[Congressional Record Volume 150, Number 26 (Wednesday, March 3, 2004)]
[Senate]
[Pages S2111-S2170]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           TEXT OF AMENDMENTS

  SA 2638. Mr. SANTORUM (for himself, Mr. Bayh, and Mr. Bingaman) 
submitted an amendment intended to be proposed by him to the bill S. 
1637, to amend the Internal Revenue Code of 1986 to comply with the 
World Trade Organization rulings on the FSC/ETI benefit in a manner 
that preserves jobs and production activities in the United States, to 
reform and simplify the international taxation rules of the United 
States, and for other purposes; which was ordered to lie on the table; 
as follows:

       On page 179, after line 25, insert the following:

     SEC. __. MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND 
                   WELFARE-TO-WORK CREDIT.

       (a) Extension of Credit.--
       (1) Subparagraph (B) of section 51(c)(4) is amended by 
     striking ``December 31, 2003'' and inserting ``December 31, 
     2005''.
       (2) Subsection (f) of section 51A is amended by striking by 
     striking ``December 31, 2003'' and inserting ``December 31, 
     2005''.
       (b) Eligibility of Ex-Felons Determined Without Regard to 
     Family Income.--Paragraph (4) of section 51(d) is amended by 
     adding ``and'' at the end of subparagraph (A), by striking 
     ``, and'' at the end of subparagraph (B) and inserting a 
     period, and by striking all that follows subparagraph (B).
       (c) Increase in Maximum Age for Eligibility of Food Stamp 
     Recipients.--Clause (i) of section 51(d)(8)(A) is amended by 
     striking ``25'' and inserting ``40''.
       (d) Increase in Maximum Age for Designated Community 
     residents.--
       (1) In general.--Paragraph (5) of section 51(d) is amended 
     to read as follows:
       ``(5) Designated community residents.--
       ``(A) In general.--The term `designated community resident' 
     means any individual who is certified by the designated local 
     agency--
       ``(i) as having attained age 18 but not age 40 on the 
     hiring date, and
       ``(ii) as having his principal place of abode within an 
     empowerment zone, enterprise community, or renewal community.
       ``(B) Individual must continue to reside in zone or 
     community.--In the case of a designated community resident, 
     the term `qualified wages' shall not include wages paid or 
     incurred for services performed while the individual's 
     principal place of abode is outside an empowerment zone, 
     enterprise community, or renewal community.''
       (2) Conforming amendment.--Subparagraph (D) of section 
     51(d)(1) is amended to read as follows:
       ``(D) a designated community resident,''.
       (e) Clarification of Treatment of Individuals Under 
     Individual Work Plans.--Subparagraph (B) of section 51(d)(6) 
     (relating to vocational rehabilitation referral) is amended 
     by striking ``or'' at the end of clause (i), by striking the 
     period at the end of clause (ii) and inserting ``, or'', and 
     by adding at the end the following new clause:
       ``(iii) an individual work plan developed and implemented 
     by an employment network pursuant to subsection (g) of 
     section 1148 of the Social Security Act with respect to which 
     the requirements of such subsection are met.''
       (f) Effective Dates.--
       (1) Extension of credits.--The amendments made by 
     subsection (a) shall apply to individuals who begin work for 
     the employer after December 31, 2003.
       (2) Modifications.--The amendments made by subsections (b), 
     (c), (d), and (e) shall apply to individuals who begin work 
     for the employer after December 31, 2004.

     SEC. 503. CONSOLIDATION OF WORK OPPORTUNITY CREDIT WITH 
                   WELFARE-TO-WORK CREDIT.

       (a) In General.--Paragraph (1) of section 51(d) is amended 
     by striking ``or'' at the end of subparagraph (G), by 
     striking the period at the end of subparagraph (H) and 
     inserting ``, or'', and by adding at the end the following 
     new subparagraph:
       ``(I) a long-term family assistance recipient.''
       (b) Long-Term Family Assistance Recipient.--Subsection (d) 
     of section 51 is amended by redesignating paragraphs (10) 
     through (12) as paragraphs (11) through (13), respectively, 
     and by inserting after paragraph (9) the following new 
     paragraph:
       ``(10) Long-term family assistance recipient.--The term 
     `long-term family assistance recipient' means any individual 
     who is certified by the designated local agency--
       ``(A) as being a member of a family receiving assistance 
     under a IV-A program (as defined in paragraph (2)(B)) for at 
     least the 18-month period ending on the hiring date,
       ``(B)(i) as being a member of a family receiving such 
     assistance for 18 months beginning after August 5, 1997, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the end of the earliest such 18-month period, or
       ``(C)(i) as being a member of a family which ceased to be 
     eligible for such assistance by reason of any limitation 
     imposed by Federal or State law on the maximum period such 
     assistance is payable to a family, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the date of such cessation.''
       (c) Increased Credit for Employment of Long-Term Family 
     Assistance Recipients and Qualified Ex-Felons.--Section 51 is 
     amended by inserting after subsection (d) the following new 
     subsection:
       ``(e) Credit for Second-Year Wages for Employment of Long-
     Term Family Assistance Recipients and Qualified Ex-Felons.--
       ``(1) In general.--With respect to the employment of a 
     long-term family assistance recipient or a qualified ex-
     felon--
       ``(A) the amount of the work opportunity credit determined 
     under this section for the taxable year shall include 50 
     percent of the qualified second-year wages for such year, and
       ``(B) in lieu of applying subsection (b)(3), the amount of 
     the qualified first-year wages, and the amount of qualified 
     second-year wages, which may be taken into account with 
     respect to such a recipient shall not exceed $10,000 per 
     year.
       ``(2) Qualified second-year wages.--For purposes of this 
     subsection, the term `qualified second-year wages' means 
     qualified wages--
       ``(A) which are paid to a long-term family assistance 
     recipient or a qualified ex-felon, and
       ``(B) which are attributable to service rendered during the 
     1-year period beginning on the day after the last day of the 
     1-year period with respect to such recipient determined under 
     subsection (b)(2).
       ``(3) Special rules for agricultural and railway labor.--If 
     such recipient is an employee to whom subparagraph (A) or (B) 
     of subsection (h)(1) applies, rules similar to the rules of 
     such subparagraphs shall apply except that--
       ``(A) such subparagraph (A) shall be applied by 
     substituting `$10,000' for `$6,000', and
       ``(B) such subparagraph (B) shall be applied by 
     substituting `$833.33' for `$500'.''
       (d) Repeal of Separate Welfare-to-Work Credit.--
       (1) In general.--Section 51A is hereby repealed.
       (2) Clerical amendment.--The table of sections for subpart 
     F of part IV of subchapter A of chapter 1 is amended by 
     striking the item relating to section 51A.
       (e) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 2004.
                                 ______
                                 
  2639. Mr. ALLEN submitted an amendment intended to be proposed by him 
to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       At the end add the following:

                 TITLE III--HOMESTEAD PRESERVATION ACT

     SEC. 301. SHORT TITLE.

       This title may be cited as the ``Homestead Preservation 
     Act''.

     SEC. 302. MORTGAGE PAYMENT ASSISTANCE.

       (a) Establishment of Program.--The Secretary of Labor 
     (referred to in this section as the ``Secretary'') shall 
     establish a program under which the Secretary shall award 
     low-interest loans to eligible individuals to enable such 
     individuals to continue to make mortgage payments with 
     respect to the primary residences of such individuals.
       (b) Eligibility.--To be eligible to receive a loan under 
     the program established under subsection (a), an individual 
     shall--
       (1) be--
       (A) an adversely affected worker with respect to whom a 
     certification of eligibility has been issued by the Secretary 
     of Labor under chapter 2 of title II of the Trade Act of 1974 
     (19 U.S.C. 2271 et seq.); or
       (B) an individual who would be an individual described in 
     subparagraph (A) but who resides in a State that has not 
     entered into an agreement under section 239 of such Act (19 
     U.S.C. 2311);
       (2) be a borrower under a loan which requires the 
     individual to make monthly mortgage payments with respect to 
     the primary place of residence of the individual; and
       (3) be enrolled in a job training or job assistance 
     program.
       (c) Loan Requirements.--
       (1) In general.--A loan provided to an eligible individual 
     under this section shall--
       (A) be for a period of not to exceed 12 months;
       (B) be for an amount that does not exceed the sum of--
       (i) the amount of the monthly mortgage payment owed by the 
     individual; and
       (ii) the number of months for which the loan is provided;
       (C) have an applicable rate of interest that equals 4 
     percent;
       (D) require repayment as provided for in subsection (d); 
     and
       (E) be subject to such other terms and conditions as the 
     Secretary determines appropriate.
       (2) Account.--A loan awarded to an individual under this 
     section shall be deposited into an account from which a 
     monthly mortgage payment will be made in accordance with the 
     terms and conditions of such loan.

[[Page S2112]]

       (d) Repayment.--
       (1) In general.--An individual to which a loan has been 
     awarded under this section shall be required to begin making 
     repayments on the loan on the earlier of--
       (A) the date on which the individual has been employed on a 
     full-time basis for 6 consecutive months; or
       (B) the date that is 1 year after the date on which the 
     loan has been approved under this section.
       (2) Repayment period and amount.--
       (A) Repayment period.--A loan awarded under this section 
     shall be repaid on a monthly basis over the 5-year period 
     beginning on the date determined under paragraph (1).
       (B) Amount.--The amount of the monthly payment described in 
     subparagraph (A) shall be determined by dividing the total 
     amount provided under the loan (plus interest) by 60.
       (C) Rule of construction.--Nothing in this paragraph shall 
     be construed to prohibit an individual from--
       (i) paying off a loan awarded under this section in less 
     than 5 years; or
       (ii) from paying a monthly amount under such loan in excess 
     of the monthly amount determined under subparagraph (B) with 
     respect to the loan.
       (e) Regulations.--Not later than 6 weeks after the date of 
     enactment of this section, the Secretary shall promulgate 
     regulations necessary to carry out this section, including 
     regulations that permit an individual to certify that the 
     individual is an eligible individual under subsection (b).
       (f) Authorization of Appropriations.--There is authorized 
     to be appropriated to carry out this section, $10,000,000 for 
     each of fiscal years 2004 through 2008.
                                 ______
                                 
  SA 2640. Mr. INOUYE submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       On page 179, after line 25, insert the following:

     SEC. 312. EXTENSION OF POSSESSION TAX CREDIT WITH RESPECT TO 
                   AMERICAN SAMOA.

       Subparagraph (A) of section 936(j)(8) of the Internal 
     Revenue Code of 1986 (relating to special rules for certain 
     possessions) is amended by inserting before the period at the 
     end the following: ``(January 1, 2016, in the case of 
     American Samoa)''.
                                 ______
                                 
  SA 2641. Mrs. LINCOLN submitted an amendment intended to be proposed 
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. REPEAL OF ESTATE TAX ON FAMILY-OWNED BUSINESSES AND 
                   FARMS.

       (a) Repeal of Qualified Family-Owned Business Interest.--
     Part IV of subchapter A of chapter 11 (relating to taxable 
     estate) is amended by striking section 2057.
       (b) Carryover Business Interest Exclusion.--Part IV of 
     subchapter A of chapter 11 (relating to taxable estate) is 
     amended by inserting after section 2058 the following new 
     section:

     ``SEC. 2059. CARRYOVER BUSINESS INTERESTS.

       ``(a) General Rules.--
       ``(1) Allowance of deduction.--For purposes of the tax 
     imposed by section 2001, in the case of an estate of a 
     decedent to which this section applies, the value of the 
     taxable estate shall be determined by deducting from the 
     value of the gross estate the adjusted value of the carryover 
     business interests of the decedent which are described in 
     subsection (b)(2).
       ``(2) Application of carryover basis rules.--With respect 
     to the adjusted value of the carryover business interests of 
     the decedent which are described in subsection (b)(2), the 
     rules of section 1023 shall apply.
       ``(b) Estates to Which Section Applies.--
       ``(1) In general.--This section shall apply to an estate 
     if--
       ``(A) the decedent was (at the date of the decedent's 
     death) a citizen or resident of the United States,
       ``(B) the executor elects the application of this section 
     under rules similar to the rules of paragraphs (1) and (3) of 
     section 2032A(d) and files the agreement referred to in 
     subsection (e), and
       ``(C) during the 8-year period ending on the date of the 
     decedent's death there have been periods aggregating 5 years 
     or more during which--
       ``(i) the carryover business interests described in 
     paragraph (2) were owned by the decedent or a member of the 
     decedent's family, and
       ``(ii) there was material participation (within the meaning 
     of section 2032A(e)(6)) by the decedent, a member of the 
     decedent's family, or a qualified heir in the operation of 
     the business to which such interests relate.
       ``(2) Includible carryover business interests.--The 
     carryover business interests described in this paragraph are 
     the interests which--
       ``(A) are included in determining the value of the gross 
     estate (other than qualified spousal property with respect to 
     which an aggregate spousal property basis increase is 
     allocated under section 1023(c)),
       ``(B) are acquired by any qualified heir from, or passed to 
     any qualified heir from, the decedent (within the meaning of 
     section 2032A(e)(9)), and
       ``(C) are subject to the election under paragraph (1)(B).
       ``(3) Rules regarding material participation.--For purposes 
     of paragraph (1)(C)(ii)--
       ``(A) in the case a surviving spouse, material 
     participation by such spouse may be satisfied under rules 
     similar to the rules under section 2032A(b)(5),
       ``(B) in the case of a carryover business interest in an 
     entity carrying on multiple trades or businesses, material 
     participation in each trade or business is satisfied by 
     material participation in the entity or in 1 or more of the 
     multiple trades or businesses, and
       ``(C) in the case of a lending and finance business (as 
     defined in section 6166(b)(10)(B)(ii)), material 
     participation is satisfied under the rules under subclause 
     (I) or (II) of section 6166(b)(10)(B)(i).
       ``(c) Adjusted Value of the Carryover Business Interests.--
     For purposes of this section--
       ``(1) In general.--The adjusted value of any carryover 
     business interest is the value of such interest for purposes 
     of this chapter (determined without regard to this section), 
     as adjusted under paragraph (2).
       ``(2) Adjustment for previous transfers.--The Secretary may 
     increase the value of any carryover business interest by that 
     portion of those assets transferred from such carryover 
     business interest to the decedent's taxable estate within 3 
     years before the date of the decedent's death.
       ``(d) Carryover Business Interest.--
       ``(1) In general.--For purposes of this section, the term 
     `carryover business interest' means--
       ``(A) an interest as a proprietor in a trade or business 
     carried on as a proprietorship, or
       ``(B) an interest in an entity carrying on a trade or 
     business, if--
       ``(i) at least--

       ``(I) 50 percent of such entity is owned (directly or 
     indirectly) by the decedent and members of the decedent's 
     family,
       ``(II) 70 percent of such entity is so owned by members of 
     2 families, or
       ``(III) 90 percent of such entity is so owned by members of 
     3 families, and

       ``(ii) for purposes of subclause (II) or (III) of clause 
     (i), at least 30 percent of such entity is so owned by the 
     decedent and members of the decedent's family.
     For purposes of the preceding sentence, a decedent shall be 
     treated as engaged in a trade or business if any member of 
     the decedent's family is engaged in such trade or business.
       ``(2) Lending and finance business.--For purposes of this 
     section, any asset used in a lending and finance business (as 
     defined in section 6166(b)(10)(B)(ii)) shall be treated as an 
     asset which is used in carrying on a trade or business.
       ``(3) Limitation.--Such term shall not include--
       ``(A) any interest in a trade or business the principal 
     place of business of which is not located in the United 
     States,
       ``(B) any interest in an entity, if the stock or debt of 
     such entity or a controlled group (as defined in section 
     267(f)(1)) of which such entity was a member was readily 
     tradable on an established securities market or secondary 
     market (as defined by the Secretary) at any time,
       ``(C) that portion of an interest in an entity transferred 
     by gift to such interest within 3 years before the date of 
     the decedent's death, and
       ``(D) that portion of an interest in an entity which is 
     attributable to cash or marketable securities, or both, in 
     any amount in excess of the reasonably anticipated business 
     needs of such entity.

     In any proceeding before the United States Tax Court 
     involving a notice of deficiency based in whole or in part on 
     the allegation that cash or marketable securities, or both, 
     are accumulated in an amount in excess of the reasonably 
     anticipated business needs of such entity, the burden of 
     proof with respect to such allegation shall be on the 
     Secretary to the extent such cash or marketable securities 
     are less than 35 percent of the value of the interest in such 
     entity.
       ``(4) Rules regarding ownership.--
       ``(A) Ownership of entities.--For purposes of paragraph 
     (1)(B)--
       ``(i) Corporations.--Ownership of a corporation shall be 
     determined by the holding of stock possessing the appropriate 
     percentage of the total combined voting power of all classes 
     of stock entitled to vote and the appropriate percentage of 
     the total value of shares of all classes of stock.
       ``(ii) Partnerships.--Ownership of a partnership shall be 
     determined by the owning of the appropriate percentage of the 
     capital interest in such partnership.
       ``(B) Ownership of tiered entities.--For purposes of this 
     section, if by reason of holding an interest in a trade or 
     business, a decedent, any member of the decedent's family,

[[Page S2113]]

     any qualified heir, or any member of any qualified heir's 
     family is treated as holding an interest in any other trade 
     or business--
       ``(i) such ownership interest in the other trade or 
     business shall be disregarded in determining if the ownership 
     interest in the first trade or business is a carryover 
     business interest, and
       ``(ii) this section shall be applied separately in 
     determining if such interest in any other trade or business 
     is a carryover business interest.
       ``(C) Individual ownership rules.--For purposes of this 
     section, an interest owned, directly or indirectly, by or for 
     an entity described in paragraph (1)(B) shall be considered 
     as being owned proportionately by or for the entity's 
     shareholders, partners, or beneficiaries. A person shall be 
     treated as a beneficiary of any trust only if such person has 
     a present interest in such trust.
       ``(e) Agreement.--The agreement referred to in this 
     subsection is a written agreement signed by each person in 
     being who has an interest (whether or not in possession) in 
     any property designated in such agreement consenting to the 
     application of this section with respect to such property.
       ``(f) Other Definitions and Applicable Rules.--For purposes 
     of this section--
       ``(1) Qualified heir.--The term `qualified heir' means a 
     United States citizen who is--
       ``(A) described in section 2032A(e)(1), or
       ``(B) an active employee of the trade or business to which 
     the carryover business interest relates if such employee has 
     been employed by such trade or business for a period of at 
     least 10 years before the date of the decedent's death.
       ``(2) Member of the family.--The term `member of the 
     family' has the meaning given to such term by section 
     2032A(e)(2).
       ``(3) Applicable rules.--Rules similar to the following 
     rules shall apply:
       ``(A) Section 2032A(b)(4) (relating to decedents who are 
     retired or disabled).
       ``(B) Section 2032A(e)(10) (relating to community 
     property).
       ``(C) Section 2032A(e)(14) (relating to treatment of 
     replacement property acquired in section 1031 or 1033 
     transactions).
       ``(D) Section 2032A(g) (relating to application to 
     interests in partnerships, corporations, and trusts).
       ``(4) Safe harbor for active entities held by entity 
     carrying on a trade or business.--For purposes of this 
     section, if--
       ``(A) an entity carrying on a trade or business owns 20 
     percent or more in value of the voting interests of another 
     entity, or such other entity has 15 or fewer owners, and
       ``(B) 80 percent or more of the value of the assets of each 
     such entity is attributable to assets used in an active 
     business operation,

     then the requirements under subsections (b)(1)(C)(ii) and 
     (d)(3)(D) shall be met with respect to an interest in such an 
     entity.''.
       (c) Modification of Treatment of Marital Deduction; 
     Limitation on Step-Up in Basis.--Section 2056 (relating to 
     bequests, etc., to surviving spouses) is amended by adding at 
     the end the following new subsection:
       ``(e) Application of Carryover Basis Rules.--With respect 
     to the value of the interests of the decedent which are 
     described in subsection (a), the rules of section 1023 shall 
     apply.''.
       (d) Carryover Basis Rules for Carryover Business Interests 
     and Spousal Property.--Part II of subchapter O of chapter 1 
     (relating to basis rules of general application) is amended 
     by inserting after section 1022 the following new section:

     ``SEC. 1023. TREATMENT OF CARRYOVER BUSINESS INTERESTS AND 
                   SPOUSAL PROPERTY.

       ``(a) In General.--Except as otherwise provided in this 
     section--
       ``(1) qualified property acquired from a decedent shall be 
     treated for purposes of this subtitle as transferred by gift, 
     and
       ``(2) the basis of the person acquiring qualified property 
     from such a decedent shall be the lesser of--
       ``(A) the adjusted basis of the decedent, or
       ``(B) the fair market value of the property at the date of 
     the decedent's death.
       ``(b) Qualified Property.--For purposes of this section, 
     the term `qualified property' means--
       ``(1) the carryover business interests of the decedent with 
     respect to which an election is made under section 
     2059(b)(1)(B), and
       ``(2) the qualified spousal property.
       ``(c) Additional Basis Increase for Property Acquired by 
     Surviving Spouse.--
       ``(1) In general.--In the case of property to which this 
     subsection applies and which is qualified spousal property, 
     the basis of such property under subsection (a) shall be 
     increased by its spousal property basis increase.
       ``(2) Spousal property basis increase.--For purposes of 
     this subsection--
       ``(A) In general.--The spousal property basis increase for 
     property referred to in paragraph (1) is the portion of the 
     aggregate spousal property basis increase which is allocated 
     to the property pursuant to this section.
       ``(B) Aggregate spousal property basis increase.--In the 
     case of any estate, the aggregate spousal property basis 
     increase is $3,000,000.
       ``(3) Qualified spousal property.--For purposes of this 
     section, the term `qualified spousal property' means any 
     interest in property which passes or has passed from the 
     decedent to the decedent's surviving spouse with respect to 
     which a deduction is allowed under section 2056.
       ``(4) Definitions and special rules.--
       ``(A) Property to which subsection applies.--The basis of 
     property acquired from a decedent may be increased under this 
     subsection only if the property was owned by the decedent at 
     the time of death.
       ``(B) Rules relating to ownership.--
       ``(i) Jointly held property.--In the case of property which 
     was owned by the decedent and another person as joint tenants 
     with right of survivorship or tenants by the entirety--

       ``(I) if the only such other person is the surviving 
     spouse, the decedent shall be treated as the owner of only 50 
     percent of the property,
       ``(II) in any case (to which subclause (I) does not apply) 
     in which the decedent furnished consideration for the 
     acquisition of the property, the decedent shall be treated as 
     the owner to the extent of the portion of the property which 
     is proportionate to such consideration, and
       ``(III) in any case (to which subclause (I) does not apply) 
     in which the property has been acquired by gift, bequest, 
     devise, or inheritance by the decedent and any other 
     person as joint tenants with right of survivorship and 
     their interests are not otherwise specified or fixed by 
     law, the decedent shall be treated as the owner to the 
     extent of the value of a fractional part to be determined 
     by dividing the value of the property by the number of 
     joint tenants with right of survivorship.
       ``(ii) Revocable trusts.--The decedent shall be treated as 
     owning property transferred by the decedent during life to a 
     qualified revocable trust (as defined in section 645(b)(1)).
       ``(iii) Powers of appointment.--The decedent shall not be 
     treated as owning any property by reason of holding a power 
     of appointment with respect to such property.
       ``(iv) Community property.--Property which represents the 
     surviving spouse's one-half share of community property held 
     by the decedent and the surviving spouse under the community 
     property laws of any State or possession of the United States 
     or any foreign country shall be treated for purposes of this 
     section as owned by, and acquired from, the decedent if at 
     least one-half of the whole of the community interest in such 
     property is treated as owned by, and acquired from, the 
     decedent without regard to this clause.
       ``(C) Property acquired by decedent by gift within 3 years 
     of death.--
       ``(i) In general.--This subsection shall not apply to 
     property acquired by the decedent by gift or by inter vivos 
     transfer for less than adequate and full consideration in 
     money or money's worth during the 3-year period ending on the 
     date of the decedent's death.
       ``(ii) Exception for certain gifts from spouse.--Clause (i) 
     shall not apply to property acquired by the decedent from the 
     decedent's spouse unless, during such 3-year period, such 
     spouse acquired the property in whole or in part by gift or 
     by inter vivos transfer for less than adequate and full 
     consideration in money or money's worth.
       ``(D) Stock of certain entities.--This subsection shall not 
     apply to--
       ``(i) stock or securities of a foreign personal holding 
     company,
       ``(ii) stock of a DISC or former DISC,
       ``(iii) stock of a foreign investment company, or
       ``(iv) stock of a passive foreign investment company unless 
     such company is a qualified electing fund (as defined in 
     section 1295) with respect to the decedent.
       ``(E) Fair market value limitation.--The adjustments under 
     this subsection shall not increase the basis of any interest 
     in property acquired from the decedent above its fair market 
     value in the hands of the decedent as of the date of the 
     decedent's death.
       ``(d) Property Acquired From the Decedent.--For purposes of 
     this section, the following property shall be considered to 
     have been acquired from the decedent:
       ``(1) Property acquired by bequest, devise, or inheritance, 
     or by the decedent's estate from the decedent.
       ``(2) Property transferred by the decedent during his 
     lifetime--
       ``(A) to a qualified revocable trust (as defined in section 
     645(b)(1)), or
       ``(B) to any other trust with respect to which the decedent 
     reserved the right to make any change in the enjoyment 
     thereof through the exercise of a power to alter, amend, or 
     terminate the trust.
       ``(3) Any other property passing from the decedent by 
     reason of death to the extent that such property passed 
     without consideration.
       ``(e) Coordination With Section 691.--This section shall 
     not apply to property which constitutes a right to receive an 
     item of income in respect of a decedent under section 691.
       ``(f) Certain Liabilities Disregarded.--
       ``(1) In general.--In determining whether gain is 
     recognized on the acquisition of property--
       ``(A) from a decedent by a decedent's estate or any 
     beneficiary other than a tax-exempt beneficiary, and
       ``(B) from the decedent's estate by any beneficiary other 
     than a tax-exempt beneficiary,

     and in determining the adjusted basis of such property, 
     liabilities in excess of basis shall be disregarded.

[[Page S2114]]

       ``(2) Tax-exempt beneficiary.--For purposes of paragraph 
     (1), the term `tax-exempt beneficiary' means--
       ``(A) the United States, any State or political subdivision 
     thereof, any possession of the United States, any Indian 
     tribal government (within the meaning of section 7871), or 
     any agency or instrumentality of any of the foregoing,
       ``(B) an organization (other than a cooperative described 
     in section 521) which is exempt from tax imposed by chapter 
     1,
       ``(C) any foreign person or entity (within the meaning of 
     section 168(h)(2)), and
       ``(D) to the extent provided in regulations, any person to 
     whom property is transferred for the principal purpose of tax 
     avoidance.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this section.''.
       (e) Clerical Amendments.--
       (1) The table of sections for part IV of subchapter A of 
     chapter 11 is amended by striking the item relating to 
     section 2057 and by inserting after the item relating to 
     section 2058 the following new item:

``Sec. 2059. Carryover business exclusion.''.

       (2) The table of sections for part II of subchapter O of 
     chapter 1 of such Code is amended by inserting after the item 
     relating to section 1022 the following new item:

``Sec. 1023. Treatment of carryover business interests and spousal 
              property.''.

       (f) Effective Dates.--The amendments made by this section 
     shall apply to estates of decedents dying, and gifts made--
       (1) after December 31, 2003, and before January 1, 2010, 
     and
       (2) after December 31, 2011.
                                 ______
                                 
  SA 2642. Mrs. LINCOLN submitted an amendment intended to be proposed 
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. RESTORATION OF EXCLUSION FOR AMOUNTS RECEIVED UNDER 
                   QUALIFIED GROUP LEGAL SERVICES PLANS.

       (a) Increase of Exclusion.--Subsection (a) of section 120 
     (relating to exclusion by employee for contributions and 
     legal services) is amended by striking the last sentence 
     thereof.
       (b) Restoration of Exclusion.--Section 120 is amended by 
     striking subsection (e) and by redesignating subsection (f) 
     as subsection (e).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004, and before December 31, 2009.
                                 ______
                                 
  SA 2643. Mrs. LINCOLN (for herself and Mr. Coleman) submitted an 
amendment intended to be proposed by her to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table; as follows:

       On page 179, after line 25, insert the following:

     SEC. __. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES 
                   WITHOUT REDUCING PATRONAGE DIVIDENDS.

       (a) In General.--Subsection (a) of section 1388 (relating 
     to patronage dividend defined) is amended by adding at the 
     end the following new sentence: ``For purposes of paragraph 
     (3), net earnings shall not be reduced by amounts paid during 
     the year as dividends on capital stock or other proprietary 
     capital interests of the organization to the extent that the 
     articles of incorporation or bylaws of such organization or 
     other contract with patrons provide that such dividends are 
     in addition to amounts otherwise payable to patrons which are 
     derived from business done with or for patrons during the 
     taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in taxable years beginning after 
     the date of the enactment of this Act.
                                 ______
                                 
  SA 2644. Mrs. LINCOLN submitted an amendment intended to be proposed 
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:
       On page 177, strike lines 13 through 16, and insert the 
     following:
       ``(I) Special rule.--In the case of a net operating loss 
     for any taxable year ending after December 31, 2002, and 
     before February 1, 2004, subparagraph (A)(i) shall be applied 
     by substituting `3' for `2'.''.
       On page 178, strike lines 9 through 15, and insert the 
     following:
       (1) In general.--Section 56(d)(1)(A)(ii)(I) (relating to 
     general rule defining alternative tax net operating loss 
     deduction) is amended--
       (A) by striking ``or 2002'' and inserting ``, 2002, or 
     after December 31, 2002, and before February 1, 2004,'', and
       (B) by striking ``and 2002'' and inserting ``, 2002, and 
     after December 31, 2002, and before February 1, 2004''.

       On page 179, line 17, strike ``during 2003'' and inserting 
     ``after December 31, 2002, and before February 1, 2004''.
                                 ______
                                 
  SA 2645. Mr. GRASSLEY (for himself and Mr. Baucus) proposed an 
amendment to the bill S. 1637, to amend the Internal Revenue Code of 
1986 to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; as follows:

       Strike title IV and insert the following:

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 401. 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.

[[Page S2115]]

       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or entity not subject to tax imposed 
     by subtitle A. A person shall be treated as a tax-indifferent 
     party with respect to a transaction if the items taken into 
     account with respect to the transaction have no substantial 
     impact on such person's liability under subtitle A.
       ``(C) Exception for personal transactions of individuals.--
     In the case of an individual, this subsection shall apply 
     only to transactions entered into in connection with a trade 
     or business or an activity engaged in for the production of 
     income.
       ``(D) Treatment of lessors.--In applying paragraph 
     (1)(B)(ii) to the lessor of tangible property subject to a 
     lease--
       ``(i) the expected net tax benefits with respect to the 
     leased property shall not include the benefits of--

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

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

     SEC. 402. PENALTY FOR FAILING TO DISCLOSE REPORTABLE 
                   TRANSACTION.

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

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

       ``(a) Imposition of Penalty.--Any person who fails to 
     include on any return or statement any information with 
     respect to a reportable transaction which is required under 
     section 6011 to be included with such return or statement 
     shall pay a penalty in the amount determined under subsection 
     (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraphs (2) and 
     (3), the amount of the penalty under subsection (a) shall be 
     $50,000.
       ``(2) Listed transaction.--The amount of the penalty under 
     subsection (a) with respect to a listed transaction shall be 
     $100,000.
       ``(3) Increase in penalty for large entities and high net 
     worth individuals.--
       ``(A) In general.--In the case of a failure under 
     subsection (a) by--
       ``(i) a large entity, or
       ``(ii) a high net worth individual,

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

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

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

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

     SEC. 403. 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.

[[Page S2116]]

       ``(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
       ``(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. 404. 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.

[[Page S2117]]

       ``(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 the date of 
     the enactment of this Act.

     SEC. 405. 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. 406. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES 
                   RELATING TO TAXPAYER COMMUNICATIONS.

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

     SEC. 407. 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.

[[Page S2118]]

     SEC. 408. 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. 409. 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. 410. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT 
                   RELATED TO TAX SHELTERS AND REPORTABLE 
                   TRANSACTIONS.

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

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

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

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

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

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

     SEC. 411. 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. 412. 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. 413. 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

[[Page S2119]]

       ``(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. 414. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE 
                   DEPARTMENT OF TREASURY.

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

     ``The Secretary may impose a monetary penalty on any 
     representative described in the preceding sentence. If the 
     representative was acting on behalf of an employer or any 
     firm or other entity in connection with the conduct giving 
     rise to such penalty, the Secretary may impose a monetary 
     penalty on such employer, firm, or entity if it knew, or 
     reasonably should have known, of such conduct. Such penalty 
     shall not exceed the gross income derived (or to be derived) 
     from the conduct giving rise to the penalty and may be in 
     addition to, or in lieu of, any suspension, disbarment, or 
     censure 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. 415. 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. 416. 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. 417. 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. 418. 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.

           Subtitle B--Other Corporate Governance Provisions

     SEC. 421. 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. 422. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE 
                   OFFICER.

       (a) In General.--Section 6062 (relating to signing of 
     corporation returns) is amended by inserting after the first 
     sentence the following new sentences: ``The return of a 
     corporation with respect to income shall also include a 
     declaration signed by the chief executive officer of such 
     corporation (or other

[[Page S2120]]

     such officer of the corporation as the Secretary may 
     designate if the corporation does not have a chief executive 
     officer), under penalties of perjury, that the chief 
     executive officer ensures that such return complies with this 
     title 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).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to returns filed after the date of the enactment 
     of this Act.

     SEC. 423. 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 (including 
     remediation of property) for damage or harm caused by or 
     which may be caused by the violation of any law or the 
     potential violation of any law. 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. 424. 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.''.
       (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. 425. 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.

            Subtitle C--Enron-Related Tax Shelter Provisions

     SEC. 431. 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

[[Page S2121]]

     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. 432. 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).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions after February 13, 2003.

     SEC. 433. 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) Subparagraph (A) of section 7701(i)(2) is amended by 
     striking ``or a FASIT''.
       (12) 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. 434. 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. 435. 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

[[Page S2122]]

     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. 436. 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.

           Subtitle D--Provisions to Discourage Expatriation

     SEC. 441. 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,
       ``(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

[[Page S2123]]

       ``(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) 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. 442. 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

[[Page S2124]]

     ratio to the additional tax imposed by this chapter for the 
     taxable year solely by reason of subsection (a) as the gain 
     taken into account under subsection (a) with respect to such 
     property bears to the total gain taken into account under 
     subsection (a) with respect to all property to which 
     subsection (a) applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

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

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

[[Page S2125]]

       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

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

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

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

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

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

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

[[Page S2126]]

       ``(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 January 1, 2004.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(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 January 
     1, 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 January 1, 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. 443. 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.

[[Page S2127]]

       ``(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. 444. 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.

     SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6043 the 
     following new section:

     ``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

       ``(a) In General.--The acquiring corporation in any taxable 
     acquisition shall make a return (according to the forms or 
     regulations prescribed by the Secretary) setting forth--
       ``(1) a description of the acquisition,
       ``(2) the name and address of each shareholder of the 
     acquired corporation who is required to recognize gain (if 
     any) as a result of the acquisition,
       ``(3) the amount of money and the fair market value of 
     other property transferred to each such shareholder as part 
     of such acquisition, and
       ``(4) such other information as the Secretary may 
     prescribe.

     To the extent provided by the Secretary, the requirements of 
     this section applicable to the acquiring corporation shall be 
     applicable to the acquired corporation and not to the 
     acquiring corporation.
       ``(b) Nominee Reporting.--Any person who holds stock as a 
     nominee for another person shall furnish in the manner 
     prescribed by the Secretary to such other person the 
     information provided by the corporation under subsection (d).
       ``(c) Taxable Acquisition.--For purposes of this section, 
     the term `taxable acquisition' means any acquisition by a 
     corporation of stock in or property of another corporation if 
     any shareholder of the acquired corporation is required to 
     recognize gain (if any) as a result of such acquisition.
       ``(d) Statements To Be Furnished to Shareholders.--Every 
     person required to make a return under subsection (a) shall 
     furnish to each shareholder whose name is required to be set 
     forth in such return a written statement showing--
       ``(1) the name, address, and phone number of the 
     information contact of the person required to make such 
     return,
       ``(2) the information required to be shown on such return 
     with respect to such shareholder, and
       ``(3) such other information as the Secretary may 
     prescribe.

     The written statement required under the preceding sentence 
     shall be furnished to the shareholder on or before January 31 
     of the year following the calendar year during which the 
     taxable acquisition occurred.''.
       (b) Assessable Penalties.--
       (1) Subparagraph (B) of section 6724(d)(1) (relating to 
     definitions) is amended by redesignating clauses (ii) through 
     (xvii) as clauses (iii) through (xviii), respectively, and by 
     inserting after clause (i) the following new clause:
       ``(ii) section 6043A(a) (relating to returns relating to 
     taxable mergers and acquisitions),''.
       (2) Paragraph (2) of section 6724(d) is amended by 
     redesignating subparagraphs (F) through (AA) as subparagraphs 
     (G) through (BB), respectively, and by inserting after 
     subparagraph (E) the following new subparagraph:
       ``(F) subsections (b) and (d) of section 6043A (relating to 
     returns relating to taxable mergers and acquisitions).''.
       (c) Clerical Amendment.--The table of sections for subpart 
     B of part III of subchapter A of chapter 61 is amended by 
     inserting after the item relating to section 6043 the 
     following new item:

``Sec. 6043A. Returns relating to taxable mergers and acquisitions.''.

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

                     Subtitle E--International Tax

     SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF 
                   DETERMINING INVESTMENT OF EARNINGS IN UNITED 
                   STATES PROPERTY.

       (a) In General.--Subparagraph (A) of section 956(c)(2) is 
     amended to read as follows:
       ``(A) obligations of the United States, money, or deposits 
     with--
       ``(i) any bank (as defined by section 2(c) of the Bank 
     Holding Company Act of 1956 (12 U.S.C. 1841(c)), without 
     regard to subparagraphs (C) and (G) of paragraph (2) of such 
     section), or
       ``(ii) any corporation not described in clause (i) with 
     respect to which a bank holding company (as defined by 
     section 2(a) of such Act) or financial holding company (as 
     defined by section 2(p) of such Act) owns directly or 
     indirectly more than 80 percent by vote or value of the stock 
     of such corporation;''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH 
                   COMPLETE LIQUIDATION OF HOLDING COMPANY.

       (a) In General.--Section 332 is amended by adding at the 
     end the following new subsection:
       ``(d) Recognition of Gain on Liquidation of Certain Holding 
     Companies.--
       ``(1) In general.--In the case of any distribution to a 
     foreign corporation in complete liquidation of an applicable 
     holding company--
       ``(A) subsection (a) and section 331 shall not apply to 
     such distribution, and
       ``(B) such distribution shall be treated as a distribution 
     to which section 301 applies.
       ``(2) Applicable holding company.--For purposes of this 
     subsection--
       ``(A) In general.--The term `applicable holding company' 
     means any domestic corporation--
       ``(i) which is a common parent of an affiliated group,
       ``(ii) stock of which is directly owned by the distributee 
     foreign corporation,
       ``(iii) substantially all of the assets of which consist of 
     stock in other members of such affiliated group, and
       ``(iv) which has not been in existence at all times during 
     the 5 years immediately preceding the date of the 
     liquidation.
       ``(B) Affiliated group.--For purposes of this subsection, 
     the term `affiliated group' has the meaning given such term 
     by section 1504(a) (without regard to paragraphs (2) and (4) 
     of section 1504(b)).
       ``(3) Coordination with subpart f.--If the distributee of a 
     distribution described in paragraph (1) is a controlled 
     foreign corporation (as defined in section 957), then 
     notwithstanding paragraph (1) or subsection (a), such 
     distribution shall be treated as a distribution to which 
     section 331 applies.
       ``(4) Regulations.--The Secretary shall provide such 
     regulations as appropriate to prevent the abuse of this 
     subsection, including regulations which provide, for the 
     purposes of clause (iv) of paragraph (2)(A), that a 
     corporation is not in existence for any period unless it is 
     engaged in the active conduct of a trade or business or owns 
     a significant ownership interest in another corporation so 
     engaged.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in complete liquidation 
     occurring on or after the date of the enactment of this Act.

     SEC. 453. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL 
                   ISSUE DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS 
                   IN TRANSACTIONS WITH RELATED FOREIGN PERSONS.

       (a) Original Issue Discount.--Section 163(e)(3) (relating 
     to special rule for original issue discount on obligation 
     held by related foreign person) is amended by redesignating 
     subparagraph (B) as subparagraph (C) and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
       ``(i) In general.--In the case of any debt instrument 
     having original issue discount which is held by a related 
     foreign person which is a foreign personal holding company 
     (as defined in section 552), a controlled foreign corporation 
     (as defined in section 957), or a passive foreign investment 
     company (as defined in section 1297), a deduction shall be 
     allowable to the issuer with respect to such original issue 
     discount for any taxable year before the taxable year in 
     which paid only to the extent such original issue discount is 
     included during such prior taxable year in the gross income 
     of a United States person who owns (within the meaning of 
     section 958(a)) stock in such corporation.

[[Page S2128]]

       ``(ii) Secretarial authority.--The Secretary may by 
     regulation exempt transactions from the application of clause 
     (i), including any transaction which is entered into by a 
     payor in the ordinary course of a trade or business in which 
     the payor is predominantly engaged.''.
       (b) Interest and Other Deductible Amounts.--Section 
     267(a)(3) is amended--
       (1) by striking ``The Secretary'' and inserting:
       ``(A) In general.--The Secretary'', and
       (2) by adding at the end the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
       ``(i) In general.--Notwithstanding subparagraph (A), in the 
     case of any amount payable to a foreign personal holding 
     company (as defined in section 552), a controlled foreign 
     corporation (as defined in section 957), or a passive foreign 
     investment company (as defined in section 1297), a deduction 
     shall be allowable to the payor with respect to such amount 
     for any taxable year before the taxable year in which paid 
     only to the extent such amount is included during such prior 
     taxable year in the gross income of a United States person 
     who owns (within the meaning of section 958(a)) stock in such 
     corporation.
       ``(ii) Secretarial authority.--The Secretary may by 
     regulation exempt transactions from the application of clause 
     (i), including any transaction which is entered into by a 
     payor in the ordinary course of a trade or business in which 
     the payor is predominantly engaged and in which the payment 
     of the accrued amounts occurs within 8\1/2\ months after 
     accrual or within such other period as the Secretary may 
     prescribe.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments accrued on or after the date of the 
     enactment of this Act.

     SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN 
                   FOREIGN SOURCE INCOME.

       (a) In General.--Section 864(c)(4)(B) (relating to 
     treatment of income from sources without the United States as 
     effectively connected income) is amended by adding at the end 
     the following new flush sentence:

     ``Any income or gain which is equivalent to any item of 
     income or gain described in clause (i), (ii), or (iii) shall 
     be treated in the same manner as such item for purposes of 
     this subparagraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF 
                   CONTROLLED FOREIGN CORPORATION.

       (a) In General.--Section 904(f)(3) (relating to 
     dispositions) is amending by adding at the end the following 
     new subparagraph:
       ``(D) Application to dispositions of stock in controlled 
     foreign corporations.--In the case of any disposition by a 
     taxpayer of any share of stock in a controlled foreign 
     corporation (as defined in section 957), this paragraph shall 
     apply to such disposition in the same manner as if it were a 
     disposition of property described in subparagraph (A), except 
     that the exception contained in subparagraph (C)(i) shall not 
     apply.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to dispositions after the date of the enactment 
     of this Act.

     SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON 
                   WITHHOLDING TAXES ON INCOME OTHER THAN 
                   DIVIDENDS.

       (a) In General.--Section 901 is amended by redesignating 
     subsection (l) as subsection (m) and by inserting after 
     subsection (k) the following new subsection:
       ``(l) Minimum Holding Period for Withholding Taxes on Gain 
     and Income Other Than Dividends etc.--
       ``(1) In general.--In no event shall a credit be allowed 
     under subsection (a) for any withholding tax (as defined in 
     subsection (k)) on any item of income or gain with respect to 
     any property if--
       ``(A) such property is held by the recipient of the item 
     for 15 days or less during the 30-day period beginning on the 
     date which is 15 days before the date on which the right to 
     receive payment of such item arises, or
       ``(B) to the extent that the recipient of the item is under 
     an obligation (whether pursuant to a short sale or otherwise) 
     to make related payments with respect to positions in 
     substantially similar or related property.

     This paragraph shall not apply to any dividend to which 
     subsection (k) applies.
       ``(2) Exception for taxes paid by dealers.--
       ``(A) In general.--Paragraph (1) shall not apply to any 
     qualified tax with respect to any property held in the active 
     conduct in a foreign country of a business as a dealer in 
     such property.
       ``(B) Qualified tax.--For purposes of subparagraph (A), the 
     term `qualified tax' means a tax paid to a foreign country 
     (other than the foreign country referred to in subparagraph 
     (A)) if--
       ``(i) the item to which such tax is attributable is subject 
     to taxation on a net basis by the country referred to in 
     subparagraph (A), and
       ``(ii) such country allows a credit against its net basis 
     tax for the full amount of the tax paid to such other foreign 
     country.
       ``(C) Dealer.--For purposes of subparagraph (A), the term 
     `dealer' means--
       ``(i) with respect to a security, any person to whom 
     paragraphs (1) and (2) of subsection (k) would not apply by 
     reason of paragraph (4) thereof if such security were stock, 
     and
       ``(ii) with respect to any other property, any person with 
     respect to whom such property is described in section 
     1221(a)(1).
       ``(D) Regulations.--The Secretary may prescribe such 
     regulations as may be appropriate to carry out this 
     paragraph, including regulations to prevent the abuse of the 
     exception provided by this paragraph and to treat other taxes 
     as qualified taxes.
       ``(3) Exceptions.--The Secretary may by regulation provide 
     that paragraph (1) shall not apply to property where the 
     Secretary determines that the application of paragraph (1) to 
     such property is not necessary to carry out the purposes of 
     this subsection.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (5), (6), and (7) of subsection (k) shall apply 
     for purposes of this subsection.
       ``(5) Determination of holding period.--Holding periods 
     shall be determined for purposes of this subsection without 
     regard to section 1235 or any similar rule.''.
       (b) Conforming Amendment.--The heading of subsection (k) of 
     section 901 is amended by inserting ``on Dividends'' after 
     ``Taxes''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued more than 30 days 
     after the date of the enactment of this Act.

                  Subtitle F--Other Revenue Provisions

                     PART I--FINANCIAL INSTRUMENTS

     SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND AND 
                   PREFERRED STOCK FUNDS, ETC.

       (a) In General.--Section 1286 (relating to tax treatment of 
     stripped bonds) is amended by redesignating subsection (f) as 
     subsection (g) and by inserting after subsection (e) the 
     following new subsection:
       ``(f) Treatment of Stripped Interests in Bond and Preferred 
     Stock Funds, etc.--In the case of an account or entity 
     substantially all of the assets of which consist of bonds, 
     preferred stock, or a combination thereof, the Secretary may 
     by regulations provide that rules similar to the rules of 
     this section and 305(e), as appropriate, shall apply to 
     interests in such account or entity to which (but for this 
     subsection) this section or section 305(e), as the case may 
     be, would not apply.''.
       (b) Cross Reference.--Subsection (e) of section 305 is 
     amended by adding at the end the following new paragraph:
       ``(7) Cross reference.--

  ``For treatment of stripped interests in certain accounts or entities 
holding preferred stock, see section 1286(f).''.

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

     SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO 
                   PARTNERSHIPS AND S CORPORATIONS.

       (a) In General.--Section 168(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Application to partnerships and s corporations.--
       ``(A) In general.--This subsection shall apply to 
     partnerships and S corporations in the same manner as it 
     applies to C corporations.
       ``(B) Allocations to certain corporate partners.--If a C 
     corporation is a partner in a partnership--
       ``(i) the corporation's allocable share of indebtedness and 
     interest income of the partnership shall be taken into 
     account in applying this subsection to the corporation, and
       ``(ii) if a deduction is not disallowed under this 
     subsection with respect to any interest expense of the 
     partnership, this subsection shall be applied separately in 
     determining whether a deduction is allowable to the 
     corporation with respect to the corporation's allocable share 
     of such interest expense.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME 
                   REALIZED ON SATISFACTION OF DEBT WITH 
                   PARTNERSHIP INTEREST.

       (a) In General.--Paragraph (8) of section 108(e) (relating 
     to general rules for discharge of indebtedness (including 
     discharges not in title 11 cases or insolvency)) is amended 
     to read as follows:
       ``(8) Indebtedness satisfied by corporate stock or 
     partnership interest.--For purposes of determining income of 
     a debtor from discharge of indebtedness, if--
       ``(A) a debtor corporation transfers stock, or
       ``(B) a debtor partnership transfers a capital or profits 
     interest in such partnership,

     to a creditor in satisfaction of its recourse or nonrecourse 
     indebtedness, such corporation or partnership shall be 
     treated as having satisfied the indebtedness with an amount 
     of money equal to the fair market value of the stock or 
     interest. In the case of any partnership, any discharge of 
     indebtedness income recognized under this paragraph shall be 
     included in the distributive shares of taxpayers which were 
     the partners in the partnership immediately before such 
     discharge.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to cancellations of indebtedness 
     occurring on

[[Page S2129]]

     or after the date of the enactment of this Act.

     SEC. 464. MODIFICATION OF STRADDLE RULES.

       (a) Rules Relating to Identified Straddles.--
       (1) In general.--Subparagraph (A) of section 1092(a)(2) 
     (relating to special rule for identified straddles) is 
     amended to read as follows:
       ``(A) In general.--In the case of any straddle which is an 
     identified straddle--
       ``(i) paragraph (1) shall not apply with respect to 
     identified positions comprising the identified straddle,
       ``(ii) if there is any loss with respect to any identified 
     position of the identified straddle, the basis of each of the 
     identified offsetting positions in the identified straddle 
     shall be increased by an amount which bears the same ratio to 
     the loss as the unrecognized gain with respect to such 
     offsetting position bears to the aggregate unrecognized gain 
     with respect to all such offsetting positions, and
       ``(iii) any loss described in clause (ii) shall not 
     otherwise be taken into account for purposes of this 
     title.''.
       (2) Identified straddle.--Section 1092(a)(2)(B) (defining 
     identified straddle) is amended--
       (A) by striking clause (ii) and inserting the following:
       ``(ii) to the extent provided by regulations, the value of 
     each position of which (in the hands of the taxpayer 
     immediately before the creation of the straddle) is not less 
     than the basis of such position in the hands of the taxpayer 
     at the time the straddle is created, and'', and
       (B) by adding at the end the following new flush sentence:

     ``The Secretary shall prescribe regulations which specify the 
     proper methods for clearly identifying a straddle as an 
     identified straddle (and the positions comprising such 
     straddle), which specify the rules for the application of 
     this section for a taxpayer which fails to properly identify 
     the positions of an identified straddle, and which specify 
     the ordering rules in cases where a taxpayer disposes of less 
     than an entire position which is part of an identified 
     straddle.''.
       (3) Unrecognized gain.--Section 1092(a)(3) (defining 
     unrecognized gain) is amended by redesignating subparagraph 
     (B) as subparagraph (C) and by inserting after subparagraph 
     (A) the following new subparagraph:
       ``(B) Special rule for identified straddles.--For purposes 
     of paragraph (2)(A)(ii), the unrecognized gain with respect 
     to any identified offsetting position shall be the excess of 
     the fair market value of the position at the time of the 
     determination over the fair market value of the position at 
     the time the taxpayer identified the position as a position 
     in an identified straddle.''
       (4) Conforming amendment.--Section 1092(c)(2) is amended by 
     striking subparagraph (B) and by redesignating subparagraph 
     (C) as subparagraph (B).
       (b) Physically Settled Positions.--Section 1092(d) 
     (relating to definitions and special rules) is amended by 
     adding at the end the following new paragraph:
       ``(8) Special rules for physically settled positions.--For 
     purposes of subsection (a), if a taxpayer settles a position 
     which is part of a straddle by delivering property to which 
     the position relates (and such position, if terminated, would 
     result in a realization of a loss), then such taxpayer shall 
     be treated as if such taxpayer--
       ``(A) terminated the position for its fair market value 
     immediately before the settlement, and
       ``(B) sold the property so delivered by the taxpayer at its 
     fair market value.''.
       (c) Repeal of Stock Exception.--
       (1) In general.--Section 1092(d)(3) is repealed.
       (2) Conforming amendment.--Section 1258(d)(1) is amended by 
     striking ``; except that the term `personal property' shall 
     include stock''.
       (d) Repeal of Qualified Covered Call Exception.--Section 
     1092(c)(4) is amended by adding at the end the following new 
     subparagraph:
       ``(I) Termination.--This paragraph shall not apply to any 
     position established on or after the date of the enactment of 
     this subparagraph.''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to positions established on or after the date of 
     the enactment of this Act.

     SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL 
                   READILY TRADEABLE DEBT.

       (a) In General.--Section 453(f)(4)(B) (relating to 
     purchaser evidences of indebtedness payable on demand or 
     readily tradeable) is amended by striking ``is issued by a 
     corporation or a government or political subdivision thereof 
     and''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales occurring on or after the date of the 
     enactment of this Act.

                 PART II--CORPORATIONS AND PARTNERSHIPS

     SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS 
                   IN DIVISIVE REORGANIZATIONS.

       (a) In General.--Section 361(b)(3) (relating to treatment 
     of transfers to creditors) is amended by adding at the end 
     the following new sentence: ``In the case of a reorganization 
     described in section 368(a)(1)(D) with respect to which stock 
     or securities of the corporation to which the assets are 
     transferred are distributed in a transaction which qualifies 
     under section 355, this paragraph shall apply only to the 
     extent that the sum of the money and the fair market value of 
     other property transferred to such creditors does not exceed 
     the adjusted bases of such assets transferred.''.
       (b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) 
     is amended by inserting ``with respect to which stock or 
     securities of the corporation to which the assets are 
     transferred are distributed in a transaction which qualifies 
     under section 355'' after ``section 368(a)(1)(D)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transfers of money or other property, or 
     liabilities assumed, in connection with a reorganization 
     occurring on or after the date of the enactment of this Act.

     SEC. 467. CLARIFICATION OF DEFINITION OF NONQUALIFIED 
                   PREFERRED STOCK.

       (a) In General.--Section 351(g)(3)(A) is amended by adding 
     at the end the following: ``Stock shall not be treated as 
     participating in corporate growth to any significant extent 
     unless there is a real and meaningful likelihood of the 
     shareholder actually participating in the earnings and growth 
     of the corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to transactions after May 14, 2003.

     SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
                   CORPORATIONS.

       (a) In General.--Section 1563(a)(2) (relating to brother-
     sister controlled group) is amended by striking 
     ``possessing--'' and all that follows through ``(B)'' and 
     inserting ``possessing''.
       (b) Application of Existing Rules to Other Code 
     Provisions.--Section 1563(f) (relating to other definitions 
     and rules) is amended by adding at the end the following new 
     paragraph:
       ``(5) Brother-sister controlled group definition for 
     provisions other than this part.--
       ``(A) In general.--Except as specifically provided in an 
     applicable provision, subsection (a)(2) shall be applied to 
     an applicable provision as if it read as follows:
       `(2) Brother-sister controlled group.--Two or more 
     corporations if 5 or fewer persons who are individuals, 
     estates, or trusts own (within the meaning of subsection 
     (d)(2) stock possessing--
       `(A) at least 80 percent of the total combined voting power 
     of all classes of stock entitled to vote, or at least 80 
     percent of the total value of shares of all classes of stock, 
     of each corporation, and
       `(B) more than 50 percent of the total combined voting 
     power of all classes of stock entitled to vote or more than 
     50 percent of the total value of shares of all classes of 
     stock of each corporation, taking into account the stock 
     ownership of each such person only to the extent such stock 
     ownership is identical with respect to each such 
     corporation.'
       ``(B) Applicable provision.--For purposes of this 
     paragraph, an applicable provision is any provision of law 
     (other than this part) which incorporates the definition of 
     controlled group of corporations under subsection (a).''.
       (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. 469. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH 
                   PARTNERSHIP DISTRIBUTIONS AND TRANSFERS OF 
                   PARTNERSHIP INTERESTS.

       (a) In General.--Section 754 is repealed.
       (b) Adjustment to Basis of Undistributed Partnership 
     Property.--Section 734 is amended--
       (1) by striking ``, with respect to which the election 
     provided in section 754 is in effect,'' in the matter 
     preceding paragraph (1) of subsection (b),
       (2) by striking ``(as adjusted by section 732(d))'' both 
     places it appears in subsection (b),
       (3) by striking the last sentence of subsection (b),
       (4) by striking subsection (a) and by redesignating 
     subsections (b) and (c) as subsections (a) and (b), 
     respectively, and
       (5) by striking ``optional'' in the heading.
       (c) Adjustment to Basis of Partnership Property.--Section 
     743 is amended--
       (1) by striking ``with respect to which the election 
     provided in section 754 is in effect'' in the matter 
     preceding paragraph (1) of subsection (b),
       (2) by striking subsection (a) and by redesignating 
     subsections (b) and (c) as subsections (a) and (b), 
     respectively,
       (3) by adding at the end the following new subsection:
       ``(c) Election To Adjust Basis for Transfers Upon Death of 
     Partner.--Subsection (a) shall not apply and no adjustments 
     shall be made in the case of any transfer of an interest in a 
     partnership upon the death of a partner unless an election to 
     do so is made by the partnership. Such an election shall 
     apply with respect to all such transfers of interests in the 
     partnership. Any election under section 754 in effect on the 
     date of the enactment of this subsection shall constitute an 
     election made under this subsection. Such election may be 
     revoked by the partnership, subject to such limitations as 
     may be provided by regulations prescribed by the 
     Secretary.'', and
       (4) by striking ``optional'' in the heading.
       (d) Conforming Amendments.--

[[Page S2130]]

       (1) Subsection (d) of section 732 is repealed.
       (2) Section 755(a) is amended--
       (A) by striking ``section 734(b) (relating to the optional 
     adjustment'' and inserting ``section 734(a) (relating to the 
     adjustment'', and
       (B) by striking ``section 743(b) (relating to the optional 
     adjustment'' and inserting ``section 743(a) (relating to the 
     adjustment''.
       (3) Section 755(c), as added by this Act, is amended by 
     striking ``section 734(b)'' and inserting ``section 734(a)''.
       (4) Section 761(e)(2) is amended by striking ``optional''.
       (5) Section 774(a) is amended by striking ``743(b)'' both 
     places it appears and inserting ``743(a)''.
       (6) The item relating to section 734 in the table of 
     sections for subpart B of part II of subchapter K of chapter 
     1 is amended by striking ``Optional''.
       (7) The item relating to section 743 in the table of 
     sections for subpart C of part II of subchapter K of chapter 
     1 is amended by striking ``Optional''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transfers and 
     distributions made after the date of the enactment of this 
     Act.
       (2) Repeal of section 732(d).--The amendments made by 
     subsections (b)(2) and (d)(1) shall apply to--
       (A) except as provided in subparagraph (B), transfers made 
     after the date of the enactment of this Act, and
       (B) in the case of any transfer made on or before such date 
     to which section 732(d) applies, distributions made after the 
     date which is 2 years after such date of enactment.

                PART III--DEPRECIATION AND AMORTIZATION

     SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS 
                   FRANCHISES.

       (a) In General.--Section 197(e) (relating to exceptions to 
     definition of section 197 intangible) is amended by striking 
     paragraph (6) and by redesignating paragraphs (7) and (8) as 
     paragraphs (6) and (7), respectively.
       (b) Conforming Amendments.--
       (1)(A) Section 1056 (relating to basis limitation for 
     player contracts transferred in connection with the sale of a 
     franchise) is repealed.
       (B) The table of sections for part IV of subchapter O of 
     chapter 1 is amended by striking the item relating to section 
     1056.
       (2) Section 1245(a) (relating to gain from disposition of 
     certain depreciable property) is amended by striking 
     paragraph (4).
       (3) Section 1253 (relating to transfers of franchises, 
     trademarks, and trade names) is amended by striking 
     subsection (e).
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to property 
     acquired after the date of the enactment of this Act.
       (2) Section 1245.--The amendment made by subsection (b)(2) 
     shall apply to franchises acquired after the date of the 
     enactment of this Act.

     SEC. 472. SERVICE CONTRACTS TREATED IN SAME MANNER AS LEASES 
                   FOR RULES RELATING TO TAX-EXEMPT USE PROPERTY.

       (a) In General.--Section 168(h)(7) (defining lease) is 
     amended by adding at the end the following: ``Such term shall 
     also include any service contract or other similar 
     arrangement.''.
       (b) Lease Term.--Section 168(i)(3) (relating to lease term) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(C) Special rule for service contracts.--In the case of 
     any service contract or other similar arrangement treated as 
     a lease under subsection (h)(7), the lease term shall be 
     determined in the same manner as a lease.''.
       (c) Conforming Amendments.--Section 168(g)(3)(A) is 
     amended--
       (1) by inserting ``(as defined in subsection (h)(7)'' after 
     ``lease'' the first place it appears, and
       (2) by inserting ``(as determined under subsection 
     (i)(3))'' after ``term''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to leases and service contracts or other similar 
     arrangements entered into after the date of the enactment of 
     this Act.

     SEC. 473. CLASS LIVES FOR UTILITY GRADING COSTS.

       (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 
     15-year property) 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) initial clearing and grading land improvements with 
     respect to gas utility property.''.
       (b) Electric Utility Property.--Section 168(e)(3) is 
     amended by adding at the end the following new subparagraph:
       ``(F) 20-year property.--The term `20-year property' means 
     initial clearing and grading land improvements with respect 
     to any electric utility transmission and distribution 
     plant.''.
       (c) Conforming Amendments.--The table contained in section 
     168(g)(3)(B) is amended--
       (1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
       (2) by adding at the end the following new item:

  ``(F).......................................................25''.....

       (d) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 474. 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 the date of 
     the enactment of this Act.

     SEC. 475. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

       (a) Start-Up Expenditures.--
       (1) Allowance of deduction.--Paragraph (1) of section 
     195(b) (relating to start-up expenditures) is amended to read 
     as follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection with respect to any start-up 
     expenditures--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the active trade or business begins in 
     an amount equal to the lesser of--
       ``(i) the amount of start-up expenditures with respect to 
     the active trade or business, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such start-up expenditures exceed $50,000, and
       ``(B) the remainder of such start-up expenditures shall be 
     allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the active trade or 
     business begins.''.
       (2) Conforming amendment.--Subsection (b) of section 195 is 
     amended by striking ``Amortize'' and inserting ``Deduct'' in 
     the heading.
       (b) Organizational Expenditures.--Subsection (a) of section 
     248 (relating to organizational expenditures) is amended to 
     read as follows:
       ``(a) Election to Deduct.--If a corporation elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenditures--
       ``(1) the corporation shall be allowed a deduction for the 
     taxable year in which the corporation begins business in an 
     amount equal to the lesser of--
       ``(A) the amount of organizational expenditures with 
     respect to the taxpayer, or
       ``(B) $5,000, reduced (but not below zero) by the amount by 
     which such organizational expenditures exceed $50,000, and
       ``(2) the remainder of such organizational expenditures 
     shall be allowed as a deduction ratably over the 180-month 
     period beginning with the month in which the corporation 
     begins business.''.
       (c) Treatment of Organizational and Syndication Fees or 
     Partnerships.--
       (1) In general.--Section 709(b) (relating to amortization 
     of organization fees) is amended by redesignating paragraph 
     (2) as paragraph (3) and by amending paragraph (1) to read as 
     follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenses--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the partnership begins business in an 
     amount equal to the lesser of--
       ``(i) the amount of organizational expenses with respect to 
     the partnership, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such organizational expenses exceed $50,000, and
       ``(B) the remainder of such organizational expenses shall 
     be allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the partnership begins 
     business.
       ``(2) Dispositions before close of amortization period.--In 
     any case in which a partnership is liquidated before the end 
     of the period to which paragraph (1)(B) applies, any

[[Page S2131]]

     deferred expenses attributable to the partnership which were 
     not allowed as a deduction by reason of this section may be 
     deducted to the extent allowable under section 165.''.
       (2) Conforming amendment.--Subsection (b) of section 709 is 
     amended by striking ``Amortization'' and inserting 
     ``Deduction'' in the heading.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.

     SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED 
                   BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 (relating to taxable year for which deductions 
     taken) is amended by adding at the end the following new 
     section:

     ``SEC. 470. DEDUCTIONS ALLOCABLE TO PROPERTY USED BY 
                   GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

       ``(a) General Rule.--The aggregate amount of deductions 
     otherwise allowable to the taxpayer with respect to tax-
     exempt use property for any taxable year shall not exceed 
     the aggregate amount of income includible in gross income 
     of the taxpayer for the taxable year with respect to such 
     property.
       ``(b) Disallowed Deduction Carried to Next Year.--Except as 
     otherwise provided in this section, any deduction with 
     respect to any tax-exempt use property which is disallowed 
     under subsection (a) shall, subject to the limitation under 
     subsection (a), be treated as a deduction with respect to 
     such property in the next taxable year.
       ``(c) Tax-Exempt Use Property.--For purposes of this 
     section--
       ``(1) In general.--The term `tax-exempt use property' has 
     the meaning given such term by section 168(h), except that 
     such section shall be applied without regard to paragraphs 
     (2)(C)(ii) and (3).
       ``(2) Special rules for service contracts and similar 
     arrangements.--If tangible property is subject to a service 
     contract or other similar arrangement between a taxpayer (or 
     any related person) and any tax-exempt entity, such contract 
     or arrangement shall be treated in the same manner as if it 
     were a lease for purposes of determining whether such 
     property is tax-exempt use property under paragraph (1).
       ``(d) Special Rules.--
       ``(1) Allocable deductions.--Subsection (a) shall apply 
     to--
       ``(A) any deduction directly allocable to any tax-exempt 
     use property, and
       ``(B) a proper share of other deductions that are not 
     directly allocable to such property.
       ``(2) Property ceasing to be tax-exempt use property.--If 
     property of a taxpayer ceases to be tax-exempt use property 
     in the hands of the taxpayer--
       ``(A) any unused deduction allocable to such property under 
     subsection (b) shall only be allowable as a deduction for any 
     taxable year to the extent of any net income of the taxpayer 
     allocable to such property, and
       ``(B) any portion of such unused deduction remaining after 
     application of subparagraph (A) shall, subject to the 
     limitation of subparagraph (A), be treated as a deduction 
     allocable to such property in the next taxable year.
       ``(3) Disposition of entire interest in property.--If 
     during the taxable year a taxpayer disposes of the taxpayer's 
     entire interest in tax-exempt use property, rules similar to 
     the rules of section 469(g) shall apply for purposes of this 
     section.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the provisions of this section.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart C of part II of subchapter E of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 470. Deductions allocable to property used by governments or 
              other tax-exempt entities.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to leases and service contracts or similar 
     arrangements entered into after the date of the enactment of 
     this Act.

                   PART IV--ADMINISTRATIVE PROVISIONS

     SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX 
                   FOR CERTAIN DEEMED ASSET SALES.

       (a) In General.--Paragraph (13) of section 338(h) (relating 
     to tax on deemed sale not taken into account for estimated 
     tax purposes) is amended by adding at the end the following: 
     ``The preceding sentence shall not apply with respect to a 
     qualified stock purchase for which an election is made under 
     paragraph (10).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 482. EXTENSION OF IRS USER FEES.

       (a) In General.--Section 7528(c) (relating to termination) 
     is amended by striking ``December 31, 2004'' and inserting 
     ``September 30, 2013''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests after the date of the enactment of 
     this Act.

     SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENT.

       (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.

     SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT 
                   AGREEMENTS.

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

     SEC. 485. EXTENSION OF CUSTOMS USER FEES.

       Section 13031(j)(3) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended 
     by striking ``March 31, 2004'' and inserting ``September 30, 
     2013''.

     SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS.

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

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

       ``(a) Authority To Make Deposits Other Than As Payment of 
     Tax.--A taxpayer may make a cash deposit with the Secretary 
     which may be used by the Secretary to pay any tax imposed 
     under subtitle A or B or chapter 41, 42, 43, or 44 which has 
     not been assessed at the time of the deposit. Such a deposit 
     shall be made in such manner as the Secretary shall 
     prescribe.
       ``(b) No Interest Imposed.--To the extent that such deposit 
     is used by the Secretary to pay tax, for purposes of section 
     6601 (relating to interest on underpayments), the tax shall 
     be treated as paid when the deposit is made.
       ``(c) Return of Deposit.--Except in a case where the 
     Secretary determines that collection of tax is in jeopardy, 
     the Secretary shall return to the taxpayer any amount of the 
     deposit (to the extent not used for a payment of tax) which 
     the taxpayer requests in writing.
       ``(d) Payment of Interest.--
       ``(1) In general.--For purposes of section 6611 (relating 
     to interest on overpayments), a deposit which is returned to 
     a taxpayer shall be treated as a payment of tax for any 
     period to the extent (and only to the extent) attributable to 
     a disputable tax for such period.

[[Page S2132]]

     Under regulations prescribed by the Secretary, rules similar 
     to the rules of section 6611(b)(2) shall apply.
       ``(2) Disputable tax.--
       ``(A) In general.--For purposes of this section, the term 
     `disputable tax' means the amount of tax specified at the 
     time of the deposit as the taxpayer's reasonable estimate of 
     the maximum amount of any tax attributable to disputable 
     items.
       ``(B) Safe harbor based on 30-day letter.--In the case of a 
     taxpayer who has been issued a 30-day letter, the maximum 
     amount of tax under subparagraph (A) shall not be less than 
     the amount of the proposed deficiency specified in such 
     letter.
       ``(3) Other definitions.--For purposes of paragraph (2)--
       ``(A) Disputable item.--The term `disputable item' means 
     any item of income, gain, loss, deduction, or credit if the 
     taxpayer--
       ``(i) has a reasonable basis for its treatment of such 
     item, and
       ``(ii) reasonably believes that the Secretary also has a 
     reasonable basis for disallowing the taxpayer's treatment of 
     such item.
       ``(B) 30-day letter.--The term `30-day letter' means the 
     first letter of proposed deficiency which allows the taxpayer 
     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals.
       ``(4) Rate of interest.--The rate of interest allowable 
     under this subsection shall be the Federal short-term rate 
     determined under section 6621(b), compounded daily.
       ``(e) Use of Deposits.--
       ``(1) Payment of tax.--Except as otherwise provided by the 
     taxpayer, deposits shall be treated as used for the payment 
     of tax in the order deposited.
       ``(2) Returns of deposits.--Deposits shall be treated as 
     returned to the taxpayer on a last-in, first-out basis.''.
       (b) Clerical Amendment.--The table of sections for 
     subchapter A of chapter 67 is amended by adding at the end 
     the following new item:

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

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

     SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.

       (a) Contract Requirements.--
       (1) In general.--Subchapter A of chapter 64 (relating to 
     collection) is amended by adding at the end the following new 
     section:

     ``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

       ``(a) In General.--Nothing in any provision of law shall be 
     construed to prevent the Secretary from entering into a 
     qualified tax collection contract.
       ``(b) Qualified Tax Collection Contract.--For purposes of 
     this section, the term `qualified tax collection contract' 
     means any contract which--
       ``(1) is for the services of any person (other than an 
     officer or employee of the Treasury Department)--
       ``(A) to locate and contact any taxpayer specified by the 
     Secretary,
       ``(B) to request full payment from such taxpayer of an 
     amount of Federal tax specified by the Secretary and, if such 
     request cannot be met by the taxpayer, to offer the taxpayer 
     an installment agreement providing for full payment of such 
     amount during a period not to exceed 3 years, and
       ``(C) to obtain financial information specified by the 
     Secretary with respect to such taxpayer,
       ``(2) prohibits each person providing such services under 
     such contract from committing any act or omission which 
     employees of the Internal Revenue Service are prohibited from 
     committing in the performance of similar services,
       ``(3) prohibits subcontractors from--
       ``(A) having contacts with taxpayers,
       ``(B) providing quality assurance services, and
       ``(C) composing debt collection notices, and
       ``(4) permits subcontractors to perform other services only 
     with the approval of the Secretary.
       ``(c) Fees.--The Secretary may retain and use an amount not 
     in excess of 25 percent of the amount collected under any 
     qualified tax collection contract for the costs of services 
     performed under such contract. The Secretary shall keep 
     adequate records regarding amounts so retained and used. The 
     amount credited as paid by any taxpayer shall be determined 
     without regard to this subsection.
       ``(d) No Federal Liability.--The United States shall not be 
     liable for any act or omission of any person performing 
     services under a qualified tax collection contract.
       ``(e) Application of Fair Debt Collection Practices Act.--
     The provisions of the Fair Debt Collection Practices Act (15 
     U.S.C. 1692 et seq.) shall apply to any qualified tax 
     collection contract, except to the extent superseded by 
     section 6304, section 7602(c), or by any other provision of 
     this title.
       ``(f) Cross References.--
       ``(1) For damages for certain unauthorized collection 
     actions by persons performing services under a qualified tax 
     collection contract, see section 7433A.
       ``(2) For application of Taxpayer Assistance Orders to 
     persons performing services under a qualified tax collection 
     contract, see section 7811(a)(4).''.
       (2) Conforming amendments.--
       (A) Section 7809(a) is amended by inserting ``6306,'' 
     before ``7651''.
       (B) The table of sections for subchapter A of chapter 64 is 
     amended by adding at the end the following new item:

``Sec. 6306. Qualified Tax Collection Contracts.''.

       (b) Civil Damages for Certain Unauthorized Collection 
     Actions by Persons Performing Services Under Qualified Tax 
     Collection Contracts.--
       (1) In general.--Subchapter B of chapter 76 (relating to 
     proceedings by taxpayers and third parties) is amended by 
     inserting after section 7433 the following new section:

     ``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED 
                   COLLECTION ACTIONS BY PERSONS PERFORMING 
                   SERVICES UNDER QUALIFIED TAX COLLECTION 
                   CONTRACTS.

       ``(a) In General.--Subject to the modifications provided by 
     subsection (b), section 7433 shall apply to the acts and 
     omissions of any person performing services under a qualified 
     tax collection contract (as defined in section 6306(b)) to 
     the same extent and in the same manner as if such person were 
     an employee of the Internal Revenue Service.
       ``(b) Modifications.--For purposes of subsection (a)--
       ``(1) Any civil action brought under section 7433 by reason 
     of this section shall be brought against the person who 
     entered into the qualified tax collection contract with the 
     Secretary and shall not be brought against the United States.
       ``(2) Such person and not the United States shall be liable 
     for any damages and costs determined in such civil action.
       ``(3) Such civil action shall not be an exclusive remedy 
     with respect to such person.
       ``(4) Subsections (c), (d)(1), and (e) of section 7433 
     shall not apply.''.
       (2) Clerical amendment.--The table of sections for 
     subchapter B of chapter 76 is amended by inserting after the 
     item relating to section 7433 the following new item:

``Sec. 7433A. Civil damages for certain unauthorized collection actions 
              by persons performing services under a qualified tax 
              collection contract.''.

       (c) Application of Taxpayer Assistance Orders to Persons 
     Performing Services Under a Qualified Tax Collection 
     Contract.--Section 7811 (relating to taxpayer assistance 
     orders) is amended by adding at the end the following new 
     subsection:
       ``(g) Application to Persons Performing Services Under a 
     Qualified Tax Collection Contract.--Any order issued or 
     action taken by the National Taxpayer Advocate pursuant to 
     this section shall apply to persons performing services under 
     a qualified tax collection contract (as defined in section 
     6306(b)) to the same extent and in the same manner as such 
     order or action applies to the Secretary.''.
       (d) Ineligibility of Individuals Who Commit Misconduct To 
     Perform Under Contract.--Section 1203 of the Internal Revenue 
     Service Restructuring Act of 1998 (relating to termination of 
     employment for misconduct) is amended by adding at the end 
     the following new subsection:
       ``(e) Individuals Performing Services Under a Qualified Tax 
     Collection Contract.-- An individual shall cease to be 
     permitted to perform any services under any qualified tax 
     collection contract (as defined in section 6306(b) of the 
     Internal Revenue Code of 1986) if there is a final 
     determination by the Secretary of the Treasury under such 
     contract that such individual committed any act or omission 
     described under subsection (b) in connection with the 
     performance of such services.''.
       (e) Effective Date.--The amendments made to this section 
     shall take effect on the date of the enactment of this Act.

                    PART V--MISCELLANEOUS PROVISIONS

     SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF 
                   TAXABLE VACCINES.

       (a) In General.--Section 4132(a)(1) (defining taxable 
     vaccine) is amended by redesignating subparagraphs (I), (J), 
     (K), and (L) as subparagraphs (J), (K), (L), and (M), 
     respectively, and by inserting after subparagraph (H) the 
     following new subparagraph:
       ``(I) Any vaccine against hepatitis A.''.
       (b) Conforming Amendment.--Section 9510(c)(1)(A) is amended 
     by striking ``October 18, 2000'' and inserting ``May 8, 
     2003''.
       (c) Effective Date.--
       (1) Sales, etc.--The amendments made by this section shall 
     apply to sales and uses on or after the first day of the 
     first month which begins more than 4 weeks after the date of 
     the enactment of this Act.
       (2) Deliveries.--For purposes of paragraph (1) and section 
     4131 of the Internal Revenue Code of 1986, in the case of 
     sales on or before the effective date described in such 
     paragraph for which delivery is made after such date, the 
     delivery date shall be considered the sale date.

[[Page S2133]]

     SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL 
                   RESIDENCE ACQUIRED IN A LIKE-KIND EXCHANGE 
                   WITHIN 5 YEARS OF SALE.

       (a) In General.--Section 121(d) (relating to special rules 
     for exclusion of gain from sale of principal residence) is 
     amended by adding at the end the following new paragraph:
       ``(10) Property acquired in like-kind exchange.--If a 
     taxpayer acquired property in an exchange to which section 
     1031 applied, subsection (a) shall not apply to the sale or 
     exchange of such property if it occurs during the 5-year 
     period beginning with the date of the acquisition of such 
     property.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales or exchanges after the date of the 
     enactment of this Act.

     SEC. 493. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

       (a) In General.--Section 501(c)(15)(A) is amended to read 
     as follows:
       ``(A) Insurance companies (as defined in section 816(a)) 
     other than life (including interinsurers and reciprocal 
     underwriters) if--
       ``(i) the gross receipts for the taxable year do not exceed 
     $600,000, and
       ``(ii) more than 50 percent of such gross receipts consist 
     of premiums.''.
       (b) Controlled Group Rule.--Section 501(c)(15)(C) is 
     amended by inserting ``, except that in applying section 1563 
     for purposes of section 831(b)(2)(B)(ii), subparagraphs (B) 
     and (C) of section 1563(b)(2) shall be disregarded'' before 
     the period at the end.
       (c) Conforming Amendment.--Clause (i) of section 
     831(b)(2)(A) is amended by striking ``exceed $350,000 but''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 494. DEFINITION OF INSURANCE COMPANY FOR SECTION 831.

       (a) In General.--Section 831 is amended by redesignating 
     subsection (c) as subsection (d) and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Insurance Company Defined.--For purposes of this 
     section, the term `insurance company' has the meaning given 
     to such term by section 816(a)).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 495. LIMITATIONS ON DEDUCTION FOR CHARITABLE 
                   CONTRIBUTIONS OF PATENTS AND SIMILAR PROPERTY.

       (a) Deduction Allowed Only to the Extent of Basis.--Section 
     170(e)(1)(B) (relating to certain contributions of ordinary 
     income and capital gain property) is amended by striking 
     ``or'' at the end of clause (i), by adding ``or'' at the end 
     of clause (ii), and by inserting after clause (ii) the 
     following new clause:
       ``(iii) of any patent, copyright, trademark, trade name, 
     trade secret, know-how, software, or similar property, or 
     applications or registrations of such property,''.
       (b) Treatment of Contributions Where Donor Receives 
     Interest.--Section 170(e) is amended by adding at the end the 
     following new paragraph:
       ``(7) Special rules for contributions of patents and 
     similar property where donor receives interest.--
       ``(A) Disallowance of deduction.--No deduction shall be 
     allowed under this section with respect to a contribution of 
     property described in paragraph (1)(B)(iii) if the taxpayer 
     after the contribution has any interest in the property other 
     than a qualified interest.
       ``(B) Contributions with qualified interest.--If a taxpayer 
     after a contribution of property described in paragraph 
     (1)(B)(iii) has a qualified interest in the property--
       ``(i) any payment pursuant to the qualified interest shall 
     be treated as ordinary income and shall be includible in 
     gross income of the taxpayer for the taxable year in which 
     the payment is received by the taxpayer, and
       ``(ii) subsection (f)(3) and section 1011(b) shall not 
     apply to the transfer of the property from the taxpayer to 
     the donee.
       ``(C) Qualified interest.--For purposes of this paragraph--
       ``(i) In general.--The term `qualified interest' means, 
     with respect to any taxpayer, a right to receive from the 
     donee a percentage (not greater than 50 percent) of any 
     royalty payment received by the donee with respect to 
     property described in paragraph (1)(B)(iii) (other than 
     copyrights which are described in section 1221(a)(3) or 
     1231(b)(1)(C)) contributed by the taxpayer to the donee.
       ``(ii) Secretarial authority.--

       ``(I) In general.--Except as provided in subclause (II), 
     the Secretary may by regulation or other administrative 
     guidance treat as a qualified interest the right to receive 
     other payments from the donee, but only if the donee does not 
     possess a right to receive any payment (whether royalties or 
     otherwise) from a third party with respect to the contributed 
     property.
       ``(II) Exceptions.--The Secretary may not treat as a 
     qualified interest the right to receive any payment which 
     provides a benefit to the donor which is greater than the 
     benefit retained by the donee or the right to receive any 
     portion of the proceeds from the sale of the property 
     contributed.

       ``(iii) Limitation.--An interest shall be treated as a 
     qualified interest under this subparagraph only if the 
     taxpayer has no right to receive any payment described in 
     clause (i) or (ii)(I) after the earlier of the date on which 
     the legal life of the contributed property expires or the 
     date which is 20 years after the date of the contribution.''.
       (c) Reporting Requirements.--
       (1) In general.--Section 6050L(a) (relating to returns 
     regarding certain dispositions of donated property) is 
     amended--
       (A) by striking ``If'' and inserting:
       ``(1) Dispositions of donated property.--If'',
       (B) by redesignating paragraphs (1) through (5) as 
     subparagraphs (A) through (E), respectively, and
       (C) by adding at the end the following new paragraph:
       ``(2) Payments of qualified interests.--Each donee of 
     property described in section 170(e)(1)(B)(iii) which makes a 
     payment to a donor pursuant to a qualified interest (as 
     defined in section 170(e)(7)) during any calendar year shall 
     make a return (in accordance with forms and regulations 
     prescribed by the Secretary) showing--
       ``(A) the name, address, and TIN of the payor and the payee 
     with respect to such a payment,
       ``(B) a description, and date of contribution, of the 
     property to which the qualified interest relates,
       ``(C) the dates and amounts of any royalty payments 
     received by the donee with respect to such property,
       ``(D) the date and the amount of the payment pursuant to 
     the qualified interest, and
       ``(E) a description of the terms of the qualified 
     interest.''.
       (2) Conforming amendments.--
       (A) The heading for section 6050L is amended by striking 
     ``certain dispositions of''.
       (B) The item relating to section 6050L in the table of 
     sections for subpart B of part III of subchapter A of chapter 
     61 is amended by striking ``certain dispositions of''.
       (d) Anti-Abuse Rules.--The Secretary of the Treasury may 
     prescribe such regulations or other administrative guidance 
     as may be necessary or appropriate to prevent the avoidance 
     of the purposes of section 170(e)(1)(B)(iii) of the Internal 
     Revenue Code of 1986 (as added by subsection (a)), including 
     preventing--
       (1) the circumvention of the reduction of the charitable 
     deduction by embedding or bundling the patent or similar 
     property as part of a charitable contribution of property 
     that includes the patent or similar property,
       (2) the manipulation of the basis of the property to 
     increase the amount of the charitable deduction through the 
     use of related persons, pass-thru entities, or other 
     intermediaries, or through the use of any provision of law or 
     regulation (including the consolidated return regulations), 
     and
       (3) a donor from changing the form of the patent or similar 
     property to property of a form for which different deduction 
     rules would apply.
       (e) Effective Date.--The amendments made by this section 
     shall apply to contributions made after October 1, 2003.

     SEC. 496. REPEAL OF 10-PERCENT REHABILITATION TAX CREDIT.

       Section 47 is amended by adding at the end the following 
     new subsection:
       ``(e) Termination.--This section shall not apply to 
     expenditures described in subsection (a)(1) incurred in 
     taxable years beginning after December 31, 2003.''.

     SEC. 497. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 2646. Mr. GRASSLEY (for himself and Mr. Baucus) proposed an 
amendment to amendment SA 2645 proposed by Mr. Grassley (for himself 
and Mr. Baucus) to the bill S. 1637, to amend the Internal Revenue Code 
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities 
in the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes as follows:

       Strike sections 472 through 476 and insert:

     SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.

       (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 
     15-year property) 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) initial clearing and grading land improvements with 
     respect to gas utility property.''.
       (b) Electric Utility Property.--Section 168(e)(3) is 
     amended by adding at the end the following new subparagraph:
       ``(F) 20-year property.--The term `20-year property' means 
     initial clearing and grading land improvements with respect 
     to any electric utility transmission and distribution 
     plant.''.
       (c) Conforming Amendments.--The table contained in section 
     168(g)(3)(B) is amended--
       (1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
       (2) by adding at the end the following new item:

  ``(F).......................................................25''.....


[[Page S2134]]


       (d) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 473. 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 the date of 
     the enactment of this Act.

     SEC. 474. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

       (a) Start-Up Expenditures.--
       (1) Allowance of deduction.--Paragraph (1) of section 
     195(b) (relating to start-up expenditures) is amended to read 
     as follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection with respect to any start-up 
     expenditures--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the active trade or business begins in 
     an amount equal to the lesser of--
       ``(i) the amount of start-up expenditures with respect to 
     the active trade or business, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such start-up expenditures exceed $50,000, and
       ``(B) the remainder of such start-up expenditures shall be 
     allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the active trade or 
     business begins.''.
       (2) Conforming amendment.--Subsection (b) of section 195 is 
     amended by striking ``Amortize'' and inserting ``Deduct'' in 
     the heading.
       (b) Organizational Expenditures.--Subsection (a) of section 
     248 (relating to organizational expenditures) is amended to 
     read as follows:
       ``(a) Election to Deduct.--If a corporation elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenditures--
       ``(1) the corporation shall be allowed a deduction for the 
     taxable year in which the corporation begins business in an 
     amount equal to the lesser of--
       ``(A) the amount of organizational expenditures with 
     respect to the taxpayer, or
       ``(B) $5,000, reduced (but not below zero) by the amount by 
     which such organizational expenditures exceed $50,000, and
       ``(2) the remainder of such organizational expenditures 
     shall be allowed as a deduction ratably over the 180-month 
     period beginning with the month in which the corporation 
     begins business.''.
       (c) Treatment of Organizational and Syndication Fees or 
     Partnerships.--
       (1) In general.--Section 709(b) (relating to amortization 
     of organization fees) is amended by redesignating paragraph 
     (2) as paragraph (3) and by amending paragraph (1) to read as 
     follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenses--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the partnership begins business in an 
     amount equal to the lesser of--
       ``(i) the amount of organizational expenses with respect to 
     the partnership, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such organizational expenses exceed $50,000, and
       ``(B) the remainder of such organizational expenses shall 
     be allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the partnership begins 
     business.
       ``(2) Dispositions before close of amortization period.--In 
     any case in which a partnership is liquidated before the end 
     of the period to which paragraph (1)(B) applies, any deferred 
     expenses attributable to the partnership which were not 
     allowed as a deduction by reason of this section may be 
     deducted to the extent allowable under section 165.''.
       (2) Conforming amendment.--Subsection (b) of section 709 is 
     amended by striking ``Amortization'' and inserting 
     ``Deduction'' in the heading.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.

     SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPERATIONS.

       (a) Clarification of Recovery Period for Tax-Exempt Use 
     Property Subject to Lease.--Subparagraph (A) of section 
     168(g)(3) (relating to special rules for determining class 
     life) is amended by inserting ``(notwithstanding any other 
     subparagraph of this paragraph)'' after ``shall''.
       (b) Limitation on Depreciation Period for Software Leased 
     to Tax-Exempt Entity.--Paragraph (1) of section 167(f) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Tax-exempt use property subject to lease.--In the 
     case of computer software which would be tax-exempt use 
     property as defined in subsection (h) of section 168 if such 
     section applied to computer software, the useful life under 
     subparagraph (A) shall not be less than 125 percent of the 
     lease term (within the meaning of section 168(i)(3)).''
       (c) Lease Term To Include Related Service Contracts.--
     Subparagraph (A) of section 168(i)(3) (relating to lease 
     term) is amended by striking ``and'' at the end of clause 
     (i), by redesignating clause (ii) as clause (iii), and by 
     inserting after clause (i) the following new clause:
       ``(ii) the term of a lease shall include the term of any 
     service contract or similar arrangement (whether or not 
     treated as a lease under section 7701(e))--

       ``(I) which is part of the same transaction (or series of 
     related transactions) which includes the lease, and
       ``(II) which is with respect to the property subject to the 
     lease or substantially similar property, and''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to leases entered into after December 31, 2003.

     SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED 
                   BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 (relating to taxable year for which deductions 
     taken) is amended by adding at the end the following new 
     section:

     ``SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE 
                   PROPERTY.

       ``(a) Limitation on Losses.--Except as otherwise provided 
     in this section, a tax-exempt use loss for any taxable year 
     shall not be allowed.
       ``(b) Disallowed Loss Carried to Next Year.--Any tax-exempt 
     use loss with respect to any tax-exempt use property which is 
     disallowed under subsection (a) for any taxable year shall be 
     treated as a deduction with respect to such property in the 
     next taxable year.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Tax-exempt use loss.--The term `tax-exempt use loss' 
     means, with respect to any taxable year, the amount (if any) 
     by which--
       ``(A) the sum of--
       ``(i) the aggregate deductions (other than interest) 
     directly allocable to a tax-exempt use property, plus
       ``(ii) the aggregate deductions for interest properly 
     allocable to such property, exceed
       ``(B) the aggregate income from such property.
       ``(2) Tax-exempt use property.--The term `tax-exempt use 
     property' has the meaning given to such term by section 
     168(h) (without regard to paragraph (1)(C) or (3)(C) thereof 
     and determined as if property described in section 
     167(f)(1)(B) were tangible property).
       ``(d) Exception for Certain Leases.--This section shall not 
     apply to any lease of property which meets the requirements 
     of all of the following paragraphs:
       ``(1) Property not financed with tax-exempt bonds.--A lease 
     of property meets the requirements of this paragraph if no 
     part of the property was financed (directly or indirectly) 
     from the proceeds of an obligation the interest on which is 
     exempt from tax under section 103(a) and which (or any 
     refunding bond of which) is outstanding when the lease is 
     entered into. The Secretary may by regulations provide for a 
     de minimis exception from this paragraph.
       ``(2) Availability of funds.--
       ``(A) In general.--A lease of property meets the 
     requirements of this paragraph if (at any time during the 
     lease term) not more than an allowable amount of funds are--
       ``(i) subject to any arrangement referred to in 
     subparagraph (B), or
       ``(ii) otherwise reasonably expected to remain available,

     to or for the benefit of the lessor or any lender, or to or 
     for the benefit of the lessee to satisfy the lessee's 
     obligations or options under the lease.
       ``(B) Arrangements.--The arrangements referred to in this 
     subparagraph are--
       ``(i) a defeasance arrangement, a loan by the lessee to the 
     lessor or any lender, a deposit arrangement, a letter of 
     credit collateralized with cash or cash equivalents, a 
     payment undertaking agreement, a lease prepayment, a sinking 
     fund arrangement, or any similar arrangement (whether or not

[[Page S2135]]

     such arrangement provides credit support), and
       ``(ii) any other arrangement identified by the Secretary in 
     regulations.
       ``(C) Allowable amount.--
       ``(i) In general.--Except as otherwise provided in this 
     subparagraph, the term `allowable amount' means an amount 
     equal to 20 percent of the lessor's adjusted basis in the 
     property at the time the lease is entered into.
       ``(ii) Higher amount permitted in certain cases.--To the 
     extent provided in regulations, a higher percentage shall be 
     permitted under clause (i) where necessary because of the 
     credit-worthiness of the lessee. In no event may such 
     regulations permit a percentage of more than 50 percent.
       ``(iii) Option to purchase.--If under the lease the lessee 
     has the option to purchase the property for other than the 
     fair market value of the property (determined at the time of 
     exercise), the allowable amount at the time such option may 
     be exercised may not exceed 50 percent of the price at which 
     such option may be exercised.
       ``(3) Lessor must make substantial equity investment.--A 
     lease of property meets the requirements of this paragraph 
     if--
       ``(A) the lessor--
       ``(i) has at the time the lease is entered into an 
     unconditional at-risk equity investment (as determined by the 
     Secretary) in the property of at least 20 percent of the 
     lessor's adjusted basis in the property as of that time, and
       ``(ii) maintains such investment throughout the term of the 
     lease, and
       ``(B) the fair market value of the property at the end of 
     the lease term is reasonably expected to be equal to at least 
     20 percent of such basis.
       ``(4) Lessee may not bear more than minimal risk of loss.--
       ``(A) In general.--A lease of property meets the 
     requirements of this paragraph if there is no arrangement 
     under which more than a minimal risk of loss (as determined 
     under regulations) in the value of the property is borne by 
     the lessee.
       ``(B) Certain arrangements fail requirement.--In no event 
     will the requirements of this paragraph be met if there is 
     any arrangement under which the lessee bears--
       ``(i) any portion of the loss that would occur if the fair 
     market value of the leased property at the time the lease is 
     terminated were 25 percent less than its projected fair 
     market value at the end of the lease term, or
       ``(ii) more than 50 percent of the loss that would occur if 
     the fair market value of the leased property at the time the 
     lease is terminated were zero.
       ``(5) Regulatory requirements.--A lease of property meets 
     the requirements of this paragraph if such lease of property 
     meets such requirements as the Secretary may prescribe by 
     regulations.
       ``(e) Special Rules.--
       ``(1) Treatment of former tax-exempt use property.--
       ``(A) In general.--In the case of any former tax-exempt use 
     property--
       ``(i) any deduction allowable under subsection (b) with 
     respect to such property for any taxable year shall be 
     allowed only to the extent of any net income (without regard 
     to such deduction) from such property for such taxable year, 
     and
       ``(ii) any portion of such unused deduction remaining after 
     application of clause (i) shall be treated as a deduction 
     allocable to such property in the next taxable year.
       ``(B) Former tax-exempt use property.--For purposes of this 
     subsection, the term `former tax-exempt use property' means 
     any property which--
       ``(i) is not tax-exempt use property for the taxable year, 
     but
       ``(ii) was tax-exempt use property for any prior taxable 
     year.
       ``(2) Disposition of entire interest in property.--If 
     during the taxable year a taxpayer disposes of the taxpayer's 
     entire interest in tax-exempt use property (or former tax-
     exempt use property), rules similar to the rules of section 
     469(g) shall apply for purposes of this section.
       ``(3) Coordination with section 469.--This section shall be 
     applied before the application of section 469.
       ``(f) Other Definitions.--For purposes of this section--
       ``(1) Related parties.--The terms `lessor', `lessee', and 
     `lender' include any related party (within the meaning of 
     section 197(f)(9)(C)(i)).
       ``(2) Lease term.--The term `lease term' has the meaning 
     given to such term by section 168(i)(3).
       ``(3) Lender.--The term `lender' means, with respect to any 
     lease, a person that makes a loan to the lessor which is 
     secured (or economically similar to being secured) by the 
     lease or the leased property.
       ``(4) Loan.--The term `loan' includes any similar 
     arrangement.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the provisions of this section, including regulation which--
       ``(1) allow in appropriate cases the aggregation of 
     property subject to the same lease, and
       ``(2) provide for the determination of the allocation of 
     interest expense for purposes of this section.''
       (b) Conforming Amendment.--The table of sections for 
     subpart C of part II of subchapter E of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 470. Limitations on losses from tax-exempt use property.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to leases entered into after December 31, 2003.
                                 ______
                                 
  SA 2647. Mr. HATCH (for himself, Mrs. Murray, Mr. Baucus, Ms. 
Cantwell, Mr. Smith, Mr. Bunning, and Mr. Grassley) proposed an 
amendment to the bill S. 1637, to amend the Internal Revenue Code of 
1986 to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; as follows:

       At the end of subtitle A of title III add the following:

     SEC. __. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

       (a) Extension.--
       (1) In general.--Section 41(h)(1)(B) (relating to 
     termination) is amended by striking ``June 30, 2004'' and 
     inserting ``December 31, 2005''.
       (2) Conforming amendment.--Section 45C(b)(1)(D) is amended 
     by striking ``June 30, 2004'' and inserting ``December 31, 
     2005''.
       (b) Increase in Rates of Alternative Incremental Credit.--
     Subparagraph (A) of section 41(c)(4) (relating to election of 
     alternative incremental credit) is amended--
       (1) by striking ``2.65 percent'' and inserting ``3 
     percent'',
       (2) by striking ``3.2 percent'' and inserting ``4 
     percent'', and
       (3) by striking ``3.75 percent'' and inserting ``5 
     percent''.
       (c) Alternative Simplified Credit for Qualified Research 
     Expenses.--
       (1) In general.--Subsection (c) of section 41 (relating to 
     base amount) is amended by redesignating paragraphs (5) and 
     (6) as paragraphs (6) and (7), respectively, and by inserting 
     after paragraph (4) the following new paragraph:
       ``(5) Election of alternative simplified credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     12 percent of so much of the qualified research expenses for 
     the taxable year as exceeds 50 percent of the average 
     qualified research expenses for the 3 taxable years preceding 
     the taxable year for which the credit is being determined.
       ``(B) Special rule in case of no qualified research 
     expenses in any of 3 preceding taxable years.--
       ``(i) Taxpayers to which subparagraph applies.--The credit 
     under this paragraph shall be determined under this 
     subparagraph if the taxpayer has no qualified research 
     expenses in any 1 of the 3 taxable years preceding the 
     taxable year for which the credit is being determined.
       ``(ii) Credit rate.--The credit determined under this 
     subparagraph shall be equal to 6 percent of the qualified 
     research expenses for the taxable year.
       ``(C) Election.--An election under this paragraph shall 
     apply to the taxable year for which made and all succeeding 
     taxable years unless revoked with the consent of the 
     Secretary. An election under this paragraph may not be made 
     for any taxable year to which an election under paragraph (4) 
     applies.''
       (2) Coordination with election of alternative incremental 
     credit.--
       (A) In general.--Section 41(c)(4)(B) (relating to election) 
     is amended by adding at the end the following: ``An election 
     under this paragraph may not be made for any taxable year to 
     which an election under paragraph (5) applies.''
       (B) Transition rule.--In the case of an election under 
     section 41(c)(4) of the Internal Revenue Code of 1986 which 
     applies to the taxable year which includes the date of the 
     enactment of this Act, such election shall be treated as 
     revoked with the consent of the Secretary of the Treasury if 
     the taxpayer makes an election under section 41(c)(5) of such 
     Code (as added by paragraph (1)) for such year.
       (f) Effective Dates.--
       (1) Subsection (a).--The amendments made by subsection (a) 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.
       (2) Subsections (b) and (c).--The amendments made by 
     subsections (b) and (c) shall apply to taxable years 
     beginning after December 31, 2004.
                                 ______
                                 
  SA 2648. Ms. CANTWELL submitted an amendment intended to be proposed 
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the end, add the following:

[[Page S2136]]

                  TITLE __--UNEMPLOYMENT COMPENSATION

     SEC. __01. EXTENSION OF THE TEMPORARY EXTENDED UNEMPLOYMENT 
                   COMPENSATION ACT OF 2002.

       (a) In General.--Section 208 of the Temporary Extended 
     Unemployment Compensation Act of 2002 (Public Law 107-147; 
     116 Stat. 30), as amended by Public Law 108-1 (117 Stat. 3) 
     and the Unemployment Compensation Amendments of 2003 (Public 
     Law 108-26; 117 Stat. 751), is amended--
       (1) in subsection (a)(2), by striking ``December 31, 2003'' 
     and inserting ``June 30, 2004'';
       (2) in subsection (b)(1), by striking ``December 31, 2003'' 
     and inserting ``June 30, 2004'';
       (3) in subsection (b)(2)--
       (A) in the heading, by striking ``december 31, 2003'' and 
     inserting ``june 30, 2004''; and
       (B) by striking ``December 31, 2003'' and inserting ``June 
     30, 2004''; and
       (4) in subsection (b)(3), by striking ``March 31, 2004'' 
     and inserting ``September 30, 2004''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 21).

     SEC. __02. ADDITIONAL REVISION TO CURRENT TEUC-X TRIGGER.

       (a) In General.--Section 203(c)(2)(B) of the Temporary 
     Extended Unemployment Compensation Act of 2002 (Public Law 
     107-147; 116 Stat. 30) is amended to read as follows:
       ``(B) such a period would then be in effect for such State 
     under such Act if--
       ``(i) section 203(d) of such Act were applied as if it had 
     been amended by striking `5' each place it appears and 
     inserting `4'; and
       ``(ii) with respect to weeks of unemployment beginning 
     after December 27, 2003--

       ``(I) paragraph (1)(A) of such section 203(d) did not 
     apply; and
       ``(II) clause (ii) of section 203(f)(1)(A) of such Act did 
     not apply.''.

       (b) Application.--Section 203(c)(2)(B)(ii) of the Temporary 
     Extended Unemployment Compensation Act of 2002 (Public Law 
     107-147; 116 Stat. 30), as added by subsection (a), shall 
     apply with respect to payments for weeks of unemployment 
     beginning on or after the date of enactment this Act.

     SEC. __03. TEMPORARY STATE AUTHORITY TO WAIVE APPLICATION OF 
                   LOOKBACKS UNDER THE FEDERAL-STATE EXTENDED 
                   UNEMPLOYMENT COMPENSATION ACT OF 1970.

       For purposes of conforming with the provisions of the 
     Federal-State Extended Unemployment Compensation Act of 1970 
     (26 U.S.C. 3304 note), a State may, during the period 
     beginning on the date of enactment of this Act and ending on 
     June 30, 2004, waive the application of either subsection 
     (d)(1)(A) of section 203 of such Act or subsection 
     (f)(1)(A)(ii) of such section, or both.
                                 ______
                                 
  SA 2649. Mr. BAYH submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       At the end of the bill, add the following:

                   TITLE V--MISCELLANEOUS PROVISIONS

     SEC. 501. APPLICATION OF COUNTERVAILING DUTY LAWS TO 
                   NONMARKET ECONOMIES.

       (a) In General.--Section 701(a)(1) of the Tariff Act of 
     1930 (19 U.S.C. 1671(a)(1)) is amended by inserting 
     ``(including a nonmarket economy country)'' after ``country'' 
     each place it appears.
       (b) Definitions.--Section 771(5)(C) of the Tariff Act of 
     1930 (19 U.S.C. 1677(5)(C)) is amended--
       (1) by striking ``owned and'' and inserting ``owned,''; and
       (2) by striking ``merchandise.'' and inserting 
     ``merchandise, and without regard to whether the country is a 
     nonmarket economy country.''.
       (c) Effective Date.--The amendments made by this section 
     apply to petitions filed under section 702 of the Tariff Act 
     of 1930 on or after the date of the enactment of this Act.
                                 ______
                                 
  SA 2650. Mr. BAYH submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       At the appropriate place, insert the following:

TITLE __--IMPROVEMENT OF CREDIT FOR HEALTH INSURANCE COSTS OF ELIGIBLE 
                              INDIVIDUALS

     SEC. __01. IMPROVEMENT OF THE AFFORDABILITY OF THE CREDIT.

       (a) In General.--Section 35(a) of the Internal Revenue Code 
     of 1986 (relating to credit for health insurance costs of 
     eligible individuals) is amended by striking ``65'' and 
     inserting ``75''.
       (b) Conforming Amendment.--Section 7527(b) of such Code 
     (relating to advance payment of credit for health insurance 
     costs of eligible individuals) is amended by striking ``65'' 
     and inserting ``75''.
       (c) Effective Date.--The amendments made by this section 
     apply to taxable years beginning after December 31, 2004.

     SEC. __02. ELIGIBILITY OF SPOUSE OF CERTAIN INDIVIDUALS 
                   ENTITLED TO MEDICARE.

       (a) In General.--Subsection (b) of section 35 of the 
     Internal Revenue Code of 1986 (defining eligible coverage 
     month) is amended by adding at the end the following:
       ``(3) Special rule for spouse of individual entitled to 
     medicare.--Any month which would be an eligible coverage 
     month with respect to a taxpayer (determined without regard 
     to subsection (f)(2)(A)) shall be an eligible coverage month 
     for any spouse of such taxpayer.''.
       (b) Conforming Amendment.--Section 173(f)(5)(A)(i) of the 
     Workforce Investment Act of 1998 (29 U.S.C. 2918(f)(5)(A)(i)) 
     is amended by inserting ``(including with respect to any 
     month for which the eligible individual would have been 
     treated as such but for the application of paragraph 
     (7)(B)(i))'' before the comma.
       (c) Effective Date.--The amendments made by this section 
     take effect on the date of enactment of this Act.

     SEC. __03. CLARIFICATION OF 3-MONTH REQUIREMENT OF EXISTING 
                   COVERAGE.

       (a) In General.--Clause (i) of section 35(e)(2)(B) of the 
     Internal Revenue Code of 1986 (defining qualifying 
     individual) is amended by inserting ``(prior to the 
     employment separation necessary to attain the status of an 
     eligible individual)'' after ``9801(c)''.
       (b) Conforming Amendment.--Section 173(f)(2)(B)(ii)(I) of 
     the Workforce Investment Act of 1998 (29 U.S.C. 
     2918(f)(2)(B)(ii)(I)) is amended by inserting ``(prior to the 
     employment separation necessary to attain the status of an 
     eligible individual)'' after ``1986''.
       (c) Effective Date.--The amendments made by this section 
     take effect on the date of enactment of this Act.

     SEC. __04. DECREASE IN PGBC PENSION RECIPIENT AGE ELIGIBILITY 
                   REQUIREMENT.

       (a) In General.--Subparagraph (A) of section 35(c)(4) of 
     the Internal Revenue Code of 1986 (defining eligible PBGC 
     pension recipient) is amended by striking ``age 55'' and 
     inserting ``age 50''.
       (b) Effective Date.--The amendments made by this section 
     apply to taxable years beginning after December 31, 2004.
                                 ______
                                 
  SA 2651. Mr. BINGAMAN (for himself and Mr. Domenici) proposed an 
amendment to SA 2647 proposed by Mr. Hatch (for himself, Mrs. Murray, 
Mr. Baucus, Ms. Cantwell, Mr. Smith, Mr. Bunning, and Mr. Grassley) to 
the bill S. 1637, to amend the Internal Revenue Code of 1986 to comply 
with the World Trade Organization rulings on the FSC/ETI benefit in a 
manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; as follows:

       At the end of the amendment add the following:

     SEC. __. EXPANSION OF RESEARCH CREDIT.

       (a) Credit for Expenses Attributable to Certain 
     Collaborative Research Consortia.--
       (1) In general.--Section 41(a) (relating to credit for 
     increasing research activities) is amended by striking 
     ``and'' at the end of paragraph (1), by striking the period 
     at the end of paragraph (2) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(3) 20 percent of the amounts paid or incurred by the 
     taxpayer in carrying on any trade or business of the taxpayer 
     during the taxable year (including as contributions) to a 
     research consortium.''.
       (2) Research consortium defined.--Section 41(f) (relating 
     to special rules) is amended by adding at the end the 
     following new paragraph:
       ``(6) Research consortium.--
       ``(A) In general.--The term `research consortium' means any 
     organization--
       ``(i) which is--

       ``(I) described in section 501(c)(3) and is exempt from tax 
     under section 501(a) and is organized and operated primarily 
     to conduct energy research, or
       ``(II) organized and operated primarily to conduct research 
     in the public interest (within the meaning of section 
     501(c)(3)),

       ``(ii) which is not a private foundation,
       ``(iii) to which at least 5 unrelated persons paid or 
     incurred during the calendar year in which the taxable year 
     of the organization begins amounts (including as 
     contributions) to such organization for research, and
       ``(iv) to which no single person paid or incurred 
     (including as contributions) during such calendar year an 
     amount equal to more than 50 percent of the total amounts 
     received by such organization during such calendar year for 
     research.
       ``(B) Treatment of persons.--All persons treated as a 
     single employer under subsection (a) or (b) of section 52 
     shall be treated as related persons for purposes of 
     subparagraph (A)(iii) and as a single person for purposes of 
     subparagraph (A)(iv).''.
       (3) Conforming amendment.--Section 41(b)(3)(C) is amended 
     by inserting ``(other

[[Page S2137]]

     than a research consortium)'' after ``organization''.
       (b) Repeal of Limitation on Contract Research Expenses Paid 
     to Small Businesses, Universities, and Federal 
     Laboratories.--Section 41(b)(3) (relating to contract 
     research expenses) is amended by adding at the end the 
     following new subparagraph:
       ``(D) Amounts paid to eligible small businesses, 
     universities, and federal laboratories.--
       ``(i) In general.--In the case of amounts paid by the 
     taxpayer to--

       ``(I) an eligible small business,
       ``(II) an institution of higher education (as defined in 
     section 3304(f)), or
       ``(III) an organization which is a Federal laboratory,

     for qualified research which is energy research, subparagraph 
     (A) shall be applied by substituting `100 percent' for `65 
     percent'.
       ``(ii) Eligible small business.--For purposes of this 
     subparagraph, the term `eligible small business' means a 
     small business with respect to which the taxpayer does not 
     own (within the meaning of section 318) 50 percent or more 
     of--

       ``(I) in the case of a corporation, the outstanding stock 
     of the corporation (either by vote or value), and
       ``(II) in the case of a small business which is not a 
     corporation, the capital and profits interests of the small 
     business.

       ``(iii) Small business.--For purposes of this 
     subparagraph--

       ``(I) In general.--The term `small business' means, with 
     respect to any calendar year, any person if the annual 
     average number of employees employed by such person during 
     either of the 2 preceding calendar years was 500 or fewer. 
     For purposes of the preceding sentence, a preceding calendar 
     year may be taken into account only if the person was in 
     existence throughout the year.
       ``(II) Startups, controlled groups, and predecessors.--
     Rules similar to the rules of subparagraphs (B) and (D) of 
     section 220(c)(4) shall apply for purposes of this clause.

       ``(iv) Federal laboratory.--For purposes of this 
     subparagraph, the term `Federal laboratory' has the meaning 
     given such term by section 4(6) of the Stevenson-Wydler 
     Technology Innovation Act of 1980 (15 U.S.C. 3703(6)), as in 
     effect on the date of the enactment of the Energy Tax 
     Incentives Act of 2003.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after December 31, 
     2004.
                                 ______
                                 
  SA 2652. Mrs. LINCOLN submitted an amendment intended to be proposed 
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. MODIFICATION OF DEPRECIATION ALLOWANCE FOR AIRCRAFT.

       (a) Aircraft Treated as Qualified Property.--
       (1) In general.--Paragraph (2) of section 168(k) is amended 
     by redesignating subparagraphs (C) through (F) as 
     subparagraphs (D) through (G), respectively, and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) Certain aircraft.--
       ``(i) In general.--The term `qualified property' includes 
     property--

       ``(I) which meets the requirements of clauses (i), (ii), 
     and (iii) of subparagraph (A),
       ``(II) which is an aircraft,
       ``(III) which is purchased and on which such purchaser, at 
     the time of the contract for purchase, has made a 
     nonrefundable deposit of the lesser of 10 percent of the cost 
     or $100,000, and
       ``(III) which meets the requirements of clause (ii).

       ``(ii) Production period and cost.--The requirements of 
     this clause are met if the property would be subject to 
     section 263A by reason of clause (iii) of subsection 
     (f)(1)(B) thereof if such clause were applied--

       ``(I) by substituting `6 months' for `1 year', and
       ``(II) by substituting `$250,000' for `$1,000,000'.''.

       (2) Placed in service date.--Clause (iv) of section 
     168(k)(2)(A) is amended by striking ``subparagraph (B)'' and 
     inserting ``subparagraphs (B) and (C)''.
       (b) Conforming Amendments.--
       (1) Section 168(k)(2)(B)(iii) is amended by inserting at 
     the end the following: ``Such term shall not include 
     aircraft.''.
       (2) Section 168(k)(4)(A)(ii) is amended by striking 
     ``paragraph (2)(C)'' and inserting ``paragraph (2)(D)''.
       (3) Section 168(k)(4)(B)(iii) is amended by inserting ``and 
     paragraph (2)(C)'' after ``of this paragraph)''.
       (4) Section 168(k)(4)(C) is amended by striking 
     ``subparagraphs (B) and (D)'' and inserting ``subparagraphs 
     (B), (C), and (E)''.
       (5) Section 168(k)(4)(D) is amended by striking ``Paragraph 
     (2)(E)'' and inserting ``Paragraph (2)(F)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 2653. Mr. REID submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       At the end of the amendment add the following:

     SEC. __. CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN 
                   RENEWABLE RESOURCES TO INCLUDE GEOTHERMAL AND 
                   SOLAR ENERGY FACILITIES.

       (a) In General.--Section 45(c)(1) (defining qualified 
     energy resources) is amended by striking ``and'' at the end 
     of subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting a comma, and by adding at the 
     end the following new subparagraphs:
       ``(D) geothermal energy, and
       ``(E) solar energy.''.
       (b) Facilities Described.--Section 45(c)(3) (defining 
     qualified facility) is amended by adding at the end the 
     following new subparagraph:
       ``(D) Geothermal energy or solar energy facility.--In the 
     case of a facility using geothermal energy or solar energy to 
     produce electricity, the term `qualified facility' means any 
     facility owned by the taxpayer which is originally placed in 
     service after the date of the enactment of this subparagraph, 
     and before January 1, 2006.''.
       (c) Geothermal Energy Defined.--Section 45(c) (relating to 
     definitions) is amended by adding at the end the following 
     new paragraph:
       ``(5) Geothermal energy.--The term `geothermal energy' 
     means energy derived from a geothermal deposit (within the 
     meaning of section 613(e)(2)).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to electricity produced and sold after the date 
     of the enactment of this Act, in taxable years ending after 
     such date.
                                 ______
                                 
  SA 2654. Mr. WARNER submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. PERMANENT DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL 
                   TEACHERS.

       (a) In General.--Section 62(a)(2)(D) (relating to certain 
     expenses of elementary and secondary school teachers) is 
     amended by striking ``In the case of taxable years beginning 
     during 2002 or 2003, the deductions'' and inserting ``The 
     deductions''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to expenses paid or incurred after December 31, 
     2003.
                                 ______
                                 
  SA 2655. Mr. BUNNING submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 179, after line 25, insert the following:

     SEC. __. REDUCTION OF HOLDING PERIOD TO 12 MONTHS FOR 
                   PURPOSES OF DETERMINING WHETHER HORSES ARE 
                   SECTION 1231 ASSETS.

       (a) In General.--Subparagraph (A) of section 1231(b)(3) 
     (relating to definition of property used in the trade or 
     business) is amended by striking ``and horses''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 2656. Mr. BUNNING (for himself and Mr. Bond) submitted an 
amendment intended to be proposed by him to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table; as follows:

       On page 179, after line 25, insert the following:

[[Page S2138]]

     SEC. __. 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.
                                 ______
                                 
  SA 2657. Mr. BUNNING (for himself, Mr. Graham of Florida, and Mr. 
Nelson of Florida) submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. TREATMENT OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE AS BUSINESS CREDIT.

       (a) In General.--
       (1) Credit moved to subpart relating to business related 
     credits.--The Internal Revenue Code of 1986 is amended by 
     redesignating section 29 as section 45G and by moving section 
     45G (as so redesignated) from subpart B of part IV of 
     subchapter A of chapter 1 to the end of subpart D of part IV 
     of subchapter A of chapter 1.
       (2) Credit Treated as Business Credit.--Section 38(b) 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:
       ``(16) the nonconventional source production credit 
     determined under section 45G(a).''.
       (3) Conforming Amendments.--
       (A) Section 30(b)(3)(A) is amended by striking ``sections 
     27 and 29'' and inserting ``section 27''.
       (B) Sections 43(b)(2) and 613A(c)(6)(C) are each amended by 
     striking ``section 29(d)(2)(C)'' and inserting ``section 
     45G(d)(2)(C)''.
       (C) Section 45G(a), as redesignated by paragraph (1), is 
     amended by striking ``At the election of the taxpayer, there 
     shall be allowed as a credit against the tax imposed by this 
     chapter for the taxable year'' and inserting ``For purposes 
     of section 38, if the taxpayer elects to have this section 
     apply, the nonconventional source production credit 
     determined under this section for the taxable year is''.
       (D) Section 45G(b), as so redesignated, is amended by 
     striking paragraph (6).
       (E) Section 53(d)(1)(B)(iii) is amended by striking ``under 
     section 29'' and all that follows through ``or not allowed''.
       (F) Section 55(c)(2) is amended by striking ``29(b)(6),''.
       (G) Subsection (a) of section 772 is amended by inserting 
     ``and'' at the end of paragraph (9), by striking paragraph 
     (10), and by redesignating paragraph (11) as paragraph (10).
       (H) Paragraph (5) of section 772(d) is amended by striking 
     ``the foreign tax credit, and the credit allowable under 
     section 29'' and inserting ``and the foreign tax credit''.
       (I) The table of sections for subpart B of part IV of 
     subchapter A of chapter 1 is amended by striking the item 
     relating to section 29.
       (J) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1, as amended by this Act, is amended 
     by inserting after the item relating to section 45F the 
     following new item:

``Sec. 45G. Credit for producing fuel from a nonconventional source.''.

       (b) Determinations Under Natural Gas Policy Act of 1978.--
     Subparagraph (A) of section 45G(c)(2), as redesignated by 
     subsection (a)(1), is amended--
       (1) by inserting ``by the Secretary, after consultation 
     with the Federal Energy Regulatory Commission,'' after 
     ``shall be made'', and
       (2) by inserting ``(as in effect before the repeal of such 
     section)'' after ``1978''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to fuel produced 
     and sold after December 31, 2003, in taxable years ending 
     after such date.
       (2) Determinations under natural gas policy act of 1978.--
     The amendments made by subsection (b) shall apply as if 
     included in the provisions repealing section 503 of the 
     Natural Gas Policy Act of 1978.
                                 ______
                                 
  SA 2658. Mr. BUNNING submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. EXEMPTION OF QUALIFIED 501(C)(3) BONDS FOR NURSING 
                   HOMES FROM FEDERAL GUARANTEE PROHIBITIONS.

       (a) In General.--For purposes of section 149(b)(1) of the 
     Internal Revenue Code of 1986, any qualified 501(c)(3) bond 
     (as defined in section 145 of such Code) shall not be treated 
     as federally guaranteed solely because such bond is part of 
     an issue supported by a letter of credit, if such bond--
       (1) is issued after December 31, 2003, and before the date 
     which is 1 year after the date of the enactment of this Act, 
     and
       (2) is part of an issue 95 percent or more of the net 
     proceeds of which are to be used to finance 1 or more of the 
     following facilities primarily for the benefit of the 
     elderly:
       (A) Licensed nursing home facility.
       (B) Licensed or certified assisted living facility.
       (C) Licensed personal care facility.
       (D) Continuing care retirement community.
       (b) Limitation on Issuer.--Subsection (a) shall not apply 
     to any bond described in such subsection if the aggregate 
     authorized face amount of the issue of which such bond is a 
     part, when increased by the outstanding amount of such bonds 
     issued by the issuer during the period described in 
     subsection (a)(1) exceeds $15,000,000.
       (c) Limitation on Beneficiary.--Rules similar to the rules 
     of section 144(a)(10) of the Internal Revenue Code of 1986 
     shall apply for purposes of this section, except that--
       (1) ``$15,000,000'' shall be substituted for 
     ``$40,000,000'' in subparagraph (A) thereof, and

[[Page S2139]]

       (2) such rules shall be applied--
       (A) only with respect to bonds described in this section, 
     and
       (B) with respect to the aggregate authorized face amount of 
     all issues of such bonds which are allocable to the 
     beneficiary.
       (d) Continuing Care Retirement Community.--For purposes of 
     this section, the term ``continuing care retirement 
     community'' means a community which provides, on the same 
     campus, a consortium of residential living options and 
     support services to persons at least 60 years of age under a 
     written agreement. For purposes of the preceding sentence, 
     the residential living options shall include independent 
     living units, nursing home beds, and either assisted living 
     units or personal care beds.
                                 ______
                                 
  SA 2659. Mr. BUNNING (for himself and Mr. Schumer) submitted an 
amendment intended to be proposed by him to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table; as follows:

       On page 179, after line 25, insert the following:

     SEC. __. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA BASED 
                   ON 2000 CENSUS DATA.

       (a) Renewal Communities.--Section 1400E (relating to 
     designation of renewal communities) is amended by adding at 
     the end the following new subsection:
       ``(g) Expansion of Designated Areas.--
       ``(1) Expansion based on 2000 census.--At the request of 
     the nominating entity with respect to a renewal community, 
     the Secretary of Housing and Urban Development may expand the 
     area of a renewal community to include any census tract--
       ``(A) which, at the time such community was nominated, met 
     the requirements of this section for inclusion in such 
     community but for the failure of such tract to meet 1 or more 
     of the population and poverty rate requirements of this 
     section using 1990 census data, and
       ``(B) which meets all failed population and poverty rate 
     requirements of this section using 2000 census data.
       ``(2) Expansion to certain areas which do not meet 
     population requirements.--
       ``(A) In general.--At the request of 1 or more local 
     governments and the State or States in which an area 
     described in subparagraph (B) is located, the Secretary of 
     Housing and Urban Development may expand a designated area to 
     include such area.
       ``(B) Area.--An area is described in this subparagraph if--
       ``(i) the area is adjacent to at least 1 other area 
     designated as a renewal community,
       ``(ii) the area has a population less than the population 
     required under subsection (c)(2)(C), and
       ``(iii)(I) the area meets the requirements of subparagraphs 
     (A) and (B) of subsection (c)(2) and subparagraph (A) of 
     subsection (c)(3), or
       ``(II) the area contains a population of less than 100 
     people.
       ``(3) Applicability.--Any expansion of a renewal community 
     under this section shall take effect as provided in 
     subsection (b).''.
       (b) Effective Date.--The amendment made by this subsection 
     shall take effect as if included in the amendments made by 
     section 101 of the Community Renewal Tax Relief Act of 2000.

     SEC. __. RENEWAL COMMUNITY EMPLOYERS MAY QUALIFY FOR 
                   EMPLOYMENT CREDIT BY EMPLOYING RESIDENTS OF 
                   CERTAIN OTHER RENEWAL COMMUNITIES.

       (a) In General.--Section 1400H(b)(2) (relating to 
     modification) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) subsection (d)(1)(B) thereof shall be applied by 
     substituting `such renewal community, an adjacent renewal 
     community within the same State as such renewal community, or 
     a renewal community within such State which is within 5 miles 
     of any border of such renewal community' for `such 
     empowerment zone'.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect as if included in the amendment made by 
     section 101(a) of the Community Renewal Tax Relief Act of 
     2000.
                                 ______
                                 
  SA 2660. Mr. DODD (for himself, Mr. Coleman, Mr. Kennedy, Mr. 
Corzine, Ms. Mikulski, and Mr. Feingold) proposed an amendment to the 
bill S. 1637, to amend the Internal Revenue Code of 1986 to comply with 
the World Trade Organization rulings on the FSC/ETI benefit in a manner 
that preserves jobs and production activities in the United States, to 
reform and simplify the international taxation rules of the United 
States, and for other purposes; as follows:

       At the end of the bill, add the following:

   TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF 
                           FOREIGN WORKFORCES

     SEC. 501. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.

       (a) Limitations.--
       (1) In general.--The Office of Federal Procurement Policy 
     Act (41 U.S.C. 403 et seq.) is amended by adding at the end 
     the following new section:

     ``SEC. 42. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.

       ``(a) Conversions to Contractor Performance of Federal 
     Activities.--An activity or function of an executive agency 
     that is converted to contractor performance under Office of 
     Management and Budget Circular A-76 may not be performed by 
     the contractor or any subcontractor at a location outside the 
     United States except to the extent that such activity or 
     function was previously performed by Federal Government 
     employees outside the United States.
       ``(b) Other Federal Contracts.--(1) A contract that is 
     entered into by the head of an executive agency may not be 
     performed outside the United States except to meet a 
     requirement of the executive agency for the contract to be 
     performed specifically at a location outside the United 
     States.
       ``(2) The prohibition in paragraph (1) does not apply in 
     the case of a contract of an executive agency if--
       ``(A) the President determines in writing that it is 
     necessary in the national security interests of the United 
     States for the contract to be performed outside the United 
     States; or
       ``(B) the head of such executive agency makes a 
     determination and reports such determination on a timely 
     basis to the Director of the Office of Management and Budget 
     that--
       ``(i) the property or services needed by the executive 
     agency are available only by means of performance of the 
     contract outside the United States; and
       ``(ii) no property or services available by means of 
     performance of the contract inside the United States would 
     satisfy the executive agency's need.
       ``(3) Paragraph (1) does not apply to the performance of a 
     contract outside the United States under the exception 
     provided in subsection (a).
       ``(c) State Contracts.--(1) Except as provided in paragraph 
     (2), funds appropriated for financial assistance for a State 
     may not be disbursed to or for such State during a fiscal 
     year unless the chief executive of that State has transmitted 
     to the Administrator for Federal Procurement Policy, not 
     later than April 1 of the preceding fiscal year, a written 
     certification that none of such funds will be expended for 
     the performance outside the United States of contracts 
     entered into by such State.
       ``(2) The prohibition on disbursement of funds to or for a 
     State under paragraph (1) does not apply with respect to the 
     performance of a State contract outside the United States 
     if--
       ``(A) the chief executive of such State--
       ``(i) determines that the property or services needed by 
     the State are available only by means of performance of the 
     contract outside the United States and no property or 
     services available by means of performance of the contract 
     inside the United States would satisfy the State's need; and
       ``(ii) transmits a notification of such determination to 
     the head of the executive agency of the United States that 
     administers the authority under which such funds are 
     disbursed to or for the State; and
       ``(B) the head of the executive agency receiving the 
     notification of such determination--
       ``(i) confirms that the facts warrant the determination;
       ``(ii) approves the determination; and
       ``(iii) transmits a notification of the approval of the 
     determination to the Director of the Office of Management and 
     Budget.
       ``(3) In this subsection, the term `State' means each of 
     the several States of the United States, the District of 
     Columbia, the Commonwealth of Puerto Rico, the Commonwealth 
     of the Northern Mariana Islands, the Virgin Islands, Guam, 
     American Samoa, and the Trust Territory of the Pacific 
     Islands.
       ``(d) Subsection (b) and (c) shall not apply to procurement 
     covered by the WTO Government Procurement Agreement.
       ``(e) Responsibilities of OMB.--The Director of the Office 
     of Management and Budget shall--
       ``(1) maintain--
       ``(A) the waivers granted under subsection (b)(2), together 
     with the determinations and certifications on which such 
     waivers were based; and
       ``(B) the notifications received under subsection 
     (c)(2)(B)(iii); and
       ``(2) submit to Congress promptly after the end of each 
     quarter of each fiscal year a report that sets forth--
       ``(A) the waivers that were granted under subsection (b)(2) 
     during such quarter; and
       ``(B) the notifications that were received under subsection 
     (c)(2)(B)(iii) during such quarter.
       ``(f) Annual GAO Review.--The Comptroller General shall--
       ``(1) review, each fiscal year, the waivers granted during 
     such fiscal year under subsection (b)(2) and the 
     disbursements of funds authorized pursuant to the exception 
     in subsection (c)(2); and
       ``(2) promptly after the end of such fiscal year, transmit 
     to Congress a report containing a list of the contracts 
     covered by such waivers and exception together with a brief 
     description of the performance of each such contract outside 
     the United States.''.

[[Page S2140]]

       (2) Clerical amendment.--The table of sections in section 
     1(b) of such Act is amended by adding at the end the 
     following new item:

``Sec. 42. Limitations on off-shore performance of contracts.''.

       (b) Inapplicability to States During First Two Fiscal 
     Years.--Section 42(c) of the Office of Federal Procurement 
     Policy Act (as added by subsection (a)) shall not apply to 
     disbursements of funds to a State during the fiscal year in 
     which this Act is enacted and the next fiscal year.

     SEC. 502. REPEAL OF SUPERSEDED LAW.

       Section 647 of the Transportation, Treasury, and 
     Independent Agencies Appropriations Act, 2004 (division F of 
     Public Law 108-199) is amended by striking subsection (e).

     SEC. 503. EFFECTIVE DATE AND APPLICABILITY.

       This title and the amendments made by this title shall take 
     effect 30 days after the date of the enactment of this Act 
     and, subject to subsection (b) of section 501, shall apply 
     with respect to new contracts entered into on or after such 
     date.
                                 ______
                                 
  SA 2661. Mr. BAYH submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       On page 89, between lines 2 and 3 of Amendment No. 2645, as 
     agreed to, insert the following:
       (e) Disclosure of Corporate Expatriation Transactions.--
       (1) In general.--Section 14 of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78n) is amended by adding at the end the 
     following new subsection:
       ``(i) Proxy Solicitations in Connection With Corporate 
     Expatriation Transactions.--
       ``(1) Disclosure to shareholders of effects of corporate 
     expatriation transaction.--The Commission shall, by rule, 
     require that each domestic issuer shall prominently disclose, 
     not later than 5 business days before any shareholder vote 
     relating to a corporate expatriation transaction, as a 
     separate and distinct document accompanying each proxy 
     statement relating to the transaction--
       ``(A) the number of employees of the domestic issuer that 
     would be located in the new foreign jurisdiction of 
     incorporation or organization of that issuer upon completion 
     of the corporate expatriation transaction;
       ``(B) how the rights of holders of the securities of the 
     domestic issuer would be impacted by a completed corporate 
     expatriation transaction, and any differences in such rights 
     before and after a completed corporate expatriation 
     transaction; and
       ``(C) that, as a result of a completed corporate 
     expatriation transaction, any taxable holder of the 
     securities of the domestic issuer shall be subject to the 
     taxation of any capital gains realized with respect to such 
     securities, and the amount of any such capital gains tax that 
     would apply as a result of the transaction.
       ``(2) Definitions.--In this subsection, the following 
     definitions shall apply:
       ``(A) Corporate expatriation transaction.--The term 
     `corporate expatriation transaction' means any transaction, 
     or series of related transactions, in which an entity 
     organized under the laws of a foreign country acquires, 
     directly or indirectly, substantially all of the voting 
     securities in, or substantially all of the assets of, a 
     domestic issuer, and--
       ``(i) immediately after completion of the transaction, more 
     than 80 percent of the securities (by vote or value) of the 
     acquiring foreign entity will be held by persons that were 
     security holders of the domestic issuer immediately prior to 
     the transaction; or
       ``(ii) immediately after completion of the transaction, 
     more than 50 percent of the securities (by vote or value) of 
     the acquiring foreign entity will be held by persons that 
     were security holders of the domestic issuer immediately 
     prior to the transaction, and--

       ``(I) such foreign entity will not have substantial 
     business activities in the foreign country in which it is 
     organized; and
       ``(II) the securities of the foreign entity will be 
     publicly traded, and the principal market for the public 
     trading of such securities will be in the United States.

       ``(B) Domestic issuer.--The term `domestic issuer' means an 
     issuer created or organized in the United States or under the 
     law of the United States or of any State.''.
       (2) Effective date.--Section 14(i) of the Securities 
     Exchange Act of 1934 (as added by this subsection) shall 
     apply with respect to corporate expatriation transactions (as 
     defined in that section 14(i)) proposed on and after the date 
     of enactment of this Act.
                                 ______
                                 
  SA 2662. Mr. AKAKA submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       At the end add the following:

     SEC. __. TERMINATION OF THE DEBT INDICATOR PROGRAM.

       The Secretary of the Treasury shall terminate the Debt 
     Indicator program announced in Internal Revenue Service 
     Notice 99-58.
                                 ______
                                 
  SA 2663. Ms. CANTWELL (for herself, Mr. Thomas, Mr. Durbin, and Mr. 
Leahy) submitted an amendment intended to be proposed by her to the 
bill S. 1637, to amend the Internal Revenue Code of 1986 to comply with 
the World Trade Organization rulings on the FSC/ETI benefit in a manner 
that preserves jobs and production activities in the United States, to 
reform and simplify the international taxation rules of the United 
States, and for other purposes; which was ordered to lie on the table; 
as follows:

       At the appropriate place, insert the following:

     SEC. __. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER NATIONAL 
                   HEALTH SERVICE CORPS LOAN REPAYMENT PROGRAM AND 
                   CERTAIN STATE LOAN REPAYMENT PROGRAMS.

       (a) In General.--Section 108(f) of the Internal Revenue 
     Code of 1986 (relating to student loans) is amended by adding 
     at the end the following new paragraph:
       ``(4) Payments under national health service corps loan 
     repayment program and certain state loan repayment 
     programs.--In the case of an individual, gross income shall 
     not include any amount received under section 338B(g) of the 
     Public Health Service Act or under a State program described 
     in section 338I of such Act.''.
       (b) Treatment for Purposes of Employment Taxes.--Each of 
     the following provisions of the Internal Revenue Code of 1986 
     is amended by inserting ``108(f)(4),'' after ``74(c),'':
       (1) Section 3121(a)(20).
       (2) Section 3231(e)(5).
       (3) Section 3306(b)(16).
       (4) Section 3401(a)(19).
       (5) Section 209(a)(17) of the Social Security Act.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received by an individual in taxable 
     years beginning after December 31, 2003.
                                 ______
                                 
  SA 2664. Ms. LANDRIEU (for herself and Ms. Cantwell) submitted an 
amendment intended to be proposed by her to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT ADDED 
                   TO GENERAL BUSINESS CREDIT.

       (a) Ready Reserve-National Guard Credit.--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:

     ``SEC. 45G. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year is an amount equal to 50 percent 
     of the actual compensation amount for such taxable year.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day when the employee was absent from 
     employment for the purpose of performing qualified active 
     duty.
       ``(c) Limitations.--
       ``(1) Maximum period for credit per employee.--The maximum 
     period with respect to which the credit may be allowed with 
     respect to any Ready Reserve-National Guard employee shall 
     not exceed the 12-month period beginning on the first day 
     such credit is so allowed with respect to such employee.
       ``(2) Days other than work days.--No credit shall be 
     allowed with respect to a Ready Reserve-National Guard 
     employee who performs qualified active duty on any day on 
     which the employee was not scheduled to work (for reason 
     other than to participate in qualified active duty).
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave

[[Page S2141]]

     of absence from employment under chapter 43 of title 38, 
     United States Code, and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve or of the National Guard.
       ``(4) National guard.--The term `National Guard' has the 
     meaning given such term by section 101(c)(1) of title 10, 
     United States Code.
       ``(5) Ready reserve.--The term `Ready Reserve' has the 
     meaning given such term by section 10142 of title 10, United 
     States Code.
       ``(6) Certain rules to apply.--Rules similar to the rules 
     of section 52 shall apply.''.
       (b) Credit To Be Part of General Business Credit.--
     Subsection (b) of section 38 (relating to general 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:
       ``(16) the Ready Reserve-National Guard employee credit 
     determined under section 45G(a).''.
       (c) Conforming Amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1 is amended 
     by inserting after the item relating to section 45F the 
     following:

``Sec. 45G. Ready Reserve-National Guard employee credit.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after October 6, 
     2001, in taxable years ending after such date.
                                 ______
                                 
  SA 2665. Mr. LAUTENBERG submitted an amendment intended to be 
proposed by him to the bill S. 1637, to amend the Internal Revenue Code 
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities 
in the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       Beginning on page 85, strike line 22 and all that follows 
     through page 86, line 23.
                                 ______
                                 
  SA 2666. Mr. VOINOVICH submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the end of the bill insert the following new title:

     SECTION 1. SHORT TITLE.

       This title may be cited as the ``Fundamental Tax Reform'' 
     Commission Act of 2004''.

     SEC. 2. ESTABLISHMENT OF COMMISSION.

       (a) Establishment.--There is established the ``Blue Ribbon 
     Commission on Comprehensive Tax Reform'' (in this Act 
     referred to as the ``Commission'').
       (b) Membership.
       (1) Composition.--The Commission shall be composed of 15 
     members of whom--
       (A) 3 shall be appointed by the majority leader of the 
     Senate;
       (B) 2 shall be appointed by the minority leader of the 
     Senate;
       (C) 3 shall be appointed by the Speaker of the House of 
     Representatives;
       (D) 2 shall be appointed by the minority leader of the 
     House of Representatives; and
       (E) 5 shall be appointed by the President, of which--
       (i) no more than 3 shall be of the same party as the 
     President.
       (2) Federal employees.--The members of the Commission may 
     be employees or former employees of the Federal Government.
       (3) Date.--The appointments of the members of the 
     Commission shall be made not later than 45 days subsequent to 
     enactment of this provision.
       (c) Period of Appointment; Vacancies.--Members shall be 
     appointed for the life of the Commission. Any vacancy in the 
     Commission shall not affect its powers, but shall be filled 
     in the same manner as the original appointment.
       (d) Initial Meeting.--Not later than 30 days after the date 
     on which all members of the Commission have been appointed, 
     the Commission shall hold its first meeting.
       (e) Meetings.--The Commission shall meet at the call of the 
     Chairman.
       (f) Quorum.--A majority of the members of the Commission 
     shall constitute a quorum, but a lesser number of members may 
     hold hearings.
       (g) Chairman and Vice Chairman.--The President shall select 
     a Chairman and Vice Chairman from among its members.

     SEC. 3. DUTIES OF THE COMMISSION.

       (a) Study.--The Commission shall conduct a thorough study 
     of all matters relating to a comprehensive reform of the 
     Federal tax system, including the reform of the Internal 
     Revenue Code of 1986 and the implementation (if appropriate) 
     of other types of tax systems.
       (b) Recommendations.--The Commission shall develop 
     recommendations on how to comprehensively reform the Federal 
     tax system in a manner which produces a fair, simple, honest 
     code that generates appropriate revenue for the Federal 
     Government.
       (c) Report.--Not later than 18 months after the date on 
     which all initial members of the Commission have been 
     appointed pursuant to section 2(b), the Commission shall 
     submit a report to the President and Congress which shall 
     contain a detailed statement of the findings and conclusions 
     of the Commission, together with its recommendations for such 
     legislation and administrative actions as it considers 
     appropriate.

     SEC. 4. POWERS OF THE COMMISSION.

       (a) Hearings.--The Commission may hold such hearings, sit 
     and act at such times and places, take such testimony, and 
     receive such evidence as the Commission considers advisable 
     to carry out this Act.
       (b) Information From Federal Agencies.--The Commission may 
     secure directly from any Federal department or agency such 
     information as the Commission considers necessary to carry 
     out this Act. Upon request of the Chairman of the Commission, 
     the head of such department or agency shall furnish such 
     information to the Commission.
       (c) Postal Services.--The Commission may use the United 
     States mails in the same manner and under the same conditions 
     as other departments and agencies of the Federal Government.
       (d) Gifts.--The Commission may accept, use, and dispose of 
     gifts or donations of services or property.

     SEC. 5. COMMISSION PERSONNEL MATTERS.

       (a) Compensation of Members.--Each member of the Commission 
     who is not an officer or employee of the Federal Government 
     shall be compensated at a rate equal to the daily equivalent 
     of the annual rate of basic pay prescribed for level IV of 
     the Executive Schedule under section 5315 of title 5, United 
     States Code, for each day (including travel time) during 
     which such member is engaged in the performance of the duties 
     of the Commission. All members of the Commission who are 
     officers or employees of the United States shall serve 
     without compensation in addition to that received for their 
     services as officers or employees of the United States.
       (b) Travel Expenses.--The members of the Commission shall 
     be allowed travel expenses, including per diem in lieu of 
     subsistence, at rates authorized for employees of agencies 
     under subchapter I of chapter 57 of title 5, United States 
     Code, while away from their homes or regular places of 
     business in the performance of services for the Commission.
       (c) Staff.--
       (1) In general.--The Chairman of the Commission may, 
     without regard to the civil service laws and regulations, 
     appoint and terminate an executive director and such other 
     additional personnel as may be necessary to enable the 
     Commission to perform its duties. The employment of an 
     executive director shall be subject to confirmation by the 
     Commission.
       (2) Compensation.--The Chairman of the Commission may fix 
     the compensation of the executive director and other 
     personnel without regard to chapter 51 and subchapter III of 
     chapter 53 of title 5, United States Code, relating to 
     classification of positions and General Schedule pay rates, 
     except that the rate of pay for the executive director and 
     other personnel may not exceed the rate payable for level V 
     of the Executive Schedule under section 5316 of such title.
       (d) Detail of Government Employees.--Any Federal Government 
     employee, including employees of the Legislative Branch, may 
     be detailed to the Commission without reimbursement, and such 
     detail shall be without interruption or loss of civil service 
     status or privilege.
       (e) Procurement of Temporary and Intermittent Services.--
     The Chairman of the Commission may procure temporary and 
     intermittent services under section 3109(b) of title 5, 
     United States Code, at rates for individuals which do not 
     exceed the daily equivalent of the annual rate of basic pay 
     prescribed for level V of the Executive Schedule under 
     section 5316 of such title.

     SEC. 6. TERMINATION OF THE COMMISSION.

       The Commission shall terminate 90 days after the date on 
     which the Commission submits its reports under section 3.

     SEC. 7. AUTHORIZATION OF APPROPRIATIONS.

       There are authorized to be appropriated such sums as are 
     necessary to the Commission to carry out this Act.
                                 ______
                                 
  SA 2667. Mr. SMITH (for himself, Mr. Lautenberg, and Ms. Murkowski) 
submitted an amendment intended to be proposed by him to the bill S. 
1637, to amend the Internal Revenue Code of 1986 to comply with the 
World Trade Organization rulings on the FSC/ETI benefit in a manner 
that preserves jobs and production activities in the United States, to 
reform and simplify the international taxation rules of the United 
States, and for other purposes; which was ordered to lie on the table; 
as follows:

       At the appropriate place, insert the following:

[[Page S2142]]

     SEC.__. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO 
                   INCREASE ALTERNATIVE MINIMUM TAX LIABILITY.

       (a) In General.--Section 55(c) (defining regular tax) is 
     amended by redesignating paragraph (2) as paragraph (3) and 
     by inserting after paragraph (1) the following new paragraph:
       ``(2) Coordination with income averaging for farmers and 
     fishermen.--Solely for purposes of this section, section 1301 
     (relating to averaging of farm and fishing income) shall not 
     apply in computing the regular tax.''.
       (b) Allowing Income Averaging for Fishermen.--
       (1) In general.--Section 1301(a) is amended by striking 
     ``farming business'' and inserting ``farming business or 
     fishing business''.
       (2) Definition of elected farm income.--
       (A) In general.--Clause (i) of section 1301(b)(1)(A) is 
     amended by inserting ``or fishing business'' before the 
     semicolon.
       (B) Conforming amendment.--Subparagraph (B) of section 
     1301(b)(1) is amended by inserting ``or fishing business'' 
     after ``farming business'' both places it occurs.
       (3) Definition of fishing business.--Section 1301(b) is 
     amended by adding at the end the following new paragraph:
       ``(4) Fishing business.--The term `fishing business' means 
     the conduct of commercial fishing as defined in section 3 of 
     the Magnuson-Stevens Fishery Conservation and Management Act 
     (16 U.S.C. 1802).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 2668. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the end of the bill, add the following:

                   TITLE V--MISCELLANEOUS PROVISIONS

     SEC. 501. CERTAIN STEAM GENERATORS OR OTHER GENERATING 
                   BOILERS USED IN NUCLEAR FACILITIES AND CERTAIN 
                   REACTOR VESSEL HEADS USED IN SUCH FACILITIES.

       (a) In General.--
       (1) Subheading 9902.84.02 of the Harmonized Tariff Schedule 
     of the United States is amended by striking ``12/31/2006'' 
     and inserting ``12/31/2012''.
       (2) Subchapter II of chapter 99 of the Harmonized Tariff 
     Schedule of the United States is amended by inserting in 
     numerical sequence the following new heading:

       

``      9902.84.03      Reactor vessel      Free            No change       No change       On or before 12/
                         heads for nuclear                                                   31/2012          ''
                         reactors                                                                              .
                         (provided for in
                         subheading
                         8401.40.00).

       (b) Effective Date.--The amendments made by subsection 
     (a)(2) shall apply to goods entered, or withdrawn from 
     warehouse, for consumption on or after January 1, 2005.
                                 ______
                                 
  SA 2669. Mr. HOLLINGS submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 71, beginning with line 12, strike through line 23 
     on page 146 and insert the following:
       ``(a) Allowance of Deduction.--There shall be allowed as a 
     deduction an amount equal to 9 percent of the qualified 
     production activities income of the taxpayer for the taxable 
     year.
       ``(b) Deduction Limited to Wages Paid.--
       ``(1) In general.--The amount of the deduction allowable 
     under subsection (a) for any taxable year shall not exceed 50 
     percent of the W-2 wages of the employer for the taxable 
     year.
       ``(2) W-2 wages.--For purposes of paragraph (1), the term 
     `W-2 wages' means the sum of the aggregate amounts the 
     taxpayer is required to include on statements under 
     paragraphs (3) and (8) of section 6051(a) with respect to 
     employment of employees of the taxpayer during the taxpayer's 
     taxable year.
       ``(3) Special rules.--
       ``(A) Pass-thru entities.--In the case of an S corporation, 
     partnership, estate or trust, or other pass-thru entity, the 
     limitation under this subsection shall apply at the entity 
     level.
       ``(B) Acquisitions and dispositions.--
       The Secretary shall provide for the application of this 
     subsection in cases where the taxpayer acquires, or disposes 
     of, the major portion of a trade or business or the major 
     portion of a separate unit of a trade or business during the 
     taxable year.
       ``(c) Qualified Production Activities Income.--For purposes 
     of this section--
       ``(1) In general.--The term `qualified production 
     activities income' means an amount equal to the portion of 
     the modified taxable income of the taxpayer which is 
     attributable to domestic production activities.
       ``(2) Reduction for taxable years beginning before 2013.--
     The amount otherwise determined under paragraph (1) (the 
     `unreduced amount') shall not exceed--
       ``(A) in the case of taxable years beginning before 2010, 
     the product of the unreduced amount and the domestic/
     worldwide fraction, and
       ``(B) in the case of taxable years beginning in 2010, 2011, 
     or 2012, an amount equal to the sum of--
       ``(i) the product of the unreduced amount and the domestic/
     worldwide fraction, plus
       ``(ii) the applicable percentage of an amount equal to the 
     unreduced amount minus the amount determined under clause 
     (i).

     For purposes of subparagraph (B)(ii), the applicable 
     percentage is 25 percent for 2010, 50 percent for 2011, and 
     75 percent for 2012.
       ``(d) Determination of Income Attributable to Domestic 
     Production Activities.--For purposes of this section--
       ``(1) In general.--The portion of the modified taxable 
     income which is attributable to domestic production 
     activities is so much of the modified taxable income for the 
     taxable year as does not exceed--
       ``(A) the taxpayer's domestic production gross receipts for 
     such taxable year, reduced by
       ``(B) the sum of--
       ``(i) the costs of goods sold that are allocable to such 
     receipts,
       ``(ii) other deductions, expenses, or losses directly 
     allocable to such receipts, and
       ``(iii) a proper share of other deductions, expenses, and 
     losses that are not directly allocable to such receipts or 
     another class of income.
       ``(2) Allocation method--The Secretary shall prescribe 
     rules for the proper allocation of items of income, 
     deduction, expense, and loss for purposes of determining 
     income attributable to domestic production activities.
       ``(3) Special rules for determining costs.--
       ``(A) In general.--For purposes of determining costs under 
     clause (1) of paragraph (1)(B), any item or service brought 
     into the United States shall be treated as acquired by 
     purchase, and its cost shall be treated as not less than its 
     fair market value immediately after it entered the United 
     States. A similar rule shall apply in determining the 
     adjusted basis of leased or rented property where the lease 
     or rental gives rise to domestic production gross receipts.
       ``(B) Exports for further manufacture.--In the case of any 
     property described in subparagraph (A) that had been exported 
     by the taxpayer for further manufacture, the increase in cost 
     or adjusted basis under subparagraph (A) shall not exceed the 
     difference between the value of the property when exported 
     and the value of the property when brought back into the 
     United States after the further manufacture.
       ``(4) Modified taxable income.--The term `modified taxable 
     income' means taxable income computed without regard to the 
     deduction allowable under this section.
       ``(e) Domestic Production Gross Receipts.--For purposes of 
     this section--
       ``(1) In general.--The term `domestic production gross 
     receipts' means the gross receipts of the taxpayer which are 
     derived from--
       ``(A) any sale, exchange, or other disposition of, or
       ``(B) any lease, rental, or license of,
     qualifying production property which was manufactured, 
     produced, grown, or extracted in whole or in significant part 
     by the taxpayer within the United States.
       ``(2) Special rules for certain property.--In the case of 
     any qualifying production property described in subsection 
     (f)(1)(C)--
       ``(A) such property shall be treated for purposes of 
     paragraph (1) as produced in significant part by the taxpayer 
     within the United States if more than 50 percent of the 
     aggregate development and production costs are incurred by 
     the taxpayer within the United States, and
       ``(B) if a taxpayer acquires such property before such 
     property begins to generate substantial gross receipts, any 
     development or production costs incurred before the 
     acquisition shall be treated as incurred by the taxpayer for 
     purposes of subparagraph (A) and paragraph (1).
       ``(f) Qualifying Production Property.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     paragraph, the term `qualifying production property' means--
       ``(A) any tangible personal property,
       ``(B) any computer software, and
       ``(C) any property described in section 168(f) (3) or (4), 
     including any underlying copyright or trademark.
       ``(2) Exclusions from qualifying production property.--The 
     term `qualifying production property' shall not include--
       ``(A) consumable property that is sold, leased, or licensed 
     by the taxpayer as an integral part of the provision of 
     services,
       ``(B) oil or gas,

[[Page S2143]]

       ``(C) electricity,
        ``(D) water supplied by pipeline to the consumer,
        ``(E) utility services, or
        ``(F) any film, tape, recording, book, magazine, 
     newspaper, or similar property the market for which is 
     primarily topical or otherwise essentially transitory in 
     nature.
        ``(g) Domestic/Worldwide Fraction.--For purposes of this 
     section--
        ``(1) In general.--The term `domestic/worldwide fraction' 
     means a fraction (not greater than 1)--
        ``(A) the numerator of which is the value of the domestic 
     production of the taxpayer, and
        ``(B) the denominator of which is the value of the 
     worldwide production of the taxpayer.
        ``(2) Value of domestic production.--The value of domestic 
     production is the excess (if any) of--
        ``(A) the domestic production gross receipts, over
       ``(B) the cost of purchased inputs allocable to such 
     receipts that are deductible under this chapter for the 
     taxable year.
        ``(3) Purchased inputs.--
        ``(A) In general.--Purchased inputs are any of the 
     following items acquired by purchase:
        ``(i) Services (other than services of employees) used in 
     manufacture, production, growth, or extraction activities.
        ``(ii) Items consumed in connection with such activities.
        ``(iii) Items incorporated as part of the property being 
     manufactured, produced, grown, or extracted.
        ``(B) Special rule.--Rules similar to the rules of 
     subsection (d)(3) shall apply for purposes of this 
     subsection.
        ``(4) Value of worldwide production.--
        ``(A) In general.--The value of worldwide production shall 
     be determined under the principles of paragraph (2), except 
     that--
        ``(i) worldwide production gross receipts shall be taken 
     into account, and
       ``(ii) paragraph (3)(B) shall not apply.
        ``(B) Worldwide production gross receipts.--The worldwide 
     production gross receipts is the amount that would be 
     determined under subsection (e) if such subsection were 
     applied without any reference to the United States.
        ``(h) Definitions and Special Rules.--
        ``(1) Application of section to pass-thru entities.--In 
     the case of an S corporation, partnership, estate or trust, 
     or other pass-thru entity--
        ``(A) subject to the provisions of paragraph (2) and 
     subsection (b)(3)(A), this section shall be applied at the 
     shareholder, partner, or similar level, and
        ``(B) the Secretary shall prescribe rules for the 
     application of this section, including rules relating to--
        ``(i) restrictions on the allocation of the deduction to 
     taxpayers at the partner or similar level, and
        ``(ii) additional reporting requirements.
        ``(2) Exclusion for patrons of agricultural and 
     horticultural cooperatives.--
        ``(A) In general.--If any amount described in paragraph 
     (1) or (3) of section 1385(a)--
        ``(i) is received by a person from an organization to 
     which part I of subchapter T applies which is engaged in the 
     marketing of agricultural or horticultural products, and
        ``(ii) is allocable to the portion of the qualified 
     production activities income of the organization which is 
     deductible under subsection (a) and designated as such by the 
     organization in a written notice mailed to its patrons during 
     the payment period described in section 1382(d),

      then such person shall be allowed an exclusion from gross 
     income with respect to such amount. The taxable income of the 
     organization shall not be reduced under section 1382 by the 
     portion of any such amount with respect to which an exclusion 
     is allowable to a person by reason of this paragraph.
       ``(B) Special rules.--For purposes of applying subparagraph 
     (A), in determining the qualified production activities 
     income of the organization under this section--
       ``(i) there shall not be taken into account in computing 
     the organization's modified taxable income any deduction 
     allowable under subsection (b) or (c) of section  1382 
     (relating to patronage dividends, per-unit retain 
     allocations, and nonpatronage distributions), and
        ``(ii) the organization shall be treated as having 
     manufactured, produced, grown, or extracted in whole or 
     significant part any qualifying production property marketed 
     by the organization which its patrons have so manufactured, 
     produced, grown, or extracted.
       ``(3) Special rule for affiliated groups.--
       ``(A) In general.--All members of an expanded affiliated 
     group shall be treated as a single corporation for purposes 
     of this section.
       ``(B) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a), determined--
       ``(i) by substituting `50 percent' for `80 percent' each 
     place it appears, and
       ``(ii) without regard to paragraphs (2) and (4) of section 
     1504(b).

     For purposes of determining the domestic/worldwide fraction 
     under subsection (g), clause (ii) shall be applied by also 
     disregarding paragraphs (3) and (8) of section 1504(b).
       ``(4) Coordination with minimum tax.--The deduction under 
     this section shall be allowed for purposes of the tax imposed 
     by section 55; except that for purposes of section 55, 
     alternative minimum taxable income shall be taken into 
     account in determining the deduction under this section.
       ``(5) Ordering rule.--The amount of any other deduction 
     allowable under this chapter shall be determined as if this 
     section had not been enacted.
       ``(6) Trade or business requirement.--This section shall be 
     applied by only taking into account items which are 
     attributable to the actual conduct of a trade or business.
       ``(7) Possessions, etc.--
       ``(A) In general.--For purposes of subsection (d) and (e), 
     the term `United States' includes the Commonwealth of Puerto 
     Rico, Guam, American Samoa, the Commonwealth of the Northern 
     Mariana Islands, and the Virgin Islands of the United States.
       ``(B) Special rules for applying wage limitation.--For 
     purposes of applying the limitation under subsection (b) for 
     any taxable year--
       ``(i) the determination of W-2 wages of a taxpayer shall be 
     made without regard to any exclusion under section 3401(a)(8) 
     for remuneration paid for services performed in a 
     jurisdiction described in subparagraph (A), and
       ``(ii) in determining the amount of any credit allowable 
     under section 30A or 936 for the taxable year, there shall 
     not be taken into account any wages which are taken into 
     account in applying such limitation.
       ``(8) Coordination with transition rules.--For purposes of 
     this section--
       ``(A) domestic production gross receipts shall not include 
     gross receipts from any transaction if the binding contract 
     transition relief of section 101(c)(2) of the Jumpstart Our 
     Business Strength (JOBS) Act applies to such transaction, and
       ``(B) any deduction allowed under section 101(e) of such 
     Act shall be disregarded in determining the portion of the 
     taxable income which is attributable to domestic production 
     gross receipts.''.
       (b) Minimum Tax.--Section 56(g)(4)(C) (relating to 
     disallowance of items not deductible in computing earnings 
     and profits) is amended by adding at the end the following 
     new clause:
       ``(v) Deduction for domestic production.--Clause (i) shall 
     not apply to any amount allowable as a deduction under 
     section 199.''.
       (c) Clerical Amendment.--The table of sections for part VI 
     of subchapter B of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 199, Income attributable to domestic production activities.''.

       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (2) Application of section 15.--Section 15 of the Internal 
     Revenue Code of 1986 shall apply to the amendments made by 
     this section as if they were changes in a rate of tax.

     SEC. 103. MODIFICATION TO CORPORATE ESTIMATED TAX 
                   REQUIREMENTS.

       (a) Requirements for 2005.--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, 2005, and before October 1, 2005, 
     shall be 110 percent of such amount.
       (b) Requirements for 2009.--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.
                                 ______
                                 
  SA 2670. Mr. SANTORUM (for himself and Mr. Lieberman) submitted an 
amendment intended to be proposed by him to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table; as follows:

       At the end add the following:

                          DIVISION B--CARE ACT

     SECTION 1. SHORT TITLE; ETC.

       (a) Short Title.--This division may be cited as the ``CARE 
     Act of 2004''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this division an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents for this 
     division is as follows:

Sec. 1. Short title; etc.

                 TITLE I--CHARITABLE GIVING INCENTIVES

Sec. 101. Deduction for portion of charitable contributions to be 
              allowed to individuals who do not itemize deductions.
Sec. 102. Tax-free distributions from individual retirement accounts 
              for charitable purposes.
Sec. 103. Charitable deduction for contributions of food inventories.

[[Page S2144]]

Sec. 104. Charitable deduction for contributions of book inventories.
Sec. 105. Expansion of charitable contribution allowed for scientific 
              property used for research and for computer technology 
              and equipment used for educational purposes.
Sec. 106. Modifications to encourage contributions of capital gain real 
              property made for conservation purposes.
Sec. 107. Exclusion of 25 percent of gain on sales or exchanges of land 
              or water interests to eligible entities for conservation 
              purposes.
Sec. 108. Tax exclusion for cost-sharing payments under Partners for 
              Fish and Wildlife Program.
Sec. 109. Adjustment to basis of S corporation stock for certain 
              charitable contributions.
Sec. 110. Enhanced deduction for charitable contribution of literary, 
              musical, artistic, and scholarly compositions.
Sec. 111. Mileage reimbursements to charitable volunteers excluded from 
              gross income.
Sec. 112. Extension of enhanced deduction for inventory to include 
              public schools.
Sec. 113. 10-year divestiture period for certain excess business 
              holdings of private foundations

TITLE II--PROPOSALS IMPROVING THE OVERSIGHT OF TAX-EXEMPT ORGANIZATIONS

Sec. 201. Disclosure of written determinations.
Sec. 202. Disclosure of Internet web site and name under which 
              organization does business.
Sec. 203. Modification to reporting capital transactions.
Sec. 204. Disclosure that Form 990 is publicly available.
Sec. 205. Disclosure to State officials of proposed actions related to 
              section 501(c) organizations.
Sec. 206. Expansion of penalties to preparers of Form 990.
Sec. 207. Notification requirement for entities not currently required 
              to file.
Sec. 208. Suspension of tax-exempt status of terrorist organizations.

     TITLE III--OTHER CHARITABLE AND EXEMPT ORGANIZATION PROVISIONS

Sec. 301. Modification of excise tax on unrelated business taxable 
              income of charitable remainder trusts.
Sec. 302. Modifications to section 512(b)(13).
Sec. 303. Simplification of lobbying expenditure limitation.
Sec. 304. Expedited review process for certain tax-exemption 
              applications.
Sec. 305. Clarification of definition of church tax inquiry.
Sec. 306. Expansion of declaratory judgment remedy to tax-exempt 
              organizations.
Sec. 307. Definition of convention or association of churches.
Sec. 308. Payments by charitable organizations to victims of war on 
              terrorism and families of astronauts killed in the line 
              of duty.
Sec. 309. Modification of scholarship foundation rules.
Sec. 310. Treatment of certain hospital support organizations as 
              qualified organizations for purposes of determining 
              acquisition indebtedness.
Sec. 311. Charitable contribution deduction for certain expenses 
              incurred in support of Native Alaskan subsistence 
              whaling.
Sec. 312. Matching grants to low-income taxpayer clinics for return 
              preparation.
Sec. 313. Exemption of qualified 501(c)(3) bonds for nursing homes from 
              Federal guarantee prohibitions.
Sec. 314. Excise taxes exemption for blood collector organizations.
Sec. 315. Pilot project for forest conservation activities.
Sec. 316. Clarification of treatment of Johnny Micheal Spann Patriot 
              Trusts.

                 TITLE IV--SOCIAL SERVICES BLOCK GRANT

Sec. 401. Restoration of funds for the Social Services Block Grant.
Sec. 402. Restoration of authority to transfer up to 10 percent of TANF 
              funds to the Social Services Block Grant.
Sec. 403. Requirement to submit annual report on State activities.

                TITLE V--INDIVIDUAL DEVELOPMENT ACCOUNTS

Sec. 501. Short title.
Sec. 502. Purposes.
Sec. 503. Definitions.
Sec. 504. Structure and administration of qualified individual 
              development account programs.
Sec. 505. Procedures for opening and maintaining an individual 
              development account and qualifying for matching funds.
Sec. 506. Deposits by qualified individual development account 
              programs.
Sec. 507. Withdrawal procedures.
Sec. 508. Certification and termination of qualified individual 
              development account programs.
Sec. 509. Reporting, monitoring, and evaluation.
Sec. 510. Authorization of appropriations.
Sec. 511. Matching funds for individual development accounts provided 
              through a tax credit for qualified financial 
              institutions.
Sec. 512. Account funds disregarded for purposes of certain means-
              tested Federal programs.

              TITLE VI--MANAGEMENT OF EXEMPT ORGANIZATIONS

Sec. 601. Authorization of appropriations.

                     TITLE VII--REVENUE PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 701. Clarification of economic substance doctrine.
Sec. 702. Penalty for failing to disclose reportable transaction.
Sec. 703. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 704. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 705. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 706. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 707. Disclosure of reportable transactions.
Sec. 708. Modifications to penalty for failure to register tax 
              shelters.
Sec. 709. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 710. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 711. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 712. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 713. Frivolous tax submissions.
Sec. 714. Regulation of individuals practicing before the Department of 
              Treasury.
Sec. 715. Penalty on promoters of tax shelters.
Sec. 716. Statute of limitations for taxable years for which listed 
              transactions not reported.
Sec. 717. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.
Sec. 718. Authorization of appropriations for tax law enforcement.

                      Subtitle B--Other Provisions

Sec. 721. Affirmation of consolidated return regulation authority.
Sec. 722. Signing of corporate tax returns by chief executive officer.
Sec. 723. Securities civil enforcement provisions.
Sec. 724. Review of State agency blindness and disability 
              determinations.

                  TITLE VIII--COMPASSION CAPITAL FUND

Sec. 801. Support for nonprofit community-based organizations; 
              Department of Health and Human Services.
Sec. 802. Support for nonprofit community-based organizations; 
              Corporation for National and Community Service.
Sec. 803. Support for nonprofit community-based organizations; 
              Department of Justice.
Sec. 804. Support for nonprofit community-based organizations; 
              Department of Housing and Urban Development.
Sec. 805. Coordination.

                    TITLE IX--MATERNITY GROUP HOMES

Sec. 901. Maternity group homes.

                 TITLE I--CHARITABLE GIVING INCENTIVES

     SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS 
                   TO BE ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE 
                   DEDUCTIONS.

       (a) In General.--Section 170 (relating to charitable, etc., 
     contributions and gifts) is amended by redesignating 
     subsection (m) as subsection (n) and by inserting after 
     subsection (l) the following new subsection:
       ``(m) Deduction for Individuals Not Itemizing Deductions.--
     In the case of an individual who does not itemize deductions 
     for any taxable year, there shall be taken into account as a 
     direct charitable deduction under section 63 an amount equal 
     to the amount allowable under subsection (a) for the taxable 
     year for cash contributions, to the extent that such 
     contributions exceed $250 ($500 in the case of a joint 
     return) but do not exceed $500 ($1,000 in the case of a joint 
     return).''.
       (b) Direct Charitable Deduction.--
       (1) In general.--Subsection (b) of section 63 (defining 
     taxable income) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) the direct charitable deduction.''.
       (2) Definition.--Section 63 is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Direct Charitable Deduction.--For purposes of this 
     section, the term `direct

[[Page S2145]]

     charitable deduction' means that portion of the amount 
     allowable under section 170(a) which is taken as a direct 
     charitable deduction for the taxable year under section 
     170(m).''.
       (3) Conforming amendment.--Subsection (d) of section 63 is 
     amended by striking ``and'' at the end of paragraph (1), by 
     striking the period at the end of paragraph (2) and inserting 
     ``, and'', and by adding at the end the following new 
     paragraph:
       ``(3) the direct charitable deduction.''.
       (c) Study.--
       (1) In general.--The Secretary of the Treasury shall study 
     the effect of the amendments made by this section on 
     increased charitable giving and taxpayer compliance, 
     including a comparison of taxpayer compliance between 
     taxpayers who itemize their charitable contributions and 
     taxpayers who claim a direct charitable deduction.
       (2) Report.--By not later than December 31, 2004, the 
     Secretary of the Treasury shall report on the study required 
     under paragraph (1) to the Committee on Finance of the Senate 
     and the Committee on Ways and Means of the House of 
     Representatives.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002, and before January 1, 2005.

     SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT 
                   ACCOUNTS FOR CHARITABLE PURPOSES.

       (a) In General.--Subsection (d) of section 408 (relating to 
     individual retirement accounts) is amended by adding at the 
     end the following new paragraph:
       ``(8) Distributions for charitable purposes.--
       ``(A) In general.--No amount shall be includible in gross 
     income by reason of a qualified charitable distribution.
       ``(B) Qualified charitable distribution.--For purposes of 
     this paragraph, the term `qualified charitable distribution' 
     means any distribution from an individual retirement 
     account--
       ``(i) which is made directly by the trustee--

       ``(I) to an organization described in section 170(c), or
       ``(II) to a split-interest entity, and

       ``(ii) which is made on or after--

       ``(I) in the case of any distribution described in clause 
     (i)(I), the date that the individual for whose benefit the 
     account is maintained has attained age 70\1/2\, and
       ``(II) in the case of any distribution described in clause 
     (i)(II), the the date that such individual has attained age 
     59\1/2\.

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

     ``SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 
                   4947(A)(2) OR CLAIMING CHARITABLE DEDUCTIONS 
                   UNDER SECTION 642(C).

       ``(a) Trusts Described in Section 4947(a)(2).--Every trust 
     described in section 4947(a)(2) shall furnish such 
     information with respect to the taxable year as the Secretary 
     may by forms or regulations require.
       ``(b) Trusts Claiming a Charitable Deduction Under Section 
     642(c).--
       ``(1) In general.--Every trust not required to file a 
     return under subsection (a) but claiming a deduction under 
     section 642(c) for the taxable year shall furnish such 
     information with respect to such taxable year as the 
     Secretary may by forms or regulations prescribe, including--
       ``(A) the amount of the deduction taken under section 
     642(c) within such year,
       ``(B) the amount paid out within such year which represents 
     amounts for which deductions under section 642(c) have been 
     taken in prior years,
       ``(C) the amount for which such deductions have been taken 
     in prior years but which has not been paid out at the 
     beginning of such year,
       ``(D) the amount paid out of principal in the current and 
     prior years for the purposes described in section 642(c),
       ``(E) the total income of the trust within such year and 
     the expenses attributable thereto, and
       ``(F) a balance sheet showing the assets, liabilities, and 
     net worth of the trust as of the beginning of such year.
       ``(2) Exceptions.--Paragraph (1) shall not apply to a trust 
     for any taxable year if--
       ``(A) all the net income for such year, determined under 
     the applicable principles of the law of trusts, is required 
     to be distributed currently to the beneficiaries, or
       ``(B) the trust is described in section 4947(a)(1).''.
       (2) Increase in penalty relating to filing of information 
     return by split-interest trusts.--Paragraph (2) of section 
     6652(c) (relating to returns by exempt organizations and by 
     certain trusts) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Split-interest trusts.--In the case of a trust which 
     is required to file a return under section 6034(a), 
     subparagraphs (A) and (B) of this paragraph shall not apply 
     and paragraph (1) shall apply in the same manner as if such 
     return were required under section 6033, except that--
       ``(i) the 5 percent limitation in the second sentence of 
     paragraph (1)(A) shall not apply,
       ``(ii) in the case of any trust with gross income in excess 
     of $250,000, the first sentence of paragraph (1)(A) shall be 
     applied by substituting `$100' for `$20', and the second 
     sentence thereof shall be applied by substituting `$50,000' 
     for `$10,000', and
       ``(iii) the third sentence of paragraph (1)(A) shall be 
     disregarded.
     In addition to any penalty imposed on the trust pursuant to 
     this subparagraph, if the person required to file such return 
     knowingly fails to file the return, such penalty shall also 
     be imposed on such person who shall be personally liable for 
     such penalty.''.
       (3) Confidentiality of noncharitable beneficiaries.--
     Subsection (b) of section 6104 (relating to inspection of 
     annual information returns) is amended by adding at the end 
     the following new sentence: ``In the case of a trust which is 
     required to file a return under section 6034(a), this 
     subsection shall not apply to information regarding 
     beneficiaries which are not organizations described in 
     section 170(c).''.
       (c) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to distributions--
       (A) described in section 408(d)(8)(B)(i)(I) of the Internal 
     Revenue Code of 1986, as added by this section, made after 
     the date of the enactment of this Act, and
       (B) described in section 408(d)(8)(B)(i)(II) of such Code, 
     as so added, made after December 31, 2003.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to returns for taxable years beginning after 
     December 31, 2003.

     SEC. 103. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD 
                   INVENTORIES.

       (a) In General.--Subsection (e) of section 170 (relating to 
     certain contributions of ordinary income and capital gain 
     property) is amended by adding at the end the following new 
     paragraph:

[[Page S2146]]

       ``(7) Application of paragraph (3) to certain contributions 
     of food inventory.--For purposes of this section--
       ``(A) Extension to individuals.--In the case of a 
     charitable contribution of apparently wholesome food--
       ``(i) paragraph (3)(A) shall be applied without regard to 
     whether the contribution is made by a C corporation, and
       ``(ii) in the case of a taxpayer other than a C 
     corporation, the aggregate amount of such contributions from 
     any trade or business (or interest therein) of the taxpayer 
     for any taxable year which may be taken into account under 
     this section shall not exceed 10 percent of the taxpayer's 
     net income from any such trade or business, computed without 
     regard to this section, for such taxable year.
       ``(B) Limitation on reduction.--In the case of a charitable 
     contribution of apparently wholesome food, notwithstanding 
     paragraph (3)(B), the amount of the reduction determined 
     under paragraph (1)(A) shall not exceed the amount by which 
     the fair market value of such property exceeds twice the 
     basis of such property.
       ``(C) Determination of basis.--If a taxpayer--
       ``(i) does not account for inventories under section 471, 
     and
       ``(ii) is not required to capitalize indirect costs under 
     section 263A,
     the taxpayer may elect, solely for purposes of paragraph 
     (3)(B), to treat the basis of any apparently wholesome food 
     as being equal to 25 percent of the fair market value of such 
     food.
       ``(D) Determination of fair market value.--In the case of a 
     charitable contribution of apparently wholesome food which is 
     a qualified contribution (within the meaning of paragraph 
     (3), as modified by subparagraph (A) of this paragraph) and 
     which, solely by reason of internal standards of the taxpayer 
     or lack of market, cannot or will not be sold, the fair 
     market value of such contribution shall be determined--
       ``(i) without regard to such internal standards or such 
     lack of market and
       ``(ii) by taking into account the price at which the same 
     or substantially the same food items (as to both type and 
     quality) are sold by the taxpayer at the time of the 
     contribution (or, if not so sold at such time, in the recent 
     past).
       ``(E) Apparently wholesome food.--For purposes of this 
     paragraph, the term `apparently wholesome food' has the 
     meaning given such term by section 22(b)(2) of the Bill 
     Emerson Good Samaritan Food Donation Act (42 U.S.C. 
     1791(b)(2)), as in effect on the date of the enactment of 
     this paragraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after the date of the 
     enactment of this Act.

     SEC. 104. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF BOOK 
                   INVENTORIES.

       (a) In General.--Section 170(e)(3) (relating to certain 
     contributions of ordinary income and capital gain property) 
     is amended by redesignating subparagraph (C) as subparagraph 
     (D) and by inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) Special rule for contributions of book inventory for 
     educational purposes.--
       ``(i) Contributions of book inventory.--In determining 
     whether a qualified book contribution is a qualified 
     contribution, subparagraph (A) shall be applied without 
     regard to whether--

       ``(I) the donee is an organization described in the matter 
     preceding clause (i) of subparagraph (A), and
       ``(II) the property is to be used by the donee solely for 
     the care of the ill, the needy, or infants.

       ``(ii) Amount of reduction.--Notwithstanding subparagraph 
     (B), the amount of the reduction determined under paragraph 
     (1)(A) shall not exceed the amount by which the fair market 
     value of the contributed property (as determined by the 
     taxpayer using a bona fide published market price for such 
     book) exceeds twice the basis of such property.
       ``(iii) Qualified book contribution.--For purposes of this 
     paragraph, the term `qualified book contribution' means a 
     charitable contribution of books, but only if the 
     requirements of clauses (iv) and (v) are met.
       ``(iv) Identity of donee.--The requirement of this clause 
     is met if the contribution is to an organization--

       ``(I) described in subclause (I) or (III) of paragraph 
     (6)(B)(i), or
       ``(II) described in section 501(c)(3) and exempt from tax 
     under section 501(a) (other than a private foundation, as 
     defined in section 509(a), which is not an operating 
     foundation, as defined in section 4942(j)(3)), which is 
     organized primarily to make books available to the general 
     public at no cost or to operate a literacy program.

       ``(v) Certification by donee.--The requirement of this 
     clause is met if, in addition to the certifications required 
     by subparagraph (A) (as modified by this subparagraph), the 
     donee certifies in writing that--

       ``(I) the books are suitable, in terms of currency, 
     content, and quantity, for use in the donee's educational 
     programs, and
       ``(II) the donee will use the books in its educational 
     programs.

       ``(vi) Bona fide published market price.--For purposes of 
     this subparagraph, the term `bona fide published market 
     price' means, with respect to any book, a price--

       ``(I) determined using the same printing and edition,
       ``(II) determined in the usual market in which such a book 
     has been customarily sold by the taxpayer, and
       ``(III) for which the taxpayer can demonstrate to the 
     satisfaction of the Secretary that the taxpayer customarily 
     sold such books in arm's length transactions within 7 years 
     preceding the contribution of such a book.''.

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

     SEC. 105. EXPANSION OF CHARITABLE CONTRIBUTION ALLOWED FOR 
                   SCIENTIFIC PROPERTY USED FOR RESEARCH AND FOR 
                   COMPUTER TECHNOLOGY AND EQUIPMENT USED FOR 
                   EDUCATIONAL PURPOSES.

       (a) Scientific Property Used for Research.--
       (1) In general.--Clause (ii) of section 170(e)(4)(B) 
     (defining qualified research contributions) is amended by 
     inserting ``or assembled'' after ``constructed''.
       (2) Conforming amendment.--Clause (iii) of section 
     170(e)(4)(B) is amended by inserting ``or assembling'' after 
     ``construction''.
       (b) Computer Technology and Equipment for Educational 
     Purposes.--
       (1) In general.--Clause (ii) of section 170(e)(6)(B) is 
     amended by inserting ``or assembled'' after ``constructed'' 
     and ``or assembling'' after ``construction''.
       (2) Special rule extended.--Section 170(e)(6)(G) is amended 
     by striking ``2003'' and inserting ``2005''.
       (3) Conforming amendments.--Subparagraph (D) of section 
     170(e)(6) is amended by inserting ``or assembled'' after 
     ``constructed'' and ``or assembling'' after ``construction''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 106. MODIFICATIONS TO ENCOURAGE CONTRIBUTIONS OF CAPITAL 
                   GAIN REAL PROPERTY MADE FOR CONSERVATION 
                   PURPOSES.

       (a) In General.--Section 170(h) (relating to qualified 
     conservation contribution) is amended by adding at the end 
     the following new paragraph:
       ``(7) Additional incentives for qualified conservation 
     contributions.--
       ``(A) In general.--In the case of any qualified 
     conservation contribution (as defined in paragraph (1)) made 
     by an individual--
       ``(i) subparagraph (C) of subsection (b)(1) shall not 
     apply,
       ``(ii) except as provided in subparagraph (B)(i), 
     subsections (b)(1)(A) and (d)(1) shall be applied separately 
     with respect to such contributions by treating references to 
     50 percent of the taxpayer's contribution base as references 
     to the amount of such base reduced by the amount of other 
     contributions allowable under subsection (b)(1)(A), and
       ``(iii) subparagraph (A) of subsection (d)(1) shall be 
     applied--

       ``(I) by substituting `15 succeeding taxable years' for `5 
     succeeding taxable years', and
       ``(II) by applying clause (ii) to each of the 15 succeeding 
     taxable years.

       ``(B) Special rules for eligible farmers and ranchers.--
       ``(i) In general.--In the case of any such contributions by 
     a taxpayer who is an eligible farmer or rancher for the 
     taxable year in which such contributions are made--

       ``(I) if the taxpayer is an individual, subsections 
     (b)(1)(A) and (d)(1) shall be applied separately with respect 
     to such contributions by substituting `the taxpayer's 
     contribution base reduced by the amount of other 
     contributions allowable under subsection (b)(1)(A)' for `50 
     percent of the taxpayer's contribution base' each place it 
     appears, and
       ``(II) if the taxpayer is a corporation, subsections (b)(2) 
     and (d)(2) shall be applied separately with respect to such 
     contributions, subsection (b)(2) shall be applied with 
     respect to such contributions as if such subsection did not 
     contain the words `10 percent of' and as if subparagraph (A) 
     thereof read `the deduction under this section for qualified 
     conservation contributions', and rules similar to the rules 
     of subparagraph (A)(iii) shall apply for purposes of 
     subsection (d)(2).

       ``(ii) Definition.--For purposes of clause (i), the term 
     `eligible farmer or rancher' means a taxpayer whose gross 
     income from the trade or business of farming (within the 
     meaning of section 2032A(e)(5)) is at least 51 percent of the 
     taxpayer's gross income for the taxable year, and, in the 
     case of a C corporation, the stock of which is not publicly 
     traded on a recognized exchange.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after the date of the 
     enactment of this Act.

     SEC. 107. EXCLUSION OF 25 PERCENT OF GAIN ON SALES OR 
                   EXCHANGES OF LAND OR WATER INTERESTS TO 
                   ELIGIBLE ENTITIES FOR CONSERVATION PURPOSES.

       (a) In General.--Part III of subchapter B of chapter 1 
     (relating to items specifically excluded from gross income) 
     is amended by inserting after section 121 the following new 
     section:

     ``SEC. 121A. 25-PERCENT EXCLUSION OF GAIN ON SALES OR 
                   EXCHANGES OF LAND OR WATER INTERESTS TO 
                   ELIGIBLE ENTITIES FOR CONSERVATION PURPOSES.

       ``(a) Exclusion.--Gross income shall not include 25 percent 
     of the qualifying gain

[[Page S2147]]

     from a conservation sale of a long-held qualifying land or 
     water interest.
       ``(b) Qualifying Gain.--For purposes of this section--
       ``(1) In general.--The term `qualifying gain' means any 
     gain which would be recognized as long-term capital gain, 
     reduced by the amount of any long-term capital gain 
     attributable to disqualified improvements.
       ``(2) Disqualified improvement.--For purposes of paragraph 
     (1), the term `disqualified improvement' means any building, 
     structure, or other improvement, other than--
       ``(A) any improvement which is described in section 
     175(c)(1), determined--
       ``(i) without regard to the requirements that the taxpayer 
     be engaged in farming, and
       ``(ii) without taking into account subparagraphs (A) and 
     (B) thereof, or
       ``(B) any improvement which the Secretary determines 
     directly furthers conservation purposes.
       ``(3) Special rule for sales of stock.--If the long-held 
     qualifying land or water interest is 1 or more shares of 
     stock in a qualifying land or water corporation, the 
     qualifying gain is equal to the lesser of--
       ``(A) the qualifying gain determined under paragraph (1), 
     or
       ``(B) the product of--
       ``(i) the percentage of such corporation's stock which is 
     transferred by the taxpayer, times
       ``(ii) the amount which would have been the qualifying gain 
     (determined under paragraph (1)) if there had been a 
     conservation sale by such corporation of all of its interests 
     in the land and water for a price equal to the product of the 
     fair market value of such interests times the ratio of--

       ``(I) the proceeds of the conservation sale of the stock, 
     to
       ``(II) the fair market value of the stock which was the 
     subject of the conservation sale.

       ``(c) Conservation Sale.--For purposes of this section, the 
     term `conservation sale' means a sale or exchange which meets 
     the following requirements:
       ``(1) Transferee is an eligible entity.--The transferee of 
     the long-held qualifying land or water interest is an 
     eligible entity.
       ``(2) Qualifying letter of intent required.--At the time of 
     the sale or exchange, such transferee provides the taxpayer 
     with a qualifying letter of intent.
       ``(3) Nonapplication to certain sales.--The sale or 
     exchange is not made pursuant to an order of condemnation or 
     eminent domain.
       ``(4) Controlling interest in stock sale required.--In the 
     case of the sale or exchange of stock in a qualifying land or 
     water corporation, at the end of the taxpayer's taxable year 
     in which such sale or exchange occurs, the transferee's 
     ownership of stock in such corporation meets the requirements 
     of section 1504(a)(2) (determined by substituting `90 
     percent' for `80 percent' each place it appears).
       ``(d) Long-Held Qualifying Land or Water Interest.--For 
     purposes of this section--
       ``(1) In general.--The term `long-held qualifying land or 
     water interest' means any qualifying land or water interest 
     owned by the taxpayer or a member of the taxpayer's family 
     (as defined in section 2032A(e)(2)) at all times during the 
     5-year period ending on the date of the sale.
       ``(2) Qualifying land or water interest.--
       ``(A) In general.--The term `qualifying land or water 
     interest' means a real property interest which constitutes--
       ``(i) a taxpayer's entire interest in land,
       ``(ii) a taxpayer's entire interest in water rights,
       ``(iii) a qualified real property interest (as defined in 
     section 170(h)(2)), or
       ``(iv) stock in a qualifying land or water corporation.
       ``(B) Entire interest.--For purposes of clause (i) or (ii) 
     of subparagraph (A)--
       ``(i) a partial interest in land or water is not a 
     taxpayer's entire interest if an interest in land or water 
     was divided in order to create such partial interest in order 
     to avoid the requirements of such clause or section 
     170(f)(3)(A), and
       ``(ii) a taxpayer's entire interest in certain land does 
     not fail to satisfy subparagraph (A)(i) solely because the 
     taxpayer has retained an interest in other land, even if the 
     other land is contiguous with such certain land and was 
     acquired by the taxpayer along with such certain land in a 
     single conveyance.
       ``(e) Other Definitions.--For purposes of this section--
       ``(1) Eligible entity.--The term `eligible entity' means--
       ``(A) a governmental unit referred to in section 170(c)(1), 
     or an agency or department thereof operated primarily for 1 
     or more of the conservation purposes specified in clause (i), 
     (ii), or (iii) of section 170(h)(4)(A), or
       ``(B) an entity which is--
       ``(i) described in section 170(b)(1)(A)(vi) or section 
     170(h)(3)(B), and
       ``(ii) organized and at all times operated primarily for 1 
     or more of the conservation purposes specified in clause (i), 
     (ii), or (iii) of section 170(h)(4)(A).
       ``(2) Qualifying letter of intent.--The term `qualifying 
     letter of intent' means a written letter of intent which 
     includes the following statement: `The transferee's intent is 
     that this acquisition will serve 1 or more of the 
     conservation purposes specified in clause (i), (ii), or (iii) 
     of section 170(h)(4)(A) of the Internal Revenue Code of 1986, 
     that the transferee's use of the property so acquired will be 
     consistent with section 170(h)(5) of such Code, and that the 
     use of the property will continue to be consistent with such 
     section, even if ownership or possession of such property is 
     subsequently transferred to another person.'
       ``(3) Qualifying land or water corporation.--The term 
     `qualifying land or water corporation' means a C corporation 
     (as defined in section 1361(a)(2)) if, as of the date of the 
     conservation sale--
       ``(A) the fair market value of the corporation's interests 
     in land or water held by the corporation at all times during 
     the preceding 5 years equals or exceeds 90 percent of the 
     fair market value of all of such corporation's assets, and
       ``(B) not more than 50 percent of the total fair market 
     value of such corporation's assets consists of water rights 
     or infrastructure related to the delivery of water, or both.
       ``(f) Tax on Subsequent Transfers or Removals of 
     Conservation Restrictions.--
       ``(1) In general.--A tax is hereby imposed on any 
     subsequent--
       ``(A) transfer by an eligible entity of ownership or 
     possession, whether by sale, exchange, or lease, of property 
     acquired directly or indirectly in--
       ``(i) a conservation sale described in subsection (a), or
       ``(ii) a transfer described in clause (i), (ii), or (iii) 
     of paragraph (4)(A), or
       ``(B) removal of a conservation restriction contained in an 
     instrument of conveyance of such property.
       ``(2) Amount of tax.--The amount of tax imposed by 
     paragraph (1) on any transfer or removal shall be equal to 
     the sum of--
       ``(A) either--
       ``(i) 20 percent of the fair market value (determined at 
     the time of the transfer) of the property the ownership or 
     possession of which is transferred, or
       ``(ii) 20 percent of the fair market value (determined at 
     the time immediately after the removal) of the property upon 
     which the conservation restriction was removed, plus
       ``(B) the product of--
       ``(i) the highest rate of tax specified in section 11, 
     times
       ``(ii) any gain or income realized by the transferor or 
     person removing such restriction as a result of the transfer 
     or removal.
       ``(3) Liability.--The tax imposed by paragraph (1) shall be 
     paid--
       ``(A) on any transfer, by the transferor, and
       ``(B) on any removal of a conservation restriction 
     contained in an instrument of conveyance, by the person 
     removing such restriction.
       ``(4) Relief from liability.--The person (otherwise liable 
     for any tax imposed by paragraph (1)) shall be relieved of 
     liability for the tax imposed by paragraph (1)--
       ``(A) with respect to any transfer if--
       ``(i) the transferee is an eligible entity which provides 
     such person, at the time of transfer, a qualifying letter of 
     intent,
       ``(ii) in any case where the transferee is not an eligible 
     entity, it is established to the satisfaction of the 
     Secretary, that the transfer of ownership or possession, as 
     the case may be, will be consistent with section 170(h)(5), 
     and the transferee provides such person, at the time of 
     transfer, a qualifying letter of intent, or
       ``(iii) tax has previously been paid under this subsection 
     as a result of a prior transfer of ownership or possession of 
     the same property, or
       ``(B) with respect to any removal of a conservation 
     restriction contained in an instrument of conveyance, if it 
     is established to the satisfaction of the Secretary that the 
     retention of the restriction was impracticable or impossible 
     and the proceeds continue to be used in a manner consistent 
     with 1 or more of the conservation purposes specified in 
     clause (i), (ii), or (iii) of section 170(h)(4)(A).
       ``(5) Administrative provisions.--For purposes of subtitle 
     F, the taxes imposed by this subsection shall be treated as 
     excise taxes with respect to which the deficiency procedures 
     of such subtitle apply.
       ``(6) Reporting.--The Secretary may require such reporting 
     as may be necessary or appropriate to further the purpose 
     under this section that any conservation use be in 
     perpetuity.''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 121 the following new item:

``Sec. 121A. 25-percent exclusion of gain on sales or exchanges of land 
              or water interests to eligible entities for conservation 
              purposes.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales or exchanges occurring after the date of 
     the enactment of this Act.

     SEC. 108. TAX EXCLUSION FOR COST-SHARING PAYMENTS UNDER 
                   PARTNERS FOR FISH AND WILDLIFE PROGRAM.

       (a) In General.--Section 126(a) (relating to certain cost-
     sharing payments) is amended by redesignating paragraph (10) 
     as paragraph (11) and by inserting after paragraph (9) the 
     following:
       ``(10) The Partners for Fish and Wildlife Program 
     authorized by the Fish and Wildlife Act of 1956 (16 U.S.C. 
     742a et seq.).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to payments received after the date of the 
     enactment of this Act.

[[Page S2148]]

     SEC. 109. ADJUSTMENT TO BASIS OF S CORPORATION STOCK FOR 
                   CERTAIN CHARITABLE CONTRIBUTIONS.

       (a) In General.--Paragraph (2) of section 1367(a) (relating 
     to adjustments to basis of stock of shareholders, etc.) is 
     amended by adding at the end the following new flush 
     sentence:

     ``The decrease under subparagraph (B) by reason of a 
     charitable contribution (as defined in section 170(c)) of 
     property shall be the amount equal to the shareholder's pro 
     rata share of the adjusted basis of such property.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after the date of the 
     enactment of this Act.

     SEC. 110. ENHANCED DEDUCTION FOR CHARITABLE CONTRIBUTION OF 
                   LITERARY, MUSICAL, ARTISTIC, AND SCHOLARLY 
                   COMPOSITIONS.

       (a) In General.--Subsection (e) of section 170 (relating to 
     certain contributions of ordinary income and capital gain 
     property), as amended by this Act, is amended by adding at 
     the end the following new paragraph:
       ``(8) Special rule for certain contributions of literary, 
     musical, artistic, or scholarly compositions.--
       ``(A) In general.--In the case of a qualified artistic 
     charitable contribution--
       ``(i) the amount of such contribution taken into account 
     under this section shall be the fair market value of the 
     property contributed (determined at the time of such 
     contribution), and
       ``(ii) no reduction in the amount of such contribution 
     shall be made under paragraph (1).
       ``(B) Qualified artistic charitable contribution.--For 
     purposes of this paragraph, the term `qualified artistic 
     charitable contribution' means a charitable contribution of 
     any literary, musical, artistic, or scholarly composition, or 
     similar property, or the copyright thereon (or both), but 
     only if--
       ``(i) such property was created by the personal efforts of 
     the taxpayer making such contribution no less than 18 months 
     prior to such contribution,
       ``(ii) the taxpayer--

       ``(I) has received a qualified appraisal of the fair market 
     value of such property in accordance with the regulations 
     under this section, and
       ``(II) attaches to the taxpayer's income tax return for the 
     taxable year in which such contribution was made a copy of 
     such appraisal,

       ``(iii) the donee is an organization described in 
     subsection (b)(1)(A),
       ``(iv) the use of such property by the donee is related to 
     the purpose or function constituting the basis for the 
     donee's exemption under section 501 (or, in the case of a 
     governmental unit, to any purpose or function described under 
     section 501(c)),
       ``(v) the taxpayer receives from the donee a written 
     statement representing that the donee's use of the property 
     will be in accordance with the provisions of clause (iv), and
       ``(vi) the written appraisal referred to in clause (ii) 
     includes evidence of the extent (if any) to which property 
     created by the personal efforts of the taxpayer and of the 
     same type as the donated property is or has been--

       ``(I) owned, maintained, and displayed by organizations 
     described in subsection (b)(1)(A), and
       ``(II) sold to or exchanged by persons other than the 
     taxpayer, donee, or any related person (as defined in section 
     465(b)(3)(C)).

       ``(C) Maximum dollar limitation; no carryover of increased 
     deduction.--The increase in the deduction under this section 
     by reason of this paragraph for any taxable year--
       ``(i) shall not exceed the artistic adjusted gross income 
     of the taxpayer for such taxable year, and
       ``(ii) shall not be taken into account in determining the 
     amount which may be carried from such taxable year under 
     subsection (d).
       ``(D) Artistic adjusted gross income.--For purposes of this 
     paragraph, the term `artistic adjusted gross income' means 
     that portion of the adjusted gross income of the taxpayer for 
     the taxable year attributable to--
       ``(i) income from the sale or use of property created by 
     the personal efforts of the taxpayer which is of the same 
     type as the donated property, and
       ``(ii) income from teaching, lecturing, performing, or 
     similar activity with respect to property described in clause 
     (i).
       ``(E) Paragraph not to apply to certain contributions.--
     Subparagraph (A) shall not apply to any charitable 
     contribution of any letter, memorandum, or similar property 
     which was written, prepared, or produced by or for an 
     individual while the individual is an officer or employee of 
     any person (including any government agency or 
     instrumentality) unless such letter, memorandum, or similar 
     property is entirely personal.
       ``(F) Copyright treated as separate property for partial 
     interest rule.--In the case of a qualified artistic 
     charitable contribution, the tangible literary, musical, 
     artistic, or scholarly composition, or similar property and 
     the copyright on such work shall be treated as separate 
     properties for purposes of this paragraph and subsection 
     (f)(3).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after the date of the 
     enactment of this Act.

     SEC. 111. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS 
                   EXCLUDED FROM GROSS INCOME.

       (a) In General.--Part III of subchapter B of chapter 1 is 
     amended by inserting after section 139 the following new 
     section:

     ``SEC. 139A. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS.

       ``(a) In General.--Gross income of an individual does not 
     include amounts received, from an organization described in 
     section 170(c), as reimbursement of operating expenses with 
     respect to use of a passenger automobile for the benefit of 
     such organization. The preceding sentence shall apply only to 
     the extent that the expenses which are reimbursed would be 
     deductible under this chapter if section 274(d) were 
     applied--
       ``(1) by using the standard business mileage rate 
     established under such section, and
       ``(2) as if the individual were an employee of an 
     organization not described in section 170(c).
       ``(b) Application to Volunteer Services Only.--Subsection 
     (a) shall not apply with respect to any expenses relating to 
     the performance of services for compensation.
       ``(c) No Double Benefit.--A taxpayer may not claim a 
     deduction or credit under any other provision of this title 
     with respect to the expenses under subsection (a).
       ``(d) Exemption From Reporting Requirements.--Section 6041 
     shall not apply with respect to reimbursements excluded from 
     income under subsection (a).''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 139 the following new item:

``Sec. 139A. Mileage reimbursements to charitable volunteers.''.
       (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. 112. EXTENSION OF ENHANCED DEDUCTION FOR INVENTORY TO 
                   INCLUDE PUBLIC SCHOOLS.

       (a) In General.--Subparagraph (A) of section 170(e)(3) 
     (relating to special rule for certain contributions of 
     inventory and other property) is amended by striking ``to an 
     organization which is described in'' and all that follows 
     through the end of clause (i) and inserting ``to a qualified 
     organization, but only if--
       ``(i) the property is to be used by the donee solely for 
     the care of the ill, the needy, or infants and, in the case 
     of--

       ``(I) an organization described in section 501(c)(3) (other 
     than an organization described in subclause (II)), the use of 
     the property by the donee is related to the purpose or 
     function constituting the basis for its exemption under 
     section 501, and
       ``(II) an organization described in subsection 
     (b)(1)(A)(ii), the use of the property by the donee is 
     related to educational purposes and such property is not 
     computer technology or equipment (as defined in paragraph 
     (6)(F)(i));''.

       (b) Qualified Organization.--Paragraph (3) of section 
     170(e) of such Code is amended by redesignating subparagraph 
     (C) as subparagraph (D) and by inserting after subparagraph 
     (B) the following new subparagraph:
       ``(C) Qualified organization.--For purposes of this 
     paragraph, the term `qualified organization' means--
       ``(i) an organization which is described in section 
     501(c)(3) and is exempt under section 501(a) (other than a 
     private foundation, as defined in section 509(a), which is 
     not an operating foundation, as defined in section 
     4942(j)(3)), and
       ``(ii) an educational organization described in subsection 
     (b)(1)(A)(ii).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made after December 31, 2003.

     SEC. 113. 10-YEAR DIVESTITURE PERIOD FOR CERTAIN EXCESS 
                   BUSINESS HOLDINGS OF PRIVATE FOUNDATIONS.

       (a) In General.--Section 4943(c) (relating to excess 
     business holdings) is amended by redesignating paragraph (7) 
     as paragraph (8) and by inserting after paragraph (6) the 
     following new paragraph:
       ``(7) 10-year period to dispose of certain large gifts and 
     bequests.--
       ``(A) In General.--Paragraph (6) shall be applied by 
     substituting `10-year period' for `5-year period' if--
       ``(i) upon the election of a private foundation, it is 
     established to the satisfaction of the Secretary that--

       ``(I) the excess business holdings (or increase in excess 
     business holdings) in a business enterprise by the private 
     foundation in an amount which is not less than $1,000,000,000 
     is the result of a gift or bequest the fair market value of 
     which is not less than $1,000,000,000, and
       ``(II) after such gift or bequest, the private foundation 
     does not have effective control of such business enterprise 
     to which such gift or bequest relates,

       ``(ii) subject to subparagraph (C), the private foundation 
     submits to the Secretary with such election a reasonable plan 
     for disposing of all of the excess business holdings related 
     to such gift or bequest, and
       ``(iii) the private foundation certifies annually to the 
     Secretary that the private foundation is complying with the 
     plan submitted under this paragraph, the requirement under 
     clause (i)(II), and the rules under subparagraph (D).
       ``(B) Election.--Any election under subparagraph (A)(i) 
     shall be made not later than 6 months after the date of such 
     gift or bequest and shall--

[[Page S2149]]

       ``(i) establish the fair market value of such gift or 
     bequest, and
       ``(ii) include a certification that the requirement of 
     subparagraph (A)(i)(II) is met.
       ``(C) Reasonableness of plan.--
       ``(i) In general.--Any plan submitted under subparagraph 
     (A)(ii) shall be presumed reasonable unless the Secretary 
     notifies the private foundation to the contrary not later 
     than 6 months after the submission of such plan.
       ``(ii) Resubmission.--Upon notice by the Secretary under 
     clause (i), the private foundation may resubmit a plan and 
     shall have the burden of establishing the reasonableness of 
     such plan to the Secretary.
       ``(D) Special rules.--During any period in which an 
     election under this paragraph is in effect--
       ``(i) section 4941(d)(2) (other than subparagraph (A) 
     thereof) shall apply only with respect to any disqualified 
     person described in section 4941(a)(1)(B),
       ``(ii) section 4942(a) shall be applied by substituting 
     `third' for `second' both places it appears,
       ``(iii) section 4942(e)(1) shall be applied by substituting 
     `12 percent' for `5 percent', and
       ``(iv) section 4942(g)(1)(A) shall be applied without 
     regard to any portion of reasonable and necessary 
     administrative expenses.
       ``(E) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 2003, the 
     $1,000,000,000 amount under subparagraph (A)(i)(I) shall be 
     increased by an amount equal to such dollar amount, 
     multiplied by the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `2002' for `1992' in subparagraph (B) thereof. 
     If the $1,000,000,000 amount as increased under this 
     subparagraph is not a multiple of $100,000,000, such amount 
     shall be rounded to the next lowest multiple of 
     $100,000,000.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to gifts and bequests made after the date of the 
     enactment of this Act.

TITLE II--PROPOSALS IMPROVING THE OVERSIGHT OF TAX-EXEMPT ORGANIZATIONS

     SEC. 201. DISCLOSURE OF WRITTEN DETERMINATIONS.

       (a) In General.--Section 6110(l) (relating to section not 
     to apply) is amended by striking all matter before 
     subparagraph (A) of paragraph (2) and inserting the 
     following:
       ``(l) Section Not To Apply.--
       ``(1) In general.--This section shall not apply to any 
     matter to which section 6104 or 6105 applies, except that 
     this section shall apply to any written determination and 
     related background file document relating to an organization 
     described under subsection (c) or (d) of section 501 
     (including any written determination denying an organization 
     tax-exempt status under such subsection) or a political 
     organization described in section 527 which is not required 
     to be disclosed by section 6104(a)(1)(A).
       ``(2) Additional matters.--This section shall not apply to 
     any--''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to written determinations issued after the date 
     of the enactment of this Act.

     SEC. 202. DISCLOSURE OF INTERNET WEB SITE AND NAME UNDER 
                   WHICH ORGANIZATION DOES BUSINESS.

       (a) In General.--Section 6033 (relating to returns by 
     exempt organizations) is amended by redesignating subsection 
     (h) as subsection (i) and by inserting after subsection (g) 
     the following new subsection:
       ``(h) Disclosure of Name Under Which Organization Does 
     Business and Its Internet Web Site.--Any organization which 
     is subject to the requirements of subsection (a) shall 
     include on the return required under subsection (a)--
       ``(1) any name under which such organization operates or 
     does business, and
       ``(2) the Internet web site address (if any) of such 
     organization.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to returns filed after December 31, 2003.

     SEC. 203. MODIFICATION TO REPORTING CAPITAL TRANSACTIONS.

       (a) Requirement of Summary Report.--Section 6033(c) 
     (relating to additional provisions relating to private 
     foundations) is amended by adding at the end the following 
     new sentence: ``Any information included in an annual return 
     regarding the gain or loss from the sale or other disposition 
     of stock or securities which are listed on an established 
     securities market which is required to be furnished in order 
     to calculate the tax on net investment income shall also be 
     reported in summary form with a notice that detailed 
     information is available upon request by the public.''.
       (b) Disclosure Requirement.--Section 6104(b) (relating to 
     inspection of annual information returns), as amended by this 
     Act, is amended by adding at the end the following new 
     sentence: ``With respect to any private foundation (as 
     defined in section 509(a)), any information regarding the 
     gain or loss from the sale or other disposition of stock or 
     securities which are listed on an established securities 
     market which is required to be furnished in order to 
     calculate the tax on net investment income but which is not 
     in summary form is not required to be made available to the 
     public under this subsection except upon the explicit request 
     by a member of the public to the Secretary.''.
       (c) Public Inspection Requirement.--Section 6104(d) 
     (relating to public inspection of certain annual returns, 
     applications for exemptions, and notices of status) is 
     amended by adding at the end the following new paragraph:
       ``(9) Application to private foundation capital transaction 
     information.--With respect to any private foundation (as 
     defined in section 509(a)), any information regarding the 
     gain or loss from the sale or other disposition of stock or 
     securities which are listed on an established securities 
     market which is required to be furnished in order to 
     calculate the tax on net investment income but which is not 
     in summary form is not required to be made available to the 
     public under this subsection except upon the explicit request 
     by a member of the public to the private foundation in the 
     form and manner of a request described in paragraph 
     (1)(B).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to returns filed after December 31, 2003.

     SEC. 204. DISCLOSURE THAT FORM 990 IS PUBLICLY AVAILABLE.

       (a) In General.--The Commissioner of the Internal Revenue 
     shall notify the public in appropriate publications or other 
     materials of the extent to which an exempt organization's 
     Form 990, Form 990-EZ, or Form 990-PF is publicly available.
       (b) Effective Date.--The amendments made by this section 
     shall apply to publications or other materials issued or 
     revised after the date of the enactment of this Act.

     SEC. 205. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS 
                   RELATED TO SECTION 501(C) ORGANIZATIONS.

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

     Such information may only be inspected by or disclosed to 
     representatives of the appropriate State officer designated 
     as the individuals who are to inspect or to receive the 
     returns or return information under this paragraph on behalf 
     of such officer. Such representatives shall not include any 
     contractor or agent.
       ``(D) Disclosures other than by request.--The Secretary may 
     make available for inspection or disclose returns and return 
     information of an organization to which paragraph (1) applies 
     to an appropriate State officer of any State if the Secretary 
     determines that such inspection or disclosure may facilitate 
     the resolution of Federal or State issues relating to the 
     tax-exempt status of such organization.
       ``(3) Disclosure with respect to certain other exempt 
     organizations.--Upon written request by an appropriate State 
     officer, the Secretary may make available for inspection or 
     disclosure returns and return information of an organization 
     described in paragraph (2), (4), (6), (7), (8), (10), or (13) 
     of section 501(c) for the purpose of, and to the extent 
     necessary in, the administration of State laws regulating the 
     solicitation or administration of the charitable funds or 
     charitable assets of such organizations. Such information may 
     be inspected only by or disclosed only to representatives of 
     the appropriate State officer designated as the individuals 
     who are to inspect or to receive the returns or return 
     information under this paragraph on behalf of such officer. 
     Such representatives shall not include any contractor or 
     agent.
       ``(4) Use in civil judicial and administrative 
     proceedings.--Returns and return information disclosed 
     pursuant to this subsection may be disclosed in civil 
     administrative and civil judicial proceedings pertaining to 
     the enforcement of State laws regulating such organizations 
     in a manner prescribed by the Secretary similar to that for 
     tax administration proceedings under section 6103(h)(4).
       ``(5) No disclosure if impairment.--Returns and return 
     information shall not be disclosed under this subsection, or 
     in any proceeding described in paragraph (4), to the extent 
     that the Secretary determines that such disclosure would 
     seriously impair Federal tax administration.
       ``(6) Definitions.--For purposes of this subsection--

[[Page S2150]]

       ``(A) Return and return information.--The terms `return' 
     and `return information' have the respective meanings given 
     to such terms by section 6103(b).
       ``(B) Appropriate state officer.--The term `appropriate 
     State officer' means--
       ``(i) the State attorney general,
       ``(ii) in the case of an organization to which paragraph 
     (1) applies, any other State official charged with overseeing 
     organizations of the type described in section 501(c)(3), and
       ``(iii) in the case of an organization to which paragraph 
     (3) applies, the head of an agency designated by the State 
     attorney general as having primary responsibility for 
     overseeing the solicitation of funds for charitable 
     purposes.''.
       (b) Conforming Amendments.--
       (1) Subsection (a) of section 6103 is amended--
       (A) by inserting ``or any appropriate State officer who has 
     or had access to returns or return information under section 
     6104(c)'' after ``this section'' in paragraph (2), and
       (B) by striking ``or subsection (n)'' in paragraph (3) and 
     inserting ``subsection (n), or section 6104(c)''.
       (2) Subparagraph (A) of section 6103(p)(3) is amended by 
     inserting ``and section 6104(c)'' after ``section'' in the 
     first sentence.
       (3) Paragraph (4) of section 6103(p), 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) or any appropriate 
     State officer (as defined in section 6104(c))''.
       (4) The heading for paragraph (1) of section 6104(c) is 
     amended by inserting ``for charitable organizations''.
       (5) Paragraph (2) of section 7213(a) is amended by 
     inserting ``or under section 6104(c)'' after ``6103''.
       (6) Paragraph (2) of section 7213A(a) is amended by 
     inserting ``or 6104(c)'' after ``6103''.
       (7) Paragraph (2) of section 7431(a) is amended by 
     inserting ``(including any disclosure in violation of section 
     6104(c))'' after ``6103''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act 
     but shall not apply to requests made before such date.

     SEC. 206. EXPANSION OF PENALTIES TO PREPARERS OF FORM 990.

       (a) In General.--Section 6695 (relating to other assessable 
     penalties with respect to the preparation of income tax 
     returns for other persons) is amended by adding at the end 
     the following new subsections:
       ``(h) Certain Omissions and Misrepresentations.--
       ``(1) In general.--Any person who prepares for compensation 
     any return under section 6033 who omits or misrepresents any 
     information with respect to such return which was known or 
     should have been known by such person shall pay a penalty of 
     $250 with respect to such return.
       ``(2) Exception for minor, inadvertent omissions.--
     Paragraph (1) shall not apply to minor, inadvertent 
     omissions.
       ``(3) Rules for determining return preparer.--For purposes 
     of this subsection and subsection (i), any reference to a 
     person who prepares for compensation a return under section 
     6033--
       ``(A) shall include any person who employs 1 or more 
     persons to prepare for compensation a return under section 
     6033, and
       ``(B) shall not include any person who would be described 
     in clause (i), (ii), (iii), or (iv) of section 7701(a)(36)(B) 
     if such section referred to a return under section 6033.
       ``(i) Willful or Reckless Conduct.--
       ``(1) In general.--Any person who prepares for compensation 
     any return under section 6033 who recklessly or intentionally 
     misrepresents any information or recklessly or intentionally 
     disregards any rule or regulation with respect to such return 
     shall pay a penalty of $1,000 with respect to such return.
       ``(2) Coordination with other penalties.--With respect to 
     any return, the amount of the penalty payable by any person 
     by reason of paragraph (1) shall be reduced by the amount of 
     the penalty paid by such person by reason of subsection (h) 
     or section 6694.''.
       (b) Conforming Amendments.--
       (1) The heading for section 6695 is amended by inserting 
     ``AND OTHER'' after ``INCOME TAX''.
       (2) The item relating to section 6695 in the table of 
     sections for part I of subchapter B of chapter 68 is amended 
     by inserting ``and other'' after ``income tax''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to documents prepared after the date 
     of the enactment of this Act.

     SEC. 207. NOTIFICATION REQUIREMENT FOR ENTITIES NOT CURRENTLY 
                   REQUIRED TO FILE.

       (a) In General.--Section 6033 (relating to returns by 
     exempt organizations), as amended by this Act, is amended by 
     redesignating subsection (i) as subsection (j) and by 
     inserting after subsection (h) the following new subsection:
       ``(i) Additional Notification Requirements.--Any 
     organization the gross receipts of which in any taxable year 
     result in such organization being referred to in subsection 
     (a)(2)(A)(ii) or (a)(2)(B)--
       ``(1) shall furnish annually, at such time and in such 
     manner as the Secretary may by forms or regulations 
     prescribe, information setting forth--
       ``(A) the legal name of the organization,
       ``(B) any name under which such organization operates or 
     does business,
       ``(C) the organization's mailing address and Internet web 
     site address (if any),
       ``(D) the organization's taxpayer identification number,
       ``(E) the name and address of a principal officer, and
       ``(F) evidence of the continuing basis for the 
     organization's exemption from the filing requirements under 
     subsection (a)(1), and
       ``(2) upon the termination of the existence of the 
     organization, shall furnish notice of such termination.''.
       (b) Loss of Exempt Status for Failure To File Return or 
     Notice.--Section 6033 (relating to returns by exempt 
     organizations), as amended by subsection (a), is amended by 
     redesignating subsection (j) as subsection (k) and by 
     inserting after subsection (i) the following new subsection:
       ``(j) Loss of Exempt Status for Failure To File Return or 
     Notice.--
       ``(1) In general.--If an organization described in 
     subsection (a)(1) or (i) fails to file an annual return or 
     notice required under either subsection for 3 consecutive 
     years, such organization's status as an organization exempt 
     from tax under section 501(a) shall be considered revoked on 
     and after the date set by the Secretary for the filing of the 
     third annual return or notice. The Secretary shall publish 
     and maintain a list of any organization the status of which 
     is so revoked.
       ``(2) Application necessary for reinstatement.--Any 
     organization the tax-exempt status of which is revoked under 
     paragraph (1) must apply in order to obtain reinstatement of 
     such status regardless of whether such organization was 
     originally required to make such an application.
       ``(3) Retroactive reinstatement if reasonable cause shown 
     for failure.--If upon application for reinstatement of status 
     as an organization exempt from tax under section 501(a), an 
     organization described in paragraph (1) can show to the 
     satisfaction of the Secretary evidence of reasonable cause 
     for the failure described in such paragraph, the 
     organization's exempt status may, in the discretion of the 
     Secretary, be reinstated effective from the date of the 
     revocation under such paragraph.''.
       (c) No Declaratory Judgment Relief.--Section 7428(b) 
     (relating to limitations) is amended by adding at the end the 
     following new paragraph:
       ``(4) Nonapplication for certain revocations.--No action 
     may be brought under this section with respect to any 
     revocation of status described in section 6033(j)(1).''.
       (d) No Inspection Requirement.--Section 6104(b) (relating 
     to inspection of annual information returns) is amended by 
     inserting ``(other than subsection (i) thereof)'' after 
     ``6033''.
       (e) No Disclosure Requirement.--Section 6104(d)(3) 
     (relating to exceptions from disclosure requirements) is 
     amended by redesignating subparagraph (B) as subparagraph (C) 
     and by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Nondisclosure of annual notices.--Paragraph (1) shall 
     not require the disclosure of any notice required under 
     section 6033(i).''.
       (f) No Monetary Penalty for Failure To Notify.--Section 
     6652(c)(1) (relating to annual returns under section 6033 or 
     6012(a)(6)) is amended by adding at the end the following new 
     subparagraph:
       ``(E) No penalty for certain annual notices.--This 
     paragraph shall not apply with respect to any notice required 
     under section 6033(i).''.
       (g) Secretarial Outreach Requirements.--
       (1) Notice requirement.--The Secretary of the Treasury 
     shall notify in a timely manner every organization described 
     in section 6033(i) of the Internal Revenue Code of 1986 (as 
     added by this section) of the requirement under such section 
     6033(i) and of the penalty established under section 
     6033(j)--
       (A) by mail, in the case of any organization the identity 
     and address of which is included in the list of exempt 
     organizations maintained by the Secretary, and
       (B) by Internet or other means of outreach, in the case of 
     any other organization.
       (2) Loss of status penalty for failure to file return.--The 
     Secretary of the Treasury shall publicize in a timely manner 
     in appropriate forms and instructions and through other 
     appropriate means, the penalty established under section 
     6033(j) of such Code for the failure to file a return under 
     section 6033(a)(1) of such Code.
       (h) Effective Date.--The amendments made by this section 
     shall apply to notices and returns with respect to annual 
     periods beginning after 2003.

     SEC. 208. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST 
                   ORGANIZATIONS.

       (a) In General.--Section 501 of the Internal Revenue Code 
     of 1986 (relating to exemption from tax on corporations, 
     certain trusts, etc.) is amended by redesignating subsection 
     (p) as subsection (q) and by inserting after subsection (o) 
     the following new subsection:
       ``(p) Suspension of Tax-Exempt Status of Terrorist 
     Organizations.--
       ``(1) In general.--The exemption from tax under subsection 
     (a) with respect to any organization described in paragraph 
     (2), and the eligibility of any organization described in 
     paragraph (2) to apply for recognition of exemption under 
     subsection (a), shall be suspended during the period 
     described in paragraph (3).
       ``(2) Terrorist organizations.--An organization is 
     described in this paragraph if such

[[Page S2151]]

     organization is designated or otherwise individually 
     identified--
       ``(A) under section 212(a)(3)(B)(vi)(II) or 219 of the 
     Immigration and Nationality Act as a terrorist organization 
     or foreign terrorist organization,
       ``(B) in or pursuant to an Executive order which is related 
     to terrorism and issued under the authority of the 
     International Emergency Economic Powers Act or section 5 of 
     the United Nations Participation Act of 1945 for the purpose 
     of imposing on such organization an economic or other 
     sanction, or
       ``(C) in or pursuant to an Executive order issued under the 
     authority of any Federal law if--
       ``(i) the organization is designated or otherwise 
     individually identified in or pursuant to such Executive 
     order as supporting or engaging in terrorist activity (as 
     defined in section 212(a)(3)(B) of the Immigration and 
     Nationality Act) or supporting terrorism (as defined in 
     section 140(d)(2) of the Foreign Relations Authorization Act, 
     Fiscal Years 1988 and 1989); and
       ``(ii) such Executive order refers to this subsection.
       ``(3) Period of suspension.--With respect to any 
     organization described in paragraph (2), the period of 
     suspension--
       ``(A) begins on the later of--
       ``(i) the date of the first publication of a designation or 
     identification described in paragraph (2) with respect to 
     such organization, or
       ``(ii) the date of the enactment of this subsection, and
       ``(B) ends on the first date that all designations and 
     identifications described in paragraph (2) with respect to 
     such organization are rescinded pursuant to the law or 
     Executive order under which such designation or 
     identification was made.
       ``(4) Denial of deduction.--No deduction shall be allowed 
     under any provision of this title, including sections 170, 
     545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), and 2522, 
     with respect to any contribution to an organization described 
     in paragraph (2) during the period described in paragraph 
     (3).
       ``(5) Denial of administrative or judicial challenge of 
     suspension or denial of deduction.--Notwithstanding section 
     7428 or any other provision of law, no organization or other 
     person may challenge a suspension under paragraph (1), a 
     designation or identification described in paragraph (2), the 
     period of suspension described in paragraph (3), or a denial 
     of a deduction under paragraph (4) in any administrative or 
     judicial proceeding relating to the Federal tax liability of 
     such organization or other person.
       ``(6) Erroneous designation.--
       ``(A) In general.--If--
       ``(i) the tax exemption of any organization described in 
     paragraph (2) is suspended under paragraph (1),
       ``(ii) each designation and identification described in 
     paragraph (2) which has been made with respect to such 
     organization is determined to be erroneous pursuant to the 
     law or Executive order under which such designation or 
     identification was made, and
       ``(iii) the erroneous designations and identifications 
     result in an overpayment of income tax for any taxable year 
     by such organization,

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

     TITLE III--OTHER CHARITABLE AND EXEMPT ORGANIZATION PROVISIONS

     SEC. 301. MODIFICATION OF EXCISE TAX ON UNRELATED BUSINESS 
                   TAXABLE INCOME OF CHARITABLE REMAINDER TRUSTS.

       (a) In General.--Subsection (c) of section 664 (relating to 
     exemption from income taxes) is amended to read as follows:
       ``(c) Taxation of Trusts.--
       ``(1) Income tax.--A charitable remainder annuity trust and 
     a charitable remainder unitrust shall, for any taxable year, 
     not be subject to any tax imposed by this subtitle.
       ``(2) Excise tax.--
       ``(A) In general.--In the case of a charitable remainder 
     annuity trust or a charitable remainder unitrust which has 
     unrelated business taxable income (within the meaning of 
     section 512, determined as if part III of subchapter F 
     applied to such trust) for a taxable year, there is hereby 
     imposed on such trust or unitrust an excise tax equal to the 
     amount of such unrelated business taxable income.
       ``(B) Certain rules to apply.--The tax imposed by 
     subparagraph (A) shall be treated as imposed by chapter 42 
     for purposes of this title other than subchapter E of chapter 
     42.
       ``(C) Tax court proceedings.--For purposes of this 
     paragraph, the references in section 6212(c)(1) to section 
     4940 shall be deemed to include references to this 
     paragraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 302. MODIFICATIONS TO SECTION 512(B)(13).

       (a) In General.--Paragraph (13) of section 512(b) (relating 
     to special rules for certain amounts received from controlled 
     entities) is amended by redesignating subparagraph (E) as 
     subparagraph (F) and by inserting after subparagraph (D) the 
     following new subparagraph:
       ``(E) Paragraph to apply only to excess payments.--
       ``(i) In general.--Subparagraph (A) shall apply only to the 
     portion of a specified payment received or accrued by the 
     controlling organization that exceeds the amount which would 
     have been paid or accrued if such payment met the 
     requirements prescribed under section 482.
       ``(ii) Addition to tax for valuation misstatements.--The 
     tax imposed by this chapter on the controlling organization 
     shall be increased by an amount equal to 20 percent of the 
     larger of--

       ``(I) such excess determined without regard to any 
     amendment or supplement to a return of tax, or
       ``(II) such excess determined with regard to all such 
     amendments and supplements.''.

       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to payments received or accrued after December 31, 
     2000.
       (2) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 did not apply to any amount received or accrued 
     in the first 2 taxable years beginning on or after the date 
     of the enactment of the Taxpayer Relief Act of 1997 under any 
     contract described in subsection (b)(2) of such section, such 
     amendments also shall not apply to amounts received or 
     accrued under such contract before January 1, 2001.

     SEC. 303. SIMPLIFICATION OF LOBBYING EXPENDITURE LIMITATION.

       (a) Repeal of Grassroots Expenditure Limit.--Paragraph (1) 
     of section 501(h) (relating to expenditures by public 
     charities to influence legislation) is amended to read as 
     follows:
       ``(1) General rule.--In the case of an organization to 
     which this subsection applies, exemption from taxation under 
     subsection (a) shall be denied because a substantial part of 
     the activities of such organization consists of carrying on 
     propaganda, or otherwise attempting, to influence 
     legislation, but only if such organization normally makes 
     lobbying expenditures in excess of the lobbying ceiling 
     amount for such organization for each taxable year.''.
       (b) Excess Lobbying Expenditures.--Section 4911(b) is 
     amended to read as follows:
       ``(b) Excess Lobbying Expenditures.--For purposes of this 
     section, the term `excess lobbying expenditures' means, for a 
     taxable year, the amount by which the lobbying expenditures 
     made by the organization during the taxable year exceed the 
     lobbying nontaxable amount for such organization for such 
     taxable year.''.
       (c) Conforming Amendments.--
       (1) Section 501(h)(2) is amended by striking subparagraphs 
     (C) and (D).
       (2) Section 4911(c) is amended by striking paragraphs (3) 
     and (4).
       (3) Paragraph (1)(A) of section 4911(f) is amended by 
     striking ``limits of section 501(h)(1) have'' and inserting 
     ``limit of section 501(h)(1) has''.
       (4) Paragraph (1)(C) of section 4911(f) is amended by 
     striking ``limits of section 501(h)(1) are'' and inserting 
     ``limit of section 501(h)(1) is''.
       (5) Paragraphs (4)(A) and (4)(B) of section 4911(f) are 
     each amended by striking ``limits of section 501(h)(1)'' and 
     inserting ``limit of section 501(h)(1)''.
       (6) Paragraph (8) of section 6033(b) (relating to certain 
     organizations described in section 501(c)(3)) is amended by 
     inserting ``and'' at the end of subparagraph (A) and by 
     striking subparagraphs (C) and (D).
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 304. EXPEDITED REVIEW PROCESS FOR CERTAIN TAX-EXEMPTION 
                   APPLICATIONS.

       (a) In General.--The Secretary of the Treasury or the 
     Secretary's delegate (in this section, referred to as the 
     ``Secretary'') shall adopt procedures to expedite the 
     consideration of applications for exempt status under section 
     501(c)(3) of the Internal Revenue Code of 1986 filed after 
     December 31, 2003, by any organization that--
       (1) is organized and operated for the primary purpose of 
     providing social services;
       (2) is seeking a contract or grant under a Federal, State, 
     or local program that provides funding for social services 
     programs;
       (3) establishes that, under the terms and conditions of the 
     contract or grant program, an organization is required to 
     obtain such exempt status before the organization is eligible 
     to apply for a contract or grant;
       (4) includes with its exemption application a copy of its 
     completed Federal, State, or local contract or grant 
     application; and
       (5) meets such other criteria as the Secretary deems 
     appropriate for expedited consideration.


[[Page S2152]]


     The Secretary may prescribe other similar circumstances in 
     which such organizations may be entitled to expedited 
     consideration.
       (b) Waiver of Application Fee for Exempt Status.--Any 
     organization that meets the conditions described in 
     subsection (a) (without regard to paragraph (3) of that 
     subsection) is entitled to a waiver of any fee for an 
     application for exempt status under section 501(c)(3) of the 
     Internal Revenue Code of 1986 if the organization certifies 
     that the organization has had (or expects to have) average 
     annual gross receipts of not more than $50,000 during the 
     preceding 4 years (or, in the case of an organization not in 
     existence throughout the preceding 4 years, during such 
     organization's first 4 years).
       (c) Social Services Defined.--For purposes of this 
     section--
       (1) In general.--The term ``social services'' means 
     services directed at helping people in need, reducing 
     poverty, improving outcomes of low-income children, 
     revitalizing low-income communities, and empowering low-
     income families and low-income individuals to become self-
     sufficient, including--
       (A) child care services, protective services for children 
     and adults, services for children and adults in foster care, 
     adoption services, services related to the management and 
     maintenance of the home, day care services for adults, and 
     services to meet the special needs of children, older 
     individuals, and individuals with disabilities (including 
     physical, mental, or emotional disabilities);
       (B) transportation services;
       (C) job training and related services, and employment 
     services;
       (D) information, referral, and counseling services;
       (E) the preparation and delivery of meals, and services 
     related to soup kitchens or food banks;
       (F) health support services;
       (G) literacy and mentoring programs;
       (H) services for the prevention and treatment of juvenile 
     delinquency and substance abuse, services for the prevention 
     of crime and the provision of assistance to the victims and 
     the families of criminal offenders, and services related to 
     the intervention in, and prevention of, domestic violence; 
     and
       (I) services related to the provision of assistance for 
     housing under Federal law.
       (2) Exclusions.--The term does not include a program having 
     the purpose of delivering educational assistance under the 
     Elementary and Secondary Education Act of 1965 (20 U.S.C. 
     6301 et seq.) or under the Higher Education Act of 1965 (20 
     U.S.C. 1001 et seq.).

     SEC. 305. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.

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

     SEC. 306. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-
                   EXEMPT ORGANIZATIONS.

       (a) In General.--Paragraph (1) of section 7428(a) (relating 
     to creation of remedy) is amended--
       (1) in subparagraph (B) by inserting after ``509(a))'' the 
     following: ``or as a private operating foundation (as defined 
     in section 4942(j)(3))''; and
       (2) by amending subparagraph (C) to read as follows:
       ``(C) with respect to the initial qualification or 
     continuing qualification of an organization as an 
     organization described in section 501(c) (other than 
     paragraph (3)) or 501(d) which is exempt from tax under 
     section 501(a), or''.
       (b) Court Jurisdiction.--Subsection (a) of section 7428 is 
     amended in the material following paragraph (2) by striking 
     ``United States Tax Court, the United States Claims Court, or 
     the district court of the United States for the District of 
     Columbia'' and inserting the following: ``United States Tax 
     Court (in the case of any such determination or failure) or 
     the United States Claims Court or the district court of the 
     United States for the District of Columbia (in the case of a 
     determination or failure with respect to an issue referred to 
     in subparagraph (A) or (B) of paragraph (1)),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to pleadings filed with respect to determinations 
     (or requests for determinations) made after December 31, 
     2002.

     SEC. 307. DEFINITION OF CONVENTION OR ASSOCIATION OF 
                   CHURCHES.

       Section 7701 (relating to definitions) is amended by 
     redesignating subsection (n) as subsection (o) and by 
     inserting after subsection (m) the following new subsection:
       ``(n) Convention or association of churches.--For purposes 
     of this title, any organization which is otherwise a 
     convention or association of churches shall not fail to so 
     qualify merely because the membership of such organization 
     includes individuals as well as churches or because 
     individuals have voting rights in such organization.''.

     SEC. 308. PAYMENTS BY CHARITABLE ORGANIZATIONS TO VICTIMS OF 
                   WAR ON TERRORISM AND FAMILIES OF ASTRONAUTS 
                   KILLED IN THE LINE OF DUTY.

       (a) In General.--For purposes of the Internal Revenue Code 
     of 1986--
       (1) any payment made by an organization described in 
     section 501(c)(3) of such Code to--
       (A) a member of the Armed Forces of the United States, or 
     to an individual of such member's immediate family, by reason 
     of the death, injury, wounding, or illness of such member 
     incurred as the result of the military response of the United 
     States to the terrorist attacks against the United States on 
     September 11, 2001, or
       (B) an individual of an astronaut's immediate family by 
     reason of the death of such astronaut occurring in the line 
     of duty after December 31, 2002,

     shall be treated as related to the purpose or function 
     constituting the basis for such organization's exemption 
     under section 501 of such Code if such payment is made using 
     an objective formula which is consistently applied, and
       (2) in the case of a private foundation (as defined in 
     section 509 of such Code), any payment described in paragraph 
     (1) shall not be treated as made to a disqualified person for 
     purposes of section 4941 of such Code.
       (b) Effective Dates.--This section shall apply to--
       (1) payments described in subsection (a)(1)(A) made after 
     the date of the enactment of this Act and before September 
     11, 2004, and
       (2) payments described in subsection (a)(1)(B) made after 
     December 31, 2002.

     SEC. 309. MODIFICATION OF SCHOLARSHIP FOUNDATION RULES.

       In applying the limitations on the percentage of 
     scholarship grants which may be awarded after the date of the 
     enactment of this Act, to children of current or former 
     employees under Revenue Procedure 76-47, such percentage 
     shall be increased to 35 percent of the eligible applicants 
     to be considered by the selection committee and to 20 percent 
     of individuals eligible for the grants, but only if the 
     foundation awarding the grants demonstrates that, in addition 
     to meeting the other requirements of Revenue Procedure 76-47, 
     it provides a comparable number and aggregate amount of 
     grants during the same program year to individuals who are 
     not such employees, children or dependents of such employees, 
     or affiliated with the employer of such employees.

     SEC. 310. TREATMENT OF CERTAIN HOSPITAL SUPPORT ORGANIZATIONS 
                   AS QUALIFIED ORGANIZATIONS FOR PURPOSES OF 
                   DETERMINING ACQUISITION INDEBTEDNESS.

       (a) In General.--Subparagraph (C) of section 514(c)(9) 
     (relating to real property acquired by a qualified 
     organization) is amended by striking ``or'' at the end of 
     clause (ii), by striking the period at the end of clause 
     (iii) and inserting ``; or'', and by adding at the end the 
     following new clause:

       ``(iv) a qualified hospital support organization (as 
     defined in subparagraph (I)).''.

       (b) Qualified Hospital Support Organizations.--Paragraph 
     (9) of section 514(c) is amended by adding at the end the 
     following new subparagraph:
       ``(I) Qualified hospital support organizations.--For 
     purposes of subparagraph (C)(iv), the term `qualified 
     hospital support organization' means, with respect to any 
     eligible indebtedness (including any qualified refinancing of 
     such eligible indebtedness), a support organization (as 
     defined in section 509(a)(3)) which supports a hospital 
     described in section 119(d)(4)(B) and with respect to which--

       ``(i) more than half of the organization's assets (by 
     value) at any time since its organization--

       ``(I) were acquired, directly or indirectly, by 
     testamentary gift or devise, and
       ``(II) consisted of real property, and

       ``(ii) the fair market value of the organization's real 
     estate acquired, directly or indirectly, by gift or devise, 
     exceeded 25 percent of the fair market value of all 
     investment assets held by the organization immediately prior 
     to the time that the eligible indebtedness was incurred.

     For purposes of this subparagraph, the term `eligible 
     indebtedness' means indebtedness secured by real property 
     acquired by the organization, directly or indirectly, by gift 
     or devise, the proceeds of which are used exclusively to 
     acquire any leasehold interest in such real property or for 
     improvements on, or repairs to, such real property. A 
     determination under clauses (i) and (ii) of this subparagraph 
     shall be made each time such an eligible indebtedness (or the 
     qualified refinancing of such an eligible indebtedness) is 
     incurred. For purposes of this subparagraph, a refinancing of 
     such an eligible indebtedness shall be considered qualified 
     if such refinancing does not exceed the amount of the 
     refinanced eligible indebtedness immediately before the 
     refinancing.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to indebtedness incurred after December 31, 2003.

     SEC. 311. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN 
                   EXPENSES INCURRED IN SUPPORT OF NATIVE ALASKAN 
                   SUBSISTENCE WHALING.

       (a) In General.--Section 170 (relating to charitable, etc., 
     contributions and gifts), as amended by this Act, is amended 
     by redesignating subsection (n) as subsection (o) and by 
     inserting after subsection (m) the following new subsection:
       ``(n) Expenses Paid by Certain Whaling Captains in Support 
     of Native Alaskan Subsistence Whaling.--

[[Page S2153]]

       ``(1) In general.--In the case of an individual who is 
     recognized by the Alaska Eskimo Whaling Commission as a 
     whaling captain charged with the responsibility of 
     maintaining and carrying out sanctioned whaling activities 
     and who engages in such activities during the taxable year, 
     the amount described in paragraph (2) (to the extent such 
     amount does not exceed $10,000 for the taxable year) shall be 
     treated for purposes of this section as a charitable 
     contribution.
       ``(2) Amount described.--
       ``(A) In general.--The amount described in this paragraph 
     is the aggregate of the reasonable and necessary whaling 
     expenses paid by the taxpayer during the taxable year in 
     carrying out sanctioned whaling activities.
       ``(B) Whaling expenses.--For purposes of subparagraph (A), 
     the term `whaling expenses' includes expenses for--
       ``(i) the acquisition and maintenance of whaling boats, 
     weapons, and gear used in sanctioned whaling activities,
       ``(ii) the supplying of food for the crew and other 
     provisions for carrying out such activities, and
       ``(iii) storage and distribution of the catch from such 
     activities.
       ``(3) Sanctioned whaling activities.--For purposes of this 
     subsection, the term `sanctioned whaling activities' means 
     subsistence bowhead whale hunting activities conducted 
     pursuant to the management plan of the Alaska Eskimo Whaling 
     Commission.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to contributions made after December 31, 2003.

     SEC. 312. MATCHING GRANTS TO LOW-INCOME TAXPAYER CLINICS FOR 
                   RETURN PREPARATION.

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

     ``SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-INCOME 
                   TAXPAYERS.

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

``Sec. 7526A. Return preparation clinics for low-income taxpayers.''.

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

     SEC. 313. EXEMPTION OF QUALIFIED 501(C)(3) BONDS FOR NURSING 
                   HOMES FROM FEDERAL GUARANTEE PROHIBITIONS.

       (a) In General.--Section 149(b)(3) (relating to exceptions) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(E) Exception for qualified 501(c)(3) bonds for nursing 
     homes.--
       ``(i) In general.--Paragraph (1) shall not apply to any 
     qualified 501(c)(3) bond issued before the date which is 1 
     year after the date of the enactment of this subparagraph for 
     the benefit of an organization described in section 
     501(c)(3), if such bond is part of an issue the proceeds of 
     which are used to finance 1 or more of the following 
     facilities primarily for the benefit of the elderly:

       ``(I) Licensed nursing home facility.
       ``(II) Licensed or certified assisted living facility.
       ``(III) Licensed personal care facility.
       ``(IV) Continuing care retirement community.

       ``(ii) Limitation.--With respect to any calendar year, 
     clause (i) shall not apply to any bond described in such 
     clause if the aggregate authorized face amount of the issue 
     of which such bond is a part when increased by the 
     outstanding amount of such bonds issued by the issuer for 
     such calendar year exceeds $15,000,000.
       ``(iii) Continuing care retirement community.--For purposes 
     of this subparagraph, the term `continuing care retirement 
     community' means a community which provides, on the same 
     campus, a continuum of residential living options and support 
     services to persons at least 60 years of age under a written 
     agreement. For purposes of the preceding sentence, the 
     residential living options shall include independent living 
     units, nursing home beds, and either assisted living units or 
     personal care beds.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 314. EXCISE TAXES EXEMPTION FOR BLOOD COLLECTOR 
                   ORGANIZATIONS.

       (a) Exemption from Imposition of Special Fuels Tax.--
     Section 4041(g) (relating to other exemptions) is amended by 
     striking ``and'' at the end of paragraph (3), by striking the 
     period in paragraph (4) and inserting ``; and'', and by 
     inserting after paragraph (4) the following new paragraph:
       ``(5) with respect to the sale of any liquid to a qualified 
     blood collector organization (as defined in section 
     7701(a)(48)) for such organization's exclusive use, or with 
     respect to the use by a qualified blood collector 
     organization of any liquid as a fuel.''.
       (b) Exemption from Manufacturers Excise Tax.--
       (1) In general.--Section 4221(a) (relating to certain tax-
     free sales) is amended by striking ``or'' at the end of 
     paragraph (4), by adding ``or'' at the end of paragraph (5), 
     and by inserting after paragraph (5) the following new 
     paragraph:
       ``(6) to a qualified blood collector organization (as 
     defined in section 7701(a)(48)) for such organization's 
     exclusive use,''.
       (2) Conforming amendments.--
       (A) The second sentence of section 4221(a) is amended by 
     striking ``Paragraphs (4) and (5)'' and inserting 
     ``Paragraphs (4), (5), and (6)''.
       (B) Section 6421(c) is amended by striking ``or (5)'' and 
     inserting ``(5), or (6)''.
       (c) Exemption from Communication Excise Tax.--
       (1) In general.--Section 4253 (relating to exemptions) is 
     amended by redesignating subsection (k) as subsection (l) and 
     inserting after subsection (j) the following new subsection:
       ``(k) Exemption for Qualified Blood Collector 
     Organizations.--Under regulations provided by the Secretary, 
     no tax shall be imposed under section 4251 on any amount paid 
     by a qualified blood collector organization (as defined in 
     section 7701(a)) for services or facilities furnished to such 
     organization.''.
       (2) Conforming amendment.--Section 4253(l), as redesignated 
     by paragraph (1), is amended by striking ``or (j)'' and 
     inserting ``(j), or (k)''.
       (d) Credit for Refund for Certain Taxes on Sales and 
     Services.--
       (1) Deemed overpayment.--
       (A) In general.--Section 6416(b)(2) is amended by 
     redesignating subparagraphs (E) and (F) as subparagraphs (F) 
     and (G), respectively, and by inserting after subparagraph 
     (D) the following new subparagraph:
       ``(E) sold to a qualified blood collector organization's 
     (as defined in section 7701(a)(48)) for such organization's 
     exclusive use;''.
       (B) Conforming amendments.--Section 6416(b)(2) is amended--
       (i) by striking ``Subparagraphs (C) and (D)'' and inserting 
     ``Subparagraphs (C), (D), and (E)'', and
       (ii) by striking ``(C), and (D)'' and inserting ``(C), (D), 
     and (E)''.
       (2) Sales of tires.--Clause (ii) of section 6416(b)(4)(B) 
     is amended by inserting ``sold to a qualified blood collector 
     organization (as defined in section 7701(a)(48)),'' after 
     ``for its exclusive use,''.
       (e) Definition of Qualified Blood Collector Organization.--
     Section 7701(a) is amended by inserting at the end the 
     following new paragraph:
       ``(48) Qualified blood collector organization.--For 
     purposes of this title, the term `qualified blood collector 
     organization' means an organization which is--
       ``(A) described in section 501(c)(3) and exempt from tax 
     under section 501(a),
       ``(B) registered by the Food and Drug Administration to 
     collect blood, and
       ``(C) primarily engaged in the activity of the collection 
     of blood.''.
       (f) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply with respect to 
     excise taxes imposed on sales or uses occurring on or after 
     October 1, 2003.
       (2) Refund of gasoline tax.--For purposes of section 
     6421(c) of the Internal Revenue Code of 1986 and any other 
     provision that allows for a refund or a payment in respect of 
     an excise tax payable at a level before the sale to a 
     qualified blood collector organization, the amendments made 
     by this section shall apply with respect to sales to a 
     qualified collector organization on or after October 1, 2003.

[[Page S2154]]

     SEC. 315. PILOT PROJECT FOR FOREST CONSERVATION ACTIVITIES.

       (a) Tax-Exempt Bond Financing.--
       (1) In general.--For purposes of the Internal Revenue Code 
     of 1986, any qualified forest conservation bond shall be 
     treated as an exempt facility bond under section 142 of such 
     Code.
       (2) Qualified forest conservation bond.--For purposes of 
     this section, the term ``qualified forest conservation bond'' 
     means any bond issued as part of an issue if--
       (A) 95 percent or more of the net proceeds (as defined in 
     section 150(a)(3) of such Code) of such issue are to be used 
     for qualified project costs,
       (B) such bond is issued for a qualified organization, and
       (C) such bond is issued before December 31, 2006.
       (3) Limitation on aggregate amount issued.--
       (A) In general.--The maximum aggregate face amount of bonds 
     which may be issued under this subsection shall not exceed 
     $2,000,000,000 for all projects (excluding refunding bonds).
       (B) Allocation of limitation.--The limitation described in 
     subparagraph (A) shall be allocated by the Secretary of the 
     Treasury among qualified organizations based on criteria 
     established by the Secretary not later than 180 days after 
     the date of the enactment of this section, after consultation 
     with the Chief of the Forest Service.
       (4) Qualified project costs.--For purposes of this 
     subsection, the term ``qualified project costs'' means the 
     sum of--
       (A) the cost of acquisition by the qualified organization 
     from an unrelated person of forests and forest land which at 
     the time of acquisition or immediately thereafter are subject 
     to a conservation restriction described in subsection (c)(2),
       (B) capitalized interest on the qualified forest 
     conservation bonds for the 3-year period beginning on the 
     date of issuance of such bonds, and
       (C) credit enhancement fees which constitute qualified 
     guarantee fees (within the meaning of section 148 of such 
     Code).
       (5) Special rules.--In applying the Internal Revenue Code 
     of 1986 to any qualified forest conservation bond, the 
     following modifications shall apply:
       (A) Section 146 of such Code (relating to volume cap) shall 
     not apply.
       (B) For purposes of section 147(b) of such Code (relating 
     to maturity may not exceed 120 percent of economic life), the 
     land and standing timber acquired with proceeds of qualified 
     forest conservation bonds shall have an economic life of 35 
     years.
       (C) Subsections (c) and (d) of section 147 of such Code 
     (relating to limitations on acquisition of land and existing 
     property) shall not apply.
       (D) Section 57(a)(5) of such Code (relating to tax-exempt 
     interest) shall not apply to interest on qualified forest 
     conservation bonds.
       (6) Treatment of current refunding bonds.--Paragraphs 
     (2)(C) and (3) shall not apply to any bond (or series of 
     bonds) issued to refund a qualified forest conservation bond 
     issued before December 31, 2006, if--
       (A) the average maturity date of the issue of which the 
     refunding bond is a part is not later than the average 
     maturity date of the bonds to be refunded by such issue,
       (B) the amount of the refunding bond does not exceed the 
     outstanding amount of the refunded bond, and
       (C) the net proceeds of the refunding bond are used to 
     redeem the refunded bond not later than 90 days after the 
     date of the issuance of the refunding bond.

     For purposes of subparagraph (A), average maturity shall be 
     determined in accordance with section 147(b)(2)(A) of such 
     Code.
       (7) Effective date.--This subsection shall apply to 
     obligations issued on or after the date which is 180 days 
     after the enactment of this Act.
       (b) Items From Qualified Harvesting Activities Not Subject 
     to Tax or Taken Into Account.--
       (1) In general.--Income, gains, deductions, losses, or 
     credits from a qualified harvesting activity conducted by a 
     qualified organization shall not be subject to tax or taken 
     into account under subtitle A of the Internal Revenue Code of 
     1986.
       (2) Limitation.--The amount of income excluded from gross 
     income under paragraph (1) for any taxable year shall not 
     exceed the amount used by the qualified organization to make 
     debt service payments during such taxable year for qualified 
     forest conservation bonds.
       (3) Qualified harvesting activity.--For purposes of 
     paragraph (1)--
       (A) In general.--The term ``qualified harvesting activity'' 
     means the sale, lease, or harvesting, of standing timber--
       (i) on land owned by a qualified organization which was 
     acquired with proceeds of qualified forest conservation 
     bonds,
       (ii) with respect to which a written acknowledgement has 
     been obtained by the qualified organization from the State or 
     local governments with jurisdiction over such land that the 
     acquisition lessens the burdens of such government with 
     respect to such land, and
       (iii) pursuant to a qualified conservation plan adopted by 
     the qualified organization.
       (B) Exceptions.--
       (i) Cessation as qualified organization.--The term 
     ``qualified harvesting activity'' shall not include any sale, 
     lease, or harvesting for any period during which the 
     organization ceases to qualify as a qualified organization.
       (ii) Exceeding limits on harvesting.--The term ``qualified 
     harvesting activity'' shall not include any sale, lease, or 
     harvesting of standing timber on land acquired with proceeds 
     of qualified forest conservation bonds to the extent that--

       (I) the average annual area of timber harvested from such 
     land exceeds 2.5 percent of the total area of such land or,
       (II) the quantity of timber removed from such land exceeds 
     the quantity which can be removed from such land annually in 
     perpetuity on a sustained-yield basis with respect to such 
     land.

     The limitations under subclauses (I) and (II) shall not apply 
     to post-fire restoration and rehabilitation or sanitation 
     harvesting of timber stands which are substantially damaged 
     by fire, windthrow, or other catastrophes, or which are in 
     imminent danger from insect or disease attack.
       (4) Termination.--This subsection shall not apply to any 
     qualified harvesting activity of a qualified organization 
     occurring after the date on which there is no outstanding 
     qualified forest conservation bond with respect to such 
     qualified organization or any such bond ceases to be a tax-
     exempt bond.
       (5) Partial recapture of benefits if harvesting limit 
     exceeded.--If, as of the date that this subsection ceases to 
     apply under paragraph (3), the average annual area of timber 
     harvested from the land exceeds the requirement of paragraph 
     (3)(B)(ii)(I), the tax imposed by chapter 1 of the Internal 
     Revenue Code of 1986 shall be increased, under rules 
     prescribed by the Secretary of the Treasury, by the sum of 
     the tax benefits attributable to such excess and interest at 
     the underpayment rate under section 6621 of such Code for the 
     period of the underpayment.
       (c) Definitions.--For purposes of this section--
       (1) Qualified conservation plan.--The term ``qualified 
     conservation plan'' means a multiple land use program or plan 
     which--
       (A) is designed and administered primarily for the purposes 
     of protecting and enhancing wildlife and fish, timber, scenic 
     attributes, recreation, and soil and water quality of the 
     forest and forest land,
       (B) mandates that conservation of forest and forest land is 
     the single-most significant use of the forest and forest 
     land, and
       (C) requires that timber harvesting be consistent with--
       (i) restoring and maintaining reference conditions for the 
     region's ecotype,
       (ii) restoring and maintaining a representative sample of 
     young, mid, and late successional forest age classes,
       (iii) maintaining or restoring the resources' ecological 
     health for purposes of preventing damage from fire, insect, 
     or disease,
       (iv) maintaining or enhancing wildlife or fish habitat, or
       (v) enhancing research opportunities in sustainable 
     renewable resource uses.
       (2) Conservation restriction.--The conservation restriction 
     described in this paragraph is a restriction which--
       (A) is granted in perpetuity to an unrelated person which 
     is described in section 170(h)(3) of such Code and which, in 
     the case of a nongovernmental unit, is organized and operated 
     for conservation purposes,
       (B) meets the requirements of clause (ii) or (iii)(II) of 
     section 170(h)(4)(A) of such Code,
       (C) obligates the qualified organization to pay the costs 
     incurred by the holder of the conservation restriction in 
     monitoring compliance with such restriction, and
       (D) requires an increasing level of conservation benefits 
     to be provided whenever circumstances allow it.
       (3) Qualified organization.--The term ``qualified 
     organization'' means an organization--
       (A) which is a nonprofit organization substantially all the 
     activities of which are charitable, scientific, or 
     educational, including acquiring, protecting, restoring, 
     managing, and developing forest lands and other renewable 
     resources for the long-term charitable, educational, 
     scientific and public benefit,
       (B) more than half of the value of the property of which 
     consists of forests and forest land acquired with the 
     proceeds from qualified forest conservation bonds,
       (C) which periodically conducts educational programs 
     designed to inform the public of environmentally sensitive 
     forestry management and conservation techniques,
       (D) which has at all times a board of directors--
       (i) at least 20 percent of the members of which represent 
     the holders of the conservation restriction described in 
     paragraph (2),
       (ii) at least 20 percent of the members of which are public 
     officials, and
       (iii) not more than one-third of the members of which are 
     individuals who are or were at any time within 5 years before 
     the beginning of a term of membership on the board, an 
     employee of, independent contractor with respect to, officer 
     of, director of, or held a material financial interest in, a 
     commercial forest products enterprise with which the 
     qualified organization has a contractual or other financial 
     arrangement,
       (E) the bylaws of which require at least two-thirds of the 
     members of the board of directors to vote affirmatively to 
     approve the

[[Page S2155]]

     qualified conservation plan and any change thereto, and
       (F) upon dissolution, is required to dedicate its assets 
     to--
       (i) an organization described in section 501(c)(3) of such 
     Code which is organized and operated for conservation 
     purposes, or
       (ii) a governmental unit described in section 170(c)(1) of 
     such Code.
       (4) Unrelated person.--The term ``unrelated person'' means 
     a person who is not a related person.
       (5) Related person.--A person shall be treated as related 
     to another person if--
       (A) such person bears a relationship to such other person 
     described in section 267(b) (determined without regard to 
     paragraph (9) thereof), or 707(b)(1), of such Code, 
     determined by substituting ``25 percent'' for ``50 percent'' 
     each place it appears therein, and
       (B) in the case such other person is a non-profit 
     organization, if such person controls directly or indirectly 
     more than 25 percent of the governing body of such 
     organization.

     SEC. 316. CLARIFICATION OF TREATMENT OF JOHNNY MICHEAL SPANN 
                   PATRIOT TRUSTS.

       (a) Clarification of Tax-Exempt Status of Trusts.--
       (1) In general.--Subsection (b) of section 601 of the 
     Homeland Security Act of 2002 is amended to read as follows:
       ``(b) Designation of Johnny Micheal Spann Patriot Trusts.--
     Any charitable corporation, fund, foundation, or trust (or 
     separate fund or account thereof) which is described in 
     section 501(c)(3) of the Internal Revenue Code of 1986 and 
     exempt from tax under section 501(a) of such Code and meets 
     the requirements described in subsection (c) shall be 
     eligible to designate itself as a `Johnny Micheal Spann 
     Patriot trust'.''.
       (2) Conforming amendment.--Section 601(c)(3) of such Act is 
     amended by striking ``based'' and all that follows through 
     ``Trust''.
       (b) Publicly Available Audits.--Section 601(c)(7) of the 
     Homeland Security Act of 2002 is amended by striking ``shall 
     be filed with the Internal Revenue Service, and shall be open 
     to public inspection'' and inserting ``shall be open to 
     public inspection consistent with section 6104(d)(1) of the 
     Internal Revenue Code of 1986''.
       (c) Clarification of Required Distributions to Private 
     Foundation.--
       (1) In general.--Section 601(c)(8) of the Homeland Security 
     Act of 2002 is amended by striking ``not placed'' and all 
     that follows and inserting ``not so distributed shall be 
     contributed to a private foundation which is described in 
     section 509(a) of the Internal Revenue Code of 1986 and 
     exempt from tax under section 501(a) of such Code and which 
     is dedicated to such beneficiaries not later than 36 months 
     after the end of the fiscal year in which such funds, 
     donations, or earnings are received.''.
       (2) Conforming amendments.--Section 601(c) of such Act is 
     amended--
       (A) by striking ``(or, if placed in a private foundation, 
     held in trust for)'' in paragraph (1) and inserting ``(or 
     contributed to a private foundation described in paragraph 
     (8) for the benefit of)'', and
       (B) by striking ``invested in a private foundation'' in 
     paragraph (2) and inserting ``contributed to a private 
     foundation described in paragraph (8)''.
       (d) Requirements for Distributions From Trusts.--Section 
     601(c)(9)(A) of the Homeland Security Act of 2002 is amended 
     by striking ``should'' and inserting ``shall''.
       (e) Regulations Regarding Notification of Trust 
     Beneficiaries.--Section 601(f) of the Homeland Security Act 
     of 2002 is amended by striking ``this section'' and inserting 
     ``subsection (e)''.
       (f) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of section 
     601 of the Homeland Security Act of 2002.

                 TITLE IV--SOCIAL SERVICES BLOCK GRANT

     SEC. 401. RESTORATION OF FUNDS FOR THE SOCIAL SERVICES BLOCK 
                   GRANT.

       (a) Findings.--Congress makes the following findings:
       (1) On August 22, 1996, the Personal Responsibility and 
     Work Opportunity Reconciliation Act of 1996 (Public Law 104-
     193; 110 Stat. 2105) was signed into law.
       (2) In enacting that law, Congress authorized 
     $2,800,000,000 for fiscal year 2003 and each fiscal year 
     thereafter to carry out the Social Services Block Grant 
     program established under title XX of the Social Security Act 
     (42 U.S.C. 1397 et seq.).
       (b) Restoration of Funds.--Section 2003(c)(11) of the 
     Social Security Act (42 U.S.C. 1397b(c)(11)) is amended by 
     inserting ``, except that, with respect to fiscal year 2004, 
     the amount shall be $1,975,000,000, and with respect to 
     fiscal year 2005, the amount shall be $2,800,000,000'' after 
     ``thereafter.''.

     SEC. 402. RESTORATION OF AUTHORITY TO TRANSFER UP TO 10 
                   PERCENT OF TANF FUNDS TO THE SOCIAL SERVICES 
                   BLOCK GRANT.

       (a) In General.--Section 404(d)(2) of the Social Security 
     Act (42 U.S.C. 604(d)(2)) is amended to read as follows:
       ``(2) Limitation on amount transferable to title xx 
     programs.--A State may use not more than 10 percent of the 
     amount of any grant made to the State under section 403(a) 
     for a fiscal year to carry out State programs pursuant to 
     title XX.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to amounts made available for fiscal year 2004 and 
     each fiscal year thereafter.

     SEC. 403. REQUIREMENT TO SUBMIT ANNUAL REPORT ON STATE 
                   ACTIVITIES.

       (a) In General.--Section 2006(c) of the Social Security Act 
     (42 U.S.C. 1397e(c)) is amended by adding at the end the 
     following: ``The Secretary shall compile the information 
     submitted by the States and submit that information to 
     Congress on an annual basis.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to information submitted by States under section 2006 
     of the Social Security Act (42 U.S.C. 1397e) with respect to 
     fiscal year 2003 and each fiscal year thereafter.

                TITLE V--INDIVIDUAL DEVELOPMENT ACCOUNTS

     SEC. 501. SHORT TITLE.

       This title may be cited as the ``Savings for Working 
     Families Act of 2004''.

     SEC. 502. PURPOSES.

       The purposes of this title are to provide for the 
     establishment of individual development account programs that 
     will--
       (1) provide individuals and families with limited means an 
     opportunity to accumulate assets and to enter the financial 
     mainstream,
       (2) promote education, homeownership, and the development 
     of small businesses,
       (3) stabilize families and build communities, and
       (4) support continued United States economic expansion.

     SEC. 503. DEFINITIONS.

       As used in this title:
       (1) Eligible individual.--
       (A) In general.--The term ``eligible individual'' means, 
     with respect to any taxable year, an individual who--
       (i) has attained the age of 18 but not the age of 61 as of 
     the last day of such taxable year,
       (ii) is a citizen or lawful permanent resident (within the 
     meaning of section 7701(b)(6) of the Internal Revenue Code of 
     1986) of the United States as of the last day of such taxable 
     year,
       (iii) was not a student (as defined in section 151(c)(4) of 
     such Code) for the immediately preceding taxable year,
       (iv) is not an individual with respect to whom a deduction 
     under section 151 of such Code is allowable to another 
     taxpayer for a taxable year of the other taxpayer ending 
     during the immediately preceding taxable year of the 
     individual,
       (v) is not a taxpayer described in subsection (c), (d), or 
     (e) of section 6402 of such Code for the immediately 
     preceding taxable year,
       (vi) is not a taxpayer described in section 1(d) of such 
     Code for the immediately preceding taxable year, and
       (vii) is a taxpayer the modified adjusted gross income of 
     whom for the immediately preceding taxable year does not 
     exceed--

       (I) $18,000, in the case of a taxpayer described in section 
     1(c) of such Code,
       (II) $30,000, in the case of a taxpayer described in 
     section 1(b) of such Code, and
       (III) $38,000, in the case of a taxpayer described in 
     section 1(a) of such Code.

       (B) Inflation adjustment.--
       (i) In general.--In the case of any taxable year beginning 
     after 2004, each dollar amount referred to in subparagraph 
     (A)(vii) 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) of the Internal Revenue Code of 1986 for the 
     calendar year in which the taxable year begins, by 
     substituting ``2003'' for ``1992''.

       (ii) Rounding.--If any amount as adjusted under clause (i) 
     is not a multiple of $50, such amount shall be rounded to the 
     nearest multiple of $50.
       (C) Modified adjusted gross income.--For purposes of 
     subparagraph (A)(v), the term ``modified adjusted gross 
     income'' means adjusted gross income--
       (i) determined without regard to sections 86, 893, 911, 
     931, and 933 of the Internal Revenue Code of 1986, and
       (ii) increased by the amount of interest received or 
     accrued by the taxpayer during the taxable year which is 
     exempt from tax.
       (2) Individual development account.--The term ``Individual 
     Development Account'' means an account established for an 
     eligible individual as part of a qualified individual 
     development account program, but only if the written 
     governing instrument creating the account meets the following 
     requirements:
       (A) The owner of the account is the individual for whom the 
     account was established.
       (B) No contribution will be accepted unless it is in cash, 
     and, except in the case of any qualified rollover, 
     contributions will not be accepted for the taxable year in 
     excess of $1,500 on behalf of any individual.
       (C) The trustee of the account is a qualified financial 
     institution.
       (D) The assets of the account will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       (E) Except as provided in section 507(b), any amount in the 
     account may be paid out only for the purpose of paying the 
     qualified expenses of the account owner.
       (3) Parallel account.--The term ``parallel account'' means 
     a separate, parallel individual or pooled account for all 
     matching funds and earnings dedicated to an Individual 
     Development Account owner as part

[[Page S2156]]

     of a qualified individual development account program, the 
     trustee of which is a qualified financial institution.
       (4) Qualified financial institution.--The term ``qualified 
     financial institution'' means any person authorized to be a 
     trustee of any individual retirement account under section 
     408(a)(2) of the Internal Revenue Code of 1986.
       (5) Qualified individual development account program.--The 
     term ``qualified individual development account program'' 
     means a program established upon approval of the Secretary 
     under section 504 after December 31, 2002, under which--
       (A) Individual Development Accounts and parallel accounts 
     are held in trust by a qualified financial institution, and
       (B) additional activities determined by the Secretary, in 
     consultation with the Secretary of Health and Human Services, 
     as necessary to responsibly develop and administer accounts, 
     including recruiting, providing financial education and other 
     training to Account owners, and regular program monitoring, 
     are carried out by the qualified financial institution.
       (6) Qualified expense distribution.--
       (A) In general.--The term ``qualified expense 
     distribution'' means any amount paid (including through 
     electronic payments) or distributed out of an Individual 
     Development Account or a parallel account established for an 
     eligible individual if such amount--
       (i) is used exclusively to pay the qualified expenses of 
     the Individual Development Account owner or such owner's 
     spouse or dependents,
       (ii) is paid by the qualified financial institution--

       (I) except as otherwise provided in this clause, directly 
     to the unrelated third party to whom the amount is due,
       (II) in the case of any qualified rollover, directly to 
     another Individual Development Account and parallel account, 
     or
       (III) in the case of a qualified final distribution, 
     directly to the spouse, dependent, or other named beneficiary 
     of the deceased Account owner, and

       (iii) is paid after the Account owner has completed a 
     financial education course if required under section 505(b).
       (B) Qualified expenses.--
       (i) In general.--The term ``qualified expenses'' means any 
     of the following expenses approved by the qualified financial 
     institution:

       (I) Qualified higher education expenses.
       (II) Qualified first-time homebuyer costs.
       (III) Qualified business capitalization or expansion costs.
       (IV) Qualified rollovers.
       (V) Qualified final distribution.

       (ii) Qualified higher education expenses.--

       (I) In general.--The term ``qualified higher education 
     expenses'' has the meaning given such term by section 
     529(e)(3) of the Internal Revenue Code of 1986, determined by 
     treating the Account owner, the owner's spouse, or one or 
     more of the owner's dependents as a designated beneficiary, 
     and reduced as provided in section 25A(g)(2) of such Code.
       (II) Coordination with other benefits.--The amount of 
     expenses which may be taken into account for purposes of 
     section 135, 529, or 530 of such Code for any taxable year 
     shall be reduced by the amount of any qualified higher 
     education expenses taken into account as qualified expense 
     distributions during such taxable year.

       (iii) Qualified first-time homebuyer costs.--The term 
     ``qualified first-time homebuyer costs'' means qualified 
     acquisition costs (as defined in section 72(t)(8)(C) of the 
     Internal Revenue Code of 1986) with respect to a principal 
     residence (within the meaning of section 121 of such Code) 
     for a qualified first-time homebuyer (as defined in section 
     72(t)(8)(D)(i) of such Code).
       (iv) Qualified business capitalization or expansion 
     costs.--

       (I) In general.--The term ``qualified business 
     capitalization or expansion costs'' means qualified 
     expenditures for the capitalization or expansion of a 
     qualified business pursuant to a qualified business plan.
       (II) Qualified expenditures.--The term ``qualified 
     expenditures'' means expenditures normally associated with 
     starting or expanding a business and included in a qualified 
     business plan, including costs for capital, plant, and 
     equipment, inventory expenses, and attorney and accounting 
     fees.
       (III) Qualified business.--The term ``qualified business'' 
     means any business that does not contravene any law.
       (IV) Qualified business plan.--The term ``qualified 
     business plan'' means a business plan which has been approved 
     by the qualified financial institution and which meets such 
     requirements as the Secretary may specify.

       (v) Qualified rollovers.--The term ``qualified rollover'' 
     means the complete distribution of the amounts in an 
     Individual Development Account and parallel account to 
     another Individual Development Account and parallel account 
     established in another qualified financial institution for 
     the benefit of the Account owner.
       (vi) Qualified final distribution.--The term ``qualified 
     final distribution'' means, in the case of a deceased Account 
     owner, the complete distribution of the amounts in the 
     Individual Development Account and parallel account directly 
     to the spouse, any dependent, or other named beneficiary of 
     the deceased.
       (7) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury.

     SEC. 504. STRUCTURE AND ADMINISTRATION OF QUALIFIED 
                   INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.

       (a) Establishment of Qualified Individual Development 
     Account Programs.--Any qualified financial institution may 
     apply to the Secretary for approval to establish 1 or more 
     qualified individual development account programs which meet 
     the requirements of this title and for an allocation of the 
     Individual Development Account limitation under section 
     45G(i)(3) of the Internal Revenue Code of 1986 with respect 
     to such programs.
       (b) Basic Program Structure.--
       (1) In general.--All qualified individual development 
     account programs shall consist of the following 2 components 
     for each participant:
       (A) An Individual Development Account to which an eligible 
     individual may contribute cash in accordance with section 
     505.
       (B) A parallel account to which all matching funds shall be 
     deposited in accordance with section 506.
       (2) Tailored ida programs.--A qualified financial 
     institution may tailor its qualified individual development 
     account program to allow matching funds to be spent on 1 or 
     more of the categories of qualified expenses.
       (3) No fees may be charged to idas.--A qualified financial 
     institution may not charge any fees to any Individual 
     Development Account or parallel account under a qualified 
     individual development account program.
       (c) Coordination With Public Housing Agency Individual 
     Savings Accounts.--Section 3(e)(2) of the United States 
     Housing Act of 1937 (42 U.S.C. 1437a(e)(2)) is amended by 
     inserting ``or in any Individual Development Account 
     established under the Savings for Working Families Act of 
     2004'' after ``subsection''.
       (d) Tax Treatment of Parallel Accounts.--
       (1) In general.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7528. TAX INCENTIVES FOR INDIVIDUAL DEVELOPMENT 
                   PARALLEL ACCOUNTS.

       ``For purposes of this title--
       ``(1) any account described in section 504(b)(1)(B) of the 
     Savings for Working Families Act of 2004 shall be exempt from 
     taxation,
       ``(2) except as provided in section 45G, no item of income, 
     expense, basis, gain, or loss with respect to such an account 
     may be taken into account, and
       ``(3) any amount withdrawn from such an account shall not 
     be includible in gross income.''.
       (2) Conforming amendment.--The table of sections for 
     chapter 77 is amended by adding at the end the following new 
     item:

``Sec. 7528. Tax incentives for individual development parallel 
              accounts.''.

       (e) Coordination of certain expenses.--Section 25A(g)(2) is 
     amended by striking ``and'' at the end of subparagraph (C), 
     by striking the period at the end of subparagraph (D) and 
     inserting ``, and'', and by adding at the end the following 
     new subparagraph:
       ``(D) a qualified expense distribution with respect to 
     qualified higher education expenses from an Individual 
     Development Account or a parallel account under section 
     507(a) of the Savings for Working Families Act of 2004.''.

     SEC. 505. PROCEDURES FOR OPENING AND MAINTAINING AN 
                   INDIVIDUAL DEVELOPMENT ACCOUNT AND QUALIFYING 
                   FOR MATCHING FUNDS.

       (a) Opening an Account.--An eligible individual may open an 
     Individual Development Account with a qualified financial 
     institution upon certification that such individual has never 
     maintained any other Individual Development Account (other 
     than an Individual Development Account to be terminated by a 
     qualified rollover).
       (b) Required Completion of Financial Education Course.--
       (1) In general.--Before becoming eligible to withdraw funds 
     to pay for qualified expenses, owners of Individual 
     Development Accounts must complete 1 or more financial 
     education courses specified in the qualified individual 
     development account program.
       (2) Standard and applicability of course.--The Secretary, 
     in consultation with representatives of qualified individual 
     development account programs and financial educators, shall 
     not later than January 1, 2004, establish minimum quality 
     standards for the contents of financial education courses and 
     providers of such courses described in paragraph (1) and a 
     protocol to exempt individuals from the requirement under 
     paragraph (1) in the case of hardship, lack of need, the 
     attainment of age 65, or a qualified final distribution.
       (c) Proof of Status as an Eligible Individual.--Federal 
     income tax forms for the immediately preceding taxable year 
     and any other evidence of eligibility which may be required 
     by a qualified financial institution shall be presented to 
     such institution at the time of the establishment of the 
     Individual Development Account and in any taxable year in 
     which contributions are made to the Account to qualify for 
     matching funds under section 506(b)(1)(A).
       (d) Special Rule in the Case of Married Individuals.--For 
     purposes of this title, if, with respect to any taxable year, 
     2 married individuals file a Federal joint income tax return, 
     then not more than 1 of such individuals may be treated as an 
     eligible individual with respect to the succeeding taxable 
     year.

[[Page S2157]]

     SEC. 506. DEPOSITS BY QUALIFIED INDIVIDUAL DEVELOPMENT 
                   ACCOUNT PROGRAMS.

       (a) Parallel Accounts.--The qualified financial institution 
     shall deposit all matching funds for each Individual 
     Development Account into a parallel account at a qualified 
     financial institution.
       (b) Regular Deposits of Matching Funds.--
       (1) In general.--Subject to paragraph (2), the qualified 
     financial institution shall deposit into the parallel account 
     with respect to each eligible individual the following 
     amounts:
       (A) A dollar-for-dollar match for the first $500 
     contributed by the eligible individual into an Individual 
     Development Account with respect to any taxable year of such 
     individual.
       (B) Any matching funds provided by State, local, or private 
     sources in accordance with the matching ratio set by those 
     sources.
       (2) Timing of deposits.--A deposit of the amounts described 
     in paragraph (1) shall be made into a parallel account--
       (A) in the case of amounts described in paragraph (1)(A), 
     not later than 30 days after the end of the calendar quarter 
     during which the contribution described in such paragraph was 
     made, and
       (B) in the case of amounts described in paragraph (1)(B), 
     not later than 2 business days after such amounts were 
     provided.
       (3) Cross reference.--

  For allowance of tax credit for Individual Development Account 
subsidies, including matching funds, see section 45G of the Internal 
Revenue Code of 1986.
       (c) Deposit of Matching Funds Into Individual Development 
     Account of Individual Who Has Attained Age 65.--In the case 
     of an Individual Development Account owner who attains the 
     age of 65, the qualified financial institution shall deposit 
     the funds in the parallel account with respect to such 
     individual into the Individual Development Account of such 
     individual on the later of--
       (1) the day which is the 1-year anniversary of the deposit 
     of such funds in the parallel account, or
       (2) the first business day of the taxable year of such 
     individual following the taxable year in which such 
     individual attained age 65.
       (d) Uniform Accounting Regulations.--To ensure proper 
     recordkeeping and determination of the tax credit under 
     section 45G of the Internal Revenue Code of 1986, the 
     Secretary shall prescribe regulations with respect to 
     accounting for matching funds in the parallel accounts.
       (e) Regular Reporting of Accounts.--Any qualified financial 
     institution shall report the balances in any Individual 
     Development Account and parallel account of an individual on 
     not less than an annual basis to such individual.

     SEC. 507. WITHDRAWAL PROCEDURES.

       (a) Withdrawals for Qualified Expenses.--
       (1) In general.--An Individual Development Account owner 
     may withdraw funds in order to pay qualified expense 
     distributions from such individual's--
       (A) Individual Development Account, but only from funds 
     which have been on deposit in such Account for at least 1 
     year, and
       (B) parallel account, but only--
       (i) from matching funds which have been on deposit in such 
     parallel account for at least 1 year,
       (ii) from earnings in such parallel account, after all 
     matching funds described in clause (i) have been withdrawn, 
     and
       (iii) to the extent such withdrawal does not result in a 
     remaining balance in such parallel account which is less than 
     the remaining balance in the Individual Development Account 
     after such withdrawal.
       (2) Procedure.--Upon receipt of a withdrawal request which 
     meets the requirements of paragraph (1), the qualified 
     financial institution shall directly transfer the funds 
     electronically to the distributees described in section 
     503(6)(A)(ii). If a distributee is not equipped to receive 
     funds electronically, the qualified financial institution may 
     issue such funds by paper check to the distributee.
       (b) Withdrawals for Nonqualified Expenses.--An Individual 
     Development Account owner may withdraw any amount of funds 
     from the Individual Development Account for purposes other 
     than to pay qualified expense distributions, but if, after 
     such withdrawal, the amount in the parallel account of such 
     owner (excluding earnings on matching funds) exceeds the 
     amount remaining in such Individual Development Account, then 
     such owner shall forfeit from the parallel account the lesser 
     of such excess or the amount withdrawn.
       (c) Withdrawals From Accounts of Noneligible Individuals.--
     If the individual for whose benefit an Individual Development 
     Account is established ceases to be an eligible individual, 
     such account shall remain an Individual Development Account, 
     but such individual shall not be eligible for any further 
     matching funds under section 506(b)(1)(A) for contributions 
     which are made to the Account during any taxable year when 
     such individual is not an eligible individual.
       (d) Effect of Pledging Account as Security.--If, during any 
     taxable year of the individual for whose benefit an 
     Individual Development Account is established, that 
     individual uses the Account, the individual's parallel 
     account, or any portion thereof as security for a loan, the 
     portion so used shall be treated as a withdrawal of such 
     portion from the Individual Development Account for purposes 
     other than to pay qualified expenses.

     SEC. 508. CERTIFICATION AND TERMINATION OF QUALIFIED 
                   INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.

       (a) Certification Procedures.--Upon establishing a 
     qualified individual development account program under 
     section 504, a qualified financial institution shall certify 
     to the Secretary at such time and in such manner as may be 
     prescribed by the Secretary and accompanied by any 
     documentation required by the Secretary, that--
       (1) the accounts described in subparagraphs (A) and (B) of 
     section 504(b)(1) are operating pursuant to all the 
     provisions of this title, and
       (2) the qualified financial institution agrees to implement 
     an information system necessary to monitor the cost and 
     outcomes of the qualified individual development account 
     program.
       (b) Authority To Terminate Qualified IDA Program.--If the 
     Secretary determines that a qualified financial institution 
     under this title is not operating a qualified individual 
     development account program in accordance with the 
     requirements of this title (and has not implemented any 
     corrective recommendations directed by the Secretary), the 
     Secretary shall terminate such institution's authority to 
     conduct the program. If the Secretary is unable to identify a 
     qualified financial institution to assume the authority to 
     conduct such program, then any funds in a parallel account 
     established for the benefit of any individual under such 
     program shall be deposited into the Individual Development 
     Account of such individual as of the first day of such 
     termination.

     SEC. 509. REPORTING, MONITORING, AND EVALUATION.

       (a) Responsibilities of Qualified Financial Institutions.--
       (1) In general.--Each qualified financial institution that 
     operates a qualified individual development account program 
     under section 504 shall report annually to the Secretary 
     within 90 days after the end of each calendar year on--
       (A) the number of individuals making contributions into 
     Individual Development Accounts and the amounts contributed,
       (B) the amounts contributed into Individual Development 
     Accounts by eligible individuals and the amounts deposited 
     into parallel accounts for matching funds,
       (C) the amounts withdrawn from Individual Development 
     Accounts and parallel accounts, and the purposes for which 
     such amounts were withdrawn,
       (D) the balances remaining in Individual Development 
     Accounts and parallel accounts, and
       (E) such other information needed to help the Secretary 
     monitor the effectiveness of the qualified individual 
     development account program (provided in a non-individually-
     identifiable manner).
       (2) Additional reporting requirements.--Each qualified 
     financial institution that operates a qualified individual 
     development account program under section 504 shall report at 
     such time and in such manner as the Secretary may prescribe 
     any additional information that the Secretary requires to be 
     provided for purposes of administering and supervising the 
     qualified individual development account program. This 
     additional data may include, without limitation, identifying 
     information about Individual Development Account owners, 
     their Accounts, additions to the Accounts, and withdrawals 
     from the Accounts.
       (b) Responsibilities of the Secretary.--
       (1) Monitoring protocol.--Not later than 12 months after 
     the date of the enactment of this Act, the Secretary, in 
     consultation with the Secretary of Health and Human Services, 
     shall develop and implement a protocol and process to monitor 
     the cost and outcomes of the qualified individual development 
     account programs established under section 504.
       (2) Annual reports.--For each year after 2004, the 
     Secretary shall submit a progress report to Congress on the 
     status of such qualified individual development account 
     programs. Such report shall, to the extent data are 
     available, include from a representative sample of qualified 
     individual development account programs information on--
       (A) the characteristics of participants, including age, 
     gender, race or ethnicity, marital status, number of 
     children, employment status, and monthly income,
       (B) deposits, withdrawals, balances, uses of Individual 
     Development Accounts, and participant characteristics,
       (C) the characteristics of qualified individual development 
     account programs, including match rate, economic education 
     requirements, permissible uses of accounts, staffing of 
     programs in full time employees, and the total costs of 
     programs, and
       (D) process information on program implementation and 
     administration, especially on problems encountered and how 
     problems were solved.
       (3) Reauthorization report on cost and outcomes of idas.--
       (A) In general.--Not later than July 1, 2008, the Secretary 
     of the Treasury shall submit a report to Congress and the 
     chairmen and ranking members of the Committee on Finance, the 
     Committee on Banking, Housing, and Urban Affairs, and the 
     Committee on Health, Education, Labor, and Pensions of the 
     Senate and the Committee on Ways and

[[Page S2158]]

     Means, the Committee on Banking and Financial Services, and 
     the Committee on Education and the Workforce of the House of 
     Representatives, in which the Secretary shall--
       (i) summarize the previously submitted annual reports 
     required under paragraph (2),
       (ii) from a representative sample of qualified individual 
     development account programs, include an analysis of--

       (I) the economic, social, and behavioral outcomes,
       (II) the changes in savings rates, asset holdings, and 
     household debt, and overall changes in economic stability,
       (III) the changes in outlooks, attitudes, and behavior 
     regarding savings strategies, investment, education, and 
     family,
       (IV) the integration into the financial mainstream, 
     including decreased reliance on alternative financial 
     services, and increase in acquisition of mainstream financial 
     products, and
       (V) the involvement in civic affairs, including 
     neighborhood schools and associations,

     associated with participation in qualified individual 
     development account programs,
       (iii) from a representative sample of qualified individual 
     development account programs, include a comparison of 
     outcomes associated with such programs with outcomes 
     associated with other Federal Government social and economic 
     development programs, including asset building programs, and
       (iv) make recommendations regarding the reauthorization of 
     the qualified individual development account programs, 
     including--

       (I) recommendations regarding reforms that will improve the 
     cost and outcomes of the such programs, including the ability 
     to help low income families save and accumulate productive 
     assets,
       (II) recommendations regarding the appropriate levels of 
     subsidies to provide effective incentives to financial 
     institutions and Account owners under such programs, and
       (III) recommendations regarding how such programs should be 
     integrated into other Federal poverty reduction, asset 
     building, and community development policies and programs.

       (B) Authorization.--There is authorized to be appropriated 
     $2,500,000, for carrying out the purposes of this paragraph.
       (4) Use of accounts in rural areas encouraged.--The 
     Secretary shall develop methods to encourage the use of 
     Individual Development Accounts in rural areas.

     SEC. 510. AUTHORIZATION OF APPROPRIATIONS.

       There is authorized to be appropriated to the Secretary 
     $1,000,000 for fiscal year 2004 and for each fiscal year 
     through 2012, for the purposes of implementing this title, 
     including the reporting, monitoring, and evaluation required 
     under section 509, to remain available until expended.

     SEC. 511. MATCHING FUNDS FOR INDIVIDUAL DEVELOPMENT ACCOUNTS 
                   PROVIDED THROUGH A TAX CREDIT FOR QUALIFIED 
                   FINANCIAL INSTITUTIONS.

       (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. INDIVIDUAL DEVELOPMENT ACCOUNT INVESTMENT CREDIT.

       ``(a) Determination of Amount.--For purposes of section 38, 
     the individual development account investment credit 
     determined under this section with respect to any eligible 
     entity for any taxable year is an amount equal to the 
     individual development account investment provided by such 
     eligible entity during the taxable year under an individual 
     development account program established under section 504 of 
     the Savings for Working Families Act of 2004.
       ``(b) Applicable Tax.--For the purposes of this section, 
     the term `applicable tax' means the excess (if any) of--
       ``(1) the tax imposed under this chapter (other than the 
     taxes imposed under the provisions described in subparagraphs 
     (C) through (Q) of section 26(b)(2)), over
       ``(2) the credits allowable under subpart B (other than 
     this section) and subpart D of this part.
       ``(c) Individual Development Account Investment.--For 
     purposes of this section, the term `individual development 
     account investment' means, with respect to an individual 
     development account program in any taxable year, an amount 
     equal to the sum of--
       ``(1) the aggregate amount of dollar-for-dollar matches 
     under such program under section 506(b)(1)(A) of the Savings 
     for Working Families Act of 2004 for such taxable year, plus
       ``(2) $50 with respect to each Individual Development 
     Account maintained--
       ``(A) as of the end of such taxable year, but only if such 
     taxable year is within the 7-taxable-year period beginning 
     with the taxable year in which such Account is opened, and
       ``(B) with a balance of not less than $100 (other than the 
     taxable year in which such Account is opened).
       ``(d) Eligible Entity.--For purposes of this section, 
     except as provided in regulations, the term `eligible entity' 
     means a qualified financial institution.
       ``(e) Other Definitions.--For purposes of this section, any 
     term used in this section and also in the Savings for Working 
     Families Act of 2004 shall have the meaning given such term 
     by such Act.
       ``(f) Denial of Double Benefit.--
       ``(1) In general.--No deduction or credit (other than under 
     this section) shall be allowed under this chapter with 
     respect to any expense which--
       ``(A) is taken into account under subsection (c)(1)(A) in 
     determining the credit under this section, or
       ``(B) is attributable to the maintenance of an Individual 
     Development Account.
       ``(2) Determination of amount.--Solely for purposes of 
     paragraph (1)(B), the amount attributable to the maintenance 
     of an Individual Development Account shall be deemed to be 
     the dollar amount of the credit allowed under subsection 
     (c)(l)(B) for each taxable year such Individual Development 
     Account is maintained.
       ``(g) Credit May Be Transferred.--
       ``(1) In general.--An eligible entity may transfer any 
     credit allowable to the eligible entity under subsection (a) 
     to any person other than to another eligible entity which is 
     exempt from tax under this title. The determination as to 
     whether a credit is allowable shall be made without regard to 
     the tax-exempt status of the eligible entity.
       ``(2) Consent required for revocation.--Any transfer under 
     paragraph (1) may be revoked only with the consent of the 
     Secretary.
       ``(h) Regulations.--The Secretary may prescribe such 
     regulations as may be necessary or appropriate to carry out 
     this section, including
       ``(1) such regulations as necessary to insure that any 
     credit described in subsection (g)(1) is claimed once and not 
     retransferred by a transferee, and
       ``(2) regulations providing for a recapture of the credit 
     allowed under this section (notwithstanding any termination 
     date described in subsection (i)) in cases where there is a 
     forfeiture under section 507(b) of the Savings for Working 
     Families Act of 2004 in a subsequent taxable year of any 
     amount which was taken into account in determining the amount 
     of such credit.
       ``(i) Application of Section.--
       ``(1) In general.--This section shall apply to any 
     expenditure made in any taxable year ending after December 
     31, 2004, and beginning on or before January 1, 2012, with 
     respect to any Individual Development Account which--
       ``(A) is opened before January 1, 2012, and
       ``(B) as determined by the Secretary, when added to all of 
     the previously opened Individual Development Accounts, does 
     not exceed--
       ``(i) 100,000 Accounts if opened after December 31, 2004, 
     and before January 1, 2007,
       ``(ii) an additional 100,000 Accounts if opened after 
     December 31, 2006, and before January 1, 2009, but only if, 
     except as provided in paragraph (4), the total number of 
     Accounts described in clause (i) are opened and the Secretary 
     determines that such Accounts are being reasonably and 
     responsibly administered, and
       ``(iii) an additional 100,000 Accounts if opened after 
     December 31, 2008, and before January 1, 2012, but only if 
     the total number of Accounts described in clauses (i) and 
     (ii) are opened and the Secretary makes a determination 
     described in paragraph (2).

     Notwithstanding the preceding sentence, this section shall 
     apply to amounts which are described in subsection (c)(1)(A) 
     and which are timely deposited into a parallel account during 
     the 30-day period following the end of last taxable year 
     beginning before January 1, 2012.
       ``(2) Determination with respect to third group of 
     accounts.--A determination is described in this paragraph if 
     the Secretary determines that--
       ``(A) substantially all of the previously opened Accounts 
     have been reasonably and responsibly administered prior to 
     the date of the determination,
       ``(B) the individual development account programs have 
     increased net savings of participants in the programs,
       ``(C) participants in the individual development account 
     programs have increased Federal income tax liability and 
     decreased utilization of Federal assistance programs relative 
     to similarly situated individuals that did not participate in 
     the individual development account programs, and
       ``(D) the sum of the estimated increased Federal tax 
     liability and reduction of Federal assistance program 
     benefits to participants in the individual development 
     account programs is greater than the cost of the individual 
     development account programs to the Federal government.
       ``(3) Determination of limitation.--The limitation on the 
     number of Individual Development Accounts under paragraph 
     (1)(B) shall be allocated by the Secretary among qualified 
     individual development account programs selected by the 
     Secretary and, in the case of the limitation under clause 
     (iii) of such paragraph, shall be equally divided among the 
     States.
       ``(4) Special rule if smaller number of accounts are 
     opened.--For purposes of paragraph (1)(B)(ii)--
       ``(i) In general.--If less than 100,000 Accounts are opened 
     before January 1, 2007, such paragraph shall be applied by 
     substituting ``applicable number of Accounts' for `100,000 
     Accounts'.
       ``(ii) Applicable number.--For purposes of clause (i), the 
     applicable number equals the lesser of--

       ``(I) 75,000, or
       ``(II) 3 times the number of Accounts opened before January 
     1, 2007.''.

       (b) Credit Treated as Business Credit.--Section 38(b) 
     (relating to current year business credit) is amended by 
     striking ``plus'' at

[[Page S2159]]

     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 individual development account investment credit 
     determined under section 45G(a).''.
       (c) No Carrybacks.--Subsection (d) of section 39 (relating 
     to carryback and carryforward of unused credits) is amended 
     by adding at the end the following:
       ``(11) 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 individual 
     development account investment credit determined under 
     section 45G may be carried back to a taxable year ending 
     before January 1, 2004.''.
       (d) Conforming Amendment.--The table of sections for 
     subpart C of part IV of subchapter A of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 45G. Individual development account investment credit.''.

       (e) Report Regarding Account Maintenance Fees.--The 
     Secretary of the Treasury shall study the adequacy of the 
     amount specified in section 45G(c)(2) of the Internal Revenue 
     Code of 1986 (as added by this section). Not later than 
     December 31, 2009, the Secretary of the Treasury shall report 
     the findings of the study described in the preceding sentence 
     to Congress.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 2004.

     SEC. 512. ACCOUNT FUNDS DISREGARDED FOR PURPOSES OF CERTAIN 
                   MEANS-TESTED FEDERAL PROGRAMS.

       Notwithstanding any other provision of Federal law (other 
     than the Internal Revenue Code of 1986) that requires 
     consideration of 1 or more financial circumstances of an 
     individual, for the purpose of determining eligibility to 
     receive, or the amount of, any assistance or benefit 
     authorized by such provision to be provided to or for the 
     benefit of such individual, any amount (including earnings 
     thereon) in any Individual Development Account of such 
     individual and any matching deposit made on behalf of such 
     individual (including earnings thereon) in any parallel 
     account shall be disregarded for such purpose with respect to 
     any period during which such individual maintains or makes 
     contributions into such Individual Development Account.

              TITLE VI--MANAGEMENT OF EXEMPT ORGANIZATIONS

     SEC. 601. AUTHORIZATION OF APPROPRIATIONS.

       (a) In General.--There is authorized to be appropriated to 
     the Secretary of the Treasury $80,000,000 for each fiscal 
     year to carry out the administration of exempt organizations 
     by the Internal Revenue Service.
       (b) Implementation of Section 527.--There is authorized to 
     be appropriated to the Secretary of the Treasury $3,000,000 
     to carry out the provisions of Public Laws 106-230 and 107-
     276 relating to section 527 of the Internal Revenue Code of 
     1986.

                     TITLE VII--REVENUE PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 701. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).
       ``(2) Special rules for transactions with tax-indifferent 
     parties.--
       ``(A) Special rules for financing transactions.--The form 
     of a transaction which is in substance the borrowing of money 
     or the acquisition of financial capital directly or 
     indirectly from a tax-indifferent party shall not be 
     respected if the present value of the deductions to be 
     claimed with respect to the transaction is substantially in 
     excess of the present value of the anticipated economic 
     returns of the person lending the money or providing the 
     financial capital. A public offering shall be treated as a 
     borrowing, or an acquisition of financial capital, from a 
     tax-indifferent party if it is reasonably expected that at 
     least 50 percent of the offering will be placed with tax-
     indifferent parties.
       ``(B) Artificial income shifting and basis adjustments.--
     The form of a transaction with a tax-indifferent party shall 
     not be respected if--
       ``(i) it results in an allocation of income or gain to the 
     tax-indifferent party in excess of such party's economic 
     income or gain, or
       ``(ii) it results in a basis adjustment or shifting of 
     basis on account of overstating the income or gain of the 
     tax-indifferent party.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or entity not subject to tax imposed 
     by subtitle A. A person shall be treated as a tax-indifferent 
     party with respect to a transaction if the items taken into 
     account with respect to the transaction have no substantial 
     impact on such person's liability under subtitle A.
       ``(C) 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 subclause (I) of 
     paragraph (1)(B)(ii) to the lessor of tangible property 
     subject to a lease, the expected net tax benefits shall not 
     include the benefits of depreciation, or any tax credit, with 
     respect to the leased property and subclause (II) of 
     paragraph (1)(B)(ii) shall be disregarded in determining 
     whether any of such benefits are allowable.
       ``(4) Other common law doctrines not affected.--Except as 
     specifically provided in this subsection, the provisions of 
     this subsection shall not be construed as altering or 
     supplanting any other rule of law, and the requirements of 
     this subsection shall be construed as being in addition to 
     any such other rule of law.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection. Such regulations may include 
     exemptions from the application of this subsection.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after February 15, 
     2004.

     SEC. 702. 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.--The term `high net worth 
     individual' means, with respect to a 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.

[[Page S2160]]

       ``(2) Listed transaction.--Except as provided in 
     regulations, the term `listed transaction' means a reportable 
     transaction which is the same as, or substantially similar 
     to, a transaction specifically identified by the Secretary as 
     a tax avoidance transaction for purposes of section 6011.
       ``(d) Authority To Rescind Penalty.--
       ``(1) In general.--The Commissioner of Internal Revenue may 
     rescind all or any portion of any penalty imposed by this 
     section with respect to any violation if--
       ``(A) the violation is with respect to a reportable 
     transaction other than a listed transaction,
       ``(B) the person on whom the penalty is imposed has a 
     history of complying with the requirements of this title,
       ``(C) it is shown that the violation is due to an 
     unintentional mistake of fact;
       ``(D) imposing the penalty would be against equity and good 
     conscience, and
       ``(E) rescinding the penalty would promote compliance with 
     the requirements of this title and effective tax 
     administration.
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may be delegated only to the head of the 
     Office of Tax Shelter Analysis. The Commissioner, in the 
     Commissioner's sole discretion, may establish a procedure to 
     determine if a penalty should be referred to the Commissioner 
     or the head of such Office for a determination under 
     paragraph (1).
       ``(3) No appeal.--Notwithstanding any other provision of 
     law, any determination under this subsection may not be 
     reviewed in any administrative or judicial proceeding.
       ``(4) Records.--If a penalty is rescinded under paragraph 
     (1), the Commissioner shall place in the file in the Office 
     of the Commissioner the opinion of the Commissioner or the 
     head of the Office of Tax Shelter Analysis with respect to 
     the determination, including--
       ``(A) the facts and circumstances of the transaction,
       ``(B) the reasons for the rescission, and
       ``(C) the amount of the penalty rescinded.
       ``(5) Report.--The Commissioner shall each year report to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate--
       ``(A) a summary of the total number and aggregate amount of 
     penalties imposed, and rescinded, under this section, and
       ``(B) a description of each penalty rescinded under this 
     subsection and the reasons therefor.
       ``(e) Penalty Reported to SEC.--In the case of a person--
       ``(1) which is required to file periodic reports under 
     section 13 or 15(d) of the Securities Exchange Act of 1934 or 
     is required to be consolidated with another person for 
     purposes of such reports, and
       ``(2) which--
       ``(A) is required to pay a penalty under this section with 
     respect to a listed transaction,
       ``(B) is required to pay a penalty under section 6662A with 
     respect to any reportable transaction at a rate prescribed 
     under section 6662A(c), or
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction,

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

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

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

     SEC. 703. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS 
                   AND OTHER REPORTABLE TRANSACTIONS HAVING A 
                   SIGNIFICANT TAX AVOIDANCE PURPOSE.

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

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

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


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

[[Page S2161]]

       ``(2) Special rules.--Paragraph (1) shall not apply to any 
     reportable transaction understatement unless--
       ``(A) the relevant facts affecting the tax treatment of the 
     item are adequately disclosed in accordance with the 
     regulations prescribed under section 6011,
       ``(B) there is or was substantial authority for such 
     treatment, and
       ``(C) the taxpayer reasonably believed that such treatment 
     was more likely than not the proper treatment.

     A taxpayer failing to adequately disclose in accordance with 
     section 6011 shall be treated as meeting the requirements of 
     subparagraph (A) if the penalty for such failure was 
     rescinded under section 6707A(d).
       ``(3) Rules relating to reasonable belief.--For purposes of 
     paragraph (2)(C)--
       ``(A) In general.--A taxpayer shall be treated as having a 
     reasonable belief with respect to the tax treatment of an 
     item only if such belief--
       ``(i) is based on the facts and law that exist at the time 
     the return of tax which includes such tax treatment is filed, 
     and
       ``(ii) relates solely to the taxpayer's chances of success 
     on the merits of such treatment and does not take into 
     account the possibility that a return will not be audited, 
     such treatment will not be raised on audit, or such treatment 
     will be resolved through settlement if it is raised.
       ``(B) Certain opinions may not be relied upon.--
       ``(i) In general.--An opinion of a tax advisor may not be 
     relied upon to establish the reasonable belief of a taxpayer 
     if--

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

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

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

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

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

       (2) Conforming amendment.--The heading for subsection (c) 
     of section 6664 is amended by inserting ``for Underpayments'' 
     after ``Exception''.
       (d) Conforming Amendments.--
       (1) Subparagraph (C) of section 461(i)(3) is amended by 
     striking ``section 6662(d)(2)(C)(iii)'' and inserting 
     ``section 1274(b)(3)(C)''.
       (2) Paragraph (3) of section 1274(b) is amended--
       (A) by striking ``(as defined in section 
     6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
       (B) by adding at the end the following new subparagraph:
       ``(C) Tax shelter.--For purposes of subparagraph (B), the 
     term `tax shelter' means--
       ``(i) a partnership or other entity,
       ``(ii) any investment plan or arrangement, or
       ``(iii) any other plan or arrangement,

     if a significant purpose of such partnership, entity, plan, 
     or arrangement is the avoidance or evasion of Federal income 
     tax.''.
       (3) Section 6662(d)(2) is amended by striking subparagraphs 
     (C) and (D).
       (4) Section 6664(c)(1) is amended by striking ``this part'' 
     and inserting ``section 6662 or 6663''.
       (5) Subsection (b) of section 7525 is amended by striking 
     ``section 6662(d)(2)(C)(iii)'' and inserting ``section 
     1274(b)(3)(C)''.
       (6)(A) The heading for section 6662 is amended to read as 
     follows:

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

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

``Sec. 6662. Imposition of accuracy-related penalty on underpayments.
``Sec. 6662A. Imposition of accuracy-related penalty on understatements 
              with respect to reportable transactions.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 704. 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 applies.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable To Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2), (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 15, 
     2004.

     SEC. 705. 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. 706. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES 
                   RELATING TO TAXPAYER COMMUNICATIONS.

       (a) In General.--Section 7525(b) (relating to section not 
     to apply to communications

[[Page S2162]]

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

     SEC. 707. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

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

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

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

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

       ``(a) In General.--Each material advisor (as defined in 
     section 6111) with respect to any reportable transaction (as 
     defined in section 6707A(c)) shall maintain, in such manner 
     as the Secretary may by regulations prescribe, a list--
       ``(1) identifying each person with respect to whom such 
     advisor acted as such a material advisor with respect to such 
     transaction, and
       ``(2) containing such other information as the Secretary 
     may by regulations require.
     This section shall apply without regard to whether a material 
     advisor is required to file a return under section 6111 with 
     respect to such transaction.''.
       (B) Section 6112 is amended by redesignating subsection (c) 
     as subsection (b).
       (C) Section 6112(b), as redesignated by subparagraph (B), 
     is amended--
       (i) by inserting ``written'' before ``request'' in 
     paragraph (1)(A), and
       (ii) by striking ``shall prescribe'' in paragraph (2) and 
     inserting ``may prescribe''.
       (D) The item relating to section 6112 in the table of 
     sections for subchapter B of chapter 61 is amended to read as 
     follows:

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

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

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

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

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

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

     SEC. 708. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER 
                   TAX SHELTERS.

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

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

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

     such person shall pay a penalty with respect to such return 
     in the amount determined under subsection (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     penalty imposed under subsection (a) with respect to any 
     failure shall be $50,000.
       ``(2) Listed transactions.--The penalty imposed under 
     subsection (a) with respect to any listed transaction shall 
     be an amount equal to the greater of--
       ``(A) $200,000, or
       ``(B) 50 percent of the gross income derived by such person 
     with respect to aid, assistance, or advice which is provided 
     with respect to the reportable transaction before the date 
     the return including the transaction is filed under section 
     6111.

     Subparagraph (B) shall be applied by substituting `75 
     percent' for `50 percent' in the case of an intentional 
     failure or act described in subsection (a).
       ``(c) Rescission Authority.--The provisions of section 
     6707A(d) (relating to authority of Commissioner to rescind 
     penalty) shall apply to any penalty imposed under this 
     section.
       ``(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. 709. 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. 710. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT 
                   RELATED TO TAX SHELTERS AND REPORTABLE 
                   TRANSACTIONS.

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

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

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

       (2) The table of sections for subchapter A of chapter 67 is 
     amended by striking the item

[[Page S2163]]

     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. 711. 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. 712. 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. 713. 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. 714. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE 
                   DEPARTMENT OF TREASURY.

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

     ``The Secretary may impose a monetary penalty on any 
     representative described in the preceding sentence. If the 
     representative was acting on behalf of an employer or any 
     firm or other entity in connection with the conduct giving 
     rise to such penalty, the Secretary may impose a monetary 
     penalty on such employer, firm, or entity if it knew, or 
     reasonably should have known, of such conduct. Such penalty 
     shall not exceed the gross

[[Page S2164]]

     income derived (or to be derived) from the conduct giving 
     rise to the penalty and may be in addition to, or in lieu of, 
     any suspension, disbarment, or censure.''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to actions taken after the date of the enactment 
     of this Act.
       (b) Tax Shelter Opinions, Etc.--Section 330 of such title 
     31 is amended by adding at the end the following new 
     subsection:
       ``(d) Nothing in this section or in any other provision of 
     law shall be construed to limit the authority of the 
     Secretary of the Treasury to impose standards applicable to 
     the rendering of written advice with respect to any entity, 
     transaction plan or arrangement, or other plan or 
     arrangement, which is of a type which the Secretary 
     determines as having a potential for tax avoidance or 
     evasion.''.

     SEC. 715. 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. 716. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   LISTED TRANSACTIONS NOT REPORTED.

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

     SEC. 717. 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. 718. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW 
                   ENFORCEMENT.

       There is authorized to be appropriated $300,000,000 for 
     each fiscal year beginning after September 30, 2002, 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.

                      Subtitle B--Other Provisions

     SEC. 721. 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. 722. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE 
                   OFFICER.

       (a) In General.--Section 6062 (relating to signing of 
     corporation returns) is amended by striking the first 
     sentence and inserting the following new sentence: ``The 
     return of a corporation with respect to income shall be 
     signed by the chief executive officer of such corporation (or 
     other such officer of the corporation as the Secretary may 
     designate if the corporation does not have a chief executive 
     officer). The preceding sentence shall not apply to any 
     return of a regulated investment company (within the meaning 
     of section 851).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to returns filed after the date of the enactment 
     of this Act.

     SEC. 723. SECURITIES CIVIL ENFORCEMENT PROVISIONS.

       (a) Authority To Assess Civil Money Penalties.--
       (1) Securities act of 1933.--Section 8A of the Securities 
     Act of 1933 (15 U.S.C. 77h-1) is amended by adding at the end 
     the following new subsection:
       ``(g) Authority of the Commission To Assess Money 
     Penalty.--
       ``(1) In general.--In any cease-and-desist proceeding under 
     subsection (a), the Commission may impose a civil monetary 
     penalty if it finds, on the record after notice and 
     opportunity for hearing, that a person is violating, has 
     violated, or is or was a cause of the violation of, any 
     provision of this title or any rule or regulation thereunder, 
     and that such penalty is in the public interest.
       ``(2) Maximum amount of penalty.--
       ``(A) First tier.--The maximum amount of penalty for each 
     act or omission described in paragraph (1) shall be $100,000 
     for a natural person or $250,000 for any other person.
       ``(B) Second tier.--Notwithstanding subparagraph (A), the 
     maximum amount of penalty for such act or omission described 
     in paragraph (1) shall be $500,000 for a natural person or 
     $1,000,000 for any other person, if the act or omission 
     involved fraud, deceit, manipulation, or deliberate or 
     reckless disregard of a statutory or regulatory requirement.
       ``(C) Third tier.--Notwithstanding subparagraphs (A) and 
     (B), the maximum amount of penalty for each act or omission 
     described in paragraph (1) shall be $1,000,000 for a natural 
     person or $2,000,000 for any other person, if--
       ``(i) the act or omission involved fraud, deceit, 
     manipulation, or deliberate or reckless disregard of a 
     statutory or regulatory requirement; and
       ``(ii) such act or omission directly or indirectly resulted 
     in substantial losses or created a significant risk of 
     substantial losses to other persons or resulted in 
     substantial pecuniary gain to the person who committed the 
     act or omission.
       ``(3) Evidence concerning ability to pay.--In any 
     proceeding in which the Commission or the appropriate 
     regulatory agency may impose a penalty under this section, a 
     respondent may present evidence of the ability of the 
     respondent to pay such penalty. The Commission or the 
     appropriate regulatory agency may, in its discretion, 
     consider such evidence in determining whether the penalty is 
     in the public interest. Such evidence may relate to the 
     extent of the person's ability to continue in business and 
     the collectability of a penalty, taking into account any 
     other claims of the United States or third parties upon the 
     assets of that person and the amount of the assets of that 
     person.''.
       (2) Securities exchange act of 1934.--Section 21B(a) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u-2(a)) is 
     amended--
       (A) in paragraph (4), by striking ``supervision;'' and all 
     that follows through the end of the subsection and inserting 
     ``supervision.'';
       (B) by redesignating paragraphs (1) through (4) as 
     subparagraphs (A) through (D), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(1) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(2) Other money penalties.--In any proceeding under 
     section 21C against any person, the Commission may impose a 
     civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any provision of this title or any rule or 
     regulation thereunder, and that such penalty is in the public 
     interest.''.
       (3) Investment company act of 1940.--Section 9(d)(1) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(1)) is 
     amended--
       (A) in subparagraph (C), by striking ``therein;'' and all 
     that follows through the end of the paragraph and inserting 
     ``supervision.'';
       (B) by redesignating subparagraphs (A) through (C) as 
     clauses (i) through (iii), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(A) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(B) Other money penalties.--In any proceeding under 
     subsection (f) against any person, the Commission may impose 
     a civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any

[[Page S2165]]

     provision of this title or any rule or regulation thereunder, 
     and that such penalty is in the public interest.''.
       (4) Investment advisers act of 1940.--Section 203(i)(1) of 
     the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(1)) 
     is amended--
       (A) in subparagraph (D), by striking ``supervision;'' and 
     all that follows through the end of the paragraph and 
     inserting ``supervision.'';
       (B) by redesignating subparagraphs (A) through (D) as 
     clauses (i) through (iv), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(A) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(B) Other money penalties.--In any proceeding under 
     subsection (k) against any person, the Commission may impose 
     a civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any provision of this title or any rule or 
     regulation thereunder, and that such penalty is in the public 
     interest.''.
       (b) Increased Maximum Civil Money Penalties.--
       (1) Securities act of 1933.--Section 20(d)(2) of the 
     Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended--
       (A) in subparagraph (A)(i)--
       (i) by striking ``$5,000'' and inserting ``$100,000''; and
       (ii) by striking ``$50,000'' and inserting ``$250,000'';
       (B) in subparagraph (B)(i)--
       (i) by striking ``$50,000'' and inserting ``$500,000''; and
       (ii) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and
       (C) in subparagraph (C)(i)--
       (i) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (ii) by striking ``$500,000'' and inserting ``$2,000,000''.
       (2) Securities exchange act of 1934.--
       (A) Penalties.--Section 32 of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78ff) is amended--
       (i) in subsection (b), by striking ``$100'' and inserting 
     ``$10,000''; and
       (ii) in subsection (c)--

       (I) in paragraph (1)(B), by striking ``$10,000'' and 
     inserting ``$500,000''; and
       (II) in paragraph (2)(B), by striking ``$10,000'' and 
     inserting ``$500,000''.

       (B) Insider trading.--Section 21A(a)(3) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78u-1(a)(3)) is amended by 
     striking ``$1,000,000'' and inserting ``$2,000,000''.
       (C) Administrative proceedings.--Section 21B(b) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u-2(b)) is 
     amended--
       (i) in paragraph (1)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in paragraph (2)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in paragraph (3)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (D) Civil actions.--Section 21(d)(3)(B) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(B)) is amended--
       (i) in clause (i)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in clause (ii)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in clause (iii)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (3) Investment company act of 1940.--
       (A) Ineligibility.--Section 9(d)(2) of the Investment 
     Company Act of 1940 (15 U.S.C. 80a-9(d)(2)) is amended--
       (i) in subparagraph (A)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in subparagraph (B)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in subparagraph (C)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (B) Enforcement of investment company act.--Section 
     42(e)(2) of the Investment Company Act of 1940 (15 U.S.C. 
     80a-41(e)(2)) is amended--
       (i) in subparagraph (A)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in subparagraph (B)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in subparagraph (C)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (4) Investment advisers act of 1940.--
       (A) Registration.--Section 203(i)(2) of the Investment 
     advisers Act of 1940 (15 U.S.C. 80b-3(i)(2)) is amended--
       (i) in subparagraph (A)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in subparagraph (B)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in subparagraph (C)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (B) Enforcement of investment advisers act.--Section 
     209(e)(2) of the Investment advisers Act of 1940 (15 U.S.C. 
     80b-9(e)(2)) is amended--
       (i) in subparagraph (A)--

       (I) by striking ``$5,000'' and inserting ``$100,000''; and
       (II) by striking ``$50,000'' and inserting ``$250,000'';

       (ii) in subparagraph (B)--

       (I) by striking ``$50,000'' and inserting ``$500,000''; and
       (II) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and

       (iii) in subparagraph (C)--

       (I) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (II) by striking ``$500,000'' and inserting ``$2,000,000''.

       (c) Authority To Obtain Financial Records.--Section 21(h) 
     of the Securities Exchange Act of 1934 (15 U.S.C. 78u(h)) is 
     amended--
       (1) by striking paragraphs (2) through (8);
       (2) in paragraph (9), by striking ``(9)(A)'' and all that 
     follows through ``(B) The'' and inserting ``(3) The'';
       (3) by inserting after paragraph (1), the following:
       ``(2) Access to financial records.--
       ``(A) In general.--Notwithstanding section 1105 or 1107 of 
     the Right to Financial Privacy Act of 1978, the Commission 
     may obtain access to and copies of, or the information 
     contained in, financial records of any person held by a 
     financial institution, including the financial records of a 
     customer, without notice to that person, when it acts 
     pursuant to a subpoena authorized by a formal order of 
     investigation of the Commission and issued under the 
     securities laws or pursuant to an administrative or judicial 
     subpoena issued in a proceeding or action to enforce the 
     securities laws.
       ``(B) Nondisclosure of requests.--If the Commission so 
     directs in its subpoena, no financial institution, or 
     officer, director, partner, employee, shareholder, 
     representative or agent of such financial institution, shall, 
     directly or indirectly, disclose that records have been 
     requested or provided in accordance with subparagraph (A), if 
     the Commission finds reason to believe that such disclosure 
     may--
       ``(i) result in the transfer of assets or records outside 
     the territorial limits of the United States;
       ``(ii) result in improper conversion of investor assets;
       ``(iii) impede the ability of the Commission to identify, 
     trace, or freeze funds involved in any securities 
     transaction;
       ``(iv) endanger the life or physical safety of an 
     individual;
       ``(v) result in flight from prosecution;
       ``(vi) result in destruction of or tampering with evidence;
       ``(vii) result in intimidation of potential witnesses; or
       ``(viii) otherwise seriously jeopardize an investigation or 
     unduly delay a trial.
       ``(C) Transfer of records to government authorities.--The 
     Commission may transfer financial records or the information 
     contained therein to any government authority, if the 
     Commission proceeds as a transferring agency in accordance 
     with section 1112 of the Right to Financial Privacy Act of 
     1978 (12 U.S.C. 3412), except that a customer notice shall 
     not be required under subsection (b) or (c) of that section 
     1112, if the Commission determines that there is reason to 
     believe that such notification may result in or lead to any 
     of the factors identified under clauses (i) through (viii) of 
     subparagraph (B) of this paragraph.'';
       (4) by striking paragraph (10); and
       (5) by redesignating paragraphs (11), (12), and (13) as 
     paragraphs (4), (5), and (6), respectively.

     SEC. 724. REVIEW OF STATE AGENCY BLINDNESS AND DISABILITY 
                   DETERMINATIONS.

       Section 1633 of the Social Security Act (42 U.S.C. 1383b) 
     is amended by adding at the end the following:
       ``(e)(1) The Commissioner of Social Security shall review 
     determinations, made by State agencies pursuant to subsection 
     (a) in connection with applications for benefits under this 
     title on the basis of blindness or disability, that 
     individuals who have attained 18 years of age are blind or 
     disabled as of a specified onset date. The Commissioner

[[Page S2166]]

     of Social Security shall review such a determination before 
     any action is taken to implement the determination.
       ``(2)(A) In carrying out paragraph (1), the Commissioner of 
     Social Security shall review--
       ``(i) at least 25 percent of all determinations referred to 
     in paragraph (1) that are made in fiscal year 2004; and
       ``(ii) at least 50 percent of all such determinations that 
     are made in fiscal year 2005 or thereafter.
       ``(B) In carrying out subparagraph (A), the Commissioner of 
     Social Security shall, to the extent feasible, select for 
     review the determinations which the Commissioner of Social 
     Security identifies as being the most likely to be 
     incorrect.''.

                  TITLE VIII--COMPASSION CAPITAL FUND

     SEC. 801. SUPPORT FOR NONPROFIT COMMUNITY-BASED 
                   ORGANIZATIONS; DEPARTMENT OF HEALTH AND HUMAN 
                   SERVICES.

       (a) Support for Nongovernmental Organizations.--The 
     Secretary of Health and Human Services (referred to in this 
     section as ``the Secretary'') may award grants to and enter 
     into cooperative agreements with nongovernmental 
     organizations, to--
       (1) provide technical assistance for community-based 
     organizations, which may include--
       (A) grant writing and grant management assistance, which 
     may include assistance provided through workshops and other 
     guidance;
       (B) legal assistance with incorporation;
       (C) legal assistance to obtain tax-exempt status; and
       (D) information on, and referrals to, other nongovernmental 
     organizations that provide expertise in accounting, on legal 
     issues, on tax issues, in program development, and on a 
     variety of other organizational topics;
       (2) provide information and assistance for community-based 
     organizations on capacity building;
       (3) provide for community-based organizations information 
     on and assistance in identifying and using best practices for 
     delivering assistance to persons, families, and communities 
     in need;
       (4) provide information on and assistance in utilizing 
     regional intermediary organizations to increase and 
     strengthen the capabilities of nonprofit community-based 
     organizations;
       (5) assist community-based organizations in replicating 
     social service programs of demonstrated effectiveness; and
       (6) encourage research on the best practices of social 
     service organizations.
       (b) Support for States.--The Secretary--
       (1) may award grants to and enter into cooperative 
     agreements with States and political subdivisions of States 
     to provide seed money to establish State and local offices of 
     faith-based and community initiatives; and
       (2) shall provide technical assistance to States and 
     political subdivisions of States in administering the 
     provisions of this Act.
       (c) Applications.--To be eligible to receive a grant or 
     enter into a cooperative agreement under this section, a 
     nongovernmental organization, State, or political subdivision 
     shall submit an application to the Secretary at such time, in 
     such manner, and containing such information as the Secretary 
     may require.
       (d) Limitation.--In order to widely disburse limited 
     resources, no community-based organization (other than a 
     direct recipient of a grant or cooperative agreement from the 
     Secretary) may receive more than 1 grant or cooperative 
     agreement under this section for the same purpose.
       (e) Authorization of Appropriations.--There are authorized 
     to be appropriated to carry out this section $85,000,000 for 
     fiscal year 2003, and such sums as may be necessary for each 
     of fiscal years 2004 through 2007.
       (f) Definition.--In this section, the term ``community-
     based organization'' means a nonprofit corporation or 
     association that has--
       (1) not more than 6 full-time equivalent employees who are 
     engaged in the provision of social services; or
       (2) a current annual budget (current as of the date the 
     entity seeks assistance under this section) for the provision 
     of social services, compiled and adopted in good faith, of 
     less than $450,000.

     SEC. 802. SUPPORT FOR NONPROFIT COMMUNITY-BASED 
                   ORGANIZATIONS; CORPORATION FOR NATIONAL AND 
                   COMMUNITY SERVICE.

       (a) Support for Nongovernmental Organizations.--The 
     Corporation for National and Community Service (referred to 
     in this section as ``the Corporation'') may award grants to 
     and enter into cooperative agreements with nongovernmental 
     organizations and State Commissions on National and Community 
     Service established under section 178 of the National and 
     Community Service Act of 1990 (42 U.S.C. 12638), to--
       (1) provide technical assistance for community-based 
     organizations, which may include--
       (A) grant writing and grant management assistance, which 
     may include assistance provided through workshops and other 
     guidance;
       (B) legal assistance with incorporation;
       (C) legal assistance to obtain tax-exempt status; and
       (D) information on, and referrals to, other nongovernmental 
     organizations that provide expertise in accounting, on legal 
     issues, on tax issues, in program development, and on a 
     variety of other organizational topics;
       (2) provide information and assistance for community-based 
     organizations on capacity building;
       (3) provide for community-based organizations information 
     on and assistance in identifying and using best practices for 
     delivering assistance to persons, families, and communities 
     in need;
       (4) provide information on and assistance in utilizing 
     regional intermediary organizations to increase and 
     strengthen the capabilities of community-based organizations;
       (5) assist community-based organizations in replicating 
     social service programs of demonstrated effectiveness; and
       (6) encourage research on the best practices of social 
     service organizations.
       (b) Applications.--To be eligible to receive a grant or 
     enter into a cooperative agreement under this section, a 
     nongovernmental organization, State Commission, State, or 
     political subdivision shall submit an application to the 
     Corporation at such time, in such manner, and containing such 
     information as the Corporation may require.
       (c) Limitation.--In order to widely disburse limited 
     resources, no community-based organization (other than a 
     direct recipient of a grant or cooperative agreement from the 
     Secretary) may receive more than 1 grant or cooperative 
     agreement under this section for the same purpose.
       (d) Authorization of Appropriations.--There are authorized 
     to be appropriated to carry out this section $15,000,000 for 
     fiscal year 2003, and such sums as may be necessary for each 
     of fiscal years 2004 through 2007.
       (e) Definition.--In this section, the term ``community-
     based organization'' means a nonprofit corporation or 
     association that has--
       (1) not more than 6 full-time equivalent employees who are 
     engaged in the provision of social services; or
       (2) a current annual budget (current as of the date the 
     entity seeks assistance under this section) for the provision 
     of social services, compiled and adopted in good faith, of 
     less than $450,000.

     SEC. 803. SUPPORT FOR NONPROFIT COMMUNITY-BASED 
                   ORGANIZATIONS; DEPARTMENT OF JUSTICE.

       (a) Support for Nongovernmental Organizations.--The 
     Attorney General may award grants to and enter into 
     cooperative agreements with nongovernmental organizations, 
     to--
       (1) provide technical assistance for community-based 
     organizations, which may include--
       (A) grant writing and grant management assistance, which 
     may include assistance provided through workshops and other 
     guidance;
       (B) legal assistance with incorporation;
       (C) legal assistance to obtain tax-exempt status; and
       (D) information on, and referrals to, other nongovernmental 
     organizations that provide expertise in accounting, on legal 
     issues, on tax issues, in program development, and on a 
     variety of other organizational topics;
       (2) provide information and assistance for community-based 
     organizations on capacity building;
       (3) provide for community-based organizations information 
     on and assistance in identifying and using best practices for 
     delivering assistance to persons, families, and communities 
     in need;
       (4) provide information on and assistance in utilizing 
     regional intermediary organizations to increase and 
     strengthen the capabilities of nonprofit community-based 
     organizations;
       (5) assist community-based organizations in replicating 
     social service programs of demonstrated effectiveness; and
       (6) encourage research on the best practices of social 
     service organizations.
       (b) Applications.--To be eligible to receive a grant or 
     enter into a cooperative agreement under this section, a 
     nongovernmental organization, State, or political subdivision 
     shall submit an application to the Attorney General at such 
     time, in such manner, and containing such information as the 
     Attorney General may require.
       (c) Limitation.--In order to widely disburse limited 
     resources, no community-based organization (other than a 
     direct recipient of a grant or cooperative agreement from the 
     Attorney General) may receive more than 1 grant or 
     cooperative agreement under this section for the same 
     purpose.
       (d) Authorization of Appropriations.--There are authorized 
     to be appropriated to carry out this section $35,000,000 for 
     fiscal year 2003, and such sums as may be necessary for each 
     of fiscal years 2004 through 2007.
       (e) Definition.--In this section, the term ``community-
     based organization'' means a nonprofit corporation or 
     association that has--
       (1) not more than 6 full-time equivalent employees who are 
     engaged in the provision of social services; or
       (2) a current annual budget (current as of the date the 
     entity seeks assistance under this section) for the provision 
     of social services, compiled and adopted in good faith, of 
     less than $450,000.

     SEC. 804. SUPPORT FOR NONPROFIT COMMUNITY-BASED 
                   ORGANIZATIONS; DEPARTMENT OF HOUSING AND URBAN 
                   DEVELOPMENT.

       (a) Support for Nongovernmental Organizations.--The 
     Secretary of Housing and Urban Development (referred to in 
     this section ``the Secretary'') may award grants to and enter 
     into cooperative agreements with nongovernmental 
     organizations, to--

[[Page S2167]]

       (1) provide technical assistance for community-based 
     organizations, which may include--
       (A) grant writing and grant management assistance, which 
     may include assistance provided through workshops and other 
     guidance;
       (B) legal assistance with incorporation;
       (C) legal assistance to obtain tax-exempt status; and
       (D) information on, and referrals to, other nongovernmental 
     organizations that provide expertise in accounting, on legal 
     issues, on tax issues, in program development, and on a 
     variety of other organizational topics;
       (2) provide information and assistance for community-based 
     organizations on capacity building;
       (3) provide for community-based organizations information 
     on and assistance in identifying and using best practices for 
     delivering assistance to persons, families, and communities 
     in need;
       (4) provide information on and assistance in utilizing 
     regional intermediary organizations to increase and 
     strengthen the capabilities of community-based organizations;
       (5) assist community-based organizations in replicating 
     social service programs of demonstrated effectiveness; and
       (6) encourage research on the best practices of social 
     service organizations.
       (b) Applications.--To be eligible to receive a grant or 
     enter into a cooperative agreement under this section, a 
     nongovernmental organization, State, or political subdivision 
     shall submit an application to the Secretary at such time, in 
     such manner, and containing such information as the Secretary 
     may require.
       (c) Limitation.--In order to widely disburse limited 
     resources, no community-based organization (other than a 
     direct recipient of a grant or cooperative agreement from the 
     Secretary) may receive more than 1 grant or cooperative 
     agreement under this section for the same purpose.
       (d) Authorization of Appropriations.--There are authorized 
     to be appropriated to carry out this section $15,000,000 for 
     fiscal year 2003, and such sums as may be necessary for each 
     of fiscal years 2004 through 2007.
       (e) Definition.--In this section, the term ``community-
     based organization'' means a nonprofit corporation or 
     association that has--
       (1) not more than 6 full-time equivalent employees who are 
     engaged in the provision of social services; or
       (2) a current annual budget (current as of the date the 
     entity seeks assistance under this section) for the provision 
     of social services, compiled and adopted in good faith, of 
     less than $450,000.

     SEC. 805. COORDINATION.

       The Secretary of Health and Human Services, the Corporation 
     for National and Community Service, the Attorney General, and 
     the Secretary of Housing and Urban Development shall 
     coordinate their activities under this title to ensure--
       (1) nonduplication of activities under this title; and
       (2) an equitable distribution of resources under this 
     title.

                    TITLE IX--MATERNITY GROUP HOMES

     SEC. 901. MATERNITY GROUP HOMES.

       (a) Permissible Use of Funds.--Section 322 of the Runaway 
     and Homeless Youth Act (42 U.S.C. 5714-2) is amended--
       (1) in subsection (a)(1), by inserting ``(including 
     maternity group homes)'' after ``group homes''; and
       (2) by adding at the end the following:
       ``(c) Maternity Group Home.--In this part, the term 
     `maternity group home' means a community-based, adult-
     supervised group home that provides young mothers and their 
     children with a supportive and supervised living arrangement 
     in which such mothers are required to learn parenting skills, 
     including child development, family budgeting, health and 
     nutrition, and other skills to promote their long-term 
     economic independence and the well-being of their 
     children.''.
       (b) Contract for Evaluation.--Part B of the Runaway and 
     Homeless Youth Act (42 U.S.C. 5701 et seq.) is amended by 
     adding at the end the following:

     ``SEC. 323. CONTRACT FOR EVALUATION.

       ``(a) In General.--The Secretary shall enter into a 
     contract with a public or private entity for an evaluation of 
     the maternity group homes that are supported by grant funds 
     under this Act.
       ``(b) Information.--The evaluation described in subsection 
     (a) shall include the collection of information about the 
     relevant characteristics of individuals who benefit from 
     maternity group homes such as those that are supported by 
     grant funds under this Act and what services provided by 
     those maternity group homes are most beneficial to such 
     individuals.
       ``(c) Report.--Not later than 2 years after the date on 
     which the Secretary enters into a contract for an evaluation 
     under subsection (a), and biennially thereafter, the entity 
     conducting the evaluation under this section shall submit to 
     Congress a report on the status, activities, and 
     accomplishments of maternity group homes that are supported 
     by grant funds under this Act.''.
       (c) Authorization of Appropriations.--Section 388 of the 
     Runaway and Homeless Youth Act (42 U.S.C. 5751) is amended--
       (1) in subsection (a)(1)--
       (A) by striking ``There'' and inserting the following:
       ``(A) In general.--There'';
       (B) in subparagraph (A), as redesignated, by inserting 
     ``and the purpose described in subparagraph (B)'' after 
     ``other than part E''; and
       (C) by adding at the end the following:
       ``(B) Maternity group homes.--There is authorized to be 
     appropriated, for maternity group homes eligible for 
     assistance under section 322(a)(1)--
       ``(i) $33,000,000 for fiscal year 2003; and
       ``(ii) such sums as may be necessary for fiscal year 
     2004.''; and
       (2) in subsection (a)(2)(A), by striking ``paragraph (1)'' 
     and inserting ``paragraph (1)(A)''.
                                 ______
                                 
  SA 2671. Mr. SMITH (for himself and Mr. Breaux) submitted an 
amendment intended to be proposed by him to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table; as follows:

       Beginning on page 71, strike line 10 through page 84, line 
     22, and insert the following:

     ``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION 
                   ACTIVITIES.

       ``(a) Allowance of Deduction.--
       ``(1) In general.--There shall be allowed as a deduction an 
     amount equal to 9 percent of the qualified production 
     activities income of the taxpayer for the taxable year.
       ``(2) Phasein.--In the case of taxable years beginning in 
     2003, 2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be 
     applied by substituting for the percentage contained therein 
     the transition percentage determined under the following 
     table:

``Taxable years beginning in:             The transition percentage is:
2003 or 2004........................................................  1
2005................................................................  2
2006................................................................  3
2007 or 2008........................................................ 6.

       ``(b) Deduction Limited to Wages Paid.--
       ``(1) In general.--The amount of the deduction allowable 
     under subsection (a) for any taxable year shall not exceed 50 
     percent of the W-2 wages of the employer for the taxable 
     year.
       ``(2) W-2 wages.--For purposes of paragraph (1), the term 
     `W-2 wages' means the sum of the aggregate amounts the 
     taxpayer is required to include on statements under 
     paragraphs (3) and (8) of section 6051(a) with respect to 
     employment of employees of the taxpayer during the taxpayer's 
     taxable year.
       ``(3) Special rules.--
       ``(A) Pass-thru entities.--In the case of an S corporation, 
     partnership, estate or trust, or other pass-thru entity, the 
     limitation under this subsection shall apply at the entity 
     level.
       ``(B) Acquisitions and dispositions.--The Secretary shall 
     provide for the application of this subsection in cases where 
     the taxpayer acquires, or disposes of, the major portion of a 
     trade or business or the major portion of a separate unit of 
     a trade or business during the taxable year.
       ``(c) Qualified Production Activities Income.--For purposes 
     of this section, the term `qualified production activities 
     income' means an amount equal to the portion of the modified 
     taxable income of the taxpayer which is attributable to 
     domestic production activities.
       ``(d) Determination of Income Attributable to Domestic 
     Production Activities.--For purposes of this section--
       ``(1) In general.--The portion of the modified taxable 
     income which is attributable to domestic production 
     activities is so much of the modified taxable income for the 
     taxable year as does not exceed--
       ``(A) the taxpayer's domestic production gross receipts for 
     such taxable year, reduced by
       ``(B) the sum of--
       ``(i) the costs of goods sold that are allocable to such 
     receipts,
       ``(ii) other deductions, expenses, or losses directly 
     allocable to such receipts, and
       ``(iii) a proper share of other deductions, expenses, and 
     losses that are not directly allocable to such receipts or 
     another class of income.
       ``(2) Allocation method.--The Secretary shall prescribe 
     rules for the proper allocation of items of income, 
     deduction, expense, and loss for purposes of determining 
     income attributable to domestic production activities.
       ``(3) Special rules for determining costs.--
       ``(A) In general.--For purposes of determining costs under 
     clause (i) of paragraph (1)(B), any item or service brought 
     into the United States shall be treated as acquired by 
     purchase, and its cost shall be treated as not less than its 
     fair market value immediately after it entered the United 
     States. A similar rule shall apply in determining the 
     adjusted basis of leased or rented property where the lease 
     or rental gives rise to domestic production gross receipts.
       ``(B) Exports for further manufacture.--In the case of any 
     property described in subparagraph (A) that had been exported 
     by the taxpayer for further manufacture, the increase in cost 
     or adjusted basis under subparagraph (A) shall not exceed the 
     difference between the value of the property when exported 
     and the value of the property when

[[Page S2168]]

     brought back into the United States after the further 
     manufacture.
       ``(4) Modified taxable income.--The term `modified taxable 
     income' means taxable income computed without regard to the 
     deduction allowable under this section.
       ``(e) Domestic Production Gross Receipts.--For purposes of 
     this section--
       ``(1) In general.--The term `domestic production gross 
     receipts' means the gross receipts of the taxpayer which are 
     derived from--
       ``(A) any sale, exchange, or other disposition of, or
       ``(B) any lease, rental, or license of,
     qualifying production property which was manufactured, 
     produced, grown, or extracted in whole or in significant part 
     by the taxpayer within the United States.
       ``(2) Special rules for certain property.--In the case of 
     any qualifying production property described in subsection 
     (f)(1)(C)--
       ``(A) such property shall be treated for purposes of 
     paragraph (1) as produced in significant part by the taxpayer 
     within the United States if more than 50 percent of the 
     aggregate development and production costs are incurred by 
     the taxpayer within the United States, and
       ``(B) if a taxpayer acquires such property before such 
     property begins to generate substantial gross receipts, any 
     development or production costs incurred before the 
     acquisition shall be treated as incurred by the taxpayer for 
     purposes of subparagraph (A) and paragraph (1).
       ``(f) Qualifying Production Property.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     paragraph, the term `qualifying production property' means--
       ``(A) any tangible personal property,
       ``(B) any computer software, and
       ``(C) any property described in section 168(f) (3) or (4), 
     including any underlying copyright or trademark.
       ``(2) Exclusions from qualifying production property.--The 
     term `qualifying production property' shall not include--
       ``(A) consumable property that is sold, leased, or licensed 
     by the taxpayer as an integral part of the provision of 
     services,
       ``(B) oil or gas,
       ``(C) electricity,
       ``(D) water supplied by pipeline to the consumer,
       ``(E) utility services, or
       ``(F) any film, tape, recording, book, magazine, newspaper, 
     or similar property the market for which is primarily topical 
     or otherwise essentially transitory in nature.
       ``(g) Definitions and Special Rules.--
       ``(1) Application of section to pass-thru entities.--In the 
     case of an S corporation, partnership, estate or trust, or 
     other pass-thru entity--
       ``(A) subject to the provisions of paragraph (2) and 
     subsection (b)(3)(A), this section shall be applied at the 
     shareholder, partner, or similar level, and
       ``(B) the Secretary shall prescribe rules for the 
     application of this section, including rules relating to--
       ``(i) restrictions on the allocation of the deduction to 
     taxpayers at the partner or similar level, and
       ``(ii) additional reporting requirements.
       ``(2) Exclusion for patrons of agricultural and 
     horticultural cooperatives.--
       ``(A) In general.--If any amount described in paragraph (1) 
     or (3) of section 1385(a)--
       ``(i) is received by a person from an organization to which 
     part I of subchapter T applies which is engaged in the 
     marketing of agricultural or horticultural products, and
       ``(ii) is allocable to the portion of the qualified 
     production activities income of the organization which is 
     deductible under subsection (a) and designated as such by the 
     organization in a written notice mailed to its patrons during 
     the payment period described in section 1382(d),

     then such person shall be allowed an exclusion from gross 
     income with respect to such amount. The taxable income of the 
     organization shall not be reduced under section 1382 by the 
     portion of any such amount with respect to which an exclusion 
     is allowable to a person by reason of this paragraph.
       ``(B) Special rules.--For purposes of applying subparagraph 
     (A), in determining the qualified production activities 
     income of the organization under this section--
       ``(i) there shall not be taken into account in computing 
     the organization's modified taxable income any deduction 
     allowable under subsection (b) or (c) of section 1382 
     (relating to patronage dividends, per-unit retain 
     allocations, and nonpatronage distributions), and
       ``(ii) the organization shall be treated as having 
     manufactured, produced, grown, or extracted in whole or 
     significant part any qualifying production property marketed 
     by the organization which its patrons have so manufactured, 
     produced, grown, or extracted.
       ``(3) Special rule for affiliated groups.--
       ``(A) In general.--All members of an expanded affiliated 
     group shall be treated as a single corporation for purposes 
     of this section.
       ``(B) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a), determined--
       ``(i) by substituting `50 percent' for `80 percent' each 
     place it appears, and
       ``(ii) without regard to paragraphs (2) and (4) of section 
     1504(b).
       ``(4) Coordination with minimum tax.--The deduction under 
     this section shall be allowed for purposes of the tax imposed 
     by section 55; except that for purposes of section 55, 
     alternative minimum taxable income shall be taken into 
     account in determining the deduction under this section.
       ``(5) Ordering rule.--The amount of any other deduction 
     allowable under this chapter shall be determined as if this 
     section had not been enacted.
       ``(6) Trade or business requirement.--This section shall be 
     applied by only taking into account items which are 
     attributable to the actual conduct of a trade or business.
       ``(7) Possessions, etc.--
       ``(A) In general.--For purposes of subsections (d) and (e), 
     the term `United States' includes the Commonwealth of Puerto 
     Rico, Guam, American Samoa, the Commonwealth of the Northern 
     Mariana Islands, and the Virgin Islands of the United States.
       ``(B) Special rules for applying wage limitation.--For 
     purposes of applying the limitation under subsection (b) for 
     any taxable year--
       ``(i) the determination of W-2 wages of a taxpayer shall be 
     made without regard to any exclusion under section 3401(a)(8) 
     for remuneration paid for services performed in a 
     jurisdiction described in subparagraph (A), and
       ``(ii) in determining the amount of any credit allowable 
     under section 30A or 936 for the taxable year, there shall 
     not be taken into account any wages which are taken into 
     account in applying such limitation.
       ``(8) Coordination with transition rules.--For purposes of 
     this section--
       ``(A) domestic production gross receipts shall not include 
     gross receipts from any transaction if the binding contract 
     transition relief of section 101(c)(2) of the Jumpstart Our 
     Business Strength (JOBS) Act applies to such transaction, and
       ``(B) any deduction allowed under section 101(e) of such 
     Act shall be disregarded in determining the portion of the 
     taxable income which is attributable to domestic production 
     gross receipts.''.
                                 ______
                                 
  SA 2649. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the appropriate place insert the following:

     SEC. __. WAIVER OF 10 PERCENT EARLY WITHDRAWAL PENALTY TAX ON 
                   CERTAIN DISTRIBUTIONS OF PENSION PLANS FOR 
                   PUBLIC SAFETY EMPLOYEES.

       (a) In General.--Section 72(t) (relating to subsection not 
     to apply to certain distributions) is amended by adding at 
     the end the following new paragraph:
       ``(10) Distributions to qualified public safety employees 
     in governmental plans.--
       ``(A) In general.--In the case of a distribution to a 
     qualified public safety employee from a governmental plan 
     (within the meaning of section 414(d)) which is a defined 
     benefit plan, paragraph (2)(A)(v) shall be applied by 
     substituting `age 50' for `age 55'.
       ``(B) Qualified public safety employee.--For purposes of 
     this paragraph, the term `qualified public safety employee' 
     means any employee of any police department or fire 
     department organized and operated by a State or political 
     subdivision of a State who provides police protection, 
     firefighting services, or emergency medical services for any 
     area within the jurisdiction of such State or political 
     subdivision.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to distributions after the date of the enactment 
     of this Act.
                                 ______
                                 
  SA 2673. Mr. BINGAMAN submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 378, after line 12, add the following:

     SEC. __. DEDUCTION FOR HEALTH INSURANCE COSTS IN COMPUTING 
                   SELF-EMPLOYMENT TAXES.

       (a) In General.--Section 162(l) of the Internal Revenue 
     Code of 1986 (relating to special rules for health insurance 
     costs of self-employed individuals) is amended by striking 
     paragraph (4) and by redesignating paragraph (5) as paragraph 
     (4).
       (b) Maintenance of Trust Funds.--There are hereby 
     appropriated to the Federal Old-Age and Survivors Insurance 
     Trust Fund and the Federal Disability Insurance Trust Fund 
     established under section 201 of the Social Security Act (42 
     U.S.C. 401) and the Federal Hospital Insurance Trust Fund 
     established under section 1817 of such Act (42 U.S.C.

[[Page S2169]]

     1395i) amounts equal to the reduction in revenues to the 
     Treasury by reason of the enactment of this Act. Amounts 
     appropriated by the preceding sentence shall be transferred 
     from the general fund at such times and in such manner as to 
     replicate to the extent possible the transfers which would 
     have occurred to such Trust Funds had this Act not been 
     enacted.
       (c) Effective date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 2674. Mr. BINGAMAN (for himself and Mr. Allen) submitted an 
amendment intended to be proposed by him to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table; as follows:

       On page 146, after line 23, insert the following:

     SECTION __. INTEREST PAYMENTS DEDUCTIBLE WHERE DISQUALIFIED 
                   GUARANTEE HAS NO ECONOMIC EFFECT.

       (a) In General.--Section 163(j)(6)(D)(ii) (relating to 
     exceptions to disqualified guarantee) is amended--
       (1) by striking ``or'' at the end of subclause (I),
       (2) by striking the period at the end of subclause (II) and 
     inserting ``, or'',
       (3) by inserting after subclause (II) the following new 
     subclause:

       ``(III) in the case of a guarantee by a foreign person, to 
     the extent of the amount that the taxpayer establishes to the 
     satisfaction of the Secretary that the taxpayer could have 
     borrowed from an unrelated person without the guarantee.''.

       (b) Effective Date.--The amendments made by this section 
     shall apply to guarantees issued on and after the date of the 
     enactment of this Act.

     SEC. __. INTEREST PAID TO CERTAIN LENDERS NOT DISQUALIFIED 
                   INTEREST.

       (a) In General.--Section 163(j)(3)(B) (defining 
     disqualified interest) is amended by striking ``and'' at the 
     end of clause (i) and by inserting after clause (ii) the 
     following new clause:
       ``(iii) the interest is not paid or accrued to a qualified 
     lender, and''.
       (b) Qualified Lender.--Section 163(j)(6) (relating to other 
     definitions and special rules) is amended by adding at the 
     end the following new subparagraphs:
       ``(F) Qualified lender.--A holder of debt shall be a 
     qualified lender with respect to such debt if such person 
     is--
       ``(i) a United States person subject to the income tax 
     imposed by this chapter (determined without regard to section 
     511) and--

       ``(I) such person is a financial institution, or
       ``(II) such debt is publicly issued debt, or

       ``(ii) a foreign person which is subject to either net 
     basis or gross basis taxation and--

       ``(I) such person is a financial institution required to 
     include the interest on such debt in taxable income under 
     section 882, or
       ``(II) such debt is publicly issued debt.

       ``(G) Financial institution.--The term `financial 
     institution' means a person which is--
       ``(i) predominantly engaged in the active conduct of a 
     banking, financing, or similar business within the meaning of 
     section 954(h),
       ``(ii) a corporation described in section 581 or 591 
     (relating to banks and other savings institutions), or
       ``(iii) an insurance company subject to tax under 
     subchapter L or which would be subject to tax under 
     subchapter L if it were a domestic corporation.
       ``(H) Publicly issued debt.--The term `publicly issued 
     debt' means--
       ``(i) commercial paper described in section 3(a)(3) or 4(2) 
     of the Securities Act of 1933,
       ``(ii) a debt instrument which is--

       ``(I) part of an issue of debt instruments meeting the 
     requirements of section 871(h) or 881(c) (relating to the 
     exemptions from withholding tax for certain portfolio debt 
     investments) without regard to section 871(h)(2)(B)(ii) and 
     section 881(c)(2)(B)(ii), and
       ``(II) readily tradable on an established securities 
     market, or

       ``(iii) a debt instrument which is part of an issue of debt 
     instruments the initial offering of which is registered with 
     the Securities and Exchange Commission or would be required 
     to be registered under the Securities Act of 1933 but for an 
     exemption from registration--

       ``(I) under section 3 of the Securities Act of 1933,
       ``(II) under any law (other than the Securities Act of 
     1933) because of the identity of the issuer or the nature of 
     the security,
       ``(III) because the issue is intended for distribution to 
     persons who are not United States persons, or
       ``(IV) pursuant to section 230.144A of title 17, Code of 
     Federal Regulations (relating to securities placed with 
     qualified institutional buyers) or any successor rule or 
     regulation.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to debt issued on or after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 2675. Mr. DURBIN (for himself, Mr. Graham of South Carolina, Mr. 
Reid, and Mrs. Murray) submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 179, after line 25, insert the following:

     SEC. __. CREDIT FOR QUALIFIED EXPENDITURES FOR MEDICAL 
                   PROFESSIONAL MALPRACTICE INSURANCE.

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

     ``SEC. 45G. CREDIT FOR EXPENDITURES FOR MEDICAL PROFESSIONAL 
                   MALPRACTICE INSURANCE.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of a taxpayer which is an eligible person, the medical 
     malpractice insurance expenditure tax credit determined under 
     this section for a covered year shall equal the applicable 
     percentage of the qualified medical malpractice insurance 
     expenditures incurred by an eligible person during the 
     covered year.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage is--
       ``(1) in the case of an eligible person described in 
     subsection (c)(2)(A), 20 percent,
       ``(2) in the case of an eligible person described in 
     subsection (c)(2)(B), 10 percent, and
       ``(3) in the case of an eligible person described in 
     subsection (c)(2)(C), 15 percent.
       ``(c) Definitions.--In this section:
       ``(1) Covered year.--The term `covered year' means taxable 
     years beginning in 2004 and 2005.
       ``(2) Eligible person.--The term `eligible person' means--
       ``(A) any physician (as defined in section 213(d)(4)) who 
     practices in any surgical specialty or subspecialty, 
     emergency medicine, obstetrics, anesthesiology or who does 
     intervention work which is reflected in medical malpractice 
     insurance expenditures,
       ``(B) any physician (as so defined) who practices in 
     general medicine, allergy, dermatology, pathology, or any 
     other specialty not otherwise described in this section, and
       ``(C) any hospital or clinic,
     which meets applicable legal requirements to provide the 
     health care services involved.
       ``(3) Qualified medical malpractice insurance 
     expenditure.--The term `qualified medical malpractice 
     insurance expenditure' means so much of any professional 
     insurance premium, surcharge, payment or other cost or 
     expense required as a condition of State licensure which is 
     incurred by an eligible person in a covered year for the sole 
     purpose of providing or furnishing general medical 
     malpractice liability insurance for such eligible person as 
     does not exceed twice the Statewide average of such costs for 
     similarly situated eligible persons.
       ``(d) Special Rules.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     credit determined under this section shall be claimed by the 
     eligible person incurring the qualified medical malpractice 
     insurance expenditure.
       ``(2) Certification.--Each State, through its board of 
     medical licensure and State board (or agency) regulating 
     insurance, annually shall provide such information to the 
     Secretary of Health and Human Services as is necessary to 
     permit the Secretary to calculate average costs for purposes 
     of subsection (c)(3) and to certify such average costs 
     (rounded to the nearest whole dollar) to the Secretary of the 
     Treasury on or before the 15th day of November of each year.
       ``(e) Effective Date.--This section shall apply to 
     qualified medical malpractice expenditures incurred after 
     December 31, 2003.''.
       (b) Credit Made 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 medical malpractice insurance expenditure tax 
     credit determined under section 45G(a).''.
       (c) Limitation on Carryback.--Section 39(d) (relating to 
     transition rules) is amended by adding at the end the 
     following new paragraph:
       ``(11) No carryback of medical malpractice insurance 
     expenditure tax 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 may 
     be carried back to any taxable year beginning before 2004.''.
       (d) Denial of Double Benefit.--Section 280C (relating to 
     certain expenses for which credits are allowable) is amended 
     by adding at the end the following new subsection:
       ``(d) Credit for Medical Malpractice Liability Insurance 
     Premiums.--

[[Page S2170]]

       ``(1) In general.--No deduction shall be allowed for that 
     portion of the qualified medical malpractice insurance 
     expenditures otherwise allowable as a deduction for the 
     taxable year which is equal to the amount of the credit 
     allowable for the taxable year under section 45G (determined 
     without regard to section 38(c)).
       ``(2) Controlled groups.--In the case of a corporation 
     which is a member of a controlled group of corporations 
     (within the meaning of section 41(f)(5)) or a trade or 
     business which is treated as being under common control with 
     other trades or business (within the meaning of section 
     41(f)(1)(B)), this subsection shall be applied under rules 
     prescribed by the Secretary similar to the rules applicable 
     under subparagraphs (A) and (B) of section 41(f)(1).''.
       (e) Grants to Non-Profit Hospitals and Clinics.--
       (1) In general.--The Secretary of Health and Human 
     Services, acting through the Administrator of the Health 
     Resources and Services Administration, shall award grants to 
     eligible non-profit hospitals and clinics to assist such 
     hospitals and clinics in defraying qualified medical 
     malpractice insurance expenditures.
       (2) Eligible non-profit hospital or clinic.--To be eligible 
     to receive a grant under paragraph (1) an entity shall--
       (A) be a non-profit hospital or clinic;
       (B) be unable to claim the tax credit described in section 
     45G for the year for which an application is submitted under 
     subparagraph (C); and
       (C) prepare and submit to the Secretary of Health and Human 
     Services an application at such time, in such manner, and 
     containing such information as the Secretary may require.
       (3) Amount of grant.--The amount of a grant to a non-profit 
     hospital or clinic under paragraph (1) shall equal 15 percent 
     of the amount of the qualified medical malpractice insurance 
     expenditures of the hospital or clinic for the year involved.
       (4) Qualified medical malpractice insurance expenditure.--
     In this subsection, the term ``qualified medical malpractice 
     insurance expenditure'' means so much of any professional 
     insurance premium, surcharge, payment or other cost or 
     expense required as a condition of State licensure which is 
     incurred by a non-profit hospital or clinic in a year for the 
     sole purpose of providing or furnishing general medical 
     malpractice liability insurance for such hospital or clinic 
     as does not exceed twice the Statewide average of such costs 
     for similarly situated hospitals or clinics.
       (5) Authorization of appropriations.--There are authorized 
     to be appropriated to carry out this subsection, such sums as 
     may be necessary for each of fiscal years 2005 and 2006.
       (f) Clerical Amendment.--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. Credit for expenditures for medical professional 
              malpractice insurance.''.

       (g) Effective Date.--The amendments made by this section 
     shall apply to expenditures incurred after December 31, 2003.

                          ____________________