FOR PURPOSES OF 
                   FEDERAL WAGERING EXCISE AND OCCUPATIONAL TAXES.

       (a) In General.--Subsection (a) of section 7871 (relating 
     to Indian tribal governments treated as States for certain 
     purposes) is amended by striking ``and'' at the end of 
     paragraph (6), by striking the period at the end of paragraph 
     (7) and inserting ``; and'', and by adding at the end the 
     following new paragraph:
       ``(8) for purposes of chapter 35 (relating to taxes on 
     wagering).''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on July 1, 2004, but shall not apply to 
     taxes imposed for periods before such date.

[[Page S740]]

                       PART VI--OTHER PROVISIONS

     SEC. 5451. INCOME TAX CREDIT FOR DISTILLED SPIRITS 
                   WHOLESALERS AND FOR DISTILLED SPIRITS IN 
                   CONTROL STATE BAILMENT WAREHOUSES FOR COSTS OF 
                   CARRYING FEDERAL EXCISE TAXES ON BOTTLED 
                   DISTILLED SPIRITS.

       (a) In General.--Subpart A of part I of subchapter A of 
     chapter 51 (relating to gallonage and occupational taxes) is 
     amended by adding at the end the following new section:

     ``SEC. 5011. INCOME TAX CREDIT FOR AVERAGE COST OF CARRYING 
                   EXCISE TAX.

       ``(a) In General.--For purposes of section 38, the amount 
     of the distilled spirits credit for any taxable year is the 
     amount equal to the product of--
       ``(1) in the case of--
       ``(A) any eligible wholesaler--
       ``(i) the number of cases of bottled distilled spirits--

       ``(I) which were bottled in the United States, and
       ``(II) which are purchased by such wholesaler during the 
     taxable year directly from the bottler of such spirits, or

       ``(B) any person which is subject to section 5005 and which 
     is not an eligible wholesaler, the number of cases of bottled 
     distilled spirits which are stored in a warehouse operated 
     by, or on behalf of, a State, or agency or political 
     subdivision thereof, on which title has not passed on an 
     unconditional sale basis, and
       ``(2) the average tax-financing cost per case for the most 
     recent calendar year ending before the beginning of such 
     taxable year.
       ``(b) Eligible Wholesaler.--For purposes of this section, 
     the term `eligible wholesaler' means any person which holds a 
     permit under the Federal Alcohol Administration Act as a 
     wholesaler of distilled spirits which is not a State, or 
     agency or political subdivision thereof.
       ``(c) Average Tax-Financing Cost.--
       ``(1) In general.--For purposes of this section, the 
     average tax-financing cost per case for any calendar year is 
     the amount of interest which would accrue at the deemed 
     financing rate during a 60-day period on an amount equal to 
     the deemed Federal excise tax per case.
       ``(2) Deemed financing rate.--For purposes of paragraph 
     (1), the deemed financing rate for any calendar year is the 
     average of the corporate overpayment rates under paragraph 
     (1) of section 6621(a) (determined without regard to the last 
     sentence of such paragraph) for calendar quarters of such 
     year.
       ``(3) Deemed federal excise tax per case.--For purposes of 
     paragraph (1), the deemed Federal excise tax per case is 
     $25.68.
       ``(d) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Case.--The term `case' means 12 80-proof 750 
     milliliter bottles.
       ``(2) Number of cases in lot.--The number of cases in any 
     lot of distilled spirits shall be determined by dividing the 
     number of liters in such lot by 9.''.
       (b) Credit Treated as Part of General Business Credit.--
     Section 38(b) (relating to current year business credit), as 
     amended by section 5103 of this Act, is amended by striking 
     ``plus'' at the end of paragraph (15), by striking the period 
     at the end of paragraph (16) and inserting ``, plus'', and by 
     adding at the end the following new paragraph:
       ``(17) the distilled spirits credit determined under 
     section 5011(a).''.
       (c) Conforming Amendments.--
       (1) Section 39(d), as amended by section 5103 of this Act, 
     is amended by adding at the end the following new paragraph:
       ``(12) No carryback of section 5011 credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the credit determined 
     under section 5011(a) may be carried back to a taxable year 
     beginning before the date of the enactment of section 
     5011.''.
       (2) The table of sections for subpart A of part I of 
     subchapter A of chapter 51 is amended by adding at the end 
     the following new item:

``Sec. 5011. Income tax credit for average cost of carrying excise 
              tax.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 5452. CREDIT FOR TAXPAYERS OWNING COMMERCIAL POWER 
                   TAKEOFF VEHICLES.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business-related credits) is amended 
     by adding at the end the following new section:

     ``SEC. 45G. COMMERCIAL POWER TAKEOFF VEHICLES CREDIT.

       ``(a) General Rule.--For purposes of section 38, the amount 
     of the commercial power takeoff vehicles credit determined 
     under this section for the taxable year is $250 for each 
     qualified commercial power takeoff vehicle owned by the 
     taxpayer as of the close of the calendar year in which or 
     with which the taxable year of the taxpayer ends.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Qualified commercial power takeoff vehicle.--The term 
     `qualified commercial power takeoff vehicle' means any 
     highway vehicle described in paragraph (2) which is propelled 
     by any fuel subject to tax under section 4041 or 4081 if such 
     vehicle is used in a trade or business or for the production 
     of income (and is licensed and insured for such use).
       ``(2) Highway vehicle described.--A highway vehicle is 
     described in this paragraph if such vehicle is--
       ``(A) designed to engage in the daily collection of refuse 
     or recyclables from homes or businesses and is equipped with 
     a mechanism under which the vehicle's propulsion engine 
     provides the power to operate a load compactor, or
       ``(B) designed to deliver ready mixed concrete on a daily 
     basis and is equipped with a mechanism under which the 
     vehicle's propulsion engine provides the power to operate a 
     mixer drum to agitate and mix the product en route to the 
     delivery site.
       ``(c) Exception for Vehicles Used by Governments, Etc.--No 
     credit shall be allowed under this section for any vehicle 
     owned by any person at the close of a calendar year if such 
     vehicle is used at any time during such year by--
       ``(1) the United States or an agency or instrumentality 
     thereof, a State, a political subdivision of a State, or an 
     agency or instrumentality of one or more States or political 
     subdivisions, or
       ``(2) an organization exempt from tax under section 501(a).
       ``(d) Termination.--This section shall not apply with 
     respect to any calendar year after 2006.''.
       (b) Credit Treated as Part of General Business Credit.--
     Section 38(b) (relating to current year business credit), as 
     amended by section 5451 of this Act, is amended by striking 
     ``plus'' at the end of paragraph (16), by striking the period 
     at the end of paragraph (17) and inserting ``, plus'', and by 
     adding at the end the following new paragraph:
       ``(18) the commercial power takeoff vehicles credit under 
     section 45G(a).''.
       (c) Conforming Amendments.--
       (1) Section 39(d), as amended by section 5451 of this Act, 
     is amended by adding at the end the following new paragraph:
       ``(13) No carryback of section 45g credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the credit determined 
     under section 45G(a) may be carried back to a taxable year 
     beginning on or before the date of the enactment of section 
     45G.''.
       (2) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 45G. Commercial power takeoff vehicles credit.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 5453. CREDIT FOR AUXILIARY POWER UNITS INSTALLED ON 
                   DIESEL-POWERED TRUCKS.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business-related credits), as amended 
     by section 5452 of this Act, is amended by adding at the end 
     the following new section:

     ``SEC. 45H. AUXILIARY POWER UNIT CREDIT.

       ``(a) General Rule.--For purposes of section 38, the amount 
     of the auxiliary power unit credit determined under this 
     section for the taxable year is $250 for each qualified 
     auxiliary power unit--
       ``(1) purchased by the taxpayer, and
       ``(2) installed or caused to be installed by the taxpayer 
     on a qualified heavy-duty highway vehicle during such taxable 
     year.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Qualified auxiliary power unit.--The term `qualified 
     auxiliary power unit' means any integrated system which--
       ``(A) provides heat, air conditioning, engine warming, and 
     electricity to the factory installed components on a 
     qualified heavy-duty highway vehicle as if the main drive 
     engine of such vehicle was in operation,
       ``(B) is employed to reduce long-term idling of the diesel 
     engine on such a vehicle, and
       ``(C) is certified by the Environmental Protection Agency 
     as meeting emission standards in regulations in effect on the 
     date of the enactment of this section.
       ``(2) Qualified heavy-duty highway vehicle.--The term 
     `qualified heavy-duty highway vehicle' means any highway 
     vehicle weighing more than 12,500 pounds and powered by a 
     diesel engine.
       ``(c) Termination.--This section shall not apply with 
     respect to any installation occurring after December 31, 
     2006.''.
       (b) Credit Treated as Part of General Business Credit.--
     Section 38(b) (relating to current year business credit), as 
     amended by section 5452 of this Act, is amended by striking 
     ``plus'' at the end of paragraph (17), by striking the period 
     at the end of paragraph (18) and inserting ``, plus'', and by 
     adding at the end the following new paragraph:
       ``(19) the auxiliary power unit credit under section 
     45H(a).''.
       (c) Conforming Amendments.--
       (1) Section 39(d), as amended by section 5452 of this Act, 
     is amended by adding at the end the following new paragraph:
       ``(14) No carryback of section 45h credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the credit determined 
     under section 45H(a) may be carried back to a taxable year 
     beginning on or before the date of the enactment of section 
     45H.''.
       (2) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1, as amended by section 5452 of this 
     Act, is amended by adding at the end the following new item:

``Sec. 45H. Auxiliary power unit credit.''.

[[Page S741]]

       (d) Effective Date.--The amendments made by this section 
     shall apply to auxiliary power units purchased and installed 
     for taxable years beginning after the date of the enactment 
     of this Act.

                  Subtitle F--Miscellaneous Provisions

     SEC. 5501. MOTOR FUEL TAX ENFORCEMENT ADVISORY COMMISSION.

       (a) Establishment.--There is established a Motor Fuel Tax 
     Enforcement Advisory Commission (in this section referred to 
     as the ``Commission'').
       (b) Function.--The Commission shall--
       (1) review motor fuel revenue collections, historical and 
     current;
       (2) review the progress of investigations;
       (3) develop and review legislative proposals with respect 
     to motor fuel taxes;
       (4) monitor the progress of administrative regulation 
     projects relating to motor fuel taxes;
       (5) review the results of Federal and State agency 
     cooperative efforts regarding motor fuel taxes;
       (6) review the results of Federal interagency cooperative 
     efforts regarding motor fuel taxes; and
       (7) evaluate and make recommendations regarding--
       (A) the effectiveness of existing Federal enforcement 
     programs regarding motor fuel taxes,
       (B) enforcement personnel allocation, and
       (C) proposals for regulatory projects, legislation, and 
     funding.
       (c) Membership.--
       (1) Appointment.--The Commission shall be composed of the 
     following representatives appointed by the Chairmen and the 
     Ranking Members of the Committee on Finance of the Senate and 
     the Committee on Ways and Means of the House of 
     Representatives:
       (A) At least 1 representative from each of the following 
     Federal entities: the Department of Homeland Security, the 
     Department of Transportation - Office of Inspector General, 
     the Federal Highway Administration, the Department of 
     Defense, and the Department of Justice.
       (B) At least 1 representative from the Federation of State 
     Tax Administrators.
       (C) At least 1 representative from any State department of 
     transportation.
       (D) 2 representatives from the highway construction 
     industry.
       (E) 5 representatives from industries relating to fuel 
     distribution -- refiners (2 representatives), distributors (1 
     representative), pipelines (1 representative), and terminal 
     operators (2 representatives).
       (F) 1 representative from the retail fuel industry.
       (G) 2 representatives from the staff of the Committee on 
     Finance of the Senate and 2 representatives from the staff of 
     the Committee on Ways and Means of the House of 
     Representatives.
       (2) Terms.--Members shall be appointed for the life of the 
     Commission.
       (3) Vacancies.--A vacancy in the Commission shall be filled 
     in the manner in which the original appointment was made.
       (4) Travel expenses.--Members shall serve without pay but 
     shall receive travel expenses, including per diem in lieu of 
     subsistence, in accordance with sections 5702 and 5703 of 
     title 5, United States Code.
       (5) Chairman.--The Chairman of the Commission shall be 
     elected by the members.
       (d) Funding.--Such sums as are necessary shall be available 
     from the Highway Trust fund for the expenses of the 
     Commission.
       (e) Consultation.--Upon request of the Commission, 
     representatives of the Department of the Treasury and the 
     Internal Revenue Service shall be available for consultation 
     to assist the Commission in carrying out its duties under 
     this section.
       (f) Obtaining Data.--The Commission may secure directly 
     from any department or agency of the United States, 
     information (other than information required by any law to be 
     kept confidential by such department or agency) necessary for 
     the Commission to carry out its duties under this section. 
     Upon request of the Commission, the head of that department 
     or agency shall furnish such nonconfidential information to 
     the Commission. The Commission shall also gather evidence 
     through such means as it may deem appropriate, including 
     through holding hearings and soliciting comments by means of 
     Federal Register notices.
       (g) Termination.--The Commission shall terminate after 
     September 30, 2009.

     SEC. 5502. NATIONAL SURFACE TRANSPORTATION INFRASTRUCTURE 
                   FINANCING COMMISSION.

       (a) Establishment.--There is established a National Surface 
     Transportation Infrastructure Financing Commission (in this 
     section referred to as the ``Commission''). The Commission 
     shall hold its first meeting within 90 days of the 
     appointment of the eighth individual to be named to the 
     Commission.
       (b) Function.--
       (1) In general.--The Commission shall--
       (A) make a thorough investigation and study of revenues 
     flowing into the Highway Trust Fund under current law, 
     including the individual components of the overall flow of 
     such revenues;
       (B) consider whether the amount of such revenues is likely 
     to increase, decline, or remain unchanged, absent changes in 
     the law, particularly by taking into account the impact of 
     possible changes in public vehicular choice, fuel use, or 
     travel alternatives that could be expected to reduce or 
     increase revenues into the Highway Trust Fund;
       (C) consider alternative approaches to generating revenues 
     for the Highway Trust Fund, and the level of revenues that 
     such alternatives would yield;
       (D) consider highway and transit needs and whether 
     additional revenues into the Highway Trust Fund, or other 
     Federal revenues dedicated to highway and transit 
     infrastructure, would be required in order to meet such 
     needs; and
       (E) study such other matters closely related to the 
     subjects described in the preceding subparagraphs as it may 
     deem appropriate.
       (2) Time frame of investigation and study.--The time frame 
     to be considered by the Commission shall extend through the 
     year 2015.
       (3) Preparation of report.--Based on such investigation and 
     study, the Commission shall develop a final report, with 
     recommendations and the bases for those recommendations, 
     indicating policies that should be adopted, or not adopted, 
     to achieve various levels of annual revenue for the Highway 
     Trust Fund and to enable the Highway Trust Fund to receive 
     revenues sufficient to meet highway and transit needs. Such 
     recommendations shall address, among other matters as the 
     Commission may deem appropriate--
       (A) what levels of revenue are required by the Federal 
     Highway Trust Fund in order for it to meet needs to--
       (i) maintain, and
       (ii) improve the condition and performance of the Nation's 
     highway and transit systems;
       (B) what levels of revenue are required by the Federal 
     Highway Trust Fund in order to ensure that Federal levels of 
     investment in highways and transit do not decline in real 
     terms; and
       (C) the extent, if any, to which the Highway Trust Fund 
     should be augmented by other mechanisms or funds as a Federal 
     means of financing highway and transit infrastructure 
     investments.
       (c) Membership.--
       (1) Appointment.--The Commission shall be composed of 15 
     members, appointed as follows:
       (A) 7 members appointed by the Secretary of Transportation, 
     in consultation with the Secretary of the Treasury.
       (B) 2 members appointed by the Chairman of the Committee on 
     Ways and Means of the House of Representatives.
       (C) 2 members appointed by the Ranking Minority Member of 
     the Committee on Ways and Means of the House of 
     Representatives.
       (D) 2 members appointed by the Chairman of the Committee on 
     Finance of the Senate.
       (E) 2 members appointed by the Ranking Minority Member of 
     the Committee on Finance of the Senate.
       (2) Qualifications.--Members appointed pursuant to 
     paragraph (1) shall be appointed from among individuals 
     knowledgeable in the fields of public transportation finance 
     or highway and transit programs, policy, and needs, and may 
     include representatives of interested parties, such as State 
     and local governments or other public transportation 
     authorities or agencies, representatives of the 
     transportation construction industry (including suppliers of 
     technology, machinery and materials), transportation labor 
     (including construction and providers), transportation 
     providers, the financial community, and users of highway and 
     transit systems.
       (3) Terms.--Members shall be appointed for the life of the 
     Commission.
       (4) Vacancies.--A vacancy in the Commission shall be filled 
     in the manner in which the original appointment was made.
       (5) Travel expenses.--Members shall serve without pay but 
     shall receive travel expenses, including per diem in lieu of 
     subsistence, in accordance with sections 5702 and 5703 of 
     title 5, United States Code.
       (6) Chairman.--The Chairman of the Commission shall be 
     elected by the members.
       (d) Staff.--The Commission may appoint and fix the pay of 
     such personnel as it considers appropriate.
       (e) Funding.--Funding for the Commission shall be provided 
     by the Secretary of the Treasury and by the Secretary of 
     Transportation, out of funds available to those agencies for 
     administrative and policy functions.
       (f) Staff of Federal Agencies.--Upon request of the 
     Commission, the head of any department or agency of the 
     United States may detail any of the personnel of that 
     department or agency to the Commission to assist in carrying 
     out its duties under this section.
       (g) Obtaining Data.--The Commission may secure directly 
     from any department or agency of the United States, 
     information (other than information required by any law to be 
     kept confidential by such department or agency) necessary for 
     the Commission to carry out its duties under this section. 
     Upon request of the Commission, the head of that department 
     or agency shall furnish such nonconfidential information to 
     the Commission. The Commission shall also gather evidence 
     through such means as it may deem appropriate, including 
     through holding hearings and soliciting comments by means of 
     Federal Register notices.
       (h) Report.--Not later than 2 years after the date of its 
     first meeting, the Commission shall transmit its final 
     report, including recommendations, to the Secretary of 
     Transportation, the Secretary of the Treasury, and the 
     Committee on Ways and Means of the House of Representatives, 
     the Committee on Finance of the Senate, the Committee on 
     Transportation and Infrastructure of the House of 
     Representatives, the Committee on

[[Page S742]]

     Environment and Public Works of the Senate, and the Committee 
     on Banking, Housing, and Urban Affairs of the Senate.
       (i) Termination.--The Commission shall terminate on the 
     180th day following the date of transmittal of the report 
     under subsection (h). All records and papers of the 
     Commission shall thereupon be delivered to the Administrator 
     of General Services for deposit in the National Archives.

     SEC. 5503. TREASURY STUDY OF FUEL TAX COMPLIANCE AND 
                   INTERAGENCY COOPERATION.

       (a) In General.--Not later than January 31, 2006, the 
     Secretary of the Treasury shall submit to the Committee on 
     Finance of the Senate and the Committee on Ways and Means of 
     the House of Representatives a report regarding fuel tax 
     enforcement which shall include the information and analysis 
     specified in subsections (b) and (c) and any other 
     information and recommendations the Secretary of the Treasury 
     may deem appropriate.
       (b) Audits.--With respect to audits conducted by the 
     Internal Revenue Service, the report required under 
     subsection (a) shall include--
       (1) the number and geographic distribution of audits 
     conducted annually, by fiscal year, between October 1, 2001, 
     and September 30, 2005;
       (2) the total volume involved for each of the taxable fuels 
     covered by such audits and a comparison to the annual 
     production of such fuels;
       (3) the staff hours and number of personnel devoted to the 
     audits per year; and
       (4) the results of such audits by year, including total tax 
     collected, total penalties collected, and number of referrals 
     for criminal prosecution.
       (c) Enforcement Activities.--With respect to enforcement 
     activities, the report required under subsection (a) shall 
     include--
       (1) the number and geographic distribution of criminal 
     investigations and prosecutions annually, by fiscal year, 
     between October 1, 2001, and September 30, 2005, and the 
     results of such investigations and prosecutions;
       (2) to the extent such investigations and prosecutions 
     involved other agencies, State or Federal, a breakdown by 
     agency of the number of joint investigations involved;
       (3) an assessment of the effectiveness of joint action and 
     cooperation between the Department of the Treasury and other 
     Federal and State agencies, including a discussion of the 
     ability and need to share information across agencies for 
     both civil and criminal Federal tax enforcement and 
     enforcement of State or Federal laws relating to fuels;
       (4) the staff hours and number of personnel devoted to 
     criminal investigations and prosecutions per year;
       (5) the staff hours and number of personnel devoted to 
     administrative collection of fuel taxes; and
       (6) the results of administrative collection efforts 
     annually, by fiscal year, between October 1, 2001, and 
     September 30, 2005.

     SEC. 5504. EXPANSION OF HIGHWAY TRUST FUND EXPENDITURE 
                   PURPOSES TO INCLUDE FUNDING FOR STUDIES OF 
                   SUPPLEMENTAL OR ALTERNATIVE FINANCING FOR THE 
                   HIGHWAY TRUST FUND.

       (a) In General.--From amounts available in the Highway 
     Trust Fund, there is authorized to be expended for 2 
     comprehensive studies of supplemental or alternative funding 
     sources for the Highway Trust Fund--
       (1) $1,000,000 to the Western Transportation Institute of 
     the College of Engineering at Montana State University for 
     the study and report described in subsection (b), and
       (2) $16,500,000 to the Public Policy Center of the 
     University of Iowa for the study and report described in 
     subsection (c).
       (b) Study of Funding Mechanisms.--Not later than December 
     31, 2006, the Western Transportation Institute of the College 
     of Engineering at Montana State University shall report to 
     the Secretary of the Treasury and the Secretary of 
     Transportation on a study of highway funding mechanisms of 
     other industrialized nations, an examination of the viability 
     of alternative funding proposals, including congestion 
     pricing, greater reliance on tolls, privatization of 
     facilities, and bonding for construction of added capacity, 
     and an examination of increasing the rates of motor fuels 
     taxes in effect on the date of the enactment of this Act, 
     including the indexation of such rates.
       (c) Study on Field Test of On-Board Computer Assessment of 
     Highway Use Taxes.--Not later than December 31, 2011, the 
     Public Policy Center of the University of Iowa shall direct, 
     analyze, and report to the Secretary of the Treasury and the 
     Secretary of Transportation on a long-term field test of an 
     approach to assessing highway use taxes based upon actual 
     mileage driven by a specific vehicle on specific types of 
     highways by use of an on-board computer--
       (1) which is linked to satellites to calculate highway 
     mileage traversed,
       (2) which computes the appropriate highway use tax for each 
     of the Federal, State, and local governments as the vehicle 
     makes use of the highways, and
       (3) the data from which is periodically downloaded by the 
     vehicle owner to a collection center for an assessment of 
     highway use taxes due in each jurisdiction traversed.The 
     components of the field test shall include 2 years for 
     preparation, including selection of vendors and test 
     participants, and 3-year testing period.

     SEC. 5505. TREASURY STUDY OF HIGHWAY FUELS USED BY TRUCKS FOR 
                   NON-TRANSPORTATION PURPOSES.

       (a) Study.--The Secretary of the Treasury shall conduct a 
     study regarding the use of highway motor fuel by trucks that 
     is not used for the propulsion of the vehicle. As part of 
     such study--
       (1) in the case of vehicles carrying equipment that is 
     unrelated to the transportation function of the vehicle--
       (A) the Secretary of the Treasury, in consultation with the 
     Secretary of Transportation, and with public notice and 
     comment, shall determine the average annual amount of tax 
     paid fuel consumed per vehicle, by type of vehicle, used by 
     the propulsion engine to provide the power to operate the 
     equipment attached to the highway vehicle, and
       (B) the Secretary of the Treasury shall review the 
     technical and administrative feasibility of exempting such 
     nonpropulsive use of highway fuels for the highway motor 
     fuels excise taxes,
       (2) in the case where non-transportation equipment is run 
     by a separate motor--
       (A) the Secretary of the Treasury shall determine the 
     annual average amount of fuel exempted from tax in the use of 
     such equipment by equipment type, and
       (B) the Secretary of the Treasury shall review issues of 
     administration and compliance related to the present-law 
     exemption provided for such fuel use, and
       (3) the Secretary of the Treasury shall--
       (A) estimate the amount of taxable fuel consumed by trucks 
     and the emissions of various pollutants due to the long-term 
     idling of diesel engines, and
       (B) determine the cost of reducing such long-term idling 
     through the use of plug-ins at truck stops, auxiliary power 
     units, or other technologies.
       (b) Report.--Not later than January 1, 2006, the Secretary 
     of the Treasury shall report the findings of the study 
     required under subsection (a) to the Committee on Finance of 
     the Senate and the Committee on Ways and Means of the House 
     of Representatives.

     SEC. 5506. DELTA REGIONAL TRANSPORTATION PLAN.

       (a) Study.--The Delta Regional Authority shall conduct a 
     study of the transportation assets and needs in the States of 
     Alabama, Arkansas, Illinois, Kentucky, Louisiana, 
     Mississippi, Missouri, and Tennessee which comprise the Delta 
     region.
       (b) Regional Strategic Transportation Plan.--Upon 
     completion of the study required under subsection (a), the 
     Delta Regional Authority shall establish a regional strategic 
     transportation plan to achieve efficient transportation 
     systems in the Delta region. In developing the regional 
     strategic transportation plan, the Delta Regional Authority 
     shall consult with local planning and development districts, 
     local and regional governments, metropolitan planning 
     organizations, State transportation entities, and Federal 
     transportation agencies.
       (c) Elements of Study and Plan.--The study and plan under 
     this section shall include the following transportation modes 
     and systems: transit, rail, highway, interstate, bridges, 
     air, airports, waterways and ports.
       (d) Authorization of Appropriations.--There is authorized 
     to be appropriated to the Delta Regional Authority $1,000,000 
     to carry out the purposes of this section, to remain 
     available until expended.

     SEC. 5507. TREATMENT OF EMPLOYER-PROVIDED TRANSIT AND VAN 
                   POOLING BENEFITS.

       (a) In General.--Subparagraph (A) of section 132(f)(2) 
     (relating to limitation on exclusion) is amended by striking 
     ``$100'' and inserting ``$120''.
       (b) Inflation Adjustment Conforming Amendments.--The last 
     sentence of section 132(f)(6)(A) (relating to inflation 
     adjustment) is amended--
       (1) by striking ``2002'' and inserting ``2005'', and
       (2) by striking ``2001'' and inserting ``2004''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 5508. STUDY OF INCENTIVES FOR PRODUCTION OF BIODIESEL.

       (a) Study.--The General Comptroller of the United States 
     shall conduct a study related to biodiesel fuels and the tax 
     credit for biodiesel fuels established under this Act. Such 
     study shall include--
       (1) an assessment on whether such credit provides 
     sufficient assistance to the producers of biodiesel fuel to 
     establish the fuel as a viable energy alternative in the 
     current market place,
       (2) an assessment on how long such credit or similar 
     subsidy would have to remain in effect before biodiesel fuel 
     can compete in the market place without such assistance,
       (3) a cost-benefit analysis of such credit, comparing the 
     cost of the credit in forgone revenue to the benefits of 
     lower fuel costs for consumers, increased profitability for 
     the biodiesel industry, increased farm income, reduced 
     program outlays from the Department of Agriculture, and the 
     improved environmental conditions through the use of 
     biodiesel fuel, and
       (4) an assessment on whether such credit results in any 
     unintended consequences for unrelated industries, including 
     the impact, if any, on the glycerin market.
       (b) Report.--Not later than 2 years after the date of the 
     enactment of this Act, the Comptroller General of the United 
     States shall report the findings of the study required under 
     subsection (a) to the Committee on Finance of the Senate and 
     the

[[Page S743]]

     Committee on Ways and Means of the House of Representatives.

                      Subtitle G--Revenue Offsets

     PART I--LIMITATION ON EXPENSING CERTAIN PASSENGER AUTOMOBILES

     SEC. 5601. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN 
                   PASSENGER AUTOMOBILES.

       (a) In General.--Section 179(b) (relating to limitations) 
     is amended by adding at the end the following new paragraph:
       ``(6) Limitation on cost taken into account for certain 
     passenger vehicles.--
       ``(A) In general.--The cost of any sport utility vehicle 
     for any taxable year which may be taken into account under 
     this section shall not exceed $25,000.
       ``(B) Sport utility vehicle.--For purposes of subparagraph 
     (A)--
       ``(i) In general.--The term `sport utility vehicle' means 
     any 4-wheeled vehicle which--

       ``(I) is manufactured primarily for use on public streets, 
     roads, and highways,
       ``(II) is not subject to section 280F, and
       ``(III) is rated at not more than 14,000 pounds gross 
     vehicle weight.

       ``(ii) Certain vehicles excluded.--Such term does not 
     include any vehicle which--

       ``(I) does not have the primary load carrying device or 
     container attached,
       ``(II) has a seating capacity of more than 12 individuals,
       ``(III) is designed for more than 9 individuals in seating 
     rearward of the driver's seat,
       ``(IV) is equipped with an open cargo area, or a covered 
     box not readily accessible from the passenger compartment, of 
     at least 72.0 inches in interior length, or
       ``(V) has an integral enclosure, fully enclosing the driver 
     compartment and load carrying device, does not have seating 
     rearward of the driver's seat, and has no body section 
     protruding more than 30 inches ahead of the leading edge of 
     the windshield.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after February 2, 
     2004.

          PART II--PROVISIONS DESIGNED TO CURTAIL TAX SHELTERS

     SEC. 5611. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (n) as subsection (o) and by inserting after 
     subsection (m) the following new subsection:
       ``(n) Clarification of Economic Substance Doctrine; Etc.--
       ``(1) General rules.--
       ``(A) In general.--In any case in which a court determines 
     that the economic substance doctrine is relevant for purposes 
     of this title to a transaction (or series of transactions), 
     such transaction (or series of transactions) shall have 
     economic substance only if the requirements of this paragraph 
     are met.
       ``(B) Definition of economic substance.--For purposes of 
     subparagraph (A)--
       ``(i) In general.--A transaction has economic substance 
     only if--

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

     In applying subclause (II), a purpose of achieving a 
     financial accounting benefit shall not be taken into account 
     in determining whether a transaction has a substantial nontax 
     purpose if the origin of such financial accounting benefit is 
     a reduction of income tax.
       ``(ii) Special rule where taxpayer relies on profit 
     potential.--A transaction shall not be treated as having 
     economic substance by reason of having a potential for profit 
     unless--

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

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

       ``(I) depreciation,
       ``(II) any tax credit, or
       ``(III) any other deduction as provided in guidance by the 
     Secretary, and

       ``(ii) subclause (II) of paragraph (1)(B)(ii) shall be 
     disregarded in determining whether any of such benefits are 
     allowable.
       ``(4) Other common law doctrines not affected.--Except as 
     specifically provided in this subsection, the provisions of 
     this subsection shall not be construed as altering or 
     supplanting any other rule of law, and the requirements of 
     this subsection shall be construed as being in addition to 
     any such other rule of law.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection. Such regulations may include 
     exemptions from the application of this subsection.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after February 2, 
     2004.

     SEC. 5612. 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,

[[Page S744]]

       ``(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. 5613. 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 assertion and compromise of 
     penalty.--
       ``(A) In general.--Only upon the approval by the Chief 
     Counsel for the Internal Revenue Service or the Chief 
     Counsel's delegate at the national office of the Internal 
     Revenue Service may a penalty to which paragraph (1) applies 
     be included in a 1st letter of proposed deficiency which 
     allows the taxpayer an opportunity for administrative review 
     in the Internal Revenue Service Office of Appeals. If such a 
     letter is provided to the taxpayer, only the Commissioner of 
     Internal Revenue may compromise all or any portion of such 
     penalty.
       ``(B) Applicable rules.--The rules of paragraphs (2), (3), 
     (4), and (5) of section 6707A(d) shall apply for purposes of 
     subparagraph (A).
       ``(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

[[Page S745]]

       ``(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 disqualifying 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. 5614. 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(n)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(n)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable To Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2), (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 2, 
     2004.

     SEC. 5615. 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. 5616. 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,

[[Page S746]]

       ``(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. 5617. 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, managing, 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) Required Disclosure Not Subject to Claim of 
     Confidentiality.--Subparagraph (A) of section 6112(b)(1), as 
     redesignated by subsection (b)(2)(B), is amended by adding at 
     the end the following new flush sentence:
     ``For purposes of this section, the identity of any person on 
     such list shall not be privileged.''.
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), 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.
       (2) No claim of confidentiality against disclosure.--The 
     amendment made by subsection (c) shall take effect as if 
     included in the amendments made by section 142 of the Deficit 
     Reduction Act of 1984.

     SEC. 5618. 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 listed 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) Certain Rules To Apply.--The provisions of section 
     6707A(d) shall apply to any penalty imposed under this 
     section.
       ``(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. 5619. 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. 5620. 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:

[[Page S747]]

     ``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. 5621. 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. 5622. 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. 5623. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

       ``(a) Civil Penalty for Frivolous Tax Returns.--A person 
     shall pay a penalty of $5,000 if--
       ``(1) such person files what purports to be a return of a 
     tax imposed by this title but which--
       ``(A) does not contain information on which the substantial 
     correctness of the self-assessment may be judged, or
       ``(B) contains information that on its face indicates that 
     the self-assessment is substantially incorrect; and
       ``(2) the conduct referred to in paragraph (1)--
       ``(A) is based on a position which the Secretary has 
     identified as frivolous under subsection (c), or
       ``(B) reflects a desire to delay or impede the 
     administration of Federal tax laws.
       ``(b) Civil Penalty for Specified Frivolous Submissions.--
       ``(1) Imposition of penalty.--Except as provided in 
     paragraph (3), any person who submits a specified frivolous 
     submission shall pay a penalty of $5,000.
       ``(2) Specified frivolous submission.--For purposes of this 
     section--
       ``(A) Specified frivolous submission.--The term `specified 
     frivolous submission' means a specified submission if any 
     portion of such submission--
       ``(i) is based on a position which the Secretary has 
     identified as frivolous under subsection (c), or
       ``(ii) reflects a desire to delay or impede the 
     administration of Federal tax laws.
       ``(B) Specified submission.--The term `specified 
     submission' means--
       ``(i) a request for a hearing under--

       ``(I) section 6320 (relating to notice and opportunity for 
     hearing upon filing of notice of lien), or
       ``(II) section 6330 (relating to notice and opportunity for 
     hearing before levy), and

       ``(ii) an application under--

       ``(I) section 6159 (relating to agreements for payment of 
     tax liability in installments),
       ``(II) section 7122 (relating to compromises), or
       ``(III) section 7811 (relating to taxpayer assistance 
     orders).

       ``(3) Opportunity to withdraw submission.--If the Secretary 
     provides a person with notice that a submission is a 
     specified frivolous submission and such person withdraws such 
     submission within 30 days after such notice, the penalty 
     imposed under paragraph (1) shall not apply with respect to 
     such submission.
       ``(c) Listing of Frivolous Positions.--The Secretary shall 
     prescribe (and periodically revise) a list of positions which 
     the Secretary has identified as being frivolous for purposes 
     of this subsection. The Secretary shall not include in such 
     list any position that the Secretary determines meets the 
     requirement of section 6662(d)(2)(B)(ii)(II).
       ``(d) Reduction of Penalty.--The Secretary may reduce the 
     amount of any penalty imposed under this section if the 
     Secretary determines that such reduction would promote 
     compliance with and administration of the Federal tax laws.
       ``(e) Penalties in Addition to Other Penalties.--The 
     penalties imposed by this section shall be in addition to any 
     other penalty provided by law.''.
       (b) Treatment of Frivolous Requests for Hearings Before 
     Levy.--
       (1) Frivolous requests disregarded.--Section 6330 (relating 
     to notice and opportunity for hearing before levy) is amended 
     by adding at the end the following new subsection:
       ``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding 
     any other provision of this section, if the Secretary 
     determines that any portion of a request for a hearing under 
     this section or section 6320 meets the requirement of clause 
     (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
     treat such portion as if it were never submitted and such 
     portion shall not be subject to any further administrative or 
     judicial review.''.
       (2) Preclusion from raising frivolous issues at hearing.--
     Section 6330(c)(4) is amended--
       (A) by striking ``(A)'' and inserting ``(A)(i)'';
       (B) by striking ``(B)'' and inserting ``(ii)'';
       (C) by striking the period at the end of the first sentence 
     and inserting ``; or''; and
       (D) by inserting after subparagraph (A)(ii) (as so 
     redesignated) the following:
       ``(B) the issue meets the requirement of clause (i) or (ii) 
     of section 6702(b)(2)(A).''.
       (3) Statement of grounds.--Section 6330(b)(1) is amended by 
     striking ``under subsection (a)(3)(B)'' and inserting ``in 
     writing under subsection (a)(3)(B) and states the grounds for 
     the requested hearing''.
       (c) Treatment of Frivolous Requests for Hearings Upon 
     Filing of Notice of Lien.--Section 6320 is amended--
       (1) in subsection (b)(1), by striking ``under subsection 
     (a)(3)(B)'' and inserting ``in writing under subsection 
     (a)(3)(B) and states the grounds for the requested hearing'', 
     and
       (2) in subsection (c), by striking ``and (e)'' and 
     inserting ``(e), and (g)''.
       (d) Treatment of Frivolous Applications for Offers-in-
     Compromise and Installment Agreements.--Section 7122 is 
     amended by adding at the end the following new subsection:
       ``(e) Frivolous Submissions, Etc.--Notwithstanding any 
     other provision of this section, if the Secretary determines 
     that any portion of an application for an offer-in-compromise 
     or installment agreement submitted under this section or 
     section 6159 meets the requirement of clause (i) or (ii) of 
     section 6702(b)(2)(A), then the Secretary may treat such 
     portion as if it were never submitted and such portion shall 
     not be subject to any further administrative or judicial 
     review.''.
       (e) Clerical Amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by striking the item 
     relating to section 6702 and inserting the following new 
     item:

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

     SEC. 5624. 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

[[Page S748]]

     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 of the 
     representative.''.
       (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. 5625. 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. 5626. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   REQUIRED LISTED TRANSACTIONS NOT REPORTED.

       (a) In General.--Section 6501(c) (relating to exceptions) 
     is amended by adding at the end the following new paragraph:
       ``(10) 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 time for 
     assessment of any tax imposed by this title with respect to 
     such transaction shall not expire before the date which is 1 
     year after the earlier of--
       ``(A) the date on which the Secretary is furnished the 
     information so required; or
       ``(B) the date that a material advisor (as defined in 
     section 6111) meets the requirements of section 6112 with 
     respect to a request by the Secretary under section 6112(b) 
     relating to such transaction with respect to such 
     taxpayer.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years with respect to which the period 
     for assessing a deficiency did not expire before the date of 
     the enactment of this Act.

     SEC. 5627. 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 in taxable years beginning after 
     the date of the enactment of this Act.

     SEC. 5628. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW 
                   ENFORCEMENT.

       There is authorized to be appropriated $300,000,000 for 
     each fiscal year beginning after September 30, 2003, for the 
     purpose of carrying out tax law enforcement to combat tax 
     avoidance transactions and other tax shelters, including the 
     use of offshore financial accounts to conceal taxable income.

            PART III--OTHER CORPORATE GOVERNANCE PROVISIONS

     SEC. 5631. 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.

     SEC. 5632. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO 
                   FEDERAL ANNUAL CORPORATE INCOME TAX RETURN.

       (a) In General.--The Federal tax return of a corporation 
     with respect to income shall also include a declaration 
     signed by the chief executive officer of such corporation (or 
     other such officer of the corporation as the Secretary of the 
     Treasury may designate if the corporation does not have a 
     chief executive officer), under penalties of perjury, that 
     the chief executive officer has established processes and 
     procedures that ensure that such return complies with the 
     Internal Revenue Code of 1986 and that the chief executive 
     officer was provided reasonable assurance of the accuracy of 
     all material aspects of such return. The preceding sentence 
     shall not apply to any return of a regulated investment 
     company (within the meaning of section 851 of such Code).
       (b) Effective Date.--This section shall apply to Federal 
     tax returns filed after the date of the enactment of this 
     Act.

     SEC. 5633. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution.--
     Paragraph (1) shall not apply to any amount which the 
     taxpayer establishes constitutes restitution for damage or 
     harm caused by the violation of any law or the potential 
     violation of any law. This paragraph shall not apply to any 
     amount paid or incurred as reimbursement to the government or 
     entity for the costs of any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts paid or incurred after April 27, 2003, 
     except that such amendment shall not apply to amounts paid or 
     incurred under any binding order or agreement entered into on 
     or before April 27, 2003. Such exception shall not apply to 
     an order or agreement requiring court approval unless the 
     approval was obtained on or before April 27, 2003.

     SEC. 5634. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

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

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

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

[[Page S749]]

       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

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

     SEC. 5635. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due To Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``misdemeanor'' and inserting ``felony'', 
     and
       (ii) by striking ``1 year'' and inserting ``10 years'', and
       (B) by striking the third sentence.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to underpayments and overpayments attributable to 
     actions occurring after the date of the enactment of this 
     Act.

     SEC. 5636. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) General Rule.--If--
       (1) a taxpayer eligible to participate in--
       (A) the Department of the Treasury's Offshore Voluntary 
     Compliance Initiative, or
       (B) the Department of the Treasury's voluntary disclosure 
     initiative which applies to the taxpayer by reason of the 
     taxpayer's underreporting of United States income tax 
     liability through financial arrangements which rely on the 
     use of offshore arrangements which were the subject of the 
     initiative described in subparagraph (A), and
       (2) any interest or applicable penalty is imposed with 
     respect to any arrangement to which any initiative described 
     in paragraph (1) applied or to any underpayment of Federal 
     income tax attributable to items arising in connection with 
     any arrangement described in paragraph (1),
     then, notwithstanding any other provision of law, the amount 
     of such interest or penalty shall be equal to twice that 
     determined without regard to this section.
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition to tax, or fine imposed under 
     chapter 68 of the Internal Revenue Code of 1986.
       (2) Voluntary offshore compliance initiative.--The term 
     ``Voluntary Offshore Compliance Initiative'' means the 
     program established by the Department of the Treasury in 
     January of 2003 under which any taxpayer was eligible to 
     voluntarily disclose previously undisclosed income on assets 
     placed in offshore accounts and accessed through credit card 
     and other financial arrangements.
       (3) Participation.--A taxpayer shall be treated as having 
     participated in the Voluntary Offshore Compliance Initiative 
     if the taxpayer submitted the request in a timely manner and 
     all information requested by the Secretary of the Treasury or 
     his delegate within a reasonable period of time following the 
     request.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

             PART IV--ENRON-RELATED TAX SHELTER PROVISIONS

     SEC. 5641. 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 subparagraph 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 by a transferor 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 such 
     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 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 February 13, 2003.

     SEC. 5642. 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 
     (or any person which is related (within the meaning of 
     section 267(b) or 707(b)(1)) to such 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 in such manner as the Secretary 
     may prescribe.
     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).''.

[[Page S750]]

       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions after February 13, 2003.

     SEC. 5643. 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)(A) Section 860G(a)(1) is amended by adding at the end 
     the following new sentence: ``An interest shall not fail to 
     qualify as a regular interest solely because the specified 
     principal amount of the regular interest (or the amount of 
     interest accrued on the regular interest) can be reduced as a 
     result of the nonoccurrence of 1 or more contingent payments 
     with respect to any reverse mortgage loan held by the REMIC 
     if, on the startup day for the REMIC, the sponsor reasonably 
     believes that all principal and interest due under the 
     regular interest will be paid at or prior to the liquidation 
     of the REMIC.''.
       (B) The last sentence of section 860G(a)(3) is amended by 
     inserting ``, and any reverse mortgage loan (and each balance 
     increase on such loan meeting the requirements of 
     subparagraph (A)(iii)) shall be treated as an obligation 
     secured by an interest in real property'' before the period 
     at the end.
       (6) Paragraph (3) 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).
       (7) Section 860G(a)(3), as amended by paragraph (6), is 
     amended by adding at the end the following new sentence: 
     ``For purposes of subparagraph (A), if more than 50 percent 
     of the obligations transferred to, or purchased by, the REMIC 
     are originated by the United States or any State (or any 
     political subdivision, agency, or instrumentality of the 
     United States or any State) and are principally secured by an 
     interest in real property, then each obligation transferred 
     to, or purchased by, the REMIC shall be treated as secured by 
     an interest in real property.''.
       (8)(A) Section 860G(a)(3)(A) is amended by striking ``or'' 
     at the end of clause (i), by inserting ``or'' at the end of 
     clause (ii), and by inserting after clause (ii) the following 
     new clause:
       ``(iii) represents an increase in the principal amount 
     under the original terms of an obligation described in clause 
     (i) or (ii) if such increase--

       ``(I) is attributable to an advance made to the obligor 
     pursuant to the original terms of the obligation,
       ``(II) occurs after the startup day, and
       ``(III) is purchased by the REMIC pursuant to a fixed price 
     contract in effect on the startup day.''.

       (B) Section 860G(a)(7)(B) is amended to read as follows:
       ``(B) Qualified reserve fund.--For purposes of subparagraph 
     (A), the term `qualified reserve fund' means any reasonably 
     required reserve to--
       ``(i) provide for full payment of expenses of the REMIC or 
     amounts due on regular interests in the event of defaults on 
     qualified mortgages or lower than expected returns on cash 
     flow investments, or
       ``(ii) provide a source of funds for the purchase of 
     obligations described in clause (ii) or (iii) of paragraph 
     (3)(A).
     The aggregate fair market value of the assets held in any 
     such reserve shall not exceed 50 percent of the aggregate 
     fair market value of all of the assets of the REMIC on the 
     startup day, and the amount of any such reserve shall be 
     promptly and appropriately reduced to the extent the amount 
     held in such reserve is no longer reasonably required for 
     purposes specified in clause (i) or (ii) of paragraph 
     (3)(A).''.
       (9) Subparagraph (C) of section 1202(e)(4) is amended by 
     striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (10) Clause (xi) of section 7701(a)(19)(C) is amended--
       (A) by striking ``and any regular interest in a FASIT,'', 
     and
       (B) by striking ``or FASIT'' each place it appears.
       (11) 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 take effect on February 
     14, 2003.
       (2) Exception for existing fasits.--Paragraph (1) shall not 
     apply to any FASIT in existence on the date of the enactment 
     of this Act to the extent that regular interests issued by 
     the FASIT before such date continue to remain outstanding in 
     accordance with the original terms of issuance.

     SEC. 5644. 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) Capitalization Allowed With Respect to Equity of 
     Persons Other Than Issuer and Related Parties.--Section 
     163(l) is amended by redesignating paragraphs (4) and (5) as 
     paragraphs (5) and (6) and by inserting after paragraph (3) 
     the following new paragraph:
       ``(4) Capitalization allowed with respect to equity of 
     persons other than issuer and related parties.--If the 
     disqualified debt instrument of a corporation is payable in 
     equity held by the issuer (or any related party) in any other 
     person (other than a related party), the basis of such equity 
     shall be increased by the amount not allowed as a deduction 
     by reason of paragraph (1) with respect to the instrument.''.
       (c) Exception for Certain Instruments Issued By Dealers In 
     Securities.--Section 163(l), as amended by subsection (b), is 
     amended by redesignating paragraphs (5) and (6) as paragraphs 
     (6) and (7) and by inserting after paragraph (4) the 
     following new paragraph:
       ``(5) Exception for certain instruments issued by dealers 
     in securities.--For purposes of this subsection, the term 
     `disqualified debt instrument' does not include indebtedness 
     issued by a dealer in securities (or a related party) which 
     is payable in, or by reference to, equity (other than equity 
     of the issuer or a related party) held by such dealer in its 
     capacity as a dealer in securities. For purposes of this 
     paragraph, the term `dealer in securities' has the meaning 
     given such term by section 475.''.
       (c) Conforming Amendments.--Paragraph (3) of section 163(l) 
     is amended--
       (1) by striking ``or a related party'' in the material 
     preceding subparagraph (A) and inserting ``or any other 
     person'', and
       (2) by striking ``or interest'' each place it appears.
       (d) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after February 13, 
     2003.

     SEC. 5645. 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 or persons acquire, directly or 
     indirectly, control of a corporation, or
       ``(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,
     then the Secretary may disallow such deduction, credit, or 
     other allowance. For purposes of paragraph (1)(A), control 
     means the ownership of stock possessing at least 50 percent 
     of the total combined voting power of all classes of stock 
     entitled to vote or at least 50 percent of the total value of 
     all shares of all classes of stock of the corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to stock and property acquired after February 13, 
     2003.

     SEC. 5646. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND 
                   PASSIVE FOREIGN INVESTMENT COMPANY RULES.

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

     ``Such term shall not include any period if the earning of 
     subpart F income by such corporation during such period would 
     result in only a remote likelihood of an inclusion in gross 
     income under section 951(a)(1)(A)(i).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of controlled foreign 
     corporations beginning after February 13, 2003, and to 
     taxable years of United States shareholders with or within 
     which such taxable years of controlled foreign corporations 
     end.

             PART V--PROVISIONS TO DISCOURAGE EXPATRIATION

     SEC. 5651. TAX TREATMENT OF INVERTED CORPORATE ENTITIES

       (a) In General.--Subchapter C of chapter 80 (relating to 
     provisions affecting more than one subtitle) is amended by 
     adding at the end the following new section:

     ``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES.

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section 7701(a)(4), such entity shall be 
     treated for purposes of this title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,

[[Page S751]]

       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former partners of the domestic 
     partnership by reason of holding a capital or profits 
     interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.

     Except as provided in regulations, an acquisition of 
     properties of a domestic corporation shall not be treated as 
     described in subparagraph (A) if none of the corporation's 
     stock was readily tradeable on an established securities 
     market at any time during the 4-year period ending on the 
     date of the acquisition.
       ``(b) Preservation of Domestic Tax Base in Certain 
     Inversion Transactions to Which Subsection (a) Does Not 
     Apply.--
       ``(1) In general.--If a foreign incorporated entity would 
     be treated as an inverted domestic corporation with respect 
     to an acquired entity if either--
       ``(A) subsection (a)(2)(A) were applied by substituting 
     `after December 31, 1996, and on or before March 20, 2002' 
     for `after March 20, 2002' and subsection (a)(2)(B) were 
     applied by substituting `more than 50 percent' for `at least 
     80 percent', or
       ``(B) subsection (a)(2)(B) were applied by substituting 
     `more than 50 percent' for `at least 80 percent',

     then the rules of subsection (c) shall apply to any inversion 
     gain of the acquired entity during the applicable period and 
     the rules of subsection (d) shall apply to any related party 
     transaction of the acquired entity during the applicable 
     period. This subsection shall not apply for any taxable year 
     if subsection (a) applies to such foreign incorporated entity 
     for such taxable year.
       ``(2) Acquired entity.--For purposes of this section--
       ``(A) In general.--The term `acquired entity' means the 
     domestic corporation or partnership substantially all of the 
     properties of which are directly or indirectly acquired in an 
     acquisition described in subsection (a)(2)(A) to which this 
     subsection applies.
       ``(B) Aggregation rules.--Any domestic person bearing a 
     relationship described in section 267(b) or 707(b) to an 
     acquired entity shall be treated as an acquired entity with 
     respect to the acquisition described in subparagraph (A).
       ``(3) Applicable period.--For purposes of this section--
       ``(A) In general.--The term `applicable period' means the 
     period--
       ``(i) beginning on the first date properties are acquired 
     as part of the acquisition described in subsection (a)(2)(A) 
     to which this subsection applies, and
       ``(ii) ending on the date which is 10 years after the last 
     date properties are acquired as part of such acquisition.
       ``(B) Special rule for inversions occurring before march 
     21, 2002.--In the case of any acquired entity to which 
     paragraph (1)(A) applies, the applicable period shall be the 
     10-year period beginning on January 1, 2003.
       ``(c) Tax on Inversion Gains May Not Be Offset.--If 
     subsection (b) applies--
       ``(1) In general.--The taxable income of an acquired entity 
     (or any expanded affiliated group which includes such entity) 
     for any taxable year which includes any portion of the 
     applicable period shall in no event be less than the 
     inversion gain of the entity for the taxable year.
       ``(2) Credits not allowed against tax on inversion gain.--
     Credits shall be allowed against the tax imposed by this 
     chapter on an acquired entity for any taxable year described 
     in paragraph (1) only to the extent such tax exceeds the 
     product of--
       ``(A) the amount of the inversion gain for the taxable 
     year, and
       ``(B) the highest rate of tax specified in section 
     11(b)(1).

     For purposes of determining the credit allowed by section 901 
     inversion gain shall be treated as from sources within the 
     United States.
       ``(3) Special rules for partnerships.--In the case of an 
     acquired entity which is a partnership--
       ``(A) the limitations of this subsection shall apply at the 
     partner rather than the partnership level,
       ``(B) the inversion gain of any partner for any taxable 
     year shall be equal to the sum of--
       ``(i) the partner's distributive share of inversion gain of 
     the partnership for such taxable year, plus
       ``(ii) income or gain required to be recognized for the 
     taxable year by the partner under section 367(a), 741, or 
     1001, or under any other provision of chapter 1, by reason of 
     the transfer during the applicable period of any partnership 
     interest of the partner in such partnership to the foreign 
     incorporated entity, and
       ``(C) the highest rate of tax specified in the rate 
     schedule applicable to the partner under chapter 1 shall be 
     substituted for the rate of tax under paragraph (2)(B).
       ``(4) Inversion gain.--For purposes of this section, the 
     term `inversion gain' means any income or gain required to be 
     recognized under section 304, 311(b), 367, 1001, or 1248, or 
     under any other provision of chapter 1, by reason of the 
     transfer during the applicable period of stock or other 
     properties by an acquired entity--
       ``(A) as part of the acquisition described in subsection 
     (a)(2)(A) to which subsection (b) applies, or
       ``(B) after such acquisition to a foreign related person.

     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding the provisions of any other law or rule of 
     law which would otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.
       ``(d) Special Rules Applicable to Acquired Entities to 
     Which Subsection (b) Applies.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an acquired entity to which 
     subsection (b) applies--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated as 
     pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.
       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1)

[[Page S752]]

     would be, treated as a foreign corporation for purposes of 
     this title.
       ``(4) Foreign related person.--The term `foreign related 
     person' means, with respect to any acquired entity, a foreign 
     person which--
       ``(A) bears a relationship to such entity described in 
     section 267(b) or 707(b), or
       ``(B) is under the same common control (within the meaning 
     of section 482) as such entity.
       ``(5) Subsequent acquisitions by unrelated domestic 
     corporations.--
       ``(A) In general.--Subject to such conditions, limitations, 
     and exceptions as the Secretary may prescribe, if, after an 
     acquisition described in subsection (a)(2)(A) to which 
     subsection (b) applies, a domestic corporation stock of which 
     is traded on an established securities market acquires 
     directly or indirectly any properties of one or more acquired 
     entities in a transaction with respect to which the 
     requirements of subparagraph (B) are met, this section shall 
     cease to apply to any such acquired entity with respect to 
     which such requirements are met.
       ``(B) Requirements.--The requirements of the subparagraph 
     are met with respect to a transaction involving any 
     acquisition described in subparagraph (A) if--
       ``(i) before such transaction the domestic corporation did 
     not have a relationship described in section 267(b) or 
     707(b), and was not under common control (within the meaning 
     of section 482), with the acquired entity, or any member of 
     an expanded affiliated group including such entity, and
       ``(ii) after such transaction, such acquired entity--

       ``(I) is a member of the same expanded affiliated group 
     which includes the domestic corporation or has such a 
     relationship or is under such common control with any member 
     of such group, and
       ``(II) is not a member of, and does not have such a 
     relationship and is not under such common control with any 
     member of, the expanded affiliated group which before such 
     acquisition included such entity.

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-thru or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved in 
     transactions to which section 7874 of such Code (as added by 
     subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (c) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.
       (d) Transition Rule for Certain Regulated Investment 
     Companies and Unit Investment Trusts.--Notwithstanding 
     section 7874 of the Internal Revenue Code of 1986 (as added 
     by subsection (a)), a regulated investment company, or other 
     pooled fund or trust specified by the Secretary of the 
     Treasury, may elect to recognize gain by reason of section 
     367(a) of such Code with respect to a transaction under which 
     a foreign incorporated entity is treated as an inverted 
     domestic corporation under section 7874(a) of such Code by 
     reason of an acquisition completed after March 20, 2002, and 
     before January 1, 2004.

     SEC. 5652. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS 
                   WHO EXPATRIATE.

       (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 2004, 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 2003' 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.

[[Page S753]]

       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.

     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

       ``(I) by the amount of taxes imposed by subparagraph (A) on 
     any distribution to the person holding the trust interest, 
     and
       ``(II) in the case of a person holding a nonvested 
     interest, to the extent provided in regulations, by the 
     amount of taxes imposed by subparagraph (A) on distributions 
     from the trust with respect to nonvested interests not held 
     by such person.

       ``(D) Allocable expatriation gain.--For purposes of this 
     paragraph, the allocable expatriation gain with respect to 
     any beneficiary's interest in a trust is the amount of gain 
     which would be allocable to such beneficiary's vested and 
     nonvested interests in the trust if the beneficiary held 
     directly all assets allocable to such interests.
       ``(E) Tax deducted and withheld.--
       ``(i) In general.--The tax imposed by subparagraph (A)(ii) 
     shall be deducted and withheld by the trustees from the 
     distribution to which it relates.
       ``(ii) Exception where failure to waive treaty rights.--If 
     an amount may not be deducted and withheld under clause (i) 
     by reason of the distributee failing to waive any treaty 
     right with respect to such distribution--

       ``(I) the tax imposed by subparagraph (A)(ii) shall be 
     imposed on the trust and each trustee shall be personally 
     liable for the amount of such tax, and
       ``(II) any other beneficiary of the trust shall be entitled 
     to recover from the distributee the amount of such tax 
     imposed on the other beneficiary.

       ``(F) Disposition.--If a trust ceases to be a qualified 
     trust at any time, a covered expatriate disposes of an 
     interest in a qualified trust, or a covered expatriate 
     holding an interest in a qualified trust dies, then, in lieu 
     of the tax imposed by subparagraph (A)(ii), there is hereby 
     imposed a tax equal to the lesser of--
       ``(i) the tax determined under paragraph (1) as if the day 
     before the expatriation date were the date of such cessation, 
     disposition, or death, whichever is applicable, or

[[Page S754]]

       ``(ii) the balance in the tax deferred account immediately 
     before such date.

     Such tax shall be imposed on the trust and each trustee shall 
     be personally liable for the amount of such tax and any other 
     beneficiary of the trust shall be entitled to recover from 
     the covered expatriate or the estate the amount of such tax 
     imposed on the other beneficiary.
       ``(G) Definitions and special rules.--For purposes of this 
     paragraph--
       ``(i) Qualified trust.--The term `qualified trust' means a 
     trust which is described in section 7701(a)(30)(E).
       ``(ii) Vested interest.--The term `vested interest' means 
     any interest which, as of the day before the expatriation 
     date, is vested in the beneficiary.
       ``(iii) Nonvested interest.--The term `nonvested interest' 
     means, with respect to any beneficiary, any interest in a 
     trust which is not a vested interest. Such interest shall be 
     determined by assuming the maximum exercise of discretion in 
     favor of the beneficiary and the occurrence of all 
     contingencies in favor of the beneficiary.
       ``(iv) Adjustments.--The Secretary may provide for such 
     adjustments to the bases of assets in a trust or a deferred 
     tax account, and the timing of such adjustments, in order to 
     ensure that gain is taxed only once.
       ``(v) Coordination with retirement plan rules.--This 
     subsection shall not apply to an interest in a trust which is 
     part of a retirement plan to which subsection (d)(2) applies.
       ``(3) Determination of beneficiaries' interest in trust.--
       ``(A) Determinations under paragraph (1).--For purposes of 
     paragraph (1), a beneficiary's interest in a trust shall be 
     based upon all relevant facts and circumstances, including 
     the terms of the trust instrument and any letter of wishes or 
     similar document, historical patterns of trust distributions, 
     and the existence of and functions performed by a trust 
     protector or any similar adviser.
       ``(B) Other determinations.--For purposes of this section--
       ``(i) Constructive ownership.--If a beneficiary of a trust 
     is a corporation, partnership, trust, or estate, the 
     shareholders, partners, or beneficiaries shall be deemed to 
     be the trust beneficiaries for purposes of this section.
       ``(ii) Taxpayer return position.--A taxpayer shall clearly 
     indicate on its income tax return--

       ``(I) the methodology used to determine that taxpayer's 
     trust interest under this section, and
       ``(II) if the taxpayer knows (or has reason to know) that 
     any other beneficiary of such trust is using a different 
     methodology to determine such beneficiary's trust interest 
     under this section.

       ``(g) Termination of Deferrals, etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(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 2, 2004.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:

[[Page S755]]

       ``(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:
       ``(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 
     2, 2004.
       (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 2, 2004, 
     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. 5653. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

       (a) In General.--Subtitle D is amended by adding at the end 
     the following new chapter:

 ``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS

``Sec. 5000A. Stock compensation of insiders in inverted corporations 
              entities.

     ``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED 
                   CORPORATIONS.

       ``(a) Imposition of Tax.--In the case of an individual who 
     is a disqualified individual with respect to any inverted 
     corporation, there is hereby imposed on such person a tax 
     equal to 20 percent of the value (determined under subsection 
     (b)) of the specified stock compensation held (directly or 
     indirectly) by or for the benefit of such individual or a 
     member of such individual's family (as defined in section 
     267) at any time during the 12-month period beginning on the 
     date which is 6 months before the inversion date.
       ``(b) Value.--For purposes of subsection (a)--
       ``(1) In general.--The value of specified stock 
     compensation shall be--
       ``(A) in the case of a stock option (or other similar 
     right) or any stock appreciation right, the fair value of 
     such option or right, and
       ``(B) in any other case, the fair market value of such 
     compensation.
       ``(2) Date for determining value.--The determination of 
     value shall be made--
       ``(A) in the case of specified stock compensation held on 
     the inversion date, on such date,
       ``(B) in the case of such compensation which is canceled 
     during the 6 months before the inversion date, on the day 
     before such cancellation, and
       ``(C) in the case of such compensation which is granted 
     after the inversion date, on the date such compensation is 
     granted.
       ``(c) Tax To Apply Only If Shareholder Gain Recognized.--
     Subsection (a) shall apply to any disqualified individual 
     with respect to an inverted corporation only if gain (if any) 
     on any stock in such corporation is recognized in whole or 
     part by any shareholder by reason of the acquisition referred 
     to in section 7874(a)(2)(A) (determined by substituting `July 
     10, 2002' for `March 20, 2002') with respect to such 
     corporation.
       ``(d) Exception Where Gain Recognized on Compensation.--
     Subsection (a) shall not apply to--
       ``(1) any stock option which is exercised on the inversion 
     date or during the 6-month period before such date and to the 
     stock acquired in such exercise, if income is recognized 
     under section 83 on or before the inversion date with respect 
     to the stock acquired pursuant to such exercise, and
       ``(2) any specified stock compensation which is exercised, 
     sold, exchanged, distributed, cashed out, or otherwise paid 
     during such period in a transaction in which gain or loss is 
     recognized in full.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Disqualified individual.--The term `disqualified 
     individual' means, with respect to a corporation, any 
     individual who, at any time during the 12-month period 
     beginning on the date which is 6 months before the inversion 
     date--
       ``(A) is subject to the requirements of section 16(a) of 
     the Securities Exchange Act of 1934 with respect to such 
     corporation, or
       ``(B) would be subject to such requirements if such 
     corporation were an issuer of equity securities referred to 
     in such section.
       ``(2) Inverted corporation; inversion date.--
       ``(A) Inverted corporation.--The term `inverted 
     corporation' means any corporation to which subsection (a) or 
     (b) of section 7874 applies determined--
       ``(i) by substituting `July 10, 2002' for `March 20, 2002' 
     in section 7874(a)(2)(A), and
       ``(ii) without regard to subsection (b)(1)(A).
     Such term includes any predecessor or successor of such a 
     corporation.
       ``(B) Inversion date.--The term `inversion date' means, 
     with respect to a corporation, the date on which the 
     corporation first becomes an inverted corporation.
       ``(3) Specified stock compensation.--
       ``(A) In general.--The term `specified stock compensation' 
     means payment (or right to payment) granted by the inverted 
     corporation (or by any member of the expanded affiliated 
     group which includes such corporation) to any person in 
     connection with the performance of services by a disqualified 
     individual for such corporation or member if the value of 
     such payment or right is based on (or determined by reference 
     to) the value (or change in value) of stock in such 
     corporation (or any such member).
       ``(B) Exceptions.--Such term shall not include--
       ``(i) any option to which part II of subchapter D of 
     chapter 1 applies, or
       ``(ii) any payment or right to payment from a plan referred 
     to in section 280G(b)(6).
       ``(4) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)(3)); except 
     that section 1504(a) shall be applied by substituting `more 
     than 50 percent' for `at least 80 percent' each place it 
     appears.
       ``(f) Special Rules.--For purposes of this section--
       ``(1) Cancellation of restriction.--The cancellation of a 
     restriction which by its terms will never lapse shall be 
     treated as a grant.
       ``(2) Payment or reimbursement of tax by corporation 
     treated as specified stock compensation.--Any payment of the 
     tax imposed by this section directly or indirectly by the 
     inverted corporation or by any member of the expanded 
     affiliated group which includes such corporation--
       ``(A) shall be treated as specified stock compensation, and
       ``(B) shall not be allowed as a deduction under any 
     provision of chapter 1.
       ``(3) Certain restrictions ignored.--Whether there is 
     specified stock compensation, and the value thereof, shall be 
     determined without regard to any restriction other than a 
     restriction which by its terms will never lapse.
       ``(4) Property transfers.--Any transfer of property shall 
     be treated as a payment and any right to a transfer of 
     property shall be treated as a right to a payment.
       ``(5) Other administrative provisions.--For purposes of 
     subtitle F, any tax imposed by this section shall be treated 
     as a tax imposed by subtitle A.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Denial of Deduction.--
       (1) In general.--Paragraph (6) of section 275(a) is amended 
     by inserting ``48,'' after ``46,''.
       (2) $1,000,000 limit on deductible compensation reduced by 
     payment of excise tax on specified stock compensation.--
     Paragraph (4) of section 162(m) is amended by adding at the 
     end the following new subparagraph:
       ``(G) Coordination with excise tax on specified stock 
     compensation.--The dollar limitation contained in paragraph 
     (1) with respect to any covered employee shall be reduced 
     (but not below zero) by the amount of any payment (with 
     respect to such employee) of the tax imposed by section 5000A 
     directly or indirectly by the inverted corporation (as 
     defined in such section) or by any member of the expanded 
     affiliated group (as defined in such section) which includes 
     such corporation.''.
       (c) Conforming Amendments.--
       (1) The last sentence of section 3121(v)(2)(A) is amended 
     by inserting before the period ``or to any specified stock 
     compensation (as defined in section 5000A) on which tax is 
     imposed by section 5000A''.
       (2) The table of chapters for subtitle D is amended by 
     adding at the end the following new item:

``Chapter 48. Stock compensation of insiders in inverted 
              corporations.''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on July 11, 2002; except that periods 
     before such date shall not be taken into account in applying 
     the periods in subsections (a) and (e)(1) of section 5000A of 
     the Internal Revenue Code of 1986, as added by this section.

     SEC. 5654. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

       (a) In General.--Section 845(a) (relating to allocation in 
     case of reinsurance agreement involving tax avoidance or 
     evasion) is amended by striking ``source and character'' and 
     inserting ``amount, source, or character''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to any risk reinsured after April 11, 2002.

[[Page S756]]

            PART V--PROVISION TO REPLENISH THE GENERAL FUND

     SEC. 5661. MODIFICATION TO CORPORATE ESTIMATED TAX 
                   REQUIREMENTS.

       The amount of any required installment of corporate 
     estimated income tax which is otherwise due under section 
     6655 of the Internal Revenue Code of 1986 after June 30, 
     2009, and before October 1, 2009, shall be 119 percent of 
     such amount.

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