[Congressional Record Volume 150, Number 116 (Thursday, September 23, 2004)]
[House]
[Pages H7479-H7509]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




CONFERENCE REPORT ON H.R. 1308, WORKING FAMILIES TAX RELIEF ACT OF 2004

  Mr. THOMAS submitted the following conference report and statement on 
the bill (H.R. 1308) to amend the Internal Revenue Code of 1986 to end 
certain abusive tax practices, to provide tax relief and 
simplification, and for other purposes:

                  Conference Report (H. Rept. 108-696)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the House to the amendment of 
     the Senate to the bill (H.R. 1308) to amend the Internal 
     Revenue Code of 1986 to end certain abusive tax practices, to 
     provide tax relief and simplification, and for other 
     purposes, having met, after full and free conference, have 
     agreed to recommend and do recommend to their respective 
     Houses as follows:
       That the Senate recede from its disagreement to the 
     amendments of the House to the amendments of the Senate to 
     the text of the bill and agree to the same with an amendment 
     as follows:
       In lieu of the matter proposed to be inserted by the House 
     amendment, insert the following:

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

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

Sec. 1. Short title; amendment of 1986 Code; table of contents.

              TITLE I--EXTENSION OF FAMILY TAX PROVISIONS

Sec. 101. Repeal of scheduled reductions in child tax credit, marriage 
              penalty relief, and 10-percent rate bracket.
Sec. 102. Acceleration of increase in refundability of the child tax 
              credit.
Sec. 103. 1-year extension of minimum tax relief to individuals.
Sec. 104. Earned income includes combat pay.
Sec. 105. Application of EGTRRA sunset to this title.

                 TITLE II--UNIFORM DEFINITION OF CHILD

Sec. 201. Uniform definition of child, etc.
Sec. 202. Modifications of definition of head of household.
Sec. 203. Modifications of dependent care credit.
Sec. 204. Modifications of child tax credit.
Sec. 205. Modifications of earned income credit.
Sec. 206. Modifications of deduction for personal exemption for 
              dependents.
Sec. 207. Technical and conforming amendments.
Sec. 208. Effective date.

          TITLE III--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

Sec. 301. Research credit.
Sec. 302. Parity in the application of certain limits to mental health 
              benefits.
Sec. 303. Work opportunity credit and welfare-to-work credit.
Sec. 304. Qualified zone academy bonds.
Sec. 305. Cover over of tax on distilled spirits.
Sec. 306. Deduction for corporate donations of scientific property and 
              computer technology.
Sec. 307. Deduction for certain expenses of school teachers.
Sec. 308. Expensing of environmental remediation costs.
Sec. 309. Certain New York Liberty Zone benefits.
Sec. 310. Tax incentives for investment in the District of Columbia.
Sec. 311. Disclosure of tax information to facilitate combined 
              employment tax reporting.
Sec. 312. Allowance of nonrefundable personal credits against regular 
              and minimum tax liability.
Sec. 313. Credit for electricity produced from certain renewable 
              resources.
Sec. 314. Taxable income limit on percentage depletion for oil and 
              natural gas produced from marginal properties.
Sec. 315. Indian employment tax credit.
Sec. 316. Accelerated depreciation for business property on Indian 
              reservation.
Sec. 317. Disclosure of return information relating to student loans.
Sec. 318. Elimination of phaseout of credit for qualified electric 
              vehicles for 2004 and 2005.
Sec. 319. Elimination of phaseout for deduction for clean-fuel vehicle 
              property for 2004 and 2005.
Sec. 320. Disclosures relating to terrorist activities.
Sec. 321. Joint review of strategic plans and budget for the Internal 
              Revenue Service.
Sec. 322. Availability of medical savings accounts.

                  TITLE IV--TAX TECHNICAL CORRECTIONS

Sec. 401. Amendments related to Medicare Prescription Drug, 
              Improvement, and Modernization Act of 2003.

[[Page H7480]]

Sec. 402. Amendments related to Jobs and Growth Tax Relief 
              Reconciliation Act of 2003.
Sec. 403. Amendments related to Job Creation and Worker Assistance Act 
              of 2002.
Sec. 404. Amendments related to Economic Growth and Tax Relief 
              Reconciliation Act of 2001.
Sec. 405. Amendments related to Community Renewal Tax Relief Act of 
              2000.
Sec. 406. Amendments related to Taxpayer Relief Act of 1997.
Sec. 407. Amendments related to Small Business Job Protection Act of 
              1996.
Sec. 408. Clerical amendments.

              TITLE I--EXTENSION OF FAMILY TAX PROVISIONS

     SEC. 101. REPEAL OF SCHEDULED REDUCTIONS IN CHILD TAX CREDIT, 
                   MARRIAGE PENALTY RELIEF, AND 10-PERCENT RATE 
                   BRACKET.

       (a) Child Tax Credit.--Subsection (a) of section 24 
     (relating to child tax credit) is amended to read as follows:
       ``(a) Allowance of Credit.--There shall be allowed as a 
     credit against the tax imposed by this chapter for the 
     taxable year with respect to each qualifying child of the 
     taxpayer an amount equal to $1,000.''.
       (b) Marriage Penalty Relief in Standard Deduction.--
       (1) In general.--Paragraph (2) of section 63(c) (relating 
     to basic standard deduction) is amended to read as follows:
       ``(2) Basic standard deduction.--For purposes of paragraph 
     (1), the basic standard deduction is--
       ``(A) 200 percent of the dollar amount in effect under 
     subparagraph (C) for the taxable year in the case of--
       ``(i) a joint return, or
       ``(ii) a surviving spouse (as defined in section 2(a)),
       ``(B) $4,400 in the case of a head of household (as defined 
     in section 2(b)), or
       ``(C) $3,000 in any other case.''.
       (2) Conforming amendments.--
       (A) Section 63(c)(4) is amended by striking ``(2)(D)'' each 
     place it occurs and inserting ``(2)(C)''.
       (B) Section 63(c) is amended by striking paragraph (7).
       (c) Marriage Penalty Relief in 15-percent Income Tax 
     Bracket.--Paragraph (8) of section 1(f) is amended to read as 
     follows:
       ``(8) Elimination of marriage penalty in 15-percent 
     bracket.--With respect to taxable years beginning after 
     December 31, 2003, in prescribing the tables under paragraph 
     (1)--
       ``(A) the maximum taxable income in the 15-percent rate 
     bracket in the table contained in subsection (a) (and the 
     minimum taxable income in the next higher taxable income 
     bracket in such table) shall be 200 percent of the maximum 
     taxable income in the 15-percent rate bracket in the table 
     contained in subsection (c) (after any other adjustment under 
     this subsection), and
       ``(B) the comparable taxable income amounts in the table 
     contained in subsection (d) shall be \1/2\ of the amounts 
     determined under subparagraph (A).''.
       (d) 10-Percent Rate Bracket.--
       (1) In general.--Clause (i) of section 1(i)(1)(B) is 
     amended by striking ``($12,000 in the case of taxable years 
     beginning after December 31, 2004, and before January 1, 
     2008)''.
       (2) Inflation adjustment.--Subparagraph (C) of section 
     1(i)(1) is amended to read as follows:
       ``(C) Inflation adjustment.--In prescribing the tables 
     under subsection (f) which apply with respect to taxable 
     years beginning in calendar years after 2003--
       ``(i) the cost-of-living adjustment shall be determined 
     under subsection (f)(3) by substituting `2002' for `1992' in 
     subparagraph (B) thereof, and
       ``(ii) the adjustments under clause (i) shall not apply to 
     the amount referred to in subparagraph (B)(iii).
     If any amount after adjustment under the preceding sentence 
     is not a multiple of $50, such amount shall be rounded to the 
     next lowest multiple of $50.''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 102. ACCELERATION OF INCREASE IN REFUNDABILITY OF THE 
                   CHILD TAX CREDIT.

       (a) Acceleration of Refundability.--Section 24(d)(1)(B)(i) 
     (relating to portion of credit refundable) is amended by 
     striking ``(10 percent in the case of taxable years beginning 
     before January 1, 2005)''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 103. EXTENSION OF MINIMUM TAX RELIEF TO INDIVIDUALS.

       (a) In General.--Subparagraphs (A) and (B) of section 
     55(d)(1) of the Internal Revenue Code of 1986 (relating to 
     exemption amount for taxpayers other than corporations) are 
     each amended by striking ``2003 and 2004'' and inserting 
     ``2003, 2004, and 2005''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 104. EARNED INCOME INCLUDES COMBAT PAY.

       (a) Child Tax Credit.--Section 24(d)(1) (relating to 
     portion of credit refundable) is amended by adding at the end 
     the following new sentence: ``For purposes of subparagraph 
     (B), any amount excluded from gross income by reason of 
     section 112 shall be treated as earned income which is taken 
     into account in computing taxable income for the taxable 
     year.''.
       (b) Earned Income Credit.--Subparagraph (B) of section 
     32(c)(2) (relating to earned income) is amended--
       (1) by striking ``and'' at the end of clause (iv),
       (2) by striking the period at the end of clause (v) and 
     inserting ``, and'', and
       (3) by adding at the end the following:
       ``(vi) in the case of any taxable year ending--

       ``(I) after the date of the enactment of this clause, and
       ``(II) before January 1, 2006,

     a taxpayer may elect to treat amounts excluded from gross 
     income by reason of section 112 as earned income.''.
       (c) Effective Date.--
       (1) Child tax credit.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2003.
       (2) Earned income credit.--The amendments made by 
     subsection (b) shall apply to taxable years ending after the 
     date of the enactment of this Act.

     SEC. 105. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.

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

                 TITLE II--UNIFORM DEFINITION OF CHILD

     SEC. 201. UNIFORM DEFINITION OF CHILD, ETC.

       Section 152 is amended to read as follows:

     ``SEC. 152. DEPENDENT DEFINED.

       ``(a) In General.--For purposes of this subtitle, the term 
     `dependent' means--
       ``(1) a qualifying child, or
       ``(2) a qualifying relative.
       ``(b) Exceptions.--For purposes of this section--
       ``(1) Dependents ineligible.--If an individual is a 
     dependent of a taxpayer for any taxable year of such taxpayer 
     beginning in a calendar year, such individual shall be 
     treated as having no dependents for any taxable year of such 
     individual beginning in such calendar year.
       ``(2) Married dependents.--An individual shall not be 
     treated as a dependent of a taxpayer under subsection (a) if 
     such individual has made a joint return with the individual's 
     spouse under section 6013 for the taxable year beginning in 
     the calendar year in which the taxable year of the taxpayer 
     begins.
       ``(3) Citizens or nationals of other countries.--
       ``(A) In general.--The term `dependent' does not include an 
     individual who is not a citizen or national of the United 
     States unless such individual is a resident of the United 
     States or a country contiguous to the United States.
       ``(B) Exception for adopted child.--Subparagraph (A) shall 
     not exclude any child of a taxpayer (within the meaning of 
     subsection (f)(1)(B)) from the definition of `dependent' if--
       ``(i) for the taxable year of the taxpayer, the child has 
     the same principal place of abode as the taxpayer and is a 
     member of the taxpayer's household, and
       ``(ii) the taxpayer is a citizen or national of the United 
     States.
       ``(c) Qualifying Child.--For purposes of this section--
       ``(1) In general.--The term `qualifying child' means, with 
     respect to any taxpayer for any taxable year, an individual--
       ``(A) who bears a relationship to the taxpayer described in 
     paragraph (2),
       ``(B) who has the same principal place of abode as the 
     taxpayer for more than one-half of such taxable year,
       ``(C) who meets the age requirements of paragraph (3), and
       ``(D) who has not provided over one-half of such 
     individual's own support for the calendar year in which the 
     taxable year of the taxpayer begins.
       ``(2) Relationship.--For purposes of paragraph (1)(A), an 
     individual bears a relationship to the taxpayer described in 
     this paragraph if such individual is--
       ``(A) a child of the taxpayer or a descendant of such a 
     child, or
       ``(B) a brother, sister, stepbrother, or stepsister of the 
     taxpayer or a descendant of any such relative.
       ``(3) Age requirements.--
       ``(A) In general.--For purposes of paragraph (1)(C), an 
     individual meets the requirements of this paragraph if such 
     individual--
       ``(i) has not attained the age of 19 as of the close of the 
     calendar year in which the taxable year of the taxpayer 
     begins, or
       ``(ii) is a student who has not attained the age of 24 as 
     of the close of such calendar year.
       ``(B) Special rule for disabled.--In the case of an 
     individual who is permanently and totally disabled (as 
     defined in section 22(e)(3)) at any time during such calendar 
     year, the requirements of subparagraph (A) shall be treated 
     as met with respect to such individual.
       ``(4) Special rule relating to 2 or more claiming 
     qualifying child.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     if (but for this paragraph) an individual may be and is 
     claimed as a qualifying child by 2 or more taxpayers for a 
     taxable year beginning in the same calendar year, such 
     individual shall be treated as the qualifying child of the 
     taxpayer who is--
       ``(i) a parent of the individual, or
       ``(ii) if clause (i) does not apply, the taxpayer with the 
     highest adjusted gross income for such taxable year.
       ``(B) More than 1 parent claiming qualifying child.--If the 
     parents claiming any qualifying child do not file a joint 
     return together, such child shall be treated as the 
     qualifying child of--
       ``(i) the parent with whom the child resided for the 
     longest period of time during the taxable year, or

[[Page H7481]]

       ``(ii) if the child resides with both parents for the same 
     amount of time during such taxable year, the parent with the 
     highest adjusted gross income.
       ``(d) Qualifying Relative.--For purposes of this section--
       ``(1) In general.--The term `qualifying relative' means, 
     with respect to any taxpayer for any taxable year, an 
     individual--
       ``(A) who bears a relationship to the taxpayer described in 
     paragraph (2),
       ``(B) whose gross income for the calendar year in which 
     such taxable year begins is less than the exemption amount 
     (as defined in section 151(d)),
       ``(C) with respect to whom the taxpayer provides over one-
     half of the individual's support for the calendar year in 
     which such taxable year begins, and
       ``(D) who is not a qualifying child of such taxpayer or of 
     any other taxpayer for any taxable year beginning in the 
     calendar year in which such taxable year begins.
       ``(2) Relationship.--For purposes of paragraph (1)(A), an 
     individual bears a relationship to the taxpayer described in 
     this paragraph if the individual is any of the following with 
     respect to the taxpayer:
       ``(A) A child or a descendant of a child.
       ``(B) A brother, sister, stepbrother, or stepsister.
       ``(C) The father or mother, or an ancestor of either.
       ``(D) A stepfather or stepmother.
       ``(E) A son or daughter of a brother or sister of the 
     taxpayer.
       ``(F) A brother or sister of the father or mother of the 
     taxpayer.
       ``(G) A son-in-law, daughter-in-law, father-in-law, mother-
     in-law, brother-in-law, or sister-in-law.
       ``(H) An individual (other than an individual who at any 
     time during the taxable year was the spouse, determined 
     without regard to section 7703, of the taxpayer) who, for the 
     taxable year of the taxpayer, has the same principal place of 
     abode as the taxpayer and is a member of the taxpayer's 
     household.
       ``(3) Special rule relating to multiple support 
     agreements.--For purposes of paragraph (1)(C), over one-half 
     of the support of an individual for a calendar year shall be 
     treated as received from the taxpayer if--
       ``(A) no one person contributed over one-half of such 
     support,
       ``(B) over one-half of such support was received from 2 or 
     more persons each of whom, but for the fact that any such 
     person alone did not contribute over one-half of such 
     support, would have been entitled to claim such individual as 
     a dependent for a taxable year beginning in such calendar 
     year,
       ``(C) the taxpayer contributed over 10 percent of such 
     support, and
       ``(D) each person described in subparagraph (B) (other than 
     the taxpayer) who contributed over 10 percent of such support 
     files a written declaration (in such manner and form as the 
     Secretary may by regulations prescribe) that such person will 
     not claim such individual as a dependent for any taxable year 
     beginning in such calendar year.
       ``(4) Special rule relating to income of handicapped 
     dependents.--
       ``(A) In general.--For purposes of paragraph (1)(B), the 
     gross income of an individual who is permanently and totally 
     disabled (as defined in section 22(e)(3)) at any time during 
     the taxable year shall not include income attributable to 
     services performed by the individual at a sheltered workshop 
     if--
       ``(i) the availability of medical care at such workshop is 
     the principal reason for the individual's presence there, and
       ``(ii) the income arises solely from activities at such 
     workshop which are incident to such medical care.
       ``(B) Sheltered workshop defined.--For purposes of 
     subparagraph (A), the term `sheltered workshop' means a 
     school--
       ``(i) which provides special instruction or training 
     designed to alleviate the disability of the individual, and
       ``(ii) which is operated by an organization described in 
     section 501(c)(3) and exempt from tax under section 501(a), 
     or by a State, a possession of the United States, any 
     political subdivision of any of the foregoing, the United 
     States, or the District of Columbia.
       ``(5) Special rules for support.--For purposes of this 
     subsection--
       ``(A) payments to a spouse which are includible in the 
     gross income of such spouse under section 71 or 682 shall not 
     be treated as a payment by the payor spouse for the support 
     of any dependent, and
       ``(B) in the case of the remarriage of a parent, support of 
     a child received from the parent's spouse shall be treated as 
     received from the parent.
       ``(e) Special Rule for Divorced Parents.--
       ``(1) In general.--Notwithstanding subsection (c)(1)(B), 
     (c)(4), or (d)(1)(C), if--
       ``(A) a child receives over one-half of the child's support 
     during the calendar year from the child's parents--
       ``(i) who are divorced or legally separated under a decree 
     of divorce or separate maintenance,
       ``(ii) who are separated under a written separation 
     agreement, or
       ``(iii) who live apart at all times during the last 6 
     months of the calendar year, and
       ``(B) such child is in the custody of 1 or both of the 
     child's parents for more than one-half of the calendar year,
     such child shall be treated as being the qualifying child or 
     qualifying relative of the noncustodial parent for a calendar 
     year if the requirements described in paragraph (2) are met.
       ``(2) Requirements.--For purposes of paragraph (1), the 
     requirements described in this paragraph are met if--
       ``(A) a decree of divorce or separate maintenance or 
     written separation agreement between the parents applicable 
     to the taxable year beginning in such calendar year provides 
     that--
       ``(i) the noncustodial parent shall be entitled to any 
     deduction allowable under section 151 for such child, or
       ``(ii) the custodial parent will sign a written declaration 
     (in such manner and form as the Secretary may prescribe) that 
     such parent will not claim such child as a dependent for such 
     taxable year, or
       ``(B) in the case of such an agreement executed before 
     January 1, 1985, the noncustodial parent provides at least 
     $600 for the support of such child during such calendar year.
     For purposes of subparagraph (B), amounts expended for the 
     support of a child or children shall be treated as received 
     from the noncustodial parent to the extent that such parent 
     provided amounts for such support.
       ``(3) Custodial parent and noncustodial parent.--For 
     purposes of this subsection--
       ``(A) Custodial parent.--The term `custodial parent' means 
     the parent with whom a child shared the same principal place 
     of abode for the greater portion of the calendar year.
       ``(B) Noncustodial parent.--The term `noncustodial parent' 
     means the parent who is not the custodial parent.
       ``(4) Exception for multiple-support agreements.--This 
     subsection shall not apply in any case where over one-half of 
     the support of the child is treated as having been received 
     from a taxpayer under the provision of subsection (d)(3).
       ``(f) Other Definitions and Rules.--For purposes of this 
     section--
       ``(1) Child defined.--
       ``(A) In general.--The term `child' means an individual who 
     is--
       ``(i) a son, daughter, stepson, or stepdaughter of the 
     taxpayer, or
       ``(ii) an eligible foster child of the taxpayer.
       ``(B) Adopted child.--In determining whether any of the 
     relationships specified in subparagraph (A)(i) or paragraph 
     (4) exists, a legally adopted individual of the taxpayer, or 
     an individual who is lawfully placed with the taxpayer for 
     legal adoption by the taxpayer, shall be treated as a child 
     of such individual by blood.
       ``(C) Eligible foster child.--For purposes of subparagraph 
     (A)(ii), the term `eligible foster child' means an individual 
     who is placed with the taxpayer by an authorized placement 
     agency or by judgment, decree, or other order of any court of 
     competent jurisdiction.
       ``(2) Student defined.--The term `student' means an 
     individual who during each of 5 calendar months during the 
     calendar year in which the taxable year of the taxpayer 
     begins--
       ``(A) is a full-time student at an educational organization 
     described in section 170(b)(1)(A)(ii), or
       ``(B) is pursuing a full-time course of institutional on-
     farm training under the supervision of an accredited agent of 
     an educational organization described in section 
     170(b)(1)(A)(ii) or of a State or political subdivision of a 
     State.
       ``(3) Determination of household status.--An individual 
     shall not be treated as a member of the taxpayer's household 
     if at any time during the taxable year of the taxpayer the 
     relationship between such individual and the taxpayer is in 
     violation of local law.
       ``(4) Brother and sister.--The terms `brother' and `sister' 
     include a brother or sister by the half blood.
       ``(5) Special support test in case of students.--For 
     purposes of subsections (c)(1)(D) and (d)(1)(C), in the case 
     of an individual who is--
       ``(A) a child of the taxpayer, and
       ``(B) a student,

     amounts received as scholarships for study at an educational 
     organization described in section 170(b)(1)(A)(ii) shall not 
     be taken into account.
       ``(6) Treatment of missing children.--
       ``(A) In general.--Solely for the purposes referred to in 
     subparagraph (B), a child of the taxpayer--
       ``(i) who is presumed by law enforcement authorities to 
     have been kidnapped by someone who is not a member of the 
     family of such child or the taxpayer, and
       ``(ii) who had, for the taxable year in which the 
     kidnapping occurred, the same principal place of abode as the 
     taxpayer for more than one-half of the portion of such year 
     before the date of the kidnapping,

     shall be treated as meeting the requirement of subsection 
     (c)(1)(B) with respect to a taxpayer for all taxable years 
     ending during the period that the child is kidnapped.
       ``(B) Purposes.--Subparagraph (A) shall apply solely for 
     purposes of determining--
       ``(i) the deduction under section 151(c),
       ``(ii) the credit under section 24 (relating to child tax 
     credit),
       ``(iii) whether an individual is a surviving spouse or a 
     head of a household (as such terms are defined in section 2), 
     and
       ``(iv) the earned income credit under section 32.
       ``(C) Comparable treatment of certain qualifying 
     relatives.--For purposes of this section, a child of the 
     taxpayer--
       ``(i) who is presumed by law enforcement authorities to 
     have been kidnapped by someone who is not a member of the 
     family of such child or the taxpayer, and
       ``(ii) who was (without regard to this paragraph) a 
     qualifying relative of the taxpayer for the portion of the 
     taxable year before the date of the kidnapping,

     shall be treated as a qualifying relative of the taxpayer for 
     all taxable years ending during the period that the child is 
     kidnapped.
       ``(D) Termination of treatment.--Subparagraphs (A) and (C) 
     shall cease to apply as of the first taxable year of the 
     taxpayer beginning after the calendar year in which there is 
     a determination that the child is dead (or, if earlier, in 
     which the child would have attained age 18).

[[Page H7482]]

       ``(7) Cross references.--

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

     SEC. 202. MODIFICATIONS OF DEFINITION OF HEAD OF HOUSEHOLD.

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

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

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

     SEC. 203. MODIFICATIONS OF DEPENDENT CARE CREDIT.

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

     SEC. 204. MODIFICATIONS OF CHILD TAX CREDIT.

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

     SEC. 205. MODIFICATIONS OF EARNED INCOME CREDIT.

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

     SEC. 206. MODIFICATIONS OF DEDUCTION FOR PERSONAL EXEMPTION 
                   FOR DEPENDENTS.

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

     SEC. 207. TECHNICAL AND CONFORMING AMENDMENTS.

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

     SEC. 208. EFFECTIVE DATE.

       The amendments made by this title shall apply to taxable 
     years beginning after December 31, 2004.

          TITLE III--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

     SEC. 301. 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) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after June 30, 2004.

     SEC. 302. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO 
                   MENTAL HEALTH BENEFITS.

       (a) In General.--Section 9812(f) is amended--
       (1) by striking ``and'' at the end of paragraph (1), and
       (2) by striking paragraph (2) and inserting the following 
     new paragraphs:
       ``(2) on or after January 1, 2004, and before the date of 
     the enactment of the Working Families Tax Relief Act of 2004, 
     and
       ``(3) after December 31, 2005.''.
       (b) ERISA.--Section 712(f) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1185a(f)) is amended 
     by striking ``on or after December 31, 2004'' and inserting 
     ``after December 31, 2005''.
       (c) PHSA.--Section 2705(f) of the Public Health Service Act 
     (42 U.S.C. 300gg-5(f)) is amended by striking ``on or after 
     December 31, 2004'' and inserting ``after December 31, 
     2005''.
       (d) Effective Dates.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

[[Page H7483]]

     SEC. 303. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK CREDIT.

       (a) Extension of Credit.--
       (1) In general.--Section 51(c)(4) is amended by striking 
     ``December 31, 2003'' and inserting ``December 31, 2005''.
       (2) Long-term family assistance recipients.--Section 51A(f) 
     is amended by striking ``December 31, 2003'' and inserting 
     ``December 31, 2005''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 2003.

     SEC. 304. QUALIFIED ZONE ACADEMY BONDS.

       (a) In General.--Paragraph (1) of section 1397E(e) is 
     amended by striking ``and 2003'' and inserting ``2003, 2004, 
     and 2005''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to obligations issued after December 31, 2003.

     SEC. 305. COVER OVER OF TAX ON DISTILLED SPIRITS.

       (a) In General.--Paragraph (1) of section 7652(f) is 
     amended by striking ``January 1, 2004'' and inserting 
     ``January 1, 2006''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to articles brought into the United States after 
     December 31, 2003.

     SEC. 306. DEDUCTION FOR CORPORATE DONATIONS OF SCIENTIFIC 
                   PROPERTY AND COMPUTER TECHNOLOGY.

       (a) In General.--Section 170(e)(6)(G) is amended by 
     striking ``2003'' and inserting ``2005''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2003.

     SEC. 307. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL TEACHERS.

       (a) In General.--Subparagraph (D) of section 62(a)(2) is 
     amended by striking ``or 2003'' and inserting ``, 2003, 2004, 
     or 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to expenses paid or incurred in taxable years 
     beginning after December 31, 2003.

     SEC. 308. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

       (a) Extension of Termination Date.--Subsection (h) of 
     section 198 is amended by striking ``December 31, 2003'' and 
     inserting ``December 31, 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to expenditures paid or incurred after December 
     31, 2003.

     SEC. 309. CERTAIN NEW YORK LIBERTY ZONE BENEFITS.

       (a) Extension of Tax-Exempt Bond Financing.--Subparagraph 
     (D) of section 1400L(d)(2) is amended by striking ``2005'' 
     and inserting ``2010''.
       (b) Extension of Advance Refundings.--Section 1400L(e)(1) 
     is amended by striking ``2005'' and inserting ``2006''.
       (c) Clarification of Bonds Eligible for Advance 
     Refunding.--Section 1400L(e)(2)(B) (relating to bonds 
     described) is amended by striking ``, or'' and inserting ``or 
     the Municipal Assistance Corporation, or''.
       (d) Effective date.--The amendment made by subsection (c) 
     shall take effect as if included in the amendments made by 
     section 301 of the Job Creation and Worker Assistance Act of 
     2002.

     SEC. 310. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF 
                   COLUMBIA.

       (a) Designation of Zone.--Subsection (f) of section 1400 is 
     amended by striking ``December 31, 2003'' both places it 
     appears and inserting ``December 31, 2005''.
       (b) Tax-Exempt Economic Development Bonds.--Subsection (b) 
     of section 1400A is amended by striking ``December 31, 2003'' 
     and inserting ``December 31, 2005''.
       (c) Zero Percent Capital Gains Rate.--
       (1) In general.--Subsection (b) of section 1400B is amended 
     by striking ``January 1, 2004'' each place it appears and 
     inserting ``January 1, 2006''.
       (2) Conforming amendments.--
       (A) Section 1400B(e)(2) is amended--
       (i) by striking ``December 31, 2008'' and inserting 
     ``December 31, 2010'', and
       (ii) by striking ``2008'' in the heading and inserting 
     ``2010''.
       (B) Section 1400B(g)(2) is amended by striking ``December 
     31, 2008'' and inserting ``December 31, 2010''.
       (C) Section 1400F(d) is amended by striking ``December 31, 
     2008'' and inserting ``December 31, 2010''.
       (d) First-Time Homebuyer Credit.--Subsection (i) of section 
     1400C is amended by striking ``January 1, 2004'' and 
     inserting ``January 1, 2006''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall take effect on January 
     1, 2004.
       (2) Tax-exempt economic development bonds.--The amendment 
     made by subsection (b) shall apply to obligations issued 
     after the date of the enactment of this Act.

     SEC. 311. DISCLOSURE OF TAX INFORMATION TO FACILITATE 
                   COMBINED EMPLOYMENT TAX REPORTING.

       (a) In General.--Paragraph (5) of section 6103(d) (relating 
     to disclosure to State tax officials and State and local law 
     enforcement agencies) is amended to read as follows:
       ``(5) Disclosure for combined employment tax reporting.--
       ``(A) In general.--The Secretary may disclose taxpayer 
     identity information and signatures to any agency, body, or 
     commission of any State for the purpose of carrying out with 
     such agency, body, or commission a combined Federal and State 
     employment tax reporting program approved by the Secretary. 
     Subsections (a)(2) and (p)(4) and sections 7213 and 7213A 
     shall not apply with respect to disclosures or inspections 
     made pursuant to this paragraph.
       ``(B) Termination.--The Secretary may not make any 
     disclosure under this paragraph after December 31, 2005.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 312. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST 
                   REGULAR AND MINIMUM TAX LIABILITY.

       (a) In General.--Paragraph (2) of section 26(a) is 
     amended--
       (1) by striking ``rule for 2000, 2001, 2002, and 2003.--'' 
     and inserting ``rule for taxable years 2000 through 2005.--
     '', and
       (2) by striking ``or 2003'' and inserting ``2003, 2004, or 
     2005''.
       (b) Conforming Provisions.--
       (1) Section 904(h) is amended by striking ``or 2003'' and 
     inserting ``2003, 2004, or 2005''.
       (2) The amendments made by sections 201(b), 202(f), and 
     618(b) of the Economic Growth and Tax Relief Reconciliation 
     Act of 2001 shall not apply to taxable years beginning during 
     2004 or 2005.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 313. CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN 
                   RENEWABLE RESOURCES.

       (a) In General.--Subparagraphs (A), (B), and (C) of section 
     45(c)(3) are each amended by striking ``January 1, 2004'' and 
     inserting ``January 1, 2006''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to facilities placed in service after December 
     31, 2003.

     SEC. 314. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR 
                   OIL AND NATURAL GAS PRODUCED FROM MARGINAL 
                   PROPERTIES.

       (a) In General.--Subparagraph (H) of section 613A(c)(6) is 
     amended by striking ``January 1, 2004'' and inserting 
     ``January 1, 2006''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 315. INDIAN EMPLOYMENT TAX CREDIT.

       Section 45A(f) (relating to termination) is amended by 
     striking ``December 31, 2004'' and inserting ``December 31, 
     2005''.

     SEC. 316. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON 
                   INDIAN RESERVATION.

       Section 168(j)(8) (relating to termination) is amended by 
     striking ``December 31, 2004'' and inserting ``December 31, 
     2005''.

     SEC. 317. DISCLOSURE OF RETURN INFORMATION RELATING TO 
                   STUDENT LOANS.

       Section 6103(l)(13)(D) (relating to termination) is amended 
     by striking ``December 31, 2004'' and inserting ``December 
     31, 2005''.

     SEC. 318. ELIMINATION OF PHASEOUT OF CREDIT FOR QUALIFIED 
                   ELECTRIC VEHICLES FOR 2004 AND 2005.

       (a) In General.--Paragraph (2) of section 30(b) is amended 
     to read as follows:
       ``(2) Phaseout.--In the case of any qualified electric 
     vehicle placed in service after December 31, 2005, the credit 
     otherwise allowable under subsection (a) (determined after 
     the application of paragraph (1)) shall be reduced by 75 
     percent.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after December 31, 
     2003.

     SEC. 319. ELIMINATION OF PHASEOUT FOR DEDUCTION FOR CLEAN-
                   FUEL VEHICLE PROPERTY FOR 2004 AND 2005.

       (a) In General.--Subparagraph (B) of section 179A(b)(1) is 
     amended to read as follows:
       ``(B) Phaseout.--In the case of any qualified clean-fuel 
     vehicle property placed in service after December 31, 2005, 
     the limit otherwise allowable under subparagraph (A) shall be 
     reduced by 75 percent.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to property placed in service after December 31, 
     2003.

     SEC. 320. DISCLOSURES RELATING TO TERRORIST ACTIVITIES.

       (a) In General.--Clause (iv) of section 6103(i)(3)(C) and 
     subparagraph (E) of section 6103(i)(7) are both amended by 
     striking ``December 31, 2003'' and inserting ``December 31, 
     2005''.
       (b) Disclosure of taxpayer identity to law enforcement 
     agencies investigating terrorism.--Subparagraph (A) of 
     section 6103(i)(7) is amended by adding at the end the 
     following new clause:
       ``(v) Taxpayer identity.--For purposes of this 
     subparagraph, a taxpayer's identity shall not be treated as 
     taxpayer return information.''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by subsection (a) 
     shall apply to disclosures on or after the date of the 
     enactment of this Act.
       (2) Subsection (b).--The amendment made by subsection (b) 
     shall take effect as if included in section 201 of the 
     Victims of Terrorism Tax Relief Act of 2001.

[[Page H7484]]

     SEC. 321. JOINT REVIEW OF STRATEGIC PLANS AND BUDGET FOR THE 
                   INTERNAL REVENUE SERVICE.

       (a) In General.--Paragraph (2) of section 8021(f) (relating 
     to joint reviews) is amended by striking ``2004'' and 
     inserting ``2005''.
       (b) Report.--Subparagraph (C) of section 8022(3) (regarding 
     reports) is amended--
       (1) by striking ``2004'' and inserting ``2005'', and
       (2) by striking ``with respect to--'' and all that follows 
     and inserting ``with respect to the matters addressed in the 
     joint review referred to in section 8021(f)(2).''.
       (c) Time for Joint Review.--The joint review required by 
     section 8021(f)(2) of the Internal Revenue Code of 1986 to be 
     made before June 1, 2004, shall be treated as timely if made 
     before June 1, 2005.

     SEC. 322. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.

       (a) In General.--Paragraphs (2) and (3)(B) of section 
     220(i) (defining cut-off year) are each amended by striking 
     ``2003'' each place it appears in the text and headings and 
     inserting ``2005''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 220(j) is amended--
       (A) in the text by striking ``or 2002'' each place it 
     appears and inserting ``2002, or 2004'', and
       (B) in the heading by striking ``or 2002'' and inserting 
     ``2002, or 2004''.
       (2) Subparagraph (A) of section 220(j)(4) is amended by 
     striking ``and 2002'' and inserting ``2002, and 2004''.
       (3) Subparagraph (C) of section 220(j)(2) is amended to 
     read as follows:
       ``(C) No limitation for 2000 or 2003.--The numerical 
     limitation shall not apply for 2000 or 2003.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 2004.
       (d) Time for Filing Reports, Etc.--
       (1) The report required by section 220(j)(4) of the 
     Internal Revenue Code of 1986 to be made on August 1, 2004, 
     shall be treated as timely if made before the close of the 
     90-day period beginning on the date of the enactment of this 
     Act.
       (2) The determination and publication required by section 
     220(j)(5) of such Code with respect to calendar year 2004 
     shall be treated as timely if made before the close of the 
     120-day period beginning on the date of the enactment of this 
     Act. If the determination under the preceding sentence is 
     that 2004 is a cut-off year under section 220(i) of such 
     Code, the cut-off date under such section 220(i) shall be the 
     last day of such 120-day period.

                  TITLE IV--TAX TECHNICAL CORRECTIONS

     SEC. 401. AMENDMENTS RELATED TO MEDICARE PRESCRIPTION DRUG, 
                   IMPROVEMENT, AND MODERNIZATION ACT OF 2003.

       (a) Amendments Related to Section 1201 of the Act.--
       (1) Paragraph (2) of section 26(b) is amended by striking 
     ``and'' at the end of subparagraph (Q), by striking the 
     period at the end of subparagraph (R) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(S) section 223(f)(4) (relating to additional tax on 
     health savings account distributions not used for qualified 
     medical expenses).
       (2) Paragraph (3) of section 35(g) is amended to read as 
     follows:
       ``(3) Medical and health savings accounts.--Amounts 
     distributed from an Archer MSA (as defined in section 220(d)) 
     or from a health savings account (as defined in section 
     223(d)) shall not be taken into account under subsection 
     (a).''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect as if included in section 1201 of the 
     Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003.

     SEC. 402. AMENDMENTS RELATED TO JOBS AND GROWTH TAX RELIEF 
                   RECONCILIATION ACT OF 2003.

       (a) Amendments Related to Section 302 of the Act.--
       (1) Clause (i) of section 1(h)(1)(D) is amended by 
     inserting ``(determined without regard to paragraph (11))'' 
     after ``net capital gain''.
       (2) Subclause (I) of section 1(h)(11)(B)(iii) is amended--
       (A) by striking ``section 246(c)(1)'' and inserting 
     ``section 246(c)'',
       (B) by striking ``120-day period'' and inserting ``121-day 
     period'', and
       (C) by striking ``90-day period'' and inserting ``91-day 
     period''.
       (3) Clause (ii) of section 1(h)(11)(D) is amended by 
     striking ``an individual'' and inserting ``a taxpayer to whom 
     this section applies''.
       (4) Paragraph (4) of section 691(c) is amended by striking 
     ``of any gain''.
       (5)(A) Subparagraph (B) of section 854(b)(1) is amended--
       (i) by striking clauses (iii) and (iv), and
       (ii) by amending clause (i) to read as follows:
       ``(i) In general.--In any case in which--

       ``(I) a dividend is received from a regulated investment 
     company (other than a dividend to which subsection (a) 
     applies),
       ``(II) such investment company meets the requirements of 
     section 852(a) for the taxable year during which it paid such 
     dividend, and
       ``(III) the qualified dividend income of such investment 
     company for such taxable year is less than 95 percent of its 
     gross income,

     then, in computing qualified dividend income, there shall be 
     taken into account only that portion of such dividend 
     designated by the regulated investment company.''.
       (B) Subparagraph (C) of section 854(b)(1) is amended to 
     read as follows:
       ``(C) Limitations.--
       ``(i) Subparagraph (a).--The aggregate amount which may be 
     designated as dividends under subparagraph (A) shall not 
     exceed the aggregate dividends received by the company for 
     the taxable year.
       ``(ii) Subparagraph (b).--The aggregate amount which may be 
     designated as qualified dividend income under subparagraph 
     (B) shall not exceed the sum of--

       ``(I) the qualified dividend income of the company for the 
     taxable year, and
       ``(II) the amount of any earnings and profits which were 
     distributed by the company for such taxable year and 
     accumulated in a taxable year with respect to which this part 
     did not apply.''.

       (C) Paragraph (2) of section 854(b) is amended by striking 
     ``as a dividend for purposes of the maximum rate under 
     section 1(h)(11) and'' and inserting ``as qualified dividend 
     income for purposes of section 1(h)(11) and as dividends for 
     purposes of''.
       (D) Paragraph (5) of section 854(b) is amended to read as 
     follows:
       ``(5) Qualified dividend income.--For purposes of this 
     subsection, the term `qualified dividend income' has the 
     meaning given such term by section 1(h)(11)(B).''.
       (E) Paragraph (2) of section 857(c) is amended to read as 
     follows:
       ``(2) Section (1)(h)(11).--
       ``(A) In general.--In any case in which--
       ``(i) a dividend is received from a real estate investment 
     trust (other than a capital gain dividend), and
       ``(ii) such trust meets the requirements of section 856(a) 
     for the taxable year during which it paid such dividend,

     then, in computing qualified dividend income, there shall be 
     taken into account only that portion of such dividend 
     designated by the real estate investment trust.
       ``(B) Limitation.--The aggregate amount which may be 
     designated as qualified dividend income under subparagraph 
     (A) shall not exceed the sum of--
       ``(i) the qualified dividend income of the trust for the 
     taxable year,
       ``(ii) the excess of--

       ``(I) the sum of the real estate investment trust taxable 
     income computed under section 857(b)(2) for the preceding 
     taxable year and the income subject to tax by reason of the 
     application of the regulations under section 337(d) for such 
     preceding taxable year, over
       ``(II) the sum of the taxes imposed on the trust for such 
     preceding taxable year under section 857(b)(1) and by reason 
     of the application of such regulations, and

       ``(iii) the amount of any earnings and profits which were 
     distributed by the trust for such taxable year and 
     accumulated in a taxable year with respect to which this part 
     did not apply.
       ``(C) Notice to shareholders.--The amount of any 
     distribution by a real estate investment trust which may be 
     taken into account as qualified dividend income shall not 
     exceed the amount so designated by the trust in a written 
     notice to its shareholders mailed not later than 60 days 
     after the close of its taxable year.
       ``(D) Qualified dividend income.--For purposes of this 
     paragraph, the term `qualified dividend income' has the 
     meaning given such term by section 1(h)(11)(B).''.
       (F) With respect to any taxable year of a regulated 
     investment company or real estate investment trust ending on 
     or before November 30, 2003, the period for providing notice 
     of the qualified dividend amount to shareholders under 
     sections 854(b)(2) and 857(c)(2)(C) of the Internal Revenue 
     Code of 1986, as amended by this section, shall not expire 
     before the date on which the statement under section 6042(c) 
     of such Code is required to be furnished with respect to the 
     last calendar year beginning in such taxable year.
       (6) Paragraph (2) of section 302(f) of the Jobs and Growth 
     Tax Relief Reconciliation Act of 2003 is amended to read as 
     follows:
       ``(2) Pass-thru entities.--In the case of a pass-thru 
     entity described in subparagraph (A), (B), (C), (D), (E), or 
     (F) of section 1(h)(10) of the Internal Revenue Code of 1986, 
     as amended by this Act, the amendments made by this section 
     shall apply to taxable years ending after December 31, 2002; 
     except that dividends received by such an entity on or before 
     such date shall not be treated as qualified dividend income 
     (as defined in section 1(h)(11)(B) of such Code, as added by 
     this Act).''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect as if included in section 302 of the Jobs 
     and Growth Tax Relief Reconciliation Act of 2003.

     SEC. 403. AMENDMENTS RELATED TO JOB CREATION AND WORKER 
                   ASSISTANCE ACT OF 2002.

       (a) Amendments Related to Section 101 of the Act.--
       (1) Clause (i) of section 168(k)(2)(B) is amended to read 
     as follows:
       ``(i) In general.--The term `qualified property' includes 
     any property if such property--

       ``(I) meets the requirements of clauses (i), (ii), and 
     (iii) of subparagraph (A),
       ``(II) has a recovery period of at least 10 years or is 
     transportation property,
       ``(III) is subject to section 263A, and
       ``(IV) meets the requirements of clause (ii) or (iii) of 
     section 263A(f)(1)(B) (determined as if such clauses also 
     apply to property which has a long useful life (within the 
     meaning of section 263A(f))).''.

       (2)(A) Subparagraph (D) of section 168(k)(2) is amended by 
     adding at the end the following new clauses:
       ``(iii) Syndication.--For purposes of subparagraph (A)(ii), 
     if--

       ``(I) property is originally placed in service after 
     September 10, 2001, by the lessor of such property,
       ``(II) such property is sold by such lessor or any 
     subsequent purchaser within 3 months after the date such 
     property was originally placed in service, and

[[Page H7485]]

       ``(III) the user of such property after the last sale 
     during such 3-month period remains the same as when such 
     property was originally placed in service,

     such property shall be treated as originally placed in 
     service not earlier than the date of such last sale.
       ``(iv) Limitations related to users and related parties.--
     The term `qualified property' shall not include any property 
     if--

       ``(I) the user of such property (as of the date on which 
     such property is originally placed in service) or a person 
     which is related (within the meaning of section 267(b) or 
     707(b)) to such user or to the taxpayer had a written binding 
     contract in effect for the acquisition of such property at 
     any time on or before September 10, 2001, or
       ``(II) in the case of property manufactured, constructed, 
     or produced for such user's or person's own use, the 
     manufacture, construction, or production of such property 
     began at any time on or before September 10, 2001.''.

       (B) Clause (ii) of section 168(k)(2)(D) is amended by 
     inserting ``clause (iii) and'' before ``subparagraph 
     (A)(ii)''.
       (b) Amendments Related to Section 102 of the Act.--
       (1) Subparagraph (H) of section 172(b)(1) is amended by 
     striking ``a taxpayer which has''.
       (2) In the case of a net operating loss for a taxable year 
     ending during 2001 or 2002--
       (A) an application under section 6411(a) of the Internal 
     Revenue Code of 1986 with respect to such loss shall not fail 
     to be treated as timely filed if filed before November 1, 
     2002,
       (B) any election made under section 172(b)(3) of such Code 
     may (notwithstanding such section) be revoked before November 
     1, 2002, and
       (C) any election made under section 172(j) of such Code 
     shall (notwithstanding such section) be treated as timely 
     made if made before November 1, 2002.
       (3) Section 102(c)(2) of the Job Creation and Worker 
     Assistance Act of 2002 (Public Law 107-147) is amended by 
     striking ``before January 1, 2003'' and inserting ``after 
     December 31, 1990''.
       (4)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended 
     by striking ``attributable to carryovers''.
       (B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
       (i) by striking ``for taxable years'' and inserting ``from 
     taxable years'', and
       (ii) by striking ``carryforwards'' and inserting 
     ``carryovers''.
       (c) Amendments Related to Section 301 of the Act.--
       (1) Subparagraph (D) of section 1400L(a)(2) is amended--
       (A) by striking ``subchapter B'' and inserting ``subchapter 
     A'', and
       (B) in clause (ii), by striking ``subparagraph (B)'' and 
     inserting ``this paragraph''.
       (2) Subparagraph (D) of section 1400L(b)(2) is amended by 
     inserting ``, and clause (iv) thereof shall be applied by 
     substituting `qualified New York Liberty Zone property' for 
     `qualified property' '' before the period at the end.
       (3) Subsection (c) of section 1400L is amended by adding at 
     the end the following new paragraph:
       ``(5) Election out.--For purposes of this subsection, rules 
     similar to the rules of section 168(k)(2)(C)(iii) shall 
     apply.''.
       (4) Paragraph (2) of section 1400L(f) is amended by 
     inserting before the period ``, determined without regard to 
     subparagraph (C)(i) thereof''.
       (d) Amendment Related to Section 405 of the Act.--The last 
     sentence of section 4006(a)(3)(E)(iii)(IV) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 
     1306(a)(3)(E)(iii)(IV)) is amended--
       (1) by inserting ``or this subparagraph'' after ``this 
     clause'' both places it appears, and
       (2) by inserting ``(other than sections 4005, 4010, 4011, 
     and 4043)'' after ``subsections''.
       (e) Amendment Related to Section 411 of the Act.--
     Subparagraph (B) of section 411(c)(2) of the Job Creation and 
     Worker Assistance Act of 2002 is amended by striking 
     ``Paragraph (2)'' and inserting ``Paragraph (1)''.
       (f) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the Job 
     Creation and Worker Assistance Act of 2002 to which they 
     relate.

     SEC. 404. AMENDMENTS RELATED TO ECONOMIC GROWTH AND TAX 
                   RELIEF RECONCILIATION ACT OF 2001.

       (a) Amendment Related to Section 401 of the Act.--Clause 
     (i) of section 530(d)(2)(C) is amended by striking ``higher'' 
     after ``qualified''.
       (b) Amendments Related to Section 611 of the Act.--
       (1) Paragraph (3) of section 45A(c) is amended by inserting 
     ``, except that the base period taken into account for 
     purposes of such adjustment shall be the calendar quarter 
     beginning October 1, 1993'' before the period at the end.
       (2) Subparagraph (A) of section 415(d)(4) is amended by 
     adding at the end the following new sentence: ``This 
     subparagraph shall also apply for purposes of any provision 
     of this title that provides for adjustments in accordance 
     with the method contained in this subsection, except to the 
     extent provided in such provision.''.
       (c) Amendment Related to Section 614 of the Act.--Clause 
     (ii) of section 4972(c)(6)(A) is amended to read as follows:
       ``(ii) the amount of contributions described in section 
     401(m)(4)(A), or''.
       (d) Amendment Related to Section 637 of the Act.--Clause 
     (i) of section 408(p)(6)(A) is amended by adding at the end 
     the following new sentence: ``For purposes of the preceding 
     sentence, amounts described in section 6051(a)(3) shall be 
     determined without regard to section 3401(a)(3).''.
       (e) Amendment Related to Section 641 of the Act.--
     Subparagraph (B) of section 403(a)(4) is amended to read as 
     follows:
       ``(B) Certain rules made applicable.--The rules of 
     paragraphs (2) through (7) and (9) of section 402(c) and 
     section 402(f) shall apply for purposes of subparagraph 
     (A).''.
       (f) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Economic Growth and Tax Relief Reconciliation Act of 2001 to 
     which they relate.

     SEC. 405. AMENDMENTS RELATED TO COMMUNITY RENEWAL TAX RELIEF 
                   ACT OF 2000.

       (a) Amendments Related to Section 401 of the Act.--
       (1) Subsection (c) of section 1234B is amended by adding at 
     the end the following new sentence: ``The Secretary may 
     prescribe regulations regarding the status of contracts the 
     values of which are determined directly or indirectly by 
     reference to any index which becomes (or ceases to be) a 
     narrow-based security index (as defined for purposes of 
     section 1256(g)(6)).''.
       (2) Paragraph (6) of section 1256(g) is amended by adding 
     at the end the following new sentence: ``The Secretary may 
     prescribe regulations regarding the status of options the 
     values of which are determined directly or indirectly by 
     reference to any index which becomes (or ceases to be) a 
     narrow-based security index (as so defined).''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect as if included in section 401 of the 
     Community Renewal Tax Relief Act of 2000.

     SEC. 406. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

       (a) Amendment Related to Section 211 of the Act.--
     Subparagraph (B) of section 529(c)(5) is amended to read as 
     follows:
       ``(B) Treatment of designation of new beneficiary.--The 
     taxes imposed by chapters 12 and 13 shall apply to a transfer 
     by reason of a change in the designated beneficiary under the 
     program (or a rollover to the account of a new beneficiary) 
     unless the new beneficiary is--
       ``(i) assigned to the same generation as (or a higher 
     generation than) the old beneficiary (determined in 
     accordance with section 2651), and
       ``(ii) a member of the family of the old beneficiary.''.
       (b) Amendment Related to Section 213 of the Act.--Clause 
     (iii) of section 530(d)(4)(B) is amended by striking 
     ``account holder'' and inserting ``designated beneficiary''.
       (c) Amendment Related to Section 226 of the Act.--Section 
     1397E is amended by adding at the end the following new 
     subsection:
       ``(i) S Corporations.--In the case of a qualified zone 
     academy bond held by an S corporation which is an eligible 
     taxpayer--
       ``(1) each shareholder shall take into account such 
     shareholder's pro rata share of the credit, and
       ``(2) no basis adjustments to the stock of the corporation 
     shall be made under section 1367 on account of this 
     section.''.
       (d) Amendment Related to Section 311 of the Act.--
     Subparagraph (B) of section 55(b)(3) is amended by striking 
     ``the amount on which a tax is determined under'' and 
     inserting ``an amount equal to the excess described in''.
       (e) Amendments Related to Section 1001 of the Act.--
       (1) Paragraph (2) of section 1259(c) is amended by striking 
     ``The term `constructive sale' shall not include any 
     contract'' and inserting ``A taxpayer shall not be treated as 
     having made a constructive sale solely because the taxpayer 
     enters into a contract''.
       (2) Subparagraphs (A) and (B)(i) of section 1259(c)(3) are 
     each amended by striking ``be treated as a constructive 
     sale'' and inserting ``cause a constructive sale''.
       (3) Clause (i) of section 1259(c)(3)(A) is amended by 
     striking ``before the end of'' and inserting ``on or 
     before''.
       (4) Clause (ii) of section 1259(c)(3)(B) is amended by 
     striking ``substantially similar''.
       (5) Subclause (I) of section 1259(c)(3)(B)(ii) is amended 
     to read as follows:

       ``(I) which would (but for this subparagraph) cause the 
     requirement of subparagraph (A)(iii) not to be met with 
     respect to the transaction described in clause (i) of this 
     subparagraph,''.

       (6) Subclause (II) of such section is amended by inserting 
     ``on or'' before ``before the 30th day''.
       (7) The heading for subparagraph (B) of section 1259(c)(3) 
     is amended by striking ``positions which are reestablished'' 
     and inserting ``certain closed transactions where risk of 
     loss on appreciated financial position diminished''.
       (f) Amendments Related to Section 1015 of the Act.--
       (1) Section 246(c)(1)(A) is amended by striking ``90-day 
     period'' and inserting ``91-day period''.
       (2) Section 246(c)(2)(B) is amended--
       (A) by striking ``180-day period'' and inserting ``181-day 
     period'', and
       (B) by striking ``90-day period'' and inserting ``91-day 
     period''.
       (g) Amendments Related to Section 1053 of the Act.--
       (1) Section 901(k)(1)(A)(i) is amended by striking ``30-day 
     period'' and inserting ``31-day period''.
       (2) Section 901(k)(3)(B) is amended--
       (A) by striking ``90-day period'' and inserting ``91-day 
     period'', and
       (B) by striking ``30-day period'' and inserting ``31-day 
     period''.
       (h) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Taxpayer Relief Act of 1997 to which they relate.

     SEC. 407. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION 
                   ACT OF 1996.

       (a) Amendment Related to Section 1307 of the Act.--
     Subsection (b) of section 1377 (relating to post-termination 
     transition period) is

[[Page H7486]]

     amended by adding at the end the following new paragraph:
       ``(3) Special rules for audit related post-termination 
     transition periods.--
       ``(A) No application to carryovers.--Paragraph (1)(B) shall 
     not apply for purposes of section 1366(d)(3).
       ``(B) Limitation on application to distributions.--
     Paragraph (1)(B) shall apply to a distribution described in 
     section 1371(e) only to the extent that the amount of such 
     distribution does not exceed the aggregate increase (if any) 
     in the accumulated adjustments account (within the meaning of 
     section 1368(e)) by reason of the adjustments referred to in 
     such paragraph.''.
       (b) Amendments Related to Section 1432 of the Act.--
     Paragraph (26) of section 401(a) is amended by striking 
     subparagraph (C) and by redesignating subparagraphs (D) 
     through (I) as subparagraphs (C) through (H), respectively.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Small Business Job Protection Act of 1996 to which they 
     relate.

     SEC. 408. CLERICAL AMENDMENTS.

       (a) Internal Revenue Code of 1986.--
       (1) Subclause (II) of section 1(g)(7)(B)(ii) is amended by 
     striking ``10 percent.'' and inserting ``10 percent''.
       (2) Clause (ii) of section 1(h)(6)(A) is amended--
       (A) in subclause (I), by striking ``(5)(B)'' and inserting 
     ``(4)(B)'', and
       (B) in subclause (II), by striking ``(5)(A)'' and inserting 
     ``(4)(A)''.
       (3) Subclause (I) of section 42(d)(2)(D)(iii) is amended by 
     striking ``section 179(b)(7)'' and inserting ``section 
     179(d)(7)''.
       (4) Subsection (f) of section 72 is amended by striking 
     ``Economic Growth and Tax Relief Reconciliation Act of 2001'' 
     and inserting ``Economic Growth and Tax Relief Reconciliation 
     Act of 2001)''.
       (5)(A) Section 138 and paragraph (2) of section 26(b) are 
     each amended by striking ``Medicare+Choice MSA'' each place 
     it appears in the text and inserting ``Medicare Advantage 
     MSA''.
       (B) The heading for section 138 is amended to read as 
     follows:

     ``SEC. 138. MEDICARE ADVANTAGE MSA.''.

       (C) The heading for subsection (b) of section 138 is 
     amended by striking ``Medicare+Choice MSA'' and inserting 
     ``Medicare Advantage MSA''.
       (D) The heading for paragraph (2) of section 138(c) is 
     amended by striking ``medicare+choice msa'' and inserting 
     ``medicare advantage msa''.
       (E) Clause (i) of section 138(c)(2)(C) is amended by 
     striking ``Medicare+Choice MSAs'' and inserting ``Medicare 
     Advantage MSAs''.
       (F) Subsection (f) of section 138 is amended by striking 
     ``Medicare+Choice MSA's'' and inserting ``Medicare Advantage 
     MSAs''.
       (G) The item relating to section 138 in the table of 
     sections for part III of subchapter B of chapter 1 is amended 
     to read as follows:

         ``Sec. 138. Medicare Advantage MSA.''.

       (6) Clause (ii) of section 168(k)(2)(D) is amended--
       (A) by inserting ``is'' after ``if property'', and
       (B) by striking ``is'' in subclause (I).
       (7) Each of the following provisions is amended by 
     inserting ``Robert T. Stafford'' before ``Disaster Relief and 
     Emergency Assistance Act'':
       (A) Section 165(i)(1).
       (B) Section 165(k).
       (C) Section 1033(h)(3).
       (D) Section 5064(b)(3).
       (E) Section 5708(a).
       (8) The heading for subparagraph (F) of section 168(k)(2) 
     is amended by striking ``miniumum'' and inserting 
     ``minimum''.
       (9) Paragraph (1) of section 246A(b) is amended by striking 
     ``section 243(c)(4)'' and inserting ``section 243(d)(4)''.
       (10) Clause (ii) of section 263(g)(2)(B) is amended by 
     striking ``1278'' and inserting ``1276''.
       (11) Clause (ii) of section 403(b)(7)(A) is amended by 
     striking ``section 3121(a)(1)(D)'' and inserting ``section 
     3121(a)(5)(D)''.
       (12) Paragraph (1) of section 408(a) is amended by striking 
     ``457(e)(16)'' and inserting ``457(e)(16),''.
       (13) Paragraph (2) of section 408(n) is amended by striking 
     ``section 101(6)'' and inserting ``paragraph (6) or (7) of 
     section 101''.
       (14) The table contained in section 411(a)(12)(B) is 
     amended by striking the last line and inserting the 
     following:

       ``6 or more 100.''.

       (15) Paragraph (7) of section 414(q) is amended by striking 
     ``section'' and inserting ``subsection''.
       (16) Subparagraph (A) of section 416(i)(1) is amended in 
     the matter following clause (iii) by striking ``in the case 
     of plan years'' and inserting ``In the case of plan years''.
       (17) Subparagraph (C) of section 415(c)(7) is amended by 
     striking ``subparagraph (D)'' and inserting ``subparagraph 
     (B)''.
       (18) The item relating to section 1234B in the table of 
     sections for part IV of subchapter P of chapter 1 is amended 
     to read as follows:

``Sec. 1234B. Gains or losses from securities futures contracts.''.

       (19) Subsection (h) of section 1296 is amended by striking 
     ``paragraphs (2) and (3) of section 851(b)'' and inserting 
     ``section 851(b)(2)''.
       (20) The table of sections for part II of subchapter A of 
     chapter 11 is amended by inserting after the item relating to 
     section 2010 the following new item:

         ``Sec. 2011. Credit for State death taxes.''.

       (21) The table of sections for subchapter A of chapter 13 
     is amended by inserting after the item relating to section 
     2603 the following new item:

         ``Sec. 2604. Credit for certain State taxes.''.

       (22) Subsection (c) of section 4973 is amended by striking 
     ``subsection (a)(2)'' and inserting ``subsection (a)(3)''.
       (23) Paragraph (2) of section 4978(a) is amended by 
     striking ``60 percent'' and inserting ``(60 percent''.
       (24) Paragraph (4) of section 6103(p) is amended by 
     striking ``subsection (l)(16) or (17)'' each place it appears 
     and inserting ``subsection (l)(16) or (18)''.
       (b) Other Laws.--
       (1) Subsection (c) of section 156 of the Community Renewal 
     Tax Relief Act of 2000 (114 Stat. 2763A-623) is amended in 
     the first sentence by inserting ``than'' after ``not later''.
       (2) Paragraph (6) of section 1(a) of Public Law 107-22 
     shall be applied by substituting ``part VIII'' for ``part 
     VII'' in such paragraph.
       (3) Subparagraph (A) of section 1(b)(3) of Public Law 107-
     22 shall be applied by substituting ``educational'' for 
     ``education'' in the matter preceding subparagraph (A) in 
     such section.
       (4) Paragraph (1) of section 204(e) of the Railroad 
     Retirement and Survivors' Improvement Act of 2001 shall be 
     applied by substituting ``Section 24(d)(2)(A)(iii)'' for 
     ``Section 24(d)(3)(A)(iii)'' in such paragraph.
       (5) Paragraph (2) of section 412(b) of the Economic Growth 
     and Tax Relief Reconciliation Act of 2001 shall be applied by 
     substituting ``Section 221(f)(1)'' for ``Section 221(g)(1)'' 
     in such paragraph.
       (6) Subsection (b) of section 531 of the Economic Growth 
     and Tax Relief Reconciliation Act of 2001 shall be applied by 
     substituting ``section'' for ``subsection'' in such 
     subsection.
       (7) Paragraph (3) of section 619(c) of the Economic Growth 
     and Tax Relief Reconciliation Act of 2001 shall be applied by 
     substituting ``after the item relating to section 45D'' for 
     ``at the end'' in such paragraph.
       (8) The table contained in section 203(a)(4)(B) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1053(a)(4)(B)) is amended by striking the last line and 
     inserting the following:

       ``6 or more 100.''.

       (9) Paragraph (3) of section 652(b) of the Economic Growth 
     and Tax Relief Reconciliation Act of 2001 shall be applied by 
     inserting ``each place it appears'' before ``in the next to 
     last sentence'' in such paragraph.
       And the House agree to the same.
       That the Senate recede from its disagreement to the 
     amendment of the House to the title of the bill and agree to 
     the same with an amendment as follows:
       In lieu of the matter proposed to be inserted by the House 
     amendment to the title of the bill insert the following: ``An 
     Act to amend the Internal Revenue Code of 1986 to provide tax 
     relief for working families, and for other purposes.''.
       And the House agree to the same.

     For consideration of the House amendment and the Senate 
     amendment, and modifications committed to conference:
     William Thomas,
     Tom DeLay,
                                Managers on the Part of the House.

     Chuck Grassley,
     Don Nickles,
     Trent Lott,
     Max Baucus,
     Blanche L. Lincoln,
                               Managers on the Part of the Senate.

       Joint Explanatory Statement of the Committee of Conference

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendments of the House to the amendments of the Senate to 
     the bill (H.R. 1308), to amend the Internal Revenue Code of 
     1986 to end certain abusive tax practices, to provide tax 
     relief and simplification, and for other purposes, submit the 
     following joint statement to the House and the Senate in 
     explanation of the effect of the action agreed upon by the 
     managers and recommended in the accompanying conference 
     report:
       The Senate amendment to the text of the bill struck out all 
     of the House bill after the enacting clause and inserted a 
     substitute text.
       The House amendment struck out all of the Senate amendment 
     after the enacting clause and inserted a substitute text.
       The Senate recedes from its disagreement to the amendment 
     of the House with an amendment which is a substitute for the 
     House amendment and the Senate amendment. The differences 
     between the Senate amendment, the House amendment, and the 
     substitute agreed to in conference are noted below, except 
     for clerical corrections, conforming changes made necessary 
     by agreements reached by the conferees, and minor drafting 
     and clarifying changes.

              I. EXTENSION OF CERTAIN EXPIRING PROVISIONS

A. Extension of the Child Tax Credit, Acceleration of Refundability of 
 the Child Tax Credit and Treatment of Combat Pay as Earned Income for 
       Purposes of the Child Tax Credit and Earned Income Credit

     (Secs. 101-104 of the conference agreement, sec. 101 of the 
         House bill, secs. 101-103 of the Senate amendment, and 
         sec. 24 and 32 of the Code)


                              Present Law

     In general
       For 2004, an individual may claim a $1,000 tax credit for 
     each qualifying child under the age of 17. In general, a 
     qualifying child is an individual for whom the taxpayer can 
     claim a dependency exemption and who is the taxpayer's son or 
     daughter (or descendent of either), stepson or stepdaughter 
     (or descendent of either), or eligible foster child.

[[Page H7487]]

       The child tax credit is scheduled to revert to $700 in 
     2005, and then, over several years, increase to $1,000.
       Table 1, below, shows the scheduled amount of the child tax 
     credit.

           TABLE 1.--SCHEDULED AMOUNT OF THE CHILD TAX CREDIT
------------------------------------------------------------------------
                                                          Credit amount
                      Taxable year                          per child
------------------------------------------------------------------------
2003-2004..............................................           $1,000
2005-2008..............................................              700
2009...................................................              800
2010 \1\...............................................            1,000
------------------------------------------------------------------------
\1\ The credit reverts to $500 in taxable years beginning after December
  31, 2010, under the sunset provision of EGTRRA (the ``Economic Growth
  and Tax Relief Reconciliation Act of 2001,'' Pub. L. No. 107-16).

       The child tax credit is phased out for individuals with 
     income over certain thresholds. Specifically, the otherwise 
     allowable child tax credit is reduced by $50 for each $1,000 
     (or fraction thereof) of modified adjusted gross income over 
     $75,000 for single individuals or heads of households, 
     $110,000 for married individuals filing joint returns, and 
     $55,000 for married individuals filing separate returns.\1\ 
     The length of the phase-out range depends on the number of 
     qualifying children. For example, the phase-out range for a 
     single individual with one qualifying child is between 
     $75,000 and $95,000 of modified adjusted gross income. The 
     phase-out range for a single individual with two qualifying 
     children is between $75,000 and $115,000.
---------------------------------------------------------------------------
     \1\ Modified adjusted gross income is the taxpayer's total 
     gross income plus certain amounts excluded from gross income 
     (i.e., excluded income of U.S. citizens or residents living 
     abroad (sec. 911); residents of Guam, American Samoa, and the 
     Northern Mariana Islands (sec. 931); and residents of Puerto 
     Rico (sec. 933)).
---------------------------------------------------------------------------
       The amount of the tax credit and the phase-out ranges are 
     not adjusted annually for inflation.
     Refundability
       For 2004, the child credit is refundable to the extent of 
     10 percent of the taxpayer's taxable earned income (which is 
     taken into account in determining taxable income) in excess 
     of $10,750.\2\ The percentage is increased to 15 percent for 
     taxable years 2005 and thereafter. Families with three or 
     more children are allowed a refundable credit for the amount 
     by which the taxpayer's social security taxes exceed the 
     taxpayer's earned income credit, if that amount is greater 
     than the refundable credit based on the taxpayer's taxable 
     earned income in excess of $10,750 (for 2004). The refundable 
     portion of the child credit does not constitute income and is 
     not treated as resources for purposes of determining 
     eligibility or the amount or nature of benefits or assistance 
     under any Federal program or any State or local program 
     financed with Federal funds. For taxable years beginning 
     after December 31, 2010, the sunset provision of EGTRRA 
     applies to the 15-percent rule for allowing refundable child 
     credits.
---------------------------------------------------------------------------
     \2\ The $10,750 amount is indexed for inflation.
---------------------------------------------------------------------------
     Alternative minimum tax liability
       The child credit is allowed against the individual's 
     regular income tax and alternative minimum tax. For taxable 
     years beginning after December 31, 2010, the sunset provision 
     of EGTRRA applies to the rules allowing the child credit 
     against the alternative minimum tax.


                               House Bill

       The bill increases the credit to $1,000 for taxable years 
     2005-2009. Therefore, the maximum child credit is $1,000 per 
     child for taxable years 2003-2010.\3\ The bill also 
     accelerates to 2003 the increase in refundability of the 
     child credit to 15 percent of the taxpayer's earned income in 
     excess of $10,500 (with indexing). Finally, the bill provides 
     that the beginning point of the phase-out range for the child 
     credit is $150,000 for married individuals filing joint 
     returns ($75,000 for unmarried individuals and married 
     individuals filing separately) for taxable years beginning 
     after December 31, 2002, and before January 1, 2011. All 
     modifications to the child credit under the bill are subject 
     to the sunset provision of EGTRRA.
---------------------------------------------------------------------------
     \3\ The credit reverts to $500 in taxable years beginning 
     after December 31, 2010, under the sunset provision of 
     EGTRRA.
---------------------------------------------------------------------------
       Effective date.--Taxable years beginning after December 31, 
     2002.


                            Senate Amendment

       The Senate amendment accelerates to 2003 the increase in 
     refundability of the child credit to 15 percent of the 
     taxpayer's earned income in excess of $10,500 (with 
     indexing). The Senate amendment also provides that taxpayers 
     eligible for such additional refundable child credit amount 
     will receive this additional amount as an advance payment. No 
     advance payments may be made after December 31, 2003. Also, 
     the Senate amendment provides that the beginning point of the 
     phase-out range for the credit for married individuals filing 
     joint returns is increased to $115,000 in 2008 and 2009 and 
     $150,000 in 2010. It also provides that the beginning point 
     for such phase-out range in the case of unmarried individuals 
     and married individuals filing separately will be one-half of 
     the beginning point of the phase-out range for married 
     individuals filing joint returns for taxable years beginning 
     in 2008 through 2010. Finally, the Senate amendment provides 
     that any amount excluded from gross income under section 112 
     of the Code (relating to certain combat zone compensation) is 
     treated as earned income for purposes of the calculation of 
     the child tax credit. All modifications to the child credit 
     under the Senate amendment are subject to the sunset 
     provision of EGTRRA.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2002.


                          Conference Agreement

     In general
       The conference agreement increases the child credit to 
     $1,000 for taxable years 2005- 2009. Therefore, the maximum 
     child tax credit is $1,000 per child for taxable years 2005-
     2010. All modifications to the child credit under the 
     conference agreement are subject to the sunset provision of 
     EGTRRA.\4\
---------------------------------------------------------------------------
     \4\ The credit reverts to $500 in taxable years beginning 
     after December 31, 2010, under the sunset provision of 
     EGTRRA.
---------------------------------------------------------------------------
     Refundability
       The conference agreement accelerates to 2004 the increase 
     in refundability of the child credit to 15 percent of the 
     taxpayer's earned income in excess of $10,750 (with 
     indexing).
     Combat pay treated as earned income
       The conference agreement provides that combat pay that is 
     otherwise excluded from gross income under section 112 is 
     treated as earned income which is taken into account in 
     computing taxable income for purposes of calculating the 
     refundable portion of the child credit.
       The conference agreement provides that any taxpayer may 
     elect to treat combat pay that is otherwise excluded from 
     gross income under section 112 as earned income for purposes 
     of the earned income credit. This election is available with 
     respect to any taxable year ending after the date of 
     enactment and before January 1, 2006.
     Effective dates
       The provision generally applies to taxable years beginning 
     after December 31, 2004. The provision relating to the 
     acceleration of the refundability of the child credit applies 
     to taxable years beginning after December 31, 2003. The 
     provision relating to the treatment of combat pay as earned 
     income for purposes of the child credit is effective for 
     taxable years beginning after December 31, 2003. The earned 
     income credit election is effective for taxable years ending 
     after the date of enactment and before January 1, 2006.

                   B. Extend Marriage Penalty Relief

     (Sec. 101 of the conference agreement and secs. 1 and 63 of 
         the Code)
     1. Standard deduction marriage penalty relief (sec. 63 of the 
         Code)


                              Present Law

     Marriage penalty
       A married couple generally is treated as one tax unit that 
     must pay tax on the couple's total taxable income. Although 
     married couples may elect to file separate returns, the rate 
     schedules and other provisions are structured so that filing 
     separate returns usually results in a higher tax than filing 
     a joint return. Other rate schedules apply to single persons 
     and to single heads of households.
       A ``marriage penalty'' exists when the combined tax 
     liability of a married couple filing a joint return is 
     greater than the sum of the tax liabilities of each 
     individual computed as if they were not married. A ``marriage 
     bonus'' exists when the combined tax liability of a married 
     couple filing a joint return is less than the sum of the tax 
     liabilities of each individual computed as if they were not 
     married.
     Basic standard deduction
       Taxpayers who do not itemize deductions may choose the 
     basic standard deduction (and additional standard deductions, 
     if applicable),\5\ which is subtracted from adjusted gross 
     income (``AGI'') in arriving at taxable income. The size of 
     the basic standard deduction varies according to filing 
     status and is adjusted annually for inflation.\6\ In general, 
     two unmarried individuals have standard deductions whose sum 
     exceeds the standard deduction for a married couple filing a 
     joint return. EGTRRA increased the basic standard deduction 
     for a married couple filing a joint return, providing for a 
     phase-in of the increase until the basic standard deduction 
     for a married couple filing a joint return equaled twice the 
     basic standard deduction for an unmarried individual filing a 
     single return by 2009.\7\ The Jobs and Growth Tax Relief 
     Reconciliation Act of 2003 (``JGTRRA'') accelerated the 
     phase-in, providing that the basic standard deduction for a 
     married couple filing a joint return equaled twice the basic 
     standard deduction for an unmarried individual filing a 
     single return for 2003 and 2004, reverting to the phase-in 
     schedule provided by EGTRAA for 2005-2009.
---------------------------------------------------------------------------
     \5\ Additional standard deductions are allowed with respect 
     to any individual who is elderly (age 65 or over) or blind.
     \6\ For 2004 the basic standard deduction amounts are: (1) 
     $4,850 for unmarried individuals; (2) $9,700 for married 
     individuals filing a joint return; (3) $7,150 for heads of 
     households; and (4) $4,850 for married individuals filing 
     separately.
     \7\ The basic standard deduction for a married taxpayer 
     filing separately will continue to equal one-half of the 
     basic standard deduction for a married couple filing jointly; 
     thus, the basic standard deduction for unmarried individuals 
     filing a single return and for married couples filing 
     separately will be the same after the phase-in period.
---------------------------------------------------------------------------
       Table 2, below, shows the standard deduction for married 
     couples filing a joint return as a percentage of the standard 
     deduction for single individuals during the phase-in period.

[[Page H7488]]



 TABLE 2.--SCHEDULED AMOUNT OF THE BASIC STANDARD DEDUCTION FOR MARRIED
                      COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
                                                             Standard
                      Taxable year                          deduction
------------------------------------------------------------------------
2005...................................................              174
2006...................................................              184
2007...................................................              187
2008...................................................              190
2009 and 2010 \1\......................................             200
------------------------------------------------------------------------
\1\ The basic standard deduction increases are repealed for taxable
  years beginning after December 31, 2010, under the sunset provision of
  EGTRRA.

                               house bill

       No provision.


                            senate amendment

       No provision.


                          conference agreement

       The conference agreement increases the basic standard 
     deduction amount for joint returns to twice the basic 
     standard deduction amount for single returns effective for 
     2005-2008. Therefore, the basic standard deduction for joint 
     returns is twice the basic standard deduction for single 
     returns for taxable years 2005-2010. All modifications to the 
     basic standard deduction under the conference agreement are 
     subject to the sunset provision of EGTRRA.
       Effective date.--The conference agreement provision is 
     effective for taxable years beginning after December 31, 
     2004.
     2. Increase the size of the 15-percent rate bracket for 
         married couples filing joint returns (sec. 1 of the Code)


                              present law

     In general
       Under the Federal individual income tax system, an 
     individual who is a citizen or resident of the United States 
     generally is subject to tax on worldwide taxable income. 
     Taxable income is total gross income less certain exclusions, 
     exemptions, and deductions. An individual may claim either a 
     standard deduction or itemized deductions.
       An individual's income tax liability is determined by 
     computing his or her regular income tax liability and, if 
     applicable, alternative minimum tax liability.
     Regular income tax liability
       Regular income tax liability is determined by applying the 
     regular income tax rate schedules (or tax tables) to the 
     individual's taxable income and then is reduced by any 
     applicable tax credits. The regular income tax rate schedules 
     are divided into several ranges of income, known as income 
     brackets, and the marginal tax rate increases as the 
     individual's income increases. The income bracket amounts are 
     adjusted annually for inflation. Separate rate schedules 
     apply based on filing status: single individuals (other than 
     heads of households and surviving spouses), heads of 
     households, married individuals filing joint returns 
     (including surviving spouses), married individuals filing 
     separate returns, and estates and trusts. Lower rates may 
     apply to capital gains.
       In general, the bracket breakpoints for single individuals 
     are approximately 60 percent of the rate bracket breakpoints 
     for married couples filing joint returns.\8\ The rate bracket 
     breakpoints for married individuals filing separate returns 
     are exactly one-half of the rate brackets for married 
     individuals filing joint returns. A separate, compressed rate 
     schedule applies to estates and trusts.
---------------------------------------------------------------------------
     \8\ Under present law, the rate bracket breakpoint for the 
     35-percent marginal tax rate is the same for single 
     individuals and married couples filing joint returns.
---------------------------------------------------------------------------
     15-percent regular income tax rate bracket
       EGTRRA increased the size of the 15-percent regular income 
     tax rate bracket for a married couple filing a joint return 
     to twice the size of the corresponding rate bracket for a 
     single individual filing a single return, phasing in the 
     increase over four years, beginning in 2005. JGTRRA 
     accelerated these increases, making the size of the 15-
     percent regular income tax rate bracket for a married couple 
     filing a joint return equal to twice the size of the 
     corresponding rate bracket for a single individual filing a 
     single return for taxable years beginning in 2003 and 2004. 
     For taxable years beginning after 2004, the applicable 
     percentages will revert to those provided by EGTRRA. Table 3, 
     below, shows the size of the 15-percent bracket during the 
     phase-in period.

   TABLE 3.--SCHEDULED SIZE OF THE 15-PERCENT RATE BRACKET FOR MARRIED
                      COUPLES FILING JOINT RETURNS
------------------------------------------------------------------------
                                                 End point of 15-percent
                                                rate bracket for married
                                                  couples filing joint
                 Taxable year                   returns as percentage of
                                                 end point of 15-percent
                                                    rate bracket for
                                                  unmarried individuals
------------------------------------------------------------------------
2005..........................................                      180
2006..........................................                      187
2007..........................................                      193
2008 through 2010\1\..........................                     200
------------------------------------------------------------------------
\1\ The increases in the 15-percent rate bracket for married couples
  filing a joint return are repealed for taxable years beginning after
  December 31, 2010, under the sunset provision of EGTRRA.

                               house bill

       No provision.


                            senate amendment

       No provision.


                          conference agreement

       The conference agreement increases the size of the 15-
     percent rate bracket for joint returns to twice the size of 
     the corresponding rate bracket for single returns effective 
     for 2005-2007. Therefore, the size of the 15-percent rate 
     bracket for joint returns is twice the size of the 
     corresponding rate bracket for single returns for taxable 
     years 2005-2010. The modification to the 15-percent rate 
     bracket under the conference agreement is subject to the 
     sunset provision of EGTRRA.
       Effective date.--The conference agreement provision is 
     effective for taxable years beginning after December 31, 
     2004.

       C. Extend Size of 10-Percent Rate Bracket for Individuals

     (Sec. 101 of the conference agreement and sec. 1 of the Code)


                              present law

     In general
       Under the Federal individual income tax system, an 
     individual who is a citizen or a resident of the United 
     States generally is subject to tax on worldwide taxable 
     income. Taxable income is total gross income less certain 
     exclusions, exemptions, and deductions. An individual may 
     claim either a standard deduction or itemized deductions.
       An individual's income tax liability is determined by 
     computing his or her regular income tax liability and, if 
     applicable, alternative minimum tax liability.
     Regular income tax liability
       Regular income tax liability is determined by applying the 
     regular income tax rate schedules (or tax tables) to the 
     individual's taxable income. This tax liability is then 
     reduced by any applicable tax credits. The regular income tax 
     rate schedules are divided into several ranges of income, 
     known as income brackets, and the marginal tax rate increases 
     as the individual's income increases. The income bracket 
     amounts are adjusted annually for inflation. Separate rate 
     schedules apply based on filing status: single individuals 
     (other than heads of households and surviving spouses), heads 
     of households, married individuals filing joint returns 
     (including surviving spouses), married individuals filing 
     separate returns, and estates and trusts. Lower rates may 
     apply to capital gains.
     Ten-percent regular income tax rate
       EGTRRA created a new 10-percent rate that applied to the 
     first $6,000 of taxable income for single individuals, 
     $10,000 of taxable income for heads of households, and 
     $12,000 for married couples filing joint returns, and 
     provided a scheduled increase effective beginning in 2008 
     under which the $6,000 amount would increase to $7,000 and 
     the $12,000 amount would increase to $14,000, with such 
     amounts adjusted annually for inflation for taxable years 
     beginning after December 31, 2008. JGTRRA accelerated the 
     scheduled increases to 2003 and 2004 (with indexing). For 
     2004, the size of the 10-percent bracket for single 
     individuals is $7,150 ($14,300 for married individuals 
     filing a joint return). For 2005-2010, the size of the 10-
     percent bracket reverts to the levels provided under 
     EGTRRA. Thus the amounts drop to $6,000 for single 
     individuals, $10,000 for heads of households and $12,000 
     for married individuals filing a joint return) for 2005-
     2007. In 2008, the amounts will increase to $7,000 
     ($14,000 for married individuals filing a joint return). 
     These amounts ($7,000 for single individuals, $10,000 for 
     heads of households and $14,000 for married individuals) 
     are adjusted annually for inflation for taxable years 
     beginning after December 31, 2008. The 10-percent rate 
     bracket will expire for taxable years beginning after 
     December 31, 2010, under the sunset provision of EGTRRA.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the size of the 10-percent 
     rate bracket through 2010. Specifically, the size of the 10-
     percent rate bracket for 2005 through 2010 is set at the 2003 
     level ($7,000 for single individuals, $10,000 for heads of 
     households and $14,000 for married individuals) with annual 
     indexing from 2003. The modifications to the 10-percent rate 
     bracket under the conference agreement are subject to the 
     sunset provision of EGTRRA.
       Effective date.--The conference agreement provision is 
     effective for taxable years beginning after December 31, 
     2004.

      D. Extend Alternative Minimum Tax Exemption for Individuals

     (Sec. 103 of the conference agreement and sec. 55 of the 
         Code)


                              Present Law

       The alternative minimum tax is the amount by which the 
     tentative minimum tax exceeds the regular income tax. An 
     individual's tentative minimum tax is the sum of (1) 26 
     percent of so much of the taxable excess as does not exceed 
     $175,000 ($87,500 in the case of a married individual filing 
     a separate return) and (2) 28 percent of the remaining 
     taxable excess. The taxable excess is so much of the 
     alternative minimum taxable income (``AMTI'') as exceeds the 
     exemption amount. The maximum tax rates on net capital gain 
     and dividends used in computing the regular tax are used in 
     computing the tentative minimum tax. AMTI is the individual's 
     taxable income adjusted to take account of specified 
     preferences and adjustments.
       The exemption amount is: (1) $45,000 ($58,000 for taxable 
     years beginning before 2005) in the case of married 
     individuals filing a joint return and surviving spouses; (2) 
     $33,750 ($40,250 for taxable years beginning

[[Page H7489]]

     before 2005) in the case of other unmarried individuals; (3) 
     $22,500 ($29,000 for taxable years beginning before 2005) in 
     the case of married individuals filing a separate return; and 
     (4) $22,500 in the case of an estate or trust. The exemption 
     amount is phased out by an amount equal to 25 percent of the 
     amount by which the individual's AMTI exceeds (1) $150,000 in 
     the case of married individuals filing a joint return and 
     surviving spouses, (2) $112,500 in the case of other 
     unmarried individuals, and (3) $75,000 in the case of married 
     individuals filing separate returns, an estate, or a trust. 
     These amounts are not indexed for inflation.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the increased alternative 
     minimum tax exemption amounts to taxable years beginning in 
     2005.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 2004.

                II. PROVISIONS RELATING TO THE MILITARY

 A. Exclusion of Gain on Sale of a Principal Residence by a Member of 
             the Uniformed Services or the Foreign Service

     (Sec. 201 of the House bill and sec. 121 of the Code)


                            Present Law \9\

       Under present law, an individual taxpayer may exclude up to 
     $250,000 ($500,000 if married filing a joint return) of gain 
     realized on the sale or exchange of a principal residence. To 
     be eligible for the exclusion, the taxpayer must have owned 
     and used the residence as a principal residence for at least 
     two of the five years ending on the sale or exchange. A 
     taxpayer who fails to meet these requirements by reason of a 
     change of place of employment, health, or, to the extent 
     provided under regulations, unforeseen circumstances is able 
     to exclude an amount equal to the fraction of the $250,000 
     ($500,000 if married filing a joint return) that is equal to 
     the fraction of the two years that the ownership and use 
     requirements are met. There are no special rules relating to 
     members of the uniformed services or the Foreign Service of 
     the United States.
---------------------------------------------------------------------------
     \9\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------


                               House Bill

       Under the bill, an individual may elect to suspend for a 
     maximum of five years the five-year test period for ownership 
     and use during certain absences due to service in the 
     uniformed services or the Foreign Service of the United 
     States. The uniformed services include: (1) the Armed Forces 
     (the Army, Navy, Air Force, Marine Corps, and Coast Guard); 
     (2) the commissioned corps of the National Oceanic and 
     Atmospheric Administration; and (3) the commissioned corps of 
     the Public Health Service. If the election is made, the five-
     year period ending on the date of the sale or exchange of a 
     principal residence does not include any period up to five 
     years during which the taxpayer or the taxpayer's spouse is 
     on qualified official extended duty as a member of the 
     uniformed services or in the Foreign Service of the United 
     States. For these purposes, qualified official extended duty 
     is any period of extended duty while serving at a place of 
     duty at least 150 miles away from the taxpayer's principal 
     residence or under orders compelling residence in Government 
     furnished quarters. Extended duty is defined as any period of 
     duty pursuant to a call or order to such duty for a period in 
     excess of 180 days or for an indefinite period. The election 
     may be made with respect to only one property for a 
     suspension period.
       Effective date.--The provision is effective for sales or 
     exchanges after May 6, 1997.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\10\
---------------------------------------------------------------------------
     \10\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

   B. Exclusion From Gross Income of Certain Death Gratuity Payments

     (Sec. 202 of the House bill and sec. 134 of the Code)


                            Present Law \11\

       Present law provides that qualified military benefits are 
     not included in gross income. Generally, a qualified military 
     benefit is any allowance or in-kind benefit (other than 
     personal use of a vehicle) which: (1) is received by any 
     member or former member of the uniformed services of the 
     United States or any dependent of such member by reason of 
     such member's status or service as a member of such uniformed 
     services; and (2) was excludable from gross income on 
     September 9, 1986, under any provision of law, regulation, or 
     administrative practice which was in effect on such date. 
     Generally, other than certain cost of living adjustments, no 
     modification or adjustment of any qualified military benefit 
     after September 9, 1986, is taken into account for purposes 
     of this exclusion from gross income. Qualified military 
     benefits include certain death gratuities. The amount of the 
     military death gratuity benefit has been increased since 
     September 9, 1986 to $6,000 pursuant to Chapter 75 of Title 
     10 of the United States Code. However, the amount of the 
     exclusion from gross income was not increased to take into 
     account this change.
---------------------------------------------------------------------------
     \11\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------


                               House Bill

       The bill extends the exclusion from gross income for 
     military benefits to any adjustment to the amount of the 
     death gratuity payable under Chapter 75 of Title 10 of the 
     United States Code that is pursuant to a provision of law 
     enacted before December 31, 1991, with respect to the death 
     of certain members of the Armed services on active duty, 
     inactive duty training, or engaged in authorized travel.
       Effective date.--The provision is effective with respect to 
     deaths occurring after September 10, 2001.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\12\
---------------------------------------------------------------------------
     \12\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

     C. Exclusion for Amounts Received Under Department of Defense 
                     Homeowners Assistance Program

     (Sec. 203 of the House bill and sec. 132 of the Code)


                            Present Law \13\

     Homeowners Assistance Program payment
       The Department of Defense Homeowners Assistance Program 
     (``HAP'') provides payments to certain employees and members 
     of the Armed Forces to offset the adverse effects on housing 
     values that result from a military base realignment or 
     closure.\14\
---------------------------------------------------------------------------
     \13\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
     \14\ The payments are authorized under the provisions of 42 
     U.S.C. section 3374.
---------------------------------------------------------------------------
       In general, under HAP, eligible individuals receive either: 
     (1) a cash payment as compensation for losses that may be or 
     have been sustained in a private sale, in an amount not to 
     exceed the difference between (a) 95 percent of the fair 
     market value of their property prior to public announcement 
     of intention to close all or part of the military base or 
     installation and (b) the fair market value of such property 
     at the time of the sale; or (2) as the purchase price for 
     their property, an amount not to exceed 90 percent of the 
     prior fair market value as determined by the Secretary of 
     Defense, or the amount of the outstanding mortgages.
     Tax treatment
       Unless specifically excluded, gross income for Federal 
     income tax purposes includes all income from whatever source 
     derived. Amounts received under HAP are received in 
     connection with the performance of services. These amounts 
     are includible in gross income as compensation for services 
     to the extent such payments exceed the fair market value of 
     the property relinquished in exchange for such payments. 
     Additionally, such payments are wages for Federal Insurance 
     Contributions Act (``FICA'') tax purposes (including 
     Medicare).


                               House Bill

       The bill generally exempts from gross income amounts 
     received under the HAP (as in effect on the date of enactment 
     of this bill). Amounts received under the program also are 
     not considered wages for FICA tax purposes (including 
     Medicare). The excludable amount is limited to the reduction 
     in the fair market value of property.
       Effective date.--The provision is effective for payments 
     made after the date of enactment.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\15\
---------------------------------------------------------------------------
     \15\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

   D. Expansion of Combat Zone Filing Rules to Contingency Operations

     (Sec. 204 of the House bill and sec. 7508 of the Code)


                            Present Law \16\

     General time limits for filing tax returns
       Individuals generally must file their Federal income tax 
     returns by April 15 of the year following the close of a 
     taxable year. The Secretary may grant reasonable extensions 
     of time for filing such returns. Treasury regulations provide 
     an additional automatic two-month extension (until June 15

[[Page H7490]]

     for calendar-year individuals) for United States citizens and 
     residents in military or naval service on duty on April 15 of 
     the following year (the otherwise applicable due date of the 
     return) outside the United States. No action is necessary to 
     apply for this extension, but taxpayers must indicate on 
     their returns (when filed) that they are claiming this 
     extension. Unlike most extensions of time to file, this 
     extension applies to both filing returns and paying the tax 
     due.
---------------------------------------------------------------------------
     \16\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------
       Treasury regulations also provide, upon application on the 
     proper form, an automatic four-month extension (until August 
     15 for calendar-year individuals) for any individual timely 
     filing that form and paying the amount of tax estimated to be 
     due.
       In general, individuals must make quarterly estimated tax 
     payments by April 15, June 15, September 15, and January 15 
     of the following taxable year. Wage withholding is considered 
     to be a payment of estimated taxes.
     Suspension of time periods
       In general, the period of time for performing various acts 
     under the Code, such as filing tax returns, paying taxes, or 
     filing a claim for credit or refund of tax, is suspended for 
     any individual serving in the Armed Forces of the United 
     States in an area designated as a ``combat zone'' during the 
     period of combatant activities. An individual who becomes a 
     prisoner of war is considered to continue in active service 
     and is therefore also eligible for these suspension of time 
     provisions. The suspension of time also applies to an 
     individual serving in support of such Armed Forces in the 
     combat zone, such as Red Cross personnel, accredited 
     correspondents, and civilian personnel acting under the 
     direction of the Armed Forces in support of those Forces. The 
     designation of a combat zone must be made by the President in 
     an Executive Order. The President must also designate the 
     period of combatant activities in the combat zone (the 
     starting date and the termination date of combat).
       The suspension of time encompasses the period of service in 
     the combat zone during the period of combatant activities in 
     the zone, as well as (1) any time of continuous qualified 
     hospitalization resulting from injury received in the combat 
     zone \17\ or (2) time in missing in action status, plus the 
     next 180 days.
---------------------------------------------------------------------------
     \17\ Two special rules apply to continuous hospitalization 
     inside the United States. First, the suspension of time 
     provisions based on continuous hospitalization inside the 
     United States are applicable only to the hospitalized 
     individual; they are not applicable to the spouse of such 
     individual. Second, in no event do the suspension of time 
     provisions based on continuous hospitalization inside the 
     United States extend beyond five years from the date the 
     individual returns to the United States. These two special 
     rules do not apply to continuous hospitalization outside the 
     United States.
---------------------------------------------------------------------------
       The suspension of time applies to the following acts:
       (1) Filing any return of income, estate, or gift tax 
     (except employment and withholding taxes);
       (2) Payment of any income, estate, or gift tax (except 
     employment and withholding taxes);
       (3) Filing a petition with the Tax Court for 
     redetermination of a deficiency, or for review of a decision 
     rendered by the Tax Court;
       (4) Allowance of a credit or refund of any tax;
       (5) Filing a claim for credit or refund of any tax;
       (6) Bringing suit upon any such claim for credit or refund;
       (7) Assessment of any tax;
       (8) Giving or making any notice or demand for the payment 
     of any tax, or with respect to any liability to the United 
     States in respect of any tax;
       (9) Collection of the amount of any liability in respect of 
     any tax;
       (10) Bringing suit by the United States in respect of any 
     liability in respect of any tax; and
       (11) Any other act required or permitted under the internal 
     revenue laws specified by the Secretary of the Treasury.
       Individuals may, if they choose, perform any of these acts 
     during the period of suspension. Spouses of qualifying 
     individuals are entitled to the same suspension of time, 
     except that the spouse is ineligible for this suspension for 
     any taxable year beginning more than two years after the date 
     of termination of combatant activities in the combat zone.


                               House Bill

       The bill applies the special suspension of time period 
     rules to persons deployed outside the United States away from 
     the individual's permanent duty station while participating 
     in an operation designated by the Secretary of Defense as a 
     contingency operation or that becomes a contingency 
     operation. A contingency operation is defined \18\ as a 
     military operation that is designated by the Secretary of 
     Defense as an operation in which members of the Armed Forces 
     are or may become involved in military actions, operations, 
     or hostilities against an enemy of the United States or 
     against an opposing military force, or results in the call or 
     order to (or retention of) active duty of members of the 
     uniformed services during a war or a national emergency 
     declared by the President or Congress.
---------------------------------------------------------------------------
     \18\ The definition is by cross-reference to 10 U.S.C. 101.
---------------------------------------------------------------------------
       Effective date.--The provision applies to any period for 
     performing an act that has not expired before the date of 
     enactment.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\19\
---------------------------------------------------------------------------
     \19\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

 E. Modification of Membership Requirement for Exemption From Tax for 
                    Certain Veterans' Organizations

     (Sec. 205 of the House bill and sec. 501(c)(19) of the Code)


                            Present Law \20\

       Under present law, a veterans' organization as described in 
     section 501(c)(19) of the Code generally is exempt from 
     taxation. The Code defines such an organization as a post or 
     organization of past or present members of the Armed Forces 
     of the United States: (1) that is organized in the United 
     States or any of its possessions; (2) no part of the net 
     earnings of which inures to the benefit of any private 
     shareholder or individual; and (3) that meets certain 
     membership requirements. The membership requirements are that 
     (1) at least 75 percent of the organization's members are 
     past or present members of the Armed Forces of the United 
     States, and (2) substantially all of the remaining members 
     are cadets or are spouses, widows, or widowers of past or 
     present members of the Armed Forces of the United States or 
     of cadets. No more than 2.5 percent of an organization's 
     total members may consist of individuals who are not 
     veterans, cadets, or spouses, widows, or widowers of such 
     individuals.
---------------------------------------------------------------------------
     \20\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------
       Contributions to an organization described in section 
     501(c)(19) may be deductible for Federal income or gift tax 
     purposes if the organization is a post or organization of war 
     veterans.


                               House Bill

       The bill permits ancestors or lineal descendants of past or 
     present members of the Armed Forces of the United States or 
     of cadets to qualify as members for purposes of the 
     ``substantially all'' test. The bill does not change the 
     requirement that 75 percent of the organization's members 
     must be past or present members of the Armed Forces of the 
     United States.
       Effective date.--The provision is effective for taxable 
     years beginning after the date of enactment.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\21\
---------------------------------------------------------------------------
     \21\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

  F. Clarification of Treatment of Certain Dependent Care Assistance 
 Programs Provided to Members of the Uniformed Services of the United 
                                 States

     (Sec. 206 of the House bill and sec. 134 of the Code)


                            Present Law \22\

       Present law provides that qualified military benefits are 
     not included in gross income. Generally, a qualified military 
     benefit is any allowance or in-kind benefit (other than 
     personal use of a vehicle) which: (1) is received by any 
     member or former member of the uniformed services of the 
     United States or any dependent of such member by reason of 
     such member's status or service as a member of such uniformed 
     services; and (2) was excludable from gross income on 
     September 9, 1986, under any provision of law, regulation, or 
     administrative practice which was in effect on such date. 
     Generally, other than certain cost of living adjustments, no 
     modification or adjustment of any qualified military benefit 
     after September 9, 1986, is taken into account for purposes 
     of this exclusion from gross income.
---------------------------------------------------------------------------
     \22\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------


                               House Bill

       The bill clarifies that dependent care assistance provided 
     under a dependent care assistance program (as in effect on 
     the date of enactment of this bill) for a member of the 
     uniformed services by reason of such member's status or 
     service as a member of the uniformed services is excludable 
     from gross income as a qualified military benefit subject to 
     the present-law rules. The uniformed services include: (1) 
     the Armed Forces (the Army, Navy, Air Force, Marine Corps, 
     and Coast Guard); (2) the commissioned corps of the National 
     Oceanic and Atmospheric Administration; and (3) the 
     commissioned corps of the Public Health Service. Amounts 
     received under the program also are not considered wages for 
     Federal Insurance Contributions Act tax purposes (including 
     Medicare).
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2002. No inference is 
     intended as to the tax treatment of such amounts for prior 
     taxable years.

[[Page H7491]]

                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\23\
---------------------------------------------------------------------------
     \23\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

   G. Treatment of Service Academy Appointments as Scholarships for 
Purposes of Qualified Tuition Programs and Coverdell Education Savings 
                                Accounts

     (Sec. 207 of the House bill and secs. 529 and 530 of the 
         Code)


                            Present Law \24\

       The Code provides tax-exempt status to qualified tuition 
     programs, meaning programs established and maintained by a 
     State or agency or instrumentality thereof or by one or more 
     eligible educational institutions under which a person (1) 
     may purchase tuition credits or certificates on behalf of a 
     designated beneficiary which entitle the beneficiary to the 
     waiver or payment of qualified higher education expenses of 
     the beneficiary, or (2) in the case of a program established 
     by and maintained by a State or agency or instrumentality 
     thereof, may make contributions to an account which is 
     established for the purpose of meeting the qualified higher 
     education expenses of the designated beneficiary of the 
     account. Contributions to qualified tuition programs may be 
     made only in cash. Qualified tuition programs must have 
     adequate safeguards to prevent contributions on behalf of a 
     designated beneficiary in excess of amounts necessary to 
     provide for the qualified higher education expenses of the 
     beneficiary.
---------------------------------------------------------------------------
     \24\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------
       The Code provides tax-exempt status to Coverdell education 
     savings accounts (``ESAs''), meaning certain trusts or 
     custodial accounts which are created or organized in the 
     United States exclusively for the purpose of paying the 
     qualified education expenses of a designated beneficiary. 
     Contributions to ESAs may be made only in cash. Annual 
     contributions to ESAs may not exceed $2,000 per beneficiary 
     (except in cases involving certain tax-free rollovers) and 
     may not be made after the designated beneficiary reaches age 
     18.
       Earnings on contributions to an ESA or a qualified tuition 
     program generally are subject to tax when withdrawn. However, 
     distributions from an ESA or qualified tuition program are 
     excludable from the gross income of the distributee to the 
     extent that the total distribution does not exceed the 
     qualified education expenses incurred by the beneficiary 
     during the year the distribution is made.
       If the qualified education expenses of the beneficiary for 
     the year are less than the total amount of the distribution 
     from an ESA or qualified tuition program, then the qualified 
     education expenses are deemed to be paid from a pro-rata 
     share of both the principal and earnings components of the 
     distribution. In such a case, only a portion of the earnings 
     is excludable (i.e., the portion of the earnings based on the 
     ratio that the qualified education expenses bear to the total 
     amount of the distribution) and the remaining portion of the 
     earnings is includible in the beneficiary's gross income.
       The earnings portion of a distribution from an ESA or a 
     qualified tuition program that is includible in income is 
     generally subject to an additional 10 percent tax. The 10 
     percent additional tax does not apply if a distribution is 
     made on account of the death or disability of the designated 
     beneficiary, or on account of a scholarship received by the 
     designated beneficiary (to the extent it does not exceed the 
     amount of the scholarship).
       Service obligations are required of recipients of 
     appointments to the United States Military Academy, the 
     United States Naval Academy, the United States Air Force 
     Academy, the United States Coast Guard Academy, or the United 
     States Merchant Marine Academy. Because of these service 
     obligations, appointments to the Academies are not considered 
     scholarships for purposes of the waiver of the additional 10 
     percent tax on withdrawals from ESAs and qualified tuition 
     programs that are not used for qualified education purposes.


                               House Bill

       The bill permits penalty-free withdrawals from Coverdell 
     education savings accounts and qualified tuition programs 
     made on account of the attendance of the beneficiary at the 
     United States Military Academy, the United States Naval 
     Academy, the United States Air Force Academy, the United 
     States Coast Guard Academy, or the United States Merchant 
     Marine Academy.
       The amount of funds that can be withdrawn penalty free is 
     limited to the costs of advanced education as defined in 10 
     U.S.C. section 2005(e)(3) (as in effect on the date of the 
     enactment of the bill) at such Academies.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 2002.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\25\
---------------------------------------------------------------------------
     \25\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

 H. Above-the-Line Deduction for Overnight Travel Expenses of National 
                       Guard and Reserve Members

     (Sec. 208 of the House bill and sec. 162 of the Code)


                            Present Law \26\

       National Guard and Reserve members may claim itemized 
     deductions for their nonreimbursable expenses for 
     transportation, meals, and lodging when they must travel away 
     from home (and stay overnight) to attend National Guard and 
     Reserve meetings. These overnight travel expenses are 
     combined with other miscellaneous itemized deductions on 
     Schedule A of the individual's income tax return and are 
     deductible only to the extent that the aggregate of these 
     deductions exceeds two percent of the taxpayer's adjusted 
     gross income. No deduction is generally permitted for 
     commuting expenses to and from drill meetings.
---------------------------------------------------------------------------
     \26\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------


                               House Bill

       The bill provides an above-the-line deduction for the 
     overnight transportation, meals, and lodging expenses of 
     National Guard and Reserve members who must travel away from 
     home more than 100 miles (and stay overnight) to attend 
     National Guard and Reserve meetings. Accordingly, these 
     individuals incurring these expenses can deduct them from 
     gross income regardless of whether they itemize their 
     deductions. The amount of the expenses that may be deducted 
     may not exceed $1,500 per taxable year and is only available 
     for any period during which the individual is more than 100 
     miles from home in connection with such services.
       Effective date.--The provision is effective with respect to 
     amounts paid or incurred in taxable years beginning after 
     December 31, 2002.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\27\
---------------------------------------------------------------------------
     \27\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

     I. Suspension of Tax-Exempt Status of Terrorist Organizations

     (Sec. 301 of the House bill and sec. 501 of the Code)


                            Present Law \28\
---------------------------------------------------------------------------

     \28\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------
       Under present law, the Internal Revenue Service generally 
     issues a letter revoking recognition of an organization's 
     tax-exempt status only after (1) conducting an examination of 
     the organization, (2) issuing a letter to the organization 
     proposing revocation, and (3) allowing the organization to 
     exhaust the administrative appeal rights that follow the 
     issuance of the proposed revocation letter. In the case of an 
     organization described in section 501(c)(3), the revocation 
     letter immediately is subject to judicial review under the 
     declaratory judgment procedures of section 7428. To sustain a 
     revocation of tax-exempt status under section 7428, the IRS 
     must demonstrate that the organization is no longer entitled 
     to exemption. There is no procedure under current law for the 
     IRS to suspend the tax-exempt status of an organization.
       To combat terrorism, the Federal government has designated 
     a number of organizations as terrorist organizations or 
     supporters of terrorism under the Immigration and Nationality 
     Act, the International Emergency Economic Powers Act, and the 
     United Nations Participation Act of 1945.


                               House Bill

       The bill suspends the tax-exempt status of an organization 
     that is exempt from tax under section 501(a) for any period 
     during which the organization is designated or identified by 
     U.S. Federal authorities as a terrorist organization or 
     supporter of terrorism. The bill also makes such an 
     organization ineligible to apply for tax exemption under 
     section 501(a). The period of suspension runs from the date 
     the organization is first designated or identified (or from 
     the date of enactment of the bill, whichever is later) to the 
     date when all designations or identifications with respect to 
     the organization have been rescinded pursuant to the law or 
     Executive order under which the designation or identification 
     was made.
       The bill describes a terrorist organization as an 
     organization that has been designated or otherwise 
     individually identified (1) as a terrorist organization or 
     foreign terrorist organization under the authority of section 
     212(a)(3)(B)(vi)(II) or section 219 of the Immigration and 
     Nationality Act; (2) in or pursuant to an Executive order 
     that 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 for the purpose of 
     imposing on such organization an economic or other sanction; 
     or (3) in or pursuant to an

[[Page H7492]]

     Executive order that refers to the provision and is issued 
     under the authority of any Federal law if 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). During the 
     period of suspension, no deduction for any contribution to 
     a terrorist organization is allowed under the Code, 
     including under sections 170, 545(b)(2), 556(b)(2), 
     642(c), 2055, 2106(a)(2), or 2522.
       No organization or other person may challenge, under 
     section 7428 or any other provision of law, in any 
     administrative or judicial proceeding relating to the Federal 
     tax liability of such organization or other person, the 
     suspension of tax-exemption, the ineligibility to apply for 
     tax-exemption, a designation or identification described 
     above, the timing of the period of suspension, or a denial of 
     deduction described above. The suspended organization may 
     maintain other suits or administrative actions against the 
     agency or agencies that designated or identified the 
     organization, for the purpose of challenging such designation 
     or identification (but not the suspension of tax-exempt 
     status under this provision).
       If the tax-exemption of an organization is suspended and 
     each designation and identification that has been made with 
     respect to the organization is determined to be erroneous 
     pursuant to the law or Executive order making the designation 
     or identification, and such erroneous designation results in 
     an overpayment of income tax for any taxable year with 
     respect to such organization, a credit or refund (with 
     interest) with respect to such overpayment shall be made. If 
     the operation of any law or rule of law (including res 
     judicata) prevents the credit or refund at any time, the 
     credit or refund may nevertheless be allowed or made if the 
     claim for such credit or refund is filed before the close of 
     the one-year period beginning on the date that the last 
     remaining designation or identification with respect to the 
     organization is determined to be erroneous.
       The bill directs the IRS to update the listings of tax-
     exempt organizations to take account of organizations that 
     have had their exemption suspended and to publish notice to 
     taxpayers of the suspension of an organization's tax-
     exemption and the fact that contributions to such 
     organization are not deductible during the period of 
     suspension.
       Effective date.--The provision is effective for 
     designations made before, on, or after the date of enactment.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement does not include the House bill 
     provision.\29\
---------------------------------------------------------------------------
     \29\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

      J. Extension of Certain Tax Relief Provisions to Astronauts

     (Sec. 401 of the House bill and secs. 101, 692, and 2201 of 
         the Code)


                            Present Law \30\

     In general
       The Victims of Terrorism Tax Relief Act of 2001 (the 
     ``Victims Act'') provided certain income and estate tax 
     relief to individuals who die from wounds or injury incurred 
     as a result of the terrorist attacks against the United 
     States on September 11, 2001, and April 19, 1995 (the bombing 
     of the Alfred P. Murrah Federal Building in Oklahoma City) or 
     as a result of illness incurred due to an attack involving 
     anthrax that occurred on or after September 11, 2001, and 
     before January 1, 2002.
---------------------------------------------------------------------------
     \30\ This description of present law refers to the law in 
     effect at the time the bill passed the House of 
     Representatives, which was prior to the enactment of Pub. L. 
     No. 108-121.
---------------------------------------------------------------------------
     Income tax relief
       The Victims Act extended relief similar to the present-law 
     treatment of military or civilian employees of the United 
     States who die as a result of terrorist or military activity 
     outside the United States to individuals who die as a result 
     of wounds or injury which were incurred as a result of the 
     terrorist attacks that occurred on September 11, 2001, or 
     April 19, 1995, and individuals who die as a result of 
     illness incurred due to an attack involving anthrax that 
     occurs on or after September 11, 2001, and before January 1, 
     2002. Under the Victims Act, such individuals generally are 
     exempt from income tax for the year of death and for prior 
     taxable years beginning with the taxable year prior to the 
     taxable year in which the wounds or injury occurred.\31\ The 
     exemption applies to these individuals whether killed in an 
     attack (e.g., in the case of the September 11, 2001, attack 
     in one of the four airplanes or on the ground) or in rescue 
     or recovery operations.
---------------------------------------------------------------------------
     \31\ Present law does not provide relief from self-employment 
     tax liability.
---------------------------------------------------------------------------
       Present law provides tax relief of at least $10,000 to each 
     eligible individual regardless of the income tax liability of 
     the individual for the eligible tax years. If an eligible 
     individual's income tax for years eligible for the exclusion 
     under the provision is less than $10,000, the individual is 
     treated as having made a tax payment for such individual's 
     last taxable year in an amount equal to the excess of $10,000 
     over the amount of tax not imposed under the provision.
       Subject to rules prescribed by the Secretary, the exemption 
     from tax does not apply to the tax attributable to (1) 
     deferred compensation which would have been payable after 
     death if the individual had died other than as a specified 
     terrorist victim, or (2) amounts payable in the taxable year 
     which would not have been payable in such taxable year but 
     for an action taken after September 11, 2001. Thus, for 
     example, the exemption does not apply to amounts payable from 
     a qualified plan or individual retirement arrangement to the 
     beneficiary or estate of the individual. Similarly, amounts 
     payable only as death or survivor's benefits pursuant to 
     deferred compensation preexisting arrangements that would 
     have been paid if the death had occurred for another 
     reason are not covered by the exemption. In addition, if 
     the individual's employer makes adjustments to a plan or 
     arrangement to accelerate the vesting of restricted 
     property or the payment of nonqualified deferred 
     compensation after the date of the particular attack, the 
     exemption does not apply to income received as a result of 
     that action.\32\ Also, if the individual's beneficiary 
     cashed in savings bonds of the decedent, the exemption 
     does not apply. On the other hand, the exemption does 
     apply, for example, to a final paycheck of the individual 
     or dividends on stock held by the individual when paid to 
     another person or the individual's estate after the date 
     of death but before the end of the taxable year of the 
     decedent (determined without regard to the death). The 
     exemption also applies to payments of an individual's 
     accrued vacation and accrued sick leave.
---------------------------------------------------------------------------
     \32\ Such amounts may, however, be excludable from gross 
     income under the death benefit exclusion provided in section 
     102 of the Victims Act.
---------------------------------------------------------------------------
       The tax relief does not apply to any individual identified 
     by the Attorney General to have been a participant or 
     conspirator in any terrorist attack to which the provision 
     applies, or a representative of such individual.
     Exclusion of death benefits
       The Victims Act generally provides an exclusion from gross 
     income for amounts received if such amounts are paid by an 
     employer (whether in a single sum or otherwise \33\) by 
     reason of the death of an employee who dies as a result of 
     wounds or injury which were incurred as a result of the 
     terrorist attacks that occurred on September 11, 2001, or 
     April 19, 1995, or as a result of illness incurred due to an 
     attack involving anthrax that occurred on or after September 
     11, 2001, and before January 1, 2002. Subject to rules 
     prescribed by the Secretary, the exclusion does not apply to 
     amounts that would have been payable if the individual had 
     died for a reason other than the attack. The exclusion does 
     apply, however, to death benefits provided under a qualified 
     plan that satisfy the incidental benefit rule.
---------------------------------------------------------------------------
     \33\ Thus, for example, payments made over a period of years 
     could qualify for the exclusion.
---------------------------------------------------------------------------
       For purposes of the exclusion, self-employed individuals 
     are treated as employees. Thus, for example, payments by a 
     partnership to the surviving spouse of a partner who died as 
     a result of the September 11, 2001, attacks may be excludable 
     under the provision.
       The tax relief does not apply to any individual identified 
     by the Attorney General to have been a participant or 
     conspirator in any terrorist attack to which the provision 
     applies, or a representative of such individual.
     Estate tax relief
       Present law provides a reduction in Federal estate tax for 
     taxable estates of U.S. citizens or residents who are active 
     members of the U.S. Armed Forces and who are killed in action 
     while serving in a combat zone (sec. 2201). This provision 
     also applies to active service members who die as a result of 
     wounds, disease, or injury suffered while serving in a combat 
     zone by reason of a hazard to which the service member was 
     subjected as an incident of such service.
       In general, the effect of section 2201 is to replace the 
     Federal estate tax that would otherwise be imposed with a 
     Federal estate tax equal to 125 percent of the maximum State 
     death tax credit determined under section 2011(b). Credits 
     against the tax, including the unified credit of section 2010 
     and the State death tax credit of section 2011, then apply to 
     reduce (or eliminate) the amount of the estate tax payable.
       Generally, the reduction in Federal estate taxes under 
     section 2201 is equal in amount to the ``additional estate 
     tax.'' The additional estate tax is the difference between 
     the Federal estate tax imposed by section 2001 and 125 
     percent of the maximum State death tax credit determined 
     under section 2011(b) as in effect prior to its repeal by 
     EGTRRA.
       The Victims Act generally treats individuals who die from 
     wounds or injury incurred as a result of the terrorist 
     attacks that occurred on September 11, 2001, or April 19, 
     1995, or as a result of illness incurred due to an attack 
     involving anthrax that occurred on or after September 11, 
     2001, and before January 1, 2002, in the same manner as if 
     they were active members of the U.S. Armed Forces killed in 
     action while serving in a combat zone or dying as a result of 
     wounds or injury suffered while serving in a combat zone for 
     purposes of section 2201. Consequently, the estates of these 
     individuals are eligible for the reduction in Federal estate 
     tax provided by section 2201. The tax relief does not apply 
     to any individual identified by the Attorney General to have 
     been a participant or conspirator in any terrorist

[[Page H7493]]

     attack to which the provision applies, or a representative of 
     such individual.
       The Victims Act also changed the general operation of 
     section 2201, as it applies to both the estates of service 
     members who qualify for special estate tax treatment under 
     present and prior law and to the estates of individuals who 
     qualify for the special treatment only under the Act. Under 
     the Victims Act, the Federal estate tax is determined in the 
     same manner for all estates that are eligible for Federal 
     estate tax reduction under section 2201. In addition, the 
     executor of an estate that is eligible for special estate tax 
     treatment under section 2201 may elect not to have section 
     2201 apply to the estate. Thus, in the event that an estate 
     may receive more favorable treatment without the application 
     of section 2201 in the year of death than it would under 
     section 2201, the executor may elect not to apply the 
     provisions of section 2201, and the estate tax owed (if any) 
     would be determined pursuant to the generally applicable 
     rules.
       Under the Victims Act, section 2201 no longer reduces 
     Federal estate tax by the amount of the additional estate 
     tax. Instead, the Victims Act provides that the Federal 
     estate tax liability of eligible estates is determined under 
     section 2001 (or section 2101, in the case of decedents who 
     were neither residents nor citizens of the United States), 
     using a rate schedule that is equal to 125 percent of the 
     pre-EGTRRA maximum State death tax credit amount. This rate 
     schedule is used to compute the tax under section 2001(b) or 
     section 2101(b) (i.e., both the tentative tax under section 
     2001(b)(1) and section 2101(b), and the hypothetical gift tax 
     under section 2001(b)(2) are computed using this rate 
     schedule). As a result of this provision, the estate tax is 
     unified with the gift tax for purposes of section 2201 so 
     that a single graduated (but reduced) rate schedule applies 
     to transfers made by the individual at death, based upon the 
     cumulative taxable transfers made both during lifetime and at 
     death.
       In addition, while the Victims Act provides an alternative 
     reduced rate table for purposes of determining the tax under 
     section 2001(b) or section 2101(b), the amount of the unified 
     credit nevertheless is determined as if section 2201 did not 
     apply, based upon the unified credit as in effect on the date 
     of death. For example, in the case of victims of the 
     September 11, 2001, terrorist attack, the applicable unified 
     credit amount under section 2010(c) would be determined by 
     reference to the actual section 2001(c) rate table.


                               house bill

       The bill extends the exclusion from income tax, the 
     exclusion for death benefits, and the estate tax relief 
     available under the Victims of Terrorism Tax Relief Act of 
     2001 to astronauts who lose their lives on a space mission 
     (including the individuals who lost their lives in the space 
     shuttle Columbia disaster).
       Effective date.--The provision is generally effective for 
     qualified individuals whose lives are lost on a space mission 
     after December 31, 2002.


                            senate amendment

       No provision.


                          conference agreement

       The conference agreement does not include the House bill 
     provision.\34\
---------------------------------------------------------------------------
     \34\ All of the House bill provisions relating to the 
     military have been enacted prior to this conference agreement 
     in separate legislation (Pub. L. No. 108-121).
---------------------------------------------------------------------------

                         III. OTHER PROVISIONS

         A. Establish Uniform Definition of a Qualifying Child

     (Secs. 201-208 of the conference agreement, and secs. 2, 21, 
         24, 32, 151, and 152 of the Code)


                              present law

     In general
       Present law contains five commonly used provisions that 
     provide benefits to taxpayers with children: (1) the 
     dependency exemption; (2) the child credit; (3) the earned 
     income credit; (4) the dependent care credit; and (5) head of 
     household filing status. Each provision has separate criteria 
     for determining whether the taxpayer qualifies for the 
     applicable tax benefit with respect to a particular child. 
     The separate criteria include factors such as the 
     relationship (if any) the child must bear to the taxpayer, 
     the age of the child, and whether the child must live with 
     the taxpayer. Thus, with respect to the same individual, a 
     taxpayer is required to determine eligibility for each 
     benefit separately, and an individual who qualifies a 
     taxpayer for one provision does not automatically qualify the 
     taxpayer for another provision.
     Dependency exemption \35\
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     \35\ Secs. 151 and 152. Under the statutory structure, 
     section 151 provides for the deduction for personal 
     exemptions with respect to ``dependents.'' The term 
     ``dependent'' is defined in section 152. Most of the 
     requirements regarding dependents are contained in section 
     152; section 151 contains additional requirements that must 
     be satisfied in order to obtain a dependency exemption with 
     respect to a dependent (as so defined). In particular, 
     section 151 contains the gross income test, the rules 
     relating to married dependents filing a joint return, and the 
     requirement for a taxpayer identification number. The other 
     rules discussed here are contained in section 151.
---------------------------------------------------------------------------
       In general
       Taxpayers are entitled to a personal exemption deduction 
     for the taxpayer, his or her spouse, and each dependent. For 
     2004, the amount deductible for each personal exemption is 
     $3,100. The deduction for personal exemptions is phased out 
     for taxpayers with incomes above certain thresholds.\36\
---------------------------------------------------------------------------
     \36\ Sec. 151(d)(3).
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       In general, a taxpayer is entitled to a dependency 
     exemption for an individual if the individual: (1) satisfies 
     a relationship test or is a member of the taxpayer's 
     household for the entire taxable year; (2) satisfies a 
     support test; (3) satisfies a gross income test or is a child 
     of the taxpayer under a certain age; (4) is a citizen or 
     resident of the U.S. or resident of Canada or Mexico; \37\ 
     and (5) did not file a joint return with his or her spouse 
     for the year.\38\ In addition, the taxpayer identification 
     number of the individual must be included on the 
     taxpayer's return.
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     \37\ A legally adopted child who does not satisfy the 
     residency or citizenship requirement may nevertheless qualify 
     as a dependent (provided other applicable requirements are 
     met) if (1) the child's principal place of abode is the 
     taxpayer's home and (2) the taxpayer is a citizen or national 
     of the United States. Sec. 152(b)(3).
     \38\ This restriction does not apply if the return was filed 
     solely to obtain a refund and no tax liability would exist 
     for either spouse if they filed separate returns. Rev. Rul. 
     54-567, 1954-2 C.B. 108.
---------------------------------------------------------------------------
       Relationship or member of household test
       Relationship test.--The relationship test is satisfied if 
     an individual is the taxpayer's (1) son or daughter or a 
     descendant of either (e.g., grandchild or great-grandchild); 
     (2) stepson or stepdaughter; (3) brother or sister (including 
     half brother, half sister, stepbrother, or stepsister); (4) 
     parent, grandparent, or other direct ancestor (but not foster 
     parent); (5) stepfather or stepmother; (6) brother or sister 
     of the taxpayer's father or mother; (7) son or daughter of 
     the taxpayer's brother or sister; or (8) the taxpayer's 
     father-in-law, mother-in-law, son-in-law, daughter-in-law, 
     brother-in-law, or sister-in-law.
       An adopted child (or a child who is a member of the 
     taxpayer's household and who has been placed with the 
     taxpayer for adoption) is treated as a child of the taxpayer. 
     A foster child is treated as a child of the taxpayer if the 
     foster child is a member of the taxpayer's household for the 
     entire taxable year.
       Member of household test.--If the relationship test is not 
     satisfied, then the individual may be considered the 
     dependent of the taxpayer if the individual is a member of 
     the taxpayer's household for the entire year. Thus, a 
     taxpayer may be eligible to claim a dependency exemption with 
     respect to an unrelated child who lives with the taxpayer for 
     the entire year.
       For the member of household test to be satisfied, the 
     taxpayer must both maintain the household and occupy the 
     household with the individual.\39\ A taxpayer or other 
     individual does not fail to be considered a member of a 
     household because of ``temporary'' absences due to special 
     circumstances, including absences due to illness, education, 
     business, vacation, and military service.\40\ Similarly, an 
     individual does not fail to be considered a member of the 
     taxpayer's household due to a custody agreement under which 
     the individual is absent for less than six months.\41\ 
     Indefinite absences that last for more than the taxable year 
     may be considered ``temporary.'' For example, the IRS has 
     ruled that an elderly woman who was indefinitely confined to 
     a nursing home was temporarily absent from a taxpayer's 
     household. Under the facts of the ruling, the woman had been 
     an occupant of the household before being confined to a 
     nursing home, the confinement had extended for several years, 
     and it was possible that the woman would die before becoming 
     well enough to return to the taxpayer's household. There was 
     no intent on the part of the taxpayer or the woman to change 
     her principal place of abode.\42\
---------------------------------------------------------------------------
     \39\ Treas. Reg. sec. 1.152-1(b).
     \40\ Id.
     \41\ Id.
     \42\ Rev. Rul. 66-28, 1966-1 C.B. 31.
---------------------------------------------------------------------------
       Support test
       In general.--The support test is satisfied if the taxpayer 
     provides over one half of the support of the individual for 
     the taxable year. To determine whether a taxpayer has 
     provided more than one half of an individual's support, the 
     amount the taxpayer contributed to the individual's support 
     is compared with the entire amount of support the individual 
     received from all sources, including the individual's own 
     funds.\43\ Governmental payments and subsidies (e.g., 
     Temporary Assistance to Needy Families, food stamps, and 
     housing) generally are treated as support provided by a third 
     party. Expenses that are not directly related to any one 
     member of a household, such as the cost of food for the 
     household, must be divided among the members of the 
     household. If any person furnishes support in kind (e.g., in 
     the form of housing), then the fair market value of that 
     support must be determined.
---------------------------------------------------------------------------
     \43\ In the case of a son, daughter, stepson, or stepdaughter 
     of the taxpayer who is a full-time student, scholarships are 
     not taken into account for purpose of the support test. Sec. 
     152(d).
---------------------------------------------------------------------------
       Multiple support agreements.--In some cases, no one 
     taxpayer provides more than one half of the support of an 
     individual. Instead, two or more taxpayers, each of whom 
     would be able to claim a dependency exemption but for the 
     support test, together provide more than one half of the 
     individual's support. If this occurs, the taxpayers may agree 
     to designate that one of the taxpayers who individually 
     provides more than 10 percent of the

[[Page H7494]]

     individual's support can claim a dependency exemption for the 
     child. Each of the others must sign a written statement 
     agreeing not to claim the exemption for that year. The 
     statements must be filed with the income tax return of the 
     taxpayer who claims the exemption.
       Special rules for divorced or legally separated parents.--
     Special rules apply in the case of a child of divorced or 
     legally separated parents (or parents who live apart at all 
     times during the last six months of the year) who provide 
     over one half the child's support during the calendar 
     year.\44\ If such a child is in the custody of one or both of 
     the parents for more than one half of the year, then the 
     parent having custody for the greater portion of the year is 
     deemed to satisfy the support test; however, the custodial 
     parent may release the dependency exemption to the 
     noncustodial parent by filing a written declaration with the 
     IRS.\45\
---------------------------------------------------------------------------
     \44\ For purposes of this rule, a ``child'' means a son, 
     daughter, stepson, or stepdaughter (including an adopted 
     child or foster child, or child placed with the taxpayer for 
     adoption). Sec. 152(e)(1)(A).
     \45\ Special support rules also apply in the case of certain 
     pre-1985 agreements between divorced or legally separated 
     parents. Sec. 152(e)(4).
---------------------------------------------------------------------------
       Gross income test
       In general, an individual may not be claimed as a dependent 
     of a taxpayer if the individual has gross income that is at 
     least equal to the personal exemption amount for the taxable 
     year.\46\ If the individual is the child of the taxpayer and 
     under age 19 (or under age 24, if a full-time student), the 
     gross income test does not apply.\47\ For purposes of this 
     rule, a ``child'' means a son, daughter, stepson, or 
     stepdaughter (including an adopted child of the taxpayer, a 
     foster child who resides with the taxpayer for the entire 
     year, or a child placed with the taxpayer for adoption by an 
     authorized adoption agency).
---------------------------------------------------------------------------
     \46\ Certain income from sheltered workshops is not taken 
     into account in determining the gross income of permanently 
     and totally disabled individuals. Sec. 151(c)(5).
     \47\ Sec. 151(c). The IRS has issued guidance stating that 
     for purposes of the dependency exemption, an individual 
     attains a specified age on the anniversary of the date that 
     the child was born (e.g., a child born on January 1, 1987, 
     attains the age of 17 on January 1, 2004). Rev. Rul. 2003-72, 
     2003-33 I.R.B. 346.
---------------------------------------------------------------------------
     Earned income credit \48\
---------------------------------------------------------------------------
     \48\ Sec. 32.
---------------------------------------------------------------------------
       In general
       In general, the earned income credit is a refundable credit 
     for low-income workers. The amount of the credit depends on 
     the earned income of the taxpayer and whether the taxpayer 
     has one, more than one, or no ``qualifying children.'' In 
     order to be a qualifying child for the earned income credit, 
     an individual must satisfy a relationship test, a residency 
     test, and an age test. In addition, the name, age, and 
     taxpayer identification number of the qualifying child must 
     be included on the return.
       Relationship test
       An individual satisfies the relationship test under the 
     earned income credit if the individual is the taxpayer's: (1) 
     son, daughter, stepson, or stepdaughter, or a descendant of 
     any such individual; \49\ (2) brother, sister, stepbrother, 
     or stepsister, or a descendant of any such individual, who 
     the taxpayer cares for as the taxpayer's own child; or (3) 
     eligible foster child.
---------------------------------------------------------------------------
     \49\ A child who is legally adopted or placed with the 
     taxpayer for adoption by an authorized adoption agency is 
     treated as the taxpayer's own child. Sec. 32(c)(3)(B)(iv).
---------------------------------------------------------------------------
       An eligible foster child is an individual (1) who is placed 
     with the taxpayer by an authorized placement agency, and (2) 
     who the taxpayer cares for as her or his own child. A married 
     child of the taxpayer is not treated as meeting the 
     relationship test unless the taxpayer is entitled to a 
     dependency exemption with respect to the married child (e.g., 
     the support test is satisfied) or would be entitled to the 
     exemption if the taxpayer had not waived the exemption to the 
     noncustodial parent.\50\
---------------------------------------------------------------------------
     \50\ Sec. 32(c)(3)(B)(ii).
---------------------------------------------------------------------------
       Residency test
       The residency test is satisfied if the individual has the 
     same principal place of abode as the taxpayer for more than 
     one half of the taxable year. The residence must be in the 
     United States.\51\ As under the dependency exemption (and 
     head of household filing status), temporary absences due to 
     special circumstances, including absences due to illness, 
     education, business, vacation, and military service are not 
     treated as absences for purposes of determining whether the 
     residency test is satisfied.\52\ Under the earned income 
     credit, there is no requirement that the taxpayer maintain 
     the household in which the taxpayer and the qualifying 
     individual reside.
---------------------------------------------------------------------------
     \51\ The principal place of abode of a member of the Armed 
     Services is treated as in the United States during any period 
     during which the individual is stationed outside the United 
     States on active duty. Sec. 32(c)(4).
     \52\ IRS Publication 596, Earned Income Credit (EIC), at 14. 
     H. Rep. 101-964 (October 27, 1990), at 1037.
---------------------------------------------------------------------------
       Age test
       In general, the age test is satisfied if the individual has 
     not attained age 19 as of the close of the calendar year.\53\ 
     In the case of a full-time student, the age test is satisfied 
     if the individual has not attained age 24 as of the close of 
     the calendar year. In the case of an individual who is 
     permanently and totally disabled, no age limit applies.
---------------------------------------------------------------------------
     \53\ The IRS has issued guidance stating that for purposes of 
     the earned income credit, an individual attains a specified 
     age on the anniversary of the date that the child was born 
     (e.g., a child born on January 1, 1987, attains the age of 17 
     on January 1, 2004). Rev. Rul. 2003-72, 2003-33 I.R.B. 346.
---------------------------------------------------------------------------
     Child credit \54\
---------------------------------------------------------------------------
     \54\ Sec. 24.
---------------------------------------------------------------------------
       Taxpayers with incomes below certain amounts are eligible 
     for a child credit for each qualifying child of the taxpayer. 
     The amount of the child credit is up to $1,000, in the case 
     of taxable years beginning in 2003 or 2004. The child credit 
     reverts to $700 for taxable years beginning in 2005 through 
     2008, $800 for taxable years beginning in 2009, and $1,000 
     for taxable years beginning in 2010. The credit declines to 
     $500 in taxable year 2011.\55\ For purposes of this credit, a 
     qualifying child is an individual: (1) with respect to whom 
     the taxpayer is entitled to a dependency exemption for the 
     year; (2) who satisfies the same relationship test applicable 
     to the earned income credit; and (3) who has not attained age 
     17 as of the close of the calendar year.\56\ In addition, the 
     child must be a citizen or resident of the United States.\57\ 
     A portion of the child credit is refundable under certain 
     circumstances.\58\
---------------------------------------------------------------------------
     \55\ EGTRRA, Pub. L. No. 107-16, sec. 901(a) (2001).
     \56\ The IRS has issued guidance stating that for purposes of 
     the child credit, an individual attains a specified age on 
     the anniversary of the date that the child was born (e.g., a 
     child born on January 1, 1987, attains the age of 17 on 
     January 1, 2004). Rev. Rul. 2003-72, 2003-33 I.R.B. 346.
     \57\ The child credit does not apply with respect to a child 
     who is a resident of Canada or Mexico and is not a U.S. 
     citizen, even if a dependency exemption is available with 
     respect to the child. Sec. 24(c)(2). The child credit is, 
     however, available with respect to a child dependent who is 
     not a resident or citizen of the United States if: (1) the 
     child has been legally adopted by the taxpayer; (2) the 
     child's principal place of abode is the taxpayer's home; and 
     (3) the taxpayer is a U.S. citizen or national. See sec. 
     24(c)(2) and sec. 152(b)(3).
     \58\ Sec. 24(d).
---------------------------------------------------------------------------
     Dependent care credit \59\
       The dependent care credit may be claimed by a taxpayer who 
     maintains a household that includes one or more qualifying 
     individuals and who has employment-related expenses. A 
     qualifying individual means (1) a dependent of the taxpayer 
     under age 13 for whom the taxpayer is entitled to a 
     dependency exemption,\60\ (2) a dependent of the taxpayer who 
     is physically or mentally incapable of caring for himself or 
     herself,\61\ or (3) the spouse of the taxpayer, if the spouse 
     is physically or mentally incapable of caring for himself or 
     herself. In addition, a taxpayer identification number for 
     the qualifying individual must be included on the return.
---------------------------------------------------------------------------
     \59\ Sec. 21.
     \60\ The IRS has issued guidance stating that for purposes of 
     the dependent care credit, an individual attains a specified 
     age on the anniversary of the date that the child was born 
     (e.g., a child born on January 1, 1987, attains the age of 17 
     on January 1, 2004). Rev. Rul. 2003-72, 2003-33 I.R.B. 346.
     \61\ Although such an individual must be a dependent of the 
     taxpayer as defined in section 152, it is not required that 
     the taxpayer be entitled to a dependency exemption with 
     respect to the individual under section 151. Thus, such an 
     individual may be a qualifying individual for purposes of the 
     dependent care credit, even though the taxpayer is not 
     entitled to a dependency exemption because the individual 
     does not meet the gross income test.
---------------------------------------------------------------------------
       A taxpayer is considered to maintain a household for a 
     period if over one half the cost of maintaining the household 
     for the period is furnished by the taxpayer (or, if married, 
     the taxpayer and his or her spouse). Costs of maintaining the 
     household include expenses such as rent, mortgage interest 
     (but not principal), real estate taxes, insurance on the 
     home, repairs (but not home improvements), utilities, and 
     food eaten in the home.
       A special rule applies in the case of a child who is under 
     age 13 or is physically or mentally incapable of caring for 
     himself or herself if the custodial parent has waived his or 
     her dependency exemption to the noncustodial parent.\62\ For 
     the dependent care credit, the child is treated as a 
     qualifying individual with respect to the custodial parent, 
     not the parent entitled to claim the dependency exemption.
---------------------------------------------------------------------------
     \62\ Sec. 21(e)(5).
---------------------------------------------------------------------------
     Head of household filing status \63\
       A taxpayer may claim head of household filing status if the 
     taxpayer is unmarried (and not a surviving spouse) and pays 
     more than one half of the cost of maintaining as his or her 
     home a household which is the principal place of abode for 
     more than one half of the year of (1) an unmarried son, 
     daughter, stepson or stepdaughter of the taxpayer or an 
     unmarried descendant of the taxpayer's son or daughter, (2) 
     an individual described in (1) who is married, if the 
     taxpayer may claim a dependency exemption with respect to the 
     individual (or could claim the exemption if the taxpayer had 
     not waived the exemption to the noncustodial parent), or (3) 
     a relative with respect to whom the taxpayer may claim a 
     dependency exemption.\64\ If certain other requirements are 
     satisfied, head of household filing status also

[[Page H7495]]

     may be claimed if the taxpayer is entitled to a dependency 
     exemption with respect to one of the taxpayer's parents.
---------------------------------------------------------------------------
     \63\ Sec. 2(b).
     \64\ Sec. 2(b)(1)(A)(ii), as qualified by sec. 2(b)(3)(B). An 
     individual for whom the taxpayer is entitled to claim a 
     dependency exemption by reason of a multiple support 
     agreement does not qualify the taxpayer for head of household 
     filing status.
---------------------------------------------------------------------------


                               house bill

       No provision.


                            senate amendment

     In general
       In general
       The Senate amendment establishes a uniform definition of 
     qualifying child for purposes of the dependency exemption, 
     the child credit, the earned income credit, the dependent 
     care credit, and head of household filing status. A taxpayer 
     generally may claim an individual who does not meet the 
     uniform definition of qualifying child (with respect to any 
     taxpayer) as a dependent if the present-law dependency 
     requirements are satisfied. The Senate amendment generally 
     does not modify other parameters of each tax benefit (e.g., 
     the earned income requirements of the earned income credit) 
     or the rules for determining whether individuals other than 
     children of the taxpayer qualify for each tax benefit.
       Under the uniform definition, in general, a child is a 
     qualifying child of a taxpayer if the child satisfies each of 
     three tests: (1) the child has the same principal place of 
     abode as the taxpayer for more than one half the taxable 
     year; (2) the child has a specified relationship to the 
     taxpayer; and (3) the child has not yet attained a specified 
     age. A tie-breaking rule applies if more than one taxpayer 
     claims a child as a qualifying child.
       Under the Senate amendment, the present-law support and 
     gross income tests for determining whether an individual is a 
     dependent generally do not apply to a child who meets the 
     requirements of the uniform definition of qualifying child.
       Residency test
       Under the uniform definition's residency test, a child must 
     have the same principal place of abode as the taxpayer for 
     more than one half of the taxable year. It is intended that, 
     as is the case under present law, temporary absences due to 
     special circumstances, including absences due to illness, 
     education, business, vacation, or military service, are not 
     treated as absences.
       Relationship test
       In order to be a qualifying child under the Senate 
     amendment, the child must be the taxpayer's son, daughter, 
     stepson, stepdaughter, brother, sister, stepbrother, 
     stepsister, or a descendant of any such individual. An 
     individual legally adopted by the taxpayer, or an individual 
     who is placed with the taxpayer by an authorized placement 
     agency for adoption by the taxpayer, is treated as a child of 
     such taxpayer by blood. A foster child who is placed with the 
     taxpayer by an authorized placement agency or by judgment, 
     decree, or other order of any court of competent jurisdiction 
     is treated as the taxpayer's child.\65\
---------------------------------------------------------------------------
     \65\ The provision eliminates the present-law rule requiring 
     that if a child is the taxpayer's sibling or stepsibling or a 
     descendant of any such individual, the taxpayer must care for 
     the child as if the child were his or her own child.
---------------------------------------------------------------------------
       Age test
       Under the Senate amendment, the age test varies depending 
     upon the tax benefit involved. In general, a child must be 
     under age 19 (or under age 24 in the case of a full-time 
     student) in order to be a qualifying child.\66\ In general, 
     no age limit applies with respect to individuals who are 
     totally and permanently disabled within the meaning of 
     section 22(e)(3) at any time during the calendar year. The 
     Senate amendment retains the present-law requirements that a 
     child must be under age 13 (if he or she is not disabled) for 
     purposes of the dependent care credit, and under age 17 
     (whether or not disabled) for purposes of the child credit.
---------------------------------------------------------------------------
     \66\ The provision retains the present-law definition of 
     full-time student set forth in section 151(c)(4).
---------------------------------------------------------------------------
       Children who support themselves
       Under the Senate amendment, a child who provides over one 
     half of his or her own support generally is not considered a 
     qualifying child of another taxpayer. The Senate amendment 
     retains the present-law rule, however, that a child who 
     provides over one half of his or her own support may 
     constitute a qualifying child of another taxpayer for 
     purposes of the earned income credit.
       Tie-breaking rules
       If a child would be a qualifying child with respect to more 
     than one individual (e.g., a child lives with his or her 
     mother and grandmother in the same residence) and more than 
     one person claims a benefit with respect to that child, then 
     the following ``tie-breaking'' rules apply. First, if only 
     one of the individuals claiming the child as a qualifying 
     child is the child's parent, the child is deemed the 
     qualifying child of the parent. Second, if both parents claim 
     the child and the parents do not file a joint return, then 
     the child is deemed a qualifying child first with respect to 
     the parent with whom the child resides for the longest period 
     of time, and second with respect to the parent with the 
     highest adjusted gross income. Third, if the child's parents 
     do not claim the child, then the child is deemed a qualifying 
     child with respect to the claimant with the highest adjusted 
     gross income.
       Interaction with present-law rules
       Taxpayers generally may claim an individual who does not 
     meet the uniform definition of qualifying child with respect 
     to any taxpayer as a dependent if the present-law dependency 
     requirements (including the gross income and support tests) 
     are satisfied.\67\ Thus, for example, as under present law, a 
     taxpayer may claim a parent as a dependent if the taxpayer 
     provides more than one half of the support of the parent and 
     the parent's gross income is less than the exemption amount. 
     As another example, under the Senate amendment a grandparent 
     may claim a dependency exemption with respect to a grandson 
     who does not reside with any taxpayer for over one half the 
     year, if the grandparent provides more than one half of the 
     support of the grandson and the grandson's gross income is 
     less than the exemption amount.
---------------------------------------------------------------------------
     \67\ Individuals who satisfy the present-law dependency tests 
     and who are not qualifying children are referred to as 
     ``qualifying relatives'' under the provision.
---------------------------------------------------------------------------
       Citizenship and residency
       Children who are U.S. citizens living abroad or non-U.S. 
     citizens living in Canada or Mexico may qualify as a 
     qualifying child, as is the case under the present-law 
     dependency tests. A legally adopted child who does not 
     satisfy the residency or citizenship requirement may 
     nevertheless qualify as a qualifying child (provided other 
     applicable requirements are met) if (1) the child's principal 
     place of abode is the taxpayer's home and (2) the taxpayer 
     is a citizen or national of the United States.
       Children of divorced or legally separated parents
       The Senate amendment retains the present-law rule that 
     allows a custodial parent to release the claim to a 
     dependency exemption (and, therefore, the child credit) to a 
     noncustodial parent. Thus, under the Senate amendment, 
     custodial waivers that are in place and effective on the date 
     of enactment will continue to be effective after the date of 
     enactment if they continue to satisfy the waiver rule. In 
     addition, the Senate amendment retains the custodial waiver 
     rule for purposes of the dependency exemption (and, 
     therefore, the child credit) for decrees of divorce or 
     separate maintenance or written separation agreements that 
     become effective after the date of enactment. Under the 
     Senate amendment, as under present law, the custodial waiver 
     rules do not affect eligibility with respect to children of 
     divorced or legally separated parents for purposes of the 
     earned income credit, the dependent care credit, and head of 
     household filing status.
       While retaining the substantive effect of the present-law 
     waiver provisions, the Senate amendment modifies the 
     mechanical structure of the rules. Under present law, a 
     waiver may be made with respect to the dependency exemption. 
     The waiver then automatically carries over to the child 
     credit, because in order to claim the child credit, the 
     taxpayer must be allowed the dependency exemption with 
     respect to the child. Thus, if the dependency exemption is 
     waived, the child credit applies to the taxpayer who is 
     allowed the dependency exemption under the waiver.
       The Senate amendment obtains the same result, but through a 
     slightly modified statutory structure. Under the Senate 
     amendment, if a waiver is made, the waiver applies for 
     purposes of determining whether a child meets the definition 
     of a qualifying child or a qualifying relative under section 
     152(c) or 152(d) as amended by the provision. While the 
     definition of qualifying child is generally uniform, for 
     purposes of the earned income credit, head of household 
     status, and the dependent care credit, the definition of 
     qualifying child is made without regard to the waiver 
     provision.\68\ Thus, as under present law, a waiver that 
     applies for the dependency exemption will also apply for the 
     child credit, and the waiver will not apply for purposes of 
     the other provisions.
---------------------------------------------------------------------------
     \68\ See secs. 2(b)(1)(A)(i) and 32(c)(3)(A) as amended by 
     the provision, and sec. 21(e)(5).
---------------------------------------------------------------------------
       Other provisions
       The Senate amendment retains the applicable present-law 
     requirements that a taxpayer identification number for a 
     child be provided on the taxpayer's return. For purposes of 
     the earned income credit, a qualifying child is required to 
     have a social security number that is valid for employment in 
     the United States (that is, the child must be a U.S. citizen, 
     permanent resident, or have a certain type of temporary 
     visa).
     Effect of Senate amendment on particular tax benefits
       Dependency exemption
       For purposes of the dependency exemption, the Senate 
     amendment defines a dependent as a qualifying child or a 
     qualifying relative. The qualifying child test eliminates the 
     support test (other than in the case of a child who provides 
     more than one half of his or her own support), and replaces 
     it with the residency requirement described above. Further, 
     the present-law gross income test does not apply to a 
     qualifying child. The rules relating to multiple support 
     agreements do not apply with respect to qualifying children 
     because the support test does not apply to them. Special tie-
     breaking rules (described above) apply if more than one 
     taxpayer claims a qualifying child under the Senate 
     amendment. These tie-breaking rules do not apply if a child 
     constitutes a qualifying child

[[Page H7496]]

     with respect to multiple taxpayers, but only one eligible 
     taxpayer actually claims the qualifying child.
       The Senate amendment generally permits taxpayers to 
     continue to apply the present-law dependency exemption rules 
     to claim a dependency exemption for a qualifying relative who 
     does not satisfy the qualifying child definition. In such 
     cases, the present-law gross income and support tests, 
     including the special rules for multiple support agreements, 
     the special rules relating to income of handicapped 
     dependents, and the special support test in case of students, 
     continue to apply for purposes of the dependency exemption.
       As is the case under present law, a child who provides over 
     half of his or her own support is not considered a dependent 
     of another taxpayer under the Senate amendment. Further, an 
     individual shall not be treated as a dependent of any 
     taxpayer if such individual has filed a joint return with the 
     individual's spouse for the taxable year.
       Earned income credit
       In general, the Senate amendment adopts a definition of 
     qualifying child that is similar to the present-law 
     definition under the earned income credit. The present-law 
     requirement that a foster child and certain other children be 
     cared for as the taxpayer's own child is eliminated. The 
     present-law tie-breaker rule applicable to the earned income 
     credit is used for purposes of the uniform definition of 
     qualifying child. The Senate amendment retains the present-
     law requirement that the taxpayer's principal place of abode 
     must be in the United States.
       Child credit
       The present-law child credit generally uses the same 
     relationships to define an eligible child as the uniform 
     definition. The present-law requirement that a foster child 
     and certain other children be cared for as the taxpayer's own 
     child is eliminated. The age limitation under the Senate 
     amendment retains the present-law requirement that the child 
     must be under age 17, regardless of whether the child is 
     disabled.
       Dependent care credit
       The present-law requirement that a taxpayer maintain a 
     household in order to claim the dependent care credit is 
     eliminated. Thus, if other applicable requirements are 
     satisfied, a taxpayer may claim the dependent care credit 
     with respect to a child who lives with the taxpayer for more 
     than one half the year, even if the taxpayer does not provide 
     more than one half of the cost of maintaining the household.
       The rules for determining eligibility for the credit with 
     respect to an individual who is physically or mentally 
     incapable of caring for himself or herself are amended to 
     include a requirement that the taxpayer and the dependent 
     have the same principal place of abode for more than one half 
     the taxable year.
       Head of household filing status
       Under the Senate amendment, a taxpayer is eligible for head 
     of household filing status only with respect to a qualifying 
     child or an individual for whom the taxpayer is entitled to a 
     dependency exemption. Under the Senate amendment, a taxpayer 
     may claim head of household filing status if the taxpayer is 
     unmarried (and not a surviving spouse) and pays more than one 
     half of the cost of maintaining as his or her home a 
     household which is the principal place of abode for more than 
     one half the year of (1) a qualifying child, or (2) an 
     individual for whom the taxpayer may claim a dependency 
     exemption. As under present law, a taxpayer may claim head of 
     household status with respect to a parent for whom the 
     taxpayer may claim a dependency exemption and who does not 
     live with the taxpayer, if certain requirements are 
     satisfied.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2003.


                          conference agreement

       The conference agreement includes the Senate amendment 
     provision with the following modifications. The conference 
     agreement modifies the definition of adopted child, for 
     purposes of determining whether an adopted child is treated 
     as a child by blood, to mean an individual who is legally 
     adopted by the taxpayer, or an individual who is lawfully 
     placed with the taxpayer for legal adoption by the taxpayer.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2004.

                         IV. REVENUE PROVISIONS

                   A. Extension of Customs User Fees

     (Sec. 301 of the Senate amendment)


                              Present Law

       Section 13031 of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (COBRA) (Pub. L. No. 99-272), 
     authorized the Secretary of the Treasury to collect certain 
     service fees. Section 412 (Pub. L. No. 107-296) of the 
     Homeland Security Act of 2002 authorized the Secretary of the 
     Treasury to delegate such authority to the Secretary of 
     Homeland Security. Provided for under 19 U.S.C. 58c, these 
     fees include: processing fees for air and sea passengers, 
     commercial trucks, rail cars, private aircraft and vessels, 
     commercial vessels, dutiable mail packages, barges and bulk 
     carriers, merchandise, and Customs broker permits. COBRA was 
     amended on several occasions but most recently by Pub. L. No. 
     108-121, which extended authorization for the collection of 
     these fees through March 1, 2005.\69\
---------------------------------------------------------------------------
     \69\ Sec. 201; 117 Stat. 1335.
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       The Senate amendment extends the fees authorized under the 
     Consolidated Omnibus Budget Reconciliation Act of 1985 
     through March 31, 2010.
       Effective date.--The provision is effective on the date of 
     enactment.


                          Conference Agreement

       The conference agreement does not include the Senate 
     amendment provision.

                          V. OTHER PROVISIONS

                  A. Extension of the Research Credit

     (Sec. 301 of the conference agreement and sec. 41 of the 
         Code)


                              Present Law

       Section 41 provided a research tax credited equal to 20 
     percent of the amount by which a taxpayer's qualified 
     research expenses for a taxable year exceeded its base amount 
     for that year. Taxpayers were permitted to elect an 
     alternative incremental research credit regime in which the 
     taxpayer was assigned a three-tiered fixed-base percentage 
     and the credit rate likewise is reduced. Under the 
     alternative credit regime, a credit rate of 2.65 percent 
     applied to the extent that a taxpayer's current-year research 
     expenses exceed a base amount computed by using a fixed-base 
     percentage of one percent but do not exceed a base amount 
     computed by using a fixed-base percentage of 1.5 percent. A 
     credit rate of 3.2 percent applied to the extent that a 
     taxpayer's current-year research expenses exceeded a base 
     amount computed by using a fixed-base percentage of 1.5 
     percent but did not exceed a base amount computed by using a 
     fixed-base percentage of two percent. A credit rate of 3.75 
     percent applied to the extent that a taxpayer's current-year 
     research expenses exceeded a base amount computed by using a 
     fixed-base percentage of two percent.
       A 20-percent research tax credit also applied to the excess 
     of (1) 100 percent of corporate cash expenses (including 
     grants or contributions) paid for basic research conducted by 
     universities (and certain nonprofit scientific research 
     organizations) over (2) the sum of (a) the greater of two 
     minimum basic research floors plus (b) an amount reflecting 
     any decrease in nonresearch giving to universities by the 
     corporation as compared to such giving during a fixed-base 
     period, as adjusted for inflation.
       The research tax credit expired and generally does not 
     apply to amounts paid or incurred after June 30, 2004.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the present-law research 
     credit to qualified amounts paid or incurred before January 
     1, 2006.
       Effective date.--Effective for amounts paid or incurred 
     after June 30, 2004.

 B. Extension of Parity in the Application of Certain Limits to Mental 
                            Health Benefits

     (Sec. 302 of the conference agreement, sec. 9812 of the Code, 
         sec. 712 of ERISA, and section 2705 of the PHSA)


                              Present Law

       The Mental Health Parity Act of 1996 amended the Employee 
     Retirement Income Security Act of 1974 (``ERISA'') and the 
     Public Health Service Act (``PHSA'') to provide that group 
     health plans that provide both medical and surgical benefits 
     and mental health benefits cannot impose aggregate lifetime 
     or annual dollar limits on mental health benefits that are 
     not imposed on substantially all medical and surgical 
     benefits. The provisions of the Mental Health Parity Act were 
     initially effective with respect to plan years beginning on 
     or after January 1, 1998, for a temporary period. Since 
     enactment, the mental health parity requirements in ERISA and 
     the PHSA have been extended on more than one occasion and 
     currently are scheduled to expire with respect to benefits 
     for services furnished on or after December 31, 2004.
       The Taxpayer Relief Act of 1997 added to the Code the 
     requirements imposed under the Mental Health Parity Act, and 
     imposed an excise tax on group health plans that fail to meet 
     the requirements. The excise tax is equal to $100 per day 
     during the period of noncompliance and is generally imposed 
     on the employer sponsoring the plan if the plan fails to meet 
     the requirements. The maximum tax that can be imposed during 
     a taxable year cannot exceed the lesser of 10 percent of the 
     employer's group health plan expenses for the prior year or 
     $500,000. No tax is imposed if the Secretary determines that 
     the employer did not know, and exercising reasonable 
     diligence would not have known, that the failure existed.
       The Code provisions were initially effective with respect 
     to plan years beginning on or after January 1, 1998, for a 
     temporary period.\70\ The Code provisions have been extended 
     on a number of occasions, and expired

[[Page H7497]]

     with respect to benefits for services furnished after 
     December 31, 2003.
---------------------------------------------------------------------------
     \70\ The excise tax does not apply to benefits for services 
     furnished on or after September 30, 2001, and before January 
     10, 2002.
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the ERISA and PHSA 
     provisions relating to mental health parity to benefits for 
     services furnished before January 1, 2006. The conference 
     agreement also extends the Code provisions relating to mental 
     health parity to benefits for services furnished on or after 
     the date of enactment and before January 1, 2006. Thus, the 
     excise tax on failures to meet the requirements imposed by 
     the Code provisions does not apply after December 31, 2003, 
     and before the date of enactment.
       Effective date.--The provision is effective on the date of 
     enactment.

            C. Extension of the Work Opportunity Tax Credit

     (Sec. 303 of the conference agreement and sec. 51 of the 
         Code)


                              Present Law

     Work opportunity tax credit
       Targeted groups eligible for the credit
       The work opportunity tax credit is available on an elective 
     basis for employers hiring individuals from one or more of 
     eight targeted groups. The eight targeted groups are: (1) 
     certain families eligible to receive benefits under the 
     Temporary Assistance for Needy Families Program; (2) high-
     risk youth; (3) qualified ex-felons; (4) vocational 
     rehabilitation referrals; (5) qualified summer youth 
     employees; (6) qualified veterans; (7) families receiving 
     food stamps; and (8) persons receiving certain Supplemental 
     Security Income (SSI) benefits.
       A qualified ex-felon is an individual certified as: (1) 
     having been convicted of a felony under State or Federal law; 
     (2) being a member of an economically disadvantaged family; 
     and (3) having a hiring date within one year of release from 
     prison or conviction.
       Qualified wages
       Generally, qualified wages are defined as cash wages paid 
     by the employer to a member of a targeted group. The 
     employer's deduction for wages is reduced by the amount of 
     the credit.
       Calculation of the credit
       The credit equals 40 percent (25 percent for employment of 
     400 hours or less) of qualified first-year wages. Generally, 
     qualified first-year wages are qualified wages (not in excess 
     of $6,000) attributable to service rendered by a member of a 
     targeted group during the one-year period beginning with the 
     day the individual began work for the employer. Therefore, 
     the maximum credit per employee is $2,400 (40 percent of the 
     first $6,000 of qualified first-year wages). With respect to 
     qualified summer youth employees, the maximum credit is 
     $1,200 (40 percent of the first $3,000 of qualified first-
     year wages).
       Minimum employment period
       No credit is allowed for qualified wages paid to employees 
     who work less than 120 hours in the first year of employment.
     Coordination of the work opportunity tax credit and the 
         welfare-to-work tax credit
       An employer cannot claim the work opportunity tax credit 
     with respect to wages of any employee on which the employer 
     claims the welfare-to-work tax credit.
     Other rules
       The work opportunity tax credit is not allowed for wages 
     paid to a relative or dependent of the taxpayer. Similarly 
     wages paid to replacement workers during a strike or lockout 
     are not eligible for the work opportunity tax credit. Wages 
     paid to any employee during any period for which the employer 
     received on-the-job training program payments with respect to 
     that employee are not eligible for the work opportunity tax 
     credit. The work opportunity tax credit generally is not 
     allowed for wages paid to individuals who had previously been 
     employed by the employer. In addition, many other technical 
     rules apply.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the work opportunity tax 
     credit for two years (through December 31, 2005).
       Effective date.--The extension of the work opportunity tax 
     credit is effective for wages paid or incurred for 
     individuals beginning work after December 31, 2003.

             D. Extension of the Welfare-to-Work Tax Credit

     (Sec. 303 of the conference agreement and sec. 51A of the 
         Code)


                              Present Law

     Welfare-to-work tax credit
       Targeted group eligible for the credit
       The welfare-to-work tax credit is available on an elective 
     basis to employers of qualified long-term family assistance 
     recipients. Qualified long-term family assistance recipients 
     are: (1) members of a family that has received family 
     assistance for at least 18 consecutive months ending on the 
     hiring date; (2) members of a family that has received such 
     family assistance for a total of at least 18 months (whether 
     or not consecutive) after August 5, 1997 (the date of 
     enactment of the welfare-to-work tax credit) if they are 
     hired within 2 years after the date that the 18-month total 
     is reached; and (3) members of a family who are no longer 
     eligible for family assistance because of either Federal or 
     State time limits, if they are hired within 2 years after the 
     Federal or State time limits made the family ineligible for 
     family assistance.
       Qualified wages
       Qualified wages for purposes of the welfare-to-work tax 
     credit are defined more broadly than the work opportunity tax 
     credit. Unlike the definition of wages for the work 
     opportunity tax credit which includes simply cash wages, the 
     definition of wages for the welfare-to-work tax credit 
     includes cash wages paid to an employee plus amounts paid by 
     the employer for: (1) educational assistance excludable under 
     a section 127 program (or that would be excludable but for 
     the expiration of sec. 127); (2) health plan coverage for the 
     employee, but not more than the applicable premium defined 
     under section 4980B(f)(4); and (3) dependent care assistance 
     excludable under section 129. The employer's deduction for 
     wages is reduced by the amount of the credit.
       Calculation of the credit
       The welfare-to-work tax credit is available on an elective 
     basis to employers of qualified long-term family assistance 
     recipients during the first two years of employment. The 
     maximum credit is 35 percent of the first $10,000 of 
     qualified first-year wages and 50 percent of the first 
     $10,000 of qualified second-year wages. Qualified first-year 
     wages are defined as qualified wages (not in excess of 
     $10,000) attributable to service rendered by a member of the 
     targeted group during the one-year period beginning with the 
     day the individual began work for the employer. Qualified 
     second-year wages are defined as qualified wages (not in 
     excess of $10,000) attributable to service rendered by a 
     member of the targeted group during the one-year period 
     beginning immediately after the first year of that 
     individual's employment for the employer. The maximum credit 
     is $8,500 per qualified employee.
       Minimum employment period
       No credit is allowed for qualified wages paid to a member 
     of the targeted group unless they work at least 400 hours or 
     180 days in the first year of employment.
     Coordination of the work opportunity tax credit and the 
         welfare-to-work tax credit
       An employer cannot claim the work opportunity tax credit 
     with respect to wages of any employee on which the employer 
     claims the welfare-to-work tax credit.
     Other rules
       The welfare-to-work tax credit incorporates directly or by 
     reference many of these other rules contained on the work 
     opportunity tax credit.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the welfare-to-work tax 
     credit for two years (through December 31, 2005).
       Effective date.--The extension of the welfare-to-work tax 
     credit is effective for wages paid or incurred for 
     individuals beginning work after December 31, 2003.

                    E. Qualified Zone Academy Bonds

     (Sec. 304 of the conference agreement and sec. 1397E of the 
         Code)


                              Present Law

       Generally, ``qualified zone academy bonds'' are bonds 
     issued by a State or local government, provided that at least 
     95 percent of the proceeds are used for one or more qualified 
     purposes with respect to a ``qualified zone academy'' and 
     private entities have promised to contribute to the qualified 
     zone academy certain equipment, technical assistance or 
     training, employee services, or other property or services 
     with a value equal to at least 10 percent of the bond 
     proceeds. Qualified purposes with respect to any qualified 
     zone academy are (1) rehabilitating or repairing the public 
     school facility in which the academy is established, (2) 
     providing equipment for use at such academy, (3) developing 
     course materials for education at such academy, and (4) 
     training teachers and other school personnel. A total of $400 
     million of qualified zone academy bonds was authorized to be 
     issued annually in calendar years 1998 through 2003.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the authority to issue 
     qualified zone academy bonds through 2005.
       Effective date.--The authority to issue qualified zone 
     academy bonds is effective for obligations issued after 
     December 31, 2003.

F. Extension of Cover Over of Excise Tax on Distilled Spirits to Puerto 
                        Rico and Virgin Islands

     (Sec. 305 of the conference agreement and sec. 7652 of the 
         Code)


                              Present Law

       A $13.50 per proof gallon (a proof gallon is a liquid 
     gallon consisting of 50 percent alcohol) excise tax is 
     imposed on distilled spirits

[[Page H7498]]

     produced in or imported into the United States.
       The Code provides for cover over (payment) to Puerto Rico 
     and the Virgin Islands of the excise tax imposed on rum 
     imported into the United States, without regard to the 
     country of origin. The amount of the cover over is limited 
     under section 7652(f) to $10.50 per proof gallon ($13.25 per 
     proof gallon during the period July 1, 1999 through December 
     31, 2003).
       Thus, tax amounts attributable to rum produced in Puerto 
     Rico are covered over to Puerto Rico. Tax amounts 
     attributable to rum produced in the Virgin Islands are 
     covered over to the Virgin Islands. Tax amounts attributable 
     to rum produced in neither Puerto Rico nor the Virgin Islands 
     are divided and covered over to the two possessions under a 
     formula. All of the amounts covered over are subject to the 
     limitation.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement temporarily suspends the $10.50 
     per proof gallon limitation on the amount of excise taxes on 
     rum covered over to Puerto Rico and the Virgin Islands. Under 
     the conference agreement, the cover over amount of $13.25 per 
     proof gallon is extended for rum brought into the United 
     States after December 31, 2003 and before January 1, 2006. 
     After December 31, 2005, the cover over amount reverts to 
     $10.50 per proof gallon.
       Effective date.--The provision is effective for articles 
     brought into the United States after December 31, 2003.

 G. Charitable Contributions of Computer Technology and Equipment Used 
                        for Educational Purposes

     (Sec. 306 of the conference agreement and sec. 170 of the 
         Code)


                              Present Law

       A deduction by a corporation for charitable contributions 
     of computer technology and equipment generally is limited to 
     the corporation's basis in the property. However, certain 
     corporations may claim a deduction in excess of basis for a 
     qualified computer contribution. Such enhanced deduction for 
     qualified computer contributions expired for contributions 
     made during any taxable year beginning after December 31, 
     2003.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the enhanced deduction for 
     qualified computer contributions to contributions made during 
     any taxable year beginning before January 1, 2006.
       Effective date.--Taxable years beginning after December 31, 
     2003.

    H. Certain Expenses of Elementary and Secondary School Teachers

     (Sec. 307 of the conference agreement and sec. 62 of the 
         Code)


                              Present Law

       In general, ordinary and necessary business expenses are 
     deductible (sec. 162). However, in general, unreimbursed 
     employee business expenses are deductible only as an itemized 
     deduction and only to the extent that the individual's total 
     miscellaneous deductions (including employee business 
     expenses) exceed two percent of adjusted gross income. An 
     individual's otherwise allowable itemized deductions may be 
     further limited by the overall limitation on itemized 
     deductions, which reduces itemized deductions for taxpayers 
     with adjusted gross income in excess of $142,700 (for 2004). 
     In addition, miscellaneous itemized deductions are not 
     allowable under the alternative minimum tax.
       Certain expenses of eligible educators are allowed an 
     above-the-line deduction. Specifically, for taxable years 
     beginning in 2002 and 2003, an above-the-line deduction is 
     allowed for up to $250 annually of expenses paid or incurred 
     by an eligible educator for books, supplies (other than 
     nonathletic supplies for courses of instruction in health or 
     physical education), computer equipment (including related 
     software and services) and other equipment, and supplementary 
     materials used by the eligible educator in the classroom. To 
     be eligible for this deduction, the expenses must be 
     otherwise deductible under 162 as a trade or business 
     expense. A deduction is allowed only to the extent the amount 
     of expenses exceeds the amount excludable from income under 
     section 135 (relating to education savings bonds), 529(c)(1) 
     (relating to qualified tuition programs), and section 
     530(d)(2) (relating to Coverdell education savings accounts).
       An eligible educator is a kindergarten through grade 12 
     teacher, instructor, counselor, principal, or aide in a 
     school for at least 900 hours during a school year. A school 
     means any school which provides elementary education or 
     secondary education, as determined under State law.
       The above-the-line deduction for eligible educators is not 
     allowed for taxable years beginning after December 31, 2003.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the above-the-line 
     deduction for two years, i.e., for taxable years beginning in 
     2004 and 2005.
       Effective date.--The conference agreement is effective for 
     taxable years beginning in 2004 and 2005.

            I. Expensing of Environmental Remediation Costs

     (Sec. 308 of the conference agreement and sec. 198 of the 
         Code)


                              Present Law

       Taxpayers can elect to treat certain environmental 
     remediation expenditures that would otherwise be chargeable 
     to capital account as deductible in the year paid or incurred 
     (sec. 198). The deduction applies for both regular and 
     alternative minimum tax purposes. The expenditure must be 
     incurred in connection with the abatement or control of 
     hazardous substances at a qualified contaminated site.
       A ``qualified contaminated site'' generally is any property 
     that (1) is held for use in a trade or business, for the 
     production of income, or as inventory and (2) is at a site on 
     which there has been a release (or threat of release) or 
     disposal of certain hazardous substances as certified by the 
     appropriate State environmental agency (so called 
     ``brownfields''). However, sites that are identified on the 
     national priorities list under the Comprehensive 
     Environmental Response, Compensation, and Liability Act of 
     1980 cannot qualify as targeted areas.
       Eligible expenditures were those paid or incurred before 
     January 1, 2004.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the present law expensing 
     provision for two years (through December 31, 2005).
       Effective date.--Effective for expenses paid or incurred 
     after December 31, 2003.

                  J. New York Liberty Zone Provisions

     (Sec. 309 of the conference agreement and sec. 1400L of the 
         Code)


                              Present Law

       An aggregate of $8 billion in tax-exempt private activity 
     bonds is authorized for the purpose of financing the 
     construction and repair of infrastructure in New York City 
     (``Liberty Zone bonds''). The bonds must be issued before 
     January 1, 2005.
       Certain bonds used to fund facilities located in New York 
     City are permitted one additional advance refunding before 
     January 1, 2005 (``advance refunding bonds''). In addition to 
     satisfying other requirements, the bond refunded must be (1) 
     a State or local bond that is a general obligation of New 
     York City, (2) a State or local bond issued by the New York 
     Municipal Water Finance Authority or Metropolitan 
     Transportation Authority of the City of New York, or (3) a 
     qualified 501(c)(3) bond which is a qualified hospital bond 
     issued by or on behalf of the State of New York or the City 
     of New York. The maximum amount of advance refunding bonds is 
     $9 billion.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends authority to issue Liberty 
     Zone bonds through December 31, 2009. The conference 
     agreement also extends the additional advance refunding 
     authority through December 31, 2005. In addition, the 
     conference agreement provides that bonds of the Municipal 
     Assistance Corporation are eligible for advance refunding.
       The purpose in extending the New York Liberty Bond program 
     through December 31, 2009, is to facilitate the full 
     designation of New York Liberty Bond authority. Congress 
     could consider a further extension of the New York Liberty 
     Bond program beyond 2009 if circumstances justify such an 
     extension.
       Effective date.--The Liberty Zone bonds and general 
     additional advance refunding provisions are effective on the 
     date of enactment. The provision relating to the advance 
     refunding of bonds of the Municipal Assistance Corporation is 
     effective as if included in the amendments made by section 
     301 of the Job Creation and Worker Assistance Act of 2002.

      K. Tax Incentives for Investment in the District of Columbia

     (Sec. 310 of the conference agreement and secs. 1400, 1400A, 
         1400B, 1400C, and 1400F of the Code)


                              Present Law

       Certain economically depressed census tracts within the 
     District of Columbia are designated as the District of 
     Columbia Enterprise Zone (the ``D.C. Zone'') within which 
     businesses and individual residents are eligible for special 
     tax incentives. The designation expired on December 31, 2003.
       First-time homebuyers of a principal residence in the 
     District of Columbia are eligible for a nonrefundable tax 
     credit of up to $5,000 of the amount of the purchase price. 
     The credit expired for property purchased after December 31, 
     2003.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the D.C. Zone designation 
     and related tax incentives for two years. The conference 
     agreement extends the first-time homebuyer credit for two 
     years.

[[Page H7499]]

       Effective date.--The extension of the D.C. Zone designation 
     and related tax incentives is generally effective on January 
     1, 2004, except that the provision relating to tax-exempt 
     financing incentives applies to obligations issued after the 
     date of enactment.

                  L. Combined Employment Tax Reporting

     (Sec. 311 of the conference agreement and sec. 6103 of the 
         Code)


                              Present Law

       Traditionally, Federal tax forms are filed with the Federal 
     government and State tax forms are filed with individual 
     States. This necessitates duplication of items common to both 
     returns.
       The Taxpayer Relief Act of 1997 permitted implementation of 
     a limited demonstration project to assess the feasibility and 
     desirability of expanding combined Federal and State 
     reporting. First, it was limited to the sharing of 
     information between the State of Montana and the IRS. Second, 
     it was limited to employment tax reporting. Third, it was 
     limited to disclosure of the name, address, TIN, and 
     signature of the taxpayer, which is information common to 
     both the Montana and Federal portions of the combined 
     form. Fourth, it was limited to a period of five years 
     (expiring August 5, 2002).


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement provides authority through 
     December 31, 2005, for any State to participate in a combined 
     Federal and State employment tax reporting program, provided 
     that the program has been approved by the Secretary.
       Effective date.--The provision takes effect on the date of 
     enactment.

   M. Nonrefundable Personal Credits Allowed Against the Alternative 
                              Minimum Tax

     (Sec. 312 of the conference agreement and sec. 26 of the 
         Code)


                              Present Law

       Present law provides for certain nonrefundable personal tax 
     credits (i.e., the dependent care credit, the credit for the 
     elderly and disabled, the adoption credit, the child tax 
     credit,\71\ the credit for interest on certain home 
     mortgages, the HOPE Scholarship and Lifetime Learning 
     credits, the credit for savers, and the D.C. first-time 
     homebuyer credit).
---------------------------------------------------------------------------
     \71\ A portion of the child credit may be refundable.
---------------------------------------------------------------------------
       For taxable years beginning in 2003, all the nonrefundable 
     personal credits are allowed to the extent of the full amount 
     of the individual's regular tax and alternative minimum tax.
       For taxable years beginning after 2003, the credits (other 
     than the adoption credit, child credit and credit for savers) 
     are allowed only to the extent that the individual's regular 
     income tax liability exceeds the individual's tentative 
     minimum tax, determined without regard to the minimum tax 
     foreign tax credit. The adoption credit, child credit, and 
     IRA credit are allowed to the full extent of the individual's 
     regular tax and alternative minimum tax.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the provision allowing the 
     nonrefundable personal credits to the full extent of the 
     regular tax and the alternative minimum tax for taxable years 
     beginning in 2004 and 2005.
       Effective date.--Taxable years beginning after December 31, 
     2003.

N. Extension of Credit for Electricity Produced From Certain Renewable 
                               Resources

     (Sec. 313 of the conference agreement and sec. 45 of the 
         Code)


                              Present Law

       An income tax credit is allowed for the production of 
     electricity from either qualified wind energy, qualified 
     ``closed-loop'' biomass, or qualified poultry waste 
     facilities. The amount of the credit is 1.8 cents per 
     kilowatt hour for 2004. The credit amount is indexed for 
     inflation.
       The credit applies to electricity produced by a wind energy 
     facility placed in service after December 31, 1993, and 
     before January 1, 2004, to electricity produced by a closed-
     loop biomass facility placed in service after December 31, 
     1992, and before January 1, 2004, and to a poultry waste 
     facility placed in service after December 31, 1999, and 
     before January 1, 2004. The credit is allowable for 
     production during the 10-year period after a facility is 
     originally placed in service.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the placed in service date 
     for wind energy facilities, ``closed-loop'' biomass 
     facilities, and poultry waste facilities to include 
     facilities placed in service prior to January 1, 2006.
       Effective date.--Effective for facilities placed in service 
     after December 31, 2003.

  O. Suspension of 100-Percent-of-Net-Income Limitation on Percentage 
             Depletion for Oil and Gas From Marginal Wells

     (Sec. 314 of the conference agreement and sec. 613A of the 
         Code)


                              Present Law

       Percentage depletion method for oil and gas properties 
     applies to independent producers and royalty owners. 
     Generally, under the percentage depletion method, 15 percent 
     of the taxpayer's gross income from an oil- or gas-producing 
     property is allowed as a deduction in each taxable year. The 
     amount deducted generally may not exceed 100 percent of the 
     net income from the property in any year (the ``net-income 
     limitation''). The 100-percent net-income limitation for 
     marginal wells is suspended for taxable years beginning after 
     December 31, 1997, and before January 1, 2004.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the suspension of the net-
     income limitation for marginal wells for taxable years 
     beginning before January 1, 2006.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2003.

                    P. Indian Employment Tax Credit

     (Sec. 315 of the conference agreement and sec. 45A of the 
         Code)


                              Present Law

       In general, a credit against income tax liability is 
     allowed to employers for the first $20,000 of qualified wages 
     and qualified employee health insurance costs paid or 
     incurred by the employer with respect to certain employees 
     (sec. 45A). The credit is equal to 20 percent of the excess 
     of eligible employee qualified wages and health insurance 
     costs during the current year over the amount of such wages 
     and costs incurred by the employer during 1993. The credit is 
     an incremental credit, such that an employer's current-year 
     qualified wages and qualified employee health insurance costs 
     (up to $20,000 per employee) are eligible for the credit only 
     to the extent that the sum of such costs exceeds the sum of 
     comparable costs paid during 1993. No deduction is allowed 
     for the portion of the wages equal to the amount of the 
     credit.
       The wage credit is available for wages paid or incurred on 
     or after January 1, 1994, in taxable years that begin before 
     January 1, 2005.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the Indian employment 
     credit incentive for one year (to taxable years beginning 
     before January 1, 2006).
       Effective date.--The provision is effective on the date of 
     enactment.

      Q. Accelerated Depreciation for Business Property on Indian 
                              Reservations

     (Sec. 316 of the conference agreement and sec. 168(j) of the 
         Code)


                              Present Law

       With respect to certain property used in connection with 
     the conduct of a trade or business within an Indian 
     reservation, depreciation deductions under section 168(j) 
     will be determined using the following recovery periods:

3-year property.......................................................2
5-year property.......................................................3
7-year property.......................................................4
10-year property......................................................6
15-year property......................................................9
20-year property.....................................................12
Nonresidential real property.........................................22

       ``Qualified Indian reservation property'' eligible for 
     accelerated depreciation includes property which is (1) used 
     by the taxpayer predominantly in the active conduct of a 
     trade or business within an Indian reservation, (2) not used 
     or located outside the reservation on a regular basis, (3) 
     not acquired (directly or indirectly) by the taxpayer from a 
     person who is related to the taxpayer (within the meaning of 
     section 465(b)(3)(C)), and (4) described in the recovery-
     period table above. In addition, property is not ``qualified 
     Indian reservation property'' if it is placed in service for 
     purposes of conducting gaming activities. Certain ``qualified 
     infrastructure property'' may be eligible for the accelerated 
     depreciation even if located outside an Indian reservation, 
     provided that the purpose of such property is to connect with 
     qualified infrastructure property located within the 
     reservation (e.g., roads, power lines, water systems, 
     railroad spurs, and communications facilities).
       The depreciation deduction allowed for regular tax purposes 
     is also allowed for purposes of the alternative minimum tax. 
     The accelerated depreciation for Indian reservations is 
     available with respect to property placed in service on or 
     after January 1, 1994, and before January 1, 2005.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.

[[Page H7500]]

                          Conference Agreement

       The conference agreement extends eligibility for the 
     special depreciation periods to property placed in service 
     before January 1, 2006.
       Effective date.--The provision is effective on the date of 
     enactment.

     R. Disclosure of Return Information Relating to Student Loans

     (Sec. 317 of the conference agreement and sec. 6103(l)(13) of 
         the Code)


                              Present Law

       An exception to the general rule prohibiting disclosure is 
     provided for disclosure to the Department of Education (but 
     not to contractors thereof) to establish an appropriate 
     repayment amount for an applicable student loan. The 
     Department of Education disclosure authority is scheduled to 
     expire after December 31, 2004.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the disclosure authority 
     relating to the disclosure of return information to carry out 
     income-contingent repayment of student loans. Under the 
     conference agreement, no disclosures can be made after 
     December 31, 2005.
       Effective date.--The provision is effective on the date of 
     enactment.

               S. Credit for Qualified Electric Vehicles

     (Sec. 318 of the conference agreement and sec. 30 of the 
         Code)


                              Present Law

       A 10-percent tax credit is provided for the cost of a 
     qualified electric vehicle, up to a maximum credit of $4,000. 
     A qualified electric vehicle generally is a motor vehicle 
     that is powered primarily by an electric motor drawing 
     current from rechargeable batteries, fuel cells, or other 
     portable sources of electrical current. The full amount of 
     the credit is available for purchases prior to 2004. The 
     credit phases down in the years 2004 through 2006, and is 
     unavailable for purchases after December 31, 2006. Under the 
     phase down, the credit for 2004 is 75 percent of the 
     otherwise allowable credit.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       Repeals the phase down of the allowable tax credit for 
     electric vehicles in 2004 and 2005. Thus, a taxpayer who 
     purchases a qualifying vehicle may claim 100 percent of the 
     otherwise allowable credit for vehicles purchased in 2004 and 
     2005. For vehicles purchased in 2006 the credit remains at 25 
     percent of the otherwise allowable amount as under present 
     law.
       Effective date.--Effective for vehicles placed in service 
     after December 31, 2003.

         T. Deduction for Qualified Clean-Fuel Vehicle Property

     (Sec. 319 of the conference agreement and sec. 179A of the 
         Code)


                              Present Law

       Certain costs of qualified clean-fuel vehicle may be 
     expensed and deducted when such property is placed in 
     service. Qualified clean-fuel vehicle property includes motor 
     vehicles that use certain clean-burning fuels (natural gas, 
     liquefied natural gas, liquefied petroleum gas, hydrogen, 
     electricity and any other fuel at least 85 percent of which 
     is methanol, ethanol, any other alcohol or ether). The 
     maximum amount of the deduction is $50,000 for a truck or van 
     with a gross vehicle weight over 26,000 pounds or a bus with 
     seating capacities of at least 20 adults; $5,000 in the case 
     of a truck or van with a gross vehicle weight between 10,000 
     and 26,000 pounds; and $2,000 in the case of any other motor 
     vehicle. The deduction phases down in the years 2004 through 
     2006, and is unavailable for purchases after December 31, 
     2006. Under the phase down, the deduction permitted for 2004 
     is 75 percent of the otherwise allowable amount.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          conference agreement

       Repeals the phase down of the allowable deduction for 
     clean-fuel vehicles in 2004 and 2005. Thus, a taxpayer who 
     purchases a qualifying vehicle may claim 100 percent of the 
     otherwise allowable deduction for vehicles purchased in 2004 
     and 2005. For vehicles purchased in 2006 the deduction 
     remains at 25 percent of the otherwise allowable amount as 
     under present law.
       Effective date.--Effective for vehicles placed in service 
     after December 31, 2003.

            U. Disclosures Relating to Terrorist Activities

     (Sec. 320 of the conference agreement and sec. 6103 of the 
         Code)


                              present law

       In connection with terrorist activities, the IRS was 
     permitted to disclose return information, other than taxpayer 
     return information, to officers and employees of Federal law 
     enforcement upon a written request. The Code required the 
     request to be made by the head of the Federal law enforcement 
     agency (or his delegate) involved in the response to or 
     investigation of terrorist incidents, threats, or activities, 
     and set forth the specific reason or reasons why such 
     disclosure may be relevant to a terrorist incident, threat, 
     or activity. Disclosure of the information was permitted to 
     officers and employees of the Federal law enforcement agency 
     who were personally and directly involved in the response to 
     or investigation of terrorist incidents, threats, or 
     activities. The information was to be used by such officers 
     and employees solely for such response or investigation.\72\
---------------------------------------------------------------------------
     \72\ Sec. 6103(i)(7)(A).
---------------------------------------------------------------------------
       The Code permitted the head of the Federal law enforcement 
     agency to redisclose the information to officers and 
     employees of State and local law enforcement personally and 
     directly engaged in the response to or investigation of the 
     terrorist incident, threat, or activity. The State or local 
     law enforcement agency was required to be part of an 
     investigative or response team with the Federal law 
     enforcement agency for these disclosures to be made.\73\
---------------------------------------------------------------------------
     \73\ Sec. 6103(i)(7)(A)(ii).
---------------------------------------------------------------------------
       Return information includes a taxpayer's identity.\74\ If a 
     taxpayer's identity is taken from a return or other 
     information filed with or furnished to the IRS by or on 
     behalf of the taxpayer, it is taxpayer return information. 
     Since taxpayer return information was not covered by this 
     disclosure authorization, taxpayer identity so obtained could 
     not be disclosed under this authority and thus associated 
     with the other information being provided.
---------------------------------------------------------------------------
     \74\ Sec. 6103(b)(2)(A).
---------------------------------------------------------------------------
       The Code also allowed the IRS to disclose return 
     information (other than taxpayer return information) upon the 
     written request of an officer or employee of the Department 
     of Justice or Treasury who is appointed by the President with 
     the advice and consent of the Senate, or who is the Director 
     of the U.S. Secret Service, if such individual is responsible 
     for the collection and analysis of intelligence and 
     counterintelligence concerning any terrorist incident, 
     threat, or activity.\75\ Taxpayer identity information for 
     this purpose was not considered taxpayer return information. 
     Such written request was required to set forth the specific 
     reason or reasons why such disclosure may be relevant to a 
     terrorist incident, threat, or activity. Disclosures under 
     this authority were permitted to be made to those officers 
     and employees of the Department of Justice, Treasury, and 
     Federal intelligence agencies who were personally and 
     directly engaged in the collection or analysis of 
     intelligence and counterintelligence information or 
     investigation concerning any terrorist incident, threat, or 
     activity. Such disclosures were permitted solely for the use 
     of such officers and employees in such investigation, 
     collection, or analysis.
---------------------------------------------------------------------------
     \75\ Sec. 6103(i)(7)(B).
---------------------------------------------------------------------------
       The IRS, on its own initiative, was permitted to disclose 
     in writing return information (other than taxpayer return 
     information) that may be related to a terrorist incident, 
     threat, or activity to the extent necessary to apprise the 
     head of the appropriate investigating Federal law enforcement 
     agency.\76\ Taxpayer identity information for this purpose 
     was not considered taxpayer return information. The head of 
     the agency was permitted to redisclose such information to 
     officers and employees of such agency to the extent necessary 
     to investigate or respond to the terrorist incident, threat, 
     or activity.
---------------------------------------------------------------------------
     \76\ Sec. 6103(i)(3)(C).
---------------------------------------------------------------------------
       If taxpayer return information was sought, the disclosure 
     was required to be made pursuant to the ex parte order of a 
     Federal district court judge or magistrate.
       No disclosures may be made under these provisions after 
     December 31, 2003.


                               house bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the disclosure authority 
     relating to terrorist activities. Under the conference 
     agreement, no disclosures can be made after December 31, 
     2005.
       The conference agreement also makes a technical change to 
     clarify that a taxpayer's identity is not treated as taxpayer 
     return information for purposes of disclosures to law 
     enforcement agencies regarding terrorist activities.
       Effective date.--The provision extending authority is 
     effective for disclosures made on or after the date of 
     enactment. The technical change is effective as if included 
     in section 201 of the Victims of Terrorism Tax Relief Act of 
     2001.

       V. Extension of Archer Medical Savings Accounts (``MSAs'')

     (Sec. 322 of the conference agreement and sec. 220 of the 
         Code)


                              Present Law

     In general
       Within limits, contributions to an Archer MSA are 
     deductible in determining adjusted gross income if made by an 
     eligible individual and are excludable from gross income and 
     wages for employment tax purposes if made by the employer of 
     an eligible individual. Earnings on amounts in an Archer MSA 
     are not currently taxable. Distributions from an Archer MSA 
     for medical expenses are not includible in gross income.

[[Page H7501]]

     Distributions not used for medical expenses are includible in 
     gross income. In addition, distributions not used for medical 
     expenses are subject to an additional 15-percent tax unless 
     the distribution is made after age 65, death, or disability.
     Eligible individuals
       Archer MSAs are available to employees covered under an 
     employer-sponsored high deductible plan of a small employer 
     and self-employed individuals covered under a high deductible 
     health plan.\77\ An employer is a small employer if it 
     employed, on average, no more than 50 employees on business 
     days during either the preceding or the second preceding 
     year. An individual is not eligible for an Archer MSA if he 
     or she is covered under any other health plan in addition to 
     the high deductible plan.
---------------------------------------------------------------------------
     \77\ Self-employed individuals include more than two-percent 
     shareholders of S corporations who are treated as partners 
     for purposes of fringe benefit rules pursuant to section 
     1372.
---------------------------------------------------------------------------
     Tax treatment of and limits on contributions
       Individual contributions to an Archer MSA are deductible 
     (within limits) in determining adjusted gross income (i.e., 
     ``above-the-line''). In addition, employer contributions are 
     excludable from gross income and wages for employment tax 
     purposes (within the same limits), except that this exclusion 
     does not apply to contributions made through a cafeteria 
     plan. In the case of an employee, contributions can be made 
     to an Archer MSA either by the individual or by the 
     individual's employer.
       The maximum annual contribution that can be made to an 
     Archer MSA for a year is 65 percent of the deductible under 
     the high deductible plan in the case of individual coverage 
     and 75 percent of the deductible in the case of family 
     coverage.
     Definition of high deductible plan
       A high deductible plan is a health plan with an annual 
     deductible of at least $1,700 and no more than $2,600 in the 
     case of individual coverage and at least $3,450 and no more 
     than $5,150 in the case of family coverage. In addition, the 
     maximum out-of-pocket expenses with respect to allowed costs 
     (including the deductible) must be no more than $3,450 in the 
     case of individual coverage and no more than $6,300 in the 
     case of family coverage.\78\ A plan does not fail to qualify 
     as a high deductible plan merely because it does not have a 
     deductible for preventive care as required by State law. A 
     plan does not qualify as a high deductible health plan if 
     substantially all of the coverage under the plan is for 
     permitted coverage (as described above). In the case of a 
     self-insured plan, the plan must in fact be insurance (e.g., 
     there must be appropriate risk shifting) and not merely a 
     reimbursement arrangement.
---------------------------------------------------------------------------
     \78\ These dollar amounts are for 2004. These amounts are 
     indexed for inflation, rounded to the nearest $50.
---------------------------------------------------------------------------
     Cap on taxpayers utilizing Archer MSAs and expiration of 
         pilot program
       The number of taxpayers benefiting annually from an Archer 
     MSA contribution is limited to a threshold level (generally 
     750,000 taxpayers). The number of Archer MSAs established has 
     not exceeded the threshold level.
       After 2003, no new contributions may be made to Archer MSAs 
     except by or on behalf of individuals who previously had 
     Archer MSA contributions and employees who are employed by a 
     participating employer.
       Trustees of Archer MSAs are generally required to make 
     reports to the Treasury by August 1 regarding Archer MSAs 
     established by July 1 of that year. If any year is a cut-off 
     year, the Secretary is required to make and publish such 
     determination by October 1 of such year.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends Archer MSAs through 
     December 31, 2005. The conference agreement also provides 
     that the reports required by MSA trustees for 2004 are 
     treated as timely if made within 90 days after the date of 
     enactment. In addition, the determination of whether 2004 is 
     a cut-off year and the publication of such determination is 
     to be made within 120 days of the date of enactment. If 2004 
     is a cut-off year, the cut-off date will be the last day of 
     such 120-day period.
       Effective date.--The provision is generally effective on 
     January 1, 2004. The provisions relating to reports and the 
     determination by the Secretary are effective on the date of 
     enactment.

  W. Extension of Joint Review of Strategic Plans and Budget for the 
                        Internal Revenue Service

     (Sec. 321 of the conference agreement and secs. 8021 and 8022 
         of the Code)


                              Present Law

       The Code required the Joint Committee on Taxation to 
     conduct a joint review \79\ of the strategic plans and budget 
     of the IRS from 1999 through 2003.\80\ The Code also required 
     the Joint Committee to provide an annual report \81\ from 
     1999 through 2003 with respect to:
---------------------------------------------------------------------------
     \79\ The joint review was required to include two members of 
     the majority and one member of the minority of the Senate 
     Committees on Finance, Appropriations, and Governmental 
     Affairs, and of the House Committees on Ways and Means, 
     Appropriations, and Government Reform and Oversight.
     \80\ Sec. 8021(f).
     \81\ Sec. 8022(3)(C).
---------------------------------------------------------------------------
       Strategic and business plans for the IRS;
       Progress of the IRS in meeting its objectives;
       The budget for the IRS and whether it supports its 
     objectives;
       Progress of the IRS in improving taxpayer service and 
     compliance;
       Progress of the IRS on technology modernization; and
       The annual filing season.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement requires that the Joint Committee 
     conduct a joint review before June 1, 2005. The conference 
     agreement also requires that the Joint Committee provide an 
     annual report with respect to such joint review, and 
     specifies that the content of the annual report is the 
     matters addressed in the joint review.\82\
---------------------------------------------------------------------------
     \82\ Accordingly, the provision deletes the specific list of 
     matters required to be covered in the annual report.
---------------------------------------------------------------------------
       Effective date.--The conference agreement is effective on 
     the date of enactment.

                     VI. TAX TECHNICAL CORRECTIONS

     (Secs. 401-408 of the conference agreement)


                              Present Law

       Certain recently enacted tax legislation needs technical, 
     conforming, and clerical amendments in order properly to 
     carry out the intention of the Congress.\83\
---------------------------------------------------------------------------
     \83\ Tax technical corrections legislation, the ``Tax 
     Technical Corrections Act of 2003,'' was introduced in the 
     House of Representatives (H.R. 3654) on December 8, 2003, and 
     in the Senate (S. 1984) on December 9, 2003.
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement includes technical corrections to 
     recently enacted tax legislation. Except as otherwise 
     provided, the amendments made by the technical corrections 
     contained in the conference agreement take effect as if 
     included in the original legislation to which each amendment 
     relates. The following is a description of the provisions 
     contained in the technical corrections title:
     Amendments related to the Medicare Prescription Drug, 
         Improvement, and Modernization Act of 2003
       Additional tax relating to health savings accounts.--Under 
     present law, section 26(b) provides that ``regular tax 
     liability'' does not include certain ``additional taxes'' and 
     similar amounts. Under present law, regular tax liability 
     does not include the additional tax on Archer MSA 
     distributions not used for qualified medical expenses (sec. 
     220(f)(4)). The provision adds to the list of such amounts 
     the additional tax on distributions not used for qualified 
     medical expenses (sec. 223(f)(4)) under the rules relating to 
     health savings accounts.
       Health coverage tax credit.--Under present law, section 
     35(g)(3) provides that any amount distributed from an Archer 
     MSA will not be taken into account for purposes of 
     determining the amount of health coverage tax credit 
     (``HCTC'') an individual is eligible to receive. Under the 
     provision, section 35(g)(3) is amended to provide that 
     amounts distributed from health savings accounts are not to 
     be taken into account for purposes of determining the amount 
     of HCTC an individual is entitled to receive.
     Amendments related to the Jobs and Growth Tax Relief 
         Reconciliation Act of 2003
       Dividends taxed at capital gain rates.--Section 302 of the 
     Jobs and Growth Tax Relief Reconciliation Act of 2003 
     (``JGTRRA'') generally provides that qualified dividend 
     income of taxpayers other than corporations is taxed at the 
     same tax rates as the net capital gain. The conference 
     agreement makes the following amendments to the provisions 
     adopted by that section: \84\
---------------------------------------------------------------------------
     \84\ IR-2004-22 (Feb. 19, 2004) announced that the IRS agreed 
     to make the technical correction provisions relating to 
     dividends contained in the Technical Corrections Act of 2003, 
     as introduced, available to taxpayers in advance of their 
     passage.
---------------------------------------------------------------------------
       The provision clarifies that the determination of net 
     capital gain, for purposes of determining the amount taxed at 
     the 25-percent rate (section 1(h)(1)(D)(i)), is made without 
     regard to qualified dividend income.
       Under present law, the deduction for estate taxes paid on 
     gain that is income in respect of a decedent reduces the 
     amount of gain otherwise taken into account in computing the 
     amount eligible for the lower tax rates on net capital gain 
     (sec. 691(c)(4)). Since it is not entirely clear under 
     present law whether this provision also applies to qualified 
     dividends eligible for the lower tax rates on net capital 
     gain, the conference agreement clarifies that the provision 
     does so apply.
       The provision clarifies that the extraordinary dividend 
     rule applies to trusts and estates as well as individuals.
       The provision rewrites portions of the provisions relating 
     to the treatment of dividends received from a regulated 
     investment company (``RIC'') or a real estate investment 
     trust (``REIT'') to set forth the rules directly

[[Page H7502]]

     rather than be reference to rules applicable to dividends 
     received by corporate shareholders.
       The provision provides that all distributions by a RIC or 
     REIT of the earnings and profits from C corporation years can 
     be treated as qualifying dividends eligible for the lower 
     rate.
       The provision extends the 60-day period for notifying 
     shareholders of the amount of the qualified dividend income 
     distributed by a RIC or REIT for taxable years ending on or 
     before November 30, 2003, to the date the 1099-DIV for 2003 
     is required.
       The provision provides that, in the case of partnerships, S 
     corporations, common trust funds, trusts, and estates, 
     section 302 of JGTRRA applies to taxable years ending after 
     December 31, 2002, except that dividends received by the 
     entity prior to January 1, 2003, are not treated as qualified 
     dividend income. JGTRRA provided a similar rule in the case 
     of RICs and REITs.
       Satisfaction of certain holding period requirements if 
     stock is acquired on the day before ex-dividend date.--Under 
     several similar holding period requirements relating to the 
     tax consequences of receiving dividends, a taxpayer who 
     acquires stock the day before the ex-dividend date cannot 
     satisfy these holding period requirements with respect to the 
     dividend. The conference agreement modifies the stock holding 
     period requirements to permit taxpayers to satisfy the 
     requirements when they acquire stock on the day before the 
     ex-dividend date of the stock. Specifically, the conference 
     agreement modifies the holding period requirement for the 
     dividends-received deduction under section 246(c) (as 
     modified by section 1015 of the Taxpayer Relief Act of 1997) 
     by changing from 90 days to 91 days (and from 180 days to 181 
     days in the case of certain dividends on preferred stock) the 
     period within which a taxpayer may satisfy the requirement. 
     In addition, the conference agreement modifies the holding 
     period requirement for foreign tax credits with respect to 
     dividends under section 901(k) (enacted in section 1053 of 
     the Taxpayer Relief Act of 1997) by changing from 30 days to 
     31 days (and from 90 days to 91 days in the case of certain 
     dividends on preferred stock) the period within which a 
     taxpayer may satisfy the requirement. The conference 
     agreement modifies the holding period requirement for 
     dividends to be taxed at the tax rates applicable to net 
     capital gain under section 1(h)(11) (enacted in section 302 
     of JGTRRA) by changing from 120 days to 121 days (and from 
     180 days to 181 days in the case of certain dividends on 
     preferred stock) the period within which a taxpayer may 
     satisfy the requirement.
     Amendments related to the Job Creation and Worker Assistance 
         Act of 2002
       Bonus depreciation.--Section 101 of the Job Creation and 
     Worker Assistance Act of 2002 (``JCWA'') provides generally 
     for 30-percent additional first-year depreciation for 
     qualifying property. Qualifying property is defined to 
     include certain property subject to the capitalization rules 
     of section 263A by reason of having an estimated production 
     period exceeding 2 years or an estimated production period 
     exceeding 1 year and a cost exceeding $1 million (secs. 
     168(k)(2)(B)(i)(III) and 263A(f)(1)(B)(ii) or (iii)). An 
     unintended interpretation of this rule could preclude 
     property from qualifying for bonus depreciation if it meets 
     this description but is subject to the capitalization rules 
     of section 263A by reason of section 263A(f)(1)(B)(i) (having 
     a long useful life). The provision clarifies that qualifying 
     property includes such property that is subject to the 
     capitalization rules of section 263A and is described in the 
     provisions requiring an estimated production period exceeding 
     2 years or an estimated production period exceeding 1 year 
     and a cost exceeding $1 million.
       Section 101 of JCWA provides a binding contract rule in 
     determining property that qualifies for it. The requirements 
     that must be satisfied in order for property to qualify 
     include that (1) the original use of the property must 
     commence with the taxpayer on or after September 11, 2001, 
     (2) the taxpayer must purchase the property after September 
     10, 2001, and before September 11, 2004, and (3) no binding 
     written contract for the acquisition of the property is in 
     effect before September 11, 2001 (or, in the case of self-
     constructed property, manufacture, construction, or 
     production of the property does not begin before September 
     11, 2001). In addition, JCWA provides a special rule in the 
     case of certain leased property. In the case of any property 
     that is originally placed in service by a person and that is 
     sold to the taxpayer and leased back to such person by the 
     taxpayer within three months after the date that the property 
     was placed in service, the property is treated as originally 
     placed in service by the taxpayer not earlier than the date 
     that the property is used under the leaseback. JCWA did not 
     specifically address the syndication of a lease by the 
     lessor.
       The provision clarifies that property qualifying for 
     additional first-year depreciation does not include any 
     property if the user or a related party to the user or owner 
     of such property had a written binding contract in effect for 
     the acquisition of the property at any time on or before 
     September 10, 2001 (or, in the case of self-constructed 
     property, the manufacture, construction, or production of 
     the property began on or before September 10, 2001). For 
     example, if a taxpayer sells to a related party property 
     that was under construction on or prior to September 10, 
     2001, the property does not qualify for the additional 
     first-year depreciation deduction. Similarly, if a 
     taxpayer sells to a related party property that was 
     subject to a binding written contract on or prior to 
     September 10, 2001, the property does not qualify for the 
     additional first-year depreciation deduction. As a further 
     example, if a taxpayer sells property and leases the 
     property back in a sale-leaseback arrangement, and the 
     lessee had a binding written contract in effect for the 
     acquisition of such property on or prior to September 10, 
     2001, then the lessor is not entitled to the additional 
     first-year depreciation deduction.
       In addition, the provision provides that if property is 
     originally placed in service by a lessor (including by 
     operation of section Code 168(k)(2)(D)(i)), such property is 
     sold within three months after the date that the property was 
     placed in service, and the user of such property does not 
     change, then the property is treated as originally placed in 
     service by the taxpayer not earlier than the date of such 
     sale.
       Five-year carryback of net operating losses (``NOLs'').--
     Section 102 of JCWA temporarily extends the NOL carryback 
     period to five years (from two years, or three years in 
     certain cases) for NOLs arising in taxable years ending in 
     2001 and 2002. The Act was enacted in March 2002, after some 
     taxpayers had filed returns for 2001.
       The provision (1) clarifies that only the NOLs arising in 
     taxable years ending in 2001 and 2002 qualify for the 5-year 
     period, and (2) provides that any election to forego any 
     carrybacks of NOLs arising in 2001 or 2002 can be revoked 
     prior to November 1, 2002. The provision also allows 
     taxpayers until November 1, 2002, to use the tentative 
     carryback adjustment procedures of section 6411 for NOLs 
     arising in 2001 and 2002 (without regard to the 12-month 
     limitation in section 6411). In addition, the provision 
     clarifies that an election to disregard the 5-year carryback 
     for certain NOLs is treated as timely made if made before 
     November 1, 2002 (notwithstanding that section 172(j) 
     requires the election to be made by the due date (including 
     extensions) for filing the taxpayer's return for the year of 
     the loss).\85\
---------------------------------------------------------------------------
     \85\ The corrections are consistent with the guidance issued 
     by the IRS (Rev. Proc. 2002-40, 2002-1 C. B. 1096).
---------------------------------------------------------------------------
       The provision also makes several clerical changes to the 
     NOL provisions relating to the alternative minimum tax.
       New York Liberty Zone bonus depreciation.--Section 301 of 
     JCWA provides tax benefits for the area of New York City 
     damaged in terrorist attacks on September 11, 2001 (an area 
     defined in the provision and named the New York Liberty 
     Zone). Under these rules, an additional first-year 
     depreciation deduction is allowed equal to 30 percent of the 
     adjusted basis of qualified New York Liberty Zone (``Liberty 
     Zone'') property. A taxpayer is allowed to elect out of the 
     additional first-year depreciation for any class of property 
     for any taxable year. In addition, the Act provides a special 
     rule in the case of certain leased property. In the case of 
     any property that is originally placed in service by a person 
     and that is sold to the taxpayer and leased back to such 
     person by the taxpayer within three months after the date 
     that the property was placed in service, the property would 
     be treated as originally placed in service by the taxpayer 
     not earlier than the date that the property is used under the 
     leaseback. JCWA did not specifically address the syndication 
     of a lease by the lessor.
       The provision clarifies that property qualifying for 
     additional first-year depreciation does not include any 
     property if the user or a related party to the user or owner 
     of such property had a written binding contract in effect for 
     the acquisition of the property at any time before September 
     11, 2001 (or in the case of self constructed property the 
     manufacture, construction, or production of the property 
     began before September 11, 2001). In addition, the provision 
     provides that if property is originally placed in service by 
     a lessor (including by operation of section 168(k)(2)(D)(i)), 
     such property is sold within three months after the date that 
     the property was placed in service, and the user of such 
     property does not change, then the property is treated as 
     originally placed in service by the taxpayer not earlier than 
     the date of such sale.
       New York Liberty Zone expensing.--Section 301 of JCWA 
     increases the amount a taxpayer may expense under section 179 
     to the lesser of $35,000 or the amount of Liberty Zone 
     property placed in service for the year. In addition, section 
     301(a) of the Act states that if property qualifies for both 
     the general additional first-year depreciation and Liberty 
     Zone additional first-year depreciation, it is deemed to be 
     eligible for the general additional first-year depreciation 
     and is not considered Liberty Zone property (i.e., only one 
     30-percent additional first-year depreciation deduction is 
     allowed). Because only Liberty Zone property is eligible for 
     the increased section 179 expensing amount, this rule has the 
     unintended consequence of denying the increased section 179 
     expensing to Liberty Zone property. The provision corrects 
     this unintended result (such that qualifying Liberty Zone 
     property qualifies for both the 30-percent additional first-
     year depreciation and the additional section 179 expensing).
       Provide election out of Liberty Zone five-year depreciation 
     for leasehold improvements.--Section 1400L(c), as added by 
     section 301 of JCWA, provides for a 5-year recovery period 
     for depreciation of qualified New York Liberty Zone leasehold 
     improvement property

[[Page H7503]]

     that is placed in service after September 10, 2001, and 
     before January 1, 2007 (and meets certain other 
     requirements). Unlike the rules relating to bonus 
     depreciation and to Liberty Zone bonus depreciation property 
     (see Code sections 168(k)(2)(C)(iii) and 1400L(b)(2)(C)(iv)), 
     which permit a taxpayer to elect out, this 5-year 
     depreciation rule is not elective. The provision adds a rule 
     permitting taxpayers to elect out of the 5-year recovery 
     period.
       Interest rate for defined benefit plan funding 
     requirements.--Section 405(c) of JCWA increases the interest 
     rate used in determining the amount of unfunded vested 
     benefits for PBGC variable rate premium purposes for plan 
     years beginning in 2002 or 2003 from 85 percent to 100 
     percent of the interest rate on 30-year Treasury securities 
     for the month preceding the month in which the applicable 
     plan year begins. The provision makes conforming changes so 
     that this rule applies for purposes of notices and reporting 
     required under Title IV of ERISA with respect to underfunded 
     plans.
       Exclusion for employer-provided adoption assistance.--The 
     provision corrects an incorrect reference in a technical 
     correction to a provision relating to the exclusion for 
     employer-provided adoption assistance.
     Amendments related to the Economic Growth and Tax Relief 
         Reconciliation Act of 2001
       Coverdell education savings accounts.--The provision 
     corrects the application of a conforming change to the rule 
     coordinating Coverdell education savings accounts with Hope 
     and Lifetime Learning credits and qualified tuition programs. 
     The conforming change was made in connection with the 
     expansion of Coverdell education savings accounts to 
     elementary and secondary education expenses in section 401 of 
     the Economic Growth and Tax Relief Reconciliation Act of 2001 
     ``(EGTRRA'').
       Base period for cost-of-living adjustments to Indian 
     employment credit rule.--The Indian employment credit is not 
     available with respect to an employee whose wages exceed 
     $30,000 (sec. 45A). For years after 1994, this $30,000 amount 
     is adjusted for cost-of-living increases at the same time, 
     and in the same manner, as cost-of-living adjustments to the 
     dollar limits on qualified retirement plan benefits and 
     contributions under section 415. Section 611 of EGTRAA 
     increases the dollar limits under section 415 and adds a new 
     base period for making cost-of-living adjustments. The 
     provision clarifies that the pre-existing base period applies 
     for purposes of the Indian employment credit.
       Rounding rule for retirement plan benefit and contribution 
     limits.--Section 611 of EGTRRA increases the dollar limits on 
     qualified retirement plan benefits and contributions under 
     Code section 415, and adds a new rounding rule for cost-of-
     living adjustments to the dollar limit on annual additions to 
     defined contribution plans. This new rounding rule is in 
     addition to a pre-existing rounding rule that applies to 
     benefits payable under defined benefit plans. The provision 
     clarifies that the pre-existing rounding rule applies for 
     purposes of other Code provisions that refer to Code section 
     415 and do not contain a specific rounding rule.
       Excise tax on nondeductible contributions.--Under section 
     614 of EGTRRA, the limits on deductions for employer 
     contributions to qualified retirement plans do not apply to 
     elective deferrals, and elective deferrals are not taken into 
     account in applying the deduction limits to other 
     contributions. The provision makes a conforming change to the 
     Code provision that applies an excise tax to nondeductible 
     contributions.
       SIMPLE plan contributions for domestic or similar 
     workers.--Section 637 of EGTRRA provides an exception to the 
     application of the excise tax on nondeductible retirement 
     plan contributions in the case of contributions to a SIMPLE 
     IRA or SIMPLE section 401(k) plan that are nondeductible 
     solely because they are not made in connection with a trade 
     or business of the employer (e.g., contributions on behalf of 
     a domestic worker). Section 637 of EGTRRA did not 
     specifically modify the present-law requirement that 
     compensation for purposes of determining contributions to a 
     SIMPLE plan must be wages subject to income tax withholding, 
     even though wages paid to domestic workers are not subject to 
     income tax withholding. The provision revises the definition 
     of compensation for purposes of determining contributions to 
     a SIMPLE plan to include wages paid to domestic workers, even 
     though such amounts are not subject to income tax 
     withholding.
       Rollovers among various types of retirement plans.--Section 
     641 of EGTRRA expanded the rollover rules to allow rollovers 
     among various types of tax-favored retirement plans. The 
     provision makes a conforming change to the cross-reference to 
     the rollovers rules in the Code provision relating to 
     qualified retirement annuities.
     Amendment related to the Community Renewal Tax Relief Act of 
         2000
       Tax treatment of options and securities futures 
     contracts.--The provision clarifies that the Secretary of the 
     Treasury has the authority to prescribe regulations regarding 
     the status of an option or a contract the value of which is 
     determined directly or indirectly by reference to an index 
     which becomes (or ceases to be) a narrow-based security index 
     (as defined in section 1256(g)(6)). This authority includes, 
     but is not limited to, regulations that provide for 
     preserving the status of such an option or contract as 
     appropriate.
     Amendments related to the Taxpayer Relief Act of 1997
       Qualified tuition programs.--Section 211 of the Taxpayer 
     Relief Act of 1997 modified section 529(c)(5), relating to 
     gift tax rules for qualified tuition programs, but did not 
     include in the statutory language the requirement that, upon 
     a change in the designated beneficiary of the program, the 
     new beneficiary must be a member of the family of the old 
     beneficiary for gift taxes not to apply. The legislative 
     history for the provision stated that the new beneficiary had 
     to be of the same generation as the old beneficiary and a 
     member of the family of the old beneficiary for gift taxes 
     not to apply. The provision clarifies that the gift taxes 
     apply unless the new beneficiary is of the same (or higher) 
     generation than the old beneficiary and is a member of the 
     family of the old beneficiary.
       Coverdell education savings accounts.--The provision 
     corrects section 530(d)(4)(B)(iii), relating to Coverdell 
     education savings accounts, by substituting for the undefined 
     term ``account holder'' the defined term ``designated 
     beneficiary.''
       Constructive sale exception.--Section 1001(a) of the 
     Taxpayer Relief Act of 1997 provides an exception from 
     constructive sale treatment for any transaction that is 
     closed before the end of the thirtieth day after the close of 
     the taxable year in which the transaction was entered into, 
     provided certain requirements are met after closing the 
     transaction (section 1259(c)(3)). In the case of positions 
     that are reestablished following a closed transaction but 
     prior to satisfying the requirements for the exception from 
     constructive sale treatment, the exception applies in a 
     similar manner if the reestablished position itself is closed 
     and similar requirements are met after closing the 
     reestablished position. The provision clarifies that the 
     exception applies in the same manner to all closed 
     transactions, including reestablished positions that are 
     closed.
       Basis adjustments for QZAB held by S corporation.--Under 
     present law, a shareholder of an S corporation that is an 
     eligible financial institution may claim a credit with 
     respect to a qualified zone academy bond (``QZAB'') held by 
     the S corporation. The amount of the credit is included in 
     gross income of the shareholder. An unintended interpretation 
     of these rules would be that the shareholder's basis in the 
     stock of the S corporation is increased by the amount of the 
     income inclusion, notwithstanding that the benefit of the 
     credit flows directly to the shareholder rather than to the 
     corporation, and the corporation has no additional assets to 
     support the basis increase. The provision clarifies that the 
     basis of stock in an S corporation is not affected by the 
     QZAB credit.
       Capital gains and AMT.--The provision provides that the 
     maximum amount of adjusted net capital gain eligible for the 
     five-percent rate under the alternative minimum tax is the 
     excess of the maximum amount of taxable income that may be 
     taxed at a rate of less than 25 percent under the regular tax 
     (for example, $56,800 for a joint return in 2003) over the 
     taxable income reduced by the adjusted net capital gain.
       The provision may be illustrated by the following example:
       For example, assume that a married couple with no 
     dependents in 2003 has $32,100 of salary, $82,000 of long-
     term capital gain from the sale of stock, $73,000 of itemized 
     deductions consisting entirely of state and local taxes and 
     allowable miscellaneous itemized deductions. For purposes of 
     the regular tax, the taxable income is $35,000 ($32,100 plus 
     $82,000 minus $73,000 minus $6,100 deduction for personal 
     exemptions). For purposes of the alternative minimum tax, the 
     taxable excess is $56,100 ($32,100 plus $82,000 less the 
     $58,000 exemption amount).
       Under present law, the amount taxed under the regular tax 
     at five percent is $35,000 (the lesser of (i) taxable income 
     ($35,000), (ii) adjusted net capital gain ($82,000), or (iii) 
     the excess of the maximum amount taxed at the 10- and 15-
     percent rates ($56,800 in 2003) over the ordinary taxable 
     income (zero)). Thus, the regular tax is $1,750.
       Under present law, $35,000 is taxed at five percent in 
     computing the alternative minimum tax (the lesser of (i) 
     amount of the adjusted net capital gain which is taxed at the 
     five percent under the regular tax ($35,000), or (ii) the 
     taxable excess ($56,100)). The remaining $21,100 of taxable 
     excess is taxed at 15 percent, for a total tentative minimum 
     tax of $4,915.
       Under the provision, in computing the alternative minimum 
     tax, $56,100 is taxed at five percent (the lesser of (i) the 
     taxable excess ($56,100), (ii) the adjusted net capital gain 
     ($82,000), or (iii) the excess of the maximum amount taxed at 
     the 10- and 15-percent rates under the regular tax ($56,800) 
     over the ordinary taxable income (zero)). The tentative 
     minimum tax is $2,805.
     Amendment related to the Small Business Job Protection Act of 
         1996
       S corporation post-termination transition period.--
     Shareholders of an S corporation whose status as an S 
     corporation terminates are allowed a period of time after the 
     termination (the post-termination transition period 
     (``PTTP'')) to utilize certain of the benefits of S 
     corporation status. The shareholders may claim losses and 
     deductions previously suspended due to lack of stock or debt 
     basis up to the amount of the stock basis as of the last day 
     of the PTTP (sec. 1366(d)). Also, shareholders may receive 
     cash

[[Page H7504]]

     distributions from the corporation during the PTTP that are 
     treated as returns of capital to the extent of any balance in 
     the S corporation's accumulated adjustments account (``AAA'') 
     (sec. 1371(e)).
       The PTTP generally begins on the day after the last day of 
     the corporation's last tax year as an S corporation and ends 
     on the later of the day which is one year after such last day 
     or the due date for filing the return for such last year as 
     an S corporation (including extensions). Section 1307 of the 
     Small Business Job Protection Act of 1996 added a new 120-day 
     PTTP following an audit of the corporation that adjusts an S 
     corporation item of income, loss, or deduction arising during 
     the most recent period while the corporation was an S 
     corporation. This provision was enacted to allow the tax-free 
     distribution of any additional income determined in the 
     audit.
       As a result of the 1996 legislation, an S corporation 
     shareholder might take the position that an audit adjustment 
     allows the shareholder to utilize suspended losses and 
     deductions in excess of the amount of the audit deficiency. 
     For example, assume that, at the end of the one-year PTTP 
     following the termination of a corporation's S corporation 
     status, a shareholder has $1 million of suspended losses in 
     the corporation. Later, the shareholder purchases additional 
     stock in the corporation for $1 million. The corporation's 
     audit determines a $25,000 increase in the S corporation's 
     income. Although the $25,000 increase in income would allow 
     $25,000 of suspended losses to be allowed, the shareholder 
     might take the position that the entire $1,000,000 of 
     suspended losses could be utilized during the 120-day PTTP 
     following the end of the audit. Similarly, an S corporation 
     that had failed to distribute the entire amount in its AAA 
     during the one-year PTTP following the loss of S corporation 
     status might argue that it could distribute that amount, in 
     addition to the amount determined in the audit, during the 
     120-day period following the audit.
       The provision provides that the 120-day PTTP added by the 
     1996 Act does not apply for purposes of allowing suspended 
     losses to be deducted (since the increased income determined 
     in the audit can be offset with the losses), and allows tax-
     free distributions of money by the corporation during the 
     120-day period only to the extent of any increase in the AAA 
     by reason of adjustments from the audit.
       Defined contribution plans.--The Small Business Job 
     Protection Act of 1996 amended section 401(a)(26) (generally 
     requiring that a qualified retirement plan benefit the lesser 
     of 50 employees or 40 percent of the employer's workforce) so 
     that it no longer applies to defined contribution plans. 
     Section 401(a)(26)(C) (which treats employees as benefiting 
     in certain circumstances) was not repealed even though it 
     relates only to defined contribution plans. The provision 
     repeals section 401(a)(26)(C).
     Clerical amendments
       The conference agreement makes a number of clerical and 
     typographical amendments.

                      VII. TAX COMPLEXITY ANALYSIS

       The following tax complexity analysis is provided pursuant 
     to section 4022(b) of the Internal Revenue Service Reform and 
     Restructuring Act of 1998, which requires the staff of the 
     Joint Committee on Taxation (in consultation with the 
     Internal Revenue Service (``IRS'') and the Treasury 
     Department) to provide a complexity analysis of tax 
     legislation reported by the House Committee on Ways and 
     Means, the Senate Committee on Finance, or a Conference 
     Report containing tax provisions. The complexity analysis is 
     required to report on the complexity and administrative 
     issues raised by provisions that directly or indirectly amend 
     the Internal Revenue Code and that have widespread 
     applicability to individuals or small businesses. For each 
     such provision identified by the staff of the Joint Committee 
     on Taxation, a summary description of the provision is 
     provided along with an estimate of the number and type of 
     affected taxpayers, and a discussion regarding the relevant 
     complexity and administrative issues.
     1. Modifications to the child tax credit and earned income 
         credit (secs. 101, 102, 103, and 104 of the conference 
         agreement)
     Summary description of provision
       The amount of the child credit is increased to $1,000 for 
     2005-2009. The conference agreement also accelerates to 2004 
     the increase in refundability of the child credit to 15 
     percent of the taxpayer's earned income in excess of $10,750.
       The conference agreement provides that combat pay that is 
     otherwise excluded from gross income under section 112 is 
     treated as earned income which is taken into account in 
     computing taxable income for purposes of calculating the 
     refundable portion of the child credit.
       The conference agreement provides that any taxpayer may 
     elect to treat combat pay that is otherwise excluded from 
     gross income under section 112 as earned income for purposes 
     of the earned income credit. This election is available with 
     respect to any taxable year ending after the date of 
     enactment and before January 1, 2006.
       All modifications to the child credit and earned income 
     credit under the conference agreement are subject to the 
     sunset provision of EGTRRA.
     Number of affected taxpayers
       It is estimated that the provisions will affect 
     approximately 28 million individual tax returns.
     Discussion
       Individuals should not have to keep additional records due 
     to this provision, nor will additional regulatory guidance be 
     necessary to implement this provision.
     2. Standard deduction tax relief (sec. 101 of the conference 
         agreement)
     Summary description of provision
       The conference agreement accelerates the increase in the 
     basic standard deduction amount for joint returns to twice 
     the basic standard deduction amount for unmarried individual 
     returns effective for 2005-2008. All modifications to the 
     basic standard deduction under the conference agreement are 
     subject to the sunset provision of EGTRRA.
     Number of affected taxpayers
       It is estimated that the provision will affect 
     approximately 22 million individual returns.
     Discussion
       It is not anticipated that individuals will need to keep 
     additional records due to this provision. The higher basic 
     standard deduction should not result in an increase in 
     disputes with the IRS, nor will regulatory guidance be 
     necessary to implement this provision. In addition, the 
     provision should not increase individuals' tax preparation 
     costs.
       Some taxpayers who currently itemize deductions may respond 
     to the provision by claiming the increased standard deduction 
     in lieu of itemizing. According to estimates by the staff of 
     the Joint Committee on Taxation, approximately three million 
     individual tax returns will realize greater tax savings from 
     the increased standard deduction than from itemizing their 
     deductions. In addition to the tax savings, such taxpayers 
     will no longer have to file Schedule A to Form 1040 and a 
     significant number of them will no longer need to engage in 
     the record keeping inherent in itemizing below-the-line 
     deductions. Moreover, by claiming the standard deduction, 
     such taxpayers may qualify to use simpler versions of the 
     Form 1040 (i.e., Form 1040EZ or Form 1040A) that are not 
     available to individuals who itemize their deductions. These 
     forms simplify the return preparation process by eliminating 
     from the Form 1040 those items that do not apply to 
     particular taxpayers.
       This reduction in complexity and record keeping also may 
     result in a decline in the number of individuals using a tax 
     preparation service or a decline in the cost of using such a 
     service. Furthermore, if the provision results in a taxpayer 
     qualifying to use one of the simpler versions of the Form 
     1040, the taxpayer may be eligible to file a paperless 
     Federal tax return by telephone. The provision also should 
     reduce the number of disputes between taxpayers and the IRS 
     regarding substantiation of itemized deductions.
     3. Expansion of the 15-percent rate bracket (sec. 101 of the 
         conference agreement)
     Summary description of provision
       The bill accelerates the increase of the size of the 15-
     percent regular income tax rate bracket for married 
     individuals filing joint returns to twice the width of the 
     15-percent regular income tax rate bracket for unmarried 
     individual returns effective for 2005-2007. All modifications 
     to the 15-percent rate bracket under the conference agreement 
     are subject to the sunset provision of EGTRRA.
     Number of affected taxpayers
       It is estimated that the provision will affect 
     approximately 19 million individual tax returns.
     Discussion
       It is not anticipated that individuals will need to keep 
     additional records due to this provision. The increased size 
     of the 15-percent regular income tax rate bracket for married 
     individuals filing joint returns should not result in an 
     increase in disputes with the IRS, nor will regulatory 
     guidance be necessary to implement this provision.
     4. Ten-percent income tax rate for individuals (sec. 101 of 
         the conference agreement)
     Summary description of provision
       The conference agreement extends the size of the 10-percent 
     rate bracket through 2010. Specifically, the size of the 10-
     percent rate bracket for 2005 through 2010 is set at the 2003 
     level ($7,000 for single individuals, $10,000 for heads of 
     households and $14,000 for married individuals) with annual 
     indexing from 2003. The modifications to the 10-percent rate 
     bracket under the conference agreement are subject to the 
     sunset provision of EGTRRA.
     Number of affected taxpayers
       It is estimated that the provision will affect 
     approximately 73 million individual tax returns.
     Discussion
       It is not anticipated that individuals will need to keep 
     additional records due to this provision. It should not 
     result in an increase in disputes with the IRS, nor will 
     regulatory guidance be necessary to implement this provision. 
     In addition, the provision should not increase the tax 
     preparation costs for most individuals. Reductions in the 
     regular income tax as a result of these rate reductions will 
     cause some taxpayers to become subject to the alternative 
     minimum tax.
     5. Uniform definition of qualifying child (secs. 201-207 of 
         the conference agreement)
     Summary description of provision
       The bill creates a uniform definition of qualifying child 
     for purposes of the dependency exemption, child credit, 
     earned income

[[Page H7505]]

     credit, dependent care credit, and head of household filing 
     status. The bill is effective for taxable years beginning 
     after December 31, 2004.
     Number of affected taxpayers
       It is estimated that the provisions will affect over 40 
     million individual tax returns.
     Discussion
       Adopting a uniform definition of qualifying child will make 
     it easier for taxpayers to determine whether they qualify for 
     various tax benefits for children and reduce inadvertent 
     errors arising from confusion due to different definitions of 
     qualifying child. The use of a residency test for the uniform 
     definition should be easier to apply than a support test.
       The bill will provide simplification to substantial numbers 
     of taxpayers. However, the transition from the present-law 
     system to a uniform definition of child will add temporary 
     complexity from the tax administration perspective. The IRS 
     will be required to modify forms and instructions to 
     implement the uniform definition of child, and taxpayers will 
     be required to learn a new set of rules. There may be 
     confusion for taxpayers who may no longer be eligible to 
     claim a child for certain purposes under the Code. These 
     changes could lead to increased taxpayer errors in filing. In 
     the long run, these effects will be mitigated and the 
     benefits of making the uniform definition will result in less 
     complexity and better tax administration.

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[[Page H7509]]

     For consideration of the House amendment and the Senate 
     amendment, and modifications committed to conference:
     William Thomas,
     Tom DeLay,
                                Managers on the Part of the House.

     Chuck Grassley,
     Don Nickles,
     Trent Lott,
     Max Baucus,
     Blanche L. Lincoln,
     Managers on the Part of the Senate.

                          ____________________