[Congressional Record Volume 152, Number 11 (Thursday, February 2, 2006)]
[Senate]
[Pages S516-S692]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           TEXT OF AMENDMENTS

  SA 2703. Mr. TALENT submitted an amendment intended to be proposed by 
him to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; which was ordered to lie on the table; as follows:

       At the appropriate place insert the following:

     SEC. ___. PERMANENT EXTENSION OF EGTRRA PROVISIONS RELATING 
                   TO CHILD TAX CREDIT.

       Section 901 of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 (relating to sunset provisions) 
     shall not apply to the amendments made by section 201 of such 
     Act.
                                 ______
                                 
  SA 2704. Mrs. BOXER (for herself, Mr. Kerry, and Mr. Lautenberg) 
submitted an amendment intended to be proposed by her to the bill H.R. 
4297, to provide for reconciliation pursuant to section 201(b) of the 
concurrent resolution on the budget for fiscal year 2006; which was 
ordered to lie on the table; as follows:

       At the appropriate place, insert the following:

     SEC. __. DISCLOSURE OF WHITE HOUSE CONTACTS WITH JACK 
                   ABRAMOFF.

       (a) Findings.--The Senate finds the following:
       (1) Public confidence in Government has been undermined by 
     widespread reports of public corruption involving Jack 
     Abramoff, including indictments and plea agreements that cite 
     alleged wrongdoing by senior public officials.
       (2) Public perception of a culture of corruption undermines 
     the people's faith in their Government representatives and 
     our system of Government.
       (3) Due to the serious nature of Jack Abramoff's crimes and 
     continuing allegations of corruption involving him, public 
     confidence in the Government can be restored only if there is 
     full disclosure of his contacts with the President, White 
     House staff, and senior executive branch officials.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that the White House should immediately and publicly disclose 
     each visit and meeting between Jack Abramoff and the 
     President, White House staff, or senior executive branch 
     officials, which should include the date, list of attendees, 
     purpose of the visit or meeting, any documentation associated 
     with the visit or meeting, including any photographs, and any 
     action taken or withheld by the Government as a result of the 
     contact.
                                 ______
                                 
  SA 2705. Mr. MENENDEZ (for himself, Mr. Schumer, Mr. Kerry, Mrs. 
Feinstein, Mrs. Clinton, Mr. Lautenberg, and Ms. Stabenow) submitted an 
amendment intended to be proposed to amendment SA 2707 proposed by Mr. 
Frist (for Mr. Grassley (for himself and Mr. Baucus)) to the bill H.R. 
4297, to provide for reconciliation pursuant to section 201(b) of the 
concurrent resolution on the budget for fiscal year 2006; as follows:

       At the appropriate place, insert the following:

     SEC. __. SENSE OF THE SENATE REGARDING PROTECTING MIDDLE-
                   CLASS FAMILIES FROM THE ALTERNATIVE MINIMUM 
                   TAX.

       (a) Findings.--The Senate finds that--
       (1) the alternative minimum tax was originally enacted in 
     1969 as a supplemental tax on wealthy tax evaders, but has 
     evolved into a tax on millions of middle-class working 
     families, particularly families in which both parents work, 
     and families with 2 or more children;
       (2) by the end of the decade, the alternative minimum tax 
     will ensnare more than 30,000,000 taxpayers, the majority of 
     which will have adjusted gross incomes below $100,000, and 
     the National Taxpayer Advocate has thus identified it as the 
     most serious problem facing individual taxpayers;
       (3) the alternative minimum tax is often portrayed as a tax 
     that is most problematic for residents of States such as New 
     York, California, Massachusetts, and New Jersey, but the 
     truth is that many other States have a significant percentage 
     of taxpayers affected by the alternative minimum tax, 
     including Oregon, Maryland, Virginia, Minnesota, Ohio, Maine, 
     Georgia, North Carolina, and Pennsylvania, so the problem is 
     of national importance;
       (4) a family with 2 children will become subject to the 
     alternative minimum tax at about $67,500 of income in 2006, 
     and a family with 5 children will start owing the alternative 
     minimum tax at about $54,000 of income, if Congress fails to 
     act;

[[Page S517]]

       (5) the year 2006 is the ``tipping point'' for the 
     alternative minimum tax, as the number of taxpayers affected 
     nationally will explode from 3,600,000 to 19,000,000 if 
     Congress fails to act;
       (6) in 2004, only 6.2 percent of families earning $100,000 
     to $200,000 a year were subject to the alternative minimum 
     tax, and that number will explode to nearly 50 percent if 
     Congress fails to act;
       (7) if alternative minimum tax relief is extended through 
     2006, about two-thirds of the benefits will be realized by 
     families earning under $200,000, with more than half of the 
     total benefits going to families with incomes between 
     $100,000 and $200,000;
       (8) starting in 2008, the average married couple with 2 
     children earning $75,000 or more will find that more than 
     half of the tax cuts they have been expecting from the 
     various laws passed since 2001 will be ``taken back'' via the 
     alternative minimum tax; and
       (9) the temporary relief from the alternative minimum tax 
     (provided in 2001 and extended twice in 2003 and 2004) 
     expired at the end of 2005, but the tax reductions on 
     dividends and capital gains do not expire until the end of 
     2008, making immediate action on those provisions a less 
     urgent matter.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that protecting middle-class families from the alternative 
     minimum tax should be a higher priority for Congress in 2006 
     than extending a tax cut that does not expire until the end 
     of 2008.
                                 ______
                                 
  SA 2706. Mr. MENENDEZ (for himself, Mr. Kerry, Mr. Schumer, Mrs. 
Feinstein, Mrs. Clinton, Mr. Wyden, and Mr. Lautenberg) submitted an 
amendment intended to be proposed by him to the bill H.R. 4297, to 
provide for reconciliation pursuant to section 201(b) of the concurrent 
resolution on the budget for fiscal year 2006; which was ordered to lie 
on the table; as follows:

       On page 28, after line 11, insert the following:

 TITLE IV--MINIMUM TAX RELIEF AND REPEAL OF EXTENSION OF CAPITAL GAINS 
                             AND DIVIDENDS

     SEC. 401. REPEAL OF EXTENSION OF TAX TREATMENT FOR CAPITAL 
                   GAINS AND DIVIDENDS.

       The amendment made by section 203 of this Act is repealed.

     SEC. 402. EXTENSION AND INCREASE IN MINIMUM TAX RELIEF TO 
                   INDIVIDUALS.

       (a) In General.--Section 55(d)(1) is amended--
       (1) by striking ``$58,000'' and all that follows through 
     ``2005'' in subparagraph (A) and inserting ``$62,550 in the 
     case of taxable years beginning in 2006'', and
       (2) by striking ``$40,250'' and all that follows through 
     ``2005'' in subparagraph (B) and inserting ``$42,500 in the 
     case of taxable years beginning in 2006''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

                   TITLE V--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 501. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

       (a) Standards Conformed to Taxpayer Standards.--Section 
     6694(a) (relating to understatements due to unrealistic 
     positions) is amended--
       (1) by striking ``realistic possibility of being sustained 
     on its merits'' in paragraph (1) and inserting ``reasonable 
     belief that the tax treatment in such position was more 
     likely than not the proper treatment'',
       (2) by striking ``or was frivolous'' in paragraph (3) and 
     inserting ``or there was no reasonable basis for the tax 
     treatment of such position'', and
       (3) by striking ``Unrealistic'' in the heading and 
     inserting ``Improper''.
       (b) Amount of Penalty.--Section 6694 is amended--
       (1) by striking ``$250'' in subsection (a) and inserting 
     ``$1,000'', and
       (2) by striking ``$1,000'' in subsection (b) and inserting 
     ``$5,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to documents prepared after the date of the 
     enactment of this Act.

     SEC. 502. MODIFICATION OF EFFECTIVE DATE OF EXCEPTION FROM 
                   SUSPENSION RULES FOR CERTAIN LISTED AND 
                   REPORTABLE TRANSACTIONS.

       (a) Effective Date Modification.--
       (1) In general.--Paragraph (2) of section 903(d) of the 
     American Jobs Creation Act of 2004 is amended to read as 
     follows:
       ``(2) Exception for reportable or listed transactions.--
       ``(A) In general.--The amendments made by subsection (c) 
     shall apply with respect to interest accruing after October 
     3, 2004.
       ``(B) Special rule for certain listed and reportable 
     transactions.--
       ``(i) In general.--Except as provided in clause (ii), the 
     amendments made by subsection (c) shall also apply with 
     respect to interest accruing on or before October 3, 2004.
       ``(ii) Participants in settlement initiatives.--Clause (i) 
     shall not apply to any transaction if, as of January 23, 
     2006--

       ``(I) the taxpayer is participating in a settlement 
     initiative described in Internal Revenue Service Announcement 
     2005-80 with respect to such transaction, or
       ``(II) the taxpayer has entered into a settlement agreement 
     pursuant to such an initiative.

       ``(iii) Termination of exception.--Clause (ii)(I) shall not 
     apply to any taxpayer if, after January 23, 2006, the 
     taxpayer withdraws from, or terminates, participation in the 
     initiative or the Secretary of the Treasury or the 
     Secretary's delegate determines that a settlement agreement 
     will not be reached pursuant to the initiative within a 
     reasonable period of time.''.
       (2) Effective date.--The amendment made by this subsection 
     shall take effect as if included in the provisions of the 
     American Jobs Creation Act of 2004 to which it relates.
       (b) Treatment of Amended Returns and Other Similar Notices 
     of Additional Tax Owed.--
       (1) In general.--Section 6404(g)(1) (relating to 
     suspension) is amended by adding at the end the following new 
     sentence: ``If, after the return for a taxable year is filed, 
     the taxpayer provides to the Secretary one or more signed 
     written documents showing that the taxpayer owes an 
     additional amount of tax for the taxable year, clause (i) 
     shall be applied by substituting the date the last of the 
     documents was provided for the date on which the return is 
     filed.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to documents provided on or after the date of the 
     enactment of this Act.

     SEC. 503. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

       ``(ii) an application under--

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

       ``(3) Opportunity to withdraw submission.--If the Secretary 
     provides a person with notice that a submission is a 
     specified frivolous submission and such person withdraws such 
     submission within 30 days after such notice, the penalty 
     imposed under paragraph (1) shall not apply with respect to 
     such submission.
       ``(c) Listing of Frivolous Positions.--The Secretary shall 
     prescribe (and periodically revise) a list of positions which 
     the Secretary has identified as being frivolous for purposes 
     of this subsection. The Secretary shall not include in such 
     list any position that the Secretary determines meets the 
     requirement of section 6662(d)(2)(B)(ii)(II).
       ``(d) Reduction of Penalty.--The Secretary may reduce the 
     amount of any penalty imposed under this section if the 
     Secretary determines that such reduction would promote 
     compliance with and administration of the Federal tax laws.
       ``(e) Penalties in Addition to Other Penalties.--The 
     penalties imposed by this section shall be in addition to any 
     other penalty provided by law.''.
       (b) Treatment of Frivolous Requests for Hearings Before 
     Levy.--
       (1) Frivolous requests disregarded.--Section 6330 (relating 
     to notice and opportunity for hearing before levy) is amended 
     by adding at the end the following new subsection:
       ``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding 
     any other provision of this section, if the Secretary 
     determines that any portion of a request for a hearing under 
     this section or section 6320 meets the requirement of clause 
     (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
     treat

[[Page S518]]

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

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

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

     SEC. 504. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

       (a) Penalty for Promoting Abusive Tax Shelters.--Section 
     6700 (relating to promoting abusive tax shelters, etc.) is 
     amended--
       (1) by redesignating subsections (b) and (c) as subsections 
     (d) and (e), respectively,
       (2) by striking ``a penalty'' and all that follows through 
     the period in the first sentence of subsection (a) and 
     inserting ``a penalty determined under subsection (b)'', and
       (3) by inserting after subsection (a) the following new 
     subsections:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall be 100 percent of the gross income 
     derived (or to be derived) from such activity by the person 
     or persons subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of an activity described in 
     subsection (a), each instance in which income was derived by 
     the person or persons subject to such penalty, and each 
     person who participated in such an activity.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to such activity, 
     all such persons shall be jointly and severally liable for 
     the penalty under such subsection.
       ``(c) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     considered an ordinary and necessary expense in carrying on a 
     trade or business for purposes of this title and shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (b) Conforming Amendment.--Section 6700(a) is amended by 
     striking the last sentence.
       (c) Effective Date.--The amendments made by this section 
     shall apply to the activities described in paragraphs (1) and 
     (2) of section 6700(a) of the Internal Revenue Code of 1986 
     and after the date of the enactment of this Act.

     SEC. 505. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT 
                   OF TAX LIABILITY.

       (a) In General.--Section 6701(a) (relating to imposition of 
     penalty) is amended--
       (1) by inserting ``, or tax liability reflected in,'' after 
     ``the preparation or presentation of'' in paragraph (1),
       (2) by inserting ``aid, assistance, procurement, or advice 
     with respect to such'' before ``portion'' both places it 
     appears in paragraphs (2) and (3), and
       (3) by inserting ``instance of aid, assistance, 
     procurement, or advice or each such'' before ``document'' in 
     the matter following paragraph (3).
       (b) Amount of Penalty.--Subsection (b) of section 6701 
     (relating to penalties for aiding and abetting understatement 
     of tax liability) is amended to read as follows:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall be 100 percent of the gross income 
     derived (or to be derived) from such aid, assistance, 
     procurement, or advice provided by the person or persons 
     subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of aid, assistance, procurement, or 
     advice described in subsection (a), each instance in which 
     income was derived by the person or persons subject to such 
     penalty, and each person who made such an understatement of 
     the liability for tax.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to providing such 
     aid, assistance, procurement, or advice, all such persons 
     shall be jointly and severally liable for the penalty under 
     such subsection.''.
       (c) Penalty Not Deductible.--Section 6701 is amended by 
     adding at the end the following new subsection:
       ``(g) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     considered an ordinary and necessary expense in carrying on a 
     trade or business for purposes of this title and shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to the activities described in section 6701(a) of 
     the Internal Revenue Code of 1986 after the date of the 
     enactment of this Act.

                Subtitle B--Economic Substance Doctrine

     SEC. 511. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).
       ``(2) Special rules for transactions with tax-indifferent 
     parties.--
       ``(A) Special rules for financing transactions.--The form 
     of a transaction which is in substance the borrowing of money 
     or the acquisition of financial capital directly or 
     indirectly from a tax-indifferent party shall not be 
     respected if the present value of the deductions to be 
     claimed with respect to the transaction is substantially in 
     excess of the present value of the anticipated economic 
     returns of the person lending the money or providing the 
     financial capital. A public offering shall be treated as a 
     borrowing, or an acquisition of financial capital, from a 
     tax-indifferent party if it is reasonably expected that at 
     least 50 percent of the offering will be placed with tax-
     indifferent parties.
       ``(B) Artificial income shifting and basis adjustments.--
     The form of a transaction with a tax-indifferent party shall 
     not be respected if--
       ``(i) it results in an allocation of income or gain to the 
     tax-indifferent party in excess of such party's economic 
     income or gain, or
       ``(ii) it results in a basis adjustment or shifting of 
     basis on account of overstating the income or gain of the 
     tax-indifferent party.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or

[[Page S519]]

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

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

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

     SEC. 512. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

     ``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable to Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2) and 
     (3) of section 6707A(d) shall apply for purposes of paragraph 
     (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

         ``(1) For coordination of penalty with understatements 
     under section 6662 and other special rules, see section 
     6662A(e).
         ``(2) For reporting of penalty imposed under this section 
     to the Securities and Exchange Commission, see section 
     6707A(e).''.

       (b) Coordination With Other Understatements and 
     Penalties.--
       (1) The second sentence of section 6662(d)(2)(A) is amended 
     by inserting ``and without regard to items with respect to 
     which a penalty is imposed by section 6662B'' before the 
     period at the end.
       (2) Subsection (e) of section 6662A is amended--
       (A) in paragraph (1), by inserting ``and noneconomic 
     substance transaction understatements'' after ``reportable 
     transaction understatements'' both places it appears,
       (B) in paragraph (2)(A), by inserting ``and a noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'',
       (C) in paragraph (2)(B), by inserting ``6662B or'' before 
     ``6663'',
       (D) in paragraph (2)(C)(i), by inserting ``or section 
     6662B'' before the period at the end,
       (E) in paragraph (2)(C)(ii), by inserting ``and section 
     6662B'' after ``This section'',
       (F) in paragraph (3), by inserting ``or noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'', and
       (G) by adding at the end the following new paragraph:
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).''.
       (3) Subsection (e) of section 6707A is amended--
       (A) by striking ``or'' at the end of subparagraph (B), and
       (B) by striking subparagraph (C) and inserting the 
     following new subparagraphs:
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction, or
       ``(D) is required to pay a penalty under section 6662(h) 
     with respect to any transaction and would (but for section 
     6662A(e)(2)(C)) have been subject to penalty under section 
     6662A at a rate prescribed under section 6662A(c) or under 
     section 6662B,''.
       (c) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

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

     SEC. 513. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONECONOMIC SUBSTANCE 
                   TRANSACTIONS.

       (a) In General.--Section 163(m) (relating to interest on 
     unpaid taxes attributable to nondisclosed reportable 
     transactions) is amended--
       (1) by striking ``attributable'' and all that follows and 
     inserting the following: ``attributable to--
       ``(1) the portion of any reportable transaction 
     understatement (as defined in section 6662A(b)) with respect 
     to which the requirement of section 6664(d)(2)(A) is not met, 
     or
       ``(2) any noneconomic substance transaction understatement 
     (as defined in section 6662B(c)).'', and
       (2) by inserting ``and Noneconomic Substance Transactions'' 
     in the heading thereof after ``Transactions''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act in taxable years ending after such date.

   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

     SEC. 521. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING 
                   AUTOMATED WITHDRAWALS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following:
       ``(e) Waiver of User Fees for Installment Agreements Using 
     Automated Withdrawals.--In the case of a taxpayer who enters 
     into an installment agreement in which automated installment 
     payments are agreed to, the Secretary shall waive the fee (if 
     any) for entering into the installment agreement.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     which is 180 days after the date of the enactment of this 
     Act.

     SEC. 522. TERMINATION OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159(b)(4) (relating to failure to 
     pay an installment or any other tax liability when due or to 
     provide requested financial information) is amended by 
     striking ``or'' at the end of subparagraph (B), by 
     redesignating subparagraph (C) as subparagraph (E), and by 
     inserting after subparagraph (B) the following:
       ``(C) to make a Federal tax deposit under section 6302 at 
     the time such deposit is required to be made,
       ``(D) to file a return of tax imposed under this title by 
     its due date (including extensions), or''.
       (b) Conforming Amendment.--The heading for section 
     6159(b)(4) is amended by striking ``Failure to pay an 
     installment or any other tax liability when due or to provide 
     requested financial information'' and inserting ``Failure to 
     make payments or deposits or file returns when due or to 
     provide requested financial information''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to failures occurring on or after the date of the 
     enactment of this Act.

     SEC. 523. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF 
                   OFFERS-IN-COMPROMISE.

       (a) In General.--Section 7122 (relating to compromises), as 
     amended by this Act, is amended by redesignating subsections 
     (c), (d), and (e) as subsections (d), (e), and (f), 
     respectively, and by inserting after subsection (b) the 
     following new subsection:

[[Page S520]]

       ``(c) Rules for Submission of Offers-in-Compromise.--
       ``(1) Partial payment required with submission.--
       ``(A) Lump-sum offers.--
       ``(i) In general.--The submission of any lump-sum offer-in-
     compromise shall be accompanied by the payment of 20 percent 
     of amount of such offer.
       ``(ii) Lump-sum offer-in-compromise.--For purposes of this 
     section, the term `lump-sum offer-in-compromise' means any 
     offer of payments made in 5 or fewer installments.
       ``(B) Periodic payment offers.--The submission of any 
     periodic payment offer-in-compromise shall be accompanied by 
     the payment of the amount of the first proposed installment 
     and each proposed installment due during the period such 
     offer is being evaluated for acceptance and has not been 
     rejected by the Secretary. Any failure to make a payment 
     required under the preceding sentence shall be deemed a 
     withdrawal of the offer-in-compromise.
       ``(2) Rules of application.--
       ``(A) Use of payment.--The application of any payment made 
     under this subsection to the assessed tax or other amounts 
     imposed under this title with respect to such tax may be 
     specified by the taxpayer.
       ``(B) No user fee imposed.--Any user fee which would 
     otherwise be imposed under this section shall not be imposed 
     on any offer-in-compromise accompanied by a payment required 
     under this subsection.
       ``(C) Waiver authority.--The Secretary may issue 
     regulations waiving any payment required under paragraph (1) 
     in a manner consistent with the practices established in 
     accordance with the requirements under subsection (d)(3).''.
       (b) Additional Rules Relating to Treatment of Offers.--
       (1) Unprocessable offer if payment requirements are not 
     met.--Paragraph (3) of section 7122(d) (relating to standards 
     for evaluation of offers), as redesignated by subsection (a), 
     is amended by striking ``; and'' at the end of subparagraph 
     (A) and inserting a comma, by striking the period at the end 
     of subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any offer-in-compromise which does not meet the 
     requirements of subsection (c) shall be returned to the 
     taxpayer as unprocessable.''.
       (2) Deemed acceptance of offer not rejected within certain 
     period.--Section 7122, as amended by subsection (a), is 
     amended by adding at the end the following new subsection:
       ``(g) Deemed Acceptance of Offer Not Rejected Within 
     Certain Period.--Any offer-in-compromise submitted under this 
     section shall be deemed to be accepted by the Secretary if 
     such offer is not rejected by the Secretary before the date 
     which is 24 months after the date of the submission of such 
     offer (12 months for offers-in-compromise submitted after the 
     date which is 5 years after the date of the enactment of this 
     subsection). For purposes of the preceding sentence, any 
     period during which any tax liability which is the subject of 
     such offer-in-compromise is in dispute in any judicial 
     proceeding shall not be taken in to account in determining 
     the expiration of the 24-month period (or 12-month period, if 
     applicable).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted on and after 
     the date which is 60 days after the date of the enactment of 
     this Act.

                    Subtitle D--Penalties and Fines

     SEC. 531. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) in 
     general.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``Any person'' and inserting the following:
       ``(a) In General.--Any person'', and
       (ii) by striking ``$25,000'' and inserting ``$50,000'',
       (B) in the third sentence, by striking ``section'' and 
     inserting ``subsection'', and
       (C) by adding at the end the following new subsection:
       ``(b) Aggravated Failure to File.--
       ``(1) In general.--In the case of any failure described in 
     paragraph (2), the first sentence of subsection (a) shall be 
     applied by substituting--
       ``(A) `felony' for `misdemeanor',
       ``(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and
       ``(C) `10 years' for `1 year'.
       ``(2) Failure described.--A failure described in this 
     paragraph is a failure to make a return described in 
     subsection (a) for a period of 3 or more consecutive taxable 
     years.''.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to actions, and failures to act, occurring after 
     the date of the enactment of this Act.

     SEC. 532. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) Determination of Penalty.--
       (1) In general.--Notwithstanding any other provision of 
     law, in the case of an applicable taxpayer--
       (A) the determination as to whether any interest or 
     applicable penalty is to be imposed with respect to any 
     arrangement described in paragraph (2), or to any 
     underpayment of Federal income tax attributable to items 
     arising in connection with any such arrangement, shall be 
     made without regard to the rules of subsections (b), (c), and 
     (d) of section 6664 of the Internal Revenue Code of 1986, and
       (B) if any such interest or applicable penalty is imposed, 
     the amount of such interest or penalty shall be equal to 
     twice that determined without regard to this section.
       (2) Applicable taxpayer.--For purposes of this subsection--
       (A) In general.--The term ``applicable taxpayer'' means a 
     taxpayer which--
       (i) has underreported its United States income tax 
     liability with respect to any item which directly or 
     indirectly involves--

       (I) any financial arrangement which in any manner relies on 
     the use of offshore payment mechanisms (including credit, 
     debit, or charge cards) issued by banks or other entities in 
     foreign jurisdictions, or
       (II) any offshore financial arrangement (including any 
     arrangement with foreign banks, financial institutions, 
     corporations, partnerships, trusts, or other entities), and

       (ii) has neither signed a closing agreement pursuant to the 
     Voluntary Offshore Compliance Initiative established by the 
     Department of the Treasury under Revenue Procedure 2003-11 
     nor voluntarily disclosed its participation in such 
     arrangement by notifying the Internal Revenue Service of such 
     arrangement prior to the issue being raised by the Internal 
     Revenue Service during an examination.
       (B) Authority to waive.--The Secretary of the Treasury or 
     the Secretary's delegate may waive the application of 
     paragraph (1) to any taxpayer if the Secretary or the 
     Secretary's delegate determines that the use of such offshore 
     payment mechanisms is incidental to the transaction and, in 
     addition, in the case of a trade or business, such use is 
     conducted in the ordinary course of the type of trade or 
     business of the taxpayer.
       (C) Issues raised.--For purposes of subparagraph (A)(ii), 
     an item shall be treated as an issue raised during an 
     examination if the individual examining the return--
       (i) communicates to the taxpayer knowledge about the 
     specific item, or
       (ii) has made a request to the taxpayer for information and 
     the taxpayer could not make a complete response to that 
     request without giving the examiner knowledge of the specific 
     item.
       (b) Applicable Penalty.--For purposes of this section, the 
     term ``applicable penalty'' means any penalty, addition to 
     tax, or fine imposed under chapter 68 of the Internal Revenue 
     Code of 1986.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if, as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 533. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.

[[Page S521]]

       ``(2) Exception for amounts constituting restitution or 
     paid to come into compliance with law.--Paragraph (1) shall 
     not apply to any amount which--
       ``(A) the taxpayer establishes--
       ``(i) constitutes restitution (including remediation of 
     property) for damage or harm caused by or which may be caused 
     by the violation of any law or the potential violation of any 
     law, or
       ``(ii) is paid to come into compliance with any law which 
     was violated or involved in the investigation or inquiry, and
       ``(B) is identified as restitution or as an amount paid to 
     come into compliance with the law, as the case may be, in the 
     court order or settlement agreement.

     Identification pursuant to subparagraph (B) alone shall not 
     satisfy the requirement under subparagraph (A). This 
     paragraph shall not apply to any amount paid or incurred as 
     reimbursement to the government or entity for the costs of 
     any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Reporting of Deductible Amounts.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6050T the 
     following new section:

     ``SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN FINES, 
                   PENALTIES, AND OTHER AMOUNTS.

       ``(a) Requirement of Reporting.--
       ``(1) In general.--The appropriate official of any 
     government or entity which is described in section 162(f)(4) 
     which is involved in a suit or agreement described in 
     paragraph (2) shall make a return in such form as determined 
     by the Secretary setting forth--
       ``(A) the amount required to be paid as a result of the 
     suit or agreement to which paragraph (1) of section 162(f) 
     applies,
       ``(B) any amount required to be paid as a result of the 
     suit or agreement which constitutes restitution or 
     remediation of property, and
       ``(C) any amount required to be paid as a result of the 
     suit or agreement for the purpose of coming into compliance 
     with any law which was violated or involved in the 
     investigation or inquiry.
       ``(2) Suit or agreement described.--
       ``(A) In general.--A suit or agreement is described in this 
     paragraph if--
       ``(i) it is--

       ``(I) a suit with respect to a violation of any law over 
     which the government or entity has authority and with respect 
     to which there has been a court order, or
       ``(II) an agreement which is entered into with respect to a 
     violation of any law over which the government or entity has 
     authority, or with respect to an investigation or inquiry by 
     the government or entity into the potential violation of any 
     law over which such government or entity has authority, and

       ``(ii) the aggregate amount involved in all court orders 
     and agreements with respect to the violation, investigation, 
     or inquiry is $600 or more.
       ``(B) Adjustment of reporting threshold.--The Secretary may 
     adjust the $600 amount in subparagraph (A)(ii) as necessary 
     in order to ensure the efficient administration of the 
     internal revenue laws.
       ``(3) Time of filing.--The return required under this 
     subsection shall be filed not later than--
       ``(A) 30 days after the date on which a court order is 
     issued with respect to the suit or the date the agreement is 
     entered into, as the case may be, or
       ``(B) the date specified Secretary.
       ``(b) Statements To Be Furnished to Individuals Involved in 
     the Settlement.--Every person required to make a return under 
     subsection (a) shall furnish to each person who is a party to 
     the suit or agreement a written statement showing--
       ``(1) the name of the government or entity, and
       ``(2) the information supplied to the Secretary under 
     subsection (a)(1).

     The written statement required under the preceding sentence 
     shall be furnished to the person at the same time the 
     government or entity provides the Secretary with the 
     information required under subsection (a).
       ``(c) Appropriate Official Defined.--For purposes of this 
     section, the term `appropriate official' means the officer or 
     employee having control of the suit, investigation, or 
     inquiry or the person appropriately designated for purposes 
     of this section.''.
       (2) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61 is 
     amended by inserting after the item relating to section 6050T 
     the following new item:

``Sec. 6050U. Information with respect to certain fines, penalties, and 
              other amounts.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred on or after the date 
     of the enactment of this Act, except that such amendments 
     shall not apply to amounts paid or incurred under any binding 
     order or agreement entered into before such date. Such 
     exception shall not apply to an order or agreement requiring 
     court approval unless the approval was obtained before such 
     date.

     SEC. 534. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

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

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

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section To Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to damages paid or incurred on or after the date 
     of the enactment of this Act.

     SEC. 535. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
                   ORDERS.

       (a) In General.--Section 6657 (relating to bad checks) is 
     amended--
       (1) by striking ``$750'' and inserting ``$2,000'', and
       (2) by striking ``$15'' and inserting ``$40''.
       (b) Effective Date.--The amendments made by this section 
     apply to checks or money orders received after the date of 
     the enactment of this Act.

           Subtitle E--Provisions To Discourage Expatriation

     SEC. 541. TAX TREATMENT OF INVERTED ENTITIES.

       (a) In General.--Section 7874 is amended--
       (1) by striking ``March 4, 2003'' in subsection 
     (a)(2)(B)(i) and in the matter following subsection 
     (a)(2)(B)(iii) and inserting ``March 20, 2002'',
       (2) by striking ``at least 60 percent'' in subsection 
     (a)(2)(B)(ii) and inserting ``more than 50 percent'',
       (3) by striking ``80 percent'' in subsection (b) and 
     inserting ``at least 80 percent'',
       (4) by striking ``60 percent'' in subsection (b) and 
     inserting ``more than 50 percent'',
       (5) by adding at the end of subsection (a)(2) the following 
     new sentence: ``Except as provided in regulations, an 
     acquisition of properties of a domestic corporation shall not 
     be treated as described in subparagraph (B) if none of the 
     corporation's stock was readily tradeable on an established 
     securities market at any time during the 4-year period ending 
     on the date of the acquisition.'', and
       (6) by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Special Rules Applicable to Expatriated Entities.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an expatriated entity--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an expatriated entity, section 163(j) shall be 
     applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.''.

[[Page S522]]

       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after March 20, 2002.

     SEC. 542. REVISION OF TAX RULES ON EXPATRIATION OF 
                   INDIVIDUALS.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.
     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2005, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2004' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election To Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of

[[Page S523]]

     a tax treaty between the United States and the foreign 
     country and who does not waive the benefits of such treaty 
     applicable to residents of the foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.
     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.
     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

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

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

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

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

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

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for

[[Page S524]]

     the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(49) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation) is 
     inadmissible.''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(21) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (20)'' each place it 
     appears and inserting ``(20), or (21)''.
       (3) Effective dates.--The amendments made by this 
     subsection shall apply to individuals who relinquish United 
     States citizenship on or after the date of the enactment of 
     this Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(h) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after the date of the 
     enactment of this subsection.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4) Section 6039G(a) is amended by inserting ``or 877A'' 
     after ``section 877(b)''.
       (5) The second sentence of section 6039G(d) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after ``section 
     877(a))''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after the date 
     of the enactment of this Act.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after the date of the 
     enactment of this Act, from an individual or the estate of an 
     individual whose expatriation date (as so defined) occurs 
     after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

                  Subtitle F--Miscellaneous Provisions

     SEC. 551. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT 
                   INSTRUMENTS.

       (a) In General.--Section 1275(d) (relating to regulation 
     authority) is amended--
       (1) by striking ``The Secretary'' and inserting the 
     following:
       ``(1) In general.--The Secretary'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Treatment of contingent payment convertible debt.--
       ``(A) In general.--In the case of a debt instrument which--
       ``(i) is convertible into stock of the issuing corporation, 
     into stock or debt of a related party (within the meaning of 
     section 267(b) or 707(b)(1)), or into cash or other property 
     in an amount equal to the approximate value of such stock or 
     debt, and
       ``(ii) provides for contingent payments,
     any regulations which require original issue discount to be 
     determined by reference to the comparable yield of a 
     noncontingent fixed-rate debt instrument shall be applied as 
     if the regulations require that such comparable yield be 
     determined by reference to a noncontingent fixed-rate debt 
     instrument which is convertible into stock.
       ``(B) Special rule.--For purposes of subparagraph (A), the 
     comparable yield shall be determined without taking into 
     account the yield resulting from the conversion of a debt 
     instrument into stock.''.
       (b) Cross Reference.--Section 163(e)(6) (relating to cross 
     references) is amended by adding at the end the following:
       ``For the treatment of contingent payment convertible debt, 
     see section 1275(d)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued on or after the date 
     of the enactment of this Act.

     SEC. 552. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS 
                   FOREIGN TAX CREDIT TRANSACTIONS INVOLVING 
                   INAPPROPRIATE SEPARATION OF FOREIGN TAXES FROM 
                   RELATED FOREIGN INCOME.

       (a) In General.--Section 901 (relating to taxes of foreign 
     countries and of possessions of United States) is amended by 
     redesignating subsection (m) as subsection (n) and by 
     inserting after subsection (l) the following new subsection:
       ``(m) Regulations.--The Secretary may prescribe regulations 
     disallowing a credit under subsection (a) for all or a 
     portion of any foreign tax, or allocating a foreign tax among 
     2 or more persons, in cases where the foreign tax is imposed 
     on any person in respect of income of another person or in 
     other cases involving the inappropriate separation of the 
     foreign tax from the related foreign income.''.

[[Page S525]]

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

     SEC. 553. REPEAL OF SPECIAL PROPERTY EXCEPTION TO LEASING 
                   PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 
                   2004.

       (a) In General.--Section 849(b) of the American Jobs 
     Creation Act of 2004 is amended by striking paragraphs (1) 
     and (2), by redesignating paragraphs (3) and (4) as 
     paragraphs (1) and (2), respectively.
       (b) Leases to Foreign Entities.--Section 849(b) of the 
     American Jobs Creation Act of 2004, as amended by subsection 
     (a), is amended by adding at the end the following new 
     paragraph:
       ``(3) Leases to foreign entities.--In the case of tax-
     exempt use property leased to a tax-exempt entity which is a 
     foreign person or entity, the amendments made by this part 
     shall apply to taxable years beginning after December 31, 
     2005, with respect to leases entered into on or before March 
     12, 2004.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     American Jobs Creation Act of 2004.

     SEC. 554. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS 
                   WHICH ARE CORPORATIONS.

       (a) In General.--Section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Treatment of corporate partners.--Except to the 
     extent provided by regulations, in applying this subsection 
     to a corporation which owns (directly or indirectly) an 
     interest in a partnership--
       ``(A) such corporation's distributive share of interest 
     income paid or accrued to such partnership shall be treated 
     as interest income paid or accrued to such corporation,
       ``(B) such corporation's distributive share of interest 
     paid or accrued by such partnership shall be treated as 
     interest paid or accrued by such corporation, and
       ``(C) such corporation's share of the liabilities of such 
     partnership shall be treated as liabilities of such 
     corporation.''.
       (b) Additional Regulatory Authority.--Section 163(j)(9) 
     (relating to regulations), as redesignated by subsection (a), 
     is amended by striking ``and'' at the end of subparagraph 
     (B), by striking the period at the end of subparagraph (C) 
     and inserting ``, and'', and by adding at the end the 
     following new subparagraph:
       ``(D) regulations providing for the reallocation of shares 
     of partnership indebtedness, or distributive shares of the 
     partnership's interest income or interest expense, as may be 
     appropriate to carry out the purposes of this subsection.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning on or after the date 
     of the enactment of this Act.

     SEC. 555. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN 
                   ENTERTAINMENT EXPENSES.

       (a) In General.--Paragraph (2) of section 274(e) (relating 
     to expenses treated as compensation) is amended to read as 
     follows:
       ``(2) Expenses treated as compensation.--Expenses for 
     goods, services, and facilities, to the extent that the 
     expenses do not exceed the amount of the expenses which are 
     treated by the taxpayer, with respect to the recipient of the 
     entertainment, amusement, or recreation, as compensation to 
     an employee on the taxpayer's return of tax under this 
     chapter and as wages to such employee for purposes of chapter 
     24 (relating to withholding of income tax at source on 
     wages).''.
       (b) Persons Not Employees.--Paragraph (9) of section 274(e) 
     is amended by striking ``to the extent that the expenses are 
     includible in the gross income'' and inserting ``to the 
     extent that the expenses do not exceed the amount of the 
     expenses which are includible in the gross income''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses incurred after the date of the 
     enactment of this Act.

     SEC. 556. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Treatment of Distributions From Qualified Disability 
     Trusts.--Section 1(g)(4) (relating to net unearned income) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Treatment of distributions from qualified disability 
     trusts.--For purposes of this subsection, in the case of any 
     child who is a beneficiary of a qualified disability trust 
     (as defined in section 642(b)(2)(C)(ii)), any amount included 
     in the income of such child under sections 652 and 662 during 
     a taxable year shall be considered earned income of such 
     child for such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 557. LOAN AND REDEMPTION REQUIREMENTS ON POOLED 
                   FINANCING REQUIREMENTS.

       (a) Strengthened Reasonable Expectation Requirement.--
     Subparagraph (A) of section 149(f)(2) (relating to reasonable 
     expectation requirement) is amended to read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to an issue if the issuer reasonably expects 
     that--
       ``(i) as of the close of the 1-year period beginning on the 
     date of issuance of the issue, at least 50 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been used directly or indirectly to make or finance 
     loans to ultimate borrowers, and
       ``(ii) as of the close of the 3-year period beginning on 
     such date of issuance, at least 95 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been so used.''.
       (b) Written Loan Commitment and Redemption Requirements.--
     Section 149(f) (relating to treatment of certain pooled 
     financing bonds) is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (6) and (7), respectively, and by 
     inserting after paragraph (3) the following new paragraphs:
       ``(4) Written loan commitment requirement.--
       ``(A) In general.--The requirement of this paragraph is met 
     with respect to an issue if the issuer receives prior to 
     issuance written loan commitments identifying the ultimate 
     potential borrowers of at least 50 percent of the net 
     proceeds of such issue.
       ``(B) Exception.--Subparagraph (A) shall not apply with 
     respect to any issuer which is a State (or an integral part 
     of a State) issuing pooled financing bonds to make or finance 
     loans to subordinate governmental units of such State or to 
     State-created entities providing financing for water-
     infrastructure projects through the federally-sponsored State 
     revolving fund program.
       ``(5) Redemption requirement.--The requirement of this 
     paragraph is met if to the extent that less than the 
     percentage of the proceeds of an issue required to be used 
     under clause (i) or (ii) of paragraph (2)(A) is used by the 
     close of the period identified in such clause, the issuer 
     uses an amount of proceeds equal to the excess of--
       ``(A) the amount required to be used under such clause, 
     over
       ``(B) the amount actually used by the close of such period,
       ``to redeem outstanding bonds within 90 days after the end 
     of such period.''.
       (c) Elimination of Disregard of Pooled Bonds in Determining 
     Eligibility for Small Issuer Exception to Arbitrage Rebate.--
     Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) 
     is amended by striking subclause (II) and by redesignating 
     subclauses (III) and (IV) as subclauses (II) and (III), 
     respectively.
       (d) Conforming Amendments.--
       (1) Section 149(f)(1) is amended by striking ``paragraphs 
     (2) and (3)'' and inserting ``paragraphs (2), (3), (4), and 
     (5)''.
       (2) Section 149(f)(7)(B), as redesignated by subsection 
     (b), is amended by striking ``paragraph (4)(A)'' and 
     inserting ``paragraph (6)(A)''.
       (3) Section 54(l)(2) is amended by striking ``section 
     149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 558. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

       (a) In General.--Section 6049(b)(2) (relating to 
     exceptions) is amended by striking subparagraph (B) and by 
     redesignating subparagraphs (C) and (D) as subparagraphs (B) 
     and (C), respectively.
       (b) Conforming Amendment.--Section 6049(b)(2)(C), as 
     redesignated by subsection (a), is amended by striking 
     ``subparagraph (C)'' and inserting ``subparagraph (B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest earned after December 31, 2005.

     SEC. 559. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE.

       (a) Taxable Years Ending Before 2006.--
       (1) Modification of phaseout.--
       (A) In general.--Section 29(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 29(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 
     2005.--Section 29(b)(2), as amended by paragraph (1), is 
     amended by adding at the end the following new sentence: 
     ``This paragraph shall not apply with respect to the $3 
     amount in subsection (a) for calendar year 2005 and the 
     amount in effect under subsection (a) for sales in such 
     calendar year shall be the amount which was in effect for 
     sales in calendar year 2004.''.
       (b) Taxable Years Ending After 2005.--
       (1) Modification of phaseout.--
       (A) In general.--Section 45K(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 45K(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 2005, 
     2006, and 2007.--Section 45K(b)(2), as amended by paragraph 
     (1), is amended by adding at the end the following new 
     sentence: ``This paragraph shall not apply with respect to 
     the $3 amount in subsection (a) for calendar years 2005, 
     2006, and

[[Page S526]]

     2007 and the amount in effect under subsection (a) for sales 
     in each such calendar year shall be the amount which was in 
     effect for sales in calendar year 2004.''.
       (3) Treatment of coke and coke gas.--
       (A) Nonapplication of phaseout.--Section 45K(g)(2) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Nonapplication of phaseout.--Subsection (b)(1) shall 
     not apply.''.
       (B) Application of inflation adjustment.--Section 
     45K(g)(2)(B) is amended by inserting ``and the last sentence 
     of subsection (b)(2) shall not apply.''.
       (C) Clarification of qualifying facility.--Section 
     45K(g)(1) is amended by inserting ``(other than from 
     petroleum based products)'' after ``coke or coke gas''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to fuel sold after December 31, 2004.

     SEC. 560. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE 
                   HARBOR.

       (a) In General.--The table contained in section 
     6654(d)(1)(C) is amended by striking ``2002 or thereafter'' 
     and inserting ``2002, 2003, 2004, or 2005'' and by adding at 
     the end the following new items:
  ``2006............................................................120
  2007 or thereafter.............................................110''.

       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to any installment payment for 
     taxable years beginning after December 31, 2005.

     SEC. 561. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED 
                   OIL COMPANIES.

       (a) General Rule.--Notwithstanding any other provision of 
     law, if a taxpayer is an applicable integrated oil company 
     for its last taxable year ending in calendar year 2005, the 
     taxpayer shall--
       (1) increase, effective as of the close of such taxable 
     year, the value of each historic LIFO layer of inventories of 
     crude oil, natural gas, or any other petroleum product 
     (within the meaning of section 4611) by the layer adjustment 
     amount, and
       (2) decrease its cost of goods sold for such taxable year 
     by the aggregate amount of the increases under paragraph (1).
     If the aggregate amount of the increases under paragraph (1) 
     exceed the taxpayer's cost of goods sold for such taxable 
     year, the taxpayer's gross income for such taxable year shall 
     be increased by the amount of such excess.
       (b) Layer Adjustment Amount.--For purposes of this 
     section--
       (1) In general.--The term ``layer adjustment amount'' 
     means, with respect to any historic LIFO layer, the product 
     of--
       (A) $18.75, and
       (B) the number of barrels of crude oil (or in the case of 
     natural gas or other petroleum products, the number of 
     barrel-of-oil equivalents) represented by the layer.
       (2) Barrel-of-oil equivalent.--The term ``barrel-of-oil 
     equivalent'' has the meaning given such term by section 
     29(d)(5) (as in effect before its redesignation by the Energy 
     Tax Incentives Act of 2005).
       (c) Application of Requirement.--
       (1) No change in method of accounting.--Any adjustment 
     required by this section shall not be treated as a change in 
     method of accounting.
       (2) Underpayments of estimated tax.--o addition to the tax 
     shall be made under section 6655 of the Internal Revenue Code 
     of 1986 (relating to failure by corporation to pay estimated 
     tax) with respect to any underpayment of an installment 
     required to be paid with respect to the taxable year 
     described in subsection (a) to the extent such underpayment 
     was created or increased by this section.
       (d) Applicable Integrated Oil Company.--For purposes of 
     this section, the term ``applicable integrated oil company'' 
     means an integrated oil company (as defined in section 
     291(b)(4) of the Internal Revenue Code of 1986) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barels for the taxable year and which had gross 
     receipts in excess of $1,000,000,000 for its last taxable 
     year ending during calendar year 2005. For purposes of this 
     subsection all persons treated as a single employer under 
     subsections (a) and (b) of section 52 of the Internal Revenue 
     Code of 1986 shall be treated as 1 person and, in the case of 
     a short taxable year, the rule under section 448(c)(3)(B) 
     shall apply.

     SEC. 562. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND 
                   GEOPHYSICAL EXPENDITURES FOR MAJOR INTEGRATED 
                   OIL COMPANIES.

       (a) In General.--Section 167(h) is amended by adding at the 
     end the following new paragraph:
       ``(5) Nonapplication to major integrated oil companies.--
     This subsection shall not apply with respect to any expenses 
     paid or incurred for any taxable year by any integrated oil 
     company (as defined in section 291(b)(4)) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for such taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendment made by 
     section 1329(a) of the Energy Policy Act of 2005.

     SEC. 563. VALUATION OF EMPLOYEE PERSONAL USE OF NONCOMMERCIAL 
                   AIRCRAFT.

       (a) In General.--For purposes of Federal income tax 
     inclusion, the value of any employee personal use of 
     noncommercial aircraft shall equal the excess (if any) of--
       (1) greater of--
       (A) the fair market value of such use, or
       (B) the actual cost of such use (including all fixed and 
     variable costs), over
       (2) any amount paid by or on behalf of such employee for 
     such use.
       (b) Effective Date.--Subsection (a) shall apply to use 
     after the date of the enactment of this Act.

     SEC. 564. APPLICATION OF FIRPTA TO REGULATED INVESTMENT 
                   COMPANIES.

       (a) In General.--Subclause (II) of section 897(h)(4)(A)(i) 
     (defining qualified investment entity) is amended by 
     inserting ``which is a United States real property holding 
     corporation or which would be a United States real property 
     holding corporation if the exceptions provided in subsections 
     (c)(3) and (h)(2) did not apply to interests in any real 
     estate investment trust or regulated investment company'' 
     after ``regulated investment company''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions with respect to taxable years 
     beginning after December 31, 2004.

     SEC. 565. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA 
                   GAINS.

       (a) Qualified Investment Entity.--
       (1) In general.--Section 897(h)(1) is amended--
       (A) by striking ``a nonresident alien individual or a 
     foreign corporation'' in the first sentence and inserting ``a 
     nonresident alien individual, a foreign corporation, or other 
     qualified investment entity'',
       (B) by striking ``such nonresident alien individual or 
     foreign corporation'' in the first sentence and inserting 
     ``such nonresident alien individual, foreign corporation, or 
     other qualified investment entity'', and
       (C) by striking the second sentence and inserting the 
     following new sentence: ``Notwithstanding the preceding 
     sentence, any distribution by a qualified investment entity 
     to a nonresident alien, a foreign corporation, or other 
     qualified investment entity with respect to any class of 
     stock which is regularly traded on an established securities 
     market located in the United States shall not be treated as 
     gain recognized from the sale or exchange of a United States 
     real property interest if the shareholder did not own more 
     than 5 percent of such class of stock at any time during the 
     1 year period ending on the date of such distribution.''.
       (2) Application after 2007.--Clause (ii) of section 
     897(h)(4)(A) is amended by adding at the end the following 
     new sentence: ``Notwithstanding the preceding sentence, an 
     entity described in clause (i)(II) shall be treated as a 
     qualified investment entity for purposes of applying 
     paragraph (1) in any case in which a real estate investment 
     trust makes a distribution to an entity described in clause 
     (i)(II).''.
       (b) Treatment of Certain Distributions as Dividends.--
       (1) In general.--Section 852(b)(3) (relating to capital 
     gains) is amended by adding at the end the following new 
     subparagraph:
       ``(E) Certain distributions.--In the case of a distribution 
     to which section 897 does not apply by reason of the second 
     sentence of section 897(h)(1), the amount of such 
     distribution which would be included in computing long-term 
     capital gains for the shareholder under subparagraph (B) or 
     (D) (without regard to this subparagraph)--
       ``(i) shall not be included in computing such shareholder's 
     long-term capital gains, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the regulated investment company.''.
       (2) Conforming amendment.--Section 871(k)(2) (relating to 
     short-term capital gain dividends) is amended by adding at 
     the end the following new subparagraph:
       ``(E) Certain distributions.--In the case of a distribution 
     to which section 897 does not apply by reason of the second 
     sentence of section 897(h)(1), the amount which would be 
     treated as a short-term capital gain dividend to the 
     shareholder (without regard to this subparagraph)--
       ``(i) shall not be treated as a short-term capital gain 
     dividend, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the regulated investment company.''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     of qualified investment entities beginning after the date of 
     the enactment of this Act.
       (2) Dividends.--The amendments made by subsection (b) shall 
     apply to dividends with respect to taxable years of regulated 
     investment companies beginning after December 31, 2004.

     SEC. 566. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF 
                   FOREIGN PERSONS IN UNITED STATES REAL PROPERTY 
                   THROUGH WASH SALE TRANSACTIONS.

       (a) In General.--Section 897(h) of the Internal Revenue 
     Code of 1986 (relating to special rules in certain investment 
     entities) is amended by redesignating paragraph (4) as 
     paragraph (5) and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) Treatment of certain wash sale transactions.--
       ``(A) In general.--If an interest in a domestically 
     controlled qualified investment entity is disposed of in an 
     applicable wash sale transaction, the taxpayer shall, for 
     purposes of this section, be treated as having gain from the 
     sale or exchange of a United States real property interest in 
     an amount equal to the portion of the distribution described 
     in subparagraph (B) with respect to

[[Page S527]]

     such interest which, but for the disposition, would have been 
     treated by the taxpayer as gain from the sale or exchange of 
     a United States real property interest under paragraph (1).
       ``(B) Applicable wash sales transaction.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `applicable wash sales 
     transaction' means any transaction (or series of 
     transactions) under which a nonresident alien individual or 
     foreign corporation--

       ``(I) disposes of an interest in a domestically controlled 
     qualified investment entity during the 30-day period 
     preceding a distribution which is to be made with respect to 
     the interest and any portion of which, but for the 
     disposition, would have been treated by the taxpayer as gain 
     from the sale or exchange of a United States real property 
     interest under paragraph (1), and
       ``(II) acquires an identical interest in such entity during 
     the 60-day period beginning with the 1st day of the 30-day 
     period described in subclause (I).

     For purposes of subclause (II), a nonresident alien 
     individual or foreign corporation shall be treated as having 
     acquired any interest acquired by a person related (within 
     the meaning of section 465(b)(3)(C)) to the individual or 
     corporation.
       ``(ii) Exception where distribution actually received.--A 
     transaction shall not be treated as an applicable wash sales 
     transaction if the nonresident alien individual or foreign 
     corporation receives the distribution described in clause 
     (i)(I) with respect to either the interest which was disposed 
     of, or acquired, in the transaction.
       ``(iii) Exception for certain publicly traded stock.--A 
     transaction shall not be treated as an applicable wash sales 
     transaction if it involves the disposition of any class of 
     stock in a qualified investment entity which is regularly 
     traded on an established securities market within the United 
     States but only if the nonresident alien individual or 
     foreign corporation did not own more than 5 percent of such 
     class of stock at any time during the 1-year period ending on 
     the date of the distribution described in clause (i)(I).''.
       (b) No Withholding Required.--Section 1445(b) of the 
     Internal Revenue Code of 1986 (relating to exemptions) is 
     amended by adding at the end the following new paragraph:
       ``(8) Applicable wash sales transactions.--No person shall 
     be required to deduct and withhold any amount under 
     subsection (a) with respect to a disposition which is treated 
     as a disposition of a United States real property interest 
     solely by reason of section 897(h)(4).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to dispositions after December 31, 2005, in 
     taxable years ending after such date.

     SEC. 567. MODIFICATIONS TO RULES RELATING TO TAXATION OF 
                   DISTRIBUTIONS OF STOCK AND SECURITIES OF A 
                   CONTROLLED CORPORATION.

       (a) Modification of Active Business Definition Under 
     Section 355.--
       (1) In general.--Section 355(b) (defining active conduct of 
     a trade or business) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rules relating to active business 
     requirement.--
       ``(A) In general.--For purposes of determining whether a 
     corporation meets the requirement of paragraph (2)(A), all 
     members of such corporation's separate affiliated group shall 
     be treated as 1 corporation. For purposes of the preceding 
     sentence, the term `separate affiliated group' means, with 
     respect to any corporation, the affiliated group which would 
     be determined under section 1504(a) if such corporation were 
     the common parent and section 1504(b) did not apply.
       ``(B) Control.--For purposes of paragraph (2)(D), all 
     distributee corporations which are members of the same 
     affiliated group (as defined in section 1504(a) without 
     regard to section 1504(b)) shall be treated as 1 distributee 
     corporation.''.
       (2) Conforming amendments.--
       (A) Subparagraph (A) of section 355(b)(2) is amended to 
     read as follows:
       ``(A) it is engaged in the active conduct of a trade or 
     business,''.
       (B) Section 355(b)(2) of such Code is amended by striking 
     the last sentence.
       (3) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply--
       (i) to distributions after the date of the enactment of 
     this Act, and before January 1, 2010, and
       (ii) for purposes of determining the continued 
     qualification under section 355(b)(2)(A) of the Internal 
     Revenue Code of 1986 (as amended by paragraph (2)(A)) of 
     distributions made before such date, as a result of an 
     acquisition, disposition, or other restructuring after such 
     date and before January 1, 2010.
       (B) Transition rule.--The amendments made by this 
     subsection shall not apply to any distribution pursuant to a 
     transaction which is--
       (i) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (ii) described in a ruling request submitted to the 
     Internal Revenue Service on or before such date, or
       (iii) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.
       (C) Elections.--
       (i) Out of transition relief.--Subparagraph (B) shall not 
     apply if the distributing corporation elects not to have such 
     subparagraph apply to distributions of such corporation. Any 
     such election, once made, shall be irrevocable.
       (ii) Application to prior distributions.--Subparagraph 
     (A)(ii) shall not apply to a distributing or controlled 
     corporation if the corporation elects not to have such 
     subparagraph apply to such corporation. Any such election, 
     once made, shall be irrevocable.
       (b) Section 355 Not To Apply to Distributions if the 
     Distributing or Controlled Corporation Is a Disqualified 
     Investment Corporation.--
       (1) In general.--Section 355 (relating to distributions of 
     stock and securities of a controlled corporation) is amended 
     by adding at the end the following new subsection:
       ``(g) Section Not To Apply to Distributions Involving 
     Disqualified Investment Corporations.--
       ``(1) In general.--This section (and so much of section 356 
     as relates to this section) shall not apply to any 
     distribution which is part of a transaction if--
       ``(A) either the distributing corporation or controlled 
     corporation is, immediately after the transaction, a 
     disqualified investment corporation, and
       ``(B) any person holds, immediately after the transaction, 
     a 50-percent or greater interest in any disqualified 
     investment corporation, but only if such person did not hold 
     such an interest in such corporation immediately before the 
     transaction.
       ``(2) Disqualified investment corporation.--For purposes of 
     this subsection--
       ``(A) In general.--The term `disqualified investment 
     corporation' means any distributing or controlled corporation 
     if the fair market value of the investment assets of the 
     corporation is 75 percent or more of the fair market value of 
     all assets of the corporation.
       ``(B) Investment assets.--
       ``(i) In general.--Except as otherwise provided in this 
     subparagraph, the term `investment assets' means--

       ``(I) cash,
       ``(II) any stock or securities in a corporation,
       ``(III) any interest in a partnership,
       ``(IV) any debt instrument or other evidence of 
     indebtedness,
       ``(V) any option, forward or futures contract, notional 
     principal contract, or derivative,
       ``(VI) foreign currency, or
       ``(VII) any similar asset.

       ``(ii) Exception for assets used in active conduct of 
     certain financial trades or businesses.--Such term shall not 
     include any asset which is held for use in the active and 
     regular conduct of--

       ``(I) a lending or finance business (within the meaning of 
     section 954(h)(4)),
       ``(II) a banking business through a bank (as defined in 
     section 581), a domestic building and loan association 
     (within the meaning of section 7701(a)(19)), or any similar 
     institution specified by the Secretary, or
       ``(III) an insurance business if the conduct of the 
     business is licensed, authorized, or regulated by an 
     applicable insurance regulatory body.

     This clause shall only apply with respect to any business if 
     substantially all of the income of the business is derived 
     from persons who are not related (within the meaning of 
     section 267(b) or 707(b)(1)) to the person conducting the 
     business.
       ``(iii) Exception for securities marked to market.--Such 
     term shall not include any security (as defined in section 
     475(c)(2)) which is held by a dealer in securities and to 
     which section 475(a) applies.
       ``(iv) Stock or securities in a 25-percent controlled 
     entity.--

       ``(I) In general.--Such term shall not include any stock 
     and securities in, or any asset described in subclause (IV) 
     or (V) of clause (i) issued by, a corporation which is a 25-
     percent controlled entity with respect to the distributing or 
     controlled corporation.
       ``(II) Look-thru rule.--The distributing or controlled 
     corporation shall, for purposes of applying this subsection, 
     be treated as owning its ratable share of the assets of any 
     25-percent controlled entity.
       ``(III) 25-percent controlled entity.--For purposes of this 
     clause, the term `25-percent controlled entity' means, with 
     respect to any distributing or controlled corporation, any 
     corporation with respect to which the distributing or 
     controlled corporation owns directly or indirectly stock 
     meeting the requirements of section 1504(a)(2), except that 
     such section shall be applied by substituting `25 percent' 
     for `80 percent' and without regard to stock described in 
     section 1504(a)(4).

       ``(v) Interests in certain partnerships.--

       ``(I) In general.--Such term shall not include any interest 
     in a partnership, or any debt instrument or other evidence of 
     indebtedness, issued by the partnership, if 1 or more of the 
     trades or businesses of the partnership are (or, without 
     regard to the 5-year requirement under subsection (b)(2)(B), 
     would be) taken into account by the distributing or 
     controlled corporation, as the case may be, in determining 
     whether the requirements of subsection (b) are met with 
     respect to the distribution.
       ``(II) Look-thru rule.--The distributing or controlled 
     corporation shall, for purposes of applying this subsection, 
     be treated as owning its ratable share of the assets of any 
     partnership described in subclause (I).

       ``(3) 50-percent or greater interest.--For purposes of this 
     subsection--
       ``(A) In general.--The term `50-percent or greater 
     interest' has the meaning given such term by subsection 
     (d)(4).

[[Page S528]]

       ``(B) Attribution rules.--The rules of section 318 shall 
     apply for purposes of determining ownership of stock for 
     purposes of this paragraph.
       ``(4) Transaction.--For purposes of this subsection, the 
     term `transaction' includes a series of transactions.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out, or prevent the 
     avoidance of, the purposes of this subsection, including 
     regulations--
       ``(A) to carry out, or prevent the avoidance of, the 
     purposes of this subsection in cases involving--
       ``(i) the use of related persons, intermediaries, pass-thru 
     entities, options, or other arrangements, and
       ``(ii) the treatment of assets unrelated to the trade or 
     business of a corporation as investment assets if, prior to 
     the distribution, investment assets were used to acquire such 
     unrelated assets,
       ``(B) which in appropriate cases exclude from the 
     application of this subsection a distribution which does not 
     have the character of a redemption which would be treated as 
     a sale or exchange under section 302, and
       ``(C) which modify the application of the attribution rules 
     applied for purposes of this subsection.''.
       (2) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (B) Transition rule.--The amendments made by this 
     subsection shall not apply to any distribution pursuant to a 
     transaction which is--
       (i) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (ii) described in a ruling request submitted to the 
     Internal Revenue Service on or before such date, or
       (iii) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.

     SEC. 568. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR 
                   ACQUIRING MUSIC OR MUSIC COPYRIGHTS.

       (a) In General.--Section 263A (relating to capitalization 
     and inclusion in inventory costs of certain expenses) is 
     amended by redesignating subsection (i) as subsection (j) and 
     by adding after subsection (h) the following new subsection:
       ``(i) Special Rules for Certain Musical Works and 
     Copyrights.--
       ``(1) In general.--If--
       ``(A) any expense is paid or incurred by the taxpayer in 
     creating or acquiring any musical composition (including any 
     accompanying words) or any copyright with respect to a 
     musical composition, and
       ``(B) such expense is required to be capitalized under this 
     section,

     then, notwithstanding section 167(g), the amount capitalized 
     shall be amortized ratably over the 5-year period beginning 
     with the month in which the composition or copyright was 
     acquired (or, in the case of expenses paid or incurred in 
     connection with the creation of a musical composition, the 5-
     taxable-year period beginning with the taxable year in which 
     the expenses were paid or incurred).
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     expense--
       ``(A) which is a qualified creative expense under 
     subsection (h),
       ``(B) to which a simplified procedure established under 
     subsection (j)(2) applies,
       ``(C) which is an amortizable section 197 intangible (as 
     defined in section 197(c)), or
       ``(D) which, without regard to this section, would not be 
     allowable as a deduction.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to expenses paid or incurred after December 31, 
     2005, in taxable years ending after such date.

     SEC. 569. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

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

     ``SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

       ``(a) Allowance of Credit.--In the case of a taxpayer who 
     holds a rural renaissance bond on a credit allowance date of 
     such bond, which occurs during the taxable year, there shall 
     be allowed as a credit against the tax imposed by this 
     chapter for such taxable year an amount equal to the sum of 
     the credits determined under subsection (b) with respect to 
     credit allowance dates during such year on which the taxpayer 
     holds such bond.
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any credit allowance 
     date for a rural renaissance bond is 25 percent of the annual 
     credit determined with respect to such bond.
       ``(2) Annual credit.--The annual credit determined with 
     respect to any rural renaissance bond is the product of--
       ``(A) the credit rate determined by the Secretary under 
     paragraph (3) for the day on which such bond was sold, 
     multiplied by
       ``(B) the outstanding face amount of the bond.
       ``(3) Determination.--For purposes of paragraph (2), with 
     respect to any rural renaissance bond, the Secretary shall 
     determine daily or caused to be determined daily a credit 
     rate which shall apply to the first day on which there is a 
     binding, written contract for the sale or exchange of the 
     bond. The credit rate for any day is the credit rate which 
     the Secretary or the Secretary's designee estimates will 
     permit the issuance of rural renaissance bonds with a 
     specified maturity or redemption date without discount and 
     without interest cost to the qualified issuer.
       ``(4) Credit allowance date.--For purposes of this section, 
     the term `credit allowance date' means--
       ``(A) March 15,
       ``(B) June 15,
       ``(C) September 15, and
       ``(D) December 15.
     Such term also includes the last day on which the bond is 
     outstanding.
       ``(5) Special rule for issuance and redemption.--In the 
     case of a bond which is issued during the 3-month period 
     ending on a credit allowance date, the amount of the credit 
     determined under this subsection with respect to such credit 
     allowance date shall be a ratable portion of the credit 
     otherwise determined based on the portion of the 3-month 
     period during which the bond is outstanding. A similar rule 
     shall apply when the bond is redeemed or matures.
       ``(c) Limitation Based on Amount of Tax.--The credit 
     allowed under subsection (a) for any taxable year shall not 
     exceed the excess of--
       ``(1) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(2) the sum of the credits allowable under this part 
     (other than subpart C thereof, relating to refundable 
     credits).
       ``(d) Rural Renaissance Bond.--For purposes of this 
     section--
       ``(1) In general.--The term `rural renaissance bond' means 
     any bond issued as part of an issue if--
       ``(A) the bond is issued by a qualified issuer,
       ``(B) 95 percent or more of the proceeds from the sale of 
     such issue are to be used for capital expenditures incurred 
     for 1 or more qualified projects,
       ``(C) the qualified issuer designates such bond for 
     purposes of this section and the bond is in registered form, 
     and
       ``(D) the issue meets the requirements of subsections (e) 
     and (h).
       ``(2) Qualified project; special use rules.--
       ``(A) In general.--The term `qualified project' means 1 or 
     more projects described in subparagraph (B) located in a 
     rural area.
       ``(B) Projects described.--A project described in this 
     subparagraph is--
       ``(i) a water or waste treatment project,
       ``(ii) an affordable housing project,
       ``(iii) a community facility project, including hospitals, 
     fire and police stations, and nursing and assisted-living 
     facilities,
       ``(iv) a value-added agriculture or renewable energy 
     facility project for agricultural producers or farmer-owned 
     entities, including any project to promote the production, 
     processing, or retail sale of ethanol (including fuel at 
     least 85 percent of the volume of which consists of ethanol), 
     biodiesel, animal waste, biomass, raw commodities, or wind as 
     a fuel,
       ``(v) a distance learning or telemedicine project,
       ``(vi) a rural utility infrastructure project, including 
     any electric or telephone system,
       ``(vii) a project to expand broadband technology,
       ``(viii) a rural teleworks project, and
       ``(ix) any project described in any preceding clause 
     carried out by the Delta Regional Authority.
       ``(C) Special rules.--For purposes of this paragraph--
       ``(i) any project described in subparagraph (B)(iv) for a 
     farmer-owned entity may be considered a qualified project if 
     such entity is located in a rural area, or in the case of a 
     farmer-owned entity the headquarters of which are located in 
     a nonrural area, if the project is located in a rural area, 
     and
       ``(ii) any project for a farmer-owned entity which is a 
     facility described in subparagraph (B)(iv) for agricultural 
     producers may be considered a qualified project regardless of 
     whether the facility is located in a rural or nonrural area.
       ``(3) Special use rules.--
       ``(A) Refinancing rules.--For purposes of paragraph (1)(B), 
     a qualified project may be refinanced with proceeds of a 
     rural renaissance bond only if the indebtedness being 
     refinanced (including any obligation directly or indirectly 
     refinanced by such indebtedness) was originally incurred 
     after the date of the enactment of this section.
       ``(B) Reimbursement.--For purposes of paragraph (1)(B), a 
     rural renaissance bond may be issued to reimburse a borrower 
     for amounts paid after the date of the enactment of this 
     section with respect to a qualified project, but only if--
       ``(i) prior to the payment of the original expenditure, the 
     borrower declared its intent to reimburse such expenditure 
     with the proceeds of a rural renaissance bond,
       ``(ii) not later than 60 days after payment of the original 
     expenditure, the qualified issuer adopts an official intent 
     to reimburse the original expenditure with such proceeds, and
       ``(iii) the reimbursement is made not later than 18 months 
     after the date the original expenditure is paid.
       ``(C) Treatment of changes in use.--For purposes of 
     paragraph (1)(B), the proceeds of an issue shall not be 
     treated as used for a qualified project to the extent that a 
     borrower takes any action within its control which causes 
     such proceeds not to be used

[[Page S529]]

     for a qualified project. The Secretary shall prescribe 
     regulations specifying remedial actions that may be taken 
     (including conditions to taking such remedial actions) to 
     prevent an action described in the preceding sentence from 
     causing a bond to fail to be a rural renaissance bond.
       ``(e) Maturity Limitations.--
       ``(1) Duration of term.--A bond shall not be treated as a 
     rural renaissance bond if the maturity of such bond exceeds 
     the maximum term determined by the Secretary under paragraph 
     (2) with respect to such bond.
       ``(2) Maximum term.--During each calendar month, the 
     Secretary shall determine the maximum term permitted under 
     this paragraph for bonds issued during the following calendar 
     month. Such maximum term shall be the term which the 
     Secretary estimates will result in the present value of the 
     obligation to repay the principal on the bond being equal to 
     50 percent of the face amount of such bond. Such present 
     value shall be determined without regard to the requirements 
     of subsection (f)(3) and using as a discount rate the average 
     annual interest rate of tax-exempt obligations having a term 
     of 10 years or more which are issued during the month. If the 
     term as so determined is not a multiple of a whole year, such 
     term shall be rounded to the next highest whole year.
       ``(3) Ratable principal amortization required.--A bond 
     shall not be treated as a rural renaissance bond unless it is 
     part of an issue which provides for an equal amount of 
     principal to be paid by the qualified issuer during each 
     calendar year that the issue is outstanding.
       ``(f) Limitation on Amount of Bonds Designated.--
       ``(1) National limitation.--There is a rural renaissance 
     bond limitation of $200,000,000.
       ``(2) Allocation by secretary.--The Secretary shall 
     allocate the amount described in paragraph (1) among 
     qualified projects in such manner as the Secretary determines 
     appropriate.
       ``(g) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this section (determined without regard to subsection 
     (c)) and the amount so included shall be treated as interest 
     income.
       ``(h) Special Rules Relating to Expenditures.--
       ``(1) In general.--An issue shall be treated as meeting the 
     requirements of this subsection if, as of the date of 
     issuance, the qualified issuer reasonably expects--
       ``(A) at least 95 percent of the proceeds from the sale of 
     the issue are to be spent for 1 or more qualified projects 
     within the 5-year period beginning on the date of issuance of 
     the rural renaissance bond,
       ``(B) a binding commitment with a third party to spend at 
     least 10 percent of the proceeds from the sale of the issue 
     will be incurred within the 6-month period beginning on the 
     date of issuance of the rural renaissance bond or, in the 
     case of a rural renaissance bond, the proceeds of which are 
     to be loaned to 2 or more borrowers, such binding commitment 
     will be incurred within the 6-month period beginning on the 
     date of the loan of such proceeds to a borrower, and
       ``(C) such projects will be completed with due diligence 
     and the proceeds from the sale of the issue will be spent 
     with due diligence.
       ``(2) Extension of period.--Upon submission of a request 
     prior to the expiration of the period described in paragraph 
     (1)(A), the Secretary may extend such period if the qualified 
     issuer establishes that the failure to satisfy the 5-year 
     requirement is due to reasonable cause and the related 
     projects will continue to proceed with due diligence.
       ``(3) Failure to spend required amount of bond proceeds 
     within 5 years.--To the extent that less than 95 percent of 
     the proceeds of such issue are expended by the close of the 
     5-year period beginning on the date of issuance (or if an 
     extension has been obtained under paragraph (2), by the close 
     of the extended period), the qualified issuer shall redeem 
     all of the nonqualified bonds within 90 days after the end of 
     such period. For purposes of this paragraph, the amount of 
     the nonqualified bonds required to be redeemed shall be 
     determined in the same manner as under section 142.
       ``(i) Special Rules Relating to Arbitrage.--A bond which is 
     part of an issue shall not be treated as a rural renaissance 
     bond unless, with respect to the issue of which the bond is a 
     part, the qualified issuer satisfies the arbitrage 
     requirements of section 148 with respect to proceeds of the 
     issue.
       ``(j) Qualified Issuer.--For purposes of this section--
       ``(1) In general.--The term `qualified issuer' means any 
     not-for-profit cooperative lender which has as of the date of 
     the enactment of this section received a guarantee under 
     section 306 of the Rural Electrification Act and which meets 
     the requirement of paragraph (2).
       ``(2) User fee requirement.--The requirement of this 
     paragraph is met if the issuer of any rural renaissance bond 
     makes grants for qualified projects as defined under 
     subsection (d)(2) on a semi-annual basis every year that such 
     bond is outstanding in an annual amount equal to one-half of 
     the rate on United States Treasury Bills of the same maturity 
     multiplied by the outstanding principle balance of rural 
     renaissance bonds issued by such issuer.
       ``(k) Special Rules Relating to Pool Bonds.--No portion of 
     a pooled financing bond may be allocable to loan unless the 
     borrower has entered into a written loan commitment for such 
     portion prior to the issue date of such issue.
       ``(l) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Bond.--The term `bond' includes any obligation.
       ``(2) Pooled financing bond.--The term `pooled financing 
     bond' shall have the meaning given such term by section 
     149(f)(4)(A).
       ``(3) Rural area.--The term `rural area' means any area 
     other than--
       ``(A) a city or town which has a population of greater than 
     50,000 inhabitants, or
       ``(B) the urbanized area contiguous and adjacent to such a 
     city or town.
       ``(4) Partnership; s corporation; and other pass-thru 
     entities.--
       ``(A) In general.--Under regulations prescribed by the 
     Secretary, in the case of a partnership, trust, S 
     corporation, or other pass-thru entity, rules similar to the 
     rules of section 41(g) shall apply with respect to the credit 
     allowable under subsection (a).
       ``(B) No basis adjustment.--In the case of a bond held by a 
     partnership or an S corporation, rules similar to the rules 
     under section 1397E(i) shall apply.
       ``(5) Bonds held by regulated investment companies.--If any 
     rural renaissance bond is held by a regulated investment 
     company, the credit determined under subsection (a) shall be 
     allowed to shareholders of such company under procedures 
     prescribed by the Secretary.
       ``(6) Reporting.--Issuers of rural renaissance bonds shall 
     submit reports similar to the reports required under section 
     149(e).''.
       (b) Reporting.--Subsection (d) of section 6049 (relating to 
     returns regarding payments of interest) is amended by adding 
     at the end the following new paragraph:
       ``(9) Reporting of credit on rural renaissance bonds.--
       ``(A) In general.--For purposes of subsection (a), the term 
     `interest' includes amounts includible in gross income under 
     section 54(f) and such amounts shall be treated as paid on 
     the credit allowance date (as defined in section 54(b)(4)).
       ``(B) Reporting to corporations, etc.--Except as otherwise 
     provided in regulations, in the case of any interest 
     described in subparagraph (A), subsection (b)(4) shall be 
     applied without regard to subparagraphs (A), (H), (I), (J), 
     (K), and (L)(i) of such subsection.
       ``(C) Regulatory authority.--The Secretary may prescribe 
     such regulations as are necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations which 
     require more frequent or more detailed reporting.''.
       (c) Conforming Amendment.--The table of sections for 
     subpart H of part IV of subchapter A of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 54A. Credit to holders of rural renaissance bonds.''.

       (d) Issuance of Regulations.--The Secretary of Treasury 
     shall issue regulations required under section 54A of the 
     Internal Revenue Code of 1986 (as added by this section) not 
     later than 120 days after the date of the enactment of this 
     Act.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act and before January 1, 2010.

     SEC. 570. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED 
                   CONTINUING CARE FACILITIES.

       (a) In General.--Subsection (g) of section 7872 is amended 
     to read as follows:
       ``(g) Exception for Loans to Qualified Continuing Care 
     Facilities.--
       ``(1) In general.--This section shall not apply for any 
     calendar year to any below-market loan owed by a facility 
     which on the last day of such year is a continuing care 
     facility, if such loan was made pursuant to a continuing care 
     contract and if the lender (or the lender's spouse) attains 
     age 62 before the close of such year.
       ``(2) Continuing care contract.--For purposes of this 
     section, the term `continuing care contract' means a written 
     contract between an individual and a qualified continuing 
     care facility under which--
       ``(A) the individual or individual's spouse may use a 
     qualified continuing care facility for their life or lives,
       ``(B) the individual or individual's spouse will be 
     provided with housing in an independent living unit (which 
     has additional available facilities outside such unit for the 
     provision of meals and other personal care), an assisted 
     living facility or a nursing facility, as is available in the 
     continuing care facility, as appropriate for the health of 
     such individual or individual's spouse, and
       ``(C) the individual or individual's spouse will be 
     provided assisted living or nursing care as the health of 
     such individual or individual's spouse requires, and as is 
     available in the continuing care facility.
       ``(3) Qualified continuing care facility.--
       ``(A) In general.--For purposes of this section, the term 
     `qualified continuing care facility' means 1 or more 
     facilities--
       ``(i) which are designed to provide services under 
     continuing care contracts,
       ``(ii) that include an independent living unit, plus an 
     assisted living or nursing facility, or both, and
       ``(iii) substantially all of the independent living unit 
     residents of which are covered by continuing care contracts.
       ``(B) Nursing homes excluded.--The term `qualified 
     continuing care facility' shall not include any facility 
     which is of a type which is traditionally considered a 
     nursing home.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to loans made after December 31, 2005.

[[Page S530]]

     SEC. 571. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
                   APPLICABLE TO LARGE INTEGRATED OIL COMPANIES 
                   WHICH ARE DUAL CAPACITY TAXPAYERS.

       (a) In General.--Section 901 (relating to credit for taxes 
     of foreign countries and of possessions of the United 
     States), as amended by this Act, is amended by redesignating 
     subsections (m) and (n) as subsections (n) and (o), 
     respectively, and by inserting after subsection (l) the 
     following new subsection:
       ``(m) Special Rules Relating to Large Integrated Oil 
     Companies Which Are Dual Capacity Taxpayers.--
       ``(1) General rule.--Notwithstanding any other provision of 
     this chapter, any amount paid or accrued by a dual capacity 
     taxpayer which is a large integrated oil company to a foreign 
     country or possession of the United States for any period 
     shall not be considered a tax--
       ``(A) if, for such period, the foreign country or 
     possession does not impose a generally applicable income tax, 
     or
       ``(B) to the extent such amount exceeds the amount 
     (determined in accordance with regulations) which--
       ``(i) is paid by such dual capacity taxpayer pursuant to 
     the generally applicable income tax imposed by the country or 
     possession, or
       ``(ii) would be paid if the generally applicable income tax 
     imposed by the country or possession were applicable to such 
     dual capacity taxpayer.

     Nothing in this paragraph shall be construed to imply the 
     proper treatment of any such amount not in excess of the 
     amount determined under subparagraph (B).
       ``(2) Dual capacity taxpayer.--For purposes of this 
     subsection, the term `dual capacity taxpayer' means, with 
     respect to any foreign country or possession of the United 
     States, a person who--
       ``(A) is subject to a levy of such country or possession, 
     and
       ``(B) receives (or will receive) directly or indirectly a 
     specific economic benefit (as determined in accordance with 
     regulations) from such country or possession.
       ``(3) Generally applicable income tax.--For purposes of 
     this subsection--
       ``(A) In general.--The term `generally applicable income 
     tax' means an income tax (or a series of income taxes) which 
     is generally imposed under the laws of a foreign country or 
     possession on income derived from the conduct of a trade or 
     business within such country or possession.
       ``(B) Exceptions.--Such term shall not include a tax unless 
     it has substantial application, by its terms and in practice, 
     to--
       ``(i) persons who are not dual capacity taxpayers, and
       ``(ii) persons who are citizens or residents of the foreign 
     country or possession.
       ``(4) Large integrated oil company.--For purposes of this 
     subsection, the term `large integrated oil company' means, 
     with respect to any taxable year, an integrated oil company 
     (as defined in section 291(b)(4)) which--
       ``(A) had gross receipts in excess of $1,000,000,000 for 
     such taxable year, and
       ``(B) has an average daily worldwide production of crude 
     oil of at least 500,000 barrels for such taxable year.''
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes paid or accrued in taxable years beginning 
     after the date of the enactment of this Act.
       (2) Contrary treaty obligations upheld.--The amendments 
     made by this section shall not apply to the extent contrary 
     to any treaty obligation of the United States.

     SEC. 572. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                   RESIDENCE BY CERTAIN EMPLOYEES OF THE 
                   INTELLIGENCE COMMUNITY.

       (a) In General.--Subparagraph (A) of section 121(d)(9) 
     (relating to exclusion of gain from sale of principal 
     residence) is amended by striking ``duty'' and all that 
     follows and inserting ``duty--
       ``(i) as a member of the uniformed services,
       ``(ii) as a member of the Foreign Service of the United 
     States, or
       ``(iii) as an employee of the intelligence community.''.
       (b) Employee of Intelligence Community Defined.--
     Subparagraph (C) of section 121(d)(9) is amended by 
     redesignating clause (iv) as clause (v) and by inserting 
     after clause (iii) the following new clause:
       ``(iv) Employee of intelligence community.--The term 
     `employee of the intelligence community' means an employee 
     (as defined by section 2105 of title 5, United States Code) 
     of--

       ``(I) the Office of the Director of National Intelligence,
       ``(II) the Central Intelligence Agency,
       ``(III) the National Security Agency,
       ``(IV) the Defense Intelligence Agency,
       ``(V) the National Geospatial-Intelligence Agency,
       ``(VI) the National Reconnaissance Office,
       ``(VII) any other office within the Department of Defense 
     for the collection of specialized national intelligence 
     through reconnaissance programs,
       ``(VIII) any of the intelligence elements of the Army, the 
     Navy, the Air Force, the Marine Corps, the Federal Bureau of 
     Investigation, the Department of Treasury, the Department of 
     Energy, and the Coast Guard,
       ``(IX) the Bureau of Intelligence and Research of the 
     Department of State, or
       ``(X) any of the elements of the Department of Homeland 
     Security concerned with the analyses of foreign intelligence 
     information.''.

       (c) Special Rule.--Subparagraph (C) of section 121(d)(9), 
     as amended by subsection (b), is amended by adding at the end 
     the following new clause:
       ``(vi) Special rule relating to intelligence community.--An 
     employee of the intelligence community shall not be treated 
     as serving on qualified extended duty unless--

       ``(I) for purposes of such duty such employee has moved 
     from 1 duty station to another, and
       ``(II) at least 1 of such duty stations is located outside 
     of the Washington, District of Columbia, and Baltimore 
     metropolitan statistical areas (as defined by the Secretary 
     of Commerce).''.

       (d) Conforming Amendment.--The heading for section 
     121(d)(9) is amended to read as follows: ``Uniformed 
     services, foreign service, and intelligence community''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to sales or exchanges after the date of the 
     enactment of this Act.

     SEC. 573. DISABILITY PREFERENCE PROGRAM FOR TAX COLLECTION 
                   CONTRACTS.

       (a) In General.--The Secretary of the Treasury shall not 
     enter into any qualified tax collection contract after April 
     1, 2006, until the Secretary implements a disability 
     preference program that meets the requirements of subsection 
     (b).
       (b) Disability Preference Program Requirements.--
       (1) In general.--A disability preference program meets the 
     requirements of this subsection if such program requires that 
     not less than 10 percent of the accounts of each dollar value 
     category are awarded to persons described in paragraph (2).
       (2) Person described.--For purposes of paragraph (1), a 
     person is described in this paragraph if--
       (A) as of the date any qualified tax collection contract is 
     awarded--
       (i) such person employs not less than 50 severely disabled 
     individuals within the United States; or
       (ii) not less than 30 percent of the employees of such 
     person within the United States are severely disabled 
     individuals;
       (B) such person agrees as a condition of the qualified tax 
     collection contract that not more than 90 days after the date 
     such contract is awarded, not less than 35 percent of the 
     employees of such person employed in connection with 
     providing services under such contract shall--
       (i) be hired after the date such contract is awarded; and
       (ii) be severely disabled individuals; and
       (C) such person is otherwise qualified to perform the 
     services required.
       (c) Definitions.--For purposes of this section--
       (1) Qualified tax collection contract.--The term 
     ``qualified tax collection contract'' shall have the meaning 
     given such term under section 6306(b) of the Internal Revenue 
     Code of 1986.
       (2) Dollar value category.--The term ``dollar value 
     category'' means the dollar ranges of accounts for collection 
     as determined and assigned by the Secretary under section 
     6306(b)(1)(B) of the Internal Revenue Code of 1986 with 
     respect to a qualified tax collection contract.
       (3) Severely disabled individual.--The term ``severely 
     disabled individual'' means--
       (A) a veteran of the United States armed forces with a 
     disability of 50 percent or greater--
       (i) determined by the Secretary of Veterans Affairs to be 
     service-connected; or
       (ii) deemed by law to be service-connected; or
       (B) any individual who is a disabled beneficiary (as 
     defined in section 1148(k)(2) of the Social Security Act (42 
     U.S.C. 1320b-19(k)(2))) or who would be considered to be such 
     a disabled beneficiary but for having income or resources in 
     excess of the income or resources eligibility limits 
     established under title XVI of the Social Security Act (42 
     U.S.C. 1381 et seq.), respectively.
                                 ______
                                 
  SA 2707. Mr. FRIST (for Mr. Grassley (for himself and Mr. Baucus)) 
proposed an amendment to the bill H.R. 4297, to provide for 
reconciliation pursuant to section 201(b) of the concurrent resolution 
on the budget for fiscal year 2006; as follows:

       Strike all after the enacting clause and insert the 
     following:

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

       (a) Short Title.--This Act may be cited as the ``Tax Relief 
     Act of 2005''.
       (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--TAX BENEFITS FOR AREAS AFFECTED BY HURRICANES KATRINA, RITA, 
                               AND WILMA

               Subtitle A--Gulf Opportunity Zone Benefits

Sec. 101. Gulf Opportunity Zone benefits.

[[Page S531]]

Sec. 102. Expansion of Hope Scholarship and Lifetime Learning Credit 
              for students in the Gulf Opportunity Zone.
Sec. 103. Extension of special rules for mortgage revenue bonds.
Sec. 104. Housing relief for individuals affected by Hurricane Katrina.

     Subtitle B--Tax Benefits Related to Hurricanes Rita and Wilma

Sec. 111. Extension of certain emergency tax relief for Hurricane 
              Katrina to Hurricanes Rita and Wilma.

               TITLE II--EXTENSION OF EXPIRING PROVISIONS

                   Subtitle A--Multi-Year Extensions

Sec. 201. Extension of increased expensing for small business.
Sec. 202. Credit for elective deferrals and IRA contributions.
Sec. 203. Above-the-line deduction for higher education.
Sec. 204. Extension and modification of new markets tax credit.

                    Subtitle B--One-Year Extensions

Sec. 211. Election to deduct State and local general sales taxes.
Sec. 212. Extension and increase in minimum tax relief to individuals.
Sec. 213. Allowance of nonrefundable personal credits against regular 
              and alternative minimum tax liability.
Sec. 214. Extension and modification of research credit.
Sec. 215. Work opportunity tax credit and welfare-to-work credit.
Sec. 216. Qualified zone academy bonds.
Sec. 217. Deduction for corporate donations of computer technology and 
              equipment.
Sec. 218. Above-the-line deduction for certain expenses of elementary 
              and secondary school teachers.
Sec. 219. Expensing of brownfields remediation costs.
Sec. 220. Tax incentives for investment in the District of Columbia.
Sec. 221. Indian employment tax credit.
Sec. 222. Accelerated depreciation for business property on Indian 
              reservation.
Sec. 223. Fifteen-year straight-line cost recovery for qualified 
              leasehold improvements and qualified restaurant 
              improvements.
Sec. 224. Extension of full credit for qualified electric vehicles.

                Subtitle C--Application of EGTRRA Sunset

Sec. 231. Application of EGTRRA sunset to this title.

         TITLE III--PROVISIONS RELATING TO CHARITABLE DONATIONS

                Subtitle A--Charitable Giving Incentives

Sec. 301. Charitable deduction for nonitemizers.
Sec. 302. Tax-free distributions from individual retirement plans for 
              charitable purposes.
Sec. 303. Modification of charitable deduction for contributions of 
              food inventory.
Sec. 304. Basis adjustment to stock of S corporation contributing 
              property.
Sec. 305. Modification of charitable deduction for contributions of 
              book inventory.
Sec. 306. Modification of tax treatment of certain payments to 
              controlling exempt organizations and public disclosure of 
              information relating to unrelated business income.
Sec. 307. Encouragement of contributions of capital gain real property 
              made for conservation purposes.
Sec. 308. Enhanced deduction for charitable contribution of literary, 
              musical, artistic, and scholarly compositions.
Sec. 309. Mileage reimbursements to charitable volunteers excluded from 
              gross income.
Sec. 310. Alternative percentage limitation for corporate charitable 
              contributions to the mathematics and science partnership 
              program.

             Subtitle B--Reforming Charitable Organizations

                        PART I--GENERAL REFORMS

Sec. 311. Tax involvement by exempt organizations in tax shelter 
              transactions.
Sec. 312. Excise tax on certain acquisitions of interests in insurance 
              contracts in which certain exempt organizations hold an 
              interest.
Sec. 313. Increase in penalty excise taxes on public charities, social 
              welfare organizations, and private foundations.
Sec. 314. Reform of charitable contributions of certain easements on 
              buildings in registered historic districts.
Sec. 315. Charitable contributions of taxidermy property.
Sec. 316. Recapture of tax benefit for charitable contributions of 
              exempt use property not used for an exempt use.
Sec. 317. Limitation of deduction for charitable contributions of 
              clothing and household items.
Sec. 318. Modification of recordkeeping requirements for certain 
              charitable contributions.
Sec. 319. Contributions of fractional interests in tangible personal 
              property.
Sec. 320. Provisions relating to substantial and gross overstatements 
              of valuations of charitable deduction property.
Sec. 321. Additional standards for credit counseling organizations.
Sec. 322. Expansion of the base of tax on private foundation net 
              investment income.
Sec. 323. Definition of convention or association of churches.
Sec. 324. Notification requirement for entities not currently required 
              to file.
Sec. 325. Disclosure to State officials of proposed actions related to 
              exempt organizations.

        PART II--IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS

Sec. 331. Excise tax on sponsoring organizations of donor advised funds 
              for failure to meet distribution requirements.
Sec. 332. Prohibited transactions.
Sec. 333. Treatment of charitable contribution deductions to donor 
              advised funds.
Sec. 334. Returns of, and applications for recognition by, sponsoring 
              organizations.

     PART III--IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS

Sec. 341. Requirements for supporting organizations.
Sec. 342. Excise tax on supporting organizations for failure to meet 
              distribution requirements.
Sec. 343. Excess benefit transactions.
Sec. 344. Excess business holdings of supporting organizations.
Sec. 345. Treatment of amounts paid to supporting organizations by 
              private foundations.
Sec. 346. Returns of supporting organizations.

                   TITLE IV--MISCELLANEOUS PROVISIONS

Sec. 401. Restructuring of New York Liberty Zone tax credits.
Sec. 402. Modification to S corporation passive investment income 
              rules.
Sec. 403. Modification of effective date of disregard of certain 
              capital expenditures for purposes of qualified small 
              issue bonds.
Sec. 404. Premiums for mortgage insurance.
Sec. 405. Sense of the Senate on use of no-bid contracting by Federal 
              Emergency Management Agency.
Sec. 406. Disability preference program for tax collection contracts.
Sec. 407. Sense of Congress regarding Doha Round.
Sec. 408. Modification of bond rule.
Sec. 409. Treatment of certain stock option plans under nonqualified 
              deferred compensation rules.
Sec. 410. Sense of the Senate regarding the dedication of excess funds.

                   TITLE V--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 501. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 502. Modification of effective date of exception from suspension 
              rules for certain listed and reportable transactions.
Sec. 503. Frivolous tax submissions.
Sec. 504. Penalty for promoting abusive tax shelters.
Sec. 505. Penalty for aiding and abetting the understatement of tax 
              liability.

                Subtitle B--Economic Substance Doctrine

Sec. 511. Clarification of economic substance doctrine.
Sec. 512. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 513. Denial of deduction for interest on underpayments 
              attributable to noneconomic substance transactions.

   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

Sec. 521. Waiver of user fee for installment agreements using automated 
              withdrawals.
Sec. 522. Termination of installment agreements.
Sec. 523. Partial payments required with submission of offers-in-
              compromise.

                    Subtitle D--Penalties and Fines

Sec. 531. Increase in criminal monetary penalty limitation for the 
              underpayment or overpayment of tax due to fraud.
Sec. 532. Doubling of certain penalties, fines, and interest on 
              underpayments related to certain offshore financial 
              arrangements.
Sec. 533. Denial of deduction for certain fines, penalties, and other 
              amounts.
Sec. 534. Denial of deduction for punitive damages.
Sec. 535. Increase in penalty for bad checks and money orders.

           Subtitle E--Provisions To Discourage Expatriation

Sec. 541. Tax treatment of inverted entities.
Sec. 542. Revision of tax rules on expatriation of individuals.

                  Subtitle F--Miscellaneous Provisions

Sec. 551. Treatment of contingent payment convertible debt instruments.

[[Page S532]]

Sec. 552. Grant of Treasury regulatory authority to address foreign tax 
              credit transactions involving inappropriate separation of 
              foreign taxes from related foreign income.
Sec. 553. Repeal of special property exception to leasing provisions of 
              the American Jobs Creation Act of 2004.
Sec. 554. Application of earnings stripping rules to partners which are 
              corporations.
Sec. 555. Limitation of employer deduction for certain entertainment 
              expenses.
Sec. 556. Increase in age of minor children whose unearned income is 
              taxed as if parent's income.
Sec. 557. Loan and redemption requirements on pooled financing 
              requirements.
Sec. 558. Reporting of interest on tax-exempt bonds.
Sec. 559. Modification of credit for producing fuel from a 
              nonconventional source.
Sec. 560. Modification of individual estimated tax safe harbor.
Sec. 561. Revaluation of LIFO inventories of large integrated oil 
              companies.
Sec. 562. Elimination of amortization of geological and geophysical 
              expenditures for major integrated oil companies.
Sec. 563. Valuation of employee personal use of noncommercial aircraft.
Sec. 564. Application of FIRPTA to regulated investment companies.
Sec. 565. Treatment of distributions attributable to FIRPTA gains.
Sec. 566. Prevention of avoidance of tax on investments of foreign 
              persons in United States real property through wash sale 
              transactions.
Sec. 567. Modifications to rules relating to taxation of distributions 
              of stock and securities of a controlled corporation.
Sec. 568. Amortization of expenses incurred in creating or acquiring 
              music or music copyrights.
Sec. 569. Credit to holders of rural renaissance bonds.
Sec. 570. Modification of treatment of loans to qualified continuing 
              care facilities.
Sec. 571. Modifications of foreign tax credit rules applicable to large 
              integrated oil companies which are dual capacity 
              taxpayers.
Sec. 572. Exclusion of gain from sale of a principal residence by 
              certain employees of the intelligence community.
Sec. 573. Disability preference program for tax collection contracts.

           TITLE VI--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

Sec. 601. Sunset of certain provisions and amendments.

 TITLE I--TAX BENEFITS FOR AREAS AFFECTED BY HURRICANES KATRINA, RITA, 
                               AND WILMA

               Subtitle A--Gulf Opportunity Zone Benefits

     SEC. 101. GULF OPPORTUNITY ZONE BENEFITS.

       (a) In General.--Chapter 1 is amended by adding at the end 
     the following new subchapter:

               ``Subchapter Z--Hurricane Relief Benefits

``Sec. 1400N. Definitions
``Sec. 1400O. Tax benefits for Gulf Opportunity Zone

     ``SEC. 1400N. DEFINITIONS.

       ``For purposes of this subchapter--
       ``(1) Gulf opportunity zone.--The term `Gulf Opportunity 
     Zone' or `GO Zone' means that portion of the Hurricane 
     Katrina disaster area determined by the President to warrant 
     individual or individual and public assistance from the 
     Federal Government under the Robert T. Stafford Disaster 
     Relief and Emergency Assistance Act by reason of Hurricane 
     Katrina.
       ``(2) Hurricane katrina disaster area.--The term `Hurricane 
     Katrina disaster area' means an area with respect to which a 
     major disaster has been declared by the President before 
     September 14, 2005, under section 401 of such Act by reason 
     of Hurricane Katrina.
       ``(3) Rita go zone.--The term `Rita GO Zone' means that 
     portion of the Hurricane Rita disaster area determined by the 
     President to warrant individual or individual and public 
     assistance from the Federal Government under such Act by 
     reason of Hurricane Rita.
       ``(4) Hurricane rita disaster area.--The term `Hurricane 
     Rita disaster area' means an area with respect to which a 
     major disaster has been declared by the President before 
     October 6, 2005, under section 401 of such Act by reason of 
     Hurricane Rita.
       ``(5) Wilma go zone.--The term `Wilma GO Zone' means that 
     portion of the Hurricane Wilma disaster area determined by 
     the President to warrant individual or individual and public 
     assistance from the Federal Government under such Act by 
     reason of Hurricane Wilma.
       ``(6) Hurricane wilma disaster area.--The term `Hurricane 
     Wilma disaster area' means an area with respect to which a 
     major disaster has been declared by the President before 
     October 25, 2005, under section 401 of such Act by reason of 
     Hurricane Wilma.

     ``SEC. 1400O. TAX BENEFITS FOR GULF OPPORTUNITY ZONE.

       ``(a) Special Allowance for Certain Property Acquired After 
     August 27, 2005.--
       ``(1) Additional allowance.--In the case of any qualified 
     Gulf Opportunity Zone property--
       ``(A) the depreciation deduction provided by section 167(a) 
     for the taxable year in which such property is placed in 
     service shall include an allowance equal to 50 percent of the 
     adjusted basis of such property, and
       ``(B) the adjusted basis of the qualified Gulf Opportunity 
     Zone property shall be reduced by the amount of such 
     deduction before computing the amount otherwise allowable as 
     a depreciation deduction under this chapter for such taxable 
     year and any subsequent taxable year.
       ``(2) Qualified gulf opportunity zone property.--For 
     purposes of this subsection--
       ``(A) In general.--The term `qualified Gulf Opportunity 
     Zone property' means property--
       ``(i)(I) which is described in section 168(k)(2)(A)(i), or
       ``(II) which is nonresidential real property or residential 
     rental property,
       ``(ii) substantially all of the use of which is in the Gulf 
     Opportunity Zone and is in the active conduct of a trade or 
     business by the taxpayer in such Zone,
       ``(iii) the original use of which in the Gulf Opportunity 
     Zone commences with the taxpayer after August 27, 2005,
       ``(iv) which is acquired by the taxpayer by purchase (as 
     defined in section 179(d)) after August 27, 2005, but only if 
     no written binding contract for the acquisition was in effect 
     before August 28, 2005, and
       ``(v) which is placed in service by the taxpayer on or 
     before the termination date.

     The term `termination date' means December 31, 2007 (December 
     31, 2008, in the case of nonresidential real property and 
     residential rental property).
       ``(B) Exceptions.--
       ``(i) Alternative depreciation property.--The term 
     `qualified Gulf Opportunity Zone property' shall not include 
     any property described in section 168(k)(2)(D)(i).
       ``(ii) Tax-exempt bond-financed property.--Such term shall 
     not include any property any portion of which is financed 
     with the proceeds of any obligation the interest on which is 
     exempt from tax under section 103.
       ``(iii) Qualified revitalization buildings.--Such term 
     shall not include any qualified revitalization building with 
     respect to which the taxpayer has elected the application of 
     paragraph (1) or (2) of section 1400I(a).
       ``(iv) Election out.--For purposes of this subsection, 
     rules similar to the rules of section 168(k)(2)(D)(iii) shall 
     apply.
       ``(C) Special rules.--For purposes of this subsection, 
     rules similar to the rules of section 168(k)(2)(E) shall 
     apply, except that--
       ``(i) clause (i) thereof shall be applied by substituting 
     `after August 27, 2005, and before the termination date (as 
     defined in section 1400O(a)(2))' for `after September 10, 
     2001, and before January 1, 2005',
       ``(ii) clauses (ii), (iii), and (iv) thereof shall be 
     applied by substituting `August 27, 2005' for `September 10, 
     2001' each place it appears, and
       ``(iii) clause (iv) thereof shall be applied by 
     substituting `qualified Gulf Opportunity Zone property' for 
     `qualified property'.
       ``(D) Allowance against alternative minimum tax.--For 
     purposes of this subsection, rules similar to the rules of 
     section 168(k)(2)(G) shall apply.
       ``(3) Recapture.--For purposes of this subsection, rules 
     similar to the rules under section 179(d)(10) shall apply 
     with respect to any qualified Gulf Opportunity Zone property 
     which ceases to be qualified Gulf Opportunity Zone property.
       ``(b) Increase in Expensing Under Section 179.--
       ``(1) In general.--For purposes of section 179--
       ``(A) the $100,000 amount in section 179(b)(1) for the 
     taxable year shall be increased by the lesser of--
       ``(i) $100,000, or
       ``(ii) the cost of section 179 property (as defined in 
     section 179(d)) which is qualified Gulf Opportunity Zone 
     property placed in service during the taxable year, and
       ``(B) the $400,000 amount in section 179(b)(2) for the 
     taxable year shall be increased by the lesser of--
       ``(i) $600,000, or
       ``(ii) the cost of section 179 property (as so defined) 
     which is qualified Gulf Opportunity Zone property placed in 
     service during the taxable year.
       ``(2) Qualified gulf opportunity zone property.--For 
     purposes of this subsection, the term `qualified Gulf 
     Opportunity Zone property' has the meaning given such term by 
     subsection (a)(2).
       ``(3) Coordination with empowerment zones and renewal 
     communities.--For purposes of sections 1397A and 1400J, 
     qualified Gulf Opportunity Zone property shall not be treated 
     as qualified zone property or qualified renewal property for 
     any taxable year, unless the taxpayer elects not to have this 
     subsection apply to all such qualified Gulf Opportunity Zone 
     property placed in service by the taxpayer during the taxable 
     year.
       ``(4) Recapture.--Rules similar to the rules under section 
     179(d)(10) shall apply with respect to any qualified Gulf 
     Opportunity Zone property which ceases to be Gulf Opportunity 
     Zone property.
       ``(c) Tax-Exempt Bond Financing.--
       ``(1) In general.--For purposes of this title, any 
     qualified Gulf Opportunity Zone Bond shall be treated as a 
     qualified bond.

[[Page S533]]

       ``(2) Qualified gulf opportunity zone bond.--For purposes 
     of this subsection, the term `qualified Gulf Opportunity Zone 
     Bond' means any bond issued as part of an issue if--
       ``(A) except as provided in paragraph (4), such bond meets 
     the applicable requirements of part IV of subchapter B of 
     this chapter,
       ``(B) such bond is issued by the State of Alabama, 
     Louisiana, or Mississippi (or any political subdivision 
     thereof),
       ``(C) the Governor of such State designates such bond for 
     purposes of this section, and
       ``(D) such bond is issued after the date of the enactment 
     of this section and before January 1, 2011.
       ``(3) Limitation on aggregate amount of bonds designated.--
     The maximum aggregate face amount of bonds which may be 
     designated under this subsection shall not exceed the product 
     of $2,500 multiplied by the portion of the State population 
     which is in the Gulf Opportunity Zone (as determined on the 
     basis of the most recent census estimate of resident 
     population released by the Bureau of Census before August 28, 
     2005).
       ``(4) Special rules.--In applying this title to any 
     qualified Gulf Opportunity Zone Bond, the following 
     modifications shall apply:
       ``(A) Section 143 (relating to mortgage revenue bonds: 
     qualified mortgage bond and qualified veterans' mortgage 
     bond) shall be applied--
       ``(i) by treating any residence in the Gulf Opportunity 
     Zone as a targeted area residence,
       ``(ii) by applying subsection (f)(3) without regard to 
     subparagraph (A) thereof, and
       ``(iii) by substituting `$150,000' for `$15,000' in 
     subsection (k)(4) thereof.
       ``(B) Section 146 (relating to volume cap) shall not apply.
       ``(C) Section 57(a)(5) shall not apply.
       ``(5) Separate issue treatment of portions of an issue.--
     This subsection shall not apply to the portion of an issue 
     which (if issued as a separate issue) would be treated as a 
     qualified bond or as a bond that is not a private activity 
     bond (determined without regard to paragraph (1)), if the 
     issuer elects to so treat such portion.
       ``(d) Advance Refundings of Certain Tax-Exempt Bonds.--
       ``(1) In general.--With respect to a bond described in 
     paragraph (2) issued as part of an issue 90 percent (95 
     percent in the case of a bond described in paragraph (2)(B)) 
     or more of the net proceeds (as defined in section 150(a)(3)) 
     of which were used to finance facilities located within the 
     Gulf Opportunity Zone (or property which is functionally 
     related and subordinate to facilities located within the Gulf 
     Opportunity Zone), one additional advanced refunding after 
     the date of the enactment of this section and before January 
     1, 2007, shall be allowed under the applicable rules of 
     section 149(d) if--
       ``(A) the chief executive officer of the issuer of the bond 
     designates the advance refunding bond for purposes of this 
     subsection, and
       ``(B) the requirements of paragraph (3) are met.
       ``(2) Bonds described.--A bond is described in this 
     paragraph if such bond was outstanding on August 27, 2005, 
     and is--
       ``(A) a State or local bond (as defined in section 
     103(c)(1)) other than a private activity bond (as defined in 
     section 141(a)) issued by the State of Alabama, Louisiana, or 
     Mississippi (or any political subdivision thereof), or
       ``(B) a qualified 501(c)(3) bond (as defined in section 
     145(a)) issued by or on behalf of any such State or political 
     subdivision.
       ``(3) Additional requirements.--The requirements of this 
     paragraph are met with respect to any advance refunding of a 
     bond described in paragraph (2) if--
       ``(A) no advance refundings of such bond would be allowed 
     under any provision of law after August 27, 2005,
       ``(B) the advance refunding bond is the only other 
     outstanding bond with respect to the refunded bond, and
       ``(C) the requirements of section 148 are met with respect 
     to all bonds issued under this subsection.
       ``(e) Low-Income Housing Credit.--
       ``(1) Increase in state housing credit ceiling.--
       ``(A) In general.--In the case of the State of Alabama, 
     Louisiana, or Mississippi--
       ``(i) the amount otherwise determined under subclause (I) 
     of section 42(h)(3)(C)(ii) for each calendar year beginning 
     after 2005 and before 2010 shall be increased by an amount 
     equal to 3 times the dollar amount otherwise specified for 
     such calendar year under such subclause multiplied by the 
     State population located in the Gulf Opportunity Zone (as 
     determined on the basis of the most recent census estimate of 
     resident population released by the Bureau of Census before 
     August 28, 2005), and
       ``(ii) the unused State housing credit ceiling for such 
     State for any calendar year under section 42(h)(3)(C)(i) 
     shall be determined without regard to the amount of the 
     increase determined under clause (i).
       ``(B) Elective carryforward of unused increased ceiling.--
       ``(i) In general.--If the amount determined under section 
     42(h)(3)(C)(ii)(I), as increased under subparagraph (A)(i), 
     for any calendar year for any State described in subparagraph 
     (A) exceeds the aggregate housing credit dollar amount 
     allocated during such calendar year by such State, such State 
     may elect to treat as a carryforward to the following 
     calendar year an amount equal to lesser of--

       ``(I) the amount of such excess, or
       ``(II) the amount by which the amount determined under 
     section 42(h)(3)(C)(ii)(I) for such calendar year was 
     increased under subparagraph (A)(i)).

       ``(ii) Use of carryforward.--If any State elects a 
     carryforward under clause (i), any housing credit dollar 
     amount allocated by such State during the calendar year 
     following the calendar year in which the carryforward arose 
     shall not be considered so allocated for purposes of section 
     42(h)(3)(C) and section 42(h)(3)(D) to the extent such 
     housing credit dollar amount does not exceed the amount of 
     the carryforward elected.
       ``(2) Difficult development area.--
       ``(A) In general.--For purposes of section 42--
       ``(i) in the case of property placed in service during 
     2006, 2007, or 2008, the Gulf Opportunity Zone--

       ``(I) shall be treated as a difficult development area 
     designated under subclause (I) of section 42(d)(5)(C)(iii), 
     and
       ``(II) shall not be taken into account for purposes of 
     applying the limitation under subclause (II) of such section, 
     and

       ``(ii) subsection (b)(2)(B) thereof shall be applied with 
     respect to any such property placed in service in the Gulf 
     Opportunity Zone by substituting `91 percent' and `39 
     percent' for `70 percent' and `30 percent', respectively.
       ``(B) Application.--Subparagraph (A) shall apply only to--
       ``(i) housing credit dollar amounts allocated during the 
     period beginning on January 1, 2006, and ending on December 
     31, 2008, and
       ``(ii) buildings placed in service during such period to 
     the extent that paragraph (1) of section 42(h) does not apply 
     to any building by reason of paragraph (4) thereof, but only 
     with respect to bonds issued after December 31, 2005.
       ``(f) Treatment of Representations Regarding Income 
     Eligibility for Purposes of Qualified Residential Rental 
     Project Requirements.--For purposes of determining if any 
     residential rental project meets the requirements of section 
     142(d)(1) and if any certification with respect to such 
     project meets the requirements under section 142(d)(7), the 
     operator of the project may rely on the representations of 
     any individual applying for tenancy in such project that such 
     individual's income will not exceed the applicable income 
     limits of section 142(d)(1) upon commencement of the 
     individual's tenancy if such tenancy begins during the 6-
     month period beginning on and after the date such individual 
     was displaced by reason of Hurricane Katrina.
       ``(g) Application of New Markets Tax Credit to Investments 
     in Community Development Entities Serving Gulf Opportunity 
     Zone.--For purposes of section 45D--
       ``(1) a qualified community development entity shall be 
     eligible for an allocation under subsection (f)(2) thereof of 
     the increase in the new markets tax credit limitation 
     described in paragraph (2) only if a significant mission of 
     such entity is the recovery and redevelopment of the Gulf 
     Opportunity Zone,
       ``(2) the new markets tax credit limitation otherwise 
     determined under subsection (f)(1) thereof shall be increased 
     by an amount equal to--
       ``(A) $300,000,000 for 2005 and 2006, to be allocated among 
     qualified community development entities to make qualified 
     low-income community investments within the Gulf Opportunity 
     Zone, and
       ``(B) $400,000,000 for 2007, to be so allocated, and
       ``(3) subsection (f)(3) thereof shall be applied separately 
     with respect to the amount of the increase under paragraph 
     (2).
       ``(h) Treatment of Net Operating Losses Attributable to 
     Gulf Opportunity Zone Losses.--
       ``(1) In general.--If a portion of any net operating loss 
     of the taxpayer for any taxable year is a qualified Gulf 
     Opportunity Zone loss, the following rules shall apply:
       ``(A) Extension of carryback period.--Section 172(b)(1) 
     shall be applied with respect to such portion--
       ``(i) by substituting `5 taxable years' for `2 taxable 
     years' in subparagraph (A)(i), and
       ``(ii) by not taking such portion into account in 
     determining any eligible loss of the taxpayer under 
     subparagraph (F) for the taxable year.
       ``(B) Suspension of 90 percent amt limitation.--Section 
     56(d)(1) shall be applied by increasing the amount determined 
     under subparagraph (A)(ii)(I) thereof by the sum of the 
     carrybacks and carryovers of any net operating loss 
     attributable to such portion.
       ``(2) Qualified gulf opportunity zone loss.--For purposes 
     of paragraph (1), the term `qualified Gulf Opportunity Zone 
     loss' means the lesser of--
       ``(A) the amount of the net operating loss for the taxable 
     year, or
       ``(B) the aggregate amount of the following deductions for 
     such taxable year:
       ``(i) Any deduction for any qualified Gulf Opportunity Zone 
     casualty loss.
       ``(ii) Any deduction for moving expenses paid or incurred 
     after August 27, 2005, and before January 1, 2008, and 
     allowable under this chapter to any taxpayer in connection 
     with the employment of any individual--

       ``(I) whose principal place of abode was located in the 
     Gulf Opportunity Zone before August 28, 2005,
       ``(II) who was unable to remain in such abode as the result 
     of Hurricane Katrina, and

[[Page S534]]

       ``(III) whose principal place of employment with the 
     taxpayer after such expense is located in the Gulf 
     Opportunity Zone.

     For purposes of this clause, the term `moving expenses' has 
     the meaning given such term by section 217(b), except that 
     the taxpayer's former residence and new residence may be the 
     same residence if the initial vacating of the residence was 
     as the result of Hurricane Katrina.
       ``(iii) Any deduction for expenses paid or incurred after 
     August 27, 2005, and before January 1, 2008, and allowable 
     under this chapter to temporarily house any employee of the 
     taxpayer whose principal place of employment is in the Gulf 
     Opportunity Zone.
       ``(iv) Any deduction for depreciation (or amortization in 
     lieu of depreciation) allowable under this chapter with 
     respect to any qualified Gulf Opportunity Zone property (as 
     defined in subsection (a)(2)) for the taxable year such 
     property is placed in service.
       ``(v) Any deduction for repair expenses (including expenses 
     for removal of debris) allowable under this chapter paid or 
     incurred after August 27, 2005, and before January 1, 2008, 
     with respect to any damage attributable to Hurricane Katrina 
     and in connection with property which is located in the Gulf 
     Opportunity Zone.
       ``(3) Qualified gulf opportunity zone casualty loss.--
       ``(A) In general.--For purposes of paragraph (2)(B)(i), the 
     term `qualified Gulf Opportunity Zone casualty loss' means 
     any uncompensated section 1231 loss (as defined in section 
     1231(a)(3)(B)) of property located in the Gulf Opportunity 
     Zone if--
       ``(i) such loss is allowed as a deduction under section 165 
     for the taxable year, and
       ``(ii) such loss is attributable to Hurricane Katrina.
       ``(B) Reduction for gains from involuntary conversion.--The 
     amount of qualified Gulf Opportunity Zone casualty loss which 
     would (but for this subparagraph) be taken into account under 
     subparagraph (A) for any taxable year shall be reduced by the 
     amount of any gain recognized by the taxpayer for such year 
     from the involuntary conversion by reason of Hurricane 
     Katrina of property located in the Gulf Opportunity Zone.
       ``(C) Coordination with general disaster loss rules.--
     Subsection (j) and section 165(i) shall not apply to any 
     qualified Gulf Opportunity Zone casualty loss to the extent 
     such loss is taken into account under this subsection.
       ``(4) Special rules.--For purposes of paragraph (1), rules 
     similar to the rules of paragraphs (2) and (3) of section 
     172(i) shall apply with respect to such portion.
       ``(i) Treatment of Public Utility Property Disaster 
     Losses.--
       ``(1) In general.--Upon the election of the taxpayer, in 
     the case of any eligible public utility property loss--
       ``(A) section 165(i) shall be applied by substituting `the 
     fifth taxable year immediately preceding' for `the taxable 
     year immediately preceding',
       ``(B) an application for a tentative carryback adjustment 
     of the tax for any prior taxable year affected by the 
     application of subparagraph (A) may be made under section 
     6411, and
       ``(C) section 6611 shall not apply to any overpayment 
     attributable to such loss.
       ``(2) Eligible public utility property loss.--For purposes 
     of this subsection--
       ``(A) In general.--The term `eligible public utility 
     property loss' means any loss with respect to public utility 
     property located in the Gulf Opportunity Zone and 
     attributable to Hurricane Katrina.
       ``(B) Public utility property.--The term `public utility 
     property' has the meaning given such term by section 
     168(i)(10) without regard to the matter following 
     subparagraph (D) thereof.
       ``(3) Waiver of limitations.--If refund or credit of any 
     overpayment of tax resulting from the application of 
     paragraph (1) is prevented at any time before the close of 
     the 1-year period beginning on the date of the enactment of 
     this section by the operation of any law or rule of law 
     (including res judicata), such refund or credit may 
     nevertheless be made or allowed if claim therefor is filed 
     before the close of such period.
       ``(j) Special Rule for Gulf Opportunity Zone Public Utility 
     Casualty Losses.--
       ``(1) In general.--The amount described in section 
     172(f)(1)(A) for any taxable year shall be increased by the 
     amount of the Gulf Opportunity Zone public utility casualty 
     loss for such year.
       ``(2) Gulf opportunity zone public utility casualty loss.--
     For purposes of this subsection, the term `Gulf Opportunity 
     Zone public utility casualty loss' means any casualty loss of 
     public utility property (as defined in section 168(i)(10)) 
     located in the Gulf Opportunity Zone if--
       ``(A) such loss is allowed as a deduction under section 165 
     for the taxable year,
       ``(B) such loss is attributable to Hurricane Katrina, and
       ``(C) the taxpayer elects the application of this 
     subsection with respect to such loss.
       ``(3) Reduction for gains from involuntary conversion.--The 
     amount of Gulf Opportunity Zone public utility casualty loss 
     which would (but for this paragraph) be taken into account 
     under paragraph (1) for any taxable year shall be reduced by 
     the amount of any gain recognized by the taxpayer for such 
     year from the involuntary conversion by reason of Hurricane 
     Katrina of public utility property (as so defined) located in 
     the Gulf Opportunity Zone.
       ``(4) Coordination with general disaster loss rules.--
     Subsection (h) and section 165(i) shall not apply to any Gulf 
     Opportunity Zone public utility casualty loss to the extent 
     such loss is taken into account under paragraph (1).
       ``(5) Election.--Any election under paragraph (2)(C) shall 
     be made in such manner as may be prescribed by the Secretary 
     and shall be made by the due date (including extensions of 
     time) for filing the taxpayer's return for the taxable year 
     of the loss. Such election, once made for any taxable year, 
     shall be irrevocable for such taxable year.
       ``(k) Special Rules for Small Timber Producers.--
       ``(1) Increased expensing for qualified timber property.--
     In the case of qualified timber property any portion of which 
     is located in the Gulf Opportunity Zone, in that portion of 
     the Rita GO Zone which is not part of the Gulf Opportunity 
     Zone, or in the Wilma GO Zone, the limitation under 
     subparagraph (B) of section 194(b)(1) shall be increased by 
     the lesser of--
       ``(A) the limitation which would (but for this subsection) 
     apply under such subparagraph, or
       ``(B) the amount of reforestation expenditures (as defined 
     in section 194(c)(3)) paid or incurred by the taxpayer with 
     respect to such qualified timber property during the 
     specified portion of the taxable year.
       ``(2) 5 year nol carryback of certain timber losses.--For 
     purposes of determining farming loss under section 172(i), 
     income and deductions which are allocable to the specified 
     portion of the taxable year and which are attributable to 
     qualified timber property any portion of which is located in 
     the Gulf Opportunity Zone, in that portion of the Rita GO 
     Zone which is not part of the Gulf Opportunity Zone, or in 
     the Wilma GO Zone shall be treated as attributable to farming 
     businesses.
       ``(3) Rules not applicable to certain entities.--Paragraphs 
     (1) and (2) shall not apply to any taxpayer which--
       ``(A) is a corporation the stock of which is publicly 
     traded on an established securities market, or
       ``(B) is a real estate investment trust.
       ``(4) Rules not applicable to large timber producers.--
     Paragraphs (1) and (2) shall not apply with respect to any 
     qualified timber property unless--
       ``(A) such property was held by the taxpayer--
       ``(i) on August 28, 2005, in the case of qualified timber 
     property any portion of which is located in the Gulf 
     Opportunity Zone,
       ``(ii) on September 23, 2005, in the case of qualified 
     timber property (other than property described in subclause 
     (I)) any portion of which is located in that portion of the 
     Rita GO Zone which is not part of the Gulf Opportunity Zone, 
     or
       ``(iii) on October 23, 2005, in the case of qualified 
     timber property (other than property described in subclause 
     (I) or (II)) any portion of which is located in the Wilma GO 
     Zone, and
       ``(B) such taxpayer held not more than 500 acres of 
     qualified timber property on such date.
       ``(5) Definitions.--For purposes of this subsection--
       ``(A) Specified portion.--The term `specified portion' 
     means--
       ``(i) in the case of qualified timber property located in 
     the Gulf Opportunity Zone, that portion of the taxable year 
     which is on or after August 28, 2005, and before January 1, 
     2007,
       ``(ii) in the case of qualified timber property located in 
     the Rita GO Zone and no part of which is located in the Gulf 
     Opportunity Zone, that portion of the taxable year which is 
     on or after September 23, 2005, and before January 1, 2007, 
     and
       ``(iii) in the case of qualified timber property located in 
     the Wilma GO Zone, that portion of the taxable year which is 
     on or after October 23, 2005, and before January 1, 2007.
       ``(B) Qualified timber property.--The term `qualified 
     timber property' has the meaning given such term in section 
     194(c)(1).
       ``(l) Expensing for Certain Demolition and Clean-Up 
     Costs.--
       ``(1) In general.--A taxpayer may elect to treat 50 percent 
     of any qualified Gulf Opportunity Zone clean-up cost as an 
     expense which is not chargeable to capital account. Any cost 
     so treated shall be allowed as a deduction for the taxable 
     year in which such cost is paid or incurred.
       ``(2) Gulf opportunity zone clean-up cost.--For purposes of 
     this subsection, the term `Gulf Opportunity Zone clean-up 
     cost' means any amount paid or incurred during the period 
     beginning on August 28, 2005, and ending on December 31, 
     2007, for the removal of debris from, or the demolition of 
     structures on, real property which is located in the Gulf 
     Opportunity Zone and which is--
       ``(A) held by the taxpayer for use in a trade or business 
     or for the production of income, or
       ``(B) property described in section 1221(a)(1) in the hands 
     of the taxpayer.

     For purposes of the preceding sentence, amounts paid or 
     incurred shall be taken into account only to the extent that 
     such amount would (but for paragraph (1)) be chargeable to 
     capital account.
       ``(m) Extension of Expensing for Environmental Remediation 
     Costs.--With respect to any qualified environmental 
     remediation expenditure (as defined in section 198(b)) paid 
     or incurred on or after August 28,

[[Page S535]]

     2005, in connection with a qualified contaminated site 
     located in the Gulf Opportunity Zone, section 198 (relating 
     to expensing of environmental remediation costs) shall be 
     applied--
       ``(1) by substituting `December 31, 2007' for `December 31, 
     2006' in subsection (h) thereof, and
       ``(2) except as provided in section 198(d)(2), by treating 
     petroleum products (as defined in section 4612(a)(3)) as a 
     hazardous substance.
       ``(n) Gulf Opportunity Zone.--For purposes of this section, 
     the term `Gulf Opportunity Zone' means an area--
       ``(1) with respect to which a major disaster has been 
     declared by the President under section 401 of the Robert T. 
     Stafford Disaster Relief and Emergency Assistance Act as a 
     result of Hurricane Katrina, and
       ``(2) which is determined by the President to warrant 
     individual assistance, or individual and public assistance, 
     from the Federal Government under such Act.''
       (b) Clerical Amendments.--The table of subchapters for 
     chapter 1 is amended by adding at the end the following new 
     item:


             ``Subchapter Z--Hurricane Relief Benefits.''.

     SEC. 102. EXPANSION OF HOPE SCHOLARSHIP AND LIFETIME LEARNING 
                   CREDIT FOR STUDENTS IN THE GULF OPPORTUNITY 
                   ZONE.

       In the case of an individual who attends an eligible 
     educational institution (as defined in section 25A(f)(2) of 
     the Internal Revenue Code of 1986) located in the Gulf 
     Opportunity Zone (as defined in section 1400N(1) of such 
     Code) for any taxable year beginning during 2005 or 2006--
       (1) in applying section 25A of the Internal Revenue Code of 
     1986, the term ``qualified tuition and related expenses'' 
     shall include any costs which are qualified higher education 
     expenses (as defined in section 529(e)(3) of such Code),
       (2) each of the dollar amounts in effect under of 
     subparagraphs (A) and (B) of section 25A(b)(1) of such Code 
     shall be twice the amount otherwise in effect before the 
     application of this subsection, and
       (3) section 25A(c)(1) of such Code shall be applied by 
     substituting ``40 percent'' for ``20 percent''.

     SEC. 103. EXTENSION OF SPECIAL RULES FOR MORTGAGE REVENUE 
                   BONDS.

       Section 404(d) of the Katrina Emergency Tax Relief Act of 
     2005 is amended by striking ``December 31, 2007'' and 
     inserting ``December 31, 2010''.

     SEC. 104. HOUSING RELIEF FOR INDIVIDUALS AFFECTED BY 
                   HURRICANE KATRINA.

       (a) Exclusion of Employer Provided Housing for Individual 
     Affected by Hurricane Katrina.--
       (1) In general.--For purposes of the Internal Revenue Code 
     of 1986, gross income of a qualified employee shall not 
     include the value of any lodging furnished to such employee, 
     such employee's spouse, or any of such employee's dependents 
     by or on behalf of a qualified employer for any month during 
     the taxable year.
       (2) Limitation.--The amount which may be excluded under 
     subsection (a) for any month for which lodging is furnished 
     during the taxable year shall not exceed $600.
       (3) Treatment of exclusion.--For purposes of the Internal 
     Revenue Code of 1986 (other than sections 3121(a)(19) and 
     3306(b)(14), an exclusion under subsection (a) shall be 
     treated as an exclusion under section 119 of such Code.
       (b) Employer Credit for Housing Employees Affected by 
     Hurricane Katrina.--
       (1) In general.--In the case of a qualified employer, there 
     shall be allowed as a credit against the tax imposed by 
     chapter 1 of the Internal Revenue Code of 1986 for any month 
     during the taxable year an amount equal to 30 percent of any 
     amount which is excludable from the gross income of a 
     qualified employee of such employer under subsection (a).
       (2) Certain rules to apply.--For purposes of this section, 
     rules similar to the rules of section 280C(a) of such Code 
     shall apply.
       (3) Credit to be part of general business credit.--The 
     credit allowed under this section shall be added to the 
     current year business credit under section 38(b) of such Code 
     and shall be treated as a credit allowed under subpart D of 
     part IV of subchapter A of such Code.
       (c) Qualified Employee.--For purposes of this section, the 
     term ``qualified employee'' means, with respect to any month, 
     an individual--
       (1) who had a principal residence (as defined in section 
     121 of the Internal Revenue Code of 1986) in the GO Zone (as 
     defined in section 1400N(1) of such Code) on August 28, 2005, 
     and
       (2) who performs not less than 80 percent of the employment 
     services for a qualified employer in the Hurricane Katrina 
     disaster area (as so defined).
       (d) Qualified Employer.--For purposes of this section, the 
     term ``qualified employer'' means any employer with a trade 
     or business located in the Hurricane Katrina disaster area 
     (as so defined).
       (e) Application of Section.--This section shall apply to 
     lodging provided--
       (1) after the date of the enactment of this Act,
       (2) before the date which is 6 months after the date of the 
     enactment of this Act, and
       (3) no credit with respect to such lodging shall be claimed 
     before October 1, 2006.

     Subtitle B--Tax Benefits Related to Hurricanes Rita and Wilma

     SEC. 111. EXTENSION OF CERTAIN EMERGENCY TAX RELIEF FOR 
                   HURRICANE KATRINA TO HURRICANES RITA AND WILMA.

       (a) In General.--Subchapter Z of chapter 1, as added by 
     this Act, is amended by adding at the end the following new 
     sections:

     ``SEC. 1400P. SPECIAL RULES FOR MORTGAGE REVENUE BONDS.

       ``(a) In General.--In the case of financing provided with 
     respect to residences in the GO Zone, the Rita GO Zone, or 
     the Wilma GO Zone, section 143 shall be applied--
       ``(1) by treating any residence in the GO Zone, the Rita GO 
     Zone, or the Wilma GO Zone as a targeted area residence,
       ``(2) by applying subsection (f)(3) without regard to 
     subparagraph (A) thereof, and
       ``(3) by substituting `$150,000' for `$15,000' in 
     subsection (k)(4) thereof.
       ``(b) Application.--Subsection (a) shall not apply to 
     financing provided after December 31, 2010.

     ``SEC. 1400Q. SPECIAL RULES FOR USE OF RETIREMENT FUNDS.

       ``(a) Tax-Favored Withdrawals From Retirement Plans.--
       ``(1) In general.--Section 72(t) shall not apply to any 
     qualified hurricane distribution.
       ``(2) Aggregate dollar limitation.--
       ``(A) In general.--For purposes of this subsection, the 
     aggregate amount of distributions received by an individual 
     which may be treated as qualified hurricane distributions for 
     any taxable year shall not exceed the excess (if any) of--
       ``(i) $100,000, over
       ``(ii) the aggregate amounts treated as qualified hurricane 
     distributions received by such individual for all prior 
     taxable years.
       ``(B) Treatment of plan distributions.--If a distribution 
     to an individual would (without regard to subparagraph (A)) 
     be a qualified hurricane distribution, a plan shall not be 
     treated as violating any requirement of this title merely 
     because the plan treats such distribution as a qualified 
     hurricane distribution, unless the aggregate amount of such 
     distributions from all plans maintained by the employer (and 
     any member of any controlled group which includes the 
     employer) to such individual exceeds $100,000.
       ``(C) Controlled group.--For purposes of subparagraph (B), 
     the term `controlled group' means any group treated as a 
     single employer under subsection (b), (c), (m), or (o) of 
     section 414.
       ``(3) Amount distributed may be repaid.--
       ``(A) In general.--Any individual who receives a qualified 
     hurricane distribution may, at any time during the 3-year 
     period beginning on the day after the date on which such 
     distribution was received, make one or more contributions in 
     an aggregate amount not to exceed the amount of such 
     distribution to an eligible retirement plan of which such 
     individual is a beneficiary and to which a rollover 
     contribution of such distribution could be made under section 
     402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as 
     the case may be.
       ``(B) Treatment of repayments of distributions from 
     eligible retirement plans other than iras.--For purposes of 
     this title, if a contribution is made pursuant to 
     subparagraph (A) with respect to a qualified hurricane 
     distribution from an eligible retirement plan other than an 
     individual retirement plan, then the taxpayer shall, to the 
     extent of the amount of the contribution, be treated as 
     having received the qualified hurricane distribution in an 
     eligible rollover distribution (as defined in section 
     402(c)(4)) and as having transferred the amount to the 
     eligible retirement plan in a direct trustee to trustee 
     transfer within 60 days of the distribution.
       ``(C) Treatment of repayments for distributions from 
     iras.--For purposes of this title, if a contribution is made 
     pursuant to subparagraph (A) with respect to a qualified 
     hurricane distribution from an individual retirement plan (as 
     defined by section 7701(a)(37)), then, to the extent of the 
     amount of the contribution, the qualified hurricane 
     distribution shall be treated as a distribution described in 
     section 408(d)(3) and as having been transferred to the 
     eligible retirement plan in a direct trustee to trustee 
     transfer within 60 days of the distribution.
       ``(4) Definitions.--For purposes of this subsection--
       ``(A) Qualified hurricane distribution.--Except as provided 
     in paragraph (2), the term `qualified hurricane distribution' 
     means--
       ``(i) any distribution from an eligible retirement plan 
     made on or after August 25, 2005, and before January 1, 2007, 
     to an individual whose principal place of abode on August 28, 
     2005, is located in the Hurricane Katrina disaster area and 
     who has sustained an economic loss by reason of Hurricane 
     Katrina,
       ``(ii) any distribution (which is not described in clause 
     (i)) from an eligible retirement plan made on or after 
     September 23, 2005, and before January 1, 2007, to an 
     individual whose principal place of abode on September 23, 
     2005, is located in the Hurricane Rita disaster area and who 
     has sustained an economic loss by reason of Hurricane Rita, 
     and
       ``(iii) any distribution (which is not described in clause 
     (i) or (ii)) from an eligible retirement plan made on or 
     after October 23, 2005, and before January 1, 2007, to an 
     individual whose principal place of abode on October 23, 
     2005, is located in the Hurricane Wilma disaster area and who 
     has sustained

[[Page S536]]

     an economic loss by reason of Hurricane Wilma.
       ``(B) Eligible retirement plan.--The term `eligible 
     retirement plan' shall have the meaning given such term by 
     section 402(c)(8)(B).
       ``(5) Income inclusion spread over 3-year period.--
       ``(A) In general.--In the case of any qualified hurricane 
     distribution, unless the taxpayer elects not to have this 
     paragraph apply for any taxable year, any amount required to 
     be included in gross income for such taxable year shall be so 
     included ratably over the 3-taxable year period beginning 
     with such taxable year.
       ``(B) Special rule.--For purposes of subparagraph (A), 
     rules similar to the rules of subparagraph (E) of section 
     408A(d)(3) shall apply.
       ``(6) Special rules.--
       ``(A) Exemption of distributions from trustee to trustee 
     transfer and withholding rules.--For purposes of sections 
     401(a)(31), 402(f), and 3405, qualified hurricane 
     distributions shall not be treated as eligible rollover 
     distributions.
       ``(B) Qualified hurricane distributions treated as meeting 
     plan distribution requirements.--For purposes this title, a 
     qualified hurricane distribution shall be treated as meeting 
     the requirements of sections 401(k)(2)(B)(i), 
     403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A).
       ``(b) Recontributions of Withdrawals for Home Purchases.--
       ``(1) Recontributions.--
       ``(A) In general.--Any individual who received a qualified 
     distribution may, during the applicable period, make one or 
     more contributions in an aggregate amount not to exceed the 
     amount of such qualified distribution to an eligible 
     retirement plan (as defined in section 402(c)(8)(B)) of which 
     such individual is a beneficiary and to which a rollover 
     contribution of such distribution could be made under section 
     402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as the case may 
     be.
       ``(B) Treatment of repayments.--Rules similar to the rules 
     of subparagraphs (B) and (C) of subsection (a)(3) shall apply 
     for purposes of this subsection.
       ``(2) Qualified distribution.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified distribution' means 
     any qualified Katrina distribution, any qualified Rita 
     distribution, and any qualified Wilma distribution.
       ``(B) Qualified katrina distribution.--The term `qualified 
     Katrina distribution' means any distribution--
       ``(i) described in section 401(k)(2)(B)(i)(IV), 
     403(b)(7)(A)(ii) (but only to the extent such distribution 
     relates to financial hardship), 403(b)(11)(B), or 
     72(t)(2)(F),
       ``(ii) received after February 28, 2005, and before August 
     29, 2005, and
       ``(iii) which was to be used to purchase or construct a 
     principal residence in the Hurricane Katrina disaster area, 
     but which was not so purchased or constructed on account of 
     Hurricane Katrina.
       ``(C) Qualified rita distribution.--The term `qualified 
     Rita distribution' means any distribution (other than a 
     qualified Katrina distribution)--
       ``(i) described in section 401(k)(2)(B)(i)(IV), 
     403(b)(7)(A)(ii) (but only to the extent such distribution 
     relates to financial hardship), 403(b)(11)(B), or 
     72(t)(2)(F),
       ``(ii) received after February 28, 2005, and before 
     September 24, 2005, and
       ``(iii) which was to be used to purchase or construct a 
     principal residence in the Hurricane Rita disaster area, but 
     which was not so purchased or constructed on account of 
     Hurricane Rita.
       ``(D) Qualified wilma distribution.--The term `qualified 
     Wilma distribution' means any distribution (other than a 
     qualified Katrina distribution or a qualified Rita 
     distribution)--
       ``(i) described in section 401(k)(2)(B)(i)(IV), 
     403(b)(7)(A)(ii) (but only to the extent such distribution 
     relates to financial hardship), 403(b)(11)(B), or 
     72(t)(2)(F),
       ``(ii) received after February 28, 2005, and before October 
     24, 2005, and
       ``(iii) which was to be used to purchase or construct a 
     principal residence in the Hurricane Wilma disaster area, but 
     which was not so purchased or constructed on account of 
     Hurricane Wilma.
       ``(3) Applicable period.--For purposes of this subsection, 
     the term `applicable period' means--
       ``(A) with respect to any qualified Katrina distribution, 
     the period beginning on August 25, 2005, and ending on 
     February 28, 2006,
       ``(B) with respect to any qualified Rita distribution, the 
     period beginning on September 23, 2005, and ending on 
     February 28, 2006, and
       ``(C) with respect to any qualified Wilma distribution, the 
     period beginning on October 23, 2005, and ending on February 
     28, 2006.
       ``(c) Loans From Qualified Plans.--
       ``(1) Increase in limit on loans not treated as 
     distributions.--In the case of any loan from a qualified 
     employer plan (as defined under section 72(p)(4)) to a 
     qualified individual made during the applicable period--
       ``(A) clause (i) of section 72(p)(2)(A) shall be applied by 
     substituting `$100,000' for `$50,000', and
       ``(B) clause (ii) of such section shall be applied by 
     substituting `the present value of the nonforfeitable accrued 
     benefit of the employee under the plan' for `one-half of the 
     present value of the nonforfeitable accrued benefit of the 
     employee under the plan'.
       ``(2) Delay of repayment.--In the case of a qualified 
     individual with an outstanding loan on or after the qualified 
     beginning date from a qualified employer plan (as defined in 
     section 72(p)(4))--
       ``(A) if the due date pursuant to subparagraph (B) or (C) 
     of section 72(p)(2) for any repayment with respect to such 
     loan occurs during the period beginning on the qualified 
     beginning date and ending on December 31, 2006, such due date 
     shall be delayed for 1 year,
       ``(B) any subsequent repayments with respect to any such 
     loan shall be appropriately adjusted to reflect the delay in 
     the due date under paragraph (1) and any interest accruing 
     during such delay, and
       ``(C) in determining the 5-year period and the term of a 
     loan under subparagraph (B) or (C) of section 72(p)(2), the 
     period described in subparagraph (A) shall be disregarded.
       ``(3) Qualified individual.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified individual' means 
     any qualified Hurricane Katrina individual, any qualified 
     Hurricane Rita individual, and any qualified Hurricane Wilma 
     individual.
       ``(B) Qualified hurricane katrina individual.--The term 
     `qualified Hurricane Katrina individual' means an individual 
     whose principal place of abode on August 28, 2005, is located 
     in the Hurricane Katrina disaster area and who has sustained 
     an economic loss by reason of Hurricane Katrina.
       ``(C) Qualified hurricane rita individual.--The term 
     `qualified Hurricane Rita individual' means an individual 
     (other than a qualified Hurricane Katrina individual) whose 
     principal place of abode on September 23, 2005, is located in 
     the Hurricane Rita disaster area and who has sustained an 
     economic loss by reason of Hurricane Rita.
       ``(D) Qualified hurricane wilma individual.--The term 
     `qualified Hurricane Wilma individual' means an individual 
     (other than a qualified Hurricane Katrina individual or a 
     qualified Hurricane Rita individual) whose principal place of 
     abode on October 23, 2005, is located in the Hurricane Wilma 
     disaster area and who has sustained an economic loss by 
     reason of Hurricane Wilma.
       ``(4) Applicable period; qualified beginning date.--For 
     purposes of this subsection--
       ``(A) Hurricane katrina.--In the case of any qualified 
     Hurricane Katrina individual--
       ``(i) the applicable period is the period beginning on 
     September 24, 2005, and ending on December 31, 2006, and
       ``(ii) the qualified beginning date is August 25, 2005.
       ``(B) Hurricane rita.--In the case of any qualified 
     Hurricane Rita individual--
       ``(i) the applicable period is the period beginning on the 
     date of the enactment of this subsection and ending on 
     December 31, 2006, and
       ``(ii) the qualified beginning date is September 23, 2005.
       ``(C) Hurricane wilma.--In the case of any qualified 
     Hurricane Wilma individual--
       ``(i) the applicable period is the period beginning on the 
     date of the enactment of this subsection and ending on 
     December 31, 2006, and
       ``(ii) the qualified beginning date is October 23, 2005.

     ``SEC. 1400R. EMPLOYMENT RELIEF.

       ``(a) Employee Retention Credit for Employers Affected by 
     Hurricane Katrina.--
       ``(1) In general.--For purposes of section 38, in the case 
     of an eligible employer, the Hurricane Katrina employee 
     retention credit for any taxable year is an amount equal to 
     40 percent of the qualified wages with respect to each 
     eligible employee of such employer for such taxable year. For 
     purposes of the preceding sentence, the amount of qualified 
     wages which may be taken into account with respect to any 
     individual shall not exceed $6,000.
       ``(2) Definitions.--For purposes of this subsection--
       ``(A) Eligible employer.--The term `eligible employer' 
     means any employer--
       ``(i) which conducted an active trade or business on August 
     28, 2005, in the Gulf Opportunity Zone, and
       ``(ii) with respect to whom the trade or business described 
     in clause (i) is inoperable on any day after August 28, 2005, 
     and before January 1, 2006, as a result of damage sustained 
     by reason of Hurricane Katrina.
       ``(B) Eligible employee.--The term `eligible employee' 
     means with respect to an eligible employer an employee whose 
     principal place of employment on August 28, 2005, with such 
     eligible employer was in the Gulf Opportunity Zone.
       ``(C) Qualified wages.--The term `qualified wages' means 
     wages (as defined in section 51(c)(1), but without regard to 
     section 3306(b)(2)(B)) paid or incurred by an eligible 
     employer with respect to an eligible employee on any day 
     after August 28, 2005, and before January 1, 2006, which 
     occurs during the period--
       ``(i) beginning on the date on which the trade or business 
     described in subparagraph (A) first became inoperable at the 
     principal place of employment of the employee immediately 
     before Hurricane Katrina, and
       ``(ii) ending on the date on which such trade or business 
     has resumed significant operations at such principal place of 
     employment.

     Such term shall include wages paid without regard to whether 
     the employee performs no services, performs services at a 
     different place of employment than such principal

[[Page S537]]

     place of employment, or performs services at such principal 
     place of employment before significant operations have 
     resumed.
       ``(3) Certain rules to apply.--For purposes of this 
     subsection, rules similar to the rules of sections 51(i)(1), 
     52, and 280C(a) shall apply.
       ``(4) Employee not taken into account more than once.--An 
     employee shall not be treated as an eligible employee for 
     purposes of this subsection for any period with respect to 
     any employer if such employer is allowed a credit under 
     section 51 with respect to such employee for such period.
       ``(b) Employee Retention Credit for Employers Affected by 
     Hurricane Rita.--
       ``(1) In general.--For purposes of section 38, in the case 
     of an eligible employer, the Hurricane Rita employee 
     retention credit for any taxable year is an amount equal to 
     40 percent of the qualified wages with respect to each 
     eligible employee of such employer for such taxable year. For 
     purposes of the preceding sentence, the amount of qualified 
     wages which may be taken into account with respect to any 
     individual shall not exceed $6,000.
       ``(2) Definitions.--For purposes of this subsection--
       ``(A) Eligible employer.--The term `eligible employer' 
     means any employer--
       ``(i) which conducted an active trade or business on 
     September 23, 2005, in the Rita GO Zone, and
       ``(ii) with respect to whom the trade or business described 
     in clause (i) is inoperable on any day after September 23, 
     2005, and before January 1, 2006, as a result of damage 
     sustained by reason of Hurricane Rita.
       ``(B) Eligible employee.--The term `eligible employee' 
     means with respect to an eligible employer an employee whose 
     principal place of employment on September 23, 2005, with 
     such eligible employer was in the Rita GO Zone.
       ``(C) Qualified wages.--The term `qualified wages' means 
     wages (as defined in section 51(c)(1), but without regard to 
     section 3306(b)(2)(B)) paid or incurred by an eligible 
     employer with respect to an eligible employee on any day 
     after September 23, 2005, and before January 1, 2006, which 
     occurs during the period--
       ``(i) beginning on the date on which the trade or business 
     described in subparagraph (A) first became inoperable at the 
     principal place of employment of the employee immediately 
     before Hurricane Rita, and
       ``(ii) ending on the date on which such trade or business 
     has resumed significant operations at such principal place of 
     employment.

     Such term shall include wages paid without regard to whether 
     the employee performs no services, performs services at a 
     different place of employment than such principal place of 
     employment, or performs services at such principal place of 
     employment before significant operations have resumed.
       ``(3) Certain rules to apply.--For purposes of this 
     subsection, rules similar to the rules of sections 51(i)(1), 
     52, and 280C(a) shall apply.
       ``(4) Employee not taken into account more than once.--An 
     employee shall not be treated as an eligible employee for 
     purposes of this subsection for any period with respect to 
     any employer if such employer is allowed a credit under 
     subsection (a) or section 51 with respect to such employee 
     for such period.
       ``(c) Employee Retention Credit for Employers Affected by 
     Hurricane Wilma.--
       ``(1) In general.--For purposes of section 38, in the case 
     of an eligible employer, the Hurricane Wilma employee 
     retention credit for any taxable year is an amount equal to 
     40 percent of the qualified wages with respect to each 
     eligible employee of such employer for such taxable year. For 
     purposes of the preceding sentence, the amount of qualified 
     wages which may be taken into account with respect to any 
     individual shall not exceed $6,000.
       ``(2) Definitions.--For purposes of this subsection--
       ``(A) Eligible employer.--The term `eligible employer' 
     means any employer--
       ``(i) which conducted an active trade or business on 
     October 23, 2005, in the Wilma GO Zone, and
       ``(ii) with respect to whom the trade or business described 
     in clause (i) is inoperable on any day after October 23, 
     2005, and before January 1, 2006, as a result of damage 
     sustained by reason of Hurricane Wilma.
       ``(B) Eligible employee.--The term `eligible employee' 
     means with respect to an eligible employer an employee whose 
     principal place of employment on October 23, 2005, with such 
     eligible employer was in the Wilma GO Zone.
       ``(C) Qualified wages.--The term `qualified wages' means 
     wages (as defined in section 51(c)(1), but without regard to 
     section 3306(b)(2)(B)) paid or incurred by an eligible 
     employer with respect to an eligible employee on any day 
     after October 23, 2005, and before January 1, 2006, which 
     occurs during the period--
       ``(i) beginning on the date on which the trade or business 
     described in subparagraph (A) first became inoperable at the 
     principal place of employment of the employee immediately 
     before Hurricane Wilma, and
       ``(ii) ending on the date on which such trade or business 
     has resumed significant operations at such principal place of 
     employment.

     Such term shall include wages paid without regard to whether 
     the employee performs no services, performs services at a 
     different place of employment than such principal place of 
     employment, or performs services at such principal place of 
     employment before significant operations have resumed.
       ``(3) Certain rules to apply.--For purposes of this 
     subsection, rules similar to the rules of sections 51(i)(1), 
     52, and 280C(a) shall apply.
       ``(4) Employee not taken into account more than once.--An 
     employee shall not be treated as an eligible employee for 
     purposes of this subsection for any period with respect to 
     any employer if such employer is allowed a credit under 
     subsection (a) or section 51 with respect to such employee 
     for such period.

     ``SEC. 1400S. ADDITIONAL TAX RELIEF PROVISIONS.

       ``(a) Temporary Suspension of Limitations on Charitable 
     Contributions.--
       ``(1) In general.--Except as otherwise provided in 
     paragraph (2), section 170(b) shall not apply to qualified 
     contributions and such contributions shall not be taken into 
     account for purposes of applying subsections (b) and (d) of 
     section 170 to other contributions.
       ``(2) Treatment of excess contributions.--For purposes of 
     section 170--
       ``(A) Individuals.--In the case of an individual--
       ``(i) Limitation.--Any qualified contribution shall be 
     allowed only to the extent that the aggregate of such 
     contributions does not exceed the excess of the taxpayer's 
     contribution base (as defined in subparagraph (F) of section 
     170(b)(1)) over the amount of all other charitable 
     contributions allowed under section 170(b)(1).
       ``(ii) Carryover.--If the aggregate amount of qualified 
     contributions made in the contribution year (within the 
     meaning of section 170(d)(1)) exceeds the limitation of 
     clause (i), such excess shall be added to the excess 
     described in the portion of subparagraph (A) of such section 
     which precedes clause (i) thereof for purposes of applying 
     such section.
       ``(B) Corporations.--In the case of a corporation--
       ``(i) Limitation.--Any qualified contribution shall be 
     allowed only to the extent that the aggregate of such 
     contributions does not exceed the excess of the taxpayer's 
     taxable income (as determined under paragraph (2) of section 
     170(b)) over the amount of all other charitable contributions 
     allowed under such paragraph.
       ``(ii) Carryover.--Rules similar to the rules of 
     subparagraph (A)(ii) shall apply for purposes of this 
     subparagraph.
       ``(3) Exception to overall limitation on itemized 
     deductions.--So much of any deduction allowed under section 
     170 as does not exceed the qualified contributions paid 
     during the taxable year shall not be treated as an itemized 
     deduction for purposes of section 68.
       ``(4) Qualified contributions.--
       ``(A) In general.--For purposes of this subsection, the 
     term `qualified contribution' means any charitable 
     contribution (as defined in section 170(c)) if--
       ``(i) such contribution is paid during the period beginning 
     on August 28, 2005, and ending on December 31, 2005, in cash 
     to an organization described in section 170(b)(1)(A) (other 
     than an organization described in section 509(a)(3)),
       ``(ii) in the case of a contribution paid by a corporation, 
     such contribution is for relief efforts related to Hurricane 
     Katrina, Hurricane Rita, or Hurricane Wilma, and
       ``(iii) the taxpayer has elected the application of this 
     subsection with respect to such contribution.
       ``(B) Exception.--Such term shall not include a 
     contribution if the contribution is for establishment of a 
     new, or maintenance in an existing, segregated fund or 
     account with respect to which the donor (or any person 
     appointed or designated by such donor) has, or reasonably 
     expects to have, advisory privileges with respect to 
     distributions or investments by reason of the donor's status 
     as a donor.
       ``(C) Application of election to partnerships and s 
     corporations.--In the case of a partnership or S corporation, 
     the election under subparagraph (A)(iii) shall be made 
     separately by each partner or shareholder.
       ``(b) Suspension of Certain Limitations on Personal 
     Casualty Losses.--Paragraphs (1) and (2)(A) of section 165(h) 
     shall not apply to losses described in section 165(c)(3)--
       ``(1) which arise in the Hurricane Katrina disaster area on 
     or after August 25, 2005, and which are attributable to 
     Hurricane Katrina,
       ``(2) which arise in the Hurricane Rita disaster area on or 
     after September 23, 2005, and which are attributable to 
     Hurricane Rita, or
       ``(3) which arise in the Hurricane Wilma disaster area on 
     or after October 23, 2005, and which are attributable to 
     Hurricane Wilma.

     In the case of any other losses, section 165(h)(2)(A) shall 
     be applied without regard to the losses referred to in the 
     preceding sentence.''.
       (b) Conforming Amendments.--
       (1) Subsection (b) of section 38 is amended by striking 
     ``and'' at the end of paragraph (25), by striking the period 
     at the end of paragraph (26) and inserting a comma, and by 
     adding at the end the following new paragraphs:
       ``(27) the Hurricane Katrina employee retention credit 
     determined under section 1400R(a),

[[Page S538]]

       ``(28) the Hurricane Rita employee retention credit 
     determined under section 1400R(b), and
       ``(29) the Hurricane Wilma employee retention credit 
     determined under section 1400R(c).''.
       (2) The table of sections for subchapter Z of chapter 1 is 
     amended by adding at the end the following new items:

``Sec. 1400P. Special rules for mortgage revenue bonds.
``Sec. 1400Q. Special rules for use of retirement funds.
``Sec. 1400R. Employment relief.
``Sec. 1400S. Additional tax relief provisions.''.
       (3) The following provisions of the Katrina Emergency Tax 
     Relief Act of 2005 are hereby repealed:
       (A) Title I.
       (B) Sections 202, 301, and 402.

               TITLE II--EXTENSION OF EXPIRING PROVISIONS

                   Subtitle A--Multi-Year Extensions

     SEC. 201. EXTENSION OF INCREASED EXPENSING FOR SMALL 
                   BUSINESS.

       Section 179 is amended by striking ``2008'' each place it 
     appears and inserting ``2010''.

     SEC. 202. CREDIT FOR ELECTIVE DEFERRALS AND IRA 
                   CONTRIBUTIONS.

       Section 25B(h) is amended by striking ``2006'' and 
     inserting ``2009''.

     SEC. 203. ABOVE-THE-LINE DEDUCTION FOR HIGHER EDUCATION.

       (a) In General.--Section 222(e) is amended by striking 
     ``2005''and inserting ``2009''.
       (b) Conforming Amendments.--Section 222(b)(2)(B) is 
     amended--
       (1) by striking ``a taxable year beginning in 2004 or 
     2005'' and inserting ``any taxable year beginning after 
     2003'', and
       (2) by striking ``2004 AND 2005'' and inserting ``AFTER 
     2003''.

     SEC. 204. EXTENSION AND MODIFICATION OF NEW MARKETS TAX 
                   CREDIT.

       (a) Extension.--Section 45D(f)(1)(D) is amended by striking 
     ``and 2007'' and inserting ``, 2007, and 2008''.
       (b) Regulations Regarding Non-Metropolitan Counties.--
     Section 45D(i) is amended by striking ``and'' at the end of 
     paragraph (4), by striking the period at the end of paragraph 
     (5) and inserting ``, and'', and by adding at the end by the 
     following new paragraph:
       ``(6) which ensure that non-metropolitan counties receive a 
     proportional allocation of qualified equity investments.''.

                    Subtitle B--One-Year Extensions

     SEC. 211. ELECTION TO DEDUCT STATE AND LOCAL GENERAL SALES 
                   TAXES.

       Section 164(b)(5)(I) is amended by striking ``2006'' and 
     inserting ``2007''.

     SEC. 212. EXTENSION AND INCREASE IN MINIMUM TAX RELIEF TO 
                   INDIVIDUALS.

       (a) In General.--Section 55(d)(1) is amended--
       (1) by striking ``$58,000'' and all that follows through 
     ``2005'' in subparagraph (A) and inserting ``$62,550 in the 
     case of taxable years beginning in 2006'', and
       (2) by striking ``$40,250'' and all that follows through 
     ``2005'' in subparagraph (B) and inserting ``$42,500 in the 
     case of taxable years beginning in 2006''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 213. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST 
                   REGULAR AND ALTERNATIVE MINIMUM TAX LIABILITY.

       (a) In General.--Paragraph (2) of section 26(a) is 
     amended--
       (1) by striking ``2005'' in the heading and inserting 
     ``2006'', and
       (2) by striking ``or 2005'' and inserting ``2005, or 
     2006''.
       (b) Conforming Provisions.--
       (1) Section 30B(g) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rule for 2006.--For purposes of any taxable 
     year beginning during 2006, the credit allowed under 
     subsection (a) (after the application of paragraph (1)) shall 
     not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under subpart A and 
     this subpart (other than this section and section 30C).''.
       (2) Section 30C(d) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rule for 2006.--For purposes of any taxable 
     year beginning during 2006, the credit allowed under 
     subsection (a) (after the application of paragraph (1)) shall 
     not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under subpart A and 
     this subpart (other than this section).''.
       (3) Section 904(h) is amended by striking ``or 2005'' and 
     inserting ``2005, or 2006''.
       (4) 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 
     2006.

     SEC. 214. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

       (a) Extension.--
       (1) In general.--Section 41(h)(1)(B) is amended by striking 
     ``2005'' and inserting ``2006''.
       (2) Conforming amendment.--Section 45C(b)(1)(D) is amended 
     by striking ``2005'' and inserting ``2006''.
       (b) Increase in Rates of Alternative Incremental Credit.--
     Subparagraph (A) of section 41(c)(4) (relating to election of 
     alternative incremental credit) is amended--
       (1) by striking ``2.65 percent'' and inserting ``3 
     percent'',
       (2) by striking ``3.2 percent'' and inserting ``4 
     percent'', and
       (3) by striking ``3.75 percent'' and inserting ``5 
     percent''.
       (c) Alternative Simplified Credit for Qualified Research 
     Expenses.--
       (1) In general.--Subsection (c) of section 41 (relating to 
     base amount) is amended by redesignating paragraphs (5) and 
     (6) as paragraphs (6) and (7), respectively, and by inserting 
     after paragraph (4) the following new paragraph:
       ``(5) Election of alternative simplified credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     12 percent of so much of the qualified research expenses for 
     the taxable year as exceeds 50 percent of the average 
     qualified research expenses for the 3 taxable years preceding 
     the taxable year for which the credit is being determined.
       ``(B) Special rule in case of no qualified research 
     expenses in any of 3 preceding taxable years.--
       ``(i) Taxpayers to which subparagraph applies.--The credit 
     under this paragraph shall be determined under this 
     subparagraph if the taxpayer has no qualified research 
     expenses in any 1 of the 3 taxable years preceding the 
     taxable year for which the credit is being determined.
       ``(ii) Credit rate.--The credit determined under this 
     subparagraph shall be equal to 6 percent of the qualified 
     research expenses for the taxable year.
       ``(C) Election.--An election under this paragraph shall 
     apply to the taxable year for which made and all succeeding 
     taxable years unless revoked with the consent of the 
     Secretary. An election under this paragraph may not be made 
     for any taxable year to which an election under paragraph (4) 
     applies.''.
       (2) Coordination with election of alternative incremental 
     credit.--
       (A) In general.--Section 41(c)(4)(B) (relating to election) 
     is amended by adding at the end the following: ``An election 
     under this paragraph may not be made for any taxable year to 
     which an election under paragraph (5) applies.''.
       (B) Transition rule.--In the case of an election under 
     section 41(c)(4) of the Internal Revenue Code of 1986 which 
     applies to the taxable year which includes the date of the 
     enactment of this Act, such election shall be treated as 
     revoked with the consent of the Secretary of the Treasury if 
     the taxpayer makes an election under section 41(c)(5) of such 
     Code (as added by subsection (a)) for such year.
       (d) Expansion of Credit to Expenses of General 
     Collaborative Research Consortia.--Section 41 is amended--
       (1) by striking ``an energy research consortium'' in 
     subsections (a)(3) and (b)(3)(C)(i) and inserting ``a 
     research consortium'',
       (2) by striking ``energy'' each place it appears in 
     subsection (f)(6)(A),
       (3) by inserting ``or 501(c)(6)'' after ``section 
     501(c)(3)'' in subsection (f)(6)(A)(i)(I), and
       (4) by striking ``Energy research'' in the heading for 
     subsection (f)(6)(A) and inserting ``Research''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 2005.

     SEC. 215. WORK OPPORTUNITY TAX CREDIT AND WELFARE-TO-WORK 
                   CREDIT.

       (a) In General.--Section 51(c)(4)(B) is amended by striking 
     ``2005'' and inserting ``2006''.
       (b) Eligibility of Ex-Felons Determined Without Regard to 
     Family Income.--Paragraph (4) of section 51(d) is amended by 
     adding ``and'' at the end of subparagraph (A), by striking 
     ``, and'' at the end of subparagraph (B) and inserting a 
     period, and by striking all that follows subparagraph (B).
       (c) Increase in Maximum Age for Eligibility of Food Stamp 
     Recipients.--Clause (i) of section 51(d)(8)(A) is amended by 
     striking ``25'' and inserting ``40''.
       (d) Increase in Maximum Age for Designated Community 
     Residents.--
       (1) In general.--Paragraph (5) of section 51(d) is amended 
     to read as follows:
       ``(5) Designated community residents.--
       ``(A) In general.--The term `designated community resident' 
     means any individual who is certified by the designated local 
     agency--
       ``(i) as having attained age 18 but not age 40 on the 
     hiring date, and
       ``(ii) as having his principal place of abode within an 
     empowerment zone, enterprise community, or renewal community.
       ``(B) Individual must continue to reside in zone or 
     community.--In the case of a designated community resident, 
     the term `qualified wages' shall not include wages paid or 
     incurred for services performed while the individual's 
     principal place of abode is outside an empowerment zone, 
     enterprise community, or renewal community.''
       (2) Conforming amendment.--Subparagraph (D) of section 
     51(d)(1) is amended to read as follows:
       ``(D) a designated community resident,''.
       (e) Consolidation of Work Opportunity Credit With Welfare-
     To-Work Credit.--
       (1) In general.--Paragraph (1) of section 51(d) is amended 
     by striking ``or'' at the end

[[Page S539]]

     of subparagraph (G), by striking the period at the end of 
     subparagraph (H) and inserting ``, or'', and by adding at the 
     end the following new subparagraph:
       ``(I) a long-term family assistance recipient.''
       (2) Long-term family assistance recipient.--Subsection (d) 
     of section 51 is amended by redesignating paragraphs (10) 
     through (12) as paragraphs (11) through (13), respectively, 
     and by inserting after paragraph (9) the following new 
     paragraph:
       ``(10) Long-term family assistance recipient.--The term 
     `long-term family assistance recipient' means any individual 
     who is certified by the designated local agency--
       ``(A) as being a member of a family receiving assistance 
     under a IV-A program (as defined in paragraph (2)(B)) for at 
     least the 18-month period ending on the hiring date,
       ``(B)(i) as being a member of a family receiving such 
     assistance for 18 months beginning after August 5, 1997, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the end of the earliest such 18-month period, or
       ``(C)(i) as being a member of a family which ceased to be 
     eligible for such assistance by reason of any limitation 
     imposed by Federal or State law on the maximum period such 
     assistance is payable to a family, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the date of such cessation.''
       (3) Increased credit for employment of long-term family 
     assistance recipients.--Section 51 is amended by inserting 
     after subsection (d) the following new subsection:
       ``(e) Credit for Second-Year Wages for Employment of Long-
     Term Family Assistance Recipients.--
       ``(1) In general.--With respect to the employment of a 
     long-term family assistance recipient--
       ``(A) the amount of the work opportunity credit determined 
     under this section for the taxable year shall include 50 
     percent of the qualified second-year wages for such year, and
       ``(B) in lieu of applying subsection (b)(3), the amount of 
     the qualified first-year wages, and the amount of qualified 
     second-year wages, which may be taken into account with 
     respect to such a recipient shall not exceed $10,000 per 
     year.
       ``(2) Qualified second-year wages.--For purposes of this 
     subsection, the term `qualified second-year wages' means 
     qualified wages--
       ``(A) which are paid to a long-term family assistance 
     recipient, and
       ``(B) which are attributable to service rendered during the 
     1-year period beginning on the day after the last day of the 
     1-year period with respect to such recipient determined under 
     subsection (b)(2).
       ``(3) Special rules for agricultural and railway labor.--If 
     such recipient is an employee to whom subparagraph (A) or (B) 
     of subsection (h)(1) applies, rules similar to the rules of 
     such subparagraphs shall apply except that--
       ``(A) such subparagraph (A) shall be applied by 
     substituting `$10,000' for `$6,000', and
       ``(B) such subparagraph (B) shall be applied by 
     substituting `$833.33' for `$500'.''
       (4) Repeal of separate welfare-to-work credit.--
       (A) In general.--Section 51A is hereby repealed.
       (B) Clerical amendment.--The table of sections for subpart 
     F of part IV of subchapter A of chapter 1 is amended by 
     striking the item relating to section 51A.
       (f) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 2005.

     SEC. 216. QUALIFIED ZONE ACADEMY BONDS.

       (a) In General.--Paragraph (1) of section 1397E(e) is 
     amended by striking ``and 2005'' and inserting ``2005, and 
     2006''.
       (b) Form of Private Business Contributions.--Section 
     1397E(d)(2)(B) is amended by striking ``any contribution'' 
     and all that follows and inserting ``any cash or cash 
     equivalent contribution''.
       (c) Special Rules Relating to Amortization, Expenditures, 
     Arbitrage, and Reporting.--
       (1) In general.--Section 1397E is amended--
       (A) in subsection (d)(1), by striking ``and'' at the end of 
     subparagraph (C)(iii), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) the issue meets the requirements of subsections (f), 
     (g), (h), and (i).'', and
       (B) by redesignating subsections (f), (g), (h), and (i) as 
     subsection (j), (k), (l), and (m), respectively, and by 
     inserting after subsection (e) the following new subsections:
       ``(f) Ratable Principal Amortization Required.--An issue 
     shall be treated as meeting the requirements of this 
     subsection if such issue provides for an equal amount of 
     principal to be paid by the issuer during each calendar year 
     that the issue is outstanding.
       ``(g) Special Rules Relating to Expenditures.--
       ``(1) In general.--An issue shall be treated as meeting the 
     requirements of this subsection if, as of the date of 
     issuance, the issuer reasonably expects--
       ``(A) at least 95 percent of the proceeds from the sale of 
     the issue are to be spent for 1 or more qualified purposes 
     with respect to qualified zone academies within the 5-year 
     period beginning on the date of issuance of the qualified 
     zone academy bond,
       ``(B) a binding commitment with a third party to spend at 
     least 10 percent of the proceeds from the sale of the issue 
     will be incurred within the 6-month period beginning on the 
     date of issuance of the qualified zone academy bond, and
       ``(C) such purposes will be completed with due diligence 
     and the proceeds from the sale of the issue will be spent 
     with due diligence.
       ``(2) Extension of period.--Upon submission of a request 
     prior to the expiration of the period described in paragraph 
     (1)(A), the Secretary may extend such period if the issuer 
     establishes that the failure to satisfy the 5-year 
     requirement is due to reasonable cause and the related 
     purposes will continue to proceed with due diligence.
       ``(3) Failure to spend required amount of bond proceeds 
     within 5 years.--To the extent that less than 95 percent of 
     the proceeds of such issue are expended by the close of the 
     5-year period beginning on the date of issuance (or if an 
     extension has been obtained under paragraph (2), by the close 
     of the extended period), the issuer shall redeem all of the 
     nonqualified bonds within 90 days after the end of such 
     period. For purposes of this paragraph, the amount of the 
     nonqualified bonds required to be redeemed shall be 
     determined in the same manner as under section 142.
       ``(h) Special Rules Relating to Arbitrage.--An issue shall 
     be treated as meeting the requirements of this subsection if 
     the issuer satisfies the arbitrage requirements of section 
     148 with respect to proceeds of the issue.
       ``(i) Reporting.--Issuers of qualified academy zone bonds 
     shall submit reports similar to the reports required under 
     section 149(e).''.
       (2) Conforming amendments.--
       (A) Section 1397E(d)(3) is amended by inserting ``without 
     regard to the requirements of subsection (f) and'' after 
     ``Such present value shall be determined''.
       (B) Section 54(l)(3)(B) is amended by striking ``section 
     1397E(i)'' and inserting ``section 1397E(l)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after December 31, 2005.

     SEC. 217. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER 
                   TECHNOLOGY AND EQUIPMENT.

       Section 170(e)(6)(G) is amended by striking ``2005'' and 
     inserting ``2006''.

     SEC. 218. ABOVE-THE-LINE DEDUCTION FOR CERTAIN EXPENSES OF 
                   ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

       Subparagraph (D) of section 62(a)(2) is amended by striking 
     ``or 2005'' and inserting ``2005, or 2006''.

     SEC. 219. EXPENSING OF BROWNFIELDS REMEDIATION COSTS.

       (a) Extension.--Subsection (h) of section 198 is amended by 
     striking ``2005'' and inserting ``2006''.
       (b) Expansion.--
       (1) In general.--Section 198(d)(1) (defining hazardous 
     substance) is amended by striking ``and'' at the end of 
     subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any petroleum product (as defined in section 
     4612(a)(3)).''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to expenditures paid or incurred after December 
     31, 2005.

     SEC. 220. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF 
                   COLUMBIA.

       (a) Designation of Zone.--Subsection (f) of section 1400 is 
     amended by striking ``2005'' both places it appears and 
     inserting ``2006''.
       (b) Tax-Exempt Economic Development Bonds.--Subsection (b) 
     of section 1400A is amended by striking ``2005'' and 
     inserting ``2006''.
       (c) Zero Percent Capital Gains Rate.--
       (1) In general.--Subsection (b) of section 1400B is amended 
     by striking ``2006'' each place it appears and inserting 
     ``2007''.
       (2) Conforming amendments.--
       (A) Section 1400B(e)(2) is amended--
       (i) by striking ``2010'' and inserting ``2011'', and
       (ii) by striking ``2010'' in the heading and inserting 
     ``2011''.
       (B) Section 1400B(g)(2) is amended by striking ``2010'' and 
     inserting ``2011''.
       (C) Section 1400F(d) is amended by striking ``2010'' and 
     inserting ``2011''.
       (d) First-Time Homebuyer Credit.--Subsection (i) of section 
     1400C is amended by striking ``2006'' and inserting ``2007''.

     SEC. 221. INDIAN EMPLOYMENT TAX CREDIT.

       Section 45A(f) is amended by striking ``2005'' and 
     inserting ``2006''.

     SEC. 222. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON 
                   INDIAN RESERVATION.

       Section 168(j)(8) is amended by striking ``2005'' and 
     inserting ``2006''.

     SEC. 223. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY FOR 
                   QUALIFIED LEASEHOLD IMPROVEMENTS AND QUALIFIED 
                   RESTAURANT IMPROVEMENTS.

       Clauses (iv) and (v) of section 168(e)(3)(E) are each 
     amended by striking ``2006'' and inserting ``2007''.

     SEC. 224. EXTENSION OF FULL CREDIT FOR QUALIFIED ELECTRIC 
                   VEHICLES.

       (a) In General.--Section 30(b) (relating to limitations) is 
     amended by striking paragraph (2) and by redesignating 
     paragraph (3) as paragraph (2).
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2005.

[[Page S540]]

                Subtitle C--Application of EGTRRA Sunset

     SEC. 231. 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 III--PROVISIONS RELATING TO CHARITABLE DONATIONS

                Subtitle A--Charitable Giving Incentives

     SEC. 301. CHARITABLE DEDUCTION FOR NONITEMIZERS.

       (a) In General.--Section 170 (relating to charitable, etc., 
     contributions and gifts) is amended by redesignating 
     subsection (o) as subsection (p) and by inserting after 
     subsection (n) the following new subsection:
       ``(o) Deduction for Individuals Not Itemizing Deductions.--
     In the case of an individual who does not itemize deductions 
     for any taxable year beginning after December 31, 2005, and 
     before January 1, 2008, there shall be taken into account as 
     a direct charitable deduction under section 63 an amount 
     equal to the amount allowable under subsection (a) for the 
     taxable year for cash contributions (determined without 
     regard to any carryover).''.
       (b) Direct Charitable Deduction.--
       (1) In general.--Subsection (b) of section 63 (defining 
     taxable income) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) the direct charitable deduction.''.
       (2) Definition.--Section 63 is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Direct Charitable Deduction.--For purposes of this 
     section, the term `direct charitable deduction' means that 
     portion of the amount allowable under section 170(a) which is 
     taken as a direct charitable deduction for the taxable year 
     under section 170(o).''.
       (3) Conforming amendment.--Subsection (d) of section 63 is 
     amended by striking ``and'' at the end of paragraph (1), by 
     striking the period at the end of paragraph (2) and inserting 
     ``, and'', and by adding at the end the following new 
     paragraph:
       ``(3) the direct charitable deduction.''.
       (c) Floor on Charitable Contributions by Individuals.--
     Section 170(a) is amended by adding at the end the following 
     new paragraph:
       ``(4) Dollar floor on charitable contributions by 
     individuals.--In the case of an individual, the charitable 
     contributions of the taxpayer for any taxable year shall be 
     taken into account for purposes of determining the deduction 
     under paragraph (1) only to the extent that the aggregate of 
     such contributions exceeds $210 ($420 in the case of a joint 
     return).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005.

     SEC. 302. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT 
                   PLANS FOR CHARITABLE PURPOSES.

       (a) In General.--Subsection (d) of section 408 (relating to 
     individual retirement accounts) is amended by adding at the 
     end the following new paragraph:
       ``(8) Distributions for charitable purposes.--
       ``(A) In general.--No amount shall be includible in gross 
     income by reason of a qualified charitable distribution.
       ``(B) Qualified charitable distribution.--For purposes of 
     this paragraph, the term `qualified charitable distribution' 
     means any distribution from an individual retirement plan 
     (other than a plan described in subsection (k) or (p) of 
     section 408)--
       ``(i) which is made on or after the date that the 
     individual for whose benefit the plan is maintained has 
     attained age 70\1/2\, and
       ``(ii) which is made directly by the trustee--

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

     A distribution shall be treated as a qualified charitable 
     distribution only to the extent that the distribution would 
     be includible in gross income without regard to subparagraph 
     (A) and, in the case of a distribution to a split-interest 
     entity, only if no person holds an income interest in the 
     amounts in the split-interest entity attributable to such 
     distribution other than one or more of the following: the 
     individual for whose benefit such plan is maintained, the 
     spouse of such individual, or any organization described in 
     section 170(c).
       ``(C) Contributions must be otherwise deductible.--For 
     purposes of this paragraph--
       ``(i) Direct contributions.--A distribution to an 
     organization described in section 170(c) shall be treated as 
     a qualified charitable distribution only if a deduction for 
     the entire distribution would be allowable under section 170 
     (determined without regard to subsections (a)(4) and (b) 
     thereof and this paragraph).
       ``(ii) Split-interest gifts.--A distribution to a split-
     interest entity shall be treated as a qualified charitable 
     distribution only if a deduction for the entire value of the 
     interest in the distribution for the use of an organization 
     described in section 170(c) would be allowable under section 
     170 (determined without regard to subsections (a)(4) and (b) 
     thereof and this paragraph).
       ``(D) Application of section 72.--Notwithstanding section 
     72, in determining the extent to which a distribution is a 
     qualified charitable distribution, the entire amount of the 
     distribution shall be treated as includible in gross income 
     without regard to subparagraph (A) to the extent that such 
     amount does not exceed the aggregate amount which would have 
     been so includible if all amounts distributed from all 
     individual retirement plans were treated as 1 contract under 
     paragraph (2)(A) for purposes of determining the inclusion of 
     such distribution under section 72. Proper adjustments shall 
     be made in applying section 72 to other distributions in such 
     taxable year and subsequent taxable years.
       ``(E) Special rules for split-interest entities.--
       ``(i) Charitable remainder trusts.--Notwithstanding section 
     664(b), distributions made from a trust described in 
     subparagraph (G)(i) shall be treated as ordinary income in 
     the hands of the beneficiary to whom is paid the annuity 
     described in section 664(d)(1)(A) or the payment described in 
     section 664(d)(2)(A).
       ``(ii) Pooled income funds.--No amount shall be includible 
     in the gross income of a pooled income fund (as defined in 
     subparagraph (G)(ii)) by reason of a qualified charitable 
     distribution to such fund, and all distributions from the 
     fund which are attributable to qualified charitable 
     distributions shall be treated as ordinary income to the 
     beneficiary.
       ``(iii) Charitable gift annuities.--Qualified charitable 
     distributions made for a charitable gift annuity shall not be 
     treated as an investment in the contract.
       ``(F) Denial of deduction.--Qualified charitable 
     distributions shall not be taken into account in determining 
     the deduction under section 170.
       ``(G) Split-interest entity defined.--For purposes of this 
     paragraph, the term `split-interest entity' means--
       ``(i) a charitable remainder annuity trust or a charitable 
     remainder unitrust (as such terms are defined in section 
     664(d)) which must be funded exclusively by qualified 
     charitable distributions,
       ``(ii) a pooled income fund (as defined in section 
     642(c)(5)), but only if the fund accounts separately for 
     amounts attributable to qualified charitable distributions, 
     and
       ``(iii) a charitable gift annuity (as defined in section 
     501(m)(5)).''.
       (b) Modifications Relating to Information Returns by 
     Certain Trusts.--
       (1) Returns.--Section 6034 (relating to returns by trusts 
     described in section 4947(a)(2) or claiming charitable 
     deductions under section 642(c)) is amended to read as 
     follows:

     ``SEC. 6034. RETURNS BY CERTAIN TRUSTS.

       ``(a) Split-Interest Trusts.--Every trust described in 
     section 4947(a)(2) shall furnish such information with 
     respect to the taxable year as the Secretary may by forms or 
     regulations require.
       ``(b) Trusts Claiming Certain Charitable Deductions.--
       ``(1) In general.--Every trust not required to file a 
     return under subsection (a) but claiming a deduction under 
     section 642(c) for the taxable year shall furnish such 
     information with respect to such taxable year as the 
     Secretary may by forms or regulations prescribe, including--
       ``(A) the amount of the deduction taken under section 
     642(c) within such year,
       ``(B) the amount paid out within such year which represents 
     amounts for which deductions under section 642(c) have been 
     taken in prior years,
       ``(C) the amount for which such deductions have been taken 
     in prior years but which has not been paid out at the 
     beginning of such year,
       ``(D) the amount paid out of principal in the current and 
     prior years for the purposes described in section 642(c),
       ``(E) the total income of the trust within such year and 
     the expenses attributable thereto, and
       ``(F) a balance sheet showing the assets, liabilities, and 
     net worth of the trust as of the beginning of such year.
       ``(2) Exceptions.--Paragraph (1) shall not apply to a trust 
     for any taxable year if--
       ``(A) all the net income for such year, determined under 
     the applicable principles of the law of trusts, is required 
     to be distributed currently to the beneficiaries, or
       ``(B) the trust is described in section 4947(a)(1).''.
       (2) Increase in penalty relating to filing of information 
     return by split-interest trusts.--Paragraph (2) of section 
     6652(c) (relating to returns by exempt organizations and by 
     certain trusts) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Split-interest trusts.--In the case of a trust which 
     is required to file a return under section 6034(a), 
     subparagraphs (A) and (B) of this paragraph shall not apply 
     and paragraph (1) shall apply in the same manner as if such 
     return were required under section 6033, except that--
       ``(i) the 5 percent limitation in the second sentence of 
     paragraph (1)(A) shall not apply,
       ``(ii) in the case of any trust with gross income in excess 
     of $250,000, the first sentence of paragraph (1)(A) shall be 
     applied by substituting `$100' for `$20', and the second 
     sentence thereof shall be applied by substituting `$50,000' 
     for `$10,000', and
       ``(iii) the third sentence of paragraph (1)(A) shall be 
     disregarded.

     In addition to any penalty imposed on the trust pursuant to 
     this subparagraph, if the

[[Page S541]]

     person required to file such return knowingly fails to file 
     the return, such penalty shall also be imposed on such person 
     who shall be personally liable for such penalty.''.
       (3) Confidentiality of noncharitable beneficiaries.--
     Subsection (b) of section 6104 (relating to inspection of 
     annual information returns) is amended by adding at the end 
     the following new sentence: ``In the case of a trust which is 
     required to file a return under section 6034(a), this 
     subsection shall not apply to information regarding 
     beneficiaries which are not organizations described in 
     section 170(c).''.
       (c) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to distributions made in taxable years beginning 
     after December 31, 2005, and before January 1, 2008.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to returns for taxable years beginning after 
     December 31, 2005.

     SEC. 303. MODIFICATION OF CHARITABLE DEDUCTION FOR 
                   CONTRIBUTIONS OF FOOD INVENTORY.

       (a) In General.--Subparagraph (C) of section 170(e)(3) 
     (relating to special rule for certain contributions of 
     inventory and other property), as added by section 305 of the 
     Katrina Emergency Tax Relief Act of 2005, is amended to read 
     as follows:
       ``(C) Special rule for contributions of food inventory.--
       ``(i) General rule.--In the case of a charitable 
     contribution of food from any trade or business of the 
     taxpayer, this paragraph shall be applied--

       ``(I) without regard to whether the contribution is made by 
     a C corporation, and
       ``(II) only to food that is apparently wholesome food.

       ``(ii) Limitation.--In the case of a taxpayer other than a 
     C corporation, the aggregate amount of such contributions for 
     any taxable year which may be taken into account under this 
     section shall not exceed 10 percent of the taxpayer's 
     aggregate net income for such taxable year from all trades or 
     businesses from which such contributions were made for such 
     year, computed without regard to this section.
       ``(iii) Limitation on reduction.--In the case of any such 
     contribution, notwithstanding subparagraph (B), the amount of 
     the reduction determined under paragraph (1)(A) shall not 
     exceed the amount by which the fair market value of the 
     apparently wholesome food exceeds twice the basis of such 
     food.
       ``(iv) Determination of basis.--If a taxpayer--

       ``(I) does not account for inventories under section 471, 
     and
       ``(II) is not required to capitalize indirect costs under 
     section 263A,

     the taxpayer may elect, solely for purposes of subparagraph 
     (B), to treat the basis of any apparently wholesome food as 
     being equal to 25 percent of the fair market value of such 
     food.
       ``(v) Determination of fair market value.--In the case of 
     any such contribution of apparently wholesome food which, 
     solely by reason of internal standards of the taxpayer or 
     lack of market, cannot or will not be sold, the fair market 
     value of such contribution shall be determined--

       ``(I) without regard to such internal standards or such 
     lack of market and
       ``(II) by taking into account the price at which the same 
     or substantially the same food items (as to both type and 
     quality) are sold by the taxpayer at the time of the 
     contribution (or, if not so sold at such time, in the recent 
     past).

       ``(vi) Apparently wholesome food.--For purposes of this 
     subparagraph, the term `apparently wholesome food' has the 
     meaning given to such term by section 22(b)(2) of the Bill 
     Emerson Good Samaritan Food Donation Act (42 U.S.C. 
     1791(b)(2)), as in effect on the date of the enactment of 
     this subparagraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005, and before January 1, 2008.

     SEC. 304. BASIS ADJUSTMENT TO STOCK OF S CORPORATION 
                   CONTRIBUTING PROPERTY.

       (a) In General.--Paragraph (2) of section 1367(a) (relating 
     to adjustments to basis of stock of shareholders, etc.) is 
     amended by adding at the end the following new flush 
     sentence:
       ``The decrease under subparagraph (B) by reason of a 
     charitable contribution (as defined in section 170(c)) of 
     property shall be the amount equal to the shareholder's pro 
     rata share of the adjusted basis of such property.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005, and before January 1, 2008.

     SEC. 305. MODIFICATION OF CHARITABLE DEDUCTION FOR 
                   CONTRIBUTIONS OF BOOK INVENTORY.

       (a) In General.--Subparagraph (D) of section 170(e)(3) 
     (relating to special rule for certain contributions of 
     inventory and other property), as added by section 305 of the 
     Katrina Emergency Tax Relief Act of 2005, is amended to read 
     as follows:
       ``(D) Special rule for contributions of book inventory for 
     educational purposes.--
       ``(i) Contributions of book inventory.--In determining 
     whether a qualified book contribution is a qualified 
     contribution, subparagraph (A) shall be applied without 
     regard to whether--

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

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

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

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

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

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

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

       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005, and before January 1, 2008.

     SEC. 306. MODIFICATION OF TAX TREATMENT OF CERTAIN PAYMENTS 
                   TO CONTROLLING EXEMPT ORGANIZATIONS AND PUBLIC 
                   DISCLOSURE OF INFORMATION RELATING TO UNRELATED 
                   BUSINESS INCOME.

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

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

       (2) Effective date.--
       (A) In general.--The amendment made by this subsection 
     shall apply to payments received or accrued after December 
     31, 2000.
       (B) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 did not apply to any amount received or accrued 
     in the first 2 taxable years beginning on or after the date 
     of the enactment of the Taxpayer Relief Act of 1997 under any 
     contract described in subsection (b)(2) of such section, such 
     amendments also shall not apply to amounts received or 
     accrued under such contract before January 1, 2001.
       (b) Public Availability of Unrelated Business Income Tax 
     Returns.--
       (1) In general.--Subparagraph (A) of section 6104(d)(1) is 
     amended by redesignating clauses (ii) and (iii) as clauses 
     (iii) and (iv), respectively, and by inserting after clause 
     (i) the following new clause:
       ``(ii) any annual return filed under section 6011 which 
     relates to any tax imposed by section 511 (relating to 
     imposition of tax on unrelated business income of charitable, 
     etc., organizations) by such organization,''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to returns filed after the date of the enactment 
     of this Act.
       (c) Certification of Unrelated Business Taxable Income for 
     Certain Organizations.--

[[Page S542]]

       (1) In general.--Section 6011, as amended by section 311 of 
     this Act, is amended by redesignating subsection (h) as 
     subsection (i) and by inserting after subsection (g) the 
     following new subsection:
       ``(h) Returns of Certain Organizations Relating to 
     Unrelated Business Taxable Income.--
       ``(1) In general.--Every applicable exempt organization 
     shall include with the return under subsection (a) for the 
     taxable year a statement by an independent auditor or an 
     independent counsel which meets the requirements of paragraph 
     (2).
       ``(2) Statement.--A statement meets the requirement of this 
     paragraph if the statement--
       ``(A) contains a certification that--
       ``(i) the information contained in the return--

       ``(I) has been reviewed by the auditor or counsel, and
       ``(II) to the best of the auditor's or counsel's knowledge, 
     is accurate, and

       ``(ii) to the best of the auditor's or counsel's knowledge, 
     the allocation of expenses between the unrelated trades and 
     business of the organization and the activities related to 
     the purpose or function constituting the basis of the 
     organization's exemption under section 501 complies with the 
     requirements set forth by the Secretary under section 512, 
     and
       ``(B) indicates--
       ``(i) whether the auditor or counsel has provided a tax 
     opinion to the organization regarding--

       ``(I) the classification of any trade or business of the 
     organization as an unrelated trade or business, or
       ``(II) the treatment of any income as unrelated business 
     taxable income, and

       ``(ii) a description of any material facts with respect to 
     any such opinion.
       ``(3) Applicable exempt organization.--For purposes of this 
     subsection, the term `applicable exempt organization' means 
     any organization which--
       ``(A) is described in section 501(c)(3),
       ``(B) has--
       ``(i) gross income and receipts of not less than 
     $10,000,000 for the taxable year, or
       ``(ii) gross assets of not less than $10,000,000 on the 
     last day of the taxable year, and
       ``(C) is subject to the tax imposed under section 511 for 
     the taxable year.''.
       (2) Penalty.--
       (A) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties), as amended by section 316 
     of this Act, is amended by adding at the end the following 
     new section:

     ``SEC. 6720C. UNRELATED BUSINESS INCOME REQUIREMENTS.

       ``(a) In General.--Any applicable exempt organization (as 
     defined in section 6011(h)(3)) which fails to file a 
     statement required under section 6011(h) shall pay a penalty 
     in an amount equal to \1/2\ percent of the gross revenue 
     amount of such organization for the taxable year to which 
     such statement relates.
       ``(b) Gross Revenue Amount.--For purposes of subsection 
     (a), the term `gross revenue amount' means, with respect to 
     any taxable year, the gross income and receipts of the 
     organization determined without regard to any contributions 
     or grants received by the organization.
       ``(c) Reasonable Cause.--No penalty shall be imposed under 
     this section with respect to any failure if it is shown that 
     such failure is due to reasonable cause.''.
       (B) Conforming amendment.--The table of sections of part I 
     of subchapter B of chapter 68, as amended by section 316 of 
     this Act, is amended by adding after the item relating to 
     section 6720B the following new item:

``Sec. 6720C. Unrelated business income requirements.''.

       (3) Effective date.--The amendments made by this subsection 
     shall apply to returns for taxable years beginning after the 
     date of the enactment of this Act.

     SEC. 307. ENCOURAGEMENT OF CONTRIBUTIONS OF CAPITAL GAIN REAL 
                   PROPERTY MADE FOR CONSERVATION PURPOSES.

       (a) In General.--
       (1) Individuals.--Paragraph (1) of subsection 170(b) 
     (relating to percentage limitations) is amended by 
     redesignating subparagraphs (E) and (F) as subparagraphs (F) 
     and (G), respectively, and by inserting after subparagraph 
     (D) the following new subparagraph:
       ``(E) Contributions of qualified conservation 
     contributions.--
       ``(i) In general.--Any qualified conservation contribution 
     (as defined in subsection (h)(1)) to an organization 
     described in subparagraph (A) shall be allowed to the extent 
     the aggregate of such contributions does not exceed the 
     excess of 50 percent of the taxpayer's contribution base over 
     the amount of all other charitable contributions allowable 
     under this paragraph.
       ``(ii) Carryover.--If the aggregate amount of contributions 
     described in clause (i) exceeds the limitation of clause (i), 
     such excess shall be treated (in a manner consistent with the 
     rules of subsection (d)(1)) as a charitable contribution to 
     which clause (i) applies in each of the 15 succeeding years 
     in order of time.
       ``(iii) Coordination with other subparagraphs.--For 
     purposes of applying this subsection and subsection (d)(1), 
     contributions described in clause (i) shall not be treated as 
     described in subparagraph (A), (B), (C), or (D).
       ``(iv) Qualified farmer or rancher.--

       ``(I) In general.--If the individual is a qualified farmer 
     or rancher for the taxable year in which the contribution is 
     made, clause (i) shall be applied by substituting `100 
     percent' for `50 percent'.
       ``(II) Definition.--For purposes of subclause (I), the term 
     `qualified farmer or rancher' means a taxpayer whose gross 
     income from the trade or business of farming (within the 
     meaning of section 2032A(e)(5)) is greater than 50 percent of 
     the taxpayer's gross income for the taxable year.''.

       (2) Corporations.--Paragraph (2) of section 170(b) is 
     amended to read as follows:
       ``(2) Corporations.--In the case of a corporation--
       ``(A) In general.--The total deductions under subsection 
     (a) for any taxable year (other than for contributions to 
     which subparagraph (B) applies) shall not exceed 10 percent 
     of the taxpayer's taxable income.
       ``(B) Qualified conservation contributions by certain 
     corporate farmers and ranchers.--
       ``(i) In general.--Any qualified conservation contribution 
     (as defined in subsection (h)(1)) made--

       ``(I) by a corporation which, for the taxable year during 
     which the contribution is made, is a qualified farmer or 
     rancher (as defined in paragraph (1)(E)(iv)(II)) and the 
     stock of which is not readily tradable on an established 
     securities market at any time during such year, and
       ``(II) to an organization described in paragraph (1)(A),

     shall be allowed to the extent the aggregate of such 
     contributions does not exceed the excess of the taxpayer's 
     taxable income over the amount of charitable contributions 
     allowable under subparagraph (A).
       ``(ii) Carryover.--If the aggregate amount of contributions 
     described in clause (i) exceeds the limitation of clause (i), 
     such excess shall be treated (in a manner consistent with the 
     rules of subsection (d)(2)) as a charitable contribution to 
     which clause (i) applies in each of the 15 succeeding years 
     in order of time.
       ``(C) Taxable income.--For purposes of this paragraph, 
     taxable income shall be computed without regard to--
       ``(i) this section,
       ``(ii) part VIII (except section 248),
       ``(iii) any net operating loss carrryback to the taxable 
     year under section 172,
       ``(iv) section 199, and
       ``(v) any capital loss carryback to the taxable year under 
     section 1212(a)(1).''.
       (b) Conforming Amendments.--
       (1) The second sentence of clause (i) of section 
     170(b)(1)(C) is amended by striking ``subparagraph (D)'' and 
     inserting ``subparagraph (D) or (E)''.
       (2) Clause (i) of section 170(b)(1)(D) is amended by 
     striking ``subparagraph (A)'' and inserting ``subparagraphs 
     (A) or (E)''.
       (3) Paragraph (2) of section 170(d) is amended by striking 
     ``subsection (b)(2)'' each place it appears and inserting 
     ``subsection (b)(2)(A)''.
       (4) Section 545(b)(2) is amended by striking ``and (D)'' 
     and inserting ``(D), and (E)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005, and before January 1, 2008.

     SEC. 308. ENHANCED DEDUCTION FOR CHARITABLE CONTRIBUTION OF 
                   LITERARY, MUSICAL, ARTISTIC, AND SCHOLARLY 
                   COMPOSITIONS.

       (a) In General.--Subsection (e) of section 170 (relating to 
     certain contributions of ordinary income and capital gain 
     property), as amended by this section 33 of this Act, is 
     amended by adding at the end the following new paragraph:
       ``(18) Special rule for certain contributions of literary, 
     musical, artistic, or scholarly compositions.--
       ``(A) In general.--In the case of a qualified artistic 
     charitable contribution--
       ``(i) the amount of such contribution taken into account 
     under this section shall be the fair market value of the 
     property contributed (determined at the time of such 
     contribution), and
       ``(ii) no reduction in the amount of such contribution 
     shall be made under paragraph (1).
       ``(B) Qualified artistic charitable contribution.--For 
     purposes of this paragraph, the term `qualified artistic 
     charitable contribution' means a charitable contribution of 
     any literary, musical, artistic, or scholarly composition, or 
     similar property, or the copyright thereon (or both), but 
     only if--
       ``(i) such property was created by the personal efforts of 
     the taxpayer making such contribution no less than 18 months 
     prior to such contribution,
       ``(ii) the taxpayer--

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

       ``(iii) the donee is an organization described in 
     subsection (b)(1)(A),
       ``(iv) the use of such property by the donee is related to 
     the purpose or function constituting the basis for the 
     donee's exemption under section 501 (or, in the case of a 
     governmental unit, to any purpose or function described under 
     section 501(c)),
       ``(v) the taxpayer receives from the donee a written 
     statement representing that the

[[Page S543]]

     donee's use of the property will be in accordance with the 
     provisions of clause (iv), and
       ``(vi) the written appraisal referred to in clause (ii) 
     includes evidence of the extent (if any) to which property 
     created by the personal efforts of the taxpayer and of the 
     same type as the donated property is or has been--

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

       ``(C) Maximum dollar limitation; no carryover of increased 
     deduction.--The increase in the deduction under this section 
     by reason of this paragraph for any taxable year--
       ``(i) shall not exceed the artistic adjusted gross income 
     of the taxpayer for such taxable year, and
       ``(ii) shall not be taken into account in determining the 
     amount which may be carried from such taxable year under 
     subsection (d).
       ``(D) Artistic adjusted gross income.--For purposes of this 
     paragraph, the term `artistic adjusted gross income' means 
     that portion of the adjusted gross income of the taxpayer for 
     the taxable year attributable to--
       ``(i) income from the sale or use of property created by 
     the personal efforts of the taxpayer which is of the same 
     type as the donated property, and
       ``(ii) income from teaching, lecturing, performing, or 
     similar activity with respect to property described in clause 
     (i).
       ``(E) Paragraph not to apply to certain contributions.--
     Subparagraph (A) shall not apply to any charitable 
     contribution of any letter, memorandum, or similar property 
     which was written, prepared, or produced by or for an 
     individual while the individual is an officer or employee of 
     any person (including any government agency or 
     instrumentality) unless such letter, memorandum, or similar 
     property is entirely personal.
       ``(F) Copyright treated as separate property for partial 
     interest rule.--In the case of a qualified artistic 
     charitable contribution, the tangible literary, musical, 
     artistic, or scholarly composition, or similar property and 
     the copyright on such work shall be treated as separate 
     properties for purposes of this paragraph and subsection 
     (f)(3).
       ``(G) Termination.--This paragraph shall not apply to 
     contributions made after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after December 31, 2005.

     SEC. 309. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS 
                   EXCLUDED FROM GROSS INCOME.

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

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

       ``(a) In General.--Gross income of an individual does not 
     include amounts received, from an organization described in 
     section 170(c), as reimbursement of operating expenses with 
     respect to use of a passenger automobile for the benefit of 
     such organization. The preceding sentence shall apply only to 
     the extent that the expenses which are reimbursed would be 
     deductible under this chapter if section 274(d) were 
     applied--
       ``(1) by using the standard business mileage rate 
     established under such section, and
       ``(2) as if the individual were an employee of an 
     organization not described in section 170(c).
       ``(b) Application to Volunteer Services Only.--Subsection 
     (a) shall not apply with respect to any expenses relating to 
     the performance of services for compensation.
       ``(c) No Double Benefit.--A taxpayer may not claim a 
     deduction or credit under any other provision of this title 
     with respect to the expenses under subsection (a).
       ``(d) Exemption From Reporting Requirements.--Section 6041 
     shall not apply with respect to reimbursements excluded from 
     income under subsection (a).
       ``(e) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 2007.''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 139 the following new item:

``Sec. 139A. Mileage reimbursements to charitable volunteers.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 310. ALTERNATIVE PERCENTAGE LIMITATION FOR CORPORATE 
                   CHARITABLE CONTRIBUTIONS TO THE MATHEMATICS AND 
                   SCIENCE PARTNERSHIP PROGRAM.

       (a) In General.--Section 170(b) (related to percentage 
     limitations) is amended by adding at the end the following 
     new paragraph:
       ``(3) Special rule for corporate contributions to the 
     mathematics and science partnership program.--
       ``(A) In general.--In the case of a corporation which makes 
     an eligible mathematics and science contribution--
       ``(i) the limitation under paragraph (2) shall apply 
     separately with respect to all such contributions and all 
     other charitable contributions, and
       ``(ii) paragraph (2) shall be applied with respect to all 
     eligible mathematics and science contributions by 
     substituting `15 percent' for `10 percent'.
       ``(B) Eligible mathematics and science contribution.--
       ``(i) In general.--For purposes of this paragraph, the term 
     `eligible mathematics and science contribution' means a 
     charitable contribution (other than a contribution of used 
     equipment) to a qualified partnership for the purpose of an 
     activity described in section 2202(c) of the Elementary and 
     Secondary Education Act of 1965.
       ``(ii) Qualified partnership.--The term `qualified 
     partnership' means an eligible partnership (within the 
     meaning of section 2201(b)(1) of the Elementary and Secondary 
     Education Act of 1965), but only to the extent that such 
     partnership does not include a person other than a person 
     described in paragraph (1)(A).
       ``(C) Termination.--This paragraph shall not apply to any 
     contributions made in taxable years beginning after December 
     31, 2006.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005.

             Subtitle B--Reforming Charitable Organizations

                        PART I--GENERAL REFORMS

     SEC. 311. TAX INVOLVEMENT BY EXEMPT ORGANIZATIONS IN TAX 
                   SHELTER TRANSACTIONS.

       (a) Imposition of Excise Tax.--
       (1) In general.--Chapter 42 (relating to private 
     foundations and certain other tax-exempt organizations) is 
     amended by adding at the end the following new subchapter:

                ``Subchapter F--Tax Shelter Transactions

``Sec. 4965. Excise tax on certain tax-exempt entities entering into 
              prohibited tax shelter transactions

     ``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES 
                   ENTERING INTO PROHIBITED TAX SHELTER 
                   TRANSACTIONS.

       ``(a) Participation in and Approval of Prohibited 
     Transactions.--
       ``(1) Tax-exempt entity.--
       ``(A) In general.--If any tax-exempt entity (other than a 
     tax-exempt entity described in paragraph (4), (5), (6), or 
     (7) of subsection (c)) is a party to a prohibited tax shelter 
     transaction at any time during the taxable year and knows or 
     has reason to know such transaction is a prohibited tax 
     shelter transaction, such entity shall pay a tax for such 
     taxable year in the amount determined under subsection 
     (b)(1)(A).
       ``(B) Post-transaction determination.--If any tax-exempt 
     entity (other than a tax-exempt entity described in paragraph 
     (4), (5), (6), or (7) of subsection (c)) is a party to a 
     subsequently listed transaction at any time during the 
     taxable year, such entity shall pay a tax in the amount 
     determined under subsection (b)(1)(B).
       ``(2) Entity manager.--If any entity manager of a tax-
     exempt entity approves such entity as (or otherwise causes 
     such entity to be) a party to a prohibited tax shelter 
     transaction at any time during the taxable year and knows or 
     has reason to know that the transaction is a prohibited tax 
     shelter transaction, such manager shall pay a tax for such 
     taxable year in the amount determined under subsection 
     (b)(2).
       ``(3) Reasonable cause exception.--No tax shall be imposed 
     under paragraph (1)(A) or (2) if it is shown that the 
     participation of the tax-exempt entity in the transaction was 
     not willful and was due to reasonable cause.
       ``(b) Amount of Tax.--
       ``(1) Entity.--In the case of a tax-exempt entity--
       ``(A) In general.--The amount of the tax imposed under 
     subsection (a)(1)(A) on the entity with respect to a taxable 
     year shall be the greater of--
       ``(i) 100 percent of the entity's net income (after taking 
     into account any tax imposed by this subtitle with respect to 
     the prohibited tax shelter transaction) for such taxable year 
     which is attributable to the prohibited tax shelter 
     transaction, or
       ``(ii) 75 percent of the proceeds received by the entity 
     which are attributable to the prohibited tax shelter 
     transaction.
       ``(B) Post-transaction determination.--The amount of the 
     tax imposed under subsection (a)(1)(B) on the entity with 
     respect to any taxable year shall be an amount equal to the 
     product of--
       ``(i) the highest rate of tax under section 11, and
       ``(ii) the greater of--

       ``(I) the entity's net income (after taking into account 
     any tax imposed by this subtitle with respect to the 
     subsequently listed transaction) for such taxable year which 
     is attributable to the subsequently listed transaction and 
     which is properly allocable to the period beginning on the 
     later of the date such transaction is identified by guidance 
     as a listed transaction by the Secretary or the first day of 
     the taxable year, or
       ``(II) 75 percent of the proceeds received by the entity 
     which are attributable to the subsequently listed transaction 
     and which are properly allocable to the period beginning on 
     the later of the date such transaction is identified by 
     guidance as a listed transaction by the Secretary or the 
     first day of the taxable year.

       ``(2) Entity manager.--In the case of each entity manager 
     to whom subsection (a)(2) applies, the amount of the tax 
     under such subsection shall be $20,000 for each approval.
       ``(c) Tax-Exempt Entity.--For purposes of this section, the 
     term `tax-exempt entity' means an entity which is--

[[Page S544]]

       ``(1) described in section 501(c) or 501(d),
       ``(2) described in section 170(c) (other than an agency or 
     instrumentality of the United States) to which paragraph (1) 
     of this subsection does not apply,
       ``(3) an Indian tribal government (within the meaning of 
     section 7701(a)(40)),
       ``(4) described in paragraph (1), (2), or (3) of section 
     4979(e),
       ``(5) a program described in section 529,
       ``(6) an eligible deferred compensation plan described in 
     section 457(b) which is maintained by an employer described 
     in section 4457(e)(1)(A), or
       ``(7) an arrangement described in section 4973(a).
       ``(d) Entity Manager.--For purposes of this section, the 
     term `entity manager' means--
       ``(1) with respect to a tax-exempt entity described in 
     paragraph (3) or (4) of section 501(c)--
       ``(A) in the case of an entity other than a private 
     foundation, an organization manager (as defined in section 
     4958(f)(2)), and
       ``(B) in the case of a private foundation, a foundation 
     manager (as defined in section 4946(b)), and
       ``(2) in all other cases, the person with authority or 
     responsibility similar to that exercised by an officer, 
     director, or trustee of an organization.
       ``(e) Prohibited Tax Shelter Transaction; Subsequently 
     Listed Transaction.--For purposes of this section--
       ``(1) Prohibited tax shelter transaction.--
       ``(A) In general.--The term `prohibited tax shelter 
     transaction' means--
       ``(i) any listed transaction, or
       ``(ii) any prohibited reportable transaction if the tax-
     exempt entity knows or has reason to know that such 
     transaction is a reportable transaction.
       ``(B) Listed transaction.--The term `listed transaction' 
     has the meaning given such term by section 6707A(c)(2).
       ``(C) Prohibited reportable transaction.--The term 
     `prohibited reportable transaction' means any confidential 
     transaction or any transaction with contractual protection 
     (as defined under regulations prescribed by the Secretary) 
     which is a reportable transaction (as defined in section 
     6707A(c)(1)).
       ``(2) Subsequently listed transaction.--The term 
     `subsequently listed transaction' means any transaction to 
     which a tax-exempt entity is a party and which is determined 
     by the Secretary to be a listed transaction at any time after 
     the entity has entered into the transaction.
       ``(f) Regulatory Authority.--The Secretary is authorized to 
     promulgate regulations which provide guidance regarding the 
     determination of the allocation of net income of a tax-exempt 
     entity attributable to a transaction to various periods, 
     including before and after the listing of the transaction or 
     the date which is 90 days after the date of the enactment of 
     this section.
       ``(g) Coordination With Other Taxes and Penalties.--The tax 
     imposed by this section is in addition to any other tax, 
     addition to tax, or penalty imposed under this title.''.
       (2) Conforming amendment.--The table of subchapters of 
     chapter 42 is amended by adding at the end the following new 
     item:


              ``Subchapter F. Tax Shelter Transactions.''.

       (b) Disclosure Requirements.--
       (1) Disclosure by organization to the internal revenue 
     service.--
       (A) In general.--Section 6033(a) (relating to organizations 
     required to file) is amended by redesignating paragraph (2) 
     as paragraph (3), and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Participation in certain reportable transactions.--
     Every tax-exempt entity described in section 4965(c) shall 
     file (in such form and manner and at such time as determined 
     by the Secretary) a disclosure of--
       ``(A) such entity's participation in any prohibited tax 
     shelter transaction (as defined in section 4965(e)), and
       ``(B) the identity of any other party participating in such 
     transaction which is known by such tax-exempt entity.''.
       (B) Conforming amendment.--Section 6033(a)(1) is amended by 
     striking ``paragraph (2)'' and inserting ``paragraph (3)''.
       (2) Disclosure by other taxpayers to the tax-exempt 
     entity.--Section 6011 (relating to general requirement of 
     return, statement, or list) is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Disclosure of Reportable Transaction to Tax-Exempt 
     Entity.--Any taxable party to a prohibited tax shelter 
     transaction (as defined in section 4965(e)(1)) shall by 
     statement disclose to any tax-exempt entity (as defined in 
     section 4965(c)) which is a party to such transaction that 
     such transaction is such a prohibited tax shelter 
     transaction.''.
       (c) Penalty for Nondisclosure.--
       (1) In general.--Section 6652(c) (relating to returns by 
     exempt organizations and by certain trusts), as amended by 
     section 302, is amended by redesignating paragraphs (2), (3), 
     and (4) as paragraphs (3), (4), and (5), respectively, and by 
     inserting after paragraph (1) the following new paragraph:
       ``(2) Disclosure under section 6033.--
       ``(A) Penalty on organizations.--In the case of a failure 
     to file a disclosure required under section 6033(a)(2), there 
     shall be paid by the tax-exempt entity (the entity manager in 
     the case of a tax-exempt entity described in paragraph (4), 
     (5), (6), or (7) of section 4965(c)) $100 for each day during 
     which such failure continues. The maximum penalty under this 
     subparagraph on failures with respect to any 1 disclosure 
     shall not exceed $50,000.
       ``(B) Persons.--
       ``(i) In general.--The Secretary may make a written demand 
     on any tax-exempt entity subject to penalty under 
     subparagraph (A) specifying therein a reasonable future date 
     by which the disclosure shall be filed for purposes of this 
     subparagraph.
       ``(ii) Failure to comply with demand.--If any person fails 
     to comply with any demand under clause (i) on or before the 
     date specified in such demand, there shall be paid by such 
     person failing to so comply $100 for each day after the 
     expiration of the time specified in such demand during which 
     such failure continues. The maximum penalty imposed under 
     this subparagraph on all tax-exempt entities for failures 
     with respect to any 1 disclosure shall not exceed $10,000.
       ``(C) Definitions.--Any term used in this section which is 
     also used in section 4965 shall have the meaning given such 
     term under section 4965.''.
       (2) Conforming amendment.--Subparagraph (A) of section 
     6652(c)(1) of such Code is amended by striking ``6033'' each 
     place it appears in the text and heading thereof and 
     inserting ``6033(a)(1)''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transactions 
     after the date of the enactment of this Act, except that no 
     tax under section 4965(a) of the Internal Revenue Code of 
     1986 (as added by this section) shall apply with respect to 
     income that is properly allocable to any period on or before 
     the date which is 90 days after such date of enactment.
       (2) Disclosure.--The amendments made by subsections (b) and 
     (c) shall apply to disclosures the due date for which are 
     after the date of the enactment of this Act.

     SEC. 312. EXCISE TAX ON CERTAIN ACQUISITIONS OF INTERESTS IN 
                   INSURANCE CONTRACTS IN WHICH CERTAIN EXEMPT 
                   ORGANIZATIONS HOLD AN INTEREST.

       (a) Imposition of Tax.--
       (1) In general.--Subchapter F of chapter 42 (relating to 
     tax shelter transactions), as added by this Act, is amended 
     by adding at the end the following new section:

     ``SEC. 4966. EXCISE TAX ON ACQUISITION OF INTERESTS IN 
                   INSURANCE CONTRACTS IN WHICH CERTAIN EXEMPT 
                   ORGANIZATIONS HOLD AN INTEREST.

       ``(a) Imposition of Tax.--If there is a taxable acquisition 
     of any interest in an applicable insurance contract, there is 
     hereby imposed on the person acquiring the interest a tax 
     equal to 100 percent of the acquisition costs of the 
     interest.
       ``(b) Taxable Acquisition.--For purposes of this section--
       ``(1) In general.--The term `taxable acquisition' means the 
     acquisition of any direct or indirect interest in an 
     applicable insurance contract by--
       ``(A) an applicable exempt organization, or
       ``(B) a person other than an applicable exempt organization 
     if such interest in the hands of such person is not an 
     interest described in clause (i), (ii), (iii), or (iv) of 
     paragraph (2)(B).
       ``(2) Applicable insurance contract.--
       ``(A) In general.--The term `applicable insurance contract' 
     means any life insurance, annuity, or endowment contract with 
     respect to which both an applicable exempt organization and a 
     person other than an applicable exempt organization have 
     directly or indirectly held an interest in the contract 
     (whether or not at the same time).
       ``(B) Exceptions.--Such term shall not include a life 
     insurance, annuity, or endowment contract if--
       ``(i) all persons directly or indirectly holding any 
     interest in the contract (other than applicable exempt 
     organizations) have an insurable interest in the insured 
     under the contract independent of any interest of an 
     applicable exempt organization in the contract,
       ``(ii) the sole interest in the contract of each person 
     other than an applicable exempt organization is as a named 
     beneficiary,
       ``(iii) the sole interest in the contract of each person 
     other than an applicable exempt organization is--

       ``(I) as a beneficiary of a trust holding an interest in 
     the contract, but only if the person's designation as such 
     beneficiary was made without consideration and solely on a 
     purely gratuitous basis, or
       ``(II) as a trustee who holds an interest in the contract 
     in a fiduciary capacity solely for the benefit of applicable 
     exempt organizations or persons otherwise described in 
     clauses (i), (ii), and (iv) or subclause (I) of this clause, 
     or

       ``(iv) except as provided in subparagraph (C), the sole 
     interest in the contract of each person other than an 
     applicable exempt organization is as a lender with respect to 
     the contract and the contract covers only 1 individual and 
     such individual is an officer, director, or employee of the 
     applicable exempt organization with an interest in the 
     contract.
       ``(C) Restrictions on exception for lenders.--
       ``(i) Numerical limit.--The number of contracts that may be 
     taken into account under subparagraph (B)(iv) with respect to 
     officers,

[[Page S545]]

     directors, or employees of the applicable exempt organization 
     with interests in the contracts shall not exceed the greater 
     of--

       ``(I) the lesser of 5 percent of the total officers, 
     directors, and employees of the organization or 20, or
       ``(II) 5.

       ``(ii) Aggregate indebtedness.--The exception under 
     subparagraph (B)(iv) shall apply only to the extent that the 
     aggregate amount of the indebtedness with respect to 1 or 
     more contracts covering a single individual does not exceed 
     $50,000.
       ``(D) Secretarial authority.--The Secretary may exempt a 
     contract from treatment as an applicable insurance contract 
     based on specific factors, including factors such as whether 
     the transaction is at arms length, whether economic benefits 
     to the applicable exempt organization substantially exceed 
     the economic benefits to all other persons with an interest 
     in the contract (determined without regard to whether, or the 
     extent to which, such organization has paid or contributed 
     with respect to the contract), and the likelihood of abuse.
       ``(3) Definition and rule relating to acquisition costs.--
       ``(A) Acquisition costs defined.--The term `acquisition 
     costs' means the direct or indirect costs of acquiring an 
     interest in an applicable insurance contract. Such term shall 
     include any fees, commissions, charges, or other amounts paid 
     in connection with the acquisition, whether or not paid to 
     the issuer of the contract.
       ``(B) Timing of payments.--Except as provided in 
     regulations, if acquisition costs of any acquisition are paid 
     or incurred in more than 1 calendar year, the tax imposed by 
     subsection (a) with respect to the acquisition shall be 
     imposed each time the costs are so paid or incurred.
       ``(4) Rules relating to interests.--
       ``(A) In general.--An interest in the contract includes any 
     right with respect to the contract, whether as an owner, 
     beneficiary, or otherwise.
       ``(B) Indirect interests.--
       ``(i) In general.--Except as provided in clause (ii), an 
     indirect interest in a contract includes an interest in an 
     entity which directly or indirectly holds an interest in the 
     contract.
       ``(ii) Portfolio investments.--If an applicable exempt 
     organization holds an interest in a contract solely because 
     the organization holds, as part of a diversified investment 
     strategy, a de minimis interest in an entity which directly 
     or indirectly holds the interest in the contract, such 
     indirect interest in the contract shall not be taken into 
     account for purposes of this section.
       ``(C) Exchanged contracts.--In the case of an exchange of 
     an applicable insurance contract on which no gain or loss is 
     recognized under section 1035, any interest in any of the 
     contracts involved in the exchange shall be treated as an 
     interest in all such contracts.
       ``(5) Increase in interest.--If a person increases an 
     interest in an applicable insurance contract, the increase 
     shall be treated as a separate acquisition for purposes of 
     this section.
       ``(6) Prior acquisitions.--Except as provided in 
     regulations, if a person acquires an interest in a contract 
     before the contract is treated as an applicable insurance 
     contract, the acquisition shall be treated as a taxable 
     acquisition of an interest in an applicable insurance 
     contract as of the date the contract becomes an applicable 
     insurance contract.
       ``(c) Applicable Exempt Organization.--For purposes of this 
     section, the term `applicable exempt organization' means--
       ``(1) an organization described in section 170(c),
       ``(2) an organization described in section 
     168(h)(2)(A)(iv), or
       ``(3) an organization not described in paragraph (1) or (2) 
     which is described in section 2055(a) or section 2522(a).
       ``(d) Tax Not Treated as Investment in the Contract.--For 
     purposes of section 72, the tax imposed by this section shall 
     not be included in investment in the contract.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the provisions 
     of this section. Such regulations may include regulations 
     which--
       ``(1) provide, for purposes of subsection (b)(6), 
     appropriate rules for the application of this section in any 
     case where an interest is acquired before a contract becomes 
     an applicable insurance contract,
       ``(2) prevent, in cases the Secretary determines 
     appropriate, the imposition of more than one tax under this 
     section if the same interest is acquired more than once, and
       ``(3) are designed to prevent avoidance of the purposes of 
     this section, including through the use of intermediaries.''.
       (2) Conforming amendment.--The table of sections for 
     subchapter F of chapter 42, as added by this Act, is amended 
     by adding at the end the following new item:

``Sec. 4966. Excise tax on acquisition of interests in insurance 
              contracts in which certain exempt organizations hold an 
              interest.''.

       (b) Reporting Requirements.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 (relating to information concerning transactions 
     with other persons), as amended by this Act, is amended by 
     adding at the end the following new section:

     ``SEC. 6050V. RETURNS RELATING TO APPLICABLE INSURANCE 
                   CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS 
                   HOLD INTERESTS.

       ``(a) Requirements of Reporting.--
       ``(1) Exempt organizations.--Each--
       ``(A) applicable exempt organization which acquires (within 
     the meaning of section 4966) an interest in any applicable 
     insurance contract, and
       ``(B) other person which makes an acquisition of such an 
     interest if such acquisition is taxable under section 4966,

     shall make the return described in subsection (c).
       ``(2) Transfers.--If a person (including an applicable 
     exempt organization) acquires an interest in an applicable 
     insurance contract in an acquisition which is taxable under 
     section 4966 and then transfers such interest to 1 or more 
     other persons, each person acquiring all or a portion of such 
     interest shall make the return described in subsection (c).
       ``(b) Time for Making Return.--Any organization or person 
     required to make a return under subsection (a) shall file 
     such return at such time as may be established by the 
     Secretary with respect to--
       ``(1) in the case of a person described in subsection 
     (a)(1), the calendar year in which the acquisition occurs, 
     any calendar year in which acquisition costs are paid or 
     incurred, and any other calendar years specified by the 
     Secretary, and
       ``(2) in the case of a person described in subsection 
     (a)(2), the calendar year in which the transfer occurs.
       ``(c) Form and Manner of Returns.--A return is described in 
     this subsection if such return--
       ``(1) is in such form as the Secretary prescribes,
       ``(2) in the case of--
       ``(A) a return required under subsection (a)(1)(A), 
     contains the name, address, and taxpayer identification 
     number of the applicable exempt organization, the issuer of 
     the applicable insurance contract, and any person acquiring 
     an interest in the contract if the acquisition is taxable 
     under section 4966,
       ``(B) a return required under subsection (a)(1)(B), 
     contains the name, address, and taxpayer identification 
     number of the person acquiring an interest in the applicable 
     insurance contract if the acquisition is taxable under 
     section 4966, any applicable exempt organization holding an 
     interest in the contract, and the issuer of the contract, and
       ``(C) a return required under subsection (a)(2), contains 
     the name, address, and taxpayer identification number of the 
     transferor and transferee, and
       ``(3) contains such other information as the Secretary may 
     prescribe.
       ``(d) Statements To Be Furnished to Persons With Respect to 
     Whom Information Is Required.--Every person required to make 
     a return under subsection (a) shall furnish to each person 
     whose taxpayer identification information is required to be 
     included in such return under subsection (c) a written 
     statement showing--
       ``(1) the name and address of the person required to make 
     such return and the telephone number of the information 
     contact for such person, and
       ``(2) the taxpayer identity and other information required 
     to be shown on the return with respect to such person.

     The written statement required under the preceding sentence 
     shall be furnished on or before the date specified by the 
     Secretary.
       ``(e) Definitions.--For purposes of this section, any term 
     used in this section which is also used in section 4966 shall 
     have the meaning given such term by section 4966.''.
       (2) Penalties.--
       (A) In general.--Section 6724(d) is amended--
       (i) in paragraph (1)(B), by redesignating clauses (xiii) 
     through (xviii) as clauses (xiv) through (xix) and by 
     inserting after clause (xii) the following new clause:
       ``(xiii) section 6050V (relating to returns relating to 
     applicable insurance contracts in which certain exempt 
     organizations hold interests),'', and
       (ii) in paragraph (3), by striking ``and'' at the end of 
     subparagraph (C), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) the statement required by subsection (d) of section 
     6050V (relating to returns relating to applicable insurance 
     contracts in which certain exempt organizations hold 
     interests).''.
       (B) Intentional disregard.--Section 6721(e)(2) is amended 
     by striking ``or'' at the end of subparagraph (B), by 
     striking ``and'' at the end of subparagraph (C) and inserting 
     ``or'', and by adding at the end the following new 
     subparagraph:
       ``(D) in the case of a return required to be filed under 
     section 6050V, the amount of tax imposed under section 4966 
     which has not been paid with respect to items required to be 
     included on the return, and''.
       (3) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61, as 
     amended by this Act, is amended by adding at the end the 
     following new item:

``Sec. 6050V. Returns relating to applicable insurance contracts in 
              which certain exempt organizations hold interests.''.

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to contracts issued after May 3, 2005.
       (2) Reporting of existing contracts.--In the case of any 
     life insurance, annuity, or endowment contract--

[[Page S546]]

       (A) which was issued on or before May 3, 2005,
       (B) with respect to which an applicable exempt organization 
     (as defined in section 4966 of the Internal Revenue Code of 
     1986, as added by this section) holds an interest on May 3, 
     2005, and
       (C) which would be treated as an applicable insurance 
     contract (as so defined) if issued after May 3, 2005,
     such organization shall, not later than the date which is 1 
     year after the date of the enactment of this Act, report to 
     the Secretary of the Treasury with respect to such contract. 
     Such report shall be in such form and manner, and contain 
     such information, as the Secretary may prescribe. The 
     Secretary shall submit such reports, along with any 
     recommendations for legislation as the Secretary considers 
     appropriate, to the Committee on Ways and Means of the House 
     of Representatives and to the Committee on Finance of the 
     Senate within 6 months of the date such reports are required 
     to be filed.

     SEC. 313. INCREASE IN PENALTY EXCISE TAXES ON PUBLIC 
                   CHARITIES, SOCIAL WELFARE ORGANIZATIONS, AND 
                   PRIVATE FOUNDATIONS.

       (a) Taxes on Self-Dealing and Excess Benefit 
     Transactions.--
       (1) In general.--Section 4941(a) (relating to initial 
     taxes) is amended--
       (A) in paragraph (1), by striking ``5 percent'' and 
     inserting ``10 percent'', and
       (B) in paragraph (2), by striking ``2\1/2\ percent'' and 
     inserting ``5 percent''.
       (2) Increase in tax if self-dealing includes compensation 
     to disqualified person.--Section 4941(a)(1) is amended by 
     adding at the end the following new sentence: ``If the act of 
     self-dealing includes acts described in subsection (d)(1)(D), 
     `25 percent' shall be substituted for `10 percent', except 
     that the Secretary may abate under section 4962 (determined 
     without regard to the exception under subsection (b) thereof) 
     not more than 15 percentage points of such tax.''.
       (3) Increased limitation for managers on self-dealing.--
     Section 4941(c)(2) is amended by striking ``$10,000'' each 
     place it appears in the text and in the heading and inserting 
     ``$20,000''.
       (4) Increased limitation for managers on excess benefit 
     transactions.--Section 4958(d)(2) is amended by striking 
     ``$10,000'' and inserting ``$20,000''.
       (b) Taxes on Failure To Distribute Income.--Section 4942(a) 
     (relating to initial tax) is amended by striking ``15 
     percent'' and inserting ``30 percent''.
       (c) Taxes on Excess Business Holdings.--Section 4943(a)(1) 
     (relating to imposition) is amended by striking ``5 percent'' 
     and inserting ``10 percent''.
       (d) Taxes on Investments Which Jeopardize Charitable 
     Purpose.--
       (1) In general.--Section 4944(a) (relating to initial 
     taxes) is amended by striking ``5 percent'' both places it 
     appears and inserting ``10 percent''.
       (2) Increased limitation for managers.--Section 4944(d)(2) 
     is amended--
       (A) by striking ``$5,000,'' and inserting ``$10,000,'', and
       (B) by striking ``$10,000.'' and inserting ``$20,000.''.
       (e) Taxes on Taxable Expenditures.--
       (1) In general.--Section 4945(a) (relating to initial 
     taxes) is amended--
       (A) in paragraph (1), by striking ``10 percent'' and 
     inserting ``20 percent'', and
       (B) in paragraph (2), by striking ``2\1/2\ percent'' and 
     inserting ``5 percent''.
       (2) Increased limitation for managers.--Section 4945(c)(2) 
     is amended--
       (A) by striking ``$5,000,'' and inserting ``$10,000,'', and
       (B) by striking ``$10,000.'' and inserting ``$20,000.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 314. REFORM OF CHARITABLE CONTRIBUTIONS OF CERTAIN 
                   EASEMENTS ON BUILDINGS IN REGISTERED HISTORIC 
                   DISTRICTS.

       (a) Special Rules With Respect to Buildings in Registered 
     Historic Districts.--
       (1) In general.--Paragraph (4) of section 170(h) (relating 
     to definition of conservation purpose) is amended by 
     redesignating subparagraph (B) as subparagraph (C) and by 
     inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Special rules with respect to buildings in registered 
     historic districts.--In the case of any contribution of a 
     qualified real property interest which is a restriction with 
     respect to the exterior of a building described in 
     subparagraph (C)(ii), such contribution shall not be 
     considered to be exclusively for conservation purposes 
     unless--
       ``(i) such interest--

       ``(I) includes a restriction which preserves the entire 
     exterior of the building (including the front, sides, rear, 
     and height of the building), and
       ``(II) prohibits any change in the exterior of the building 
     which is inconsistent with the historical character of such 
     exterior,

       ``(ii) the donor and donee enter into a written agreement 
     certifying, under penalty of perjury, that the donee--

       ``(I) is a qualified organization (as defined in paragraph 
     (3)) with a purpose of environmental protection, land 
     conservation, open space preservation, or historic 
     preservation, and
       ``(II) has the resources to manage and enforce the 
     restriction and a commitment to do so, and

       ``(iii) in the case of any contribution made in a taxable 
     year beginning after the date of the enactment of this 
     subparagraph, the taxpayer includes with the taxpayer's 
     return for the taxable year of the contribution--

       ``(I) a qualified appraisal (within the meaning of 
     subsection (f)(11)(E)) of the qualified property interest,
       ``(II) photographs of the entire exterior of the building, 
     and
       ``(III) a description of all restrictions on the 
     development of the building.''.

       (b) Disallowance of Deduction for Structures and Land in 
     Registered Historic Districts.--Subparagraph (C) of section 
     170(h)(4), as redesignated by subsection (a), is amended--
       (1) by striking ``any building, structure, or land area 
     which'',
       (2) by inserting ``any building, structure, or land area 
     which'' before ``is listed'' in clause (i), and
       (3) by inserting ``any building which'' before ``is 
     located'' in clause (ii).
       (c) Filing Fee for Certain Contributions.--Subsection (f) 
     of section 170 (relating to disallowance of deduction in 
     certain cases and special rules) is amended by inserting at 
     the end the following new paragraph:
       ``(13) Contributions of certain interests in buildings 
     located in registered historic districts.--
       ``(A) In general.--No deduction shall be allowed with 
     respect to any contribution described in subparagraph (B) 
     unless the taxpayer includes with the return for the taxable 
     year of the contribution a $500 filing fee.
       ``(B) Contribution described.--A contribution is described 
     in this subparagraph if such contribution is a qualified 
     conservation contribution (as defined in subsection (h)) 
     which is a restriction with respect to the exterior of a 
     building described in subsection (h)(4)(C)(ii) and for which 
     a deduction is claimed in excess of the greater of--
       ``(i) 3 percent of the fair market value of the building 
     (determined immediately before such contribution), or
       ``(ii) $10,000.
       ``(C) Dedication of fee.--Any fee collected under this 
     paragraph shall be used for the enforcement of the provisions 
     of subsection (h).''.
       (d) Effective Date.--
       (1) Special rules for buildings in registered historic 
     districts.--The amendments made by subsection (a) shall apply 
     to contributions made after November 15, 2005.
       (2) Disallowance of deduction for structures and land.--The 
     amendments made by subsection (b) shall apply to 
     contributions made after the date of the enactment of this 
     Act.
       (3) Filing fee.--The amendment made by subsection (c) shall 
     apply to contributions made 180 days after the date of the 
     enactment of this Act.

     SEC. 315. CHARITABLE CONTRIBUTIONS OF TAXIDERMY PROPERTY.

       (a) In General.--Subsection (f) of section 170, as amended 
     by section 314 of this Act, is amended by adding at the end 
     the following new paragraph:
       ``(14) Contributions of taxidermy property.--
       ``(A) Contributions of more than $500.--In the case of any 
     contribution of taxidermy property for which a deduction of 
     more than $500 is claimed, no deduction shall be allowed 
     under subsection (a) unless the donor includes with the 
     return for the taxable year in which the contribution is made 
     a photograph of the taxidermy property and data with respect 
     to the sales prices of similar taxidermy property.
       ``(B) Contributions of more than $5,000.--In the case of 
     any contribution of taxidermy property for which a deduction 
     of more than $5,000 is claimed, no deduction shall be allowed 
     under subsection (a) unless the donor--
       ``(i) notifies the Internal Revenue Service of such 
     deduction, and
       ``(ii) includes with the return for the taxable year in 
     which the contribution is made--

       ``(I) a statement of value from the Internal Revenue 
     Service, or
       ``(II) a request for a statement of value from the Internal 
     Revenue Service and a $500 fee.

       ``(C) Taxidermy property.--For purposes of this section, 
     the term `taxidermy property' means a mounted work of art 
     which contains any part of a dead animal.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after November 15, 2005.

     SEC. 316. RECAPTURE OF TAX BENEFIT FOR CHARITABLE 
                   CONTRIBUTIONS OF EXEMPT USE PROPERTY NOT USED 
                   FOR AN EXEMPT USE.

       (a) Recapture of Deduction on Certain Sales of Exempt Use 
     Property.--
       (1) In general.--Clause (i) of section 170(e)(1)(B) 
     (related to certain contributions of ordinary income and 
     capital gain property) is amended to read as follows:
       ``(i) of tangible personal property--

       ``(I) if the use by the donee is unrelated to the purpose 
     or function constituting the basis for its exemption under 
     section 501 (or, in the case of a governmental unit, to any 
     purpose or function described in subsection (c)), or
       ``(II) which is applicable property (as defined in 
     paragraph (7)(C)) which is sold, exchanged, or otherwise 
     disposed of by the donee before the last day of the taxable 
     year in which the contribution was made and with respect to 
     which the donee has not made a certification in accordance 
     with paragraph (7)(D),''.

[[Page S547]]

       (2) Dispositions after close of taxable year.--Section 
     170(e) is amended by adding at the end the following new 
     paragraph:
       ``(7) Recapture of deduction on certain dispositions of 
     exempt use property.--
       ``(A) In general.--In the case of an applicable disposition 
     of applicable property, there shall be included in the income 
     of the donor of such property for the taxable year of such 
     donor in which the applicable disposition occurs an amount 
     equal to the excess (if any) of--
       ``(i) the amount of the deduction allowed to the donor 
     under this section with respect to such property, over
       ``(ii) the donor's basis in such property at the time such 
     property was contributed.
       ``(B) Applicable disposition.--For purposes of this 
     paragraph, the term `applicable disposition' means any sale, 
     exchange, or other disposition by the donee of applicable 
     property--
       ``(i) after the last day of the taxable year of the donor 
     in which such property was contributed, and
       ``(ii) before the last day of the 3-year period beginning 
     on the date of the contribution of such property,
     unless the donee makes a certification in accordance with 
     subparagraph (D).
       ``(C) Applicable property.--For purposes of this paragraph, 
     the term `applicable property' means charitable deduction 
     property (as defined in section 6050L(a)(2)(A))--
       ``(i) which is tangible personal property the use of which 
     is identified by the donee as related to the purpose or 
     function constituting the basis of the donee's exemption 
     under section 501, and
       ``(ii) for which a deduction in excess of the donor's basis 
     is allowed.
       ``(D) Certification.--A certification meets the 
     requirements of this subparagraph if it is a written 
     statement which is signed under penalty of perjury by an 
     officer of the donee organization and--
       ``(i) which--

       ``(I) certifies that the use of the property by the donee 
     was related to the purpose or function constituting the basis 
     for the donee's exemption under section 501, and
       ``(II) describes how the property was used and how such use 
     furthered such purpose or function, or

       ``(ii) which--

       ``(I) states the intended use of the property by the donee 
     at the time of the contribution, and
       ``(II) certifies that such intended use has become 
     impossible or infeasible to implement.''.

       (b) Reporting Requirements.--Paragraph (1) of section 
     6050L(a) (relating to returns relating to certain 
     dispositions of donated property) is amended--
       (1) by striking ``2 years'' and inserting ``3 years'', and
       (2) by striking ``and'' at the end of subparagraph (D), by 
     striking the period at the end of subparagraph (E) and 
     inserting a comma, and by inserting at the end the following:
       ``(F) a description of the donee's use of the property, and
       ``(G) a statement indicating whether the use of the 
     property was related to the purpose or function constituting 
     the basis for the donee's exemption under section 501.
       ``In any case in which the donee indicates that the use of 
     applicable property (as defined in section 170(e)(1)(C)) was 
     related to the purpose or function constituting the basis for 
     the exemption of the donee under section 501 under 
     subparagraph (G), the donee shall include with the return the 
     certification described in section 170(e)(7)(D) if such 
     certification is required under section 170(e)(7).''.
       (c) Penalty.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by inserting 
     after section 6720A the following new section:

     ``SEC. 6720B. FRAUDULENT IDENTIFICATION OF EXEMPT USE 
                   PROPERTY.

       ``In addition to any criminal penalty provided by law, any 
     person who identifies applicable property (as defined in 
     section 170(e)(7)(C)) as having a use which is related to a 
     purpose or function constituting the basis for the donee's 
     exemption under section 501 and who knows that such property 
     is not intended for such a use shall pay a penalty of 
     $10,000.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by adding after the 
     item relating to section 6720A the following new item:

``Sec. 6720B. Fraudulent identification of exempt use property.''.

       (d) Effective Date.--
       (1) Recapture.--The amendments made by subsection (a) shall 
     apply to contributions after June 1, 2006.
       (2) Reporting.--The amendments made by subsection (b) shall 
     apply to returns filed after June 1, 2006.
       (3) Penalty.--The amendments made by subsection (c) shall 
     apply to identifications made after the date of the enactment 
     of this Act.

     SEC. 317. LIMITATION OF DEDUCTION FOR CHARITABLE 
                   CONTRIBUTIONS OF CLOTHING AND HOUSEHOLD ITEMS.

       (a) In General.--Subsection (f) of section 170, as amended 
     by section 315 of this Act, is amended by adding at the end 
     the following new paragraph:
       ``(15) Contributions of clothing and household items.--
       ``(A) In general.--In the case of an individual, 
     partnership, or S corporation, the deduction allowed under 
     subsection (a) for any contribution of clothing or household 
     items with respect to which the donor has obtained a 
     qualified appraisal shall be--
       ``(i) in the case of an item which is in good used 
     condition or better, no more than the amount assigned to such 
     item under subparagraph (B) for such year,
       ``(ii) except as provided by clause (iii), in the case of 
     an item which is not in good used condition or better, no 
     more than 20 percent of the amount assigned to such item 
     under subparagraph (B) for such year, and
       ``(iii) in the case of an item which is not functional with 
     respect to the use for which it was designed, zero.
       ``(B) Assigned values.--Each year the Secretary shall 
     publish an itemized list of clothing and household items and 
     shall assign an amount with respect to each item on the list 
     which represents the fair market value of such item in good 
     used condition.
       ``(C) Exception for items sold by the donee.--Subparagraph 
     (A) shall not apply to any contribution of clothing or 
     household items for which a deduction of more than $500 is 
     claimed if--
       ``(i) the donee sells the clothing or household items 
     before the earlier of--

       ``(I) the due date (including extensions) for filing the 
     return of tax for the taxable year of the donor in which the 
     contribution was made, or
       ``(II) the date on which such return was filed,

       ``(ii) the donee reports the sales price of the clothing or 
     household items to the donor, and
       ``(iii) the amount claimed as a deduction with respect to 
     such clothing or household items does not exceed the amount 
     of the sales price reported to the donor.
       ``(D) Household items.--For purposes of this paragraph--
       ``(i) In general.--The term `household items' includes 
     furniture, furnishings, electronics, appliances, linens, and 
     other similar items.
       ``(ii) Excluded items.--Such term does not include--

       ``(I) food,
       ``(II) paintings, antiques, and other objects of art,
       ``(III) jewelry and gems, and
       ``(IV) collections.

       ``(E) Special rule for pass-thru entities.--In the case of 
     a partnership or S corporation, this paragraph shall be 
     applied at the entity level, except that the deduction shall 
     be denied at the partner or shareholder level.''.
       (b) Substantiation.--
       (1) Items of $250 or more.--Subparagraph (B) of section 
     170(f)(8) is amended by inserting after clause (iii) the 
     following new clause:
       ``(iv) In the case of a contribution consisting of clothing 
     or household items, the number of items contributed, an 
     indication of the condition of each item, a description of 
     the type of item contributed, and a copy of the list 
     published under paragraph (15)(B) or an instruction on how to 
     obtain such list.''.
       (2) Items of $500 or more.--Subparagraph (B) of section 
     170(f)(11) is amended by inserting ``, the information 
     contained in the acknowledgment required under paragraph (8) 
     in the case of any contribution of clothing or household 
     items,'' after ``a description of such property''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made after December 31, 2006.

     SEC. 318. MODIFICATION OF RECORDKEEPING REQUIREMENTS FOR 
                   CERTAIN CHARITABLE CONTRIBUTIONS.

       (a) Recordkeeping Requirement.--Subsection (f) of section 
     170, as amended by section 317 of this Act, is amended by 
     adding at the end the following new paragraph:
       ``(16) Recordkeeping.--No deduction shall be allowed under 
     subsection (a) for any contribution of a cash, check, or 
     other monetary gift unless the donor maintains as a record of 
     such contribution--
       ``(A) a cancelled check, or
       ``(B) a receipt or a letter or other written communication 
     from the donee showing the name of the donee organization, 
     the date of the contribution, and the amount of the 
     contribution.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after the date of the enactment of this Act.

     SEC. 319. CONTRIBUTIONS OF FRACTIONAL INTERESTS IN TANGIBLE 
                   PERSONAL PROPERTY.

       (a) Income Tax.--Section 170 (relating to charitable, etc., 
     contributions and gifts), as amended by section 301 of this 
     Act, is amended by redesignating subsection (p) as subsection 
     (q) and by inserting after subsection (o) the following new 
     subsection:
       ``(q) Special Rules for Fractional Gifts.--
       ``(1) Valuation of subsequent gifts.--
       ``(A) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(i) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(ii) the fair market value of the property at the time of 
     the additional contribution.
       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Additional contribution.--The term `additional 
     contribution' means any charitable contribution by the 
     taxpayer of any interest in property with respect to which 
     the

[[Page S548]]

     taxpayer has previously made an initial fractional 
     contribution.
       ``(ii) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any taxpayer, 
     the first charitable contribution of an undivided portion of 
     the taxpayer's entire interest in any tangible personal 
     property.
       ``(2) Recapture of deduction in certain cases.--
       ``(A) In general.--The Secretary shall provide for the 
     recapture of an amount equal to the amount of any deduction 
     allowed under this section (plus interest) with respect to 
     any contribution of an undivided interest of a taxpayer's 
     entire interest in property in any case where such property 
     is not in the physical possession of the donee during any 
     applicable period for a period of time which bears 
     substantially the same ratio to 1 year as--
       ``(i) the percentage of the undivided interest of the donee 
     in the property (determined on the day after such 
     contribution was made), bears to
       ``(ii) 100 percent.
       ``(B) Applicable period.--For purposes of subparagraph (A), 
     the term `applicable period' means any 1-year period which 
     begins on--
       ``(i) in the year of the contribution, the date of the 
     contribution, and
       ``(ii) in any subsequent calendar year, the date which 
     corresponds to the date described in clause (i).
       ``(C) Anti-abuse rules.--The Secretary shall prescribe such 
     regulations as necessary to prevent the avoidance of the 
     purposes of this paragraph through the transfer of any such 
     undivided interest to a third party controlled by the 
     taxpayer.''.
       (b) Estate Tax.--Section 2055 (relating to transfers for 
     public, charitable, and religious uses) is amended by 
     redesignating subsection (g) as subsection (h) and by 
     inserting after subsection (f) the following new subsection:
       ``(g) Valuation of Subsequent Gifts.--
       ``(1) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(A) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(B) the fair market value of the property at the time of 
     the additional contribution.
       ``(2) Definitions.--For purposes of this paragraph--
       ``(A) Additional contribution.--The term `additional 
     contribution' means a bequest, legacy, devise, or transfer 
     described in subsection (a) of any interest in a property 
     with respect to which the decedent had previously made an 
     initial fractional contribution.
       ``(B) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any decedent, 
     any charitable contribution of an undivided portion of the 
     decedent's entire interest in any tangible personal property 
     for which a deduction was allowed under section 170.''.
       (c) Gift Tax.--Section 2522 (relating to charitable and 
     similar gifts) is amended by redesignating subsection (e) as 
     subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Special Rules for Fractional Gifts.--
       ``(1) Valuation of subsequent gifts.--
       ``(A) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(i) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(ii) the fair market value of the property at the time of 
     the additional contribution.
       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Additional contribution.--The term `additional 
     contribution' means any gift for which a deduction is allowed 
     under subsection (a) or (b) of any interest in a property 
     with respect to which the donor has previously made an 
     initial fractional contribution.
       ``(ii) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any donor, 
     the first gift of an undivided portion of the donor's entire 
     interest in any tangible personal property for which a 
     deduction is allowed under subsection (a) or (b).
       ``(2) Recapture of deduction in certain cases.--
       ``(A) In general.--The Secretary shall provide for the 
     recapture of an amount equal to the amount of any deduction 
     allowed under this section (plus interest) with respect to 
     any contribution of an undivided interest of a donor's entire 
     interest in property in any case where such property is not 
     in the physical possession of the donee during any applicable 
     period for a period of time which bears substantially the 
     same ratio to 1 year as--
       ``(i) the percentage of the undivided interest of the donee 
     in the property (determined on the day after such 
     contribution was made), bears to
       ``(ii) 100 percent.
       ``(B) Applicable period.--For purposes of subparagraph (A), 
     the term `applicable period' means any 1-year period which 
     begins on--
       ``(i) in the year of the contribution, the date of the 
     contribution, and
       ``(ii) in any subsequent calendar year, the date which 
     corresponds to the date described in clause (i).
       ``(C) Anti-abuse rules.--The Secretary shall prescribe such 
     regulations as necessary to prevent the avoidance of the 
     purposes of this paragraph though the transfer of any such 
     undivided interest to a third party controlled by the 
     donor.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to contributions, bequests, and gifts made after 
     the date of the enactment of this Act.

     SEC. 320. PROVISIONS RELATING TO SUBSTANTIAL AND GROSS 
                   OVERSTATEMENTS OF VALUATIONS OF CHARITABLE 
                   DEDUCTION PROPERTY.

       (a) Substantial and Gross Overstatements of Valuations of 
     Charitable Deduction Property.--
       (1) In general.--Section 6662 (relating to imposition of 
     accuracy-related penalties) is amended by adding at the end 
     the following new subsection:
       ``(i) Special Rules for Charitable Deduction Property.--In 
     the case of charitable deduction property (as defined in 
     section 6664(c)(3)(A))--
       ``(1) the determination under subsection (e)(1)(A) as to 
     whether there is a substantial valuation misstatement under 
     chapter 1 with respect to the value of the property shall be 
     made by substituting `150 percent' for `200 percent', and
       ``(2) the determination under subsection (h)(2)(A)(i) as to 
     whether there is a gross valuation misstatement with respect 
     to the value of the property shall be made by substituting 
     `200 percent' for `400 percent' and by substituting `150 
     percent' for `200 percent' in applying subsection (e)(1)(A) 
     for purposes of such determination.''.
       (2) Elimination of reasonable cause exception for gross 
     misstatements.--Section 6664(c)(2) (relating to reasonable 
     cause exception for underpayments) is amended by striking 
     ``paragraph (1) shall not apply unless'' and inserting 
     ``paragraph (1) shall not apply. The preceding sentence shall 
     not apply to a substantial valuation overstatement under 
     chapter 1 if''.
       (b) Penalty on Appraisers Whose Appraisals Result in 
     Substantial or Gross Valuation Misstatements.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by inserting 
     after section 6695 the following new section:

     ``SEC. 6695A. SUBSTANTIAL AND GROSS VALUATION MISSTATEMENTS 
                   ATTRIBUTABLE TO INCORRECT APPRAISALS.

       ``(a) Imposition of Penalty.--If--
       ``(1) a person prepares an appraisal of the value of 
     property and such person knows, or reasonably should have 
     known, that the appraisal would be used in connection with a 
     return or a claim for refund, and
       ``(2) the claimed value of the property on a return or 
     claim for refund which is based on such appraisal results in 
     a substantial valuation misstatement under chapter 1 (within 
     the meaning of section 6662(e)), or a gross valuation 
     misstatement (within the meaning of section 6662(h)), with 
     respect to such property,
     then such person shall pay a penalty in the amount determined 
     under subsection (b).
       ``(b) Amount of Penalty.--The amount of the penalty imposed 
     under subsection (a) on any person with respect to an 
     appraisal shall be equal to the lesser of--
       ``(1) the greater of--
       ``(A) 10 percent of the amount of the underpayment (as 
     defined in section 6664(a)) attributable to the misstatement 
     described in subsection (a)(2), or
       ``(B) $1,000, or
       ``(2) 125 percent of the gross income received by the 
     person described in subsection (a)(1) from the preparation of 
     the appraisal.
       ``(c) Exception.--No penalty shall be imposed under 
     subsection (a) if the person establishes to the satisfaction 
     of the Secretary that the value established in the appraisal 
     was more likely than not the proper value.''.
       (2) Rules applicable to penalty.--Section 6696 (relating to 
     rules applicable with respect to sections 6694 and 6695) is 
     amended--
       (A) by striking ``6694 and 6695'' each place it appears in 
     the text and heading and inserting ``6694, 6695, and 6695A'', 
     and
       (B) by striking ``6694 or 6695'' each place it appears in 
     the text and inserting ``6694, 6695, or 6695A''.
       (3) Conforming amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by striking the item 
     relating to section 6696 and inserting the following new 
     items:

``Sec. 6695A. Substantial and gross valuation misstatements 
              attributable to incorrect appraisals.
``Sec. 6696. Rules applicable with respect to sections 6694, 6695, and 
              6695A.''.

       (c) Qualified Appraisers and Appraisals.--
       (1) In general.--Subparagraph (E) of section 170(f)(11) is 
     amended to read as follows:
       ``(E) Qualified appraisal and appraiser.--For purposes of 
     this paragraph--
       ``(i) Qualified appraisal.--The term `qualified appraisal' 
     means, with respect to any property, an appraisal of such 
     property which--

       ``(I) is treated for purposes of this paragraph as a 
     qualified appraisal under regulations or other guidance 
     prescribed by the Secretary, and
       ``(II) is conducted by a qualified appraiser in accordance 
     with generally accepted appraisal standards and any 
     regulations or other guidance prescribed under subclause (I).

[[Page S549]]

       ``(ii) Qualified appraiser.--Except as provided in clause 
     (iii), the term `qualified appraiser' means an individual 
     who--

       ``(I) has earned an appraisal designation from a recognized 
     professional appraiser organization or has otherwise met 
     minimum education and experience requirements set forth in 
     regulations prescribed by the Secretary,
       ``(II) regularly performs appraisals for which the 
     individual receives compensation, and
       ``(III) meets such other requirements as may be prescribed 
     by the Secretary in regulations or other guidance.

       ``(iii) Specific appraisals.--An individual shall not be 
     treated as a qualified appraiser with respect to any specific 
     appraisal unless--

       ``(I) the individual demonstrates verifiable education and 
     experience in valuing the type of property subject to the 
     appraisal, and
       ``(II) the individual has not been prohibited from 
     practicing before the Internal Revenue Service by the 
     Secretary under section 330(c) of title 31, United States 
     Code, at any time during the 3-year period ending on the date 
     of the appraisal.''.

       (2) Reasonable cause exception.--Subparagraphs (B) and (C) 
     of section 6664(c)(3) are amended to read as follows:
       ``(B) Qualified appraisal.--The term `qualified appraisal' 
     has the meaning given such term by section 170(f)(11)(E)(i).
       ``(C) Qualified appraiser.--The term `qualified appraiser' 
     has the meaning given such term by section 
     170(f)(11)(E)(ii).''.
       (d) Disciplinary Actions Against Appraisers.--Section 
     330(c) of title 31, United States Code, is amended by 
     striking ``with respect to whom a penalty has been assessed 
     under section 6701(a) of the Internal Revenue Code of 1986''.
       (e) Effective Dates.--
       (1) Misstatement penalties.--Except as provided in 
     paragraph (3), the amendments made by subsection (a) shall 
     apply to returns filed after the date of the enactment of 
     this Act.
       (2) Appraiser provisions.--Except as provided in paragraph 
     (3), the amendments made by subsections (b), (c), and (d) 
     shall apply to appraisals prepared with respect to returns or 
     submissions filed after the date of the enactment of this 
     Act.
       (3) Special rule for certain easements.--In the case of a 
     contribution of a qualified real property interest which is a 
     restriction with respect to the exterior of a building 
     described in section 170(h)(4)(C)(ii) of the Internal Revenue 
     Code of 1986, and an appraisal with respect to the 
     contribution, the amendments made by subsections (a) and (b) 
     shall apply to returns filed after December 16, 2004.

     SEC. 321. ADDITIONAL STANDARDS FOR CREDIT COUNSELING 
                   ORGANIZATIONS.

       (a) In General.--Section 501 (relating to exemption from 
     tax on corporations, certain trusts, etc.) is amended by 
     redesignating subsection (q) as subsection (r) and by 
     inserting after subsection (p) the following new subsection:
       ``(q) Special Rules for Credit Counseling Organizations.--
       ``(1) In general.--An organization with respect to which 
     the provision of credit counseling services is a substantial 
     purpose shall not be exempt from tax under subsection (a) 
     unless such organization is described in paragraph (3) or (4) 
     of subsection (c) and such organization is organized and 
     operated in accordance with the following requirements:
       ``(A) The organization--
       ``(i) provides credit counseling services tailored to the 
     specific needs and circumstances of consumers,
       ``(ii) makes no loans to debtors and does not negotiate the 
     making of loans on behalf of debtors, and
       ``(iii) does not promote, or charge any separate fee for, 
     any service for the purpose of improving any consumer's 
     credit record, credit history, or credit rating.
       ``(B) The organization does not refuse to provide credit 
     counseling services to a consumer due to the inability of the 
     consumer to pay, the ineligibility of the consumer for debt 
     management plan enrollment, or the unwillingness of the 
     consumer to enroll in a debt management plan.
       ``(C) The organization establishes and implements a fee 
     policy which--
       ``(i) requires that any fees charged to a consumer for 
     services are reasonable, and
       ``(ii) prohibits charging any fee based in whole or in part 
     on a percentage of the consumer's debt, the consumer's 
     payments to be made pursuant to a debt management plan, or 
     the projected or actual savings to the consumer resulting 
     from enrolling in a debt management plan.
       ``(D) At all times the organization has a board of 
     directors or other governing body--
       ``(i) which is controlled by persons who represent the 
     broad interests of the public, such as public officials 
     acting in their capacities as such, persons having special 
     knowledge or expertise in credit or financial education, and 
     community leaders,
       ``(ii) not more than 20 percent of the voting power of 
     which is vested in persons who are employed by the 
     organization or who will benefit financially, directly or 
     indirectly, from the organization's activities (other than 
     through the receipt of reasonable directors' fees or the 
     repayment of consumer debt to creditors other than the credit 
     counseling organization or its affiliates), and
       ``(iii) not more than 49 percent of the voting power of 
     which is vested in persons who are employed by the 
     organization or who will benefit financially, directly or 
     indirectly, from the organization's activities (other than 
     through the receipt of reasonable directors' fees).
       ``(E) The organization does not own more than 35 percent 
     of--
       ``(i) the total combined voting power of a corporation 
     which is in the business of lending money, repairing credit, 
     or providing debt management plan services, payment 
     processing, or similar services,
       ``(ii) the profits interest of a partnership which is in 
     the business of lending money, repairing credit, or providing 
     debt management plan services, payment processing, or similar 
     services, and
       ``(iii) the beneficial interest of a trust or estate which 
     is in the business of lending money, repairing credit, or 
     providing debt management plan services, payment processing, 
     or similar services.
       ``(F) The organization receives no amount for providing 
     referrals to others for financial services (including debt 
     management services) or credit counseling services to be 
     provided to consumers, and pays no amount to others for 
     obtaining referrals of consumers.
       ``(2) Requirements under subsection (c)(3).--In addition to 
     the requirements under paragraph (1), an organization with 
     respect to which the provision of credit counseling services 
     is a substantial purpose and which is described in paragraph 
     (3) of subsection (c) shall not be exempt from tax under 
     subsection (a) unless such organization is organized and 
     operated in accordance with the following requirements:
       ``(A) The organization--
       ``(i) charges no fees (other than nominal fees) for debt 
     management plan services or credit counseling services and 
     waives any fees if the consumer is unable to pay such fees, 
     and
       ``(ii) does not solicit contributions from consumers during 
     the initial counseling process or while the consumer is 
     receiving services from the organization.
       ``(B) The activities of the organization related to debt 
     management plan services (in the aggregate) do not exceed 25 
     percent of the total activities of the organization 
     activities measured by any of the following:
       ``(i) The time spent on activities.
       ``(ii) The resources dedicated to activities.
       ``(iii) The effort expended by the organization with 
     respect to activities.
       ``(iv) The sources of revenue of the organization.
       ``(v) Any other measures prescribed by the Secretary.
       ``(3) Requirements under subsection (c)(4).--In addition to 
     the requirements under paragraph (1), an organization with 
     respect to which the provision of credit counseling services 
     is a substantial purpose and which is described in paragraph 
     (4) of subsection (c) shall not be exempt from tax under 
     subsection (a) unless such organization--
       ``(A) is organized and operated such that it charges no 
     fees (other than nominal fees) for credit counseling services 
     and waives any fees if the consumer is unable to pay such 
     fees, and
       ``(B) notifies the Secretary, in such manner as the 
     Secretary may by regulations prescribe, that it is applying 
     for recognition as a credit counseling organization.
       ``(4) Secretarial authority.--The Secretary may require any 
     organization described in paragraph (1) to submit such 
     information as the Secretary requires to verify that such 
     organization meets the requirements of this section.
       ``(5) Credit counseling services; debt management plan 
     services.--For purposes of this subsection--
       ``(A) Credit counseling services.--The term `credit 
     counseling services' means--
       ``(i) the providing of educational information to the 
     general public on budgeting, personal finance, financial 
     literacy, saving and spending practices, and the sound use of 
     consumer credit,
       ``(ii) the assisting of individuals and families with 
     financial problems by providing them with counseling, or
       ``(iii) a combination of the activities described in 
     clauses (i) and (ii).
       ``(B) Debt management plan services.--The term `debt 
     management plan services' means services related to the 
     repayment, consolidation, or restructuring of a consumer's 
     debt, and includes the negotiation with creditors of lower 
     interest rates, the waiver or reduction of fees, and the 
     marketing and processing of debt management plans.''.
       (b) Debt Management Plan Services Treated as an Unrelated 
     Business.--Section 513 (relating to unrelated trade or 
     business) is amended by adding at the end the following:
       ``(j) Debt Management Plan Services.--The term `unrelated 
     trade or business' includes--
       ``(1) the provision of debt management plan services (as 
     defined in section 501(q)(4)(B)) by an organization described 
     in section 501(q) to the extent such services are not 
     substantially related to the provision of credit counseling 
     services (as defined in section 501(q)(4)(A)) to a consumer, 
     and
       ``(2) the provision of debt management plan services (as so 
     defined) by any organization other than an organization which 
     meets the requirements of section 501(q).''.
       (c) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this

[[Page S550]]

     section shall apply to taxable years beginning after the date 
     of the enactment of this Act.
       (2) Transition rule for existing organizations.--In the 
     case of any organization described in paragraph (3) or (4) 
     section 501(c) of the Internal Revenue Code of 1986 and with 
     respect to which the provision of credit counseling services 
     is a substantial purpose on the date of the enactment of this 
     Act, the amendments made by this section shall apply to 
     taxable years beginning after the date which is 1 year after 
     the date of the enactment of this Act.

     SEC. 322. EXPANSION OF THE BASE OF TAX ON PRIVATE FOUNDATION 
                   NET INVESTMENT INCOME.

       (a) Gross Investment Income.--
       (1) In general.--Paragraph (2) of section 4940(c) (relating 
     to gross investment income) is amended by adding at the end 
     the following new sentence: ``Such term shall also include 
     income from sources similar to those in the preceding 
     sentence.''.
       (2) Conforming amendment.--Subsection (e) of section 509 
     (relating to gross investment income) is amended by adding at 
     the end the following new sentence: ``Such term shall also 
     include income from sources similar to those in the preceding 
     sentence.''.
       (b) Capital Gain Net Income.--Paragraph (4) of section 
     4940(c) (relating to capital gains and losses) is amended--
       (1) in subparagraph (A), by striking ``used for the 
     production of interest, dividends, rents, and royalties'' and 
     inserting ``used for the production of gross investment 
     income (as defined in paragraph (2))'', and
       (2) in subparagraph (C), by inserting ``or carrybacks'' 
     after ``carryovers''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 323. DEFINITION OF CONVENTION OR ASSOCIATION OF 
                   CHURCHES.

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

     SEC. 324. NOTIFICATION REQUIREMENT FOR ENTITIES NOT CURRENTLY 
                   REQUIRED TO FILE.

       (a) In General.--Section 6033 (relating to returns by 
     exempt organizations), as amended by section 346 of this Act, 
     is amended by redesignating subsection (j) as subsection (k) 
     and by inserting after subsection (i) the following new 
     subsection:
       ``(j) Additional Notification Requirements.--Any 
     organization the gross receipts of which in any taxable year 
     result in such organization being referred to in subsection 
     (a)(3)(A)(ii) or (a)(3)(B)--
       ``(1) shall furnish annually, at such time and in such 
     manner as the Secretary may by forms or regulations 
     prescribe, information setting forth--
       ``(A) the legal name of the organization,
       ``(B) any name under which such organization operates or 
     does business,
       ``(C) the organization's mailing address and Internet web 
     site address (if any),
       ``(D) the organization's taxpayer identification number,
       ``(E) the name and address of a principal officer, and
       ``(F) evidence of the continuing basis for the 
     organization's exemption from the filing requirements under 
     subsection (a)(1), and
       ``(2) upon the termination of the existence of the 
     organization, shall furnish notice of such termination.''.
       (b) Loss of Exempt Status for Failure To File Return or 
     Notice.--Section 6033 (relating to returns by exempt 
     organizations), as amended by subsection (a), is amended by 
     redesignating subsection (k) as subsection (l) and by 
     inserting after subsection (j) the following new subsection:
       ``(k) Loss of Exempt Status for Failure To File Return or 
     Notice.--
       ``(1) In general.--If an organization described in 
     subsection (a)(1) or (i) fails to file an annual return or 
     notice required under either subsection for 3 consecutive 
     years, such organization's status as an organization exempt 
     from tax under section 501(a) shall be considered revoked on 
     and after the date set by the Secretary for the filing of the 
     third annual return or notice. The Secretary shall publish 
     and maintain a list of any organization the status of which 
     is so revoked.
       ``(2) Application necessary for reinstatement.--Any 
     organization the tax-exempt status of which is revoked under 
     paragraph (1) must apply in order to obtain reinstatement of 
     such status regardless of whether such organization was 
     originally required to make such an application.
       ``(3) Retroactive reinstatement if reasonable cause shown 
     for failure.--If upon application for reinstatement of status 
     as an organization exempt from tax under section 501(a), an 
     organization described in paragraph (1) can show to the 
     satisfaction of the Secretary evidence of reasonable cause 
     for the failure described in such paragraph, the 
     organization's exempt status may, in the discretion of the 
     Secretary, be reinstated effective from the date of the 
     revocation under such paragraph.''.
       (c) No Declaratory Judgment Relief.--Section 7428(b) 
     (relating to limitations) is amended by adding at the end the 
     following new paragraph:
       ``(4) Nonapplication for certain revocations.--No action 
     may be brought under this section with respect to any 
     revocation of status described in section 6033(k)(1).''.
       (d) No Inspection Requirement.--Section 6104(b) (relating 
     to inspection of annual information returns) is amended by 
     inserting ``(other than subsection (j) thereof)'' after 
     ``6033''.
       (e) No Disclosure Requirement.--Section 6104(d)(3) 
     (relating to exceptions from disclosure requirements) is 
     amended by redesignating subparagraph (B) as subparagraph (C) 
     and by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Nondisclosure of annual notices.--Paragraph (1) shall 
     not require the disclosure of any notice required under 
     section 6033(j).''.
       (f) No Monetary Penalty for Failure To Notify.--Section 
     6652(c)(1) (relating to annual returns under section 6033 or 
     6012(a)(6)) is amended by adding at the end the following new 
     subparagraph:
       ``(E) No penalty for certain annual notices.--This 
     paragraph shall not apply with respect to any notice required 
     under section 6033(j).''.
       (g) Secretarial Outreach Requirements.--
       (1) Notice requirement.--The Secretary of the Treasury 
     shall notify in a timely manner every organization described 
     in section 6033(j) of the Internal Revenue Code of 1986 (as 
     added by this section) of the requirement under such section 
     6033(j) and of the penalty established under section 
     6033(k)--
       (A) by mail, in the case of any organization the identity 
     and address of which is included in the list of exempt 
     organizations maintained by the Secretary, and
       (B) by Internet or other means of outreach, in the case of 
     any other organization.
       (2) Loss of status penalty for failure to file return.--The 
     Secretary of the Treasury shall publicize in a timely manner 
     in appropriate forms and instructions and through other 
     appropriate means, the penalty established under section 
     6033(k) of such Code for the failure to file a return under 
     section 6033(a)(1) of such Code.
       (h) Effective Date.--The amendments made by this section 
     shall apply to notices and returns with respect to annual 
     periods beginning after 2005.

     SEC. 325. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS 
                   RELATED TO EXEMPT ORGANIZATIONS.

       (a) In General.--Subsection (c) of section 6104 is amended 
     by striking paragraph (2) and inserting the following new 
     paragraphs:
       ``(2) Disclosure of proposed actions related to charitable 
     organizations.--
       ``(A) Specific notifications.--In the case of an 
     organization to which paragraph (1) applies, the Secretary 
     may disclose to the appropriate State officer--
       ``(i) a notice of proposed refusal to recognize such 
     organization as an organization described in section 
     501(c)(3) or a notice of proposed revocation of such 
     organization's recognition as an organization exempt from 
     taxation,
       ``(ii) the issuance of a letter of proposed deficiency of 
     tax imposed under section 507 or chapter 41 or 42, and
       ``(iii) the names, addresses, and taxpayer identification 
     numbers of organizations which have applied for recognition 
     as organizations described in section 501(c)(3).
       ``(B) Additional disclosures.--Returns and return 
     information of organizations with respect to which 
     information is disclosed under subparagraph (A) may be made 
     available for inspection by or disclosed to an appropriate 
     State officer.
       ``(C) Procedures for disclosure.--Information may be 
     inspected or disclosed under subparagraph (A) or (B) only--
       ``(i) upon written request by an appropriate State officer, 
     and
       ``(ii) for the purpose of, and only to the extent necessary 
     in, the administration of State laws regulating such 
     organizations.
     Such information may only be inspected by or disclosed to 
     representatives of the appropriate State officer designated 
     as the individuals who are to inspect or to receive the 
     returns or return information under this paragraph on behalf 
     of such officer. Such representatives shall not include any 
     contractor or agent.
       ``(D) Disclosures other than by request.--The Secretary may 
     make available for inspection or disclose returns and return 
     information of an organization to which paragraph (1) applies 
     to an appropriate State officer of any State if the Secretary 
     determines that such inspection or disclosure may facilitate 
     the resolution of Federal or State issues relating to the 
     tax-exempt status of such organization.
       ``(3) Disclosure with respect to certain other exempt 
     organizations.--Upon written request by an appropriate State 
     officer, the Secretary may make available for inspection or 
     disclosure returns and return information of an organization 
     described in paragraph (2), (4), (6), (7), (8), (10), or (13) 
     of section 501(c) for the purpose of, and to the extent 
     necessary in, the administration of State laws regulating the 
     solicitation or administration of the charitable funds or 
     charitable assets of such organizations. Such information may 
     be inspected only by or disclosed only to representatives of 
     the appropriate State officer designated as the individuals 
     who are to inspect or to receive the returns or return 
     information under this paragraph on behalf of such officer. 
     Such representatives shall not include any contractor or 
     agent.

[[Page S551]]

       ``(4) Use in civil judicial and administrative 
     proceedings.--Returns and return information disclosed 
     pursuant to this subsection may be disclosed in civil 
     administrative and civil judicial proceedings pertaining to 
     the enforcement of State laws regulating such organizations 
     in a manner prescribed by the Secretary similar to that for 
     tax administration proceedings under section 6103(h)(4).
       ``(5) No disclosure if impairment.--Returns and return 
     information shall not be disclosed under this subsection, or 
     in any proceeding described in paragraph (4), to the extent 
     that the Secretary determines that such disclosure would 
     seriously impair Federal tax administration.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Return and return information.--The terms `return' 
     and `return information' have the respective meanings given 
     to such terms by section 6103(b).
       ``(B) Appropriate state officer.--The term `appropriate 
     State officer' means--
       ``(i) the State attorney general,
       ``(ii) the State tax officer,
       ``(iii) in the case of an organization to which paragraph 
     (1) applies, any other State official charged with overseeing 
     organizations of the type described in section 501(c)(3), and
       ``(iv) in the case of an organization to which paragraph 
     (3) applies, the head of an agency designated by the State 
     attorney general as having primary responsibility for 
     overseeing the solicitation of funds for charitable 
     purposes.''.
       (b) Conforming Amendments.--
       (1) Subparagraph (A) of section 6103(p)(3) is amended by 
     inserting ``an section 6104(c)'' after ``section'' in the 
     first sentence.
       (2) Paragraph (4) of section 6103(p) is amended--
       (A) in the matter preceding subparagraph (A), by inserting 
     ``, or any appropriate State officer (as defined in section 
     6104(c)),'' before ``or any other person'',
       (B) in subparagraph (F)(i), by inserting ``or any 
     appropriate State officer (as defined in section 6104(c)),'' 
     before ``or any other person'', and
       (C) in the matter following subparagraph (F), by inserting 
     ``, an appropriate State officer (as defined in section 
     6104(c)),'' after ``including an agency'' each place it 
     appear.
       (3) The heading for paragraph (1) of section 6104(c) is 
     amended by inserting ``for charitable organizations'' after 
     ``rule''.
       (4) Paragraph (2) of section 7213(a) is amended by 
     inserting ``or under section 6104(c)'' after ``6103''.
       (5) Paragraph (2) of section 7213A(a) is amended by 
     inserting ``or 6104(c)'' after ``6103''.
       (6) Paragraph (2) of section 7431(a) is amended by 
     inserting ``(including any disclosure in violation of section 
     6014(c)'' after ``6103''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act 
     but shall not apply to requests made before such date.

        PART II--IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS

     SEC. 331. EXCISE TAX ON SPONSORING ORGANIZATIONS OF DONOR 
                   ADVISED FUNDS FOR FAILURE TO MEET DISTRIBUTION 
                   REQUIREMENTS.

       (a) In General.--Chapter 42 (relating to private 
     foundations and certain other tax-exempt organizations), as 
     amended by section 311, is amended by adding at the end the 
     following new subchapter:

                  ``Subchapter G--Donor Advised Funds

``Sec. 4967. Taxes on sponsoring organizations of donor advised funds 
              for failure to meet distributions requirements
``Sec. 4968. Taxes on prohibited distributions
``Sec. 4969. Taxes on prohibited benefits

     ``SEC. 4967. TAXES ON SPONSORING ORGANIZATIONS OF DONOR 
                   ADVISED FUNDS FOR FAILURE TO MEET DISTRIBUTION 
                   REQUIREMENTS.

       ``(a) Initial Tax.--There is hereby imposed on any 
     sponsoring organization a tax equal to 30 percent of each of 
     the following amounts:
       ``(1) The organization level undistributed amount of such 
     sponsoring organization (other than any organization subject 
     to tax under section 4942) for any taxable year which has not 
     been distributed before the first day of the second (or any 
     succeeding) taxable year following such taxable year (if such 
     first day falls within the taxable period).
       ``(2) The fund level undistributed amount of any donor 
     advised fund of such sponsoring organization for any taxable 
     year which has not been distributed before the 181st day of 
     the first (or any succeeding) taxable year following the 
     applicable period (if such 181st day falls within the taxable 
     period).
       ``(3) The illiquid fund undistributed amount of any 
     illiquid asset donor advised fund of such sponsoring 
     organization for any taxable year which has not been 
     distributed before the 181st day of the second (or any 
     succeeding) taxable year following such taxable year (if such 
     181st day falls within the taxable period).
       ``(b) Additional Tax.--In any case in which an initial tax 
     is imposed under subsection (a) on any amount, if any portion 
     of such amount remains undistributed at the close of the 
     taxable period, there is hereby imposed a tax equal to 100 
     percent of the amount remaining undistributed at such time.
       ``(c) Organization Level Undistributed Amount; Fund Level 
     Undistributed Amount; Illiquid Fund Undistributed Amount.--
     For purposes of this section--
       ``(1) Organization level undistributed amount.--The term 
     `organization level undistributed amount' means, with respect 
     to any sponsoring organization for any taxable year, the 
     amount by which--
       ``(A) the organization level distributable amount for such 
     taxable year, exceeds
       ``(B) the qualifying distributions made during such taxable 
     year and designated for the purpose of reducing such amount.
       ``(2) Fund level undistributed amount.--The term `fund 
     level undistributed amount' means, with respect to any donor 
     advised fund of a sponsoring organization for any applicable 
     period, the amount by which--
       ``(A) the fund level distributable amount for such 
     applicable period, exceeds
       ``(B) the qualifying distributions made during such 
     applicable period and designated for the purpose of reducing 
     such amount.
       ``(3) Illiquid fund undistributed amount.--
       ``(A) In general.--The term `illiquid fund undistributed 
     amount' means, with respect to any illiquid asset donor 
     advised fund of a sponsoring organization for any taxable 
     year, the amount by which--
       ``(i) the illiquid fund distributable amount for such 
     taxable year, exceeds
       ``(ii) the qualifying distributions made during such 
     taxable year and designated for the purpose of reducing such 
     amount.
       ``(B) Illiquid asset donor advised fund.--The term 
     `illiquid asset donor advised fund' means for any taxable 
     year a donor advised fund the value of the illiquid assets of 
     which (as of the end of the preceding taxable year) exceeds 
     10 percent of the value of the total assets of such fund.
       ``(C) Illiquid asset.--The term `illiquid asset' means for 
     any taxable year any asset other than cash and marketable 
     securities the value of which is held for the entire taxable 
     year as such asset or any other illiquid asset.
       ``(d) Organization Level Distributable Amount; Fund Level 
     Distributable Amount; Illiquid Fund Distributable Amount.--
     For purposes of this section--
       ``(1) Organization level distributable amount.--The term 
     `organization level distributable amount' means, with respect 
     to any sponsoring organization for any taxable year, an 
     amount equal to the applicable percentage of the fair market 
     value of the aggregate assets of all donor advised funds 
     maintained by such organization as determined on the last day 
     of the preceding taxable year (other than such funds which 
     have been in existence for less than 1 year as so 
     determined).
       ``(2) Fund level distributable amount.--The term `fund 
     level distributable amount' means, with respect to any donor 
     advised fund of any sponsoring organization for any 
     applicable 3-consecutive taxable year period, an amount equal 
     to the greater of--
       ``(A) $250, or
       ``(B) 2.5 percent of the greater of--
       ``(i) the average of the sponsoring organization's required 
     minimum initial contribution amount for such period, or
       ``(ii) the average of the sponsoring organization's 
     required minimum balance for such period,
     for the type of donor with respect to such donor advised 
     fund.
       ``(3) Illiquid fund distributable amount.--The term 
     `illiquid fund distributable amount' means, with respect to 
     any illiquid asset donor advised fund of any sponsoring 
     organization for any taxable year, an amount equal to the 
     applicable percentage of the value of the assets in such fund 
     as determined at the end of the preceding taxable year.
       ``(4) Applicable percentage.--For purposes of paragraphs 
     (1) and (3), the applicable percentage is--
       ``(A) 3 percent for the first taxable year beginning after 
     the date of the enactment of this section,
       ``(B) 4 percent for the second taxable year beginning after 
     such date, and
       ``(C) 5 percent for any taxable year beginning after the 
     second taxable year beginning after such date.
       ``(e) Qualifying Distribution.--For purposes of this 
     section--
       ``(1) In general.--The term `qualifying distribution' 
     means--
       ``(A) any amount paid by the sponsoring organization from a 
     donor advised fund--
       ``(i) to any organization described in section 170(b)(1)(A) 
     (other than any organization described in section 509(a)(3)) 
     or any sponsoring organization if such amount is for 
     maintenance in a donor advised fund), and
       ``(ii) notwithstanding clause (i), to any organization 
     described section 170(f)(17)(B)(ii), but only to the extent 
     not prohibited by regulations, and
       ``(B) any amount set aside in such donor advised fund for 
     purposes, and under procedures similar to those, described in 
     section 4942(g)(2).
     Such term shall also include any amount paid during any 
     taxable year for reasonable and necessary administrative 
     expenses charged to a donor advised fund by a sponsoring 
     organization.
       ``(2) Distributions to sponsoring organizations.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     such term shall include

[[Page S552]]

     any distribution to a sponsoring organization.
       ``(B) Organization level distributions.--For purposes of 
     subsection (c)(1)(B), such term shall not include any 
     distribution to a sponsoring organization unless such 
     distribution is designated for use in connection with a 
     charitable program of such organization.
       ``(3) Purpose of distribution.--Each qualifying 
     distribution shall be taken into account in determining 
     whether each of the requirements of paragraphs (1), (2), and 
     (3) of subsection (a) are met, except that only qualifying 
     distributions from a donor advised fund shall be taken into 
     account in determining whether the requirements of paragraphs 
     (2) and (3) of subsection (a) are met with respect to the 
     fund.
       ``(4) Designation of taxable year.--
       ``(A) In general.--A sponsoring organization shall 
     designate the taxable years or applicable periods with 
     respect to which any qualifying distribution shall be applied 
     for purposes of satisfying the distribution requirements of 
     such taxable year or applicable period.
       ``(B) Carryover of excess distribution designations.--If a 
     sponsoring organization designates an amount of qualifying 
     distributions in excess of the amount necessary to meet the 
     distribution requirements for all taxable years and all 
     applicable periods, the sponsoring organization may designate 
     such excess as a carryover distribution which may be applied 
     for purposes of satisfying the distribution requirements of 
     the succeeding 5 taxable years.
       ``(f) Valuation Rules.--For purposes of determining the 
     value of any asset held by a donor advised fund, the 
     following rules shall apply:
       ``(1) Securities for which market quotations are readily 
     available shall be valued at fair market value determined on 
     a monthly basis.
       ``(2) Cash shall be determined on an average monthly basis.
       ``(3) Any illiquid asset transferred by a donor to a 
     sponsoring organization for maintenance in such donor advised 
     fund shall be valued in an amount equal to the sum of--
       ``(A) the value of such asset claimed by the donor for 
     purposes of determining the donor's deduction under section 
     170, 2055, or 2522 with respect to such transfer and reported 
     by the donor to the sponsoring organization (in any manner 
     specified by the Secretary), and
       ``(B) an assumed annual rate of return of 5 percent of such 
     value.
       ``(4) Any illiquid asset purchased by such fund shall be 
     valued in an amount equal to--
       ``(A) the purchase price paid for such asset by such fund, 
     and
       ``(B) an assumed annual rate of return of 5 percent of such 
     value.
       ``(g) Sponsoring Organization; Donor Advised Fund.--For 
     purposes of this subchapter--
       ``(1) Sponsoring organization.--The term `sponsoring 
     organization' means any organization which--
       ``(A) is described in section 170(c) (other than in 
     paragraph (1) thereof, and without regard to paragraph (2)(A) 
     thereof), and
       ``(B) maintains 1 or more donor advised funds.
       ``(2) Donor advised fund.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `donor advised fund' means a fund or account--
       ``(i) which is separately identified by reference to 
     contributions of a donor or donors,
       ``(ii) which is owned and controlled by a sponsoring 
     organization, and
       ``(iii) with respect to which a donor or any person 
     appointed or designated by such person) has, or reasonably 
     expects to have, advisory privileges with respect to the 
     distribution or investment of amounts held in such fund or 
     account by reason of the donor's status as a donor.
       ``(B) Exception.--The term `donor advised fund' shall not 
     include any fund or account with respect to which a person 
     described in subparagraph (A)(iii) advises as to which 
     individuals receive grants for travel, study, or other 
     similar purposes, but only if--
       ``(i) such person's advisory privileges are performed 
     exclusively by such person in the person's capacity as a 
     member of a committee appointed by the sponsoring 
     organization,
       ``(ii) no combination of persons described in subparagraph 
     (A)(iii) (or persons related to such persons) control, 
     directly or indirectly, such committee, and
       ``(iii) all grants from such fund or account satisfy 
     requirements similar to those described in section 4945(g) 
     (concerning grants to individuals by private foundations).
       ``(C) Secretarial authority.--The Secretary may exempt a 
     fund or account from treatment as a donor advised fund 
     which--
       ``(i) is advised by committee not directly or indirectly 
     controlled by the donor or advisor (and any related parties), 
     or
       ``(ii) will benefit a single identified organization or 
     governmental entity or a single identified charitable 
     purpose.
       ``(h) Other Definitions.--For purposes of this section--
       ``(1) Taxable period.--The term `taxable period' means, 
     with respect to the undistributed amount for any taxable 
     year, the period beginning with the first day of the taxable 
     year and ending on the earlier of--
       ``(A) the date of mailing of a notice of deficiency with 
     respect to the tax imposed by subsection (a) under section 
     6212, or
       ``(B) the date on which the tax imposed by subsection (a) 
     is assessed.
       ``(2) Applicable period.--The term `applicable period' 
     means, with respect to any donor advised fund of any 
     sponsoring organization, a 3-consecutive taxable year period 
     determined under the following rules:
       ``(A) The first applicable 3-consecutive taxable year 
     period for any donor advised fund shall begin on the first 
     day of the first taxable year of the sponsoring organization 
     beginning after the date such fund has been in existence for 
     1 year.
       ``(B) Any applicable 3-consecutive taxable year period 
     after the first such period shall begin on the day after the 
     termination of any preceding applicable 3-consecutive taxable 
     year period with respect to such donor advised fund.
       ``(i) Regulations.--The Secretary may issue such 
     regulations as are necessary to carry out the purposes of 
     this section, including regulations regarding--
       ``(1) the acceptable methods for calculating the 
     organization level undistributed amount for sponsoring 
     organizations,
       ``(2) the allowable adjustments in the determination of the 
     value of any illiquid asset where the asset value has 
     declined significantly after a contribution to, or purchase 
     by, the donor advised fund, and
       ``(3) the treatment or disregard of transactions designed 
     to avoid the application of the illiquid asset rules, such as 
     through exchanges of illiquid assets for other assets.

     ``SEC. 4968. TAXES ON PROHIBITED DISTRIBUTIONS.

       ``(a) Imposition of Taxes.--
       ``(1) On the donor or donor advisor.--There is hereby 
     imposed on the advice of any person described in section 
     4967(g)(2)(A)(iii) to have a sponsoring organization of a 
     donor advised fund make a taxable distribution from such fund 
     a tax equal to 20 percent of the amount thereof. The tax 
     imposed by this paragraph shall be paid by such person who 
     advised the sponsoring organization of the donor advised fund 
     to make the distribution.
       ``(2) On the fund management.--There is hereby imposed on 
     the agreement of any fund manager to the making of a 
     distribution, knowing that it is a taxable distribution, a 
     tax equal to 5 percent of the amount thereof, unless such 
     agreement is not willful and is due to reasonable cause. The 
     tax imposed by this paragraph shall be paid by any fund 
     manager who agreed to the making of the distribution.
       ``(b) Joint and Several Liability.--For purposes of 
     subsection (a), if more than one person is liable under 
     subsection (a)(1) or (a)(2) with respect to the making of a 
     taxable distribution, all such persons shall be jointly and 
     severally liable under such paragraph with respect to such 
     distribution.
       ``(c) Taxable Distribution.--For purposes of this 
     subsection--
       ``(1) In general.--The term `taxable distribution' means 
     any distribution from a donor advised fund to any person 
     other than the sponsoring organization's non donor advised 
     funds or accounts or organizations described in section 
     170(b)(1)(A) (other than any organization described in 
     section 509(a)(3) or any sponsoring organization if such 
     amount is for maintenance in a donor advised fund).
       ``(2) Exception.--Notwithstanding paragraph (1), such term 
     shall not include any distribution from a donor advised fund 
     to any organization described section 170(f)(17)(B)(ii) to 
     the extent such distribution is not prohibited under 
     regulations.
       ``(d) Fund Manager.--For purposes of this subchapter, the 
     term `fund manager' means, with respect to any sponsoring 
     organization of a donor advised fund--
       ``(1) an officer, director, or trustee of such sponsoring 
     organization (or an individual having powers or 
     responsibilities similar to those of officers, directors, or 
     trustees of the sponsoring organization), and
       ``(2) with respect to any act (or failure to act), the 
     employees of the sponsoring organization having authority or 
     responsibility with respect to such act (or failure to act).

     ``SEC. 4969. TAXES ON PROHIBITED BENEFITS.

       ``(a) Imposition of Taxes.--
       ``(1) On the donor, donor advisor, or related person.--
     There is hereby imposed on the advice of any person described 
     in subsection (c) to have a sponsoring organization of a 
     donor advised fund make a distribution from such fund which 
     results in such a person receiving, directly or indirectly, a 
     more than incidental benefit as a result of such 
     distribution, a tax equal to 25 percent of the amount of such 
     distribution. The tax imposed by this paragraph shall be paid 
     by such person who advised the sponsoring organization of the 
     donor advised fund to make the distribution.
       ``(2) On the recipient of the benefit.--There is hereby 
     imposed on any person described in subsection (c) who 
     receives a benefit described in paragraph (1), a tax equal to 
     25 percent of the amount of the distribution described in 
     paragraph (1).
       ``(3) On the fund management.--There is hereby imposed on 
     the agreement of any fund manager to the making of a 
     distribution, knowing that such distribution would confer a 
     benefit described in paragraph (1), a tax equal to 10 percent 
     of the amount of such distribution, unless such agreement is 
     not willful and is due to reasonable cause. The tax imposed 
     by this paragraph shall be paid by any fund manager who 
     agreed to the making of the distribution.
       ``(b) Joint and Several Liability.--For purposes of 
     subsection (a), if more than one person is liable under 
     subsection (a)(1), (a)(2), or (a)(3) with respect to the 
     making of a distribution described in subsection (a), all 
     such

[[Page S553]]

     persons shall be jointly and severally liable under such 
     paragraph with respect to such distribution.
       ``(c) Donor, Donor Advisor, or Related Person.--A person is 
     described in this subsection if such person is described in 
     section 4958(f)(1)(D) (determined without regard to any 
     investment advisor).''.
       (b) Abatement of Taxes Allowed.--Section 4963 is amended--
       (1) by inserting ``4967, 4968, 4969,'' after ``4958,'' each 
     place it appears in subsections (a) and (c),
       (2) by inserting ``4967,'' after ``4958,'' in subsection 
     (b),
       (3) in subsection (d)(2), by striking ``and'' at the end of 
     subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(D) in the case of the second tier tax imposed by section 
     4967(b), reducing the amount of the undistributed amount to 
     zero.'', and
       (4) in subsection (e)(2), by redesignating subparagraphs 
     (C) and (D) as subparagraphs (E) and (F), respectively, and 
     by inserting after subparagraph (B) the following new 
     subparagraphs:
       ``(C) in the case of section 4967(a)(1), on the first day 
     of the taxable year for which there was a failure to 
     distribute,
       ``(D) in the case of paragraph (2) or (3) of section 
     4967(a), on the 181st day of the taxable year for which there 
     was a failure to distribute,''.
       (c) Conforming Amendment.--The table of subchapters of 
     chapter 42 is amended by adding at the end the following new 
     item:


                ``Subchapter G. Donor Advised Funds.''.

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

     SEC. 332. PROHIBITED TRANSACTIONS.

       (a) Disqualified Persons.--
       (1) In general.--Paragraph (1) of section 4958(f) is 
     amended by striking ``and'' at the end of subparagraph (B), 
     by striking the period at the end of subparagraph (C) and 
     inserting ``, and'', and by adding after subparagraph (C) the 
     following new subparagraph:
       ``(D) any person who is described in paragraph (7) with 
     respect to any sponsoring organization (as defined in section 
     4967(g)(1)).''.
       (2) Donors, donor advisors, and investment advisors treated 
     as disqualified persons.--Section 4958(f) is amended by 
     adding at the end the following new paragraph:
       ``(7) Donors, donor advisors, and investment advisors with 
     respect to sponsoring organizations.--For purposes of 
     paragraph (1)(D)--
       ``(A) In general.--A person is described in this paragraph 
     if such person--
       ``(i) is described in section 4967(g)(2)(A)(iii),
       ``(ii) is an investment advisor,
       ``(iii) is a member of the family of an individual 
     described in clause (i) or (ii), or
       ``(iv) is a 35-percent controlled entity (as defined in 
     paragraph (3) by substituting `persons described in clause 
     (i), (ii), or (iii) of paragraph (7)(A)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(B) Investment advisor.--The term `investment advisor' 
     means, with respect to any sponsoring organization (as 
     defined in section 4967(g)(1)), any person (other than an 
     employee of such organization) compensated by such 
     organization for managing the investment of, or providing 
     investment advice with respect to, assets maintained in donor 
     advised funds (as defined in section 4967(g)(2)) owned by 
     such organization.''.
       (3) Donors, donor advisors, and investment advisors treated 
     as disqualified persons with respect to a sponsoring 
     organization which is a private foundation.--Section 
     4946(a)(1) is amended by striking ``and'' at the end of 
     subparagraph (H), by striking the period at the end of 
     subparagraph (I) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(J) a person described in section 4958(f)(1)(D).''.
       (b) Certain Transactions Treated as Excess Benefit 
     Transactions.--
       (1) In general.--Section 4958(c) is amended by 
     redesignating paragraph (2) as paragraph (3) and by inserting 
     after paragraph (1) the following new paragraph:
       ``(2) Special rules for donor advised funds owned by 
     sponsoring organizations.--In the case of any donor advised 
     fund (as defined in section 4967(g)(2)) of a sponsoring 
     organization (as defined in section 4967(g)(1))--
       ``(A) the term `excess benefit transaction' includes any 
     grant, loan, compensation, or other payment from such fund to 
     a person described in subsection (f)(1)(D) (determined 
     without regard to any investment advisor) with respect to 
     such fund, and
       ``(B) the term `excess benefit' includes, with respect to 
     any transaction described in subparagraph (A), the amount of 
     any such grant, loan, compensation, or other payment.
       ``Notwithstanding the last sentence of subsection (e), a 
     sponsoring organization shall be treated as an applicable 
     tax-exempt organization to the extent necessary to carry out 
     this paragraph.''.
       (2) Special rule for correction of transaction.--Section 
     4958(f)(6) is amended by inserting ``, except that in the 
     case of any correction of an excess benefit transaction 
     described in subsection (c)(2), no amount repaid in a manner 
     prescribed by the Secretary may be held in, or credited to, 
     any donor advised fund'' after ``standards''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 333. TREATMENT OF CHARITABLE CONTRIBUTION DEDUCTIONS TO 
                   DONOR ADVISED FUNDS.

       (a) Income.--Section 170(f) (relating to disallowance of 
     deduction in certain cases and special rules), as amended by 
     section 318 of this Act, is amended by adding at the end the 
     following new paragraph:
       ``(17) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3), (4), or (5) of subsection (c) or section 
     509(a)(3), and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of paragraph (8)(C) from the sponsoring organization that 
     such organization has exclusive legal control over the assets 
     contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (b) Estate.--Section 2055(e) is amended by adding at the 
     end the following new paragraph:
       ``(5) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3) or(4) of subsection (a) or section 509(a)(3), 
     and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of section 170(f)(8)(C)) from the sponsoring organization 
     that such organization has exclusive legal control over the 
     assets contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (c) Gift.--Section 2522(c) is amended by adding at the end 
     the following new paragraph:
       ``(13) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3) or (4) of subsection (a) or section 509(a)(3), 
     and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of section 170(f)(8)(C)) from the sponsoring organization 
     that such organization has exclusive legal control over the 
     assets contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (d) Regulations.--The regulations prescribed under sections 
     170(f)(17)(B)(i), 2055(e)(5)(B)(i), 2522(c)(13)(B)(i),

[[Page S554]]

     4967(e)(i)(A)(ii), and 4968(c)(2) of the Internal Revenue 
     Code of 1986 shall deny a deduction for contributions to 
     sponsoring organizations (as defined in section 4967(g)(1) of 
     such Code) which are described in section 170(f)(17)(B)(ii) 
     of such Code and shall apply excise taxes to distributions 
     from donor advised funds (as defined in section 4967(g)(2) of 
     such Code) and sponsoring organizations (as so defined) to 
     organizations so described in cases where the donor of the 
     contributions or the donor or donor advisor of the amounts 
     distributed directly or indirectly controls a supported 
     organization (as defined in section 509(f)(3) of such Code) 
     of such organization.
       (e) Effective Date.--The amendments made by this section 
     shall apply to contributions made after the date which is 180 
     days after the date of the enactment of this Act.

     SEC. 334. RETURNS OF, AND APPLICATIONS FOR RECOGNITION BY, 
                   SPONSORING ORGANIZATIONS.

       (a) Matters Included on Returns.--
       (1) In general.--Section 6033 is amended by redesignating 
     subsection (h) as subsection (i) and by inserting after 
     subsection (g) the following new subsection:
       ``(h) Additional Provisions Relating to Sponsoring 
     Organizations.--Every organization described in section 
     4967(g)(1) shall, on the return required under subsection (a) 
     for the taxable year--
       ``(1) list the total number of donor advised funds (as 
     defined in section 4967(g)(2)) it owns at the end of such 
     taxable year,
       ``(2) indicate the aggregate value of assets held in such 
     funds at the end of such taxable year, and
       ``(3) indicate the aggregate contributions to and grants 
     made from such funds during such taxable year.''.
       (2) Extension of statute of limitations.--Section 6501(c) 
     is amended by adding at the end the following new paragraph:
       ``(11) Donor advised funds.--If a sponsoring organization 
     (as defined in section 4967(g)(1)) fails to include on any 
     return for any taxable year any information with respect to 
     any donor advised fund of such organization which is required 
     under section 6033(h) to be included with such return, the 
     time for assessment of any tax imposed under subchapter G of 
     chapter 42 with respect to any distribution from such donor 
     advised fund shall not expire before the date which is 3 
     years after the date on which the secretary is furnished the 
     information so required.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to returns filed for taxable years ending after 
     the date of the enactment of this Act.
       (b) Matters Included on Exempt Status Application.--
       (1) In general.--Section 508 is amended by adding at the 
     end the following new subsection:
       ``(f) Additional Provisions Relating to Sponsoring 
     Organizations.--sponsoring organization (as defined in 
     section 4967(g)(1)) shall give notice to the Secretary (in 
     such manner as the Secretary may provide) whether such 
     organization maintains or intends to maintain donor advised 
     funds (as defined in section 4967(g)(2)) and the manner in 
     which such organization plans to operate such funds.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to organizations applying for tax-exempt status 
     after the date of the enactment of this Act.

     PART III--IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS

     SEC. 341. REQUIREMENTS FOR SUPPORTING ORGANIZATIONS.

       (a) Types of Supporting Organizations.--Subparagraph (B) of 
     section 509(a)(3) is amended to read as follows:
       ``(B) is--
       ``(i) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2),
       ``(ii) supervised or controlled in connection with one or 
     more such organizations, or
       ``(iii) operated in connection with one or more such 
     organizations, and''.
       (b) Requirements for Supporting Organizations.--Section 509 
     (relating to private foundation defined) is amended by adding 
     at the end the following new subsection:
       ``(f) Requirements for Supporting Organizations.--
       ``(1) Type iii supporting organizations.--For purposes of 
     subsection (a)(3)(B)(iii), an organization shall not be 
     considered to be operated in connection with any organization 
     described in paragraph (1) or (2) of subsection (a) unless 
     such organization meets the following requirements:
       ``(A) Application requirement.--The organization provides 
     to the Secretary, as a part of any notification filed under 
     section 508(a) after the date of the enactment of this 
     subsection, a letter from each supported organization 
     acknowledging that the supported organization has been 
     designated by such organization as a supported organization.
       ``(B) Responsiveness.--For each taxable year beginning 
     after the date of the enactment of this subsection, the 
     organization provides to each supported organization such 
     information as the Secretary may require to ensure that such 
     organization is responsive to the needs or demands of the 
     supported organization.
       ``(C) Supported organizations.--
       ``(i) In general.--The organization--

       ``(I) is not operated in connection with more than 5 
     supported organizations, and
       ``(II) is not operated in connection with any supported 
     organization that is not organized in the United States on 
     any date after the date which is 180 days after the date of 
     the enactment of this subsection.

       ``(ii) Special rule for existing organizations.--If the 
     organization is operated in connection with more than 5 
     supported organizations on the date of the enactment of this 
     subsection--

       ``(I) clause (i)(I) shall not apply, and
       ``(II) the organization may not be operated in connection 
     with any other organization after such date unless the total 
     number of supported organizations is 5 or less.

       ``(D) Contributions to donor advised funds.--The 
     organization makes no contributions to or for the use of any 
     donor advised fund (as defined in section 4967(g)(2)).
       ``(2) Organizations controlled by donors.--
       ``(A) In general.--For purposes of subsection (a)(3)(B), an 
     organization shall not be considered to be--
       ``(i) operated, supervised, or controlled by any 
     organization described in paragraph (1) or (2) of subsection 
     (a), or
       ``(ii) operated in connection with any organization 
     described in paragraph (1) or (2) of subsection (a),
     if such organization accepts any gift or contribution from 
     any person described in subparagraph (B).
       ``(B) Person described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a person (other than an organization described in 
     paragraph (1), (2), or (4) of section 509(a)) who controls, 
     directly or indirectly, either alone or together with persons 
     described in clauses (ii) and (iii), the governing body of a 
     supported organization,
       ``(ii) a member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i), or
       ``(iii) a 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 509(f)(2)(B)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(3) Supported organization.--For purposes of this 
     subsection, the term `supported organization' means, with 
     respect to an organization described in subsection (a)(3), an 
     organization described in paragraph (1) or (2) of subsection 
     (a)--
       ``(A) for whose benefit the organization described in 
     subsection (a)(3) is organized and operated, or
       ``(B) with respect to which the organization performs the 
     functions of, or carries out the purposes of.''.
       (c) Charitable Trusts Which Are Type III Supporting 
     Organizations.--For purposes of section 509(a)(3)(B)(iii) of 
     the Internal Revenue Code of 1986, an organization which is a 
     trust shall not be considered to be operated in connection 
     with any organization described in paragraph (1) or (2) of 
     section 509(a) of such Code solely because--
       (1) it is a charitable trust under State law,
       (2) the supported organization (as defined in section 
     509(f)(3) of such Code) is a beneficiary of such trust, and
       (3) the supported organization (as so defined) has the 
     power to enforce the trust and compel an accounting.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 342. EXCISE TAX ON SUPPORTING ORGANIZATIONS FOR FAILURE 
                   TO MEET DISTRIBUTION REQUIREMENTS.

       (a) In General.--Subchapter D of chapter 42 (relating to 
     failure by certain charitable organizations to meet certain 
     qualification requirements) is amended by adding at the end 
     the following new section:

     ``SEC. 4959. TAXES ON CERTAIN SUPPORTING ORGANIZATIONS 
                   FAILING TO MEET DISTRIBUTION REQUIREMENTS.

       ``(a) Initial Tax.--There is hereby imposed on the 
     undistributed income of any type III supporting organization 
     for any taxable year, which has not been distributed before 
     the first day of the second (or any succeeding) taxable year 
     following such taxable year (if such first day falls within 
     the taxable period), a tax equal to 30 percent of the amount 
     of such income remaining undistributed at the beginning of 
     such second (or succeeding) taxable year.
       ``(b) Additional Tax.--In any case in which an initial tax 
     is imposed under subsection (a) on the undistributed income 
     of a type III supporting organization for any taxable year, 
     if any portion of such income remains undistributed at the 
     close of the taxable period, there is hereby imposed a tax 
     equal to 100 percent of the amount remaining undistributed at 
     such time.
       ``(c) Undistributed Income.--For purposes of this section, 
     the term `undistributed income' means, with respect to any 
     type III supporting organization for any taxable year as of 
     any time, the amount by which--
       ``(1) the distributable amount for such taxable year, 
     exceeds
       ``(2) the qualifying distributions made before such time 
     out of such distributable amount.
       ``(d) Distributable Amount.--For purposes of this section--
       ``(1) In general.--the term `distributable amount' means, 
     with respect to any type III supporting organization for any 
     taxable year, an amount equal to the sum of--
       ``(A) the greater of--
       ``(i) 85 percent of the adjusted net income (as defined in 
     section 4942(f)) of the type III supporting organization for 
     the preceding taxable year, or
       ``(ii) the applicable percentage of the fair market value 
     of the aggregate assets of such

[[Page S555]]

     organization (other than assets used or held to perform the 
     functions of, or carry out the purposes of, a supported 
     organization) on the last day of the preceding taxable year, 
     and
       ``(B) any amount received during the preceding taxable year 
     which is a repayment of amounts paid by the organization in 
     any prior taxable year to a supported organization 
     exclusively for the benefit of such supported organization or 
     to perform the functions of, or carry out the purposes of 
     such supported organization.
       ``(2) Investment assets.--For purposes of paragraph 
     (1)(A)(ii), assets held for investment or for the operation 
     of an unrelated trade or business shall not be considered as 
     assets used or held to perform the functions of, or carry out 
     the purposes of, a supported organization.
       ``(3) Applicable percentage.--For purposes of paragraph 
     (1)(A)(ii), the applicable percentage is--
       ``(A) 3 percent for the first taxable year beginning after 
     the date of the enactment of this section,
       ``(B) 4 percent for the second taxable year beginning after 
     such date, and
       ``(C) 5 percent for any taxable year beginning after the 
     second taxable year beginning after such date.
       ``(e) Qualifying Distribution.--For purposes of this 
     section--
       ``(1) In general.--The term `qualifying distribution' means 
     amounts paid by the type III supporting organization to or 
     for the use of a supported organization.
       ``(2) Administrative and operating expenses.--Reasonable 
     and necessary administrative expenses of a type III 
     supporting organization shall be treated as a qualifying 
     distribution to a supported organization.
       ``(f) Treatment of Qualifying Distributions.--
       ``(1) In general.--Except as provided in paragraph (2), any 
     qualifying distribution made during a taxable year shall be 
     treated as made--
       ``(A) first out of the undistributed income of the 
     immediately preceding taxable year (if the type III 
     supporting organization was subject to the tax imposed by 
     this section for such preceding taxable year) to the extent 
     thereof, and
       ``(B) second out of the undistributed income for the 
     taxable year to the extent thereof.
     For purposes of this paragraph, distributions shall be taken 
     into account in the order of time in which made.
       ``(2) Correction of deficient distributions for prior 
     taxable years, etc.--In the case of any qualifying 
     distribution which (under paragraph (1)) is not treated as 
     made out of the undistributed income of the immediately 
     preceding taxable year, the type III supporting organization 
     may elect to treat any portion of such distribution as made 
     out of the undistributed income of a designated prior taxable 
     year. The election shall be made by the type III supporting 
     organization at such time and in such manner as the Secretary 
     shall by regulations prescribe.
       ``(g) Adjustment of Distributable Amount Where 
     Distributions During Prior Years Have Exceeded Income.--
       ``(1) In general.--If, for the taxable years in the 
     adjustment period for which an organization is a type III 
     supporting organization--
       ``(A) the aggregate qualifying distributions treated (under 
     subsection (f)) as made out of the undistributed income for 
     such taxable years, exceed
       ``(B) the distributable amounts for such taxable years 
     (determined without regard to this subsection),
     then, for purposes of this section (other than subsection 
     (f)), the distributable amount for the taxable year shall be 
     reduced by an amount equal to such excess.
       ``(2) Taxable years in adjustment period.--For purposes of 
     paragraph (1), with respect to any taxable year of a type III 
     supporting organization, the taxable years in the adjustment 
     period are the taxable years (not exceeding 5) beginning 
     after the date of the enactment of this section and 
     immediately preceding the taxable year.
       ``(h) Other Definitions.--For purposes of this section--
       ``(1) Taxable period.--The term `taxable period' means, 
     with respect to the undistributed income for any taxable 
     year, the period beginning with the first day of the taxable 
     year and ending on the earlier of--
       ``(A) the date of mailing of a notice of deficiency with 
     respect to the tax imposed by subsection (a) under section 
     6212, or
       ``(B) the date on which the tax imposed by subsection (a) 
     is assessed.
       ``(2) Type iii supporting organization.--The term `type III 
     supporting organization' means an organization which meets 
     the requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and which is operated in connection with one or 
     more organizations described in paragraph (1) or (2) of 
     section 509(a).
       ``(3) Supported organization.--The term `supported 
     organization' has the meaning given such term under section 
     509(f)(3).''.
       (b) Conforming Amendment.--The table of section for 
     subchapter D of chapter 42 is amended by inserting after the 
     item relating to section 4958 the following new item:

``Sec. 4959. Taxes on certain supporting organizations failing to meet 
              distribution requirements.''.

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

     SEC. 343. EXCESS BENEFIT TRANSACTIONS.

       (a) In General.--Section 4958(c), as amended by section 332 
     of this Act, is amended by redesignating paragraph (3) as 
     paragraph (4) and by inserting after paragraph (2) the 
     following new paragraph:
       ``(3) Special rules for supporting organizations.--
       ``(A) In general.--In the case of any organization 
     described in section 509(a)(3)--
       ``(i) the term `excess benefit transaction' includes--

       ``(I) any grant, loan, compensation, or other payment 
     provided by such organization to a person described in 
     subparagraph (B), and
       ``(II) any loan provided by such organization to a 
     disqualified person (other than an organization described in 
     paragraph (1), (2), or (4) of section 509(a)), and

       ``(ii) the term `excess benefit' includes, with respect to 
     any transaction described in clause (i), the amount of any 
     such grant, loan, compensation, or other payment.
       ``(B) Person described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a substantial contributor to such organization,
       ``(ii) a member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i), or
       ``(iii) a 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 4958(c)(3)(B)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(C) Substantial contributor.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `substantial contributor' means 
     any person who contributed or bequeathed an aggregate amount 
     of more than $5,000 to the organization, if such amount is 
     more than 2 percent of the total contributions and bequests 
     received by the organization before the close of the taxable 
     year of the organization in which the contribution or bequest 
     is received by the organization from such person. In the case 
     of a trust, such term also means the creator of the trust.
       ``(ii) Exception.--Such term shall not include any 
     organization described in paragraph (1), (2), or (4) of 
     section 509(a).''.
       (b) Disqualified Persons.--Paragraph (1) of section 
     4958(f), as amended by section 332 of this Act, is amended by 
     striking ``and'' at the end of subparagraph (D), by striking 
     the period at the end of subparagraph (E) and inserting ``, 
     and'', and by adding after subparagraph (D) the following new 
     subparagraph:
       ``(E) any person who is described in subparagraph (A), (B), 
     or (C) with respect to an organization described in section 
     509(a)(3) which is organized and operated exclusively for the 
     benefit of, to perform the functions of, or to carry out the 
     purposes of the applicable tax-exempt organization.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 344. EXCESS BUSINESS HOLDINGS OF SUPPORTING 
                   ORGANIZATIONS.

       (a) In General.--Section 4943 is amended by adding at the 
     end the following new subsection:
       ``(e) Application of Tax to Supporting Organizations.--
       ``(1) In general.--For purposes of this section, a 
     qualified supporting organization shall be treated as a 
     private foundation.
       ``(2) Exception.--The Secretary may exempt any qualified 
     supporting organization from the application of this 
     subsection if the Secretary determines that the excess 
     business holdings of such organization are consistent with 
     the purpose or function constituting the basis for its 
     exemption under section 501.
       ``(3) Qualified supporting organization.--For purposes of 
     this subsection, the term `qualified supporting organization' 
     means any--
       ``(A) type III supporting organization (as defined in 
     section 4959(h)(2)), or
       ``(B) organization which meets the requirements of 
     subparagraphs (A) and (C) of section 509(a)(3) and which is 
     supervised or controlled in connection with or one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), but only if such organization accepts any gift or 
     contribution from any person described in section 
     509(f)(2)(B).
       ``(4) Disqualified person.--
       ``(A) In general.--In applying this section to any 
     organization described in section 509(a)(3), the term 
     `disqualified person' means, with respect to the 
     organization--
       ``(i) any person who was, at any time during the 5-year 
     period ending on date described in subsection (a)(2)(A), in a 
     position to exercise substantial influence over the affairs 
     of the organization,
       ``(ii) any member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i),
       ``(iii) any 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 4943(e)(2)(A)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof),
       ``(iv) any person described in section 4958(c)(3)(B)), and
       ``(v) any organization--

       ``(I) which is effectively controlled (directly or 
     indirectly) by the same person or persons who control the 
     organization in question, or

[[Page S556]]

       ``(II) substantially all of the contributions to which were 
     made (directly or indirectly) by the same person or persons 
     described in subparagraph (B) or a member of their family 
     (within the meaning of section 4946(d)) who made (directly or 
     indirectly) substantially all of the contributions to the 
     organization in question.

       ``(B) Persons described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a substantial contributor to the organization (as 
     defined in section 4958(c)(3)(C)),
       ``(ii) an officer, director, or trustee of the organization 
     (or an individual having powers or responsibilities similar 
     to those officers, directors, or trustees of the 
     organization), or
       ``(iii) an owner of more than 20 percent of--

       ``(I) the total combined voting power of a corporation,
       ``(II) the profits interest of a partnership, or
       ``(III) the beneficial interest of a trust or 
     unincorporated enterprise,

     which is a substantial contributor (as so defined) to the 
     organization.
       ``(5) Special rule for certain holdings of type iii 
     supporting organizations.--For purposes of this subsection, 
     the term `excess business holdings' shall not include any 
     holdings of a type III supporting organization (as defined in 
     section 4959(h)(2)) in any business enterprise if the 
     holdings are held for the benefit of the community pursuant 
     to the direction of a State attorney general or a State 
     official with jurisdiction over the type III supporting 
     organization.
       ``(6) Present holdings.--For purposes of this subsection, 
     rules similar to the rules of paragraphs (4), (5), and (6) of 
     subsection (c) shall apply to organizations described in 
     section 509(a)(3), except that--
       ``(A) `the date of the enactment of this subsection' shall 
     be substituted for `May 26, 1969' each place it appears in 
     paragraphs (4), (5), and (6), and
       ``(B) `January 1, 2007' shall be substituted for `January 
     1, 1970' in paragraph (4)(E).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 345. TREATMENT OF AMOUNTS PAID TO SUPPORTING 
                   ORGANIZATIONS BY PRIVATE FOUNDATIONS.

       (a) Qualifying Distributions.--Paragraph (4) of section 
     4942(g) is amended to read as follows:
       ``(4) Limitation on distributions by nonoperating private 
     foundations to supporting organizations.--For purposes of 
     this section, the term `qualifying distribution' shall not 
     include any amount paid by a private foundation which is not 
     an operating foundation to an organization described in 
     section 509(a)(3).''.
       (b) Taxable Expenditures.--
       (1) In general.--Subsection (d) of section 4945 is amended 
     by redesignating paragraphs (4) and (5) as paragraphs (5) and 
     (6), respectively, and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) to an organization described in section 509(a)(3),''.
       (2) Conforming amendments.--
       (A) Section 4945(d)(5), as redesignated by subparagraph 
     (A), is amended--
       (i) by striking ``a grant to an organization'' and 
     inserting ``a grant to any other organization'', and
       (ii) by striking ``paragraph (1), (2), or (3) of section 
     509(a)'' in subparagraph (A) and inserting ``paragraph (1) or 
     (2) of section 509(a)''.
       (B) Section 4945(f) is amended by striking ``Subsection 
     (d)(4)'' in the last sentence thereof and inserting 
     ``Subsection (d)(5)''.
       (C) Section 4945(h) is amended by striking ``subsection 
     (d)(4)'' and inserting ``subsection (d)(5)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions and expenditures after the date 
     of the enactment of this Act.

     SEC. 346. RETURNS OF SUPPORTING ORGANIZATIONS.

       (a) Requirement To File Return.--Subparagraph (B) of 
     section 6033(a)(3), as redesignated by section 311, is 
     amended by inserting ``(other than an organization described 
     in section 509(a)(3))'' after ``paragraph (1)''.
       (b) Matters Included on Returns.--Section 6033, as amended 
     by section 334 of this Act, is amended by redesignating 
     subsection (i) as subsection (j) and by inserting after 
     subsection (h) the following new subsection:
       ``(i) Additional Provisions Relating to Supporting 
     Organizations.--
       ``(1) In general.--Every organization described in section 
     509(a)(3) shall, on the return required under subsection 
     (a)--
       ``(A) list the organizations described in section 
     509(a)(3)(A) with respect to which such organization provides 
     support,
       ``(B) indicate whether the organization meets the 
     requirements of clause (i), (ii), or (iii) of section 
     509(a)(3)(B), and
       ``(C) certify that the organization meets the requirements 
     of section 509(a)(3)(C).
       ``(2) Type iii supporting organizations.--Every type III 
     supporting organization (as defined in section 4959(h)(2)) 
     shall indicate on the return required under subsection (a) 
     for the taxable year whether the organization has received a 
     letter from each supported organization (as defined in 
     section 509(f)(3)) during the taxable year which--
       ``(A) acknowledges that the supporting organization has 
     designated such organization as a supported organization,
       ``(B) details the type of support provided by the 
     supporting organization, and
       ``(C) explains how such support furthers the charitable 
     purpose of the supported organization.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns filed for taxable years ending after 
     the date of the enactment of this Act.

                   TITLE IV--MISCELLANEOUS PROVISIONS

     SEC. 401. RESTRUCTURING OF NEW YORK LIBERTY ZONE TAX CREDITS.

       (a) In General.--Subchapter Y of chapter 1 is amended by 
     adding at the end the following new section:

     ``SEC. 1400M. NEW YORK LIBERTY ZONE TAX CREDITS.

       ``(a) In General.--There shall be allowed as a credit 
     against any taxes imposed by this title (other than by 
     section 3111(a), section 3403, or subtitle D) paid or 
     incurred by any governmental unit of the State of New York 
     and the City of New York, New York (including any agency or 
     instrumentality thereof) for any calendar year an amount 
     equal to the lesser of--
       ``(1) the total expenditures during such year by such 
     governmental unit for qualifying projects, or
       ``(2) the amount allocated to such governmental unit for 
     such calendar year under subsection (b)(2).
       ``(b) Qualifying Project.--For purposes of this section--
       ``(1) In general.--The term `qualifying project' means any 
     transportation infrastructure project, including highways, 
     mass transit systems, railroads, airports, ports, and 
     waterways, in or connecting with the New York Liberty Zone 
     (as defined in section 1400L(h)), which is designated as a 
     qualifying project under this section jointly by the Governor 
     of the State of New York and the Mayor of the City of New 
     York, New York.
       ``(2) Dollar limitation.--
       ``(A) In general.--The Governor of the State of New York 
     and the Mayor of the City of New York, New York, shall 
     jointly allocate to a governmental unit the amount of 
     expenditures which may be taken into account under subsection 
     (a) for any calendar year in the credit period with respect 
     to a qualifying project.
       ``(B) Aggregate limit.--The aggregate amount which may be 
     allocated under subparagraph (A) for all calendar years in 
     the credit period shall not exceed $2,000,000,000.
       ``(C) Annual limit.--The aggregate amount which may be 
     allocated under subparagraph (A) for any calendar year in the 
     credit period shall not exceed the sum of--
       ``(i) $200,000,000, plus
       ``(ii) the aggregate amount authorized to be allocated 
     under this paragraph for all preceding calendar years in the 
     credit period which was not so allocated.
       ``(D) Unallocated amounts at end of credit period.--If, as 
     of the close of the credit period, the amount under 
     subparagraph (B) exceeds the aggregate amount allocated under 
     subparagraph (A) for all calendar years in the credit period, 
     the Governor of the State of New York and the Mayor of the 
     City of New York, New York, may jointly allocate for any 
     calendar year following the credit period for expenditures 
     with respect to qualifying projects which may be taken into 
     account under subsection (a) an amount equal to such excess, 
     reduced by the aggregate amount allocated under this 
     subparagraph for all preceding calendar years.
       ``(c) Carryover of Unused Allocations.--
       ``(1) In general.--If the amount allocated under subsection 
     (b)(2) to a governmental unit for any calendar year exceeds 
     the total expenditures for such year by such governmental 
     unit for qualifying projects, the allocation of such 
     governmental unit for the succeeding calendar year shall be 
     increased by the amount of such excess.
       ``(2) Reallocation.--If a governmental unit does not use an 
     amount allocated to it under subsection (b)(2) within the 
     time prescribed by the Governor of the State of New York and 
     the Mayor of the City of New York, New York, then such amount 
     shall after such time be treated for purposes of subsection 
     (b)(2) in the same manner as if it had never been allocated.
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Credit period.--The term `credit period' means the 
     10-year period beginning on January 1, 2006.
       ``(2) Treatment of funds.--Any expenditure for a qualifying 
     project taken into account for purposes of the credit under 
     this section shall be considered State and local funds for 
     the purpose of any Federal program.
       ``(e) Regulations.--The Secretary may prescribe such 
     regulations as are necessary to ensure compliance with the 
     purposes of this section.''.
       (b) Termination of Certain New York Liberty Zone 
     Benefits.--
       (1) Special allowance and expensing.--Section 
     1400L(b)(2)(A)(v) is amended by striking ``the termination 
     date'' and inserting ``the date of the enactment of the Tax 
     Relief Act of 2005 or the termination date if pursuant to a 
     binding contract in effect on such enactment date''.
       (2) Leasehold.--Section 1400L(c)(2)(B) is amended by 
     striking ``before January 1, 2007'' and inserting ``on or 
     before the date of the enactment of the Tax Relief Act of 
     2005 or before January 1, 2007, if pursuant to a binding 
     contract in effect on such enactment date''.

[[Page S557]]

     SEC. 402. MODIFICATION TO S CORPORATION PASSIVE INVESTMENT 
                   INCOME RULES.

       (a) Increased Percentage Limit.--Paragraph (2) of section 
     1375(a) is amended by striking ``25 percent'' and inserting 
     ``60 percent''.
       (b) Repeal of Excessive Passive Income as a Termination 
     Event.--
       (1) In general.--Section 1362(d) is amended by striking 
     paragraph (3).
       (2) Conforming amendment.--Subsection (b) of section 1375 
     is amended by striking paragraphs (3) and (4) and inserting 
     the following new paragraph:
       ``(3) Passive investment income defined.--
       ``(A) Except as otherwise provided in this paragraph, the 
     term `passive investment income' means gross receipts derived 
     from royalties, rents, dividends, interest, and annuities.
       ``(B) Exception for interest on notes from sales of 
     inventory.--The term `passive investment income' shall not 
     include interest on any obligation acquired in the ordinary 
     course of the corporation's trade or business from its sale 
     of property described in section 1221(a)(1).
       ``(C) Treatment of certain lending or finance companies.--
     If the S corporation meets the requirements of section 
     542(c)(6) for the taxable year, the term `passive investment 
     income' shall not include gross receipts for the taxable year 
     which are derived directly from the active and regular 
     conduct of a lending or finance business (as defined in 
     section 542(d)(1)).
       ``(D) Treatment of certain dividends.--If an S corporation 
     holds stock in a C corporation meeting the requirements of 
     section 1504(a)(2), the term `passive investment income' 
     shall not include dividends from such C corporation to the 
     extent such dividends are attributable to the earnings and 
     profits of such C corporation derived from the active conduct 
     of a trade or business.
       ``(E) Exception for banks, etc.--In the case of a bank (as 
     defined in section 581), a bank holding company (within the 
     meaning of section 2(a) of the Bank Holding Company Act of 
     1956 (12 U.S.C. 1841(a))), or a financial holding company 
     (within the meaning of section 2(p) of such Act), the term 
     `passive investment income' shall not include--
       ``(i) interest income earned by such bank or company, or
       ``(ii) dividends on assets required to be held by such bank 
     or company, including stock in the Federal Reserve Bank, the 
     Federal Home Loan Bank, or the Federal Agricultural Mortgage 
     Bank or participation certificates issued by a Federal 
     Intermediate Credit Bank.
       ``(F) Coordination with section 1374.--The amount of 
     passive investment income shall be determined by not taking 
     into account any recognized built-in gain or loss of the S 
     corporation for any taxable year in the recognition period. 
     Terms used in the preceding sentence shall have the same 
     respective meanings as when used in section 1374.''.
       (c) Conforming Amendments.--
       (1) Subparagraph (J) of section 26(b)(2) is amended by 
     striking ``25 percent'' and inserting ``60 percent''.
       (2) Clause (i) of section 1042(c)(4)(A) is amended by 
     striking ``section 1362(d)(3)(C)'' and inserting ``section 
     1375(b)(3)''.
       (3) Subparagraph (B) of section 1362(f)(1) is amended by 
     striking ``or (3)''.
       (4) Clause (i) of section 1375(b)(1)(A) is amended by 
     striking ``25 percent'' and inserting ``60 percent''.
       (5) Subsection (d) of section 1375 is amended by striking 
     ``subchapter C'' both places it appears and inserting 
     ``accumulated''.
       (6) The heading for section 1375 is amended by striking 
     ``25 percent'' and inserting ``60 percent''.
       (7) The item relating to section 1375 in the table of 
     sections for part III of subchapter S of chapter 1 is amended 
     by striking ``25 percent'' and inserting ``60 percent''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 403. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF 
                   CERTAIN CAPITAL EXPENDITURES FOR PURPOSES OF 
                   QUALIFIED SMALL ISSUE BONDS.

       (a) In General.--Section 144(a)(4)(G) is amended by 
     striking ``September 30, 2009'' and inserting ``December 31, 
     2006''.
       (b) Conforming Amendment.--Section 144(a)(4)(F) is amended 
     by striking ``September 30, 2009'' and inserting ``December 
     31, 2006''.

     SEC. 404. PREMIUMS FOR MORTGAGE INSURANCE.

       (a) In General.--Section 163(h)(3) (relating to qualified 
     residence interest) is amended by adding at the end the 
     following new subparagraph:
       ``(E) Mortgage insurance premiums treated as interest.--
       ``(i) In general.--Premiums paid or accrued for qualified 
     mortgage insurance by a taxpayer during the taxable year in 
     connection with acquisition indebtedness with respect to a 
     qualified residence of the taxpayer shall be treated for 
     purposes of this section as interest which is qualified 
     residence interest.
       ``(ii) Phaseout.--The amount otherwise treated as interest 
     under clause (i) shall be reduced (but not below zero) by 10 
     percent of such amount for each $1,000 ($500 in the case of a 
     married individual filing a separate return) (or fraction 
     thereof) that the taxpayer's adjusted gross income for the 
     taxable year exceeds $100,000 ($50,000 in the case of a 
     married individual filing a separate return).''.
       (b) Definition and Special Rules.--Section 163(h)(4) 
     (relating to other definitions and special rules) is amended 
     by adding at the end the following new subparagraphs:
       ``(E) Qualified mortgage insurance.--The term `qualified 
     mortgage insurance' means--
       ``(i) mortgage insurance provided by the Veterans 
     Administration, the Federal Housing Administration, or the 
     Rural Housing Administration, and
       ``(ii) private mortgage insurance (as defined by section 2 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as 
     in effect on the date of the enactment of this subparagraph).
       ``(F) Special rules for prepaid qualified mortgage 
     insurance.--Any amount paid by the taxpayer for qualified 
     mortgage insurance that is properly allocable to any mortgage 
     the payment of which extends to periods that are after the 
     close of the taxable year in which such amount is paid shall 
     be chargeable to capital account and shall be treated as paid 
     in such periods to which so allocated. No deduction shall be 
     allowed for the unamortized balance of such account if such 
     mortgage is satisfied before the end of its term. The 
     preceding sentences shall not apply to amounts paid for 
     qualified mortgage insurance provided by the Veterans 
     Administration or the Rural Housing Administration.''.
       (c) Information Returns Relating to Mortgage Insurance.--
     Section 6050H (relating to returns relating to mortgage 
     interest received in trade or business from individuals) is 
     amended by adding at the end the following new subsection:
       ``(h) Returns Relating to Mortgage Insurance Premiums.--
       ``(1) In general.--The Secretary may prescribe, by 
     regulations, that any person who, in the course of a trade or 
     business, receives from any individual premiums for mortgage 
     insurance aggregating $600 or more for any calendar year, 
     shall make a return with respect to each such individual. 
     Such return shall be in such form, shall be made at such 
     time, and shall contain such information as the Secretary may 
     prescribe.
       ``(2) Statement to be furnished to individuals with respect 
     to whom information is required.--Every person required to 
     make a return under paragraph (1) shall furnish to each 
     individual with respect to whom a return is made a written 
     statement showing such information as the Secretary may 
     prescribe. Such written statement shall be furnished on or 
     before January 31 of the year following the calendar year for 
     which the return under paragraph (1) was required to be made.
       ``(3) Special rules.--For purposes of this subsection--
       ``(A) rules similar to the rules of subsection (c) shall 
     apply, and
       ``(B) the term `mortgage insurance' means--
       ``(i) mortgage insurance provided by the Veterans 
     Administration, the Federal Housing Administration, or the 
     Rural Housing Administration, and
       ``(ii) private mortgage insurance (as defined by section 2 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as 
     in effect on the date of the enactment of this 
     subsection).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued during the period 
     beginning after December 31, 2006, and before January 1, 
     2008, and properly allocable to such period, with respect to 
     mortgage insurance contracts issued after December 31, 2006.

     SEC. 405. SENSE OF THE SENATE ON USE OF NO-BID CONTRACTING BY 
                   FEDERAL EMERGENCY MANAGEMENT AGENCY.

       (a) Findings.--The Senate finds that--
       (1) on September 8, 2005, the Federal Emergency Management 
     Agency announced that it had awarded 4 contracts for 
     emergency housing relief following Hurricane Katrina to The 
     Shaw Group of Baton Rouge, Louisiana, Fluor Corporation of 
     Aliso Viejo, California, Bechtel National of San Francisco, 
     California, and CH2M Hill of Denver, Colorado;
       (2) these contracts were awarded with no competition from 
     other capable firms, and up to $100,000,000 in taxpayer funds 
     were authorized for each of these contracts;
       (3) in the midst of concerns about abusive and 
     irresponsible spending of taxpayer funds, the Federal 
     Emergency Management Agency pledged to re-bid these 
     noncompetitive contracts, with Acting Under Secretary of 
     Emergency Preparedness and Response, R. David Paulison, 
     stating before the Committee on Homeland Security and 
     Government Affairs of the Senate that ``[a]ll of these no-bid 
     contracts, we are going to go back and re-bid'';
       (4) the Federal Emergency Management Agency has yet to 
     reopen these 4 contracts to competitive bidding, and declared 
     on November 11, 2005, that these contracts would not be 
     reopened for bidding until February 2006;
       (5) by February 2006, the majority of the contracts will 
     have been completed and the majority of taxpayer funds will 
     have been spent;
       (6) large and politically-connected firms continue to 
     benefit from no-bid and limited-competition contracts, and 
     contracts are not being awarded to capable, local companies;
       (7) according to an analysis in the Washington Post, 
     companies outside the States

[[Page S558]]

     most affected by Hurricane Katrina have received more than 90 
     percent of the Federal contracts for recovery and 
     reconstruction;
       (8) the monitoring of Federal contracting practices remains 
     difficult, with a report by the San Jose Mercury News stating 
     ``The database of contracts is incomplete. Information 
     released by Federal agencies is spotty and sporadic. And 
     disclosure of many no-bid contracts isn't required by law''; 
     and
       (9)(A) there is currently no Chief Financial Officer 
     charged with monitoring the flow of all funds to the affected 
     areas; and
       (B) the task of financial management is spread across 
     disparate Federal departments and agencies with inadequate 
     oversight of taxpayer funds.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that the Federal Emergency Management Agency should--
       (1) immediately rebid noncompetitive contracts entered into 
     following Hurricane Katrina, consistent with the commitment 
     of the Agency made on October 6, 2005, before millions of 
     taxpayer dollars are wasted on irresponsible and inefficient 
     spending;
       (2)(A) immediately implement the planned competitive 
     contracting strategy of the Agency for recovery work in all 
     current and future reconstruction efforts; and
       (B) in carrying out that strategy, should prioritize local 
     and small disadvantaged businesses in the contracting and 
     subcontracting process; and
       (3) immediately after the awarding of a contract, publicly 
     disclose the amount and competitive or noncompetitive nature 
     of the contract.

     SEC. 406. DISABILITY PREFERENCE PROGRAM FOR TAX COLLECTION 
                   CONTRACTS.

       (a) In General.--The Secretary of the Treasury shall not 
     enter into any qualified tax collection contract after April 
     1, 2006, until the Secretary implements a disability 
     preference program that meets the requirements of subsection 
     (b).
       (b) Disability Preference Program Requirements.--
       (1) In general.--A disability preference program meets the 
     requirements of this subsection if such program requires that 
     not less than 10 percent of the accounts of each dollar value 
     category are awarded to persons described in paragraph (2).
       (2) Person described.--For purposes of paragraph (1), a 
     person is described in this paragraph if--
       (A) as of the date any qualified tax collection contract is 
     awarded--
       (i) such person employs not less than 50 severely disabled 
     individuals within the United States; or
       (ii) not less than 30 percent of the employees of such 
     person within the United States are severely disabled 
     individuals;
       (B) such person agrees as a condition of the qualified tax 
     collection contract that not more than 90 days after the date 
     such contract is awarded, not less than 35 percent of the 
     employees of such person employed in connection with 
     providing services under such contract shall--
       (i) be hired after the date such contract is awarded; and
       (ii) be severely disabled individuals; and
       (C) such person is otherwise qualified to perform the 
     services required.
       (c) Definitions.--For purposes of this section--
       (1) Qualified tax collection contract.--The term 
     ``qualified tax collection contract'' shall have the meaning 
     given such term under section 6306(b) of the Internal Revenue 
     Code of 1986.
       (2) Dollar value category.--The term ``dollar value 
     category'' means the dollar ranges of accounts for collection 
     as determined and assigned by the Secretary under section 
     6306(b)(1)(B) of the Internal Revenue Code of 1986 with 
     respect to a qualified tax collection contract.
       (3) Severely disabled individual.--The term ``severely 
     disabled individual'' means--
       (A) a veteran of the United States armed forces with a 
     disability of 50 percent or greater--
       (i) determined by the Secretary of Veterans Affairs to be 
     service-connected; or
       (ii) deemed by law to be service-connected; or
       (B) any individual who is a disabled beneficiary (as 
     defined in section 1148(k)(2) of the Social Security Act (42 
     U.S.C. 1320b-19(k)(2))) or who would be considered to be such 
     a disabled beneficiary but for having income or resources in 
     excess of the income or resources eligibility limits 
     established under title XVI of the Social Security Act (42 
     U.S.C. 1381 et seq.), respectively.

     SEC. 407. SENSE OF CONGRESS REGARDING DOHA ROUND.

       (a) Findings.--The Congress makes the following findings:
       (1) Members of the World Trade Organization (WTO) are 
     currently engaged in a round of trade negotiations known as 
     the Doha Development Agenda (Doha Round).
       (2) The Doha Round includes negotiations aimed at 
     clarifying and improving disciplines under the Agreement on 
     Implementation of Article VI of the General Agreement on 
     Tariffs and Trade 1994 (Antidumping Agreement) and the 
     Agreement on Subsidies and Countervailing Measures (Subsidies 
     Agreement).
       (3) The WTO Ministerial Declaration adopted on November 14, 
     2001 (WTO Paper No. WT/MIN(01)/DEC/1) specifically provides 
     that the Doha Round negotiations are to preserve the ``basic 
     concepts, principles and effectiveness'' of the Antidumping 
     Agreement and the Subsidies Agreement.
       (4) In section 2102(b)(14)(A) of the Bipartisan Trade 
     Promotion Authority Act of 2002, the Congress mandated that 
     the principal negotiating objective of the United States with 
     respect to trade remedy laws was to ``preserve the ability of 
     the United States to enforce rigorously its trade laws . . . 
     and avoid agreements that lessen the effectiveness of 
     domestic and international disciplines on unfair trade, 
     especially dumping and subsidies''.
       (5) The countries that have been the most persistent and 
     egregious violators of international fair trade rules are 
     engaged in an aggressive effort to significantly weaken the 
     disciplines provided in the Antidumping Agreement and the 
     Subsidies Agreement and undermine the ability of the United 
     States to effectively enforce its trade remedy laws.
       (6) Chronic violators of fair trade disciplines have put 
     forward proposals that would substantially weaken United 
     States trade remedy laws and practices, including mandating 
     that unfair trade orders terminate after a set number of 
     years even if unfair trade and injury are likely to recur, 
     mandating that trade remedy duties reflect less than the full 
     margin of dumping or subsidization, mandating higher de 
     minimis levels of unfair trade, making cumulation of the 
     effects of imports from multiple countries more difficult in 
     unfair trade investigations, outlawing the critical practice 
     of ``zeroing'' in antidumping investigations, mandating the 
     weighing of causes, and mandating other provisions that make 
     it more difficult to prove injury.
       (7) United States trade remedy laws have already been 
     significantly weakened by numerous unjust and activist WTO 
     dispute settlement decisions which have created new 
     obligations to which the United States never agreed.
       (8) Trade remedy laws remain a critical resource for 
     American manufacturers, agricultural producers, and 
     aquacultural producers in responding to closed foreign 
     markets, subsidized imports, and other forms of unfair trade, 
     particularly in the context of the challenges currently faced 
     by these vital sectors of the United States economy.
       (9) The United States had a current account trade deficit 
     of approximately $668,000,000,000 in 2004, including a trade 
     deficit of almost $162,000,000,000 with China alone, as well 
     as a trade deficit of $40,000,000,000 in advanced technology.
       (10) United States manufacturers have lost over 3,000,000 
     jobs since June 2000, and United States manufacturing 
     employment is currently at its lowest level since 1950.
       (11) Many industries critical to United States national 
     security are at severe risk from unfair foreign competition.
       (12) The Congress strongly believes that the proposals put 
     forward by countries seeking to undermine trade remedy 
     disciplines in the Doha Round would result in serious harm to 
     the United States economy, including significant job losses 
     and trade disadvantages.
       (b) Sense of Congress.--It is the sense of Congress that--
       (1) the United States should not be a signatory to any 
     agreement or protocol with respect to the Doha Development 
     Round of the World Trade Organization negotiations, or any 
     other bilateral or multilateral trade negotiations, that--
       (A) adopts any proposal to lessen the effectiveness of 
     domestic and international disciplines on unfair trade or 
     safeguard provisions, including proposals--
       (i) mandating that unfair trade orders terminate after a 
     set number of years even if unfair trade and injury are 
     likely to recur;
       (ii) mandating that trade remedy duties reflect less than 
     the full margin of dumping or subsidization;
       (iii) mandating higher de minimis levels of unfair trade;
       (iv) making cumulation of the effects of imports from 
     multiple countries more difficult in unfair trade 
     investigations;
       (v) outlawing the critical practice of ``zeroing'' in 
     antidumping investigations; or
       (vi) mandating the weighing of causes or other provisions 
     making it more difficult to prove injury in unfair trade 
     cases; and
       (B) would lessen in any manner the ability of the United 
     States to enforce rigorously its trade laws, including the 
     antidumping, countervailing duty, and safeguard laws;
       (2) the United States trade laws and international rules 
     appropriately serve the public interest by offsetting 
     injurious unfair trade, and that further ``balancing 
     modifications'' or other similar provisions are unnecessary 
     and would add to the complexity and difficulty of achieving 
     relief against injurious unfair trade practices; and
       (3) the United States should ensure that any new agreement 
     relating to international disciplines on unfair trade or 
     safeguard provisions fully rectifies and corrects decisions 
     by WTO dispute settlement panels or the Appellate Body that 
     have unjustifiably and negatively impacted, or threaten to 
     negatively impact, United States law or practice, including a 
     law or practice with respect to foreign dumping or 
     subsidization.

     SEC. 408. MODIFICATION OF BOND RULE.

       In the case of bonds issued after the date of the enactment 
     of this Act and before August 31, 2009--
       (1) the requirement of paragraph (1) of section 648 of the 
     Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated 
     as met with respect to the securities or obligations referred

[[Page S559]]

     to in such section if such securities or obligations are held 
     in a fund the annual distributions from which cannot exceed 7 
     percent of the average fair market value of the assets held 
     in such fund except to the extent distributions are necessary 
     to pay debt service on the bond issue,
       (2) paragraph (3) of such section shall be applied by 
     substituting ``distributions from'' for ``the investment 
     earnings of'' both places it appears, and
       (3) Paragraph (4) of such section shall be applied by 
     substituting ``March 1, 1985'' for ``October 9, 1969''.

     SEC. 409. TREATMENT OF CERTAIN STOCK OPTION PLANS UNDER 
                   NONQUALIFIED DEFERRED COMPENSATION RULES.

       (a) In General.--The Secretary of the Treasury shall modify 
     the regulations under section 409A of the Internal Revenue 
     Code of 1986 to extend to applicable foreign option plans the 
     exception under such section for incentive stock options 
     under section 422 of such Code and options granted under an 
     employee stock purchase plan meeting the requirements of 
     section 423 of such Code. Such extension shall be subject to 
     such terms and conditions as may be prescribed in such 
     regulations.
       (b) Applicable Foreign Option Plans.--For purposes of 
     subsection (a)--
       (1) In general.--The term ``applicable foreign option 
     plan'' means a plan providing for the issuance of employee 
     stock options--
       (A) which is established under the laws of a foreign 
     jurisdiction, and
       (B) which, under such laws or the terms of the plan (or 
     both), is subject to requirements substantially similar to 
     the requirements under section 422 or 423 of such Code.
       (2) Substantially similar.--A plan shall not be treated as 
     subject to substantially similar requirements under paragraph 
     (1)(B) unless--
       (A) the plan is required to cover substantially all 
     employees,
       (B) in the case of an option under an employee stock 
     purchase plan, the plan is required to provide an option 
     price which is not less than the amount specified in section 
     423(b)(6) of such Code, except that such section shall be 
     applied by substituting ``80 percent'' for ``85 percent'' 
     each place it appears,
       (C) the plan is required to provide coverage of individuals 
     who, but for the exception of the application of section 409A 
     of such Code by reason of this section, would be subject to 
     tax under such section with respect to the plan, and
       (D) the plan meets such other requirements as the Secretary 
     of the Treasury prescribes in the regulations under 
     subsection (a).

     SEC. 410. SENSE OF THE SENATE REGARDING THE DEDICATION OF 
                   EXCESS FUNDS.

       It is the sense of the Senate that any increases in 
     revenues to the Treasury as a result of this Act and the 
     amendments made by this Act that exceed the amounts specified 
     in the reconciliation instructions shall be dedicated to the 
     Low-Income Home Energy Assistance Program, in an amount not 
     to exceed the amount which is $2,900,000,000 more than the 
     funding levels established for such Program for fiscal year 
     2005.

                   TITLE V--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 501. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

       (a) Standards Conformed to Taxpayer Standards.--Section 
     6694(a) (relating to understatements due to unrealistic 
     positions) is amended--
       (1) by striking ``realistic possibility of being sustained 
     on its merits'' in paragraph (1) and inserting ``reasonable 
     belief that the tax treatment in such position was more 
     likely than not the proper treatment'',
       (2) by striking ``or was frivolous'' in paragraph (3) and 
     inserting ``or there was no reasonable basis for the tax 
     treatment of such position'', and
       (3) by striking ``Unrealistic'' in the heading and 
     inserting ``Improper''.
       (b) Amount of Penalty.--Section 6694 is amended--
       (1) by striking ``$250'' in subsection (a) and inserting 
     ``$1,000'', and
       (2) by striking ``$1,000'' in subsection (b) and inserting 
     ``$5,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to documents prepared after the date of the 
     enactment of this Act.

     SEC. 502. MODIFICATION OF EFFECTIVE DATE OF EXCEPTION FROM 
                   SUSPENSION RULES FOR CERTAIN LISTED AND 
                   REPORTABLE TRANSACTIONS.

       (a) Effective Date Modification.--
       (1) In general.--Paragraph (2) of section 903(d) of the 
     American Jobs Creation Act of 2004 is amended to read as 
     follows:
       ``(2) Exception for reportable or listed transactions.--
       ``(A) In general.--The amendments made by subsection (c) 
     shall apply with respect to interest accruing after October 
     3, 2004.
       ``(B) Special rule for certain listed and reportable 
     transactions.--
       ``(i) In general.--Except as provided in clause (ii), the 
     amendments made by subsection (c) shall also apply with 
     respect to interest accruing on or before October 3, 2004.
       ``(ii) Participants in settlement initiatives.--Clause (i) 
     shall not apply to any transaction if, as of January 23, 
     2006--

       ``(I) the taxpayer is participating in a settlement 
     initiative described in Internal Revenue Service Announcement 
     2005-80 with respect to such transaction, or
       ``(II) the taxpayer has entered into a settlement agreement 
     pursuant to such an initiative.

       ``(iii) Termination of exception.--Clause (ii)(I) shall not 
     apply to any taxpayer if, after January 23, 2006, the 
     taxpayer withdraws from, or terminates, participation in the 
     initiative or the Secretary of the Treasury or the 
     Secretary's delegate determines that a settlement agreement 
     will not be reached pursuant to the initiative within a 
     reasonable period of time.''.
       (2) Effective date.--The amendment made by this subsection 
     shall take effect as if included in the provisions of the 
     American Jobs Creation Act of 2004 to which it relates.
       (b) Treatment of Amended Returns and Other Similar Notices 
     of Additional Tax Owed.--
       (1) In general.--Section 6404(g)(1) (relating to 
     suspension) is amended by adding at the end the following new 
     sentence: ``If, after the return for a taxable year is filed, 
     the taxpayer provides to the Secretary one or more signed 
     written documents showing that the taxpayer owes an 
     additional amount of tax for the taxable year, clause (i) 
     shall be applied by substituting the date the last of the 
     documents was provided for the date on which the return is 
     filed.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to documents provided on or after the date of the 
     enactment of this Act.

     SEC. 503. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

       ``(ii) an application under--

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

       ``(3) Opportunity to withdraw submission.--If the Secretary 
     provides a person with notice that a submission is a 
     specified frivolous submission and such person withdraws such 
     submission within 30 days after such notice, the penalty 
     imposed under paragraph (1) shall not apply with respect to 
     such submission.
       ``(c) Listing of Frivolous Positions.--The Secretary shall 
     prescribe (and periodically revise) a list of positions which 
     the Secretary has identified as being frivolous for purposes 
     of this subsection. The Secretary shall not include in such 
     list any position that the Secretary determines meets the 
     requirement of section 6662(d)(2)(B)(ii)(II).
       ``(d) Reduction of Penalty.--The Secretary may reduce the 
     amount of any penalty imposed under this section if the 
     Secretary determines that such reduction would promote 
     compliance with and administration of the Federal tax laws.
       ``(e) Penalties in Addition to Other Penalties.--The 
     penalties imposed by this section shall be in addition to any 
     other penalty provided by law.''.
       (b) Treatment of Frivolous Requests for Hearings Before 
     Levy.--
       (1) Frivolous requests disregarded.--Section 6330 (relating 
     to notice and opportunity for hearing before levy) is amended 
     by adding at the end the following new subsection:
       ``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding 
     any other provision of this section, if the Secretary 
     determines that any portion of a request for a hearing under 
     this section or section 6320 meets the requirement of clause 
     (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
     treat

[[Page S560]]

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

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

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

     SEC. 504. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

       (a) Penalty for Promoting Abusive Tax Shelters.--Section 
     6700 (relating to promoting abusive tax shelters, etc.) is 
     amended--
       (1) by redesignating subsections (b) and (c) as subsections 
     (d) and (e), respectively,
       (2) by striking ``a penalty'' and all that follows through 
     the period in the first sentence of subsection (a) and 
     inserting ``a penalty determined under subsection (b)'', and
       (3) by inserting after subsection (a) the following new 
     subsections:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall be 100 percent of the gross income 
     derived (or to be derived) from such activity by the person 
     or persons subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of an activity described in 
     subsection (a), each instance in which income was derived by 
     the person or persons subject to such penalty, and each 
     person who participated in such an activity.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to such activity, 
     all such persons shall be jointly and severally liable for 
     the penalty under such subsection.
       ``(c) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     considered an ordinary and necessary expense in carrying on a 
     trade or business for purposes of this title and shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (b) Conforming Amendment.--Section 6700(a) is amended by 
     striking the last sentence.
       (c) Effective Date.--The amendments made by this section 
     shall apply to the activities described in paragraphs (1) and 
     (2) of section 6700(a) of the Internal Revenue Code of 1986 
     and after the date of the enactment of this Act.

     SEC. 505. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT 
                   OF TAX LIABILITY.

       (a) In General.--Section 6701(a) (relating to imposition of 
     penalty) is amended--
       (1) by inserting ``, or tax liability reflected in,'' after 
     ``the preparation or presentation of'' in paragraph (1),
       (2) by inserting ``aid, assistance, procurement, or advice 
     with respect to such'' before ``portion'' both places it 
     appears in paragraphs (2) and (3), and
       (3) by inserting ``instance of aid, assistance, 
     procurement, or advice or each such'' before ``document'' in 
     the matter following paragraph (3).
       (b) Amount of Penalty.--Subsection (b) of section 6701 
     (relating to penalties for aiding and abetting understatement 
     of tax liability) is amended to read as follows:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall be 100 percent of the gross income 
     derived (or to be derived) from such aid, assistance, 
     procurement, or advice provided by the person or persons 
     subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of aid, assistance, procurement, or 
     advice described in subsection (a), each instance in which 
     income was derived by the person or persons subject to such 
     penalty, and each person who made such an understatement of 
     the liability for tax.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to providing such 
     aid, assistance, procurement, or advice, all such persons 
     shall be jointly and severally liable for the penalty under 
     such subsection.''.
       (c) Penalty Not Deductible.--Section 6701 is amended by 
     adding at the end the following new subsection:
       ``(g) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     considered an ordinary and necessary expense in carrying on a 
     trade or business for purposes of this title and shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to the activities described in section 6701(a) of 
     the Internal Revenue Code of 1986 after the date of the 
     enactment of this Act.

                Subtitle B--Economic Substance Doctrine

     SEC. 511. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).
       ``(2) Special rules for transactions with tax-indifferent 
     parties.--
       ``(A) Special rules for financing transactions.--The form 
     of a transaction which is in substance the borrowing of money 
     or the acquisition of financial capital directly or 
     indirectly from a tax-indifferent party shall not be 
     respected if the present value of the deductions to be 
     claimed with respect to the transaction is substantially in 
     excess of the present value of the anticipated economic 
     returns of the person lending the money or providing the 
     financial capital. A public offering shall be treated as a 
     borrowing, or an acquisition of financial capital, from a 
     tax-indifferent party if it is reasonably expected that at 
     least 50 percent of the offering will be placed with tax-
     indifferent parties.
       ``(B) Artificial income shifting and basis adjustments.--
     The form of a transaction with a tax-indifferent party shall 
     not be respected if--
       ``(i) it results in an allocation of income or gain to the 
     tax-indifferent party in excess of such party's economic 
     income or gain, or
       ``(ii) it results in a basis adjustment or shifting of 
     basis on account of overstating the income or gain of the 
     tax-indifferent party.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or

[[Page S561]]

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

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

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

     SEC. 512. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

     ``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable to Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2) and 
     (3) of section 6707A(d) shall apply for purposes of paragraph 
     (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

       ``(1) For coordination of penalty with understatements 
     under section 6662 and other special rules, see section 
     6662A(e).
       ``(2) For reporting of penalty imposed under this section 
     to the Securities and Exchange Commission, see section 
     6707A(e).''.

       (b) Coordination With Other Understatements and 
     Penalties.--
       (1) The second sentence of section 6662(d)(2)(A) is amended 
     by inserting ``and without regard to items with respect to 
     which a penalty is imposed by section 6662B'' before the 
     period at the end.
       (2) Subsection (e) of section 6662A is amended--
       (A) in paragraph (1), by inserting ``and noneconomic 
     substance transaction understatements'' after ``reportable 
     transaction understatements'' both places it appears,
       (B) in paragraph (2)(A), by inserting ``and a noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'',
       (C) in paragraph (2)(B), by inserting ``6662B or'' before 
     ``6663'',
       (D) in paragraph (2)(C)(i), by inserting ``or section 
     6662B'' before the period at the end,
       (E) in paragraph (2)(C)(ii), by inserting ``and section 
     6662B'' after ``This section'',
       (F) in paragraph (3), by inserting ``or noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'', and
       (G) by adding at the end the following new paragraph:
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).''.
       (3) Subsection (e) of section 6707A is amended--
       (A) by striking ``or'' at the end of subparagraph (B), and
       (B) by striking subparagraph (C) and inserting the 
     following new subparagraphs:
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction, or
       ``(D) is required to pay a penalty under section 6662(h) 
     with respect to any transaction and would (but for section 
     6662A(e)(2)(C)) have been subject to penalty under section 
     6662A at a rate prescribed under section 6662A(c) or under 
     section 6662B,''.
       (c) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

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

     SEC. 513. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONECONOMIC SUBSTANCE 
                   TRANSACTIONS.

       (a) In General.--Section 163(m) (relating to interest on 
     unpaid taxes attributable to nondisclosed reportable 
     transactions) is amended--
       (1) by striking ``attributable'' and all that follows and 
     inserting the following: ``attributable to--
       ``(1) the portion of any reportable transaction 
     understatement (as defined in section 6662A(b)) with respect 
     to which the requirement of section 6664(d)(2)(A) is not met, 
     or
       ``(2) any noneconomic substance transaction understatement 
     (as defined in section 6662B(c)).'', and
       (2) by inserting ``and Noneconomic Substance Transactions'' 
     in the heading thereof after ``Transactions''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act in taxable years ending after such date.

   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

     SEC. 521. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING 
                   AUTOMATED WITHDRAWALS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following:
       ``(e) Waiver of User Fees for Installment Agreements Using 
     Automated Withdrawals.--In the case of a taxpayer who enters 
     into an installment agreement in which automated installment 
     payments are agreed to, the Secretary shall waive the fee (if 
     any) for entering into the installment agreement.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     which is 180 days after the date of the enactment of this 
     Act.

     SEC. 522. TERMINATION OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159(b)(4) (relating to failure to 
     pay an installment or any other tax liability when due or to 
     provide requested financial information) is amended by 
     striking ``or'' at the end of subparagraph (B), by 
     redesignating subparagraph (C) as subparagraph (E), and by 
     inserting after subparagraph (B) the following:
       ``(C) to make a Federal tax deposit under section 6302 at 
     the time such deposit is required to be made,
       ``(D) to file a return of tax imposed under this title by 
     its due date (including extensions), or''.
       (b) Conforming Amendment.--The heading for section 
     6159(b)(4) is amended by striking ``Failure to pay an 
     installment or any other tax liability when due or to provide 
     requested financial information'' and inserting ``Failure to 
     make payments or deposits or file returns when due or to 
     provide requested financial information''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to failures occurring on or after the date of the 
     enactment of this Act.

     SEC. 523. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF 
                   OFFERS-IN-COMPROMISE.

       (a) In General.--Section 7122 (relating to compromises), as 
     amended by this Act, is amended by redesignating subsections 
     (c), (d), and (e) as subsections (d), (e), and (f), 
     respectively, and by inserting after subsection (b) the 
     following new subsection:

[[Page S562]]

       ``(c) Rules for Submission of Offers-in-Compromise.--
       ``(1) Partial payment required with submission.--
       ``(A) Lump-sum offers.--
       ``(i) In general.--The submission of any lump-sum offer-in-
     compromise shall be accompanied by the payment of 20 percent 
     of amount of such offer.
       ``(ii) Lump-sum offer-in-compromise.--For purposes of this 
     section, the term `lump-sum offer-in-compromise' means any 
     offer of payments made in 5 or fewer installments.
       ``(B) Periodic payment offers.--The submission of any 
     periodic payment offer-in-compromise shall be accompanied by 
     the payment of the amount of the first proposed installment 
     and each proposed installment due during the period such 
     offer is being evaluated for acceptance and has not been 
     rejected by the Secretary. Any failure to make a payment 
     required under the preceding sentence shall be deemed a 
     withdrawal of the offer-in-compromise.
       ``(2) Rules of application.--
       ``(A) Use of payment.--The application of any payment made 
     under this subsection to the assessed tax or other amounts 
     imposed under this title with respect to such tax may be 
     specified by the taxpayer.
       ``(B) No user fee imposed.--Any user fee which would 
     otherwise be imposed under this section shall not be imposed 
     on any offer-in-compromise accompanied by a payment required 
     under this subsection.
       ``(C) Waiver authority.--The Secretary may issue 
     regulations waiving any payment required under paragraph (1) 
     in a manner consistent with the practices established in 
     accordance with the requirements under subsection (d)(3).''.
       (b) Additional Rules Relating to Treatment of Offers.--
       (1) Unprocessable offer if payment requirements are not 
     met.--Paragraph (3) of section 7122(d) (relating to standards 
     for evaluation of offers), as redesignated by subsection (a), 
     is amended by striking ``; and'' at the end of subparagraph 
     (A) and inserting a comma, by striking the period at the end 
     of subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any offer-in-compromise which does not meet the 
     requirements of subsection (c) shall be returned to the 
     taxpayer as unprocessable.''.
       (2) Deemed acceptance of offer not rejected within certain 
     period.--Section 7122, as amended by subsection (a), is 
     amended by adding at the end the following new subsection:
       ``(g) Deemed Acceptance of Offer Not Rejected Within 
     Certain Period.--Any offer-in-compromise submitted under this 
     section shall be deemed to be accepted by the Secretary if 
     such offer is not rejected by the Secretary before the date 
     which is 24 months after the date of the submission of such 
     offer (12 months for offers-in-compromise submitted after the 
     date which is 5 years after the date of the enactment of this 
     subsection). For purposes of the preceding sentence, any 
     period during which any tax liability which is the subject of 
     such offer-in-compromise is in dispute in any judicial 
     proceeding shall not be taken in to account in determining 
     the expiration of the 24-month period (or 12-month period, if 
     applicable).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted on and after 
     the date which is 60 days after the date of the enactment of 
     this Act.

                    Subtitle D--Penalties and Fines

     SEC. 531. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) IN 
     GENERAL.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``Any person'' and inserting the following:
       ``(a) In General.--Any person'', and
       (ii) by striking ``$25,000'' and inserting ``$50,000'',
       (B) in the third sentence, by striking ``section'' and 
     inserting ``subsection'', and
       (C) by adding at the end the following new subsection:
       ``(b) Aggravated Failure to File.--
       ``(1) In general.--In the case of any failure described in 
     paragraph (2), the first sentence of subsection (a) shall be 
     applied by substituting--
       ``(A) `felony' for `misdemeanor',
       ``(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and
       ``(C) `10 years' for `1 year'.
       ``(2) Failure described.--A failure described in this 
     paragraph is a failure to make a return described in 
     subsection (a) for a period of 3 or more consecutive taxable 
     years.''.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to actions, and failures to act, occurring after 
     the date of the enactment of this Act.

     SEC. 532. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) Determination of Penalty.--
       (1) In general.--Notwithstanding any other provision of 
     law, in the case of an applicable taxpayer--
       (A) the determination as to whether any interest or 
     applicable penalty is to be imposed with respect to any 
     arrangement described in paragraph (2), or to any 
     underpayment of Federal income tax attributable to items 
     arising in connection with any such arrangement, shall be 
     made without regard to the rules of subsections (b), (c), and 
     (d) of section 6664 of the Internal Revenue Code of 1986, and
       (B) if any such interest or applicable penalty is imposed, 
     the amount of such interest or penalty shall be equal to 
     twice that determined without regard to this section.
       (2) Applicable taxpayer.--For purposes of this subsection--
       (A) In general.--The term ``applicable taxpayer'' means a 
     taxpayer which--
       (i) has underreported its United States income tax 
     liability with respect to any item which directly or 
     indirectly involves--

       (I) any financial arrangement which in any manner relies on 
     the use of offshore payment mechanisms (including credit, 
     debit, or charge cards) issued by banks or other entities in 
     foreign jurisdictions, or
       (II) any offshore financial arrangement (including any 
     arrangement with foreign banks, financial institutions, 
     corporations, partnerships, trusts, or other entities), and

       (ii) has neither signed a closing agreement pursuant to the 
     Voluntary Offshore Compliance Initiative established by the 
     Department of the Treasury under Revenue Procedure 2003-11 
     nor voluntarily disclosed its participation in such 
     arrangement by notifying the Internal Revenue Service of such 
     arrangement prior to the issue being raised by the Internal 
     Revenue Service during an examination.
       (B) Authority to waive.--The Secretary of the Treasury or 
     the Secretary's delegate may waive the application of 
     paragraph (1) to any taxpayer if the Secretary or the 
     Secretary's delegate determines that the use of such offshore 
     payment mechanisms is incidental to the transaction and, in 
     addition, in the case of a trade or business, such use is 
     conducted in the ordinary course of the type of trade or 
     business of the taxpayer.
       (C) Issues raised.--For purposes of subparagraph (A)(ii), 
     an item shall be treated as an issue raised during an 
     examination if the individual examining the return--
       (i) communicates to the taxpayer knowledge about the 
     specific item, or
       (ii) has made a request to the taxpayer for information and 
     the taxpayer could not make a complete response to that 
     request without giving the examiner knowledge of the specific 
     item.
       (b) Applicable Penalty.--For purposes of this section, the 
     term ``applicable penalty'' means any penalty, addition to 
     tax, or fine imposed under chapter 68 of the Internal Revenue 
     Code of 1986.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if, as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 533. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.

[[Page S563]]

       ``(2) Exception for amounts constituting restitution or 
     paid to come into compliance with law.--Paragraph (1) shall 
     not apply to any amount which--
       ``(A) the taxpayer establishes--
       ``(i) constitutes restitution (including remediation of 
     property) for damage or harm caused by or which may be caused 
     by the violation of any law or the potential violation of any 
     law, or
       ``(ii) is paid to come into compliance with any law which 
     was violated or involved in the investigation or inquiry, and
       ``(B) is identified as restitution or as an amount paid to 
     come into compliance with the law, as the case may be, in the 
     court order or settlement agreement.

     Identification pursuant to subparagraph (B) alone shall not 
     satisfy the requirement under subparagraph (A). This 
     paragraph shall not apply to any amount paid or incurred as 
     reimbursement to the government or entity for the costs of 
     any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Reporting of Deductible Amounts.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6050T the 
     following new section:

     ``SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN FINES, 
                   PENALTIES, AND OTHER AMOUNTS.

       ``(a) Requirement of Reporting.--
       ``(1) In general.--The appropriate official of any 
     government or entity which is described in section 162(f)(4) 
     which is involved in a suit or agreement described in 
     paragraph (2) shall make a return in such form as determined 
     by the Secretary setting forth--
       ``(A) the amount required to be paid as a result of the 
     suit or agreement to which paragraph (1) of section 162(f) 
     applies,
       ``(B) any amount required to be paid as a result of the 
     suit or agreement which constitutes restitution or 
     remediation of property, and
       ``(C) any amount required to be paid as a result of the 
     suit or agreement for the purpose of coming into compliance 
     with any law which was violated or involved in the 
     investigation or inquiry.
       ``(2) Suit or agreement described.--
       ``(A) In general.--A suit or agreement is described in this 
     paragraph if--
       ``(i) it is--

       ``(I) a suit with respect to a violation of any law over 
     which the government or entity has authority and with respect 
     to which there has been a court order, or
       ``(II) an agreement which is entered into with respect to a 
     violation of any law over which the government or entity has 
     authority, or with respect to an investigation or inquiry by 
     the government or entity into the potential violation of any 
     law over which such government or entity has authority, and

       ``(ii) the aggregate amount involved in all court orders 
     and agreements with respect to the violation, investigation, 
     or inquiry is $600 or more.
       ``(B) Adjustment of reporting threshold.--The Secretary may 
     adjust the $600 amount in subparagraph (A)(ii) as necessary 
     in order to ensure the efficient administration of the 
     internal revenue laws.
       ``(3) Time of filing.--The return required under this 
     subsection shall be filed not later than--
       ``(A) 30 days after the date on which a court order is 
     issued with respect to the suit or the date the agreement is 
     entered into, as the case may be, or
       ``(B) the date specified Secretary.
       ``(b) Statements To Be Furnished to Individuals Involved in 
     the Settlement.--Every person required to make a return under 
     subsection (a) shall furnish to each person who is a party to 
     the suit or agreement a written statement showing--
       ``(1) the name of the government or entity, and
       ``(2) the information supplied to the Secretary under 
     subsection (a)(1).

     The written statement required under the preceding sentence 
     shall be furnished to the person at the same time the 
     government or entity provides the Secretary with the 
     information required under subsection (a).
       ``(c) Appropriate Official Defined.--For purposes of this 
     section, the term `appropriate official' means the officer or 
     employee having control of the suit, investigation, or 
     inquiry or the person appropriately designated for purposes 
     of this section.''.
       (2) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61 is 
     amended by inserting after the item relating to section 6050T 
     the following new item:

``Sec. 6050U. Information with respect to certain fines, penalties, and 
              other amounts.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred on or after the date 
     of the enactment of this Act, except that such amendments 
     shall not apply to amounts paid or incurred under any binding 
     order or agreement entered into before such date. Such 
     exception shall not apply to an order or agreement requiring 
     court approval unless the approval was obtained before such 
     date.

     SEC. 534. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

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

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

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section To Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

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

     SEC. 535. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
                   ORDERS.

       (a) In General.--Section 6657 (relating to bad checks) is 
     amended--
       (1) by striking ``$750'' and inserting ``$2,000'', and
       (2) by striking ``$15'' and inserting ``$40''.
       (b) Effective Date.--The amendments made by this section 
     apply to checks or money orders received after the date of 
     the enactment of this Act.

           Subtitle E--Provisions To Discourage Expatriation

     SEC. 541. TAX TREATMENT OF INVERTED ENTITIES.

       (a) In General.--Section 7874 is amended--
       (1) by striking ``March 4, 2003'' in subsection 
     (a)(2)(B)(i) and in the matter following subsection 
     (a)(2)(B)(iii) and inserting ``March 20, 2002'',
       (2) by striking ``at least 60 percent'' in subsection 
     (a)(2)(B)(ii) and inserting ``more than 50 percent'',
       (3) by striking ``80 percent'' in subsection (b) and 
     inserting ``at least 80 percent'',
       (4) by striking ``60 percent'' in subsection (b) and 
     inserting ``more than 50 percent'',
       (5) by adding at the end of subsection (a)(2) the following 
     new sentence: ``Except as provided in regulations, an 
     acquisition of properties of a domestic corporation shall not 
     be treated as described in subparagraph (B) if none of the 
     corporation's stock was readily tradeable on an established 
     securities market at any time during the 4-year period ending 
     on the date of the acquisition.'', and
       (6) by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Special Rules Applicable to Expatriated Entities.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an expatriated entity--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an expatriated entity, section 163(j) shall be 
     applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.''.

[[Page S564]]

       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after March 20, 2002.

     SEC. 542. REVISION OF TAX RULES ON EXPATRIATION OF 
                   INDIVIDUALS.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.

     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2005, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2004' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election To Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of

[[Page S565]]

     a tax treaty between the United States and the foreign 
     country and who does not waive the benefits of such treaty 
     applicable to residents of the foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

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

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

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

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

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

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

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

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.

[[Page S566]]

       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(49) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation) is 
     inadmissible.''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(21) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (20)'' each place it 
     appears and inserting ``(20), or (21)''.
       (3) Effective dates.--The amendments made by this 
     subsection shall apply to individuals who relinquish United 
     States citizenship on or after the date of the enactment of 
     this Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(h) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after the date of the 
     enactment of this subsection.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4) Section 6039G(a) is amended by inserting ``or 877A'' 
     after ``section 877(b)''.
       (5) The second sentence of section 6039G(d) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after ``section 
     877(a))''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after the date 
     of the enactment of this Act.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after the date of the 
     enactment of this Act, from an individual or the estate of an 
     individual whose expatriation date (as so defined) occurs 
     after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

                  Subtitle F--Miscellaneous Provisions

     SEC. 551. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT 
                   INSTRUMENTS.

       (a) In General.--Section 1275(d) (relating to regulation 
     authority) is amended--
       (1) by striking ``The Secretary'' and inserting the 
     following:
       ``(1) In general.--The Secretary'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Treatment of contingent payment convertible debt.--
       ``(A) In general.--In the case of a debt instrument which--
       ``(i) is convertible into stock of the issuing corporation, 
     into stock or debt of a related party (within the meaning of 
     section 267(b) or 707(b)(1)), or into cash or other property 
     in an amount equal to the approximate value of such stock or 
     debt, and
       ``(ii) provides for contingent payments,

     any regulations which require original issue discount to be 
     determined by reference to the comparable yield of a 
     noncontingent fixed-rate debt instrument shall be applied as 
     if the regulations require that such comparable yield be 
     determined by reference to a noncontingent fixed-rate debt 
     instrument which is convertible into stock.
       ``(B) Special rule.--For purposes of subparagraph (A), the 
     comparable yield shall be determined without taking into 
     account the yield resulting from the conversion of a debt 
     instrument into stock.''.
       (b) Cross Reference.--Section 163(e)(6) (relating to cross 
     references) is amended by adding at the end the following:
       ``For the treatment of contingent payment convertible debt, 
     see section 1275(d)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued on or after the date 
     of the enactment of this Act.

     SEC. 552. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS 
                   FOREIGN TAX CREDIT TRANSACTIONS INVOLVING 
                   INAPPROPRIATE SEPARATION OF FOREIGN TAXES FROM 
                   RELATED FOREIGN INCOME.

       (a) In General.--Section 901 (relating to taxes of foreign 
     countries and of possessions of United States) is amended by 
     redesignating subsection (m) as subsection (n) and by 
     inserting after subsection (l) the following new subsection:
       ``(m) Regulations.--The Secretary may prescribe regulations 
     disallowing a credit under subsection (a) for all or a 
     portion of any foreign tax, or allocating a foreign tax among 
     2 or more persons, in cases where the foreign tax is imposed 
     on any person in respect of income of another person or in 
     other cases involving the inappropriate separation of the 
     foreign tax from the related foreign income.''.

[[Page S567]]

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

     SEC. 553. REPEAL OF SPECIAL PROPERTY EXCEPTION TO LEASING 
                   PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 
                   2004.

       (a) In General.--Section 849(b) of the American Jobs 
     Creation Act of 2004 is amended by striking paragraphs (1) 
     and (2), by redesignating paragraphs (3) and (4) as 
     paragraphs (1) and (2), respectively.
       (b) Leases to Foreign Entities.--Section 849(b) of the 
     American Jobs Creation Act of 2004, as amended by subsection 
     (a), is amended by adding at the end the following new 
     paragraph:
       ``(3) Leases to foreign entities.--In the case of tax-
     exempt use property leased to a tax-exempt entity which is a 
     foreign person or entity, the amendments made by this part 
     shall apply to taxable years beginning after December 31, 
     2005, with respect to leases entered into on or before March 
     12, 2004.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     American Jobs Creation Act of 2004.

     SEC. 554. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS 
                   WHICH ARE CORPORATIONS.

       (a) In General.--Section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Treatment of corporate partners.--Except to the 
     extent provided by regulations, in applying this subsection 
     to a corporation which owns (directly or indirectly) an 
     interest in a partnership--
       ``(A) such corporation's distributive share of interest 
     income paid or accrued to such partnership shall be treated 
     as interest income paid or accrued to such corporation,
       ``(B) such corporation's distributive share of interest 
     paid or accrued by such partnership shall be treated as 
     interest paid or accrued by such corporation, and
       ``(C) such corporation's share of the liabilities of such 
     partnership shall be treated as liabilities of such 
     corporation.''.
       (b) Additional Regulatory Authority.--Section 163(j)(9) 
     (relating to regulations), as redesignated by subsection (a), 
     is amended by striking ``and'' at the end of subparagraph 
     (B), by striking the period at the end of subparagraph (C) 
     and inserting ``, and'', and by adding at the end the 
     following new subparagraph:
       ``(D) regulations providing for the reallocation of shares 
     of partnership indebtedness, or distributive shares of the 
     partnership's interest income or interest expense, as may be 
     appropriate to carry out the purposes of this subsection.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning on or after the date 
     of the enactment of this Act.

     SEC. 555. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN 
                   ENTERTAINMENT EXPENSES.

       (a) In General.--Paragraph (2) of section 274(e) (relating 
     to expenses treated as compensation) is amended to read as 
     follows:
       ``(2) Expenses treated as compensation.--Expenses for 
     goods, services, and facilities, to the extent that the 
     expenses do not exceed the amount of the expenses which are 
     treated by the taxpayer, with respect to the recipient of the 
     entertainment, amusement, or recreation, as compensation to 
     an employee on the taxpayer's return of tax under this 
     chapter and as wages to such employee for purposes of chapter 
     24 (relating to withholding of income tax at source on 
     wages).''.
       (b) Persons Not Employees.--Paragraph (9) of section 274(e) 
     is amended by striking ``to the extent that the expenses are 
     includible in the gross income'' and inserting ``to the 
     extent that the expenses do not exceed the amount of the 
     expenses which are includible in the gross income''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses incurred after the date of the 
     enactment of this Act.

     SEC. 556. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Treatment of Distributions From Qualified Disability 
     Trusts.--Section 1(g)(4) (relating to net unearned income) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Treatment of distributions from qualified disability 
     trusts.--For purposes of this subsection, in the case of any 
     child who is a beneficiary of a qualified disability trust 
     (as defined in section 642(b)(2)(C)(ii)), any amount included 
     in the income of such child under sections 652 and 662 during 
     a taxable year shall be considered earned income of such 
     child for such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 557. LOAN AND REDEMPTION REQUIREMENTS ON POOLED 
                   FINANCING REQUIREMENTS.

       (a) Strengthened Reasonable Expectation Requirement.--
     Subparagraph (A) of section 149(f)(2) (relating to reasonable 
     expectation requirement) is amended to read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to an issue if the issuer reasonably expects 
     that--
       ``(i) as of the close of the 1-year period beginning on the 
     date of issuance of the issue, at least 50 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been used directly or indirectly to make or finance 
     loans to ultimate borrowers, and
       ``(ii) as of the close of the 3-year period beginning on 
     such date of issuance, at least 95 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been so used.''.
       (b) Written Loan Commitment and Redemption Requirements.--
     Section 149(f) (relating to treatment of certain pooled 
     financing bonds) is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (6) and (7), respectively, and by 
     inserting after paragraph (3) the following new paragraphs:
       ``(4) Written loan commitment requirement.--
       ``(A) In general.--The requirement of this paragraph is met 
     with respect to an issue if the issuer receives prior to 
     issuance written loan commitments identifying the ultimate 
     potential borrowers of at least 50 percent of the net 
     proceeds of such issue.
       ``(B) Exception.--Subparagraph (A) shall not apply with 
     respect to any issuer which is a State (or an integral part 
     of a State) issuing pooled financing bonds to make or finance 
     loans to subordinate governmental units of such State or to 
     State-created entities providing financing for water-
     infrastructure projects through the federally-sponsored State 
     revolving fund program.
       ``(5) Redemption requirement.--The requirement of this 
     paragraph is met if to the extent that less than the 
     percentage of the proceeds of an issue required to be used 
     under clause (i) or (ii) of paragraph (2)(A) is used by the 
     close of the period identified in such clause, the issuer 
     uses an amount of proceeds equal to the excess of--
       ``(A) the amount required to be used under such clause, 
     over
       ``(B) the amount actually used by the close of such period,
       ``to redeem outstanding bonds within 90 days after the end 
     of such period.''.
       (c) Elimination of Disregard of Pooled Bonds in Determining 
     Eligibility for Small Issuer Exception to Arbitrage Rebate.--
     Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) 
     is amended by striking subclause (II) and by redesignating 
     subclauses (III) and (IV) as subclauses (II) and (III), 
     respectively.
       (d) Conforming Amendments.--
       (1) Section 149(f)(1) is amended by striking ``paragraphs 
     (2) and (3)'' and inserting ``paragraphs (2), (3), (4), and 
     (5)''.
       (2) Section 149(f)(7)(B), as redesignated by subsection 
     (b), is amended by striking ``paragraph (4)(A)'' and 
     inserting ``paragraph (6)(A)''.
       (3) Section 54(l)(2) is amended by striking ``section 
     149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 558. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

       (a) In General.--Section 6049(b)(2) (relating to 
     exceptions) is amended by striking subparagraph (B) and by 
     redesignating subparagraphs (C) and (D) as subparagraphs (B) 
     and (C), respectively.
       (b) Conforming Amendment.--Section 6049(b)(2)(C), as 
     redesignated by subsection (a), is amended by striking 
     ``subparagraph (C)'' and inserting ``subparagraph (B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest earned after December 31, 2005.

     SEC. 559. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE.

       (a) Taxable Years Ending Before 2006.--
       (1) Modification of phaseout.--
       (A) In general.--Section 29(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 29(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 
     2005.--Section 29(b)(2), as amended by paragraph (1), is 
     amended by adding at the end the following new sentence: 
     ``This paragraph shall not apply with respect to the $3 
     amount in subsection (a) for calendar year 2005 and the 
     amount in effect under subsection (a) for sales in such 
     calendar year shall be the amount which was in effect for 
     sales in calendar year 2004.''.
       (b) Taxable Years Ending After 2005.--
       (1) Modification of phaseout.--
       (A) In general.--Section 45K(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 45K(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 2005, 
     2006, and 2007.--Section 45K(b)(2), as amended by paragraph 
     (1), is amended by adding at the end the following new 
     sentence: ``This paragraph shall not apply with respect to 
     the $3 amount in subsection (a) for calendar years 2005, 
     2006, and

[[Page S568]]

     2007 and the amount in effect under subsection (a) for sales 
     in each such calendar year shall be the amount which was in 
     effect for sales in calendar year 2004.''.
       (3) Treatment of coke and coke gas.--
       (A) Nonapplication of phaseout.--Section 45K(g)(2) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Nonapplication of phaseout.--Subsection (b)(1) shall 
     not apply.''.
       (B) Application of inflation adjustment.--Section 
     45K(g)(2)(B) is amended by inserting ``and the last sentence 
     of subsection (b)(2) shall not apply.''.
       (C) Clarification of qualifying facility.--Section 
     45K(g)(1) is amended by inserting ``(other than from 
     petroleum based products)'' after ``coke or coke gas''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to fuel sold after December 31, 2004.

     SEC. 560. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE 
                   HARBOR.

       (a) In General.--The table contained in section 
     6654(d)(1)(C) is amended by striking ``2002 or thereafter'' 
     and inserting ``2002, 2003, 2004, or 2005'' and by adding at 
     the end the following new items:

  ``2006............................................................120
  2007 or thereafter.............................................110''.

       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to any installment payment for 
     taxable years beginning after December 31, 2005.

     SEC. 561. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED 
                   OIL COMPANIES.

       (a) General Rule.--Notwithstanding any other provision of 
     law, if a taxpayer is an applicable integrated oil company 
     for its last taxable year ending in calendar year 2005, the 
     taxpayer shall--
       (1) increase, effective as of the close of such taxable 
     year, the value of each historic LIFO layer of inventories of 
     crude oil, natural gas, or any other petroleum product 
     (within the meaning of section 4611) by the layer adjustment 
     amount, and
       (2) decrease its cost of goods sold for such taxable year 
     by the aggregate amount of the increases under paragraph (1).

     If the aggregate amount of the increases under paragraph (1) 
     exceed the taxpayer's cost of goods sold for such taxable 
     year, the taxpayer's gross income for such taxable year shall 
     be increased by the amount of such excess.
       (b) Layer Adjustment Amount.--For purposes of this 
     section--
       (1) In general.--The term ``layer adjustment amount'' 
     means, with respect to any historic LIFO layer, the product 
     of--
       (A) $18.75, and
       (B) the number of barrels of crude oil (or in the case of 
     natural gas or other petroleum products, the number of 
     barrel-of-oil equivalents) represented by the layer.
       (2) Barrel-of-oil equivalent.--The term ``barrel-of-oil 
     equivalent'' has the meaning given such term by section 
     29(d)(5) (as in effect before its redesignation by the Energy 
     Tax Incentives Act of 2005).
       (c) Application of Requirement.--
       (1) No change in method of accounting.--Any adjustment 
     required by this section shall not be treated as a change in 
     method of accounting.
       (2) Underpayments of estimated tax.--o addition to the tax 
     shall be made under section 6655 of the Internal Revenue Code 
     of 1986 (relating to failure by corporation to pay estimated 
     tax) with respect to any underpayment of an installment 
     required to be paid with respect to the taxable year 
     described in subsection (a) to the extent such underpayment 
     was created or increased by this section.
       (d) Applicable Integrated Oil Company.--For purposes of 
     this section, the term ``applicable integrated oil company'' 
     means an integrated oil company (as defined in section 
     291(b)(4) of the Internal Revenue Code of 1986) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barels for the taxable year and which had gross 
     receipts in excess of $1,000,000,000 for its last taxable 
     year ending during calendar year 2005. For purposes of this 
     subsection all persons treated as a single employer under 
     subsections (a) and (b) of section 52 of the Internal Revenue 
     Code of 1986 shall be treated as 1 person and, in the case of 
     a short taxable year, the rule under section 448(c)(3)(B) 
     shall apply.

     SEC. 562. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND 
                   GEOPHYSICAL EXPENDITURES FOR MAJOR INTEGRATED 
                   OIL COMPANIES.

       (a) In General.--Section 167(h) is amended by adding at the 
     end the following new paragraph:
       ``(5) Nonapplication to major integrated oil companies.--
     This subsection shall not apply with respect to any expenses 
     paid or incurred for any taxable year by any integrated oil 
     company (as defined in section 291(b)(4)) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for such taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendment made by 
     section 1329(a) of the Energy Policy Act of 2005.

     SEC. 563. VALUATION OF EMPLOYEE PERSONAL USE OF NONCOMMERCIAL 
                   AIRCRAFT.

       (a) In General.--For purposes of Federal income tax 
     inclusion, the value of any employee personal use of 
     noncommercial aircraft shall equal the excess (if any) of--
       (1) greater of--
       (A) the fair market value of such use, or
       (B) the actual cost of such use (including all fixed and 
     variable costs), over
       (2) any amount paid by or on behalf of such employee for 
     such use.
       (b) Effective Date.--Subsection (a) shall apply to use 
     after the date of the enactment of this Act.

     SEC. 564. APPLICATION OF FIRPTA TO REGULATED INVESTMENT 
                   COMPANIES.

       (a) In General.--Subclause (II) of section 897(h)(4)(A)(i) 
     (defining qualified investment entity) is amended by 
     inserting ``which is a United States real property holding 
     corporation or which would be a United States real property 
     holding corporation if the exceptions provided in subsections 
     (c)(3) and (h)(2) did not apply to interests in any real 
     estate investment trust or regulated investment company'' 
     after ``regulated investment company''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions with respect to taxable years 
     beginning after December 31, 2004.

     SEC. 565. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA 
                   GAINS.

       (a) Qualified Investment Entity.--
       (1) In general.--Section 897(h)(1) is amended--
       (A) by striking ``a nonresident alien individual or a 
     foreign corporation'' in the first sentence and inserting ``a 
     nonresident alien individual, a foreign corporation, or other 
     qualified investment entity'',
       (B) by striking ``such nonresident alien individual or 
     foreign corporation'' in the first sentence and inserting 
     ``such nonresident alien individual, foreign corporation, or 
     other qualified investment entity'', and
       (C) by striking the second sentence and inserting the 
     following new sentence: ``Notwithstanding the preceding 
     sentence, any distribution by a qualified investment entity 
     to a nonresident alien, a foreign corporation, or other 
     qualified investment entity with respect to any class of 
     stock which is regularly traded on an established securities 
     market located in the United States shall not be treated as 
     gain recognized from the sale or exchange of a United States 
     real property interest if the shareholder did not own more 
     than 5 percent of such class of stock at any time during the 
     1 year period ending on the date of such distribution.''.
       (2) Application after 2007.--Clause (ii) of section 
     897(h)(4)(A) is amended by adding at the end the following 
     new sentence: ``Notwithstanding the preceding sentence, an 
     entity described in clause (i)(II) shall be treated as a 
     qualified investment entity for purposes of applying 
     paragraph (1) in any case in which a real estate investment 
     trust makes a distribution to an entity described in clause 
     (i)(II).''.
       (b) Treatment of Certain Distributions as Dividends.--
       (1) In general.--Section 852(b)(3) (relating to capital 
     gains) is amended by adding at the end the following new 
     subparagraph:
       ``(E) Certain distributions.--In the case of a distribution 
     to which section 897 does not apply by reason of the second 
     sentence of section 897(h)(1), the amount of such 
     distribution which would be included in computing long-term 
     capital gains for the shareholder under subparagraph (B) or 
     (D) (without regard to this subparagraph)--
       ``(i) shall not be included in computing such shareholder's 
     long-term capital gains, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the regulated investment company.''.
       (2) Conforming amendment.--Section 871(k)(2) (relating to 
     short-term capital gain dividends) is amended by adding at 
     the end the following new subparagraph:
       ``(E) Certain distributions.--In the case of a distribution 
     to which section 897 does not apply by reason of the second 
     sentence of section 897(h)(1), the amount which would be 
     treated as a short-term capital gain dividend to the 
     shareholder (without regard to this subparagraph)--
       ``(i) shall not be treated as a short-term capital gain 
     dividend, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the regulated investment company.''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     of qualified investment entities beginning after the date of 
     the enactment of this Act.
       (2) Dividends.--The amendments made by subsection (b) shall 
     apply to dividends with respect to taxable years of regulated 
     investment companies beginning after December 31, 2004.

     SEC. 566. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF 
                   FOREIGN PERSONS IN UNITED STATES REAL PROPERTY 
                   THROUGH WASH SALE TRANSACTIONS.

       (a) In General.--Section 897(h) of the Internal Revenue 
     Code of 1986 (relating to special rules in certain investment 
     entities) is amended by redesignating paragraph (4) as 
     paragraph (5) and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) Treatment of certain wash sale transactions.--
       ``(A) In general.--If an interest in a domestically 
     controlled qualified investment entity is disposed of in an 
     applicable wash sale transaction, the taxpayer shall, for 
     purposes of this section, be treated as having gain from the 
     sale or exchange of a United States real property interest in 
     an amount equal to the portion of the distribution described 
     in subparagraph (B) with respect to

[[Page S569]]

     such interest which, but for the disposition, would have been 
     treated by the taxpayer as gain from the sale or exchange of 
     a United States real property interest under paragraph (1).
       ``(B) Applicable wash sales transaction.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `applicable wash sales 
     transaction' means any transaction (or series of 
     transactions) under which a nonresident alien individual or 
     foreign corporation--

       ``(I) disposes of an interest in a domestically controlled 
     qualified investment entity during the 30-day period 
     preceding a distribution which is to be made with respect to 
     the interest and any portion of which, but for the 
     disposition, would have been treated by the taxpayer as gain 
     from the sale or exchange of a United States real property 
     interest under paragraph (1), and
       ``(II) acquires an identical interest in such entity during 
     the 60-day period beginning with the 1st day of the 30-day 
     period described in subclause (I).

     For purposes of subclause (II), a nonresident alien 
     individual or foreign corporation shall be treated as having 
     acquired any interest acquired by a person related (within 
     the meaning of section 465(b)(3)(C)) to the individual or 
     corporation.
       ``(ii) Exception where distribution actually received.--A 
     transaction shall not be treated as an applicable wash sales 
     transaction if the nonresident alien individual or foreign 
     corporation receives the distribution described in clause 
     (i)(I) with respect to either the interest which was disposed 
     of, or acquired, in the transaction.
       ``(iii) Exception for certain publicly traded stock.--A 
     transaction shall not be treated as an applicable wash sales 
     transaction if it involves the disposition of any class of 
     stock in a qualified investment entity which is regularly 
     traded on an established securities market within the United 
     States but only if the nonresident alien individual or 
     foreign corporation did not own more than 5 percent of such 
     class of stock at any time during the 1-year period ending on 
     the date of the distribution described in clause (i)(I).''.
       (b) No Withholding Required.--Section 1445(b) of the 
     Internal Revenue Code of 1986 (relating to exemptions) is 
     amended by adding at the end the following new paragraph:
       ``(8) Applicable wash sales transactions.--No person shall 
     be required to deduct and withhold any amount under 
     subsection (a) with respect to a disposition which is treated 
     as a disposition of a United States real property interest 
     solely by reason of section 897(h)(4).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to dispositions after December 31, 2005, in 
     taxable years ending after such date.

     SEC. 567. MODIFICATIONS TO RULES RELATING TO TAXATION OF 
                   DISTRIBUTIONS OF STOCK AND SECURITIES OF A 
                   CONTROLLED CORPORATION.

       (a) Modification of Active Business Definition Under 
     Section 355.--
       (1) In general.--Section 355(b) (defining active conduct of 
     a trade or business) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rules relating to active business 
     requirement.--
       ``(A) In general.--For purposes of determining whether a 
     corporation meets the requirement of paragraph (2)(A), all 
     members of such corporation's separate affiliated group shall 
     be treated as 1 corporation. For purposes of the preceding 
     sentence, the term `separate affiliated group' means, with 
     respect to any corporation, the affiliated group which would 
     be determined under section 1504(a) if such corporation were 
     the common parent and section 1504(b) did not apply.
       ``(B) Control.--For purposes of paragraph (2)(D), all 
     distributee corporations which are members of the same 
     affiliated group (as defined in section 1504(a) without 
     regard to section 1504(b)) shall be treated as 1 distributee 
     corporation.''.
       (2) Conforming amendments.--
       (A) Subparagraph (A) of section 355(b)(2) is amended to 
     read as follows:
       ``(A) it is engaged in the active conduct of a trade or 
     business,''.
       (B) Section 355(b)(2) of such Code is amended by striking 
     the last sentence.
       (3) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply--
       (i) to distributions after the date of the enactment of 
     this Act, and before January 1, 2010, and
       (ii) for purposes of determining the continued 
     qualification under section 355(b)(2)(A) of the Internal 
     Revenue Code of 1986 (as amended by paragraph (2)(A)) of 
     distributions made before such date, as a result of an 
     acquisition, disposition, or other restructuring after such 
     date and before January 1, 2010.
       (B) Transition rule.--The amendments made by this 
     subsection shall not apply to any distribution pursuant to a 
     transaction which is--
       (i) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (ii) described in a ruling request submitted to the 
     Internal Revenue Service on or before such date, or
       (iii) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.
       (C) Elections.--
       (i) Out of transition relief.--Subparagraph (B) shall not 
     apply if the distributing corporation elects not to have such 
     subparagraph apply to distributions of such corporation. Any 
     such election, once made, shall be irrevocable.
       (ii) Application to prior distributions.--Subparagraph 
     (A)(ii) shall not apply to a distributing or controlled 
     corporation if the corporation elects not to have such 
     subparagraph apply to such corporation. Any such election, 
     once made, shall be irrevocable.
       (b) Section 355 Not To Apply to Distributions if the 
     Distributing or Controlled Corporation Is a Disqualified 
     Investment Corporation.--
       (1) In general.--Section 355 (relating to distributions of 
     stock and securities of a controlled corporation) is amended 
     by adding at the end the following new subsection:
       ``(g) Section Not To Apply to Distributions Involving 
     Disqualified Investment Corporations.--
       ``(1) In general.--This section (and so much of section 356 
     as relates to this section) shall not apply to any 
     distribution which is part of a transaction if--
       ``(A) either the distributing corporation or controlled 
     corporation is, immediately after the transaction, a 
     disqualified investment corporation, and
       ``(B) any person holds, immediately after the transaction, 
     a 50-percent or greater interest in any disqualified 
     investment corporation, but only if such person did not hold 
     such an interest in such corporation immediately before the 
     transaction.
       ``(2) Disqualified investment corporation.--For purposes of 
     this subsection--
       ``(A) In general.--The term `disqualified investment 
     corporation' means any distributing or controlled corporation 
     if the fair market value of the investment assets of the 
     corporation is 75 percent or more of the fair market value of 
     all assets of the corporation.
       ``(B) Investment assets.--
       ``(i) In general.--Except as otherwise provided in this 
     subparagraph, the term `investment assets' means--

       ``(I) cash,
       ``(II) any stock or securities in a corporation,
       ``(III) any interest in a partnership,
       ``(IV) any debt instrument or other evidence of 
     indebtedness,
       ``(V) any option, forward or futures contract, notional 
     principal contract, or derivative,
       ``(VI) foreign currency, or
       ``(VII) any similar asset.

       ``(ii) Exception for assets used in active conduct of 
     certain financial trades or businesses.--Such term shall not 
     include any asset which is held for use in the active and 
     regular conduct of--

       ``(I) a lending or finance business (within the meaning of 
     section 954(h)(4)),
       ``(II) a banking business through a bank (as defined in 
     section 581), a domestic building and loan association 
     (within the meaning of section 7701(a)(19)), or any similar 
     institution specified by the Secretary, or
       ``(III) an insurance business if the conduct of the 
     business is licensed, authorized, or regulated by an 
     applicable insurance regulatory body.

     This clause shall only apply with respect to any business if 
     substantially all of the income of the business is derived 
     from persons who are not related (within the meaning of 
     section 267(b) or 707(b)(1)) to the person conducting the 
     business.
       ``(iii) Exception for securities marked to market.--Such 
     term shall not include any security (as defined in section 
     475(c)(2)) which is held by a dealer in securities and to 
     which section 475(a) applies.
       ``(iv) Stock or securities in a 25-percent controlled 
     entity.--

       ``(I) In general.--Such term shall not include any stock 
     and securities in, or any asset described in subclause (IV) 
     or (V) of clause (i) issued by, a corporation which is a 25-
     percent controlled entity with respect to the distributing or 
     controlled corporation.
       ``(II) Look-thru rule.--The distributing or controlled 
     corporation shall, for purposes of applying this subsection, 
     be treated as owning its ratable share of the assets of any 
     25-percent controlled entity.
       ``(III) 25-percent controlled entity.--For purposes of this 
     clause, the term `25-percent controlled entity' means, with 
     respect to any distributing or controlled corporation, any 
     corporation with respect to which the distributing or 
     controlled corporation owns directly or indirectly stock 
     meeting the requirements of section 1504(a)(2), except that 
     such section shall be applied by substituting `25 percent' 
     for `80 percent' and without regard to stock described in 
     section 1504(a)(4).

       ``(v) Interests in certain partnerships.--

       ``(I) In general.--Such term shall not include any interest 
     in a partnership, or any debt instrument or other evidence of 
     indebtedness, issued by the partnership, if 1 or more of the 
     trades or businesses of the partnership are (or, without 
     regard to the 5-year requirement under subsection (b)(2)(B), 
     would be) taken into account by the distributing or 
     controlled corporation, as the case may be, in determining 
     whether the requirements of subsection (b) are met with 
     respect to the distribution.
       ``(II) Look-thru rule.--The distributing or controlled 
     corporation shall, for purposes of applying this subsection, 
     be treated as owning its ratable share of the assets of any 
     partnership described in subclause (I).

       ``(3) 50-percent or greater interest.--For purposes of this 
     subsection--
       ``(A) In general.--The term `50-percent or greater 
     interest' has the meaning given such term by subsection 
     (d)(4).

[[Page S570]]

       ``(B) Attribution rules.--The rules of section 318 shall 
     apply for purposes of determining ownership of stock for 
     purposes of this paragraph.
       ``(4) Transaction.--For purposes of this subsection, the 
     term `transaction' includes a series of transactions.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out, or prevent the 
     avoidance of, the purposes of this subsection, including 
     regulations--
       ``(A) to carry out, or prevent the avoidance of, the 
     purposes of this subsection in cases involving--
       ``(i) the use of related persons, intermediaries, pass-thru 
     entities, options, or other arrangements, and
       ``(ii) the treatment of assets unrelated to the trade or 
     business of a corporation as investment assets if, prior to 
     the distribution, investment assets were used to acquire such 
     unrelated assets,
       ``(B) which in appropriate cases exclude from the 
     application of this subsection a distribution which does not 
     have the character of a redemption which would be treated as 
     a sale or exchange under section 302, and
       ``(C) which modify the application of the attribution rules 
     applied for purposes of this subsection.''.
       (2) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (B) Transition rule.--The amendments made by this 
     subsection shall not apply to any distribution pursuant to a 
     transaction which is--
       (i) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (ii) described in a ruling request submitted to the 
     Internal Revenue Service on or before such date, or
       (iii) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.

     SEC. 568. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR 
                   ACQUIRING MUSIC OR MUSIC COPYRIGHTS.

       (a) In General.--Section 263A (relating to capitalization 
     and inclusion in inventory costs of certain expenses) is 
     amended by redesignating subsection (i) as subsection (j) and 
     by adding after subsection (h) the following new subsection:
       ``(i) Special Rules for Certain Musical Works and 
     Copyrights.--
       ``(1) In general.--If--
       ``(A) any expense is paid or incurred by the taxpayer in 
     creating or acquiring any musical composition (including any 
     accompanying words) or any copyright with respect to a 
     musical composition, and
       ``(B) such expense is required to be capitalized under this 
     section,

     then, notwithstanding section 167(g), the amount capitalized 
     shall be amortized ratably over the 5-year period beginning 
     with the month in which the composition or copyright was 
     acquired (or, in the case of expenses paid or incurred in 
     connection with the creation of a musical composition, the 5-
     taxable-year period beginning with the taxable year in which 
     the expenses were paid or incurred).
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     expense--
       ``(A) which is a qualified creative expense under 
     subsection (h),
       ``(B) to which a simplified procedure established under 
     subsection (j)(2) applies,
       ``(C) which is an amortizable section 197 intangible (as 
     defined in section 197(c)), or
       ``(D) which, without regard to this section, would not be 
     allowable as a deduction.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to expenses paid or incurred after December 31, 
     2005, in taxable years ending after such date.

     SEC. 569. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

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

     ``SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

       ``(a) Allowance of Credit.--In the case of a taxpayer who 
     holds a rural renaissance bond on a credit allowance date of 
     such bond, which occurs during the taxable year, there shall 
     be allowed as a credit against the tax imposed by this 
     chapter for such taxable year an amount equal to the sum of 
     the credits determined under subsection (b) with respect to 
     credit allowance dates during such year on which the taxpayer 
     holds such bond.
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any credit allowance 
     date for a rural renaissance bond is 25 percent of the annual 
     credit determined with respect to such bond.
       ``(2) Annual credit.--The annual credit determined with 
     respect to any rural renaissance bond is the product of--
       ``(A) the credit rate determined by the Secretary under 
     paragraph (3) for the day on which such bond was sold, 
     multiplied by
       ``(B) the outstanding face amount of the bond.
       ``(3) Determination.--For purposes of paragraph (2), with 
     respect to any rural renaissance bond, the Secretary shall 
     determine daily or caused to be determined daily a credit 
     rate which shall apply to the first day on which there is a 
     binding, written contract for the sale or exchange of the 
     bond. The credit rate for any day is the credit rate which 
     the Secretary or the Secretary's designee estimates will 
     permit the issuance of rural renaissance bonds with a 
     specified maturity or redemption date without discount and 
     without interest cost to the qualified issuer.
       ``(4) Credit allowance date.--For purposes of this section, 
     the term `credit allowance date' means--
       ``(A) March 15,
       ``(B) June 15,
       ``(C) September 15, and
       ``(D) December 15.

     Such term also includes the last day on which the bond is 
     outstanding.
       ``(5) Special rule for issuance and redemption.--In the 
     case of a bond which is issued during the 3-month period 
     ending on a credit allowance date, the amount of the credit 
     determined under this subsection with respect to such credit 
     allowance date shall be a ratable portion of the credit 
     otherwise determined based on the portion of the 3-month 
     period during which the bond is outstanding. A similar rule 
     shall apply when the bond is redeemed or matures.
       ``(c) Limitation Based on Amount of Tax.--The credit 
     allowed under subsection (a) for any taxable year shall not 
     exceed the excess of--
       ``(1) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(2) the sum of the credits allowable under this part 
     (other than subpart C thereof, relating to refundable 
     credits).
       ``(d) Rural Renaissance Bond.--For purposes of this 
     section--
       ``(1) In general.--The term `rural renaissance bond' means 
     any bond issued as part of an issue if--
       ``(A) the bond is issued by a qualified issuer,
       ``(B) 95 percent or more of the proceeds from the sale of 
     such issue are to be used for capital expenditures incurred 
     for 1 or more qualified projects,
       ``(C) the qualified issuer designates such bond for 
     purposes of this section and the bond is in registered form, 
     and
       ``(D) the issue meets the requirements of subsections (e) 
     and (h).
       ``(2) Qualified project; special use rules.--
       ``(A) In general.--The term `qualified project' means 1 or 
     more projects described in subparagraph (B) located in a 
     rural area.
       ``(B) Projects described.--A project described in this 
     subparagraph is--
       ``(i) a water or waste treatment project,
       ``(ii) an affordable housing project,
       ``(iii) a community facility project, including hospitals, 
     fire and police stations, and nursing and assisted-living 
     facilities,
       ``(iv) a value-added agriculture or renewable energy 
     facility project for agricultural producers or farmer-owned 
     entities, including any project to promote the production, 
     processing, or retail sale of ethanol (including fuel at 
     least 85 percent of the volume of which consists of ethanol), 
     biodiesel, animal waste, biomass, raw commodities, or wind as 
     a fuel,
       ``(v) a distance learning or telemedicine project,
       ``(vi) a rural utility infrastructure project, including 
     any electric or telephone system,
       ``(vii) a project to expand broadband technology,
       ``(viii) a rural teleworks project, and
       ``(ix) any project described in any preceding clause 
     carried out by the Delta Regional Authority.
       ``(C) Special rules.--For purposes of this paragraph--
       ``(i) any project described in subparagraph (B)(iv) for a 
     farmer-owned entity may be considered a qualified project if 
     such entity is located in a rural area, or in the case of a 
     farmer-owned entity the headquarters of which are located in 
     a nonrural area, if the project is located in a rural area, 
     and
       ``(ii) any project for a farmer-owned entity which is a 
     facility described in subparagraph (B)(iv) for agricultural 
     producers may be considered a qualified project regardless of 
     whether the facility is located in a rural or nonrural area.
       ``(3) Special use rules.--
       ``(A) Refinancing rules.--For purposes of paragraph (1)(B), 
     a qualified project may be refinanced with proceeds of a 
     rural renaissance bond only if the indebtedness being 
     refinanced (including any obligation directly or indirectly 
     refinanced by such indebtedness) was originally incurred 
     after the date of the enactment of this section.
       ``(B) Reimbursement.--For purposes of paragraph (1)(B), a 
     rural renaissance bond may be issued to reimburse a borrower 
     for amounts paid after the date of the enactment of this 
     section with respect to a qualified project, but only if--
       ``(i) prior to the payment of the original expenditure, the 
     borrower declared its intent to reimburse such expenditure 
     with the proceeds of a rural renaissance bond,
       ``(ii) not later than 60 days after payment of the original 
     expenditure, the qualified issuer adopts an official intent 
     to reimburse the original expenditure with such proceeds, and
       ``(iii) the reimbursement is made not later than 18 months 
     after the date the original expenditure is paid.
       ``(C) Treatment of changes in use.--For purposes of 
     paragraph (1)(B), the proceeds of an issue shall not be 
     treated as used for a qualified project to the extent that a 
     borrower takes any action within its control which causes 
     such proceeds not to be used

[[Page S571]]

     for a qualified project. The Secretary shall prescribe 
     regulations specifying remedial actions that may be taken 
     (including conditions to taking such remedial actions) to 
     prevent an action described in the preceding sentence from 
     causing a bond to fail to be a rural renaissance bond.
       ``(e) Maturity Limitations.--
       ``(1) Duration of term.--A bond shall not be treated as a 
     rural renaissance bond if the maturity of such bond exceeds 
     the maximum term determined by the Secretary under paragraph 
     (2) with respect to such bond.
       ``(2) Maximum term.--During each calendar month, the 
     Secretary shall determine the maximum term permitted under 
     this paragraph for bonds issued during the following calendar 
     month. Such maximum term shall be the term which the 
     Secretary estimates will result in the present value of the 
     obligation to repay the principal on the bond being equal to 
     50 percent of the face amount of such bond. Such present 
     value shall be determined without regard to the requirements 
     of subsection (f)(3) and using as a discount rate the average 
     annual interest rate of tax-exempt obligations having a term 
     of 10 years or more which are issued during the month. If the 
     term as so determined is not a multiple of a whole year, such 
     term shall be rounded to the next highest whole year.
       ``(3) Ratable principal amortization required.--A bond 
     shall not be treated as a rural renaissance bond unless it is 
     part of an issue which provides for an equal amount of 
     principal to be paid by the qualified issuer during each 
     calendar year that the issue is outstanding.
       ``(f) Limitation on Amount of Bonds Designated.--
       ``(1) National limitation.--There is a rural renaissance 
     bond limitation of $200,000,000.
       ``(2) Allocation by secretary.--The Secretary shall 
     allocate the amount described in paragraph (1) among 
     qualified projects in such manner as the Secretary determines 
     appropriate.
       ``(g) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this section (determined without regard to subsection 
     (c)) and the amount so included shall be treated as interest 
     income.
       ``(h) Special Rules Relating to Expenditures.--
       ``(1) In general.--An issue shall be treated as meeting the 
     requirements of this subsection if, as of the date of 
     issuance, the qualified issuer reasonably expects--
       ``(A) at least 95 percent of the proceeds from the sale of 
     the issue are to be spent for 1 or more qualified projects 
     within the 5-year period beginning on the date of issuance of 
     the rural renaissance bond,
       ``(B) a binding commitment with a third party to spend at 
     least 10 percent of the proceeds from the sale of the issue 
     will be incurred within the 6-month period beginning on the 
     date of issuance of the rural renaissance bond or, in the 
     case of a rural renaissance bond, the proceeds of which are 
     to be loaned to 2 or more borrowers, such binding commitment 
     will be incurred within the 6-month period beginning on the 
     date of the loan of such proceeds to a borrower, and
       ``(C) such projects will be completed with due diligence 
     and the proceeds from the sale of the issue will be spent 
     with due diligence.
       ``(2) Extension of period.--Upon submission of a request 
     prior to the expiration of the period described in paragraph 
     (1)(A), the Secretary may extend such period if the qualified 
     issuer establishes that the failure to satisfy the 5-year 
     requirement is due to reasonable cause and the related 
     projects will continue to proceed with due diligence.
       ``(3) Failure to spend required amount of bond proceeds 
     within 5 years.--To the extent that less than 95 percent of 
     the proceeds of such issue are expended by the close of the 
     5-year period beginning on the date of issuance (or if an 
     extension has been obtained under paragraph (2), by the close 
     of the extended period), the qualified issuer shall redeem 
     all of the nonqualified bonds within 90 days after the end of 
     such period. For purposes of this paragraph, the amount of 
     the nonqualified bonds required to be redeemed shall be 
     determined in the same manner as under section 142.
       ``(i) Special Rules Relating to Arbitrage.--A bond which is 
     part of an issue shall not be treated as a rural renaissance 
     bond unless, with respect to the issue of which the bond is a 
     part, the qualified issuer satisfies the arbitrage 
     requirements of section 148 with respect to proceeds of the 
     issue.
       ``(j) Qualified Issuer.--For purposes of this section--
       ``(1) In general.--The term `qualified issuer' means any 
     not-for-profit cooperative lender which has as of the date of 
     the enactment of this section received a guarantee under 
     section 306 of the Rural Electrification Act and which meets 
     the requirement of paragraph (2).
       ``(2) User fee requirement.--The requirement of this 
     paragraph is met if the issuer of any rural renaissance bond 
     makes grants for qualified projects as defined under 
     subsection (d)(2) on a semi-annual basis every year that such 
     bond is outstanding in an annual amount equal to one-half of 
     the rate on United States Treasury Bills of the same maturity 
     multiplied by the outstanding principle balance of rural 
     renaissance bonds issued by such issuer.
       ``(k) Special Rules Relating to Pool Bonds.--No portion of 
     a pooled financing bond may be allocable to loan unless the 
     borrower has entered into a written loan commitment for such 
     portion prior to the issue date of such issue.
       ``(l) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Bond.--The term `bond' includes any obligation.
       ``(2) Pooled financing bond.--The term `pooled financing 
     bond' shall have the meaning given such term by section 
     149(f)(4)(A).
       ``(3) Rural area.--The term `rural area' means any area 
     other than--
       ``(A) a city or town which has a population of greater than 
     50,000 inhabitants, or
       ``(B) the urbanized area contiguous and adjacent to such a 
     city or town.
       ``(4) Partnership; s corporation; and other pass-thru 
     entities.--
       ``(A) In general.--Under regulations prescribed by the 
     Secretary, in the case of a partnership, trust, S 
     corporation, or other pass-thru entity, rules similar to the 
     rules of section 41(g) shall apply with respect to the credit 
     allowable under subsection (a).
       ``(B) No basis adjustment.--In the case of a bond held by a 
     partnership or an S corporation, rules similar to the rules 
     under section 1397E(i) shall apply.
       ``(5) Bonds held by regulated investment companies.--If any 
     rural renaissance bond is held by a regulated investment 
     company, the credit determined under subsection (a) shall be 
     allowed to shareholders of such company under procedures 
     prescribed by the Secretary.
       ``(6) Reporting.--Issuers of rural renaissance bonds shall 
     submit reports similar to the reports required under section 
     149(e).''.
       (b) Reporting.--Subsection (d) of section 6049 (relating to 
     returns regarding payments of interest) is amended by adding 
     at the end the following new paragraph:
       ``(9) Reporting of credit on rural renaissance bonds.--
       ``(A) In general.--For purposes of subsection (a), the term 
     `interest' includes amounts includible in gross income under 
     section 54(f) and such amounts shall be treated as paid on 
     the credit allowance date (as defined in section 54(b)(4)).
       ``(B) Reporting to corporations, etc.--Except as otherwise 
     provided in regulations, in the case of any interest 
     described in subparagraph (A), subsection (b)(4) shall be 
     applied without regard to subparagraphs (A), (H), (I), (J), 
     (K), and (L)(i) of such subsection.
       ``(C) Regulatory authority.--The Secretary may prescribe 
     such regulations as are necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations which 
     require more frequent or more detailed reporting.''.
       (c) Conforming Amendment.--The table of sections for 
     subpart H of part IV of subchapter A of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 54A. Credit to holders of rural renaissance bonds.''.

       (d) Issuance of Regulations.--The Secretary of Treasury 
     shall issue regulations required under section 54A of the 
     Internal Revenue Code of 1986 (as added by this section) not 
     later than 120 days after the date of the enactment of this 
     Act.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act and before January 1, 2010.

     SEC. 570. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED 
                   CONTINUING CARE FACILITIES.

       (a) In General.--Subsection (g) of section 7872 is amended 
     to read as follows:
       ``(g) Exception for Loans to Qualified Continuing Care 
     Facilities.--
       ``(1) In general.--This section shall not apply for any 
     calendar year to any below-market loan owed by a facility 
     which on the last day of such year is a continuing care 
     facility, if such loan was made pursuant to a continuing care 
     contract and if the lender (or the lender's spouse) attains 
     age 62 before the close of such year.
       ``(2) Continuing care contract.--For purposes of this 
     section, the term `continuing care contract' means a written 
     contract between an individual and a qualified continuing 
     care facility under which--
       ``(A) the individual or individual's spouse may use a 
     qualified continuing care facility for their life or lives,
       ``(B) the individual or individual's spouse will be 
     provided with housing in an independent living unit (which 
     has additional available facilities outside such unit for the 
     provision of meals and other personal care), an assisted 
     living facility or a nursing facility, as is available in the 
     continuing care facility, as appropriate for the health of 
     such individual or individual's spouse, and
       ``(C) the individual or individual's spouse will be 
     provided assisted living or nursing care as the health of 
     such individual or individual's spouse requires, and as is 
     available in the continuing care facility.
       ``(3) Qualified continuing care facility.--
       ``(A) In general.--For purposes of this section, the term 
     `qualified continuing care facility' means 1 or more 
     facilities--
       ``(i) which are designed to provide services under 
     continuing care contracts,
       ``(ii) that include an independent living unit, plus an 
     assisted living or nursing facility, or both, and
       ``(iii) substantially all of the independent living unit 
     residents of which are covered by continuing care contracts.
       ``(B) Nursing homes excluded.--The term `qualified 
     continuing care facility' shall not include any facility 
     which is of a type which is traditionally considered a 
     nursing home.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to loans made after December 31, 2005.

[[Page S572]]

     SEC. 571. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
                   APPLICABLE TO LARGE INTEGRATED OIL COMPANIES 
                   WHICH ARE DUAL CAPACITY TAXPAYERS.

       (a) In General.--Section 901 (relating to credit for taxes 
     of foreign countries and of possessions of the United 
     States), as amended by this Act, is amended by redesignating 
     subsections (m) and (n) as subsections (n) and (o), 
     respectively, and by inserting after subsection (l) the 
     following new subsection:
       ``(m) Special Rules Relating To Large Integrated Oil 
     Companies Which Are Dual Capacity Taxpayers.--
       ``(1) General rule.--Notwithstanding any other provision of 
     this chapter, any amount paid or accrued by a dual capacity 
     taxpayer which is a large integrated oil company to a foreign 
     country or possession of the United States for any period 
     shall not be considered a tax--
       ``(A) if, for such period, the foreign country or 
     possession does not impose a generally applicable income tax, 
     or
       ``(B) to the extent such amount exceeds the amount 
     (determined in accordance with regulations) which--
       ``(i) is paid by such dual capacity taxpayer pursuant to 
     the generally applicable income tax imposed by the country or 
     possession, or
       ``(ii) would be paid if the generally applicable income tax 
     imposed by the country or possession were applicable to such 
     dual capacity taxpayer.

     Nothing in this paragraph shall be construed to imply the 
     proper treatment of any such amount not in excess of the 
     amount determined under subparagraph (B).
       ``(2) Dual capacity taxpayer.--For purposes of this 
     subsection, the term `dual capacity taxpayer' means, with 
     respect to any foreign country or possession of the United 
     States, a person who--
       ``(A) is subject to a levy of such country or possession, 
     and
       ``(B) receives (or will receive) directly or indirectly a 
     specific economic benefit (as determined in accordance with 
     regulations) from such country or possession.
       ``(3) Generally applicable income tax.--For purposes of 
     this subsection--
       ``(A) In general.--The term `generally applicable income 
     tax' means an income tax (or a series of income taxes) which 
     is generally imposed under the laws of a foreign country or 
     possession on income derived from the conduct of a trade or 
     business within such country or possession.
       ``(B) Exceptions.--Such term shall not include a tax unless 
     it has substantial application, by its terms and in practice, 
     to--
       ``(i) persons who are not dual capacity taxpayers, and
       ``(ii) persons who are citizens or residents of the foreign 
     country or possession.
       ``(4) Large integrated oil company.--For purposes of this 
     subsection, the term `large integrated oil company' means, 
     with respect to any taxable year, an integrated oil company 
     (as defined in section 291(b)(4)) which--
       ``(A) had gross receipts in excess of $1,000,000,000 for 
     such taxable year, and
       ``(B) has an average daily worldwide production of crude 
     oil of at least 500,000 barrels for such taxable year.''
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes paid or accrued in taxable years beginning 
     after the date of the enactment of this Act.
       (2) Contrary treaty obligations upheld.--The amendments 
     made by this section shall not apply to the extent contrary 
     to any treaty obligation of the United States.

     SEC. 572. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                   RESIDENCE BY CERTAIN EMPLOYEES OF THE 
                   INTELLIGENCE COMMUNITY.

       (a) In General.--Subparagraph (A) of section 121(d)(9) 
     (relating to exclusion of gain from sale of principal 
     residence) is amended by striking ``duty'' and all that 
     follows and inserting ``duty--
       ``(i) as a member of the uniformed services,
       ``(ii) as a member of the Foreign Service of the United 
     States, or
       ``(iii) as an employee of the intelligence community.''.
       (b) Employee of Intelligence Community Defined.--
     Subparagraph (C) of section 121(d)(9) is amended by 
     redesignating clause (iv) as clause (v) and by inserting 
     after clause (iii) the following new clause:
       ``(iv) Employee of intelligence community.--The term 
     `employee of the intelligence community' means an employee 
     (as defined by section 2105 of title 5, United States Code) 
     of--

       ``(I) the Office of the Director of National Intelligence,
       ``(II) the Central Intelligence Agency,
       ``(III) the National Security Agency,
       ``(IV) the Defense Intelligence Agency,
       ``(V) the National Geospatial-Intelligence Agency,
       ``(VI) the National Reconnaissance Office,
       ``(VII) any other office within the Department of Defense 
     for the collection of specialized national intelligence 
     through reconnaissance programs,
       ``(VIII) any of the intelligence elements of the Army, the 
     Navy, the Air Force, the Marine Corps, the Federal Bureau of 
     Investigation, the Department of Treasury, the Department of 
     Energy, and the Coast Guard,
       ``(IX) the Bureau of Intelligence and Research of the 
     Department of State, or
       ``(X) any of the elements of the Department of Homeland 
     Security concerned with the analyses of foreign intelligence 
     information.''.

       (c) Special Rule.--Subparagraph (C) of section 121(d)(9), 
     as amended by subsection (b), is amended by adding at the end 
     the following new clause:
       ``(vi) Special rule relating to intelligence community.--An 
     employee of the intelligence community shall not be treated 
     as serving on qualified extended duty unless--

       ``(I) for purposes of such duty such employee has moved 
     from 1 duty station to another, and
       ``(II) at least 1 of such duty stations is located outside 
     of the Washington, District of Columbia, and Baltimore 
     metropolitan statistical areas (as defined by the Secretary 
     of Commerce).''.

       (d) Conforming Amendment.--The heading for section 
     121(d)(9) is amended to read as follows: ``Uniformed 
     services, foreign service, and intelligence community''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to sales or exchanges after the date of the 
     enactment of this Act.

     SEC. 573. DISABILITY PREFERENCE PROGRAM FOR TAX COLLECTION 
                   CONTRACTS.

       (a) In General.--The Secretary of the Treasury shall not 
     enter into any qualified tax collection contract after April 
     1, 2006, until the Secretary implements a disability 
     preference program that meets the requirements of subsection 
     (b).
       (b) Disability Preference Program Requirements.--
       (1) In general.--A disability preference program meets the 
     requirements of this subsection if such program requires that 
     not less than 10 percent of the accounts of each dollar value 
     category are awarded to persons described in paragraph (2).
       (2) Person described.--For purposes of paragraph (1), a 
     person is described in this paragraph if--
       (A) as of the date any qualified tax collection contract is 
     awarded--
       (i) such person employs not less than 50 severely disabled 
     individuals within the United States; or
       (ii) not less than 30 percent of the employees of such 
     person within the United States are severely disabled 
     individuals;
       (B) such person agrees as a condition of the qualified tax 
     collection contract that not more than 90 days after the date 
     such contract is awarded, not less than 35 percent of the 
     employees of such person employed in connection with 
     providing services under such contract shall--
       (i) be hired after the date such contract is awarded; and
       (ii) be severely disabled individuals; and
       (C) such person is otherwise qualified to perform the 
     services required.
       (c) Definitions.--For purposes of this section--
       (1) Qualified tax collection contract.--The term 
     ``qualified tax collection contract'' shall have the meaning 
     given such term under section 6306(b) of the Internal Revenue 
     Code of 1986.
       (2) Dollar value category.--The term ``dollar value 
     category'' means the dollar ranges of accounts for collection 
     as determined and assigned by the Secretary under section 
     6306(b)(1)(B) of the Internal Revenue Code of 1986 with 
     respect to a qualified tax collection contract.
       (3) Severely disabled individual.--The term ``severely 
     disabled individual'' means--
       (A) a veteran of the United States armed forces with a 
     disability of 50 percent or greater--
       (i) determined by the Secretary of Veterans Affairs to be 
     service-connected; or
       (ii) deemed by law to be service-connected; or
       (B) any individual who is a disabled beneficiary (as 
     defined in section 1148(k)(2) of the Social Security Act (42 
     U.S.C. 1320b-19(k)(2))) or who would be considered to be such 
     a disabled beneficiary but for having income or resources in 
     excess of the income or resources eligibility limits 
     established under title XVI of the Social Security Act (42 
     U.S.C. 1381 et seq.), respectively.

           TITLE VI--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

     SEC. 601. SUNSET OF CERTAIN PROVISIONS AND AMENDMENTS.

       The provisions of, and amendments made by, title I, title 
     II, subtitle A of title III, and title IV shall not apply to 
     taxable years beginning after September 30, 2010, and the 
     Internal Revenue Code of 1986 shall be applied and 
     administered to such years as if such provisions and 
     amendments had never been enacted.
                                 ______
                                 
  SA 2708. Mr. FRIST (for Mr. Grassley (for himself and Mr. Baucus)) 
proposed an amendment to amendment SA 2707 proposed by Mr. Frist (for 
Mr. Grassley (for himself and Baucus)) to the bill H.R. 4297, to 
provide for reconciliation pursuant to section 201(b) of the concurrent 
resolution on the budget for fiscal year 2006; as follows:

       Strike all after the first word and insert the following:

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

       (a) Short Title.--This Act may be cited as the ``Tax Relief 
     Act of 2005''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in

[[Page S573]]

     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 EXPIRING PROVISIONS

Sec. 101. Extension of increased expensing for small business.
Sec. 102. Credit for elective deferrals and IRA contributions.
Sec. 103. Above-the-line deduction for higher education.
Sec. 104. Extension and modification of new markets tax credit.
Sec. 105. Election to deduct State and local general sales taxes.
Sec. 106. Extension and increase in minimum tax relief to individuals.
Sec. 107. Allowance of nonrefundable personal credits against regular 
              and alternative minimum tax liability.
Sec. 108. Extension and modification of research credit.
Sec. 109. Work opportunity tax credit and welfare-to-work credit.
Sec. 110. Qualified zone academy bonds.
Sec. 111. Deduction for corporate donations of computer technology and 
              equipment.
Sec. 112. Above-the-line deduction for certain expenses of elementary 
              and secondary school teachers.
Sec. 113. Expensing of brownfields remediation costs.
Sec. 114. Tax incentives for investment in the District of Columbia.
Sec. 115. Indian employment tax credit.
Sec. 116. Accelerated depreciation for business property on Indian 
              reservation.
Sec. 117. Fifteen-year straight-line cost recovery for qualified 
              leasehold improvements and qualified restaurant 
              improvements.
Sec. 118. Extension of full credit for qualified electric vehicles.
Sec. 119. Application of EGTRRA sunset to this title.

         TITLE II--PROVISIONS RELATING TO CHARITABLE DONATIONS

                Subtitle A--Charitable Giving Incentives

Sec. 201. Charitable deduction for nonitemizers.
Sec. 202. Tax-free distributions from individual retirement plans for 
              charitable purposes.
Sec. 203. Modification of charitable deduction for contributions of 
              food inventory.
Sec. 204. Basis adjustment to stock of S corporation contributing 
              property.
Sec. 205. Modification of charitable deduction for contributions of 
              book inventory.
Sec. 206. Modification of tax treatment of certain payments to 
              controlling exempt organizations and public disclosure of 
              information relating to unrelated business income.
Sec. 207. Encouragement of contributions of capital gain real property 
              made for conservation purposes.
Sec. 208. Enhanced deduction for charitable contribution of literary, 
              musical, artistic, and scholarly compositions.
Sec. 209. Mileage reimbursements to charitable volunteers excluded from 
              gross income.
Sec. 210. Alternative percentage limitation for corporate charitable 
              contributions to the mathematics and science partnership 
              program.

             Subtitle B--Reforming Charitable Organizations

                        PART I--General Reforms

Sec. 211. Tax involvement by exempt organizations in tax shelter 
              transactions.
Sec. 212. Excise tax on certain acquisitions of interests in insurance 
              contracts in which certain exempt organizations hold an 
              interest.
Sec. 213. Increase in penalty excise taxes on public charities, social 
              welfare organizations, and private foundations.
Sec. 214. Reform of charitable contributions of certain easements on 
              buildings in registered historic districts.
Sec. 215. Charitable contributions of taxidermy property.
Sec. 216. Recapture of tax benefit for charitable contributions of 
              exempt use property not used for an exempt use.
Sec. 217. Limitation of deduction for charitable contributions of 
              clothing and household items.
Sec. 218. Modification of recordkeeping requirements for certain 
              charitable contributions.
Sec. 219. Contributions of fractional interests in tangible personal 
              property.
Sec. 220. Provisions relating to substantial and gross overstatements 
              of valuations of charitable deduction property.
Sec. 221. Additional standards for credit counseling organizations.
Sec. 222. Expansion of the base of tax on private foundation net 
              investment income.
Sec. 223. Definition of convention or association of churches.
Sec. 224. Notification requirement for entities not currently required 
              to file.
Sec. 225. Disclosure to State officials of proposed actions related to 
              exempt organizations.

        PART II--Improved Accountability of Donor Advised Funds

Sec. 231. Excise tax on sponsoring organizations of donor advised funds 
              for failure to meet distribution requirements.
Sec. 232. Prohibited transactions.
Sec. 233. Treatment of charitable contribution deductions to donor 
              advised funds.
Sec. 234. Returns of, and applications for recognition by, sponsoring 
              organizations.

     PART III--Improved Accountability of Supporting Organizations

Sec. 241. Requirements for supporting organizations.
Sec. 242. Excise tax on supporting organizations for failure to meet 
              distribution requirements.
Sec. 243. Excess benefit transactions.
Sec. 244. Excess business holdings of supporting organizations.
Sec. 245. Treatment of amounts paid to supporting organizations by 
              private foundations.
Sec. 246. Returns of supporting organizations.

                  TITLE III--MISCELLANEOUS PROVISIONS

Sec. 301. Restructuring of New York Liberty Zone tax credits.
Sec. 302. Modification to S corporation passive investment income 
              rules.
Sec. 303. Modification of effective date of disregard of certain 
              capital expenditures for purposes of qualified small 
              issue bonds.
Sec. 304. Premiums for mortgage insurance.
Sec. 305. Sense of the Senate on use of no-bid contracting by Federal 
              Emergency Management Agency.
Sec. 306. Sense of Congress regarding Doha Round.
Sec. 307. Modification of bond rule.
Sec. 308. Treatment of certain stock option plans under nonqualified 
              deferred compensation rules.
Sec. 309. Sense of the Senate regarding the dedication of excess funds.
Sec. 310. Modification of treatment of loans to qualified continuing 
              care facilities.
Sec. 311. Exclusion of gain from sale of a principal residence by 
              certain employees of the intelligence community.

                  TITLE IV--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed to Curtail Tax Shelters

Sec. 401. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 402. Frivolous tax submissions.
Sec. 403. Penalty for promoting abusive tax shelters.
Sec. 404. Penalty for aiding and abetting the understatement of tax 
              liability.

                Subtitle B--Economic Substance Doctrine

Sec. 411. Clarification of economic substance doctrine.
Sec. 412. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 413. Denial of deduction for interest on underpayments 
              attributable to noneconomic substance transactions.

   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

Sec. 421. Waiver of user fee for installment agreements using automated 
              withdrawals.
Sec. 422. Termination of installment agreements.
Sec. 423. Partial payments required with submission of offers-in-
              compromise.

                    Subtitle D--Penalties and Fines

Sec. 431. Increase in criminal monetary penalty limitation for the 
              underpayment or overpayment of tax due to fraud.
Sec. 432. Doubling of certain penalties, fines, and interest on 
              underpayments related to certain offshore financial 
              arrangements.
Sec. 433. Denial of deduction for certain fines, penalties, and other 
              amounts.
Sec. 434. Denial of deduction for punitive damages.
Sec. 435. Increase in penalty for bad checks and money orders.

           Subtitle E--Provisions to Discourage Expatriation

Sec. 441. Tax treatment of inverted entities.
Sec. 442. Revision of tax rules on expatriation of individuals.

                  Subtitle F--Miscellaneous Provisions

Sec. 451. Treatment of contingent payment convertible debt instruments.

[[Page S574]]

Sec. 452. Grant of Treasury regulatory authority to address foreign tax 
              credit transactions involving inappropriate separation of 
              foreign taxes from related foreign income.
Sec. 453. Repeal of special property exception to leasing provisions of 
              the American Jobs Creation Act of 2004.
Sec. 454. Application of earnings stripping rules to partners which are 
              corporations.
Sec. 455. Limitation of employer deduction for certain entertainment 
              expenses.
Sec. 456. Increase in age of minor children whose unearned income is 
              taxed as if parent's income.
Sec. 457. Loan and redemption requirements on pooled financing 
              requirements.
Sec. 458. Reporting of interest on tax-exempt bonds.
Sec. 459. Modification of credit for producing fuel from a 
              nonconventional source.
Sec. 460. Modification of individual estimated tax safe harbor.
Sec. 461. Revaluation of LIFO inventories of large integrated oil 
              companies.
Sec. 462. Elimination of amortization of geological and geophysical 
              expenditures for major integrated oil companies.
Sec. 463. Valuation of employee personal use of noncommercial aircraft.
Sec. 464. Application of FIRPTA to regulated investment companies.
Sec. 465. Treatment of distributions attributable to FIRPTA gains.
Sec. 466. Prevention of avoidance of tax on investments of foreign 
              persons in United States real property through wash sale 
              transactions.
Sec. 467. Modifications to rules relating to taxation of distributions 
              of stock and securities of a controlled corporation.
Sec. 468. Amortization of expenses incurred in creating or acquiring 
              music or music copyrights.
Sec. 469. Credit to holders of rural renaissance bonds.
Sec. 470. Modifications of foreign tax credit rules applicable to large 
              integrated oil companies which are dual capacity 
              taxpayers.
Sec. 471. Disability preference program for tax collection contracts.

           TITLE V--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

Sec. 501. Sunset of certain provisions and amendments.

               TITLE I--EXTENSION OF EXPIRING PROVISIONS

     SEC. 101. EXTENSION OF INCREASED EXPENSING FOR SMALL 
                   BUSINESS.

       Section 179 is amended by striking ``2008'' each place it 
     appears and inserting ``2010''.

     SEC. 102. CREDIT FOR ELECTIVE DEFERRALS AND IRA 
                   CONTRIBUTIONS.

       Section 25B(h) is amended by striking ``2006'' and 
     inserting ``2009''.

     SEC. 103. ABOVE-THE-LINE DEDUCTION FOR HIGHER EDUCATION.

       (a) In General.--Section 222(e) is amended by striking 
     ``2005''and inserting ``2009''.
       (b) Conforming Amendments.--Section 222(b)(2)(B) is 
     amended--
       (1) by striking ``a taxable year beginning in 2004 or 
     2005'' and inserting ``any taxable year beginning after 
     2003'', and
       (2) by striking ``2004 and 2005'' and inserting ``after 
     2003''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 104. EXTENSION AND MODIFICATION OF NEW MARKETS TAX 
                   CREDIT.

       (a) Extension.--Section 45D(f)(1)(D) is amended by striking 
     ``and 2007'' and inserting ``, 2007, and 2008''.
       (b) Regulations Regarding Non-Metropolitan Counties.--
     Section 45D(i) is amended by striking ``and'' at the end of 
     paragraph (4), by striking the period at the end of paragraph 
     (5) and inserting ``, and'', and by adding at the end by the 
     following new paragraph:
       ``(6) which ensure that non-metropolitan counties receive a 
     proportional allocation of qualified equity investments.''.

     SEC. 105. ELECTION TO DEDUCT STATE AND LOCAL GENERAL SALES 
                   TAXES.

       (a) In General.--Section 164(b)(5)(I) is amended by 
     striking ``2006'' and inserting ``2008''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 106. EXTENSION AND INCREASE IN MINIMUM TAX RELIEF TO 
                   INDIVIDUALS.

       (a) In General.--Section 55(d)(1) is amended--
       (1) by striking ``$58,000'' and all that follows through 
     ``2005'' in subparagraph (A) and inserting ``$62,550 in the 
     case of taxable years beginning in 2006'', and
       (2) by striking ``$40,250'' and all that follows through 
     ``2005'' in subparagraph (B) and inserting ``$42,500 in the 
     case of taxable years beginning in 2006''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 107. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST 
                   REGULAR AND ALTERNATIVE MINIMUM TAX LIABILITY.

       (a) In General.--Paragraph (2) of section 26(a) is 
     amended--
       (1) by striking ``2005'' in the heading thereof and 
     inserting ``2007'', and
       (2) by striking ``or 2005'' and inserting ``2005, 2006, or 
     2007''.
       (b) Conforming Provisions.--
       (1) Section 30B(g) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rule for 2006 and 2007.--For purposes of any 
     taxable year beginning during 2006 or 2007, the credit 
     allowed under subsection (a) (after the application of 
     paragraph (1)) shall not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under subpart A and 
     this subpart (other than this section and section 30C).''.
       (2) Section 30C(d) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rule for 2006 and 2007.--For purposes of any 
     taxable year beginning during 2006 or 2007, the credit 
     allowed under subsection (a) (after the application of 
     paragraph (1)) shall not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under subpart A and 
     this subpart (other than this section).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 108. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

       (a) Extension.--
       (1) In general.--Section 41(h)(1)(B) is amended by striking 
     ``2005'' and inserting ``2007''.
       (2) Conforming amendment.--Section 45C(b)(1)(D) is amended 
     by striking ``2005'' and inserting ``2007''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2005.
       (b) Increase in Rates of Alternative Incremental Credit.--
     Subparagraph (A) of section 41(c)(4) (relating to election of 
     alternative incremental credit) is amended--
       (1) by striking ``2.65 percent'' and inserting ``3 
     percent'',
       (2) by striking ``3.2 percent'' and inserting ``4 
     percent'', and
       (3) by striking ``3.75 percent'' and inserting ``5 
     percent''.
       (c) Alternative Simplified Credit for Qualified Research 
     Expenses.--
       (1) In general.--Subsection (c) of section 41 (relating to 
     base amount) is amended by redesignating paragraphs (5) and 
     (6) as paragraphs (6) and (7), respectively, and by inserting 
     after paragraph (4) the following new paragraph:
       ``(5) Election of alternative simplified credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     12 percent of so much of the qualified research expenses for 
     the taxable year as exceeds 50 percent of the average 
     qualified research expenses for the 3 taxable years preceding 
     the taxable year for which the credit is being determined.
       ``(B) Special rule in case of no qualified research 
     expenses in any of 3 preceding taxable years.--
       ``(i) Taxpayers to which subparagraph applies.--The credit 
     under this paragraph shall be determined under this 
     subparagraph if the taxpayer has no qualified research 
     expenses in any 1 of the 3 taxable years preceding the 
     taxable year for which the credit is being determined.
       ``(ii) Credit rate.--The credit determined under this 
     subparagraph shall be equal to 6 percent of the qualified 
     research expenses for the taxable year.
       ``(C) Election.--An election under this paragraph shall 
     apply to the taxable year for which made and all succeeding 
     taxable years unless revoked with the consent of the 
     Secretary. An election under this paragraph may not be made 
     for any taxable year to which an election under paragraph (4) 
     applies.''.
       (2) Coordination with election of alternative incremental 
     credit.--
       (A) In general.--Section 41(c)(4)(B) (relating to election) 
     is amended by adding at the end the following: ``An election 
     under this paragraph may not be made for any taxable year to 
     which an election under paragraph (5) applies.''.
       (B) Transition rule.--In the case of an election under 
     section 41(c)(4) of the Internal Revenue Code of 1986 which 
     applies to the taxable year which includes the date of the 
     enactment of this Act, such election shall be treated as 
     revoked with the consent of the Secretary of the Treasury if 
     the taxpayer makes an election under section 41(c)(5) of such 
     Code (as added by subsection (a)) for such year.
       (d) Expansion of Credit to Expenses of General 
     Collaborative Research Consortia.--Section 41 is amended--
       (1) by striking ``an energy research consortium'' in 
     subsections (a)(3) and (b)(3)(C)(i) and inserting ``a 
     research consortium'',
       (2) by striking ``energy'' each place it appears in 
     subsection (f)(6)(A),
       (3) by inserting ``or 501(c)(6)'' after ``section 
     501(c)(3)'' in subsection (f)(6)(A)(i)(I), and
       (4) by striking ``Energy research'' in the heading for 
     subsection (f)(6) and inserting ``Research''.
       (e) Effective Date.--Except as provided in subsection 
     (a)(3), the amendments made by

[[Page S575]]

     this section shall apply to taxable years ending after 
     December 31, 2005.

     SEC. 109. WORK OPPORTUNITY TAX CREDIT AND WELFARE-TO-WORK 
                   CREDIT.

       (a) In General.--Section 51(c)(4)(B) is amended by striking 
     ``2005'' and inserting ``2007''.
       (b) Eligibility of Ex-Felons Determined Without Regard to 
     Family Income.--Paragraph (4) of section 51(d) is amended by 
     adding ``and'' at the end of subparagraph (A), by striking 
     ``, and'' at the end of subparagraph (B) and inserting a 
     period, and by striking all that follows subparagraph (B).
       (c) Increase in Maximum Age for Eligibility of Food Stamp 
     Recipients.--Clause (i) of section 51(d)(8)(A) is amended by 
     striking ``25'' and inserting ``40''.
       (d) Increase in Maximum Age for Designated Community 
     Residents.--
       (1) In general.--Paragraph (5) of section 51(d) is amended 
     to read as follows:
       ``(5) Designated community residents.--
       ``(A) In general.--The term `designated community resident' 
     means any individual who is certified by the designated local 
     agency--
       ``(i) as having attained age 18 but not age 40 on the 
     hiring date, and
       ``(ii) as having his principal place of abode within an 
     empowerment zone, enterprise community, or renewal community.
       ``(B) Individual must continue to reside in zone or 
     community.--In the case of a designated community resident, 
     the term `qualified wages' shall not include wages paid or 
     incurred for services performed while the individual's 
     principal place of abode is outside an empowerment zone, 
     enterprise community, or renewal community.''
       (2) Conforming amendment.--Subparagraph (D) of section 
     51(d)(1) is amended to read as follows:
       ``(D) a designated community resident,''.
       (e) Consolidation of Work Opportunity Credit With Welfare-
     To-Work Credit.--
       (1) In general.--Paragraph (1) of section 51(d) is amended 
     by striking ``or'' at the end of subparagraph (G), by 
     striking the period at the end of subparagraph (H) and 
     inserting ``, or'', and by adding at the end the following 
     new subparagraph:
       ``(I) a long-term family assistance recipient.''
       (2) Long-term family assistance recipient.--Subsection (d) 
     of section 51 is amended by redesignating paragraphs (10) 
     through (12) as paragraphs (11) through (13), respectively, 
     and by inserting after paragraph (9) the following new 
     paragraph:
       ``(10) Long-term family assistance recipient.--The term 
     `long-term family assistance recipient' means any individual 
     who is certified by the designated local agency--
       ``(A) as being a member of a family receiving assistance 
     under a IV-A program (as defined in paragraph (2)(B)) for at 
     least the 18-month period ending on the hiring date,
       ``(B)(i) as being a member of a family receiving such 
     assistance for 18 months beginning after August 5, 1997, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the end of the earliest such 18-month period, or
       ``(C)(i) as being a member of a family which ceased to be 
     eligible for such assistance by reason of any limitation 
     imposed by Federal or State law on the maximum period such 
     assistance is payable to a family, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the date of such cessation.''
       (3) Increased credit for employment of long-term family 
     assistance recipients.--Section 51 is amended by inserting 
     after subsection (d) the following new subsection:
       ``(e) Credit for Second-Year Wages for Employment of Long-
     Term Family Assistance Recipients.--
       ``(1) In general.--With respect to the employment of a 
     long-term family assistance recipient--
       ``(A) the amount of the work opportunity credit determined 
     under this section for the taxable year shall include 50 
     percent of the qualified second-year wages for such year, and
       ``(B) in lieu of applying subsection (b)(3), the amount of 
     the qualified first-year wages, and the amount of qualified 
     second-year wages, which may be taken into account with 
     respect to such a recipient shall not exceed $10,000 per 
     year.
       ``(2) Qualified second-year wages.--For purposes of this 
     subsection, the term `qualified second-year wages' means 
     qualified wages--
       ``(A) which are paid to a long-term family assistance 
     recipient, and
       ``(B) which are attributable to service rendered during the 
     1-year period beginning on the day after the last day of the 
     1-year period with respect to such recipient determined under 
     subsection (b)(2).
       ``(3) Special rules for agricultural and railway labor.--If 
     such recipient is an employee to whom subparagraph (A) or (B) 
     of subsection (h)(1) applies, rules similar to the rules of 
     such subparagraphs shall apply except that--
       ``(A) such subparagraph (A) shall be applied by 
     substituting `$10,000' for `$6,000', and
       ``(B) such subparagraph (B) shall be applied by 
     substituting `$833.33' for `$500'.''
       (4) Repeal of separate welfare-to-work credit.--
       (A) In general.--Section 51A is hereby repealed.
       (B) Clerical amendment.--The table of sections for subpart 
     F of part IV of subchapter A of chapter 1 is amended by 
     striking the item relating to section 51A.
       (f) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 2005.

     SEC. 110. QUALIFIED ZONE ACADEMY BONDS.

       (a) In General.--Paragraph (1) of section 1397E(e) is 
     amended by striking ``and 2005'' and inserting ``2005, 2006, 
     and 2007''.
       (b) Form of Private Business Contributions.--Section 
     1397E(d)(2)(B) is amended by striking ``any contribution'' 
     and all that follows and inserting ``any cash or cash 
     equivalent contribution''.
       (c) Special Rules Relating to Amortization, Expenditures, 
     Arbitrage, and Reporting.--
       (1) In general.--Section 1397E is amended--
       (A) in subsection (d)(1), by striking ``and'' at the end of 
     subparagraph (C)(iii), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) the issue meets the requirements of subsections (f), 
     (g), (h), and (i).'', and
       (B) by redesignating subsections (f), (g), (h), and (i) as 
     subsection (j), (k), (l), and (m), respectively, and by 
     inserting after subsection (e) the following new subsections:
       ``(f) Ratable Principal Amortization Required.--An issue 
     shall be treated as meeting the requirements of this 
     subsection if such issue provides for an equal amount of 
     principal to be paid by the issuer during each calendar year 
     that the issue is outstanding.
       ``(g) Special Rules Relating to Expenditures.--
       ``(1) In general.--An issue shall be treated as meeting the 
     requirements of this subsection if, as of the date of 
     issuance, the issuer reasonably expects--
       ``(A) at least 95 percent of the proceeds from the sale of 
     the issue are to be spent for 1 or more qualified purposes 
     with respect to qualified zone academies within the 5-year 
     period beginning on the date of issuance of the qualified 
     zone academy bond,
       ``(B) a binding commitment with a third party to spend at 
     least 10 percent of the proceeds from the sale of the issue 
     will be incurred within the 6-month period beginning on the 
     date of issuance of the qualified zone academy bond, and
       ``(C) such purposes will be completed with due diligence 
     and the proceeds from the sale of the issue will be spent 
     with due diligence.
       ``(2) Extension of period.--Upon submission of a request 
     prior to the expiration of the period described in paragraph 
     (1)(A), the Secretary may extend such period if the issuer 
     establishes that the failure to satisfy the 5-year 
     requirement is due to reasonable cause and the related 
     purposes will continue to proceed with due diligence.
       ``(3) Failure to spend required amount of bond proceeds 
     within 5 years.--To the extent that less than 95 percent of 
     the proceeds of such issue are expended by the close of the 
     5-year period beginning on the date of issuance (or if an 
     extension has been obtained under paragraph (2), by the close 
     of the extended period), the issuer shall redeem all of the 
     nonqualified bonds within 90 days after the end of such 
     period. For purposes of this paragraph, the amount of the 
     nonqualified bonds required to be redeemed shall be 
     determined in the same manner as under section 142.
       ``(h) Special Rules Relating to Arbitrage.--An issue shall 
     be treated as meeting the requirements of this subsection if 
     the issuer satisfies the arbitrage requirements of section 
     148 with respect to proceeds of the issue.
       ``(i) Reporting.--Issuers of qualified academy zone bonds 
     shall submit reports similar to the reports required under 
     section 149(e).''.
       (2) Conforming amendments.--
       (A) Section 1397E(d)(3) is amended by inserting ``without 
     regard to the requirements of subsection (f) and'' after 
     ``Such present value shall be determined''.
       (B) Sections 54(l)(3)(B) and 1400N(l)(7)(B)(ii) are each 
     amended by striking ``section 1397E(i)'' and inserting 
     ``section 1397E(l)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after December 31, 2005.

     SEC. 111. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER 
                   TECHNOLOGY AND EQUIPMENT.

       (a) In General.--Section 170(e)(6)(G) is amended by 
     striking ``2005'' and inserting ``2007''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 112. ABOVE-THE-LINE DEDUCTION FOR CERTAIN EXPENSES OF 
                   ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

       (a) In General.--Subparagraph (D) of section 62(a)(2) is 
     amended by striking ``or 2005'' and inserting ``2005, 2006, 
     or 2007''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 113. EXPENSING OF BROWNFIELDS REMEDIATION COSTS.

       (a) Extension.--Subsection (h) of section 198 is amended by 
     striking ``2005'' and inserting ``2007''.
       (b) Expansion.--Section 198(d)(1) (defining hazardous 
     substance) is amended by striking ``and'' at the end of 
     subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any petroleum product (as defined in section 
     4612(a)(3)).''.

[[Page S576]]

       (c) Effective Date.--The amendments made by this section 
     shall apply to expenditures paid or incurred after December 
     31, 2005.

     SEC. 114. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF 
                   COLUMBIA.

       (a) Designation of Zone.--
       (1) In general.--Subsection (f) of section 1400 is amended 
     by striking ``2005'' both places it appears and inserting 
     ``2006''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to periods beginning after December 31, 2005.
       (b) Tax-Exempt Economic Development Bonds.--
       (1) In general.--Subsection (b) of section 1400A is amended 
     by striking ``2005'' and inserting ``2006''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to bonds issued after December 31, 2005.
       (c) Zero Percent Capital Gains Rate.--
       (1) In general.--Subsection (b) of section 1400B is amended 
     by striking ``2006'' each place it appears and inserting 
     ``2007''.
       (2) Conforming amendments.--
       (A) Section 1400B(e)(2) is amended--
       (i) by striking ``2010'' and inserting ``2011'', and
       (ii) by striking ``2010'' in the heading thereof and 
     inserting ``2011''.
       (B) Section 1400B(g)(2) is amended by striking ``2010'' and 
     inserting ``2011''.
       (C) Section 1400F(d) is amended by striking ``2010'' and 
     inserting ``2011''.
       (3) Effective dates.--
       (A) Extension.--The amendments made by paragraph (1) shall 
     apply to acquisitions after December 31, 2005.
       (B) Conforming amendments.--The amendments made by 
     paragraph (2) shall take effect on the date of the enactment 
     of this Act.
       (d) First-Time Homebuyer Credit.--
       (1) In general.--Subsection (i) of section 1400C is amended 
     by striking ``2006'' and inserting ``2007''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to property purchased after December 31, 2005.

     SEC. 115. INDIAN EMPLOYMENT TAX CREDIT.

       (a) In General.--Section 45A(f) is amended by striking 
     ``2005'' and inserting ``2007''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 116. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON 
                   INDIAN RESERVATION.

       (a) In General.--Section 168(j)(8) is amended by striking 
     ``2005'' and inserting ``2007''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to property placed in service after December 31, 
     2005.

     SEC. 117. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY FOR 
                   QUALIFIED LEASEHOLD IMPROVEMENTS AND QUALIFIED 
                   RESTAURANT IMPROVEMENTS.

       (a) In General.--Clauses (iv) and (v) of section 
     168(e)(3)(E) are each amended by striking ``2006'' and 
     inserting ``2008''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after December 31, 
     2005.

     SEC. 118. EXTENSION OF FULL CREDIT FOR QUALIFIED ELECTRIC 
                   VEHICLES.

       (a) In General.--Section 30(e) is amended by striking 
     ``2006'' and inserting ``2007''.
       (b) Repeal of Phaseout.--Section 30(b) (relating to 
     limitations) is amended by striking paragraph (2) and by 
     redesignating paragraph (3) as paragraph (2).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 119. 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--PROVISIONS RELATING TO CHARITABLE DONATIONS

                Subtitle A--Charitable Giving Incentives

     SEC. 201. CHARITABLE DEDUCTION FOR NONITEMIZERS.

       (a) In General.--Section 170 (relating to charitable, etc., 
     contributions and gifts) is amended by redesignating 
     subsection (o) as subsection (p) and by inserting after 
     subsection (n) the following new subsection:
       ``(o) Deduction for Individuals Not Itemizing Deductions.--
     In the case of an individual who does not itemize deductions 
     for any taxable year beginning after December 31, 2005, and 
     before January 1, 2008, there shall be taken into account as 
     a direct charitable deduction under section 63 an amount 
     equal to the amount allowable under subsection (a) for the 
     taxable year for cash contributions (determined without 
     regard to any carryover).''.
       (b) Direct Charitable Deduction.--
       (1) In general.--Subsection (b) of section 63 (defining 
     taxable income) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) the direct charitable deduction.''.
       (2) Definition.--Section 63 is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Direct Charitable Deduction.--For purposes of this 
     section, the term `direct charitable deduction' means that 
     portion of the amount allowable under section 170(a) which is 
     taken as a direct charitable deduction for the taxable year 
     under section 170(o).''.
       (3) Conforming amendment.--Subsection (d) of section 63 is 
     amended by striking ``and'' at the end of paragraph (1), by 
     striking the period at the end of paragraph (2) and inserting 
     ``, and'', and by adding at the end the following new 
     paragraph:
       ``(3) the direct charitable deduction.''.
       (c) Floor on Charitable Contributions by Individuals.--
     Section 170(a) is amended by adding at the end the following 
     new paragraph:
       ``(4) Dollar floor on charitable contributions by 
     individuals.--In the case of an individual, for any taxable 
     year beginning after December 31, 2005, and before January 1, 
     2008, the amount otherwise allowed as a deduction under 
     paragraph (1) shall be allowed only to the extent that such 
     amount exceeds $210 ($420 in the case of a joint return).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 202. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT 
                   PLANS FOR CHARITABLE PURPOSES.

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

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

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

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

     A distribution shall be treated as a qualified charitable 
     distribution only to the extent that the distribution would 
     be includible in gross income without regard to subparagraph 
     (A) and, in the case of a distribution to a split-interest 
     entity, only if no person holds an income interest in the 
     amounts in the split-interest entity attributable to such 
     distribution other than one or more of the following: the 
     individual for whose benefit such plan is maintained, the 
     spouse of such individual, or any organization described in 
     section 170(c).
       ``(C) Contributions must be otherwise deductible.--For 
     purposes of this paragraph--
       ``(i) Direct contributions.--A distribution to an 
     organization described in section 170(c) shall be treated as 
     a qualified charitable distribution only if a deduction for 
     the entire distribution would be allowable under section 170 
     (determined without regard to subsections (a)(4) and (b) 
     thereof and this paragraph).
       ``(ii) Split-interest gifts.--A distribution to a split-
     interest entity shall be treated as a qualified charitable 
     distribution only if a deduction for the entire value of the 
     interest in the distribution for the use of an organization 
     described in section 170(c) would be allowable under section 
     170 (determined without regard to subsections (a)(4) and (b) 
     thereof and this paragraph).
       ``(D) Application of section 72.--Notwithstanding section 
     72, in determining the extent to which a distribution is a 
     qualified charitable distribution, the entire amount of the 
     distribution shall be treated as includible in gross income 
     without regard to subparagraph (A) to the extent that such 
     amount does not exceed the aggregate amount which would have 
     been so includible if all amounts distributed from all 
     individual retirement plans were treated as 1 contract under 
     paragraph (2)(A) for purposes of determining the inclusion of 
     such distribution under section 72. Proper adjustments shall 
     be made in applying section 72 to other distributions in such 
     taxable year and subsequent taxable years.
       ``(E) Special rules for split-interest entities.--
       ``(i) Charitable remainder trusts.--Notwithstanding section 
     664(b), distributions made from a trust described in 
     subparagraph (G)(i) shall be treated as ordinary income in 
     the hands of the beneficiary to whom is paid the annuity 
     described in section 664(d)(1)(A) or the payment described in 
     section 664(d)(2)(A).
       ``(ii) Pooled income funds.--No amount shall be includible 
     in the gross income of a pooled income fund (as defined in 
     subparagraph (G)(ii)) by reason of a qualified charitable 
     distribution to such fund, and all distributions from the 
     fund which are attributable to qualified charitable 
     distributions shall be treated as ordinary income to the 
     beneficiary.
       ``(iii) Charitable gift annuities.--Qualified charitable 
     distributions made for a charitable gift annuity shall not be 
     treated as an investment in the contract.
       ``(F) Denial of deduction.--Qualified charitable 
     distributions shall not be taken into account in determining 
     the deduction under section 170.
       ``(G) Split-interest entity defined.--For purposes of this 
     paragraph, the term `split-interest entity' means--

[[Page S577]]

       ``(i) a charitable remainder annuity trust or a charitable 
     remainder unitrust (as such terms are defined in section 
     664(d)) which must be funded exclusively by qualified 
     charitable distributions,
       ``(ii) a pooled income fund (as defined in section 
     642(c)(5)), but only if the fund accounts separately for 
     amounts attributable to qualified charitable distributions, 
     and
       ``(iii) a charitable gift annuity (as defined in section 
     501(m)(5)).
       ``(H) Termination.--This paragraph shall not apply to 
     distributions made in taxable years beginning after December 
     31, 2007.''.
       (b) Modifications Relating to Information Returns by 
     Certain Trusts.--
       (1) Returns.--Section 6034 (relating to returns by trusts 
     described in section 4947(a)(2) or claiming charitable 
     deductions under section 642(c)) is amended to read as 
     follows:

     ``SEC. 6034. RETURNS BY CERTAIN TRUSTS.

       ``(a) Split-Interest Trusts.--Every trust described in 
     section 4947(a)(2) shall furnish such information with 
     respect to the taxable year as the Secretary may by forms or 
     regulations require.
       ``(b) Trusts Claiming Certain Charitable Deductions.--
       ``(1) In general.--Every trust not required to file a 
     return under subsection (a) but claiming a deduction under 
     section 642(c) for the taxable year shall furnish such 
     information with respect to such taxable year as the 
     Secretary may by forms or regulations prescribe, including--
       ``(A) the amount of the deduction taken under section 
     642(c) within such year,
       ``(B) the amount paid out within such year which represents 
     amounts for which deductions under section 642(c) have been 
     taken in prior years,
       ``(C) the amount for which such deductions have been taken 
     in prior years but which has not been paid out at the 
     beginning of such year,
       ``(D) the amount paid out of principal in the current and 
     prior years for the purposes described in section 642(c),
       ``(E) the total income of the trust within such year and 
     the expenses attributable thereto, and
       ``(F) a balance sheet showing the assets, liabilities, and 
     net worth of the trust as of the beginning of such year.
       ``(2) Exceptions.--Paragraph (1) shall not apply to a trust 
     for any taxable year if--
       ``(A) all the net income for such year, determined under 
     the applicable principles of the law of trusts, is required 
     to be distributed currently to the beneficiaries, or
       ``(B) the trust is described in section 4947(a)(1).''.
       (2) Increase in penalty relating to filing of information 
     return by split-interest trusts.--Paragraph (2) of section 
     6652(c) (relating to returns by exempt organizations and by 
     certain trusts) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Split-interest trusts.--In the case of a trust which 
     is required to file a return under section 6034(a), 
     subparagraphs (A) and (B) of this paragraph shall not apply 
     and paragraph (1) shall apply in the same manner as if such 
     return were required under section 6033, except that--
       ``(i) the 5 percent limitation in the second sentence of 
     paragraph (1)(A) shall not apply,
       ``(ii) in the case of any trust with gross income in excess 
     of $250,000, the first sentence of paragraph (1)(A) shall be 
     applied by substituting `$100' for `$20', and the second 
     sentence thereof shall be applied by substituting `$50,000' 
     for `$10,000', and
       ``(iii) the third sentence of paragraph (1)(A) shall be 
     disregarded.
     In addition to any penalty imposed on the trust pursuant to 
     this subparagraph, if the person required to file such return 
     knowingly fails to file the return, such penalty shall also 
     be imposed on such person who shall be personally liable for 
     such penalty.''.
       (3) Confidentiality of noncharitable beneficiaries.--
     Subsection (b) of section 6104 (relating to inspection of 
     annual information returns) is amended by adding at the end 
     the following new sentence: ``In the case of a trust which is 
     required to file a return under section 6034(a), this 
     subsection shall not apply to information regarding 
     beneficiaries which are not organizations described in 
     section 170(c).''.
       (c) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to distributions made in taxable years beginning 
     after December 31, 2005.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to returns for taxable years beginning after 
     December 31, 2005.

     SEC. 203. MODIFICATION OF CHARITABLE DEDUCTION FOR 
                   CONTRIBUTIONS OF FOOD INVENTORY.

       (a) In General.--Subparagraph (C) of section 170(e)(3) 
     (relating to special rule for certain contributions of 
     inventory and other property) is amended to read as follows:
       ``(C) Special rule for contributions of food inventory.--
       ``(i) General rule.--In the case of a charitable 
     contribution of food from any trade or business of the 
     taxpayer, this paragraph shall be applied--

       ``(I) without regard to whether the contribution is made by 
     a C corporation, and
       ``(II) only to food that is apparently wholesome food.

       ``(ii) Limitation.--In the case of a taxpayer other than a 
     C corporation, the aggregate amount of such contributions for 
     any taxable year which may be taken into account under this 
     section shall not exceed 10 percent of the taxpayer's 
     aggregate net income for such taxable year from all trades or 
     businesses from which such contributions were made for such 
     year, computed without regard to this section.
       ``(iii) Limitation on reduction.--In the case of any such 
     contribution, notwithstanding subparagraph (B), the amount of 
     the reduction determined under paragraph (1)(A) shall not 
     exceed the amount by which the fair market value of the 
     apparently wholesome food exceeds twice the basis of such 
     food.
       ``(iv) Determination of basis.--If a taxpayer--

       ``(I) does not account for inventories under section 471, 
     and
       ``(II) is not required to capitalize indirect costs under 
     section 263A,

     the taxpayer may elect, solely for purposes of subparagraph 
     (B), to treat the basis of any apparently wholesome food as 
     being equal to 25 percent of the fair market value of such 
     food.
       ``(v) Determination of fair market value.--In the case of 
     any such contribution of apparently wholesome food which, 
     solely by reason of internal standards of the taxpayer or 
     lack of market, cannot or will not be sold, the fair market 
     value of such contribution shall be determined--

       ``(I) without regard to such internal standards or such 
     lack of market and
       ``(II) by taking into account the price at which the same 
     or substantially the same food items (as to both type and 
     quality) are sold by the taxpayer at the time of the 
     contribution (or, if not so sold at such time, in the recent 
     past).

       ``(vi) Apparently wholesome food.--For purposes of this 
     subparagraph, the term `apparently wholesome food' has the 
     meaning given to such term by section 22(b)(2) of the Bill 
     Emerson Good Samaritan Food Donation Act (42 U.S.C. 
     1791(b)(2)), as in effect on the date of the enactment of 
     this subparagraph.
       ``(vii) Termination.--This subparagraph shall not apply to 
     contributions made after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after December 31, 2005.

     SEC. 204. BASIS ADJUSTMENT TO STOCK OF S CORPORATION 
                   CONTRIBUTING PROPERTY.

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

     ``The decrease under subparagraph (B) by reason of a 
     charitable contribution (as defined in section 170(c)) of 
     property shall be the amount equal to the shareholder's pro 
     rata share of the adjusted basis of such property. The 
     preceding sentence shall not apply to contributions made in 
     taxable years beginning after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005.

     SEC. 205. MODIFICATION OF CHARITABLE DEDUCTION FOR 
                   CONTRIBUTIONS OF BOOK INVENTORY.

       (a) In General.--Subparagraph (D) of section 170(e)(3) 
     (relating to special rule for certain contributions of 
     inventory and other property) is amended to read as follows:
       ``(D) Special rule for contributions of book inventory for 
     educational purposes.--
       ``(i) Contributions of book inventory.--In determining 
     whether a qualified book contribution is a qualified 
     contribution, subparagraph (A) shall be applied without 
     regard to whether--

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

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

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

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

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

[[Page S578]]

       ``(II) the donee will use the books in its educational 
     programs.

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

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

       ``(vii) Termination.--This subparagraph shall not apply to 
     contributions made after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after December 31, 2005.

     SEC. 206. MODIFICATION OF TAX TREATMENT OF CERTAIN PAYMENTS 
                   TO CONTROLLING EXEMPT ORGANIZATIONS AND PUBLIC 
                   DISCLOSURE OF INFORMATION RELATING TO UNRELATED 
                   BUSINESS INCOME.

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

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

       (2) Effective date.--
       (A) In general.--The amendment made by this subsection 
     shall apply to payments received or accrued after December 
     31, 2000.
       (B) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 did not apply to any amount received or accrued 
     in the first 2 taxable years beginning on or after the date 
     of the enactment of the Taxpayer Relief Act of 1997 under any 
     contract described in subsection (b)(2) of such section, such 
     amendments also shall not apply to amounts received or 
     accrued under such contract before January 1, 2001.
       (b) Public Availability of Unrelated Business Income Tax 
     Returns.--
       (1) In general.--Subparagraph (A) of section 6104(d)(1) is 
     amended by redesignating clauses (ii) and (iii) as clauses 
     (iii) and (iv), respectively, and by inserting after clause 
     (i) the following new clause:
       ``(ii) any annual return filed under section 6011 which 
     relates to any tax imposed by section 511 (relating to 
     imposition of tax on unrelated business income of charitable, 
     etc., organizations) by such organization, but only if such 
     organization is described in section 501(c)(3),''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to returns filed after the date of the enactment 
     of this Act.
       (c) Certification of Unrelated Business Taxable Income for 
     Certain Organizations.--
       (1) In general.--Section 6011 is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Returns of Certain Organizations Relating to 
     Unrelated Business Taxable Income.--
       ``(1) In general.--Every applicable exempt organization 
     shall include with the return under subsection (a) for the 
     taxable year a statement by an independent auditor or an 
     independent counsel which meets the requirements of paragraph 
     (2).
       ``(2) Statement.--A statement meets the requirement of this 
     paragraph if the statement--
       ``(A) contains a certification that--
       ``(i) the information contained in the return--

       ``(I) has been reviewed by the auditor or counsel, and
       ``(II) to the best of the auditor's or counsel's knowledge, 
     is accurate, and

       ``(ii) to the best of the auditor's or counsel's knowledge, 
     the allocation of expenses between the unrelated trades and 
     business of the organization and the activities related to 
     the purpose or function constituting the basis of the 
     organization's exemption under section 501 complies with the 
     requirements set forth by the Secretary under section 512, 
     and
       ``(B) indicates--
       ``(i) whether the auditor or counsel has provided a tax 
     opinion to the organization regarding--

       ``(I) the classification of any trade or business of the 
     organization as an unrelated trade or business, or
       ``(II) the treatment of any income as unrelated business 
     taxable income, and

       ``(ii) a description of any material facts with respect to 
     any such opinion.
       ``(3) Applicable exempt organization.--For purposes of this 
     subsection, the term `applicable exempt organization' means 
     any organization which--
       ``(A) is described in section 501(c)(3),
       ``(B) has--
       ``(i) gross income and receipts of not less than 
     $10,000,000 for the taxable year, or
       ``(ii) gross assets of not less than $10,000,000 on the 
     last day of the taxable year, and
       ``(C) is subject to the tax imposed under section 511 for 
     the taxable year.''.
       (2) Penalty.--
       (A) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by adding at 
     the end the following new section:

     ``SEC. 6720B. UNRELATED BUSINESS INCOME REQUIREMENTS.

       ``(a) In General.--Any applicable exempt organization (as 
     defined in section 6011(g)(3)) which fails to file a 
     statement required under section 6011(g) shall pay a penalty 
     in an amount equal to \1/2\ percent of the gross revenue 
     amount of such organization for the taxable year to which 
     such statement relates.
       ``(b) Gross Revenue Amount.--For purposes of subsection 
     (a), the term `gross revenue amount' means, with respect to 
     any taxable year, the gross income and receipts of the 
     organization determined without regard to any contributions 
     or grants received by the organization.
       ``(c) Reasonable Cause.--No penalty shall be imposed under 
     this section with respect to any failure if it is shown that 
     such failure is due to reasonable cause.''.
       (B) Conforming amendment.--The table of sections of part I 
     of subchapter B of chapter 68 is amended by adding after the 
     item relating to section 6720A the following new item:

``Sec. 6720B. Unrelated business income requirements.''.

       (3) Effective date.--The amendments made by this subsection 
     shall apply to returns for taxable years beginning after the 
     date of the enactment of this Act.

     SEC. 207. ENCOURAGEMENT OF CONTRIBUTIONS OF CAPITAL GAIN REAL 
                   PROPERTY MADE FOR CONSERVATION PURPOSES.

       (a) In General.--
       (1) Individuals.--Paragraph (1) of subsection 170(b) 
     (relating to percentage limitations) is amended by 
     redesignating subparagraphs (E) and (F) as subparagraphs (F) 
     and (G), respectively, and by inserting after subparagraph 
     (D) the following new subparagraph:
       ``(E) Contributions of qualified conservation 
     contributions.--
       ``(i) In general.--Any qualified conservation contribution 
     (as defined in subsection (h)(1)) to an organization 
     described in subparagraph (A) shall be allowed to the extent 
     the aggregate of such contributions does not exceed the 
     excess of 50 percent of the taxpayer's contribution base over 
     the amount of all other charitable contributions allowable 
     under this paragraph.
       ``(ii) Carryover.--If the aggregate amount of contributions 
     described in clause (i) exceeds the limitation of clause (i), 
     such excess shall be treated (in a manner consistent with the 
     rules of subsection (d)(1)) as a charitable contribution to 
     which clause (i) applies in each of the 15 succeeding years 
     in order of time.
       ``(iii) Coordination with other subparagraphs.--For 
     purposes of applying this subsection and subsection (d)(1), 
     contributions described in clause (i) shall not be treated as 
     described in subparagraph (A), (B), (C), or (D) and such 
     subparagraphs shall apply without regard to such 
     contributions.
       ``(iv) Qualified farmer or rancher.--

       ``(I) In general.--If the individual is a qualified farmer 
     or rancher for the taxable year in which the contribution is 
     made, clause (i) shall be applied by substituting `100 
     percent' for `50 percent'.
       ``(II) Definition.--For purposes of subclause (I), the term 
     `qualified farmer or rancher' means a taxpayer whose gross 
     income from the trade or business of farming (within the 
     meaning of section 2032A(e)(5)) is greater than 50 percent of 
     the taxpayer's gross income for the taxable year.

       ``(v) Termination.--This subparagraph shall not apply to 
     any contribution made in taxable years beginning after 
     December 31, 2007.''.
       (2) Corporations.--Paragraph (2) of section 170(b) is 
     amended to read as follows:
       ``(2) Corporations.--In the case of a corporation--
       ``(A) In general.--The total deductions under subsection 
     (a) for any taxable year (other than for contributions to 
     which subparagraph (B) applies) shall not exceed 10 percent 
     of the taxpayer's taxable income.
       ``(B) Qualified conservation contributions by certain 
     corporate farmers and ranchers.--
       ``(i) In general.--Any qualified conservation contribution 
     (as defined in subsection (h)(1)) made--

       ``(I) by a corporation which, for the taxable year during 
     which the contribution is made, is a qualified farmer or 
     rancher (as defined in paragraph (1)(E)(iv)(II)) and the 
     stock of which is not readily tradable on an established 
     securities market at any time during such year, and
       ``(II) to an organization described in paragraph (1)(A),


[[Page S579]]



     shall be allowed to the extent the aggregate of such 
     contributions does not exceed the excess of the taxpayer's 
     taxable income over the amount of charitable contributions 
     allowable under subparagraph (A).
       ``(ii) Carryover.--If the aggregate amount of contributions 
     described in clause (i) exceeds the limitation of clause (i), 
     such excess shall be treated (in a manner consistent with the 
     rules of subsection (d)(2)) as a charitable contribution to 
     which clause (i) applies in each of the 15 succeeding years 
     in order of time.
       ``(iii) Termination.--This subparagraph shall not apply to 
     any contribution made in taxable years beginning after 
     December 31, 2007.
       ``(C) Taxable income.--For purposes of this paragraph, 
     taxable income shall be computed without regard to--
       ``(i) this section,
       ``(ii) part VIII (except section 248),
       ``(iii) any net operating loss carrryback to the taxable 
     year under section 172,
       ``(iv) section 199, and
       ``(v) any capital loss carryback to the taxable year under 
     section 1212(a)(1).''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 170(d) is amended by striking 
     ``subsection (b)(2)'' each place it appears and inserting 
     ``subsection (b)(2)(A)''.
       (2) Section 545(b)(2) is amended by striking ``and (D)'' 
     and inserting ``(D), and (E)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005.

     SEC. 208. ENHANCED DEDUCTION FOR CHARITABLE CONTRIBUTION OF 
                   LITERARY, MUSICAL, ARTISTIC, AND SCHOLARLY 
                   COMPOSITIONS.

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

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

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

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

       ``(C) Maximum dollar limitation; no carryover of increased 
     deduction.--
       ``(i) In general.--Subsections (b) and (d) shall not apply 
     to the amount by which any charitable contribution is 
     increased by reason of this paragraph and such increased 
     contribution shall not be taken into account for purposes of 
     applying subparagraphs (A) through (D) of subsection (b)(1) 
     and subsection (d).
       ``(ii) Contribution base limitation.--The increased 
     contributions shall be allowed to the extent the aggregate of 
     such contributions do not exceed the excess of 50 percent of 
     the contribution base (as defined in subparagraph (F) of 
     subsection (b)(1)) over the amount of all other charitable 
     contributions allowable under subparagraphs (A) through (D) 
     of subsection (b)(1).
       ``(iii) Artistic adjusted gross income.--The aggregate 
     increase in the charitable contributions by reason of this 
     paragraph for any taxable year shall not exceed the artistic 
     adjusted gross income of the taxpayer for such taxable year.
       ``(D) Artistic adjusted gross income.--For purposes of this 
     paragraph, the term `artistic adjusted gross income' means 
     that portion of the adjusted gross income of the taxpayer for 
     the taxable year attributable to--
       ``(i) income from the sale or use of property created by 
     the personal efforts of the taxpayer which is of the same 
     type as the donated property, and
       ``(ii) income from teaching, lecturing, performing, or 
     similar activity with respect to property described in clause 
     (i).
       ``(E) Paragraph not to apply to certain contributions.--
     Subparagraph (A) shall not apply to any charitable 
     contribution of any letter, memorandum, or similar property 
     which was written, prepared, or produced by or for an 
     individual while the individual is an officer or employee of 
     any person (including any government agency or 
     instrumentality) unless such letter, memorandum, or similar 
     property is entirely personal.
       ``(F) Copyright treated as separate property for partial 
     interest rule.--In the case of a qualified artistic 
     charitable contribution, the tangible literary, musical, 
     artistic, or scholarly composition, or similar property and 
     the copyright on such work shall be treated as separate 
     properties for purposes of this paragraph and subsection 
     (f)(3).
       ``(G) Termination.--This paragraph shall not apply to 
     contributions made after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after December 31, 2005.

     SEC. 209. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS 
                   EXCLUDED FROM GROSS INCOME.

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

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

       ``(a) In General.--Gross income of an individual does not 
     include amounts received, from an organization described in 
     section 170(c), as reimbursement of operating expenses with 
     respect to use of a passenger automobile for the benefit of 
     such organization. The preceding sentence shall apply only to 
     the extent that the expenses which are reimbursed would be 
     deductible under this chapter if section 274(d) were 
     applied--
       ``(1) by using the standard business mileage rate 
     established under such section, and
       ``(2) as if the individual were an employee of an 
     organization not described in section 170(c).
       ``(b) Application to Volunteer Services Only.--Subsection 
     (a) shall not apply with respect to any expenses relating to 
     the performance of services for compensation.
       ``(c) No Double Benefit.--A taxpayer may not claim a 
     deduction or credit under any other provision of this title 
     with respect to the expenses under subsection (a).
       ``(d) Exemption From Reporting Requirements.--Section 6041 
     shall not apply with respect to reimbursements excluded from 
     income under subsection (a).
       ``(e) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 2007.''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 139A the following new item:

``Sec. 139B. Mileage reimbursements to charitable volunteers.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 210. ALTERNATIVE PERCENTAGE LIMITATION FOR CORPORATE 
                   CHARITABLE CONTRIBUTIONS TO THE MATHEMATICS AND 
                   SCIENCE PARTNERSHIP PROGRAM.

       (a) In General.--Section 170(b) (related to percentage 
     limitations) is amended by adding at the end the following 
     new paragraph:
       ``(3) Special rule for corporate contributions to the 
     mathematics and science partnership program.--
       ``(A) In general.--In the case of a corporation which makes 
     an eligible mathematics and science contribution--
       ``(i) the limitation under paragraph (2) shall apply 
     separately with respect to all such contributions and all 
     other charitable contributions, and
       ``(ii) paragraph (2)(A) shall be applied by substituting 
     for `10 percent of the taxpayer's taxable income' the 
     following: `the sum of (i) the lesser of all eligible 
     mathematics and science contributions or 15 percent of the 
     taxpayer's taxable income, plus (ii) the lesser of the 
     contributions (other than eligible mathematics and science 
     contributions and contributions to which subparagraph (B) 
     applies) or 10 percent of the taxpayer's taxable income 
     reduced by all eligible mathematics and science 
     contributions'.
       ``(B) Eligible mathematics and science contribution.--
       ``(i) In general.--For purposes of this paragraph, the term 
     `eligible mathematics and science contribution' means a 
     charitable contribution (other than a contribution of used 
     equipment) to a qualified partnership for the purpose of an 
     activity described in section 2202(c) of the Elementary and 
     Secondary Education Act of 1965.
       ``(ii) Qualified partnership.--The term `qualified 
     partnership' means an eligible partnership (within the 
     meaning of section 2201(b)(1) of the Elementary and Secondary 
     Education Act of 1965), but only to the extent that such 
     partnership does not include a person other than a person 
     described in paragraph (1)(A).
       ``(C) Termination.--This paragraph shall not apply to any 
     contributions made in taxable years beginning after December 
     31, 2006.''.

[[Page S580]]

       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005.

             Subtitle B--Reforming Charitable Organizations

                        PART I--GENERAL REFORMS

     SEC. 211. TAX INVOLVEMENT BY EXEMPT ORGANIZATIONS IN TAX 
                   SHELTER TRANSACTIONS.

       (a) Imposition of Excise Tax.--
       (1) In general.--Chapter 42 (relating to private 
     foundations and certain other tax-exempt organizations) is 
     amended by adding at the end the following new subchapter:

                ``Subchapter F--Tax Shelter Transactions

``Sec. 4965. Excise tax on certain tax-exempt entities entering into 
              prohibited tax shelter transactions.

     ``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES 
                   ENTERING INTO PROHIBITED TAX SHELTER 
                   TRANSACTIONS.

       ``(a) Participation in and Approval of Prohibited 
     Transactions.--
       ``(1) Tax-exempt entity.--
       ``(A) In general.--If any tax-exempt entity (other than a 
     tax-exempt entity described in paragraph (4), (5), (6), or 
     (7) of subsection (c)) is a party to a prohibited tax shelter 
     transaction at any time during the taxable year and knows or 
     has reason to know such transaction is a prohibited tax 
     shelter transaction, such entity shall pay a tax for such 
     taxable year in the amount determined under subsection 
     (b)(1)(A).
       ``(B) Post-transaction determination.--If any tax-exempt 
     entity (other than a tax-exempt entity described in paragraph 
     (4), (5), (6), or (7) of subsection (c)) is a party to a 
     subsequently listed transaction at any time during the 
     taxable year, such entity shall pay a tax in the amount 
     determined under subsection (b)(1)(B).
       ``(2) Entity manager.--If any entity manager of a tax-
     exempt entity approves such entity as (or otherwise causes 
     such entity to be) a party to a prohibited tax shelter 
     transaction at any time during the taxable year and knows or 
     has reason to know that the transaction is a prohibited tax 
     shelter transaction, such manager shall pay a tax for such 
     taxable year in the amount determined under subsection 
     (b)(2).
       ``(3) Reasonable cause exception.--No tax shall be imposed 
     under paragraph (1)(A) or (2) if it is shown that the 
     participation of the tax-exempt entity in the transaction was 
     not willful and was due to reasonable cause.
       ``(b) Amount of Tax.--
       ``(1) Entity.--In the case of a tax-exempt entity--
       ``(A) In general.--The amount of the tax imposed under 
     subsection (a)(1)(A) on the entity with respect to a taxable 
     year shall be the greater of--
       ``(i) 100 percent of the entity's net income (after taking 
     into account any tax imposed by this subtitle with respect to 
     the prohibited tax shelter transaction) for such taxable year 
     which is attributable to the prohibited tax shelter 
     transaction, or
       ``(ii) 75 percent of the proceeds received by the entity 
     which are attributable to the prohibited tax shelter 
     transaction.
       ``(B) Post-transaction determination.--The amount of the 
     tax imposed under subsection (a)(1)(B) on the entity with 
     respect to any taxable year shall be an amount equal to the 
     product of--
       ``(i) the highest rate of tax under section 11, and
       ``(ii) the greater of--

       ``(I) the entity's net income (after taking into account 
     any tax imposed by this subtitle with respect to the 
     subsequently listed transaction) for such taxable year which 
     is attributable to the subsequently listed transaction and 
     which is properly allocable to the period beginning on the 
     later of the date such transaction is identified by guidance 
     as a listed transaction by the Secretary or the first day of 
     the taxable year, or
       ``(II) 75 percent of the proceeds received by the entity 
     which are attributable to the subsequently listed transaction 
     and which are properly allocable to the period beginning on 
     the later of the date such transaction is identified by 
     guidance as a listed transaction by the Secretary or the 
     first day of the taxable year.

       ``(2) Entity manager.--In the case of each entity manager 
     to whom subsection (a)(2) applies, the amount of the tax 
     under such subsection shall be $20,000 for each approval.
       ``(c) Tax-Exempt Entity.--For purposes of this section, the 
     term `tax-exempt entity' means an entity which is--
       ``(1) described in section 501(c) or 501(d),
       ``(2) described in section 170(c) (other than an agency or 
     instrumentality of the United States) to which paragraph (1) 
     of this subsection does not apply,
       ``(3) an Indian tribal government (within the meaning of 
     section 7701(a)(40)),
       ``(4) described in paragraph (1), (2), or (3) of section 
     4979(e),
       ``(5) a program described in section 529,
       ``(6) an eligible deferred compensation plan described in 
     section 457(b) which is maintained by an employer described 
     in section 4457(e)(1)(A), or
       ``(7) an arrangement described in section 4973(a).
       ``(d) Entity Manager.--For purposes of this section, the 
     term `entity manager' means--
       ``(1) with respect to a tax-exempt entity described in 
     paragraph (3) or (4) of section 501(c)--
       ``(A) in the case of an entity other than a private 
     foundation, an organization manager (as defined in section 
     4958(f)(2)), and
       ``(B) in the case of a private foundation, a foundation 
     manager (as defined in section 4946(b)), and
       ``(2) in all other cases, the person with authority or 
     responsibility similar to that exercised by an officer, 
     director, or trustee of an organization.
       ``(e) Prohibited Tax Shelter Transaction; Subsequently 
     Listed Transaction.--For purposes of this section--
       ``(1) Prohibited tax shelter transaction.--
       ``(A) In general.--The term `prohibited tax shelter 
     transaction' means--
       ``(i) any listed transaction, or
       ``(ii) any prohibited reportable transaction if the tax-
     exempt entity knows or has reason to know that such 
     transaction is a reportable transaction.
       ``(B) Listed transaction.--The term `listed transaction' 
     has the meaning given such term by section 6707A(c)(2).
       ``(C) Prohibited reportable transaction.--The term 
     `prohibited reportable transaction' means any confidential 
     transaction or any transaction with contractual protection 
     (as defined under regulations prescribed by the Secretary) 
     which is a reportable transaction (as defined in section 
     6707A(c)(1)).
       ``(2) Subsequently listed transaction.--The term 
     `subsequently listed transaction' means any transaction to 
     which a tax-exempt entity is a party and which is determined 
     by the Secretary to be a listed transaction at any time after 
     the entity has entered into the transaction.
       ``(f) Regulatory Authority.--The Secretary is authorized to 
     promulgate regulations which provide guidance regarding the 
     determination of the allocation of net income of a tax-exempt 
     entity attributable to a transaction to various periods, 
     including before and after the listing of the transaction or 
     the date which is 90 days after the date of the enactment of 
     this section.
       ``(g) Coordination With Other Taxes and Penalties.--The tax 
     imposed by this section is in addition to any other tax, 
     addition to tax, or penalty imposed under this title.''.
       (2) Conforming amendment.--The table of subchapters for 
     chapter 42 is amended by adding at the end the following new 
     item:


              ``Subchapter F. Tax Shelter Transactions.''.

       (b) Disclosure Requirements.--
       (1) Disclosure by organization to the internal revenue 
     service.--
       (A) In general.--Section 6033(a) (relating to organizations 
     required to file) is amended by redesignating paragraph (2) 
     as paragraph (3), and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Participation in certain reportable transactions.--
     Every tax-exempt entity described in section 4965(c) shall 
     file (in such form and manner and at such time as determined 
     by the Secretary) a disclosure of--
       ``(A) such entity's participation in any prohibited tax 
     shelter transaction (as defined in section 4965(e)), and
       ``(B) the identity of any other party participating in such 
     transaction which is known by such tax-exempt entity.''.
       (B) Conforming amendment.--Section 6033(a)(1) is amended by 
     striking ``paragraph (2)'' and inserting ``paragraph (3)''.
       (2) Disclosure by other taxpayers to the tax-exempt 
     entity.--Section 6011 (relating to general requirement of 
     return, statement, or list), as amended by this Act, is 
     amended by redesignating subsection (h) as subsection (i) and 
     by inserting after subsection (g) the following new 
     subsection:
       ``(h) Disclosure of Reportable Transaction to Tax-Exempt 
     Entity.--Any taxable party to a prohibited tax shelter 
     transaction (as defined in section 4965(e)(1)) shall by 
     statement disclose to any tax-exempt entity (as defined in 
     section 4965(c)) which is a party to such transaction that 
     such transaction is such a prohibited tax shelter 
     transaction.''.
       (c) Penalty for Nondisclosure.--
       (1) In general.--Section 6652(c) (relating to returns by 
     exempt organizations and by certain trusts), as amended by 
     this Act, is amended by redesignating paragraphs (2), (3), 
     and (4) as paragraphs (3), (4), and (5), respectively, and by 
     inserting after paragraph (1) the following new paragraph:
       ``(2) Disclosure under section 6033.--
       ``(A) Penalty on organizations.--In the case of a failure 
     to file a disclosure required under section 6033(a)(2), there 
     shall be paid by the tax-exempt entity (the entity manager in 
     the case of a tax-exempt entity described in paragraph (4), 
     (5), (6), or (7) of section 4965(c)) $100 for each day during 
     which such failure continues. The maximum penalty under this 
     subparagraph on failures with respect to any 1 disclosure 
     shall not exceed $50,000.
       ``(B) Persons.--
       ``(i) In general.--The Secretary may make a written demand 
     on any tax-exempt entity subject to penalty under 
     subparagraph (A) specifying therein a reasonable future date 
     by which the disclosure shall be filed for purposes of this 
     subparagraph.
       ``(ii) Failure to comply with demand.--If any person fails 
     to comply with any demand under clause (i) on or before the 
     date specified in such demand, there shall be paid by such 
     person failing to so comply $100 for each day after the 
     expiration of the time specified in such demand during which 
     such failure continues. The maximum penalty imposed under 
     this subparagraph on all tax-exempt entities for failures 
     with respect to any 1 disclosure shall not exceed $10,000.

[[Page S581]]

       ``(C) Definitions.--Any term used in this section which is 
     also used in section 4965 shall have the meaning given such 
     term under section 4965.''.
       (2) Conforming amendment.--Subparagraph (A) of section 
     6652(c)(1) of such Code is amended by striking ``6033'' each 
     place it appears in the text and heading thereof and 
     inserting ``6033(a)(1)''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transactions 
     after the date of the enactment of this Act, except that no 
     tax under section 4965(a) of the Internal Revenue Code of 
     1986 (as added by this section) shall apply with respect to 
     income that is properly allocable to any period on or before 
     the date which is 90 days after such date of enactment.
       (2) Disclosure.--The amendments made by subsections (b) and 
     (c) shall apply to disclosures the due date for which are 
     after the date of the enactment of this Act.

     SEC. 212. EXCISE TAX ON CERTAIN ACQUISITIONS OF INTERESTS IN 
                   INSURANCE CONTRACTS IN WHICH CERTAIN EXEMPT 
                   ORGANIZATIONS HOLD AN INTEREST.

       (a) Imposition of Tax.--
       (1) In general.--Subchapter F of chapter 42 (relating to 
     tax shelter transactions), as added by this Act, is amended 
     by adding at the end the following new section:

     ``SEC. 4966. EXCISE TAX ON ACQUISITION OF INTERESTS IN 
                   INSURANCE CONTRACTS IN WHICH CERTAIN EXEMPT 
                   ORGANIZATIONS HOLD AN INTEREST.

       ``(a) Imposition of Tax.--If there is a taxable acquisition 
     of any interest in an applicable insurance contract, there is 
     hereby imposed on the person acquiring the interest a tax 
     equal to 100 percent of the acquisition costs of the 
     interest.
       ``(b) Taxable Acquisition.--For purposes of this section--
       ``(1) In general.--The term `taxable acquisition' means the 
     acquisition of any direct or indirect interest in an 
     applicable insurance contract by--
       ``(A) an applicable exempt organization, or
       ``(B) a person other than an applicable exempt organization 
     if such interest in the hands of such person is not an 
     interest described in clause (i), (ii), (iii), or (iv) of 
     paragraph (2)(B).
       ``(2) Applicable insurance contract.--
       ``(A) In general.--The term `applicable insurance contract' 
     means any life insurance, annuity, or endowment contract with 
     respect to which both an applicable exempt organization and a 
     person other than an applicable exempt organization have 
     directly or indirectly held an interest in the contract 
     (whether or not at the same time).
       ``(B) Exceptions.--Such term shall not include a life 
     insurance, annuity, or endowment contract if--
       ``(i) all persons directly or indirectly holding any 
     interest in the contract (other than applicable exempt 
     organizations) have an insurable interest in the insured 
     under the contract independent of any interest of an 
     applicable exempt organization in the contract,
       ``(ii) the sole interest in the contract of each person 
     other than an applicable exempt organization is as a named 
     beneficiary,
       ``(iii) the sole interest in the contract of each person 
     other than an applicable exempt organization is--

       ``(I) as a beneficiary of a trust holding an interest in 
     the contract, but only if the person's designation as such 
     beneficiary was made without consideration and solely on a 
     purely gratuitous basis, or
       ``(II) as a trustee who holds an interest in the contract 
     in a fiduciary capacity solely for the benefit of applicable 
     exempt organizations or persons otherwise described in 
     clauses (i), (ii), and (iv) or subclause (I) of this clause, 
     or

       ``(iv) except as provided in subparagraph (C), the sole 
     interest in the contract of each person other than an 
     applicable exempt organization is as a lender with respect to 
     the contract and the contract covers only 1 individual and 
     such individual is an officer, director, or employee of the 
     applicable exempt organization with an interest in the 
     contract.
       ``(C) Restrictions on exception for lenders.--
       ``(i) Numerical limit.--The number of contracts that may be 
     taken into account under subparagraph (B)(iv) with respect to 
     officers, directors, or employees of the applicable exempt 
     organization with interests in the contracts shall not exceed 
     the greater of--

       ``(I) the lesser of 5 percent of the total officers, 
     directors, and employees of the organization or 20, or
       ``(II) 5.

       ``(ii) Aggregate indebtedness.--The exception under 
     subparagraph (B)(iv) shall apply only to the extent that the 
     aggregate amount of the indebtedness with respect to 1 or 
     more contracts covering a single individual does not exceed 
     $50,000.
       ``(D) Secretarial authority.--The Secretary may exempt a 
     contract from treatment as an applicable insurance contract 
     based on specific factors, including factors such as whether 
     the transaction is at arms length, whether economic benefits 
     to the applicable exempt organization substantially exceed 
     the economic benefits to all other persons with an interest 
     in the contract (determined without regard to whether, or the 
     extent to which, such organization has paid or contributed 
     with respect to the contract), and the likelihood of abuse.
       ``(3) Definition and rule relating to acquisition costs.--
       ``(A) Acquisition costs defined.--The term `acquisition 
     costs' means the direct or indirect costs of acquiring an 
     interest in an applicable insurance contract. Such term shall 
     include any fees, commissions, charges, or other amounts paid 
     in connection with the acquisition, whether or not paid to 
     the issuer of the contract.
       ``(B) Timing of payments.--Except as provided in 
     regulations, if acquisition costs of any acquisition are paid 
     or incurred in more than 1 calendar year, the tax imposed by 
     subsection (a) with respect to the acquisition shall be 
     imposed each time the costs are so paid or incurred.
       ``(4) Rules relating to interests.--
       ``(A) In general.--An interest in the contract includes any 
     right with respect to the contract, whether as an owner, 
     beneficiary, or otherwise.
       ``(B) Indirect interests.--
       ``(i) In general.--Except as provided in clause (ii), an 
     indirect interest in a contract includes an interest in an 
     entity which directly or indirectly holds an interest in the 
     contract.
       ``(ii) Portfolio investments.--If an applicable exempt 
     organization holds an interest in a contract solely because 
     the organization holds, as part of a diversified investment 
     strategy, a de minimis interest in an entity which directly 
     or indirectly holds the interest in the contract, such 
     indirect interest in the contract shall not be taken into 
     account for purposes of this section.
       ``(C) Exchanged contracts.--In the case of an exchange of 
     an applicable insurance contract on which no gain or loss is 
     recognized under section 1035, any interest in any of the 
     contracts involved in the exchange shall be treated as an 
     interest in all such contracts.
       ``(5) Increase in interest.--If a person increases an 
     interest in an applicable insurance contract, the increase 
     shall be treated as a separate acquisition for purposes of 
     this section.
       ``(6) Prior acquisitions.--Except as provided in 
     regulations, if a person acquires an interest in a contract 
     before the contract is treated as an applicable insurance 
     contract, the acquisition shall be treated as a taxable 
     acquisition of an interest in an applicable insurance 
     contract as of the date the contract becomes an applicable 
     insurance contract.
       ``(c) Applicable Exempt Organization.--For purposes of this 
     section, the term `applicable exempt organization' means--
       ``(1) an organization described in section 170(c),
       ``(2) an organization described in section 
     168(h)(2)(A)(iv), or
       ``(3) an organization not described in paragraph (1) or (2) 
     which is described in section 2055(a) or section 2522(a).
       ``(d) Tax Not Treated as Investment in the Contract.--For 
     purposes of section 72, the tax imposed by this section shall 
     not be included in investment in the contract.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the provisions 
     of this section. Such regulations may include regulations 
     which--
       ``(1) provide, for purposes of subsection (b)(6), 
     appropriate rules for the application of this section in any 
     case where an interest is acquired before a contract becomes 
     an applicable insurance contract,
       ``(2) prevent, in cases the Secretary determines 
     appropriate, the imposition of more than one tax under this 
     section if the same interest is acquired more than once, and
       ``(3) are designed to prevent avoidance of the purposes of 
     this section, including through the use of intermediaries.''.
       (2) Conforming amendment.--The table of sections for 
     subchapter F of chapter 42, as added by this Act, is amended 
     by adding at the end the following new item:

``Sec. 4966. Excise tax on acquisition of interests in insurance 
              contracts in which certain exempt organizations hold an 
              interest.''.

       (b) Reporting Requirements.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 (relating to information concerning transactions 
     with other persons) is amended by adding at the end the 
     following new section:

     ``SEC. 6050U. RETURNS RELATING TO APPLICABLE INSURANCE 
                   CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS 
                   HOLD INTERESTS.

       ``(a) Requirements of Reporting.--
       ``(1) Exempt organizations.--Each--
       ``(A) applicable exempt organization which acquires (within 
     the meaning of section 4966) an interest in any applicable 
     insurance contract, and
       ``(B) other person which makes an acquisition of such an 
     interest if such acquisition is taxable under section 4966,

     shall make the return described in subsection (c).
       ``(2) Transfers.--If a person (including an applicable 
     exempt organization) acquires an interest in an applicable 
     insurance contract in an acquisition which is taxable under 
     section 4966 and then transfers such interest to 1 or more 
     other persons, each person acquiring all or a portion of such 
     interest shall make the return described in subsection (c).
       ``(b) Time for Making Return.--Any organization or person 
     required to make a return under subsection (a) shall file 
     such return at such time as may be established by the 
     Secretary with respect to--
       ``(1) in the case of a person described in subsection 
     (a)(1), the calendar year in which

[[Page S582]]

     the acquisition occurs, any calendar year in which 
     acquisition costs are paid or incurred, and any other 
     calendar years specified by the Secretary, and
       ``(2) in the case of a person described in subsection 
     (a)(2), the calendar year in which the transfer occurs.
       ``(c) Form and Manner of Returns.--A return is described in 
     this subsection if such return--
       ``(1) is in such form as the Secretary prescribes,
       ``(2) in the case of--
       ``(A) a return required under subsection (a)(1)(A), 
     contains the name, address, and taxpayer identification 
     number of the applicable exempt organization, the issuer of 
     the applicable insurance contract, and any person acquiring 
     an interest in the contract if the acquisition is taxable 
     under section 4966,
       ``(B) a return required under subsection (a)(1)(B), 
     contains the name, address, and taxpayer identification 
     number of the person acquiring an interest in the applicable 
     insurance contract if the acquisition is taxable under 
     section 4966, any applicable exempt organization holding an 
     interest in the contract, and the issuer of the contract, and
       ``(C) a return required under subsection (a)(2), contains 
     the name, address, and taxpayer identification number of the 
     transferor and transferee, and
       ``(3) contains such other information as the Secretary may 
     prescribe.
       ``(d) Statements To Be Furnished to Persons With Respect to 
     Whom Information Is Required.--Every person required to make 
     a return under subsection (a) shall furnish to each person 
     whose taxpayer identification information is required to be 
     included in such return under subsection (c) a written 
     statement showing--
       ``(1) the name and address of the person required to make 
     such return and the telephone number of the information 
     contact for such person, and
       ``(2) the taxpayer identity and other information required 
     to be shown on the return with respect to such person.

     The written statement required under the preceding sentence 
     shall be furnished on or before the date specified by the 
     Secretary.
       ``(e) Definitions.--For purposes of this section, any term 
     used in this section which is also used in section 4966 shall 
     have the meaning given such term by section 4966.''.
       (2) Penalties.--
       (A) In general.--Section 6724(d) is amended--
       (i) in paragraph (1)(B), by redesignating clauses (xiii) 
     through (xviii) as clauses (xiv) through (xix) and by 
     inserting after clause (xii) the following new clause:
       ``(xiii) section 6050U (relating to returns relating to 
     applicable insurance contracts in which certain exempt 
     organizations hold interests),'', and
       (ii) in paragraph (3), by striking ``and'' at the end of 
     subparagraph (C), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) the statement required by subsection (d) of section 
     6050U (relating to returns relating to applicable insurance 
     contracts in which certain exempt organizations hold 
     interests).''.
       (B) Intentional disregard.--Section 6721(e)(2) is amended 
     by striking ``or'' at the end of subparagraph (B), by 
     striking ``and'' at the end of subparagraph (C) and inserting 
     ``or'', and by adding at the end the following new 
     subparagraph:
       ``(D) in the case of a return required to be filed under 
     section 6050U, the amount of tax imposed under section 4966 
     which has not been paid with respect to items required to be 
     included on the return, and''.
       (3) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61is amended 
     by adding at the end the following new item:

``Sec. 6050U. Returns relating to applicable insurance contracts in 
              which certain exempt organizations hold interests.''.

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to contracts issued after May 3, 2005.
       (2) Reporting of existing contracts.--In the case of any 
     life insurance, annuity, or endowment contract--
       (A) which was issued on or before May 3, 2005,
       (B) with respect to which an applicable exempt organization 
     (as defined in section 4966 of the Internal Revenue Code of 
     1986, as added by this section) holds an interest on May 3, 
     2005, and
       (C) which would be treated as an applicable insurance 
     contract (as so defined) if issued after May 3, 2005,

     such organization shall, not later than the date which is 1 
     year after the date of the enactment of this Act, report to 
     the Secretary of the Treasury with respect to such contract. 
     Such report shall be in such form and manner, and contain 
     such information, as the Secretary may prescribe. The 
     Secretary shall submit such reports, along with any 
     recommendations for legislation as the Secretary considers 
     appropriate, to the Committee on Ways and Means of the House 
     of Representatives and to the Committee on Finance of the 
     Senate within 6 months of the date such reports are required 
     to be filed.

     SEC. 213. INCREASE IN PENALTY EXCISE TAXES ON PUBLIC 
                   CHARITIES, SOCIAL WELFARE ORGANIZATIONS, AND 
                   PRIVATE FOUNDATIONS.

       (a) Taxes on Self-Dealing and Excess Benefit 
     Transactions.--
       (1) In general.--Section 4941(a) (relating to initial 
     taxes) is amended--
       (A) in paragraph (1), by striking ``5 percent'' and 
     inserting ``10 percent'', and
       (B) in paragraph (2), by striking ``2\1/2\ percent'' and 
     inserting ``5 percent''.
       (2) Increase in tax if self-dealing includes compensation 
     to disqualified person.--Section 4941(a)(1) is amended by 
     adding at the end the following new sentence: ``If the act of 
     self-dealing includes acts described in subsection (d)(1)(D), 
     `25 percent' shall be substituted for `10 percent', except 
     that the Secretary may abate under section 4962 (determined 
     without regard to the exception under subsection (b) thereof) 
     not more than 15 percentage points of such tax.''.
       (3) Increased limitation for managers on self-dealing.--
     Section 4941(c)(2) is amended by striking ``$10,000'' each 
     place it appears in the text and heading thereof and 
     inserting ``$20,000''.
       (4) Increased limitation for managers on excess benefit 
     transactions.--Section 4958(d)(2) is amended by striking 
     ``$10,000'' and inserting ``$20,000''.
       (b) Taxes on Failure To Distribute Income.--Section 4942(a) 
     (relating to initial tax) is amended by striking ``15 
     percent'' and inserting ``30 percent''.
       (c) Taxes on Excess Business Holdings.--Section 4943(a)(1) 
     (relating to imposition) is amended by striking ``5 percent'' 
     and inserting ``10 percent''.
       (d) Taxes on Investments Which Jeopardize Charitable 
     Purpose.--
       (1) In general.--Section 4944(a) (relating to initial 
     taxes) is amended by striking ``5 percent'' both places it 
     appears and inserting ``10 percent''.
       (2) Increased limitation for managers.--Section 4944(d)(2) 
     is amended--
       (A) by striking ``$5,000,'' and inserting ``$10,000,'', and
       (B) by striking ``$10,000.'' and inserting ``$20,000.''.
       (e) Taxes on Taxable Expenditures.--
       (1) In general.--Section 4945(a) (relating to initial 
     taxes) is amended--
       (A) in paragraph (1), by striking ``10 percent'' and 
     inserting ``20 percent'', and
       (B) in paragraph (2), by striking ``2\1/2\ percent'' and 
     inserting ``5 percent''.
       (2) Increased limitation for managers.--Section 4945(c)(2) 
     is amended--
       (A) by striking ``$5,000,'' and inserting ``$10,000,'', and
       (B) by striking ``$10,000.'' and inserting ``$20,000.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 214. REFORM OF CHARITABLE CONTRIBUTIONS OF CERTAIN 
                   EASEMENTS ON BUILDINGS IN REGISTERED HISTORIC 
                   DISTRICTS.

       (a) Special Rules With Respect to Buildings in Registered 
     Historic Districts.--
       (1) In general.--Paragraph (4) of section 170(h) (relating 
     to definition of conservation purpose) is amended by 
     redesignating subparagraph (B) as subparagraph (C) and by 
     inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Special rules with respect to buildings in registered 
     historic districts.--In the case of any contribution of a 
     qualified real property interest which is a restriction with 
     respect to the exterior of a building described in 
     subparagraph (C)(ii), such contribution shall not be 
     considered to be exclusively for conservation purposes 
     unless--
       ``(i) such interest--

       ``(I) includes a restriction which preserves the entire 
     exterior of the building (including the front, sides, rear, 
     and height of the building), and
       ``(II) prohibits any change in the exterior of the building 
     which is inconsistent with the historical character of such 
     exterior,

       ``(ii) the donor and donee enter into a written agreement 
     certifying, under penalty of perjury, that the donee--

       ``(I) is a qualified organization (as defined in paragraph 
     (3)) with a purpose of environmental protection, land 
     conservation, open space preservation, or historic 
     preservation, and
       ``(II) has the resources to manage and enforce the 
     restriction and a commitment to do so, and

       ``(iii) in the case of any contribution made in a taxable 
     year beginning after the date of the enactment of this 
     subparagraph, the taxpayer includes with the taxpayer's 
     return for the taxable year of the contribution--

       ``(I) a qualified appraisal (within the meaning of 
     subsection (f)(11)(E)) of the qualified property interest,
       ``(II) photographs of the entire exterior of the building, 
     and
       ``(III) a description of all restrictions on the 
     development of the building.''.

       (b) Disallowance of Deduction for Structures and Land in 
     Registered Historic Districts.--Subparagraph (C) of section 
     170(h)(4), as redesignated by subsection (a), is amended--
       (1) by striking ``any building, structure, or land area 
     which'',
       (2) by inserting ``any building, structure, or land area 
     which'' before ``is listed'' in clause (i), and
       (3) by inserting ``any building which'' before ``is 
     located'' in clause (ii).
       (c) Filing Fee for Certain Contributions.--Subsection (f) 
     of section 170 (relating to disallowance of deduction in 
     certain cases and special rules) is amended by inserting at 
     the end the following new paragraph:

[[Page S583]]

       ``(13) Contributions of certain interests in buildings 
     located in registered historic districts.--
       ``(A) In general.--No deduction shall be allowed with 
     respect to any contribution described in subparagraph (B) 
     unless the taxpayer includes with the return for the taxable 
     year of the contribution a $500 filing fee.
       ``(B) Contribution described.--A contribution is described 
     in this subparagraph if such contribution is a qualified 
     conservation contribution (as defined in subsection (h)) 
     which is a restriction with respect to the exterior of a 
     building described in subsection (h)(4)(C)(ii) and for which 
     a deduction is claimed in excess of the greater of--
       ``(i) 3 percent of the fair market value of the building 
     (determined immediately before such contribution), or
       ``(ii) $10,000.
       ``(C) Dedication of fee.--Any fee collected under this 
     paragraph shall be used for the enforcement of the provisions 
     of subsection (h).''.
       (d) Effective Date.--
       (1) Special rules for buildings in registered historic 
     districts.--The amendments made by subsection (a) shall apply 
     to contributions made after November 15, 2005.
       (2) Disallowance of deduction for structures and land.--The 
     amendments made by subsection (b) shall apply to 
     contributions made after the date of the enactment of this 
     Act.
       (3) Filing fee.--The amendment made by subsection (c) shall 
     apply to contributions made 180 days after the date of the 
     enactment of this Act.

     SEC. 215. CHARITABLE CONTRIBUTIONS OF TAXIDERMY PROPERTY.

       (a) In General.--Subsection (f) of section 170, as amended 
     by this Act, is amended by adding at the end the following 
     new paragraph:
       ``(14) Contributions of taxidermy property.--
       ``(A) Contributions of more than $500.--In the case of any 
     contribution of taxidermy property for which a deduction of 
     more than $500 is claimed, no deduction shall be allowed 
     under subsection (a) unless the donor includes with the 
     return for the taxable year in which the contribution is made 
     a photograph of the taxidermy property and data with respect 
     to the sales prices of similar taxidermy property.
       ``(B) Contributions of more than $5,000.--In the case of 
     any contribution of taxidermy property for which a deduction 
     of more than $5,000 is claimed, no deduction shall be allowed 
     under subsection (a) unless the donor--
       ``(i) notifies the Internal Revenue Service of such 
     deduction, and
       ``(ii) includes with the return for the taxable year in 
     which the contribution is made--

       ``(I) a statement of value from the Internal Revenue 
     Service, or
       ``(II) a request for a statement of value from the Internal 
     Revenue Service and a $500 fee.

       ``(C) Taxidermy property.--For purposes of this section, 
     the term `taxidermy property' means a mounted work of art 
     which contains any part of a dead animal.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after November 15, 2005.

     SEC. 216. RECAPTURE OF TAX BENEFIT FOR CHARITABLE 
                   CONTRIBUTIONS OF EXEMPT USE PROPERTY NOT USED 
                   FOR AN EXEMPT USE.

       (a) Recapture of Deduction on Certain Sales of Exempt Use 
     Property.--
       (1) In general.--Clause (i) of section 170(e)(1)(B) 
     (related to certain contributions of ordinary income and 
     capital gain property) is amended to read as follows:
       ``(i) of tangible personal property--

       ``(I) if the use by the donee is unrelated to the purpose 
     or function constituting the basis for its exemption under 
     section 501 (or, in the case of a governmental unit, to any 
     purpose or function described in subsection (c)), or
       ``(II) which is applicable property (as defined in 
     paragraph (8)(C)) which is sold, exchanged, or otherwise 
     disposed of by the donee before the last day of the taxable 
     year in which the contribution was made and with respect to 
     which the donee has not made a certification in accordance 
     with paragraph (8)(D),''.

       (2) Dispositions after close of taxable year.--Section 
     170(e), as amended by this Act, is amended by adding at the 
     end the following new paragraph:
       ``(8) Recapture of deduction on certain dispositions of 
     exempt use property.--
       ``(A) In general.--In the case of an applicable disposition 
     of applicable property, there shall be included in the income 
     of the donor of such property for the taxable year of such 
     donor in which the applicable disposition occurs an amount 
     equal to the excess (if any) of--
       ``(i) the amount of the deduction allowed to the donor 
     under this section with respect to such property, over
       ``(ii) the donor's basis in such property at the time such 
     property was contributed.
       ``(B) Applicable disposition.--For purposes of this 
     paragraph, the term `applicable disposition' means any sale, 
     exchange, or other disposition by the donee of applicable 
     property--
       ``(i) after the last day of the taxable year of the donor 
     in which such property was contributed, and
       ``(ii) before the last day of the 3-year period beginning 
     on the date of the contribution of such property,

     unless the donee makes a certification in accordance with 
     subparagraph (D).
       ``(C) Applicable property.--For purposes of this paragraph, 
     the term `applicable property' means charitable deduction 
     property (as defined in section 6050L(a)(2)(A))--
       ``(i) which is tangible personal property the use of which 
     is identified by the donee as related to the purpose or 
     function constituting the basis of the donee's exemption 
     under section 501, and
       ``(ii) for which a deduction in excess of the donor's basis 
     is allowed.
       ``(D) Certification.--A certification meets the 
     requirements of this subparagraph if it is a written 
     statement which is signed under penalty of perjury by an 
     officer of the donee organization and--
       ``(i) which--

       ``(I) certifies that the use of the property by the donee 
     was related to the purpose or function constituting the basis 
     for the donee's exemption under section 501, and
       ``(II) describes how the property was used and how such use 
     furthered such purpose or function, or

       ``(ii) which--

       ``(I) states the intended use of the property by the donee 
     at the time of the contribution, and
       ``(II) certifies that such intended use has become 
     impossible or infeasible to implement.''.

       (b) Reporting Requirements.--Paragraph (1) of section 
     6050L(a) (relating to returns relating to certain 
     dispositions of donated property) is amended--
       (1) by striking ``2 years'' and inserting ``3 years'', and
       (2) by striking ``and'' at the end of subparagraph (D), by 
     striking the period at the end of subparagraph (E) and 
     inserting a comma, and by inserting at the end the following:
       ``(F) a description of the donee's use of the property, and
       ``(G) a statement indicating whether the use of the 
     property was related to the purpose or function constituting 
     the basis for the donee's exemption under section 501.

     In any case in which the donee indicates that the use of 
     applicable property (as defined in section 170(e)(1)(C)) was 
     related to the purpose or function constituting the basis for 
     the exemption of the donee under section 501 under 
     subparagraph (G), the donee shall include with the return the 
     certification described in section 170(e)(8)(D) if such 
     certification is required under section 170(e)(8).''.
       (c) Penalty.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties), as amended by this Act, 
     is amended by inserting after section 6720B the following new 
     section:

     ``SEC. 6720C. FRAUDULENT IDENTIFICATION OF EXEMPT USE 
                   PROPERTY.

       ``In addition to any criminal penalty provided by law, any 
     person who identifies applicable property (as defined in 
     section 170(e)(8)(C)) as having a use which is related to a 
     purpose or function constituting the basis for the donee's 
     exemption under section 501 and who knows that such property 
     is not intended for such a use shall pay a penalty of 
     $10,000.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68, as amended by this Act, is 
     amended by adding after the item relating to section 6720B 
     the following new item:

``Sec. 6720C. Fraudulent identification of exempt use property.''.

       (d) Effective Date.--
       (1) Recapture.--The amendments made by subsection (a) shall 
     apply to contributions after June 1, 2006.
       (2) Reporting.--The amendments made by subsection (b) shall 
     apply to returns filed after June 1, 2006.
       (3) Penalty.--The amendments made by subsection (c) shall 
     apply to identifications made after the date of the enactment 
     of this Act.

     SEC. 217. LIMITATION OF DEDUCTION FOR CHARITABLE 
                   CONTRIBUTIONS OF CLOTHING AND HOUSEHOLD ITEMS.

       (a) In General.--Subsection (f) of section 170, as amended 
     by this Act, is amended by adding at the end the following 
     new paragraph:
       ``(15) Contributions of clothing and household items.--
       ``(A) In general.--In the case of an individual, 
     partnership, or S corporation, the deduction allowed under 
     subsection (a) for any contribution of clothing or household 
     items with respect to which the donor has not obtained a 
     qualified appraisal shall be--
       ``(i) in the case of an item which is in good used 
     condition or better, no more than the amount assigned to such 
     item under subparagraph (B) for such year,
       ``(ii) except as provided by clause (iii), in the case of 
     an item which is not in good used condition or better, no 
     more than 20 percent of the amount assigned to such item 
     under subparagraph (B) for such year, and
       ``(iii) in the case of an item which is not functional with 
     respect to the use for which it was designed, zero.
       ``(B) Assigned values.--Each year the Secretary shall 
     publish an itemized list of clothing and household items and 
     shall assign an amount with respect to each item on the list 
     which represents the fair market value of such item in good 
     used condition.
       ``(C) Exception for items sold by the donee.--Subparagraph 
     (A) shall not apply to

[[Page S584]]

     any contribution of clothing or household items for which a 
     deduction of more than $500 is claimed if--
       ``(i) the donee sells the clothing or household items 
     before the earlier of--

       ``(I) the due date (including extensions) for filing the 
     return of tax for the taxable year of the donor in which the 
     contribution was made, or
       ``(II) the date on which such return was filed,

       ``(ii) the donee reports the sales price of the clothing or 
     household items to the donor, and
       ``(iii) the amount claimed as a deduction with respect to 
     such clothing or household items does not exceed the amount 
     of the sales price reported to the donor.
       ``(D) Household items.--For purposes of this paragraph--
       ``(i) In general.--The term `household items' includes 
     furniture, furnishings, electronics, appliances, linens, and 
     other similar items.
       ``(ii) Excluded items.--Such term does not include--

       ``(I) food,
       ``(II) paintings, antiques, and other objects of art,
       ``(III) jewelry and gems, and
       ``(IV) collections.

       ``(E) Special rule for pass-thru entities.--In the case of 
     a partnership or S corporation, this paragraph shall be 
     applied at the entity level, except that the deduction shall 
     be denied at the partner or shareholder level.''.
       (b) Substantiation.--
       (1) Items of $250 or more.--Subparagraph (B) of section 
     170(f)(8) is amended by inserting after clause (iii) the 
     following new clause:
       ``(iv) In the case of a contribution consisting of clothing 
     or household items, the number of items contributed, an 
     indication of the condition of each item, a description of 
     the type of item contributed, and a copy of the list 
     published under paragraph (15)(B) or an instruction on how to 
     obtain such list.''.
       (2) Items of $500 or more.--Subparagraph (B) of section 
     170(f)(11) is amended by inserting ``, the information 
     contained in the acknowledgment required under paragraph (8) 
     in the case of any contribution of clothing or household 
     items,'' after ``a description of such property''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made after December 31, 2006.

     SEC. 218. MODIFICATION OF RECORDKEEPING REQUIREMENTS FOR 
                   CERTAIN CHARITABLE CONTRIBUTIONS.

       (a) Recordkeeping Requirement.--Subsection (f) of section 
     170, as amended by this Act, is amended by adding at the end 
     the following new paragraph:
       ``(16) Recordkeeping.--No deduction shall be allowed under 
     subsection (a) for any contribution of a cash, check, or 
     other monetary gift unless the donor maintains as a record of 
     such contribution--
       ``(A) a cancelled check, or
       ``(B) a receipt or a letter or other written communication 
     from the donee showing the name of the donee organization, 
     the date of the contribution, and the amount of the 
     contribution.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after the date of the enactment of this Act.

     SEC. 219. CONTRIBUTIONS OF FRACTIONAL INTERESTS IN TANGIBLE 
                   PERSONAL PROPERTY.

       (a) Income Tax.--Section 170 (relating to charitable, etc., 
     contributions and gifts), as amended by this Act, is amended 
     by redesignating subsection (p) as subsection (q) and by 
     inserting after subsection (o) the following new subsection:
       ``(p) Special Rules for Fractional Gifts.--
       ``(1) Valuation of subsequent gifts.--
       ``(A) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(i) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(ii) the fair market value of the property at the time of 
     the additional contribution.
       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Additional contribution.--The term `additional 
     contribution' means any charitable contribution by the 
     taxpayer of any interest in property with respect to which 
     the taxpayer has previously made an initial fractional 
     contribution.
       ``(ii) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any taxpayer, 
     the first charitable contribution of an undivided portion of 
     the taxpayer's entire interest in any tangible personal 
     property.
       ``(2) Recapture of deduction in certain cases.--
       ``(A) In general.--The Secretary shall provide for the 
     recapture of an amount equal to the amount of any deduction 
     allowed under this section (plus interest) with respect to 
     any contribution of an undivided interest of a taxpayer's 
     entire interest in property in any case where such property 
     is not in the physical possession of the donee during any 
     applicable period for a period of time which bears 
     substantially the same ratio to 1 year as--
       ``(i) the percentage of the undivided interest of the donee 
     in the property (determined on the day after such 
     contribution was made), bears to
       ``(ii) 100 percent.
       ``(B) Applicable period.--For purposes of subparagraph (A), 
     the term `applicable period' means any 1-year period which 
     begins on--
       ``(i) in the year of the contribution, the date of the 
     contribution, and
       ``(ii) in any subsequent calendar year, the date which 
     corresponds to the date described in clause (i).
       ``(C) Anti-abuse rules.--The Secretary shall prescribe such 
     regulations as necessary to prevent the avoidance of the 
     purposes of this paragraph through the transfer of any such 
     undivided interest to a third party controlled by the 
     taxpayer.''.
       (b) Estate Tax.--Section 2055 (relating to transfers for 
     public, charitable, and religious uses) is amended by 
     redesignating subsection (g) as subsection (h) and by 
     inserting after subsection (f) the following new subsection:
       ``(g) Valuation of Subsequent Gifts.--
       ``(1) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(A) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(B) the fair market value of the property at the time of 
     the additional contribution.
       ``(2) Definitions.--For purposes of this paragraph--
       ``(A) Additional contribution.--The term `additional 
     contribution' means a bequest, legacy, devise, or transfer 
     described in subsection (a) of any interest in a property 
     with respect to which the decedent had previously made an 
     initial fractional contribution.
       ``(B) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any decedent, 
     any charitable contribution of an undivided portion of the 
     decedent's entire interest in any tangible personal property 
     for which a deduction was allowed under section 170.''.
       (c) Gift Tax.--Section 2522 (relating to charitable and 
     similar gifts) is amended by redesignating subsection (e) as 
     subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Special Rules for Fractional Gifts.--
       ``(1) Valuation of subsequent gifts.--
       ``(A) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(i) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(ii) the fair market value of the property at the time of 
     the additional contribution.
       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Additional contribution.--The term `additional 
     contribution' means any gift for which a deduction is allowed 
     under subsection (a) or (b) of any interest in a property 
     with respect to which the donor has previously made an 
     initial fractional contribution.
       ``(ii) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any donor, 
     the first gift of an undivided portion of the donor's entire 
     interest in any tangible personal property for which a 
     deduction is allowed under subsection (a) or (b).
       ``(2) Recapture of deduction in certain cases.--
       ``(A) In general.--The Secretary shall provide for the 
     recapture of an amount equal to the amount of any deduction 
     allowed under this section (plus interest) with respect to 
     any contribution of an undivided interest of a donor's entire 
     interest in property in any case where such property is not 
     in the physical possession of the donee during any applicable 
     period for a period of time which bears substantially the 
     same ratio to 1 year as--
       ``(i) the percentage of the undivided interest of the donee 
     in the property (determined on the day after such 
     contribution was made), bears to
       ``(ii) 100 percent.
       ``(B) Applicable period.--For purposes of subparagraph (A), 
     the term `applicable period' means any 1-year period which 
     begins on--
       ``(i) in the year of the contribution, the date of the 
     contribution, and
       ``(ii) in any subsequent calendar year, the date which 
     corresponds to the date described in clause (i).
       ``(C) Anti-abuse rules.--The Secretary shall prescribe such 
     regulations as necessary to prevent the avoidance of the 
     purposes of this paragraph though the transfer of any such 
     undivided interest to a third party controlled by the 
     donor.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to contributions, bequests, and gifts made after 
     the date of the enactment of this Act.

     SEC. 220. PROVISIONS RELATING TO SUBSTANTIAL AND GROSS 
                   OVERSTATEMENTS OF VALUATIONS OF CHARITABLE 
                   DEDUCTION PROPERTY.

       (a) Substantial and Gross Overstatements of Valuations of 
     Charitable Deduction Property.--
       (1) In general.--Section 6662 (relating to imposition of 
     accuracy-related penalties) is amended by adding at the end 
     the following new subsection:
       ``(i) Special Rules for Charitable Deduction Property.--In 
     the case of charitable deduction property (as defined in 
     section 6664(c)(3)(A))--

[[Page S585]]

       ``(1) the determination under subsection (e)(1)(A) as to 
     whether there is a substantial valuation misstatement under 
     chapter 1 with respect to the value of the property shall be 
     made by substituting `150 percent' for `200 percent', and
       ``(2) the determination under subsection (h)(2)(A)(i) as to 
     whether there is a gross valuation misstatement with respect 
     to the value of the property shall be made by substituting 
     `200 percent' for `400 percent' and by substituting `150 
     percent' for `200 percent' in applying subsection (e)(1)(A) 
     for purposes of such determination.''.
       (2) Elimination of reasonable cause exception for gross 
     misstatements.--Section 6664(c)(2) (relating to reasonable 
     cause exception for underpayments) is amended by striking 
     ``paragraph (1) shall not apply unless'' and inserting 
     ``paragraph (1) shall not apply. The preceding sentence shall 
     not apply to a substantial valuation overstatement under 
     chapter 1 if''.
       (b) Penalty on Appraisers Whose Appraisals Result in 
     Substantial or Gross Valuation Misstatements.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by inserting 
     after section 6695 the following new section:

     ``SEC. 6695A. SUBSTANTIAL AND GROSS VALUATION MISSTATEMENTS 
                   ATTRIBUTABLE TO INCORRECT APPRAISALS.

       ``(a) Imposition of Penalty.--If--
       ``(1) a person prepares an appraisal of the value of 
     property and such person knows, or reasonably should have 
     known, that the appraisal would be used in connection with a 
     return or a claim for refund, and
       ``(2) the claimed value of the property on a return or 
     claim for refund which is based on such appraisal results in 
     a substantial valuation misstatement under chapter 1 (within 
     the meaning of section 6662(e)), or a gross valuation 
     misstatement (within the meaning of section 6662(h)), with 
     respect to such property,

     then such person shall pay a penalty in the amount determined 
     under subsection (b).
       ``(b) Amount of Penalty.--The amount of the penalty imposed 
     under subsection (a) on any person with respect to an 
     appraisal shall be equal to the lesser of--
       ``(1) the greater of--
       ``(A) 10 percent of the amount of the underpayment (as 
     defined in section 6664(a)) attributable to the misstatement 
     described in subsection (a)(2), or
       ``(B) $1,000, or
       ``(2) 125 percent of the gross income received by the 
     person described in subsection (a)(1) from the preparation of 
     the appraisal.
       ``(c) Exception.--No penalty shall be imposed under 
     subsection (a) if the person establishes to the satisfaction 
     of the Secretary that the value established in the appraisal 
     was more likely than not the proper value.''.
       (2) Rules applicable to penalty.--Section 6696 (relating to 
     rules applicable with respect to sections 6694 and 6695) is 
     amended--
       (A) by striking ``6694 and 6695'' each place it appears in 
     the text and heading thereof and inserting ``6694, 6695, and 
     6695A'', and
       (B) by striking ``6694 or 6695'' each place it appears in 
     the text and inserting ``6694, 6695, or 6695A''.
       (3) Conforming amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by striking the item 
     relating to section 6696 and inserting the following new 
     items:

``Sec. 6695A. Substantial and gross valuation misstatements 
              attributable to incorrect appraisals.
``Sec. 6696. Rules applicable with respect to sections 6694, 6695, and 
              6695A.''.

       (c) Qualified Appraisers and Appraisals.--
       (1) In general.--Subparagraph (E) of section 170(f)(11) is 
     amended to read as follows:
       ``(E) Qualified appraisal and appraiser.--For purposes of 
     this paragraph--
       ``(i) Qualified appraisal.--The term `qualified appraisal' 
     means, with respect to any property, an appraisal of such 
     property which--

       ``(I) is treated for purposes of this paragraph as a 
     qualified appraisal under regulations or other guidance 
     prescribed by the Secretary, and
       ``(II) is conducted by a qualified appraiser in accordance 
     with generally accepted appraisal standards and any 
     regulations or other guidance prescribed under subclause (I).

       ``(ii) Qualified appraiser.--Except as provided in clause 
     (iii), the term `qualified appraiser' means an individual 
     who--

       ``(I) has earned an appraisal designation from a recognized 
     professional appraiser organization or has otherwise met 
     minimum education and experience requirements set forth in 
     regulations prescribed by the Secretary,
       ``(II) regularly performs appraisals for which the 
     individual receives compensation, and
       ``(III) meets such other requirements as may be prescribed 
     by the Secretary in regulations or other guidance.

       ``(iii) Specific appraisals.--An individual shall not be 
     treated as a qualified appraiser with respect to any specific 
     appraisal unless--

       ``(I) the individual demonstrates verifiable education and 
     experience in valuing the type of property subject to the 
     appraisal, and
       ``(II) the individual has not been prohibited from 
     practicing before the Internal Revenue Service by the 
     Secretary under section 330(c) of title 31, United States 
     Code, at any time during the 3-year period ending on the date 
     of the appraisal.''.

       (2) Reasonable cause exception.--Subparagraphs (B) and (C) 
     of section 6664(c)(3) are amended to read as follows:
       ``(B) Qualified appraisal.--The term `qualified appraisal' 
     has the meaning given such term by section 170(f)(11)(E)(i).
       ``(C) Qualified appraiser.--The term `qualified appraiser' 
     has the meaning given such term by section 
     170(f)(11)(E)(ii).''.
       (d) Disciplinary Actions Against Appraisers.--Section 
     330(c) of title 31, United States Code, is amended by 
     striking ``with respect to whom a penalty has been assessed 
     under section 6701(a) of the Internal Revenue Code of 1986''.
       (e) Effective Dates.--
       (1) Misstatement penalties.--Except as provided in 
     paragraph (3), the amendments made by subsection (a) shall 
     apply to returns filed after the date of the enactment of 
     this Act.
       (2) Appraiser provisions.--Except as provided in paragraph 
     (3), the amendments made by subsections (b), (c), and (d) 
     shall apply to appraisals prepared with respect to returns or 
     submissions filed after the date of the enactment of this 
     Act.
       (3) Special rule for certain easements.--In the case of a 
     contribution of a qualified real property interest which is a 
     restriction with respect to the exterior of a building 
     described in section 170(h)(4)(C)(ii) of the Internal Revenue 
     Code of 1986, and an appraisal with respect to the 
     contribution, the amendments made by subsections (a) and (b) 
     shall apply to returns filed after December 16, 2004.

     SEC. 221. ADDITIONAL STANDARDS FOR CREDIT COUNSELING 
                   ORGANIZATIONS.

       (a) In General.--Section 501 (relating to exemption from 
     tax on corporations, certain trusts, etc.) is amended by 
     redesignating subsection (q) as subsection (r) and by 
     inserting after subsection (p) the following new subsection:
       ``(q) Special Rules for Credit Counseling Organizations.--
       ``(1) In general.--An organization with respect to which 
     the provision of credit counseling services is a substantial 
     purpose shall not be exempt from tax under subsection (a) 
     unless such organization is described in paragraph (3) or (4) 
     of subsection (c) and such organization is organized and 
     operated in accordance with the following requirements:
       ``(A) The organization--
       ``(i) provides credit counseling services tailored to the 
     specific needs and circumstances of consumers,
       ``(ii) makes no loans to debtors and does not negotiate the 
     making of loans on behalf of debtors, and
       ``(iii) does not promote, or charge any separate fee for, 
     any service for the purpose of improving any consumer's 
     credit record, credit history, or credit rating.
       ``(B) The organization does not refuse to provide credit 
     counseling services to a consumer due to the inability of the 
     consumer to pay, the ineligibility of the consumer for debt 
     management plan enrollment, or the unwillingness of the 
     consumer to enroll in a debt management plan.
       ``(C) The organization establishes and implements a fee 
     policy which--
       ``(i) requires that any fees charged to a consumer for 
     services are reasonable, and
       ``(ii) prohibits charging any fee based in whole or in part 
     on a percentage of the consumer's debt, the consumer's 
     payments to be made pursuant to a debt management plan, or 
     the projected or actual savings to the consumer resulting 
     from enrolling in a debt management plan.
       ``(D) At all times the organization has a board of 
     directors or other governing body--
       ``(i) which is controlled by persons who represent the 
     broad interests of the public, such as public officials 
     acting in their capacities as such, persons having special 
     knowledge or expertise in credit or financial education, and 
     community leaders,
       ``(ii) not more than 20 percent of the voting power of 
     which is vested in persons who are employed by the 
     organization or who will benefit financially, directly or 
     indirectly, from the organization's activities (other than 
     through the receipt of reasonable directors' fees or the 
     repayment of consumer debt to creditors other than the credit 
     counseling organization or its affiliates), and
       ``(iii) not more than 49 percent of the voting power of 
     which is vested in persons who are employed by the 
     organization or who will benefit financially, directly or 
     indirectly, from the organization's activities (other than 
     through the receipt of reasonable directors' fees).
       ``(E) The organization does not own more than 35 percent 
     of--
       ``(i) the total combined voting power of a corporation 
     which is in the business of lending money, repairing credit, 
     or providing debt management plan services, payment 
     processing, or similar services,
       ``(ii) the profits interest of a partnership which is in 
     the business of lending money, repairing credit, or providing 
     debt management plan services, payment processing, or similar 
     services, and
       ``(iii) the beneficial interest of a trust or estate which 
     is in the business of lending money, repairing credit, or 
     providing debt management plan services, payment processing, 
     or similar services.
       ``(F) The organization receives no amount for providing 
     referrals to others for financial

[[Page S586]]

     services (including debt management services) or credit 
     counseling services to be provided to consumers, and pays no 
     amount to others for obtaining referrals of consumers.
       ``(2) Requirements under subsection (c)(3).--In addition to 
     the requirements under paragraph (1), an organization with 
     respect to which the provision of credit counseling services 
     is a substantial purpose and which is described in paragraph 
     (3) of subsection (c) shall not be exempt from tax under 
     subsection (a) unless such organization is organized and 
     operated in accordance with the following requirements:
       ``(A) The organization--
       ``(i) charges no fees (other than nominal fees) for debt 
     management plan services or credit counseling services and 
     waives any fees if the consumer is unable to pay such fees, 
     and
       ``(ii) does not solicit contributions from consumers during 
     the initial counseling process or while the consumer is 
     receiving services from the organization.
       ``(B) The activities of the organization related to debt 
     management plan services (in the aggregate) do not exceed 25 
     percent of the total activities of the organization 
     activities measured by any of the following:
       ``(i) The time spent on activities.
       ``(ii) The resources dedicated to activities.
       ``(iii) The effort expended by the organization with 
     respect to activities.
       ``(iv) The sources of revenue of the organization.
       ``(v) Any other measures prescribed by the Secretary.
       ``(3) Requirements under subsection (c)(4).--In addition to 
     the requirements under paragraph (1), an organization with 
     respect to which the provision of credit counseling services 
     is a substantial purpose and which is described in paragraph 
     (4) of subsection (c) shall not be exempt from tax under 
     subsection (a) unless such organization--
       ``(A) is organized and operated such that it charges no 
     fees (other than nominal fees) for credit counseling services 
     and waives any fees if the consumer is unable to pay such 
     fees, and
       ``(B) notifies the Secretary, in such manner as the 
     Secretary may by regulations prescribe, that it is applying 
     for recognition as a credit counseling organization.
       ``(4) Secretarial authority.--The Secretary may require any 
     organization described in paragraph (1) to submit such 
     information as the Secretary requires to verify that such 
     organization meets the requirements of this section.
       ``(5) Credit counseling services; debt management plan 
     services.--For purposes of this subsection--
       ``(A) Credit counseling services.--The term `credit 
     counseling services' means--
       ``(i) the providing of educational information to the 
     general public on budgeting, personal finance, financial 
     literacy, saving and spending practices, and the sound use of 
     consumer credit,
       ``(ii) the assisting of individuals and families with 
     financial problems by providing them with counseling, or
       ``(iii) a combination of the activities described in 
     clauses (i) and (ii).
       ``(B) Debt management plan services.--The term `debt 
     management plan services' means services related to the 
     repayment, consolidation, or restructuring of a consumer's 
     debt, and includes the negotiation with creditors of lower 
     interest rates, the waiver or reduction of fees, and the 
     marketing and processing of debt management plans.''.
       (b) Debt Management Plan Services Treated as an Unrelated 
     Business.--Section 513 (relating to unrelated trade or 
     business) is amended by adding at the end the following:
       ``(j) Debt Management Plan Services.--The term `unrelated 
     trade or business' includes--
       ``(1) the provision of debt management plan services (as 
     defined in section 501(q)(4)(B)) by an organization described 
     in section 501(q) to the extent such services are not 
     substantially related to the provision of credit counseling 
     services (as defined in section 501(q)(4)(A)) to a consumer, 
     and
       ``(2) the provision of debt management plan services (as so 
     defined) by any organization other than an organization which 
     meets the requirements of section 501(q).''.
       (c) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after the date of the enactment of this Act.
       (2) Transition rule for existing organizations.--In the 
     case of any organization described in paragraph (3) or (4) 
     section 501(c) of the Internal Revenue Code of 1986 and with 
     respect to which the provision of credit counseling services 
     is a substantial purpose on the date of the enactment of this 
     Act, the amendments made by this section shall apply to 
     taxable years beginning after the date which is 1 year after 
     the date of the enactment of this Act.

     SEC. 222. EXPANSION OF THE BASE OF TAX ON PRIVATE FOUNDATION 
                   NET INVESTMENT INCOME.

       (a) Gross Investment Income.--
       (1) In general.--Paragraph (2) of section 4940(c) (relating 
     to gross investment income) is amended by adding at the end 
     the following new sentence: ``Such term shall also include 
     income from sources similar to those in the preceding 
     sentence.''.
       (2) Conforming amendment.--Subsection (e) of section 509 
     (relating to gross investment income) is amended by adding at 
     the end the following new sentence: ``Such term shall also 
     include income from sources similar to those in the preceding 
     sentence.''.
       (b) Capital Gain Net Income.--Paragraph (4) of section 
     4940(c) (relating to capital gains and losses) is amended--
       (1) in subparagraph (A), by striking ``used for the 
     production of interest, dividends, rents, and royalties'' and 
     inserting ``used for the production of gross investment 
     income (as defined in paragraph (2))'', and
       (2) in subparagraph (C), by inserting ``or carrybacks'' 
     after ``carryovers''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 223. DEFINITION OF CONVENTION OR ASSOCIATION OF 
                   CHURCHES.

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

     SEC. 224. NOTIFICATION REQUIREMENT FOR ENTITIES NOT CURRENTLY 
                   REQUIRED TO FILE.

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

[[Page S587]]

       ``(E) No penalty for certain annual notices.--This 
     paragraph shall not apply with respect to any notice required 
     under section 6033(h).''.
       (g) Secretarial Outreach Requirements.--
       (1) Notice requirement.--The Secretary of the Treasury 
     shall notify in a timely manner every organization described 
     in section 6033(h) of the Internal Revenue Code of 1986 (as 
     added by this section) of the requirement under such section 
     6033(h) and of the penalty established under section 6033(i) 
     of such Code--
       (A) by mail, in the case of any organization the identity 
     and address of which is included in the list of exempt 
     organizations maintained by the Secretary, and
       (B) by Internet or other means of outreach, in the case of 
     any other organization.
       (2) Loss of status penalty for failure to file return.--The 
     Secretary of the Treasury shall publicize in a timely manner 
     in appropriate forms and instructions and through other 
     appropriate means, the penalty established under section 
     6033(i) of such Code for the failure to file a return under 
     section 6033(a)(1) of such Code.
       (h) Effective Date.--The amendments made by this section 
     shall apply to notices and returns with respect to annual 
     periods beginning after 2005.

     SEC. 225. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS 
                   RELATED TO EXEMPT ORGANIZATIONS.

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

     Such information may only be inspected by or disclosed to a 
     person other than the appropriate State officer if such 
     person is an officer or employee of the State and is 
     designated by the appropriate State officer to receive the 
     returns or return information under this paragraph on behalf 
     of the appropriate State officer.
       ``(D) Disclosures other than by request.--The Secretary may 
     make available for inspection or disclose returns and return 
     information of an organization to which paragraph (1) applies 
     to an appropriate State officer of any State if the Secretary 
     determines that such inspection or disclosure may facilitate 
     the resolution of Federal or State issues relating to the 
     tax-exempt status of such organization.
       ``(3) Disclosure with respect to certain other exempt 
     organizations.--Upon written request by an appropriate State 
     officer, the Secretary may make available for inspection or 
     disclosure returns and return information of an organization 
     described in paragraph (2), (4), (6), (7), (8), (10), or (13) 
     of section 501(c) for the purpose of, and to the extent 
     necessary in, the administration of State laws regulating the 
     solicitation or administration of the charitable funds or 
     charitable assets of such organizations. Such information may 
     only be inspected by or disclosed to a person other than the 
     appropriate State officer if such person is an officer or 
     employee of the State and is designated by the appropriate 
     State officer to receive the returns or return information 
     under this paragraph on behalf of the appropriate State 
     officer.
       ``(4) Use in civil judicial and administrative 
     proceedings.--Returns and return information disclosed 
     pursuant to this subsection may be disclosed in civil 
     administrative and civil judicial proceedings pertaining to 
     the enforcement of State laws regulating such organizations 
     in a manner prescribed by the Secretary similar to that for 
     tax administration proceedings under section 6103(h)(4).
       ``(5) No disclosure if impairment.--Returns and return 
     information shall not be disclosed under this subsection, or 
     in any proceeding described in paragraph (4), to the extent 
     that the Secretary determines that such disclosure would 
     seriously impair Federal tax administration.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Return and return information.--The terms `return' 
     and `return information' have the respective meanings given 
     to such terms by section 6103(b).
       ``(B) Appropriate state officer.--The term `appropriate 
     State officer' means--
       ``(i) the State attorney general,
       ``(ii) the State tax officer,
       ``(iii) in the case of an organization to which paragraph 
     (1) applies, any other State official charged with overseeing 
     organizations of the type described in section 501(c)(3), and
       ``(iv) in the case of an organization to which paragraph 
     (3) applies, the head of an agency designated by the State 
     attorney general as having primary responsibility for 
     overseeing the solicitation of funds for charitable 
     purposes.''.
       (b) Conforming Amendments.--
       (1) Subparagraph (A) of section 6103(p)(3) is amended by 
     inserting ``an section 6104(c)'' after ``section'' in the 
     first sentence.
       (2) Paragraph (4) of section 6103(p) is amended--
       (A) in the matter preceding subparagraph (A), by inserting 
     ``, or any appropriate State officer (as defined in section 
     6104(c)),'' before ``or any other person'',
       (B) in subparagraph (F)(i), by inserting ``or any 
     appropriate State officer (as defined in section 6104(c)),'' 
     before ``or any other person'', and
       (C) in the matter following subparagraph (F), by inserting 
     ``, an appropriate State officer (as defined in section 
     6104(c)),'' after ``including an agency'' each place it 
     appears.
       (3) The heading for paragraph (1) of section 6104(c) is 
     amended by inserting ``for charitable organizations'' after 
     ``rule''.
       (4) Paragraph (2) of section 7213(a) is amended by 
     inserting ``or under section 6104(c)'' after ``6103''.
       (5) Paragraph (2) of section 7213A(a) is amended by 
     inserting ``or 6104(c)'' after ``6103''.
       (6) Paragraph (2) of section 7431(a) is amended by 
     inserting ``(including any disclosure in violation of section 
     6014(c)'' after ``6103''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act 
     but shall not apply to requests made before such date.

        PART II--IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS

     SEC. 231. EXCISE TAX ON SPONSORING ORGANIZATIONS OF DONOR 
                   ADVISED FUNDS FOR FAILURE TO MEET DISTRIBUTION 
                   REQUIREMENTS.

       (a) In General.--Chapter 42 (relating to private 
     foundations and certain other tax-exempt organizations), as 
     amended by this Act, is amended by adding at the end the 
     following new subchapter:

                  ``Subchapter G--Donor Advised Funds

``Sec. 4967. Taxes on sponsoring organizations of donor advised funds 
              for failure to meet distributions requirements.
``Sec. 4968. Taxes on prohibited distributions.
``Sec. 4969. Taxes on prohibited benefits.

     ``SEC. 4967. TAXES ON SPONSORING ORGANIZATIONS OF DONOR 
                   ADVISED FUNDS FOR FAILURE TO MEET DISTRIBUTION 
                   REQUIREMENTS.

       ``(a) Initial Tax.--There is hereby imposed on any 
     sponsoring organization a tax equal to 30 percent of each of 
     the following amounts:
       ``(1) The organization level undistributed amount of such 
     sponsoring organization (other than any organization subject 
     to tax under section 4942) for any taxable year which has not 
     been distributed before the first day of the second (or any 
     succeeding) taxable year following such taxable year (if such 
     first day falls within the taxable period).
       ``(2) The fund level undistributed amount of any donor 
     advised fund of such sponsoring organization for any taxable 
     year which has not been distributed before the 181st day of 
     the first (or any succeeding) taxable year following the 
     applicable period (if such 181st day falls within the taxable 
     period).
       ``(3) The illiquid fund undistributed amount of any 
     illiquid asset donor advised fund of such sponsoring 
     organization for any taxable year which has not been 
     distributed before the 181st day of the second (or any 
     succeeding) taxable year following such taxable year (if such 
     181st day falls within the taxable period).
       ``(b) Additional Tax.--In any case in which an initial tax 
     is imposed under subsection (a) on any amount, if any portion 
     of such amount remains undistributed at the close of the 
     taxable period, there is hereby imposed a tax equal to 100 
     percent of the amount remaining undistributed at such time.
       ``(c) Organization Level Undistributed Amount; Fund Level 
     Undistributed Amount; Illiquid Fund Undistributed Amount.--
     For purposes of this section--
       ``(1) Organization level undistributed amount.--The term 
     `organization level undistributed amount' means, with respect 
     to any sponsoring organization for any taxable year, the 
     amount by which--
       ``(A) the organization level distributable amount for such 
     taxable year, exceeds
       ``(B) the qualifying distributions made during such taxable 
     year and designated for the purpose of reducing such amount.
       ``(2) Fund level undistributed amount.--The term `fund 
     level undistributed amount' means, with respect to any donor 
     advised fund of a sponsoring organization for any applicable 
     period, the amount by which--
       ``(A) the fund level distributable amount for such 
     applicable period, exceeds

[[Page S588]]

       ``(B) the qualifying distributions made during such 
     applicable period and designated for the purpose of reducing 
     such amount.
       ``(3) Illiquid fund undistributed amount.--
       ``(A) In general.--The term `illiquid fund undistributed 
     amount' means, with respect to any illiquid asset donor 
     advised fund of a sponsoring organization for any taxable 
     year, the amount by which--
       ``(i) the illiquid fund distributable amount for such 
     taxable year, exceeds
       ``(ii) the qualifying distributions made during such 
     taxable year and designated for the purpose of reducing such 
     amount.
       ``(B) Illiquid asset donor advised fund.--The term 
     `illiquid asset donor advised fund' means for any taxable 
     year a donor advised fund the value of the illiquid assets of 
     which (as of the end of the preceding taxable year) exceeds 
     10 percent of the value of the total assets of such fund.
       ``(C) Illiquid asset.--The term `illiquid asset' means for 
     any taxable year any asset other than cash and marketable 
     securities the value of which is held for the entire taxable 
     year as such asset or any other illiquid asset.
       ``(d) Organization Level Distributable Amount; Fund Level 
     Distributable Amount; Illiquid Fund Distributable Amount.--
     For purposes of this section--
       ``(1) Organization level distributable amount.--The term 
     `organization level distributable amount' means, with respect 
     to any sponsoring organization for any taxable year, an 
     amount equal to the applicable percentage of the fair market 
     value of the aggregate assets of all donor advised funds 
     maintained by such organization as determined on the last day 
     of the preceding taxable year (other than such funds which 
     have been in existence for less than 1 year as so 
     determined).
       ``(2) Fund level distributable amount.--The term `fund 
     level distributable amount' means, with respect to any donor 
     advised fund of any sponsoring organization for any 
     applicable 3-consecutive taxable year period, an amount equal 
     to the greater of--
       ``(A) $250, or
       ``(B) 2.5 percent of the greater of--
       ``(i) the average of the sponsoring organization's required 
     minimum initial contribution amount for such period, or
       ``(ii) the average of the sponsoring organization's 
     required minimum balance for such period,

     for the type of donor with respect to such donor advised 
     fund.
       ``(3) Illiquid fund distributable amount.--The term 
     `illiquid fund distributable amount' means, with respect to 
     any illiquid asset donor advised fund of any sponsoring 
     organization for any taxable year, an amount equal to the 
     applicable percentage of the value of the assets in such fund 
     as determined at the end of the preceding taxable year.
       ``(4) Applicable percentage.--For purposes of paragraphs 
     (1) and (3), the applicable percentage is--
       ``(A) 3 percent for the first taxable year beginning after 
     the date of the enactment of this section,
       ``(B) 4 percent for the second taxable year beginning after 
     such date, and
       ``(C) 5 percent for any taxable year beginning after the 
     second taxable year beginning after such date.
       ``(e) Qualifying Distribution.--For purposes of this 
     section--
       ``(1) In general.--The term `qualifying distribution' 
     means--
       ``(A) any amount paid by the sponsoring organization from a 
     donor advised fund--
       ``(i) to any organization described in section 170(b)(1)(A) 
     (other than any organization described in section 509(a)(3) 
     or any sponsoring organization if such amount is for 
     maintenance in a donor advised fund), and
       ``(ii) notwithstanding clause (i), to any organization 
     described section 170(f)(17)(B)(ii), but only to the extent 
     not prohibited by regulations, and
       ``(B) any amount set aside in such donor advised fund for 
     purposes, and under procedures similar to those, described in 
     section 4942(g)(2).

     Such term shall also include any amount paid during any 
     taxable year for reasonable and necessary administrative 
     expenses charged to a donor advised fund by a sponsoring 
     organization.
       ``(2) Distributions to sponsoring organizations.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     such term shall include any distribution to a sponsoring 
     organization.
       ``(B) Organization level distributions.--For purposes of 
     subsection (c)(1)(B), such term shall not include any 
     distribution to a sponsoring organization unless such 
     distribution is designated for use in connection with a 
     charitable program of such organization.
       ``(3) Purpose of distribution.--Each qualifying 
     distribution shall be taken into account in determining 
     whether each of the requirements of paragraphs (1), (2), and 
     (3) of subsection (a) are met, except that only qualifying 
     distributions from a donor advised fund shall be taken into 
     account in determining whether the requirements of paragraphs 
     (2) and (3) of subsection (a) are met with respect to the 
     fund.
       ``(4) Designation of taxable year.--
       ``(A) In general.--A sponsoring organization shall 
     designate the taxable years or applicable periods with 
     respect to which any qualifying distribution shall be applied 
     for purposes of satisfying the distribution requirements of 
     such taxable year or applicable period.
       ``(B) Carryover of excess distribution designations.--If a 
     sponsoring organization designates an amount of qualifying 
     distributions in excess of the amount necessary to meet the 
     distribution requirements for all taxable years and all 
     applicable periods, the sponsoring organization may designate 
     such excess as a carryover distribution which may be applied 
     for purposes of satisfying the distribution requirements of 
     the succeeding 5 taxable years.
       ``(f) Valuation Rules.--For purposes of determining the 
     value of any asset held by a donor advised fund, the 
     following rules shall apply:
       ``(1) Securities for which market quotations are readily 
     available shall be valued at fair market value determined on 
     a monthly basis.
       ``(2) Cash shall be determined on an average monthly basis.
       ``(3) Any illiquid asset transferred by a donor to a 
     sponsoring organization for maintenance in such donor advised 
     fund shall be valued in an amount equal to the sum of--
       ``(A) the value of such asset claimed by the donor for 
     purposes of determining the donor's deduction under section 
     170, 2055, or 2522 with respect to such transfer and reported 
     by the donor to the sponsoring organization (in any manner 
     specified by the Secretary), and
       ``(B) an assumed annual rate of return of 5 percent of such 
     value.
       ``(4) Any illiquid asset purchased by such fund shall be 
     valued in an amount equal to--
       ``(A) the purchase price paid for such asset by such fund, 
     and
       ``(B) an assumed annual rate of return of 5 percent of such 
     value.
       ``(g) Sponsoring Organization; Donor Advised Fund.--For 
     purposes of this subchapter--
       ``(1) Sponsoring organization.--The term `sponsoring 
     organization' means any organization which--
       ``(A) is described in section 170(c) (other than in 
     paragraph (1) thereof, and without regard to paragraph (2)(A) 
     thereof), and
       ``(B) maintains 1 or more donor advised funds.
       ``(2) Donor advised fund.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `donor advised fund' means a fund or account--
       ``(i) which is separately identified by reference to 
     contributions of a donor or donors,
       ``(ii) which is owned and controlled by a sponsoring 
     organization, and
       ``(iii) with respect to which a donor or any person 
     appointed or designated by such person) has, or reasonably 
     expects to have, advisory privileges with respect to the 
     distribution or investment of amounts held in such fund or 
     account by reason of the donor's status as a donor.
       ``(B) Exception.--The term `donor advised fund' shall not 
     include any fund or account with respect to which a person 
     described in subparagraph (A)(iii) advises as to which 
     individuals receive grants for travel, study, or other 
     similar purposes, but only if--
       ``(i) such person's advisory privileges are performed 
     exclusively by such person in the person's capacity as a 
     member of a committee appointed by the sponsoring 
     organization,
       ``(ii) no combination of persons described in subparagraph 
     (A)(iii) (or persons related to such persons) control, 
     directly or indirectly, such committee, and
       ``(iii) all grants from such fund or account satisfy 
     requirements similar to those described in section 4945(g) 
     (concerning grants to individuals by private foundations).
       ``(C) Secretarial authority.--The Secretary may exempt a 
     fund or account from treatment as a donor advised fund 
     which--
       ``(i) is advised by committee not directly or indirectly 
     controlled by the donor or advisor (and any related parties), 
     or
       ``(ii) will benefit a single identified organization or 
     governmental entity or a single identified charitable 
     purpose.
       ``(h) Other Definitions.--For purposes of this section--
       ``(1) Taxable period.--The term `taxable period' means, 
     with respect to the undistributed amount for any taxable 
     year, the period beginning with the first day of the taxable 
     year and ending on the earlier of--
       ``(A) the date of mailing of a notice of deficiency with 
     respect to the tax imposed by subsection (a) under section 
     6212, or
       ``(B) the date on which the tax imposed by subsection (a) 
     is assessed.
       ``(2) Applicable period.--The term `applicable period' 
     means, with respect to any donor advised fund of any 
     sponsoring organization, a 3-consecutive taxable year period 
     determined under the following rules:
       ``(A) The first applicable 3-consecutive taxable year 
     period for any donor advised fund shall begin on the first 
     day of the first taxable year of the sponsoring organization 
     beginning after the date such fund has been in existence for 
     1 year.
       ``(B) Any applicable 3-consecutive taxable year period 
     after the first such period shall begin on the day after the 
     termination of any preceding applicable 3-consecutive taxable 
     year period with respect to such donor advised fund.
       ``(i) Regulations.--The Secretary may issue such 
     regulations as are necessary to carry out the purposes of 
     this section, including regulations regarding--

[[Page S589]]

       ``(1) the acceptable methods for calculating the 
     organization level undistributed amount for sponsoring 
     organizations,
       ``(2) the allowable adjustments in the determination of the 
     value of any illiquid asset where the asset value has 
     declined significantly after a contribution to, or purchase 
     by, the donor advised fund, and
       ``(3) the treatment or disregard of transactions designed 
     to avoid the application of the illiquid asset rules, such as 
     through exchanges of illiquid assets for other assets.

     ``SEC. 4968. TAXES ON PROHIBITED DISTRIBUTIONS.

       ``(a) Imposition of Taxes.--
       ``(1) On the donor or donor advisor.--There is hereby 
     imposed on the advice of any person described in section 
     4967(g)(2)(A)(iii) to have a sponsoring organization of a 
     donor advised fund make a taxable distribution from such fund 
     a tax equal to 20 percent of the amount thereof. The tax 
     imposed by this paragraph shall be paid by such person who 
     advised the sponsoring organization of the donor advised fund 
     to make the distribution.
       ``(2) On the fund management.--There is hereby imposed on 
     the agreement of any fund manager to the making of a 
     distribution, knowing that it is a taxable distribution, a 
     tax equal to 5 percent of the amount thereof, unless such 
     agreement is not willful and is due to reasonable cause. The 
     tax imposed by this paragraph shall be paid by any fund 
     manager who agreed to the making of the distribution.
       ``(b) Joint and Several Liability.--For purposes of 
     subsection (a), if more than one person is liable under 
     subsection (a)(1) or (a)(2) with respect to the making of a 
     taxable distribution, all such persons shall be jointly and 
     severally liable under such paragraph with respect to such 
     distribution.
       ``(c) Taxable Distribution.--For purposes of this 
     subsection--
       ``(1) In general.--The term `taxable distribution' means 
     any distribution from a donor advised fund to any person 
     other than the sponsoring organization's non donor advised 
     funds or accounts or organizations described in section 
     170(b)(1)(A) (other than any organization described in 
     section 509(a)(3) or any sponsoring organization if such 
     amount is for maintenance in a donor advised fund).
       ``(2) Exception.--Notwithstanding paragraph (1), such term 
     shall not include any distribution from a donor advised fund 
     to any organization described in section 170(f)(17)(B)(ii) to 
     the extent such distribution is not prohibited under 
     regulations.
       ``(d) Fund Manager.--For purposes of this subchapter, the 
     term `fund manager' means, with respect to any sponsoring 
     organization of a donor advised fund--
       ``(1) an officer, director, or trustee of such sponsoring 
     organization (or an individual having powers or 
     responsibilities similar to those of officers, directors, or 
     trustees of the sponsoring organization), and
       ``(2) with respect to any act (or failure to act), the 
     employees of the sponsoring organization having authority or 
     responsibility with respect to such act (or failure to act).

     ``SEC. 4969. TAXES ON PROHIBITED BENEFITS.

       ``(a) Imposition of Taxes.--
       ``(1) On the donor, donor advisor, or related person.--
     There is hereby imposed on the advice of any person described 
     in subsection (c) to have a sponsoring organization of a 
     donor advised fund make a distribution from such fund which 
     results in such a person receiving, directly or indirectly, a 
     more than incidental benefit as a result of such 
     distribution, a tax equal to 25 percent of the amount of such 
     distribution. The tax imposed by this paragraph shall be paid 
     by such person who advised the sponsoring organization of the 
     donor advised fund to make the distribution.
       ``(2) On the recipient of the benefit.--There is hereby 
     imposed on any person described in subsection (c) who 
     receives a benefit described in paragraph (1), a tax equal to 
     25 percent of the amount of the distribution described in 
     paragraph (1).
       ``(3) On the fund management.--There is hereby imposed on 
     the agreement of any fund manager to the making of a 
     distribution, knowing that such distribution would confer a 
     benefit described in paragraph (1), a tax equal to 10 percent 
     of the amount of such distribution, unless such agreement is 
     not willful and is due to reasonable cause. The tax imposed 
     by this paragraph shall be paid by any fund manager who 
     agreed to the making of the distribution.
       ``(b) Joint and Several Liability.--For purposes of 
     subsection (a), if more than one person is liable under 
     subsection (a)(1), (a)(2), or (a)(3) with respect to the 
     making of a distribution described in subsection (a), all 
     such persons shall be jointly and severally liable under such 
     paragraph with respect to such distribution.
       ``(c) Donor, Donor Advisor, or Related Person.--A person is 
     described in this subsection if such person is described in 
     section 4958(f)(1)(D) (determined without regard to any 
     investment advisor).''.
       (b) Abatement of Taxes Allowed.--Section 4963 is amended--
       (1) by inserting ``4967, 4968, 4969,'' after ``4958,'' each 
     place it appears in subsections (a) and (c),
       (2) by inserting ``4967,'' after ``4958,'' in subsection 
     (b),
       (3) in subsection (d)(2), by striking ``and'' at the end of 
     subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(D) in the case of the second tier tax imposed by section 
     4967(b), reducing the amount of the undistributed amount to 
     zero.'', and
       (4) in subsection (e)(2), by redesignating subparagraphs 
     (C) and (D) as subparagraphs (E) and (F), respectively, and 
     by inserting after subparagraph (B) the following new 
     subparagraphs:
       ``(C) in the case of section 4967(a)(1), on the first day 
     of the taxable year for which there was a failure to 
     distribute,
       ``(D) in the case of paragraph (2) or (3) of section 
     4967(a), on the 181st day of the taxable year for which there 
     was a failure to distribute,''.
       (c) Conforming Amendments.--
       (1) The table of subchapters for chapter 42, as amended by 
     this Act, is amended by adding at the end the following new 
     item:


                ``Subchapter G. Donor Advised Funds.''.

       (2) Section 6213(e) is amended by inserting ``4967 
     (relating to taxes on sponsoring organizations of donor 
     advised funds for failure to meet distribution 
     requirements),'' after ``benefit),''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 232. PROHIBITED TRANSACTIONS.

       (a) Disqualified Persons.--
       (1) In general.--Paragraph (1) of section 4958(f) is 
     amended by striking ``and'' at the end of subparagraph (B), 
     by striking the period at the end of subparagraph (C) and 
     inserting ``, and'', and by adding after subparagraph (C) the 
     following new subparagraph:
       ``(D) any person who is described in paragraph (7) with 
     respect to any sponsoring organization (as defined in section 
     4967(g)(1)).''.
       (2) Donors, donor advisors, and investment advisors treated 
     as disqualified persons.--Section 4958(f) is amended by 
     adding at the end the following new paragraph:
       ``(7) Donors, donor advisors, and investment advisors with 
     respect to sponsoring organizations.--For purposes of 
     paragraph (1)(D)--
       ``(A) In general.--A person is described in this paragraph 
     if such person--
       ``(i) is described in section 4967(g)(2)(A)(iii),
       ``(ii) is an investment advisor,
       ``(iii) is a member of the family of an individual 
     described in clause (i) or (ii), or
       ``(iv) is a 35-percent controlled entity (as defined in 
     paragraph (3) by substituting `persons described in clause 
     (i), (ii), or (iii) of paragraph (7)(A)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(B) Investment advisor.--The term `investment advisor' 
     means, with respect to any sponsoring organization (as 
     defined in section 4967(g)(1)), any person (other than an 
     employee of such organization) compensated by such 
     organization for managing the investment of, or providing 
     investment advice with respect to, assets maintained in donor 
     advised funds (as defined in section 4967(g)(2)) owned by 
     such organization.''.
       (3) Donors, donor advisors, and investment advisors treated 
     as disqualified persons with respect to a sponsoring 
     organization which is a private foundation.--Section 
     4946(a)(1) is amended by striking ``and'' at the end of 
     subparagraph (H), by striking the period at the end of 
     subparagraph (I) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(J) a person described in section 4958(f)(1)(D).''.
       (b) Certain Transactions Treated as Excess Benefit 
     Transactions.--
       (1) In general.--Section 4958(c) is amended by 
     redesignating paragraph (2) as paragraph (3) and by inserting 
     after paragraph (1) the following new paragraph:
       ``(2) Special rules for donor advised funds owned by 
     sponsoring organizations.--In the case of any donor advised 
     fund (as defined in section 4967(g)(2)) of a sponsoring 
     organization (as defined in section 4967(g)(1))--
       ``(A) the term `excess benefit transaction' includes any 
     grant, loan, compensation, or other payment from such fund to 
     a person described in subsection (f)(1)(D) (determined 
     without regard to any investment advisor) with respect to 
     such fund, and
       ``(B) the term `excess benefit' includes, with respect to 
     any transaction described in subparagraph (A), the amount of 
     any such grant, loan, compensation, or other payment.

     Notwithstanding the last sentence of subsection (e), a 
     sponsoring organization shall be treated as an applicable 
     tax-exempt organization to the extent necessary to carry out 
     this paragraph.''.
       (2) Special rule for correction of transaction.--Section 
     4958(f)(6) is amended by inserting ``, except that in the 
     case of any correction of an excess benefit transaction 
     described in subsection (c)(2), no amount repaid in a manner 
     prescribed by the Secretary may be held in, or credited to, 
     any donor advised fund'' after ``standards''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 233. TREATMENT OF CHARITABLE CONTRIBUTION DEDUCTIONS TO 
                   DONOR ADVISED FUNDS.

       (a) Income.--Section 170(f) (relating to disallowance of 
     deduction in certain cases and special rules), as amended by 
     this Act, is amended by adding at the end the following new 
     paragraph:

[[Page S590]]

       ``(17) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3), (4), or (5) of subsection (c) or section 
     509(a)(3), and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of paragraph (8)(C) from the sponsoring organization that 
     such organization has exclusive legal control over the assets 
     contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (b) Estate.--Section 2055(e) is amended by adding at the 
     end the following new paragraph:
       ``(5) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3) or (4) of subsection (a) or section 509(a)(3), 
     and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of section 170(f)(8)(C)) from the sponsoring organization 
     that such organization has exclusive legal control over the 
     assets contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (c) Gift.--Section 2522(c) is amended by adding at the end 
     the following new paragraph:
       ``(13) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3) or (4) of subsection (a) or section 509(a)(3), 
     and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of section 170(f)(8)(C)) from the sponsoring organization 
     that such organization has exclusive legal control over the 
     assets contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (d) Regulations.--The regulations prescribed under sections 
     170(f)(17)(B)(i), 2055(e)(5)(B)(i), 2522(c)(13)(B)(i), 
     4967(e)(i)(A)(ii), and 4968(c)(2) of the Internal Revenue 
     Code of 1986 shall deny a deduction for contributions to 
     sponsoring organizations (as defined in section 4967(g)(1) of 
     such Code) which are described in section 170(f)(17)(B)(ii) 
     of such Code and shall apply excise taxes to distributions 
     from donor advised funds (as defined in section 4967(g)(2) of 
     such Code) and sponsoring organizations (as so defined) to 
     organizations so described in cases where the donor of the 
     contributions or the donor or donor advisor of the amounts 
     distributed directly or indirectly controls a supported 
     organization (as defined in section 509(f)(3) of such Code) 
     of such organization.
       (e) Effective Date.--The amendments made by this section 
     shall apply to contributions made after the date which is 180 
     days after the date of the enactment of this Act.

     SEC. 234. RETURNS OF, AND APPLICATIONS FOR RECOGNITION BY, 
                   SPONSORING ORGANIZATIONS.

       (a) Matters Included on Returns.--
       (1) In general.--Section 6033, as amended by this Act, is 
     amended by redesignating subsection (j) as subsection (k) and 
     by inserting after subsection (i) the following new 
     subsection:
       ``(j) Additional Provisions Relating to Sponsoring 
     Organizations.--Every organization described in section 
     4967(g)(1) shall, on the return required under subsection (a) 
     for the taxable year--
       ``(1) list the total number of donor advised funds (as 
     defined in section 4967(g)(2)) it owns at the end of such 
     taxable year,
       ``(2) indicate the aggregate value of assets held in such 
     funds at the end of such taxable year, and
       ``(3) indicate the aggregate contributions to and grants 
     made from such funds during such taxable year.''.
       (2) Extension of statute of limitations.--Section 6501(c) 
     is amended by adding at the end the following new paragraph:
       ``(11) Donor advised funds.--If a sponsoring organization 
     (as defined in section 4967(g)(1)) fails to include on any 
     return for any taxable year any information with respect to 
     any donor advised fund of such organization which is required 
     under section 6033(j) to be included with such return, the 
     time for assessment of any tax imposed under subchapter G of 
     chapter 42 with respect to any distribution from such donor 
     advised fund shall not expire before the date which is 3 
     years after the date on which the secretary is furnished the 
     information so required.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to returns filed for taxable years ending after 
     the date of the enactment of this Act.
       (b) Matters Included on Exempt Status Application.--
       (1) In general.--Section 508 is amended by adding at the 
     end the following new subsection:
       ``(f) Additional Provisions Relating to Sponsoring 
     Organizations.--A sponsoring organization (as defined in 
     section 4967(g)(1)) shall give notice to the Secretary (in 
     such manner as the Secretary may provide) whether such 
     organization maintains or intends to maintain donor advised 
     funds (as defined in section 4967(g)(2)) and the manner in 
     which such organization plans to operate such funds.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to organizations applying for tax-exempt status 
     after the date of the enactment of this Act.

     PART III--IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS

     SEC. 241. REQUIREMENTS FOR SUPPORTING ORGANIZATIONS.

       (a) Types of Supporting Organizations.--Subparagraph (B) of 
     section 509(a)(3) is amended to read as follows:
       ``(B) is--
       ``(i) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2),
       ``(ii) supervised or controlled in connection with one or 
     more such organizations, or
       ``(iii) operated in connection with one or more such 
     organizations, and''.
       (b) Requirements for Supporting Organizations.--Section 509 
     (relating to private foundation defined) is amended by adding 
     at the end the following new subsection:
       ``(f) Requirements for Supporting Organizations.--
       ``(1) Type iii supporting organizations.--For purposes of 
     subsection (a)(3)(B)(iii), an organization shall not be 
     considered to be operated in connection with any organization 
     described in paragraph (1) or (2) of subsection (a) unless 
     such organization meets the following requirements:
       ``(A) Application requirement.--The organization provides 
     to the Secretary, as a part of any notification filed under 
     section 508(a) after the date of the enactment of this 
     subsection, a letter from each supported organization 
     acknowledging that the supported organization has been 
     designated by such organization as a supported organization.
       ``(B) Responsiveness.--For each taxable year beginning 
     after the date of the enactment of this subsection, the 
     organization provides to each supported organization such 
     information as the Secretary may require to ensure that such 
     organization is responsive to the needs or demands of the 
     supported organization.
       ``(C) Supported organizations.--
       ``(i) In general.--The organization--

       ``(I) is not operated in connection with more than 5 
     supported organizations, and
       ``(II) is not operated in connection with any supported 
     organization that is not organized in the United States on 
     any date after the date which is 180 days after the date of 
     the enactment of this subsection.

       ``(ii) Special rule for existing organizations.--If the 
     organization is operated in connection with more than 5 
     supported organizations on the date of the enactment of this 
     subsection--

       ``(I) clause (i)(I) shall not apply, and
       ``(II) the organization may not be operated in connection 
     with any other organization after such date unless the total 
     number of supported organizations is 5 or less.

[[Page S591]]

       ``(D) Contributions to donor advised funds.--The 
     organization makes no contributions to or for the use of any 
     donor advised fund (as defined in section 4967(g)(2)).
       ``(2) Organizations controlled by donors.--
       ``(A) In general.--For purposes of subsection (a)(3)(B), an 
     organization shall not be considered to be--
       ``(i) operated, supervised, or controlled by any 
     organization described in paragraph (1) or (2) of subsection 
     (a), or
       ``(ii) operated in connection with any organization 
     described in paragraph (1) or (2) of subsection (a),

     if such organization accepts any gift or contribution from 
     any person described in subparagraph (B).
       ``(B) Person described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a person (other than an organization described in 
     paragraph (1), (2), or (4) of section 509(a)) who controls, 
     directly or indirectly, either alone or together with persons 
     described in clauses (ii) and (iii), the governing body of a 
     supported organization,
       ``(ii) a member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i), or
       ``(iii) a 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 509(f)(2)(B)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(3) Supported organization.--For purposes of this 
     subsection, the term `supported organization' means, with 
     respect to an organization described in subsection (a)(3), an 
     organization described in paragraph (1) or (2) of subsection 
     (a)--
       ``(A) for whose benefit the organization described in 
     subsection (a)(3) is organized and operated, or
       ``(B) with respect to which the organization performs the 
     functions of, or carries out the purposes of.''.
       (c) Charitable Trusts Which Are Type III Supporting 
     Organizations.--For purposes of section 509(a)(3)(B)(iii) of 
     the Internal Revenue Code of 1986, an organization which is a 
     trust shall not be considered to be operated in connection 
     with any organization described in paragraph (1) or (2) of 
     section 509(a) of such Code solely because--
       (1) it is a charitable trust under State law,
       (2) the supported organization (as defined in section 
     509(f)(3) of such Code) is a beneficiary of such trust, and
       (3) the supported organization (as so defined) has the 
     power to enforce the trust and compel an accounting.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 242. EXCISE TAX ON SUPPORTING ORGANIZATIONS FOR FAILURE 
                   TO MEET DISTRIBUTION REQUIREMENTS.

       (a) In General.--Subchapter D of chapter 42 (relating to 
     failure by certain charitable organizations to meet certain 
     qualification requirements) is amended by adding at the end 
     the following new section:

     ``SEC. 4959. TAXES ON CERTAIN SUPPORTING ORGANIZATIONS 
                   FAILING TO MEET DISTRIBUTION REQUIREMENTS.

       ``(a) Initial Tax.--There is hereby imposed on the 
     undistributed income of any type III supporting organization 
     for any taxable year, which has not been distributed before 
     the first day of the second (or any succeeding) taxable year 
     following such taxable year (if such first day falls within 
     the taxable period), a tax equal to 30 percent of the amount 
     of such income remaining undistributed at the beginning of 
     such second (or succeeding) taxable year.
       ``(b) Additional Tax.--In any case in which an initial tax 
     is imposed under subsection (a) on the undistributed income 
     of a type III supporting organization for any taxable year, 
     if any portion of such income remains undistributed at the 
     close of the taxable period, there is hereby imposed a tax 
     equal to 100 percent of the amount remaining undistributed at 
     such time.
       ``(c) Undistributed Income.--For purposes of this section, 
     the term `undistributed income' means, with respect to any 
     type III supporting organization for any taxable year as of 
     any time, the amount by which--
       ``(1) the distributable amount for such taxable year, 
     exceeds
       ``(2) the qualifying distributions made before such time 
     out of such distributable amount.
       ``(d) Distributable Amount.--For purposes of this section--
       ``(1) In general.--the term `distributable amount' means, 
     with respect to any type III supporting organization for any 
     taxable year, an amount equal to the sum of--
       ``(A) the greater of--
       ``(i) 85 percent of the adjusted net income (as defined in 
     section 4942(f)) of the type III supporting organization for 
     the preceding taxable year, or
       ``(ii) the applicable percentage of the fair market value 
     of the aggregate assets of such organization (other than 
     assets used or held to perform the functions of, or carry out 
     the purposes of, a supported organization) on the last day of 
     the preceding taxable year, and
       ``(B) any amount received during the preceding taxable year 
     which is a repayment of amounts paid by the organization in 
     any prior taxable year to a supported organization 
     exclusively for the benefit of such supported organization or 
     to perform the functions of, or carry out the purposes of 
     such supported organization.
       ``(2) Investment assets.--For purposes of paragraph 
     (1)(A)(ii), assets held for investment or for the operation 
     of an unrelated trade or business shall not be considered as 
     assets used or held to perform the functions of, or carry out 
     the purposes of, a supported organization.
       ``(3) Applicable percentage.--For purposes of paragraph 
     (1)(A)(ii), the applicable percentage is--
       ``(A) 3 percent for the first taxable year beginning after 
     the date of the enactment of this section,
       ``(B) 4 percent for the second taxable year beginning after 
     such date, and
       ``(C) 5 percent for any taxable year beginning after the 
     second taxable year beginning after such date.
       ``(e) Qualifying Distribution.--For purposes of this 
     section--
       ``(1) In general.--The term `qualifying distribution' means 
     amounts paid by the type III supporting organization to or 
     for the use of a supported organization.
       ``(2) Administrative and operating expenses.--Reasonable 
     and necessary administrative expenses of a type III 
     supporting organization shall be treated as a qualifying 
     distribution to a supported organization.
       ``(f) Treatment of Qualifying Distributions.--
       ``(1) In general.--Except as provided in paragraph (2), any 
     qualifying distribution made during a taxable year shall be 
     treated as made--
       ``(A) first out of the undistributed income of the 
     immediately preceding taxable year (if the type III 
     supporting organization was subject to the tax imposed by 
     this section for such preceding taxable year) to the extent 
     thereof, and
       ``(B) second out of the undistributed income for the 
     taxable year to the extent thereof.

     For purposes of this paragraph, distributions shall be taken 
     into account in the order of time in which made.
       ``(2) Correction of deficient distributions for prior 
     taxable years, etc.--In the case of any qualifying 
     distribution which (under paragraph (1)) is not treated as 
     made out of the undistributed income of the immediately 
     preceding taxable year, the type III supporting organization 
     may elect to treat any portion of such distribution as made 
     out of the undistributed income of a designated prior taxable 
     year. The election shall be made by the type III supporting 
     organization at such time and in such manner as the Secretary 
     shall by regulations prescribe.
       ``(g) Adjustment of Distributable Amount Where 
     Distributions During Prior Years Have Exceeded Income.--
       ``(1) In general.--If, for the taxable years in the 
     adjustment period for which an organization is a type III 
     supporting organization--
       ``(A) the aggregate qualifying distributions treated (under 
     subsection (f)) as made out of the undistributed income for 
     such taxable years, exceeds
       ``(B) the distributable amounts for such taxable years 
     (determined without regard to this subsection),
     then, for purposes of this section (other than subsection 
     (f)), the distributable amount for the taxable year shall be 
     reduced by an amount equal to such excess.
       ``(2) Taxable years in adjustment period.--For purposes of 
     paragraph (1), with respect to any taxable year of a type III 
     supporting organization, the taxable years in the adjustment 
     period are the taxable years (not exceeding 5) beginning 
     after the date of the enactment of this section and 
     immediately preceding the taxable year.
       ``(h) Other Definitions.--For purposes of this section--
       ``(1) Taxable period.--The term `taxable period' means, 
     with respect to the undistributed income for any taxable 
     year, the period beginning with the first day of the taxable 
     year and ending on the earlier of--
       ``(A) the date of mailing of a notice of deficiency with 
     respect to the tax imposed by subsection (a) under section 
     6212, or
       ``(B) the date on which the tax imposed by subsection (a) 
     is assessed.
       ``(2) Type iii supporting organization.--The term `type III 
     supporting organization' means an organization which meets 
     the requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and which is operated in connection with one or 
     more organizations described in paragraph (1) or (2) of 
     section 509(a).
       ``(3) Supported organization.--The term `supported 
     organization' has the meaning given such term under section 
     509(f)(3).''.
       (b) Conforming Amendment.--The table of sections for 
     subchapter D of chapter 42 is amended by inserting after the 
     item relating to section 4958 the following new item:

``Sec. 4959. Taxes on certain supporting organizations failing to meet 
              distribution requirements.''.

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

     SEC. 243. EXCESS BENEFIT TRANSACTIONS.

       (a) In General.--Section 4958(c), as amended by this Act, 
     is amended by redesignating paragraph (3) as paragraph (4) 
     and by inserting after paragraph (2) the following new 
     paragraph:
       ``(3) Special rules for supporting organizations.--
       ``(A) In general.--In the case of any organization 
     described in section 509(a)(3)--
       ``(i) the term `excess benefit transaction' includes--

[[Page S592]]

       ``(I) any grant, loan, compensation, or other payment 
     provided by such organization to a person described in 
     subparagraph (B), and
       ``(II) any loan provided by such organization to a 
     disqualified person (other than an organization described in 
     paragraph (1), (2), or (4) of section 509(a)), and

       ``(ii) the term `excess benefit' includes, with respect to 
     any transaction described in clause (i), the amount of any 
     such grant, loan, compensation, or other payment.
       ``(B) Person described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a substantial contributor to such organization,
       ``(ii) a member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i), or
       ``(iii) a 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 4958(c)(3)(B)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(C) Substantial contributor.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `substantial contributor' means 
     any person who contributed or bequeathed an aggregate amount 
     of more than $5,000 to the organization, if such amount is 
     more than 2 percent of the total contributions and bequests 
     received by the organization before the close of the taxable 
     year of the organization in which the contribution or bequest 
     is received by the organization from such person. In the case 
     of a trust, such term also means the creator of the trust.
       ``(ii) Exception.--Such term shall not include any 
     organization described in paragraph (1), (2), or (4) of 
     section 509(a).''.
       (b) Disqualified Persons.--Paragraph (1) of section 
     4958(f), as amended by this Act, is amended by striking 
     ``and'' at the end of subparagraph (D), by striking the 
     period at the end of subparagraph (E) and inserting ``, 
     and'', and by adding after subparagraph (D) the following new 
     subparagraph:
       ``(E) any person who is described in subparagraph (A), (B), 
     or (C) with respect to an organization described in section 
     509(a)(3) which is organized and operated exclusively for the 
     benefit of, to perform the functions of, or to carry out the 
     purposes of the applicable tax-exempt organization.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 244. EXCESS BUSINESS HOLDINGS OF SUPPORTING 
                   ORGANIZATIONS.

       (a) In General.--Section 4943 is amended by adding at the 
     end the following new subsection:
       ``(e) Application of Tax to Supporting Organizations.--
       ``(1) In general.--For purposes of this section, a 
     qualified supporting organization shall be treated as a 
     private foundation.
       ``(2) Exception.--The Secretary may exempt any qualified 
     supporting organization from the application of this 
     subsection if the Secretary determines that the excess 
     business holdings of such organization are consistent with 
     the purpose or function constituting the basis for its 
     exemption under section 501.
       ``(3) Qualified supporting organization.--For purposes of 
     this subsection, the term `qualified supporting organization' 
     means any--
       ``(A) type III supporting organization (as defined in 
     section 4959(h)(2)), or
       ``(B) organization which meets the requirements of 
     subparagraphs (A) and (C) of section 509(a)(3) and which is 
     supervised or controlled in connection with or one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), but only if such organization accepts any gift or 
     contribution from any person described in section 
     509(f)(2)(B).
       ``(4) Disqualified person.--
       ``(A) In general.--In applying this section to any 
     organization described in section 509(a)(3), the term 
     `disqualified person' means, with respect to the 
     organization--
       ``(i) any person who was, at any time during the 5-year 
     period ending on date described in subsection (a)(2)(A), in a 
     position to exercise substantial influence over the affairs 
     of the organization,
       ``(ii) any member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i),
       ``(iii) any 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 4943(e)(2)(A)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof),
       ``(iv) any person described in section 4958(c)(3)(B), and
       ``(v) any organization--

       ``(I) which is effectively controlled (directly or 
     indirectly) by the same person or persons who control the 
     organization in question, or
       ``(II) substantially all of the contributions to which were 
     made (directly or indirectly) by the same person or persons 
     described in subparagraph (B) or a member of their family 
     (within the meaning of section 4946(d)) who made (directly or 
     indirectly) substantially all of the contributions to the 
     organization in question.

       ``(B) Persons described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a substantial contributor to the organization (as 
     defined in section 4958(c)(3)(C)),
       ``(ii) an officer, director, or trustee of the organization 
     (or an individual having powers or responsibilities similar 
     to those officers, directors, or trustees of the 
     organization), or
       ``(iii) an owner of more than 20 percent of--

       ``(I) the total combined voting power of a corporation,
       ``(II) the profits interest of a partnership, or
       ``(III) the beneficial interest of a trust or 
     unincorporated enterprise,

     which is a substantial contributor (as so defined) to the 
     organization.
       ``(5) Special rule for certain holdings of type iii 
     supporting organizations.--For purposes of this subsection, 
     the term `excess business holdings' shall not include any 
     holdings of a type III supporting organization (as defined in 
     section 4959(h)(2)) in any business enterprise if the 
     holdings are held for the benefit of the community pursuant 
     to the direction of a State attorney general or a State 
     official with jurisdiction over the type III supporting 
     organization.
       ``(6) Present holdings.--For purposes of this subsection, 
     rules similar to the rules of paragraphs (4), (5), and (6) of 
     subsection (c) shall apply to organizations described in 
     section 509(a)(3), except that--
       ``(A) `the date of the enactment of this subsection' shall 
     be substituted for `May 26, 1969' each place it appears in 
     paragraphs (4), (5), and (6), and
       ``(B) `January 1, 2007' shall be substituted for `January 
     1, 1970' in paragraph (4)(E).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 245. TREATMENT OF AMOUNTS PAID TO SUPPORTING 
                   ORGANIZATIONS BY PRIVATE FOUNDATIONS.

       (a) Qualifying Distributions.--Paragraph (4) of section 
     4942(g) is amended to read as follows:
       ``(4) Limitation on distributions by nonoperating private 
     foundations to supporting organizations.--For purposes of 
     this section, the term `qualifying distribution' shall not 
     include any amount paid by a private foundation which is not 
     an operating foundation to an organization described in 
     section 509(a)(3).''.
       (b) Taxable Expenditures.--
       (1) In general.--Subsection (d) of section 4945 is amended 
     by redesignating paragraphs (4) and (5) as paragraphs (5) and 
     (6), respectively, and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) to an organization described in section 509(a)(3),''.
       (2) Conforming amendments.--
       (A) Section 4945(d)(5), as redesignated by subparagraph 
     (A), is amended--
       (i) by striking ``a grant to an organization'' and 
     inserting ``a grant to any other organization'', and
       (ii) by striking ``paragraph (1), (2), or (3) of section 
     509(a)'' in subparagraph (A) and inserting ``paragraph (1) or 
     (2) of section 509(a)''.
       (B) Section 4945(f) is amended by striking ``Subsection 
     (d)(4)'' in the last sentence thereof and inserting 
     ``Subsection (d)(5)''.
       (C) Section 4945(h) is amended by striking ``subsection 
     (d)(4)'' and inserting ``subsection (d)(5)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions and expenditures after the date 
     of the enactment of this Act.

     SEC. 246. RETURNS OF SUPPORTING ORGANIZATIONS.

       (a) Requirement To File Return.--Subparagraph (B) of 
     section 6033(a)(3), as redesignated by this Act, is amended 
     by inserting ``(other than an organization described in 
     section 509(a)(3))'' after ``paragraph (1)''.
       (b) Matters Included on Returns.--Section 6033, as amended 
     by this Act, is amended by redesignating subsection (k) as 
     subsection (l) and by inserting after subsection (j) the 
     following new subsection:
       ``(k) Additional Provisions Relating to Supporting 
     Organizations.--
       ``(1) In general.--Every organization described in section 
     509(a)(3) shall, on the return required under subsection 
     (a)--
       ``(A) list the organizations described in section 
     509(a)(3)(A) with respect to which such organization provides 
     support,
       ``(B) indicate whether the organization meets the 
     requirements of clause (i), (ii), or (iii) of section 
     509(a)(3)(B), and
       ``(C) certify that the organization meets the requirements 
     of section 509(a)(3)(C).
       ``(2) Type iii supporting organizations.--Every type III 
     supporting organization (as defined in section 4959(h)(2)) 
     shall indicate on the return required under subsection (a) 
     for the taxable year whether the organization has received a 
     letter from each supported organization (as defined in 
     section 509(f)(3)) during the taxable year which--
       ``(A) acknowledges that the supporting organization has 
     designated such organization as a supported organization,
       ``(B) details the type of support provided by the 
     supporting organization, and
       ``(C) explains how such support furthers the charitable 
     purpose of the supported organization.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns filed for taxable years ending after 
     the date of the enactment of this Act.

[[Page S593]]

                  TITLE III--MISCELLANEOUS PROVISIONS

     SEC. 301. RESTRUCTURING OF NEW YORK LIBERTY ZONE TAX CREDITS.

       (a) In General.--Subchapter Y of chapter 1 is amended by 
     adding at the end the following new section:

     ``SEC. 1400M. NEW YORK LIBERTY ZONE TAX CREDITS.

       ``(a) In General.--There shall be allowed as a credit 
     against any taxes imposed by this title (other than by 
     section 3111(a), section 3403, or subtitle D) paid or 
     incurred by any governmental unit of the State of New York 
     and the City of New York, New York (including any agency or 
     instrumentality thereof) for any calendar year an amount 
     equal to the lesser of--
       ``(1) the total expenditures during such year by such 
     governmental unit for qualifying projects, or
       ``(2) the amount allocated to such governmental unit for 
     such calendar year under subsection (b)(2).
       ``(b) Qualifying Project.--For purposes of this section--
       ``(1) In general.--The term `qualifying project' means any 
     transportation infrastructure project, including highways, 
     mass transit systems, railroads, airports, ports, and 
     waterways, in or connecting with the New York Liberty Zone 
     (as defined in section 1400L(h)), which is designated as a 
     qualifying project under this section jointly by the Governor 
     of the State of New York and the Mayor of the City of New 
     York, New York.
       ``(2) Dollar limitation.--
       ``(A) In general.--The Governor of the State of New York 
     and the Mayor of the City of New York, New York, shall 
     jointly allocate to a governmental unit the amount of 
     expenditures which may be taken into account under subsection 
     (a) for any calendar year in the credit period with respect 
     to a qualifying project.
       ``(B) Aggregate limit.--The aggregate amount which may be 
     allocated under subparagraph (A) for all calendar years in 
     the credit period shall not exceed $2,000,000,000.
       ``(C) Annual limit.--The aggregate amount which may be 
     allocated under subparagraph (A) for any calendar year in the 
     credit period shall not exceed the sum of--
       ``(i) $200,000,000, plus
       ``(ii) the aggregate amount authorized to be allocated 
     under this paragraph for all preceding calendar years in the 
     credit period which was not so allocated.
       ``(D) Unallocated amounts at end of credit period.--If, as 
     of the close of the credit period, the amount under 
     subparagraph (B) exceeds the aggregate amount allocated under 
     subparagraph (A) for all calendar years in the credit period, 
     the Governor of the State of New York and the Mayor of the 
     City of New York, New York, may jointly allocate for any 
     calendar year following the credit period for expenditures 
     with respect to qualifying projects which may be taken into 
     account under subsection (a) an amount equal to such excess, 
     reduced by the aggregate amount allocated under this 
     subparagraph for all preceding calendar years.
       ``(c) Carryover of Unused Allocations.--
       ``(1) In general.--If the amount allocated under subsection 
     (b)(2) to a governmental unit for any calendar year exceeds 
     the total expenditures for such year by such governmental 
     unit for qualifying projects, the allocation of such 
     governmental unit for the succeeding calendar year shall be 
     increased by the amount of such excess.
       ``(2) Reallocation.--If a governmental unit does not use an 
     amount allocated to it under subsection (b)(2) within the 
     time prescribed by the Governor of the State of New York and 
     the Mayor of the City of New York, New York, then such amount 
     shall after such time be treated for purposes of subsection 
     (b)(2) in the same manner as if it had never been allocated.
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Credit period.--The term `credit period' means the 
     10-year period beginning on January 1, 2006.
       ``(2) Treatment of funds.--Any expenditure for a qualifying 
     project taken into account for purposes of the credit under 
     this section shall be considered State and local funds for 
     the purpose of any Federal program.
       ``(e) Regulations.--The Secretary may prescribe such 
     regulations as are necessary to ensure compliance with the 
     purposes of this section.''.
       (b) Termination of Certain New York Liberty Zone 
     Benefits.--
       (1) Special allowance and expensing.--Section 
     1400L(b)(2)(A)(v) is amended by striking ``the termination 
     date'' and inserting ``the date of the enactment of the Tax 
     Relief Act of 2005 or the termination date if pursuant to a 
     binding contract in effect on such enactment date''.
       (2) Leasehold.--Section 1400L(c)(2)(B) is amended by 
     striking ``before January 1, 2007'' and inserting ``on or 
     before the date of the enactment of the Tax Relief Act of 
     2005 or before January 1, 2007, if pursuant to a binding 
     contract in effect on such enactment date''.

     SEC. 302. MODIFICATION TO S CORPORATION PASSIVE INVESTMENT 
                   INCOME RULES.

       (a) Increased Percentage Limit.--Paragraph (2) of section 
     1375(a) is amended by striking ``25 percent'' and inserting 
     ``60 percent''.
       (b) Other Provisions.--
       (1) Repeal of excessive passive income as a termination 
     event.--Section 1362(d) is amended by striking paragraph (3).
       (2) Capital gain not treated as passive investment 
     income.--Subsection (b) of section 1375 is amended by 
     striking paragraphs (3) and (4) and inserting the following 
     new paragraph:
       ``(3) Passive investment income defined.--
       ``(A) Except as otherwise provided in this paragraph, the 
     term `passive investment income' means gross receipts derived 
     from royalties, rents, dividends, interest, and annuities.
       ``(B) Exception for interest on notes from sales of 
     inventory.--The term `passive investment income' shall not 
     include interest on any obligation acquired in the ordinary 
     course of the corporation's trade or business from its sale 
     of property described in section 1221(a)(1).
       ``(C) Treatment of certain lending or finance companies.--
     If the S corporation meets the requirements of section 
     542(c)(6) for the taxable year, the term `passive investment 
     income' shall not include gross receipts for the taxable year 
     which are derived directly from the active and regular 
     conduct of a lending or finance business (as defined in 
     section 542(d)(1)).
       ``(D) Treatment of certain dividends.--If an S corporation 
     holds stock in a C corporation meeting the requirements of 
     section 1504(a)(2), the term `passive investment income' 
     shall not include dividends from such C corporation to the 
     extent such dividends are attributable to the earnings and 
     profits of such C corporation derived from the active conduct 
     of a trade or business.
       ``(E) Exception for banks, etc.--In the case of a bank (as 
     defined in section 581) or a depository institution holding 
     company (as defined in section 3(w)(1) of the Federal Deposit 
     Insurance Act (12 U.S.C. 1813(w)(1)), the term `passive 
     investment income' shall not include--
       ``(i) interest income earned by such bank or company, or
       ``(ii) dividends on assets required to be held by such bank 
     or company, including stock in the Federal Reserve Bank, the 
     Federal Home Loan Bank, or the Federal Agricultural Mortgage 
     Bank or participation certificates issued by a Federal 
     Intermediate Credit Bank.
       ``(F) Coordination with section 1374.--The amount of 
     passive investment income shall be determined by not taking 
     into account any recognized built-in gain or loss of the S 
     corporation for any taxable year in the recognition period. 
     Terms used in the preceding sentence shall have the same 
     respective meanings as when used in section 1374.''.
       (c) Conforming Amendments.--
       (1) Subparagraph (J) of section 26(b)(2) is amended by 
     striking ``25 percent'' and inserting ``60 percent''.
       (2) Clause (i) of section 1042(c)(4)(A) is amended by 
     striking ``section 1362(d)(3)(C)'' and inserting ``section 
     1375(b)(3)''.
       (3) Subparagraph (B) of section 1362(f)(1) is amended by 
     striking ``or (3)''.
       (4) Clause (i) of section 1375(b)(1)(A) is amended by 
     striking ``25 PERCENT'' and inserting ``60 PERCENT''.
       (5) The heading for section 1375 is amended by striking 
     ``25 PERCENT'' and inserting ``60 PERCENT''.
       (6) The item relating to section 1375 in the table of 
     sections for part III of subchapter S of chapter 1 is amended 
     by striking ``25 percent'' and inserting ``60 percent''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006 and before October 2, 2009.

     SEC. 303. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF 
                   CERTAIN CAPITAL EXPENDITURES FOR PURPOSES OF 
                   QUALIFIED SMALL ISSUE BONDS.

       (a) In General.--Section 144(a)(4)(G) is amended by 
     striking ``September 30, 2009'' and inserting ``December 31, 
     2006''.
       (b) Conforming Amendment.--Section 144(a)(4)(F) is amended 
     by striking ``September 30, 2009'' and inserting ``December 
     31, 2006''.

     SEC. 304. PREMIUMS FOR MORTGAGE INSURANCE.

       (a) In General.--Section 163(h)(3) (relating to qualified 
     residence interest) is amended by adding at the end the 
     following new subparagraph:
       ``(E) Mortgage insurance premiums treated as interest.--
       ``(i) In general.--Premiums paid or accrued for qualified 
     mortgage insurance by a taxpayer during the taxable year in 
     connection with acquisition indebtedness with respect to a 
     qualified residence of the taxpayer shall be treated for 
     purposes of this section as interest which is qualified 
     residence interest.
       ``(ii) Phaseout.--The amount otherwise treated as interest 
     under clause (i) shall be reduced (but not below zero) by 10 
     percent of such amount for each $1,000 ($500 in the case of a 
     married individual filing a separate return) (or fraction 
     thereof) that the taxpayer's adjusted gross income for the 
     taxable year exceeds $100,000 ($50,000 in the case of a 
     married individual filing a separate return).''.
       (b) Definition and Special Rules.--Section 163(h)(4) 
     (relating to other definitions and special rules) is amended 
     by adding at the end the following new subparagraphs:
       ``(E) Qualified mortgage insurance.--The term `qualified 
     mortgage insurance' means--
       ``(i) mortgage insurance provided by the Veterans 
     Administration, the Federal Housing Administration, or the 
     Rural Housing Administration, and

[[Page S594]]

       ``(ii) private mortgage insurance (as defined by section 2 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as 
     in effect on the date of the enactment of this subparagraph).
       ``(F) Special rules for prepaid qualified mortgage 
     insurance.--Any amount paid by the taxpayer for qualified 
     mortgage insurance that is properly allocable to any mortgage 
     the payment of which extends to periods that are after the 
     close of the taxable year in which such amount is paid shall 
     be chargeable to capital account and shall be treated as paid 
     in such periods to which so allocated. No deduction shall be 
     allowed for the unamortized balance of such account if such 
     mortgage is satisfied before the end of its term. The 
     preceding sentences shall not apply to amounts paid for 
     qualified mortgage insurance provided by the Veterans 
     Administration or the Rural Housing Administration.''.
       (c) Information Returns Relating to Mortgage Insurance.--
     Section 6050H (relating to returns relating to mortgage 
     interest received in trade or business from individuals) is 
     amended by adding at the end the following new subsection:
       ``(h) Returns Relating to Mortgage Insurance Premiums.--
       ``(1) In general.--The Secretary may prescribe, by 
     regulations, that any person who, in the course of a trade or 
     business, receives from any individual premiums for mortgage 
     insurance aggregating $600 or more for any calendar year, 
     shall make a return with respect to each such individual. 
     Such return shall be in such form, shall be made at such 
     time, and shall contain such information as the Secretary may 
     prescribe.
       ``(2) Statement to be furnished to individuals with respect 
     to whom information is required.--Every person required to 
     make a return under paragraph (1) shall furnish to each 
     individual with respect to whom a return is made a written 
     statement showing such information as the Secretary may 
     prescribe. Such written statement shall be furnished on or 
     before January 31 of the year following the calendar year for 
     which the return under paragraph (1) was required to be made.
       ``(3) Special rules.--For purposes of this subsection--
       ``(A) rules similar to the rules of subsection (c) shall 
     apply, and
       ``(B) the term `mortgage insurance' means--
       ``(i) mortgage insurance provided by the Veterans 
     Administration, the Federal Housing Administration, or the 
     Rural Housing Administration, and
       ``(ii) private mortgage insurance (as defined by section 2 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as 
     in effect on the date of the enactment of this 
     subsection).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued during the period 
     beginning after December 31, 2006, and before January 1, 
     2008, and properly allocable to such period, with respect to 
     mortgage insurance contracts issued after December 31, 2006.

     SEC. 305. SENSE OF THE SENATE ON USE OF NO-BID CONTRACTING BY 
                   FEDERAL EMERGENCY MANAGEMENT AGENCY.

       (a) Findings.--The Senate finds that--
       (1) on September 8, 2005, the Federal Emergency Management 
     Agency announced that it had awarded 4 contracts for 
     emergency housing relief following Hurricane Katrina to The 
     Shaw Group of Baton Rouge, Louisiana, Fluor Corporation of 
     Aliso Viejo, California, Bechtel National of San Francisco, 
     California, and CH2M Hill of Denver, Colorado;
       (2) these contracts were awarded with no competition from 
     other capable firms, and up to $100,000,000 in taxpayer funds 
     were authorized for each of these contracts;
       (3) in the midst of concerns about abusive and 
     irresponsible spending of taxpayer funds, the Federal 
     Emergency Management Agency pledged to re-bid these 
     noncompetitive contracts, with Acting Under Secretary of 
     Emergency Preparedness and Response, R. David Paulison, 
     stating before the Committee on Homeland Security and 
     Government Affairs of the Senate that ``[a]ll of these no-bid 
     contracts, we are going to go back and re-bid'';
       (4) the Federal Emergency Management Agency has yet to 
     reopen these 4 contracts to competitive bidding, and declared 
     on November 11, 2005, that these contracts would not be 
     reopened for bidding until February 2006;
       (5) by February 2006, the majority of the contracts will 
     have been completed and the majority of taxpayer funds will 
     have been spent;
       (6) large and politically-connected firms continue to 
     benefit from no-bid and limited-competition contracts, and 
     contracts are not being awarded to capable, local companies;
       (7) according to an analysis in the Washington Post, 
     companies outside the States most affected by Hurricane 
     Katrina have received more than 90 percent of the Federal 
     contracts for recovery and reconstruction;
       (8) the monitoring of Federal contracting practices remains 
     difficult, with a report by the San Jose Mercury News stating 
     ``The database of contracts is incomplete. Information 
     released by Federal agencies is spotty and sporadic. And 
     disclosure of many no-bid contracts isn't required by law''; 
     and
       (9)(A) there is currently no Chief Financial Officer 
     charged with monitoring the flow of all funds to the affected 
     areas; and
       (B) the task of financial management is spread across 
     disparate Federal departments and agencies with inadequate 
     oversight of taxpayer funds.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that the Federal Emergency Management Agency should--
       (1) immediately rebid noncompetitive contracts entered into 
     following Hurricane Katrina, consistent with the commitment 
     of the Agency made on October 6, 2005, before millions of 
     taxpayer dollars are wasted on irresponsible and inefficient 
     spending;
       (2)(A) immediately implement the planned competitive 
     contracting strategy of the Agency for recovery work in all 
     current and future reconstruction efforts; and
       (B) in carrying out that strategy, should prioritize local 
     and small disadvantaged businesses in the contracting and 
     subcontracting process; and
       (3) immediately after the awarding of a contract, publicly 
     disclose the amount and competitive or noncompetitive nature 
     of the contract.

     SEC. 306. SENSE OF CONGRESS REGARDING DOHA ROUND.

       (a) Findings.--The Congress makes the following findings:
       (1) Members of the World Trade Organization (WTO) are 
     currently engaged in a round of trade negotiations known as 
     the Doha Development Agenda (Doha Round).
       (2) The Doha Round includes negotiations aimed at 
     clarifying and improving disciplines under the Agreement on 
     Implementation of Article VI of the General Agreement on 
     Tariffs and Trade 1994 (Antidumping Agreement) and the 
     Agreement on Subsidies and Countervailing Measures (Subsidies 
     Agreement).
       (3) The WTO Ministerial Declaration adopted on November 14, 
     2001 (WTO Paper No. WT/MIN(01)/DEC/1) specifically provides 
     that the Doha Round negotiations are to preserve the ``basic 
     concepts, principles and effectiveness'' of the Antidumping 
     Agreement and the Subsidies Agreement.
       (4) In section 2102(b)(14)(A) of the Bipartisan Trade 
     Promotion Authority Act of 2002, the Congress mandated that 
     the principal negotiating objective of the United States with 
     respect to trade remedy laws was to ``preserve the ability of 
     the United States to enforce rigorously its trade laws . . . 
     and avoid agreements that lessen the effectiveness of 
     domestic and international disciplines on unfair trade, 
     especially dumping and subsidies''.
       (5) The countries that have been the most persistent and 
     egregious violators of international fair trade rules are 
     engaged in an aggressive effort to significantly weaken the 
     disciplines provided in the Antidumping Agreement and the 
     Subsidies Agreement and undermine the ability of the United 
     States to effectively enforce its trade remedy laws.
       (6) Chronic violators of fair trade disciplines have put 
     forward proposals that would substantially weaken United 
     States trade remedy laws and practices, including mandating 
     that unfair trade orders terminate after a set number of 
     years even if unfair trade and injury are likely to recur, 
     mandating that trade remedy duties reflect less than the full 
     margin of dumping or subsidization, mandating higher de 
     minimis levels of unfair trade, making cumulation of the 
     effects of imports from multiple countries more difficult in 
     unfair trade investigations, outlawing the critical practice 
     of ``zeroing'' in antidumping investigations, mandating the 
     weighing of causes, and mandating other provisions that make 
     it more difficult to prove injury.
       (7) United States trade remedy laws have already been 
     significantly weakened by numerous unjust and activist WTO 
     dispute settlement decisions which have created new 
     obligations to which the United States never agreed.
       (8) Trade remedy laws remain a critical resource for 
     American manufacturers, agricultural producers, and 
     aquacultural producers in responding to closed foreign 
     markets, subsidized imports, and other forms of unfair trade, 
     particularly in the context of the challenges currently faced 
     by these vital sectors of the United States economy.
       (9) The United States had a current account trade deficit 
     of approximately $668,000,000,000 in 2004, including a trade 
     deficit of almost $162,000,000,000 with China alone, as well 
     as a trade deficit of $40,000,000,000 in advanced technology.
       (10) United States manufacturers have lost over 3,000,000 
     jobs since June 2000, and United States manufacturing 
     employment is currently at its lowest level since 1950.
       (11) Many industries critical to United States national 
     security are at severe risk from unfair foreign competition.
       (12) The Congress strongly believes that the proposals put 
     forward by countries seeking to undermine trade remedy 
     disciplines in the Doha Round would result in serious harm to 
     the United States economy, including significant job losses 
     and trade disadvantages.
       (b) Sense of Congress.--It is the sense of Congress that--
       (1) the United States should not be a signatory to any 
     agreement or protocol with respect to the Doha Development 
     Round of the World Trade Organization negotiations, or any 
     other bilateral or multilateral trade negotiations, that--
       (A) adopts any proposal to lessen the effectiveness of 
     domestic and international disciplines on unfair trade or 
     safeguard provisions, including proposals--

[[Page S595]]

       (i) mandating that unfair trade orders terminate after a 
     set number of years even if unfair trade and injury are 
     likely to recur;
       (ii) mandating that trade remedy duties reflect less than 
     the full margin of dumping or subsidization;
       (iii) mandating higher de minimis levels of unfair trade;
       (iv) making cumulation of the effects of imports from 
     multiple countries more difficult in unfair trade 
     investigations;
       (v) outlawing the critical practice of ``zeroing'' in 
     antidumping investigations; or
       (vi) mandating the weighing of causes or other provisions 
     making it more difficult to prove injury in unfair trade 
     cases; and
       (B) would lessen in any manner the ability of the United 
     States to enforce rigorously its trade laws, including the 
     antidumping, countervailing duty, and safeguard laws;
       (2) the United States trade laws and international rules 
     appropriately serve the public interest by offsetting 
     injurious unfair trade, and that further ``balancing 
     modifications'' or other similar provisions are unnecessary 
     and would add to the complexity and difficulty of achieving 
     relief against injurious unfair trade practices; and
       (3) the United States should ensure that any new agreement 
     relating to international disciplines on unfair trade or 
     safeguard provisions fully rectifies and corrects decisions 
     by WTO dispute settlement panels or the Appellate Body that 
     have unjustifiably and negatively impacted, or threaten to 
     negatively impact, United States law or practice, including a 
     law or practice with respect to foreign dumping or 
     subsidization.

     SEC. 307. MODIFICATION OF BOND RULE.

       In the case of bonds issued after the date of the enactment 
     of this Act and before August 31, 2009--
       (1) the requirement of paragraph (1) of section 648 of the 
     Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated 
     as met with respect to the securities or obligations referred 
     to in such section if such securities or obligations are held 
     in a fund the annual distributions from which cannot exceed 7 
     percent of the average fair market value of the assets held 
     in such fund except to the extent distributions are necessary 
     to pay debt service on the bond issue,
       (2) paragraph (3) of such section shall be applied by 
     substituting ``distributions from'' for ``the investment 
     earnings of'' both places it appears, and
       (3) Paragraph (4) of such section shall be applied by 
     substituting ``March 1, 1985'' for ``October 9, 1969''.

     SEC. 308. TREATMENT OF CERTAIN STOCK OPTION PLANS UNDER 
                   NONQUALIFIED DEFERRED COMPENSATION RULES.

       (a) In General.--The Secretary of the Treasury shall modify 
     the regulations under section 409A of the Internal Revenue 
     Code of 1986 to extend to applicable foreign option plans the 
     exception under such section for incentive stock options 
     under section 422 of such Code and options granted under an 
     employee stock purchase plan meeting the requirements of 
     section 423 of such Code. Such extension shall be subject to 
     such terms and conditions as may be prescribed in such 
     regulations.
       (b) Applicable Foreign Option Plans.--For purposes of 
     subsection (a)--
       (1) In general.--The term ``applicable foreign option 
     plan'' means a plan providing for the issuance of employee 
     stock options--
       (A) which is established under the laws of a foreign 
     jurisdiction, and
       (B) which, under such laws or the terms of the plan (or 
     both), is subject to requirements substantially similar to 
     the requirements under section 422 or 423 of such Code.
       (2) Substantially similar.--A plan shall not be treated as 
     subject to substantially similar requirements under paragraph 
     (1)(B) unless--
       (A) the plan is required to cover substantially all 
     employees,
       (B) in the case of an option under an employee stock 
     purchase plan, the plan is required to provide an option 
     price which is not less than the amount specified in section 
     423(b)(6) of such Code, except that such section shall be 
     applied by substituting ``80 percent'' for ``85 percent'' 
     each place it appears,
       (C) the plan is required to provide coverage of individuals 
     who, but for the exception of the application of section 409A 
     of such Code by reason of this section, would be subject to 
     tax under such section with respect to the plan, and
       (D) the plan meets such other requirements as the Secretary 
     of the Treasury prescribes in the regulations under 
     subsection (a).

     SEC. 309. SENSE OF THE SENATE REGARDING THE DEDICATION OF 
                   EXCESS FUNDS.

       It is the sense of the Senate that any increases in 
     revenues to the Treasury as a result of this Act and the 
     amendments made by this Act that exceed the amounts specified 
     in the reconciliation instructions shall be dedicated to the 
     Low-Income Home Energy Assistance Program, in an amount not 
     to exceed the amount which is $2,900,000,000 more than the 
     funding levels established for such Program for fiscal year 
     2005.

     SEC. 310. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED 
                   CONTINUING CARE FACILITIES.

       (a) In General.--Subsection (g) of section 7872 is amended 
     to read as follows:
       ``(g) Exception for Loans to Qualified Continuing Care 
     Facilities.--
       ``(1) In general.--This section shall not apply for any 
     calendar year to any below-market loan owed by a facility 
     which on the last day of such year is a continuing care 
     facility, if such loan was made pursuant to a continuing care 
     contract and if the lender (or the lender's spouse) attains 
     age 62 before the close of such year.
       ``(2) Continuing care contract.--For purposes of this 
     section, the term `continuing care contract' means a written 
     contract between an individual and a qualified continuing 
     care facility under which--
       ``(A) the individual or individual's spouse may use a 
     qualified continuing care facility for their life or lives,
       ``(B) the individual or individual's spouse will be 
     provided with housing in an independent living unit (which 
     has additional available facilities outside such unit for the 
     provision of meals and other personal care), an assisted 
     living facility or a nursing facility, as is available in the 
     continuing care facility, as appropriate for the health of 
     such individual or individual's spouse, and
       ``(C) the individual or individual's spouse will be 
     provided assisted living or nursing care as the health of 
     such individual or individual's spouse requires, and as is 
     available in the continuing care facility.
       ``(3) Qualified continuing care facility.--
       ``(A) In general.--For purposes of this section, the term 
     `qualified continuing care facility' means 1 or more 
     facilities--
       ``(i) which are designed to provide services under 
     continuing care contracts,
       ``(ii) that include an independent living unit, plus an 
     assisted living or nursing facility, or both, and
       ``(iii) substantially all of the independent living unit 
     residents of which are covered by continuing care contracts.
       ``(B) Nursing homes excluded.--The term `qualified 
     continuing care facility' shall not include any facility 
     which is of a type which is traditionally considered a 
     nursing home.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to loans made after December 31, 2005.

     SEC. 311. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                   RESIDENCE BY CERTAIN EMPLOYEES OF THE 
                   INTELLIGENCE COMMUNITY.

       (a) In General.--Subparagraph (A) of section 121(d)(9) 
     (relating to exclusion of gain from sale of principal 
     residence) is amended by striking ``duty'' and all that 
     follows and inserting ``duty--
       ``(i) as a member of the uniformed services,
       ``(ii) as a member of the Foreign Service of the United 
     States, or
       ``(iii) as an employee of the intelligence community.''.
       (b) Employee of Intelligence Community Defined.--
     Subparagraph (C) of section 121(d)(9) is amended by 
     redesignating clause (iv) as clause (v) and by inserting 
     after clause (iii) the following new clause:
       ``(iv) Employee of intelligence community.--The term 
     `employee of the intelligence community' means an employee 
     (as defined by section 2105 of title 5, United States Code) 
     of--

       ``(I) the Office of the Director of National Intelligence,
       ``(II) the Central Intelligence Agency,
       ``(III) the National Security Agency,
       ``(IV) the Defense Intelligence Agency,
       ``(V) the National Geospatial-Intelligence Agency,
       ``(VI) the National Reconnaissance Office,
       ``(VII) any other office within the Department of Defense 
     for the collection of specialized national intelligence 
     through reconnaissance programs,
       ``(VIII) any of the intelligence elements of the Army, the 
     Navy, the Air Force, the Marine Corps, the Federal Bureau of 
     Investigation, the Department of Treasury, the Department of 
     Energy, and the Coast Guard,
       ``(IX) the Bureau of Intelligence and Research of the 
     Department of State, or
       ``(X) any of the elements of the Department of Homeland 
     Security concerned with the analyses of foreign intelligence 
     information.''.

       (c) Special Rule.--Subparagraph (C) of section 121(d)(9), 
     as amended by subsection (b), is amended by adding at the end 
     the following new clause:
       ``(vi) Special rule relating to intelligence community.--An 
     employee of the intelligence community shall not be treated 
     as serving on qualified extended duty unless--

       ``(I) for purposes of such duty such employee has moved 
     from 1 duty station to another, and
       ``(II) at least 1 of such duty stations is located outside 
     of the Washington, District of Columbia, and Baltimore 
     metropolitan statistical areas (as defined by the Secretary 
     of Commerce).''.

       (d) Conforming Amendment.--The heading for section 
     121(d)(9) is amended by striking ``Members of uniformed 
     services and foreign service'' and inserting ``Uniformed 
     services, foreign service, and intelligence community''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to sales or exchanges after the date of the 
     enactment of this Act.

                  TITLE IV--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed to Curtail Tax Shelters

     SEC. 401. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

       (a) Standards Conformed to Taxpayer Standards.--Section 
     6694(a) (relating to understatements due to unrealistic 
     positions) is amended--
       (1) by striking ``realistic possibility of being sustained 
     on its merits'' in paragraph

[[Page S596]]

     (1) and inserting ``reasonable belief that the tax treatment 
     in such position was more likely than not the proper 
     treatment'',
       (2) by striking ``or was frivolous'' in paragraph (3) and 
     inserting ``or there was no reasonable basis for the tax 
     treatment of such position'', and
       (3) by striking ``Unrealistic'' in the heading thereof and 
     inserting ``Improper''.
       (b) Amount of Penalty.--Section 6694 is amended--
       (1) by striking ``$250'' in subsection (a) and inserting 
     ``$1,000'', and
       (2) by striking ``$1,000'' in subsection (b) and inserting 
     ``$5,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to documents prepared after the date of the 
     enactment of this Act.

     SEC. 402. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

       ``(ii) an application under--

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

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

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

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

     SEC. 403. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

       (a) Penalty for Promoting Abusive Tax Shelters.--Section 
     6700 (relating to promoting abusive tax shelters, etc.) is 
     amended--
       (1) by redesignating subsections (b) and (c) as subsections 
     (d) and (e), respectively,
       (2) by striking ``a penalty'' and all that follows through 
     the period in the first sentence of subsection (a) and 
     inserting ``a penalty determined under subsection (b)'', and
       (3) by inserting after subsection (a) the following new 
     subsections:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall be 100 percent of the gross income 
     derived (or to be derived) from such activity by the person 
     or persons subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of an activity described in 
     subsection (a), each instance in which income was derived by 
     the person or persons subject to such penalty, and each 
     person who participated in such an activity.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to such activity, 
     all such persons shall be jointly and severally liable for 
     the penalty under such subsection.
       ``(c) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     considered an ordinary and necessary expense in carrying on a 
     trade or business for purposes of this title and shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (b) Conforming Amendment.--Section 6700(a) is amended by 
     striking the last sentence.
       (c) Effective Date.--The amendments made by this section 
     shall apply to the activities described in paragraphs (1) and 
     (2) of section 6700(a) of the Internal Revenue Code of 1986 
     and after the date of the enactment of this Act.

     SEC. 404. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT 
                   OF TAX LIABILITY.

       (a) In General.--Section 6701(a) (relating to imposition of 
     penalty) is amended--
       (1) by inserting ``, or tax liability reflected in,'' after 
     ``the preparation or presentation of'' in paragraph (1),
       (2) by inserting ``aid, assistance, procurement, or advice 
     with respect to such'' before ``portion'' both places it 
     appears in paragraphs (2) and (3), and
       (3) by inserting ``instance of aid, assistance, 
     procurement, or advice or each such'' before ``document'' in 
     the matter following paragraph (3).
       (b) Amount of Penalty.--Subsection (b) of section 6701 
     (relating to penalties for aiding and abetting understatement 
     of tax liability) is amended to read as follows:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall be 100 percent of the gross income 
     derived (or to be derived) from such aid, assistance, 
     procurement, or advice provided by the person or persons 
     subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of aid, assistance, procurement, or 
     advice described in subsection (a), each instance in which 
     income was derived by the person or persons subject to such 
     penalty, and each person who made such an understatement of 
     the liability for tax.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to providing such 
     aid, assistance,

[[Page S597]]

     procurement, or advice, all such persons shall be jointly and 
     severally liable for the penalty under such subsection.''.
       (c) Penalty Not Deductible.--Section 6701 is amended by 
     adding at the end the following new subsection:
       ``(g) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     considered an ordinary and necessary expense in carrying on a 
     trade or business for purposes of this title and shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to the activities described in section 6701(a) of 
     the Internal Revenue Code of 1986 after the date of the 
     enactment of this Act.

                Subtitle B--Economic Substance Doctrine

     SEC. 411. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

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

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

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

     SEC. 412. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

     ``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable to Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2) and 
     (3) of section 6707A(d) shall apply for purposes of paragraph 
     (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

       ``(1) For coordination of penalty with understatements 
     under section 6662 and other special rules, see section 
     6662A(e).
       ``(2) For reporting of penalty imposed under this section 
     to the Securities and Exchange Commission, see section 
     6707A(e).''.

       (b) Coordination With Other Understatements and 
     Penalties.--
       (1) The second sentence of section 6662(d)(2)(A) is amended 
     by inserting ``and without regard to items with respect to 
     which a penalty is imposed by section 6662B'' before the 
     period at the end.
       (2) Subsection (e) of section 6662A is amended--
       (A) in paragraph (1), by inserting ``and noneconomic 
     substance transaction understatements'' after ``reportable 
     transaction understatements'' both places it appears,
       (B) in paragraph (2)(A), by inserting ``and a noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'',
       (C) in paragraph (2)(B), by inserting ``6662B or'' before 
     ``6663'',
       (D) in paragraph (2)(C)(i), by inserting ``or section 
     6662B'' before the period at the end,
       (E) in paragraph (2)(C)(ii), by inserting ``and section 
     6662B'' after ``This section'',
       (F) in paragraph (3), by inserting ``or noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'', and
       (G) by adding at the end the following new paragraph:
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance

[[Page S598]]

     transaction understatement' has the meaning given such term 
     by section 6662B(c).''.
       (3) Subsection (e) of section 6707A is amended--
       (A) by striking ``or'' at the end of subparagraph (B), and
       (B) by striking subparagraph (C) and inserting the 
     following new subparagraphs:
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction, or
       ``(D) is required to pay a penalty under section 6662(h) 
     with respect to any transaction and would (but for section 
     6662A(e)(2)(C)) have been subject to penalty under section 
     6662A at a rate prescribed under section 6662A(c) or under 
     section 6662B,''.
       (c) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

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

     SEC. 413. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONECONOMIC SUBSTANCE 
                   TRANSACTIONS.

       (a) In General.--Section 163(m) (relating to interest on 
     unpaid taxes attributable to nondisclosed reportable 
     transactions) is amended--
       (1) by striking ``attributable'' and all that follows and 
     inserting the following: ``attributable to--
       ``(1) the portion of any reportable transaction 
     understatement (as defined in section 6662A(b)) with respect 
     to which the requirement of section 6664(d)(2)(A) is not met, 
     or
       ``(2) any noneconomic substance transaction understatement 
     (as defined in section 6662B(c)).'', and
       (2) by inserting ``and Noneconomic Substance Transactions'' 
     in the heading thereof after ``Transactions''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act in taxable years ending after such date.

   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

     SEC. 421. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING 
                   AUTOMATED WITHDRAWALS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following:
       ``(e) Waiver of User Fees for Installment Agreements Using 
     Automated Withdrawals.--In the case of a taxpayer who enters 
     into an installment agreement in which automated installment 
     payments are agreed to, the Secretary shall waive the fee (if 
     any) for entering into the installment agreement.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     which is 180 days after the date of the enactment of this 
     Act.

     SEC. 422. TERMINATION OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159(b)(4) (relating to failure to 
     pay an installment or any other tax liability when due or to 
     provide requested financial information) is amended by 
     striking ``or'' at the end of subparagraph (B), by 
     redesignating subparagraph (C) as subparagraph (E), and by 
     inserting after subparagraph (B) the following:
       ``(C) to make a Federal tax deposit under section 6302 at 
     the time such deposit is required to be made,
       ``(D) to file a return of tax imposed under this title by 
     its due date (including extensions), or''.
       (b) Conforming Amendment.--The heading for section 
     6159(b)(4) is amended by striking ``Failure to pay an 
     installment or any other tax liability when due or to provide 
     requested financial information'' and inserting ``Failure to 
     make payments or deposits or file returns when due or to 
     provide requested financial information''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to failures occurring on or after the date of the 
     enactment of this Act.

     SEC. 423. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF 
                   OFFERS-IN-COMPROMISE.

       (a) In General.--Section 7122 (relating to compromises), as 
     amended by this Act, is amended by redesignating subsections 
     (c), (d), and (e) as subsections (d), (e), and (f), 
     respectively, and by inserting after subsection (b) the 
     following new subsection:
       ``(c) Rules for Submission of Offers-in-Compromise.--
       ``(1) Partial payment required with submission.--
       ``(A) Lump-sum offers.--
       ``(i) In general.--The submission of any lump-sum offer-in-
     compromise shall be accompanied by the payment of 20 percent 
     of amount of such offer.
       ``(ii) Lump-sum offer-in-compromise.--For purposes of this 
     section, the term `lump-sum offer-in-compromise' means any 
     offer of payments made in 5 or fewer installments.
       ``(B) Periodic payment offers.--The submission of any 
     periodic payment offer-in-compromise shall be accompanied by 
     the payment of the amount of the first proposed installment 
     and each proposed installment due during the period such 
     offer is being evaluated for acceptance and has not been 
     rejected by the Secretary. Any failure to make a payment 
     required under the preceding sentence shall be deemed a 
     withdrawal of the offer-in-compromise.
       ``(2) Rules of application.--
       ``(A) Use of payment.--The application of any payment made 
     under this subsection to the assessed tax or other amounts 
     imposed under this title with respect to such tax may be 
     specified by the taxpayer.
       ``(B) No user fee imposed.--Any user fee which would 
     otherwise be imposed under this section shall not be imposed 
     on any offer-in-compromise accompanied by a payment required 
     under this subsection.
       ``(C) Waiver authority.--The Secretary may issue 
     regulations waiving any payment required under paragraph (1) 
     in a manner consistent with the practices established in 
     accordance with the requirements under subsection (d)(3).''.
       (b) Additional Rules Relating to Treatment of Offers.--
       (1) Unprocessable offer if payment requirements are not 
     met.--Paragraph (3) of section 7122(d) (relating to standards 
     for evaluation of offers), as redesignated by subsection (a), 
     is amended by striking ``; and'' at the end of subparagraph 
     (A) and inserting a comma, by striking the period at the end 
     of subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any offer-in-compromise which does not meet the 
     requirements of subsection (c) shall be returned to the 
     taxpayer as unprocessable.''.
       (2) Deemed acceptance of offer not rejected within certain 
     period.--Section 7122, as amended by subsection (a), is 
     amended by adding at the end the following new subsection:
       ``(g) Deemed Acceptance of Offer Not Rejected Within 
     Certain Period.--Any offer-in-compromise submitted under this 
     section shall be deemed to be accepted by the Secretary if 
     such offer is not rejected by the Secretary before the date 
     which is 24 months after the date of the submission of such 
     offer. For purposes of the preceding sentence, any period 
     during which any tax liability which is the subject of such 
     offer-in-compromise is in dispute in any judicial proceeding 
     shall not be taken in to account in determining the 
     expiration of the 24-month period.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted on and after 
     the date which is 60 days after the date of the enactment of 
     this Act.

                    Subtitle D--Penalties and Fines

     SEC. 431. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``Any person'' and inserting the following:
       ``(a) In General.--Any person'', and
       (ii) by striking ``$25,000'' and inserting ``$50,000'',
       (B) in the third sentence, by striking ``section'' and 
     inserting ``subsection'', and
       (C) by adding at the end the following new subsection:
       ``(b) Aggravated Failure to File.--
       ``(1) In general.--In the case of any failure described in 
     paragraph (2), the first sentence of subsection (a) shall be 
     applied by substituting--
       ``(A) `felony' for `misdemeanor',
       ``(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and
       ``(C) `10 years' for `1 year'.
       ``(2) Failure described.--A failure described in this 
     paragraph is a failure to make a return described in 
     subsection (a) for a period of 3 or more consecutive taxable 
     years.''.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',

[[Page S599]]

       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to actions, and failures to act, occurring after 
     the date of the enactment of this Act.

     SEC. 432. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) Determination of Penalty.--
       (1) In general.--Notwithstanding any other provision of 
     law, in the case of an applicable taxpayer--
       (A) the determination as to whether any interest or 
     applicable penalty is to be imposed with respect to any 
     arrangement described in paragraph (2), or to any 
     underpayment of Federal income tax attributable to items 
     arising in connection with any such arrangement, shall be 
     made without regard to the rules of subsections (b), (c), and 
     (d) of section 6664 of the Internal Revenue Code of 1986, and
       (B) if any such interest or applicable penalty is imposed, 
     the amount of such interest or penalty shall be equal to 
     twice that determined without regard to this section.
       (2) Applicable taxpayer.--For purposes of this subsection--
       (A) In general.--The term ``applicable taxpayer'' means a 
     taxpayer which--
       (i) has underreported its United States income tax 
     liability with respect to any item which directly or 
     indirectly involves--

       (I) any financial arrangement which in any manner relies on 
     the use of offshore payment mechanisms (including credit, 
     debit, or charge cards) issued by banks or other entities in 
     foreign jurisdictions, or
       (II) any offshore financial arrangement (including any 
     arrangement with foreign banks, financial institutions, 
     corporations, partnerships, trusts, or other entities), and

       (ii) has neither signed a closing agreement pursuant to the 
     Voluntary Offshore Compliance Initiative established by the 
     Department of the Treasury under Revenue Procedure 2003-11 
     nor voluntarily disclosed its participation in such 
     arrangement by notifying the Internal Revenue Service of such 
     arrangement prior to the issue being raised by the Internal 
     Revenue Service during an examination.
       (B) Authority to waive.--The Secretary of the Treasury or 
     the Secretary's delegate may waive the application of 
     paragraph (1) to any taxpayer if the Secretary or the 
     Secretary's delegate determines that the use of such offshore 
     payment mechanisms is incidental to the transaction and, in 
     addition, in the case of a trade or business, such use is 
     conducted in the ordinary course of the type of trade or 
     business of the taxpayer.
       (C) Issues raised.--For purposes of subparagraph (A)(ii), 
     an item shall be treated as an issue raised during an 
     examination if the individual examining the return--
       (i) communicates to the taxpayer knowledge about the 
     specific item, or
       (ii) has made a request to the taxpayer for information and 
     the taxpayer could not make a complete response to that 
     request without giving the examiner knowledge of the specific 
     item.
       (b) Applicable Penalty.--For purposes of this section, the 
     term ``applicable penalty'' means any penalty, addition to 
     tax, or fine imposed under chapter 68 of the Internal Revenue 
     Code of 1986.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if, as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 433. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution or 
     paid to come into compliance with law.--Paragraph (1) shall 
     not apply to any amount which--
       ``(A) the taxpayer establishes--
       ``(i) constitutes restitution (including remediation of 
     property) for damage or harm caused by or which may be caused 
     by the violation of any law or the potential violation of any 
     law, or
       ``(ii) is paid to come into compliance with any law which 
     was violated or involved in the investigation or inquiry, and
       ``(B) is identified as restitution or as an amount paid to 
     come into compliance with the law, as the case may be, in the 
     court order or settlement agreement.

     Identification pursuant to subparagraph (B) alone shall not 
     satisfy the requirement under subparagraph (A). This 
     paragraph shall not apply to any amount paid or incurred as 
     reimbursement to the government or entity for the costs of 
     any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Reporting of Deductible Amounts.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61, as amended by this Act, is amended by inserting 
     after section 6050U the following new section:

     ``SEC. 6050V. INFORMATION WITH RESPECT TO CERTAIN FINES, 
                   PENALTIES, AND OTHER AMOUNTS.

       ``(a) Requirement of Reporting.--
       ``(1) In general.--The appropriate official of any 
     government or entity which is described in section 162(f)(4) 
     which is involved in a suit or agreement described in 
     paragraph (2) shall make a return in such form as determined 
     by the Secretary setting forth--
       ``(A) the amount required to be paid as a result of the 
     suit or agreement to which paragraph (1) of section 162(f) 
     applies,
       ``(B) any amount required to be paid as a result of the 
     suit or agreement which constitutes restitution or 
     remediation of property, and
       ``(C) any amount required to be paid as a result of the 
     suit or agreement for the purpose of coming into compliance 
     with any law which was violated or involved in the 
     investigation or inquiry.
       ``(2) Suit or agreement described.--
       ``(A) In general.--A suit or agreement is described in this 
     paragraph if--
       ``(i) it is--

       ``(I) a suit with respect to a violation of any law over 
     which the government or entity has authority and with respect 
     to which there has been a court order, or
       ``(II) an agreement which is entered into with respect to a 
     violation of any law over which the government or entity has 
     authority, or with respect to an investigation or inquiry by 
     the government or entity into the potential violation of any 
     law over which such government or entity has authority, and

       ``(ii) the aggregate amount involved in all court orders 
     and agreements with respect to the violation, investigation, 
     or inquiry is $600 or more.
       ``(B) Adjustment of reporting threshold.--The Secretary may 
     adjust the $600 amount in subparagraph (A)(ii) as necessary 
     in order to ensure the efficient administration of the 
     internal revenue laws.
       ``(3) Time of filing.--The return required under this 
     subsection shall be filed not later than--
       ``(A) 30 days after the date on which a court order is 
     issued with respect to the suit or the date the agreement is 
     entered into, as the case may be, or
       ``(B) the date specified Secretary.
       ``(b) Statements To Be Furnished to Individuals Involved in 
     the Settlement.--Every person required to make a return under 
     subsection (a) shall furnish to each person who is a party to 
     the suit or agreement a written statement showing--
       ``(1) the name of the government or entity, and
       ``(2) the information supplied to the Secretary under 
     subsection (a)(1).

     The written statement required under the preceding sentence 
     shall be furnished to the person at the same time the 
     government or entity provides the Secretary with the 
     information required under subsection (a).
       ``(c) Appropriate Official Defined.--For purposes of this 
     section, the term `appropriate official' means the officer or 
     employee having control of the suit, investigation, or 
     inquiry or the person appropriately designated for purposes 
     of this section.''.
       (2) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61, as 
     amended by this Act, is amended by inserting after the item 
     relating to section 6050U the following new item:

``Sec. 6050V. Information with respect to certain fines, penalties, and 
              other amounts.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred on or after the date 
     of the enactment of this Act, except that such amendments 
     shall not apply to amounts paid or incurred under any binding 
     order or agreement entered into before such date. Such 
     exception shall not apply to an order or agreement requiring 
     court approval unless the approval was obtained before such 
     date.

     SEC. 434. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

       (a) Disallowance of Deduction.--
       (1) In general.--Section 162(g) (relating to treble damage 
     payments under the antitrust laws) is amended--
       (A) by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively,

[[Page S600]]

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

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

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section To Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to damages paid or incurred on or after the date 
     of the enactment of this Act.

     SEC. 435. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
                   ORDERS.

       (a) In General.--Section 6657 (relating to bad checks) is 
     amended--
       (1) by striking ``$750'' and inserting ``$2,000'', and
       (2) by striking ``$15'' and inserting ``$40''.
       (b) Effective Date.--The amendments made by this section 
     apply to checks or money orders received after the date of 
     the enactment of this Act.

           Subtitle E--Provisions to Discourage Expatriation

     SEC. 441. TAX TREATMENT OF INVERTED ENTITIES.

       (a) In General.--Section 7874 is amended--
       (1) by striking ``March 4, 2003'' in subsection 
     (a)(2)(B)(i) and in the matter following subsection 
     (a)(2)(B)(iii) and inserting ``March 20, 2002'',
       (2) by striking ``at least 60 percent'' in subsection 
     (a)(2)(B)(ii) and inserting ``more than 50 percent'',
       (3) by striking ``80 percent'' in subsection (b) and 
     inserting ``at least 80 percent'',
       (4) by striking ``60 percent'' in subsection (b) and 
     inserting ``more than 50 percent'',
       (5) by adding at the end of subsection (a)(2) the following 
     new sentence: ``Except as provided in regulations, an 
     acquisition of properties of a domestic corporation shall not 
     be treated as described in subparagraph (B) if none of the 
     corporation's stock was readily tradeable on an established 
     securities market at any time during the 4-year period ending 
     on the date of the acquisition.'', and
       (6) by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Special Rules Applicable to Expatriated Entities.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an expatriated entity--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an expatriated entity, section 163(j) shall be 
     applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after March 20, 2002.

     SEC. 442. REVISION OF TAX RULES ON EXPATRIATION OF 
                   INDIVIDUALS.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.

     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2005, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2004' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election To Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a

[[Page S601]]

     trust with respect to which gain is required to be recognized 
     under subsection (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

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

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

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

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

       ``(I) the tax imposed by subparagraph (A)(ii) shall be 
     imposed on the trust and each trustee shall be personally 
     liable for the amount of such tax, and

[[Page S602]]

       ``(II) any other beneficiary of the trust shall be entitled 
     to recover from the distributee the amount of such tax 
     imposed on the other beneficiary.

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

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

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(49) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation) is 
     inadmissible.''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(21) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (20)'' each place it 
     appears and inserting ``(20), or (21)''.
       (3) Effective dates.--The amendments made by this 
     subsection shall apply to individuals who relinquish United 
     States citizenship on or after the date of the enactment of 
     this Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(h) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after the date of the 
     enactment of this subsection.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:

[[Page S603]]

       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4) Section 6039G(a) is amended by inserting ``or 877A'' 
     after ``section 877(b)''.
       (5) The second sentence of section 6039G(d) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after ``section 
     877(a))''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after the date 
     of the enactment of this Act.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after the date of the 
     enactment of this Act, from an individual or the estate of an 
     individual whose expatriation date (as so defined) occurs 
     after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

                  Subtitle F--Miscellaneous Provisions

     SEC. 451. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT 
                   INSTRUMENTS.

       (a) In General.--Section 1275(d) (relating to regulation 
     authority) is amended--
       (1) by striking ``The Secretary'' and inserting the 
     following:
       ``(1) In general.--The Secretary'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Treatment of contingent payment convertible debt.--
       ``(A) In general.--In the case of a debt instrument which--
       ``(i) is convertible into stock of the issuing corporation, 
     into stock or debt of a related party (within the meaning of 
     section 267(b) or 707(b)(1)), or into cash or other property 
     in an amount equal to the approximate value of such stock or 
     debt, and
       ``(ii) provides for contingent payments,

     any regulations which require original issue discount to be 
     determined by reference to the comparable yield of a 
     noncontingent fixed-rate debt instrument shall be applied as 
     if the regulations require that such comparable yield be 
     determined by reference to a noncontingent fixed-rate debt 
     instrument which is convertible into stock.
       ``(B) Special rule.--For purposes of subparagraph (A), the 
     comparable yield shall be determined without taking into 
     account the yield resulting from the conversion of a debt 
     instrument into stock.''.
       (b) Cross Reference.--Section 163(e)(6) (relating to cross 
     references) is amended by adding at the end the following:
       ``For the treatment of contingent payment convertible debt, 
     see section 1275(d)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued on or after the date 
     of the enactment of this Act.

     SEC. 452. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS 
                   FOREIGN TAX CREDIT TRANSACTIONS INVOLVING 
                   INAPPROPRIATE SEPARATION OF FOREIGN TAXES FROM 
                   RELATED FOREIGN INCOME.

       (a) In General.--Section 901 (relating to taxes of foreign 
     countries and of possessions of United States) is amended by 
     redesignating subsection (m) as subsection (n) and by 
     inserting after subsection (l) the following new subsection:
       ``(m) Regulations.--The Secretary may prescribe regulations 
     disallowing a credit under subsection (a) for all or a 
     portion of any foreign tax, or allocating a foreign tax among 
     2 or more persons, in cases where the foreign tax is imposed 
     on any person in respect of income of another person or in 
     other cases involving the inappropriate separation of the 
     foreign tax from the related foreign income.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after the date of 
     the enactment of this Act.

     SEC. 453. REPEAL OF SPECIAL PROPERTY EXCEPTION TO LEASING 
                   PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 
                   2004.

       (a) In General.--Section 849(b) of the American Jobs 
     Creation Act of 2004 is amended by striking paragraphs (1) 
     and (2), by redesignating paragraphs (3) and (4) as 
     paragraphs (1) and (2), respectively.
       (b) Leases to Foreign Entities.--Section 849(b) of the 
     American Jobs Creation Act of 2004, as amended by subsection 
     (a), is amended by adding at the end the following new 
     paragraph:
       ``(3) Leases to foreign entities.--In the case of tax-
     exempt use property leased to a tax-exempt entity which is a 
     foreign person or entity, the amendments made by this part 
     shall apply to taxable years beginning after December 31, 
     2005, with respect to leases entered into on or before March 
     12, 2004.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     American Jobs Creation Act of 2004.

     SEC. 454. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS 
                   WHICH ARE CORPORATIONS.

       (a) In General.--Section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Treatment of corporate partners.--Except to the 
     extent provided by regulations, in applying this subsection 
     to a corporation which owns (directly or indirectly) an 
     interest in a partnership--
       ``(A) such corporation's distributive share of interest 
     income paid or accrued to such partnership shall be treated 
     as interest income paid or accrued to such corporation,
       ``(B) such corporation's distributive share of interest 
     paid or accrued by such partnership shall be treated as 
     interest paid or accrued by such corporation, and
       ``(C) such corporation's share of the liabilities of such 
     partnership shall be treated as liabilities of such 
     corporation.''.
       (b) Additional Regulatory Authority.--Section 163(j)(9) 
     (relating to regulations), as redesignated by subsection (a), 
     is amended by striking ``and'' at the end of subparagraph 
     (B), by striking the period at the end of subparagraph (C) 
     and inserting ``, and'', and by adding at the end the 
     following new subparagraph:
       ``(D) regulations providing for the reallocation of shares 
     of partnership indebtedness, or distributive shares of the 
     partnership's interest income or interest expense, as may be 
     appropriate to carry out the purposes of this subsection.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning on or after the date 
     of the enactment of this Act.

     SEC. 455. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN 
                   ENTERTAINMENT EXPENSES.

       (a) In General.--Paragraph (2) of section 274(e) (relating 
     to expenses treated as compensation) is amended to read as 
     follows:
       ``(2) Expenses treated as compensation.--Expenses for 
     goods, services, and facilities, to the extent that the 
     expenses do not exceed the amount of the expenses which are 
     treated by the taxpayer, with respect to the recipient of the 
     entertainment, amusement, or recreation, as compensation to 
     an employee on the taxpayer's return of tax under this 
     chapter and as wages to such employee for purposes of chapter 
     24 (relating to withholding of income tax at source on 
     wages).''.
       (b) Persons Not Employees.--Paragraph (9) of section 274(e) 
     is amended by striking ``to the extent that the expenses are 
     includible in the gross income'' and inserting ``to the 
     extent that the expenses do not exceed the amount of the 
     expenses which are includible in the gross income''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses incurred after the date of the 
     enactment of this Act.

     SEC. 456. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Treatment of Distributions From Qualified Disability 
     Trusts.--Section 1(g)(4) (relating to net unearned income) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Treatment of distributions from qualified disability 
     trusts.--For purposes of this subsection, in the case of any 
     child who is a beneficiary of a qualified disability trust 
     (as defined in section 642(b)(2)(C)(ii)), any amount included 
     in the income of such child under sections 652 and 662 during 
     a taxable year shall be considered earned income of such 
     child for such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 457. LOAN AND REDEMPTION REQUIREMENTS ON POOLED 
                   FINANCING REQUIREMENTS.

       (a) Strengthened Reasonable Expectation Requirement.--
     Subparagraph (A) of section 149(f)(2) (relating to reasonable 
     expectation requirement) is amended to read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to an issue if the issuer reasonably expects 
     that--
       ``(i) as of the close of the 1-year period beginning on the 
     date of issuance of the issue, at least 50 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been used directly or indirectly to make or finance 
     loans to ultimate borrowers, and
       ``(ii) as of the close of the 3-year period beginning on 
     such date of issuance, at least 95 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been so used.''.
       (b) Written Loan Commitment and Redemption Requirements.--
     Section 149(f) (relating to treatment of certain pooled 
     financing bonds) is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (6) and (7),

[[Page S604]]

     respectively, and by inserting after paragraph (3) the 
     following new paragraphs:
       ``(4) Written loan commitment requirement.--
       ``(A) In general.--The requirement of this paragraph is met 
     with respect to an issue if the issuer receives prior to 
     issuance written loan commitments identifying the ultimate 
     potential borrowers of at least 50 percent of the net 
     proceeds of such issue.
       ``(B) Exception.--Subparagraph (A) shall not apply with 
     respect to any issuer which is a State (or an integral part 
     of a State) issuing pooled financing bonds to make or finance 
     loans to subordinate governmental units of such State or to 
     State-created entities providing financing for water-
     infrastructure projects through the federally-sponsored State 
     revolving fund program.
       ``(5) Redemption requirement.--The requirement of this 
     paragraph is met if to the extent that less than the 
     percentage of the proceeds of an issue required to be used 
     under clause (i) or (ii) of paragraph (2)(A) is used by the 
     close of the period identified in such clause, the issuer 
     uses an amount of proceeds equal to the excess of--
       ``(A) the amount required to be used under such clause, 
     over
       ``(B) the amount actually used by the close of such period,
       ``to redeem outstanding bonds within 90 days after the end 
     of such period.''.
       (c) Elimination of Disregard of Pooled Bonds in Determining 
     Eligibility for Small Issuer Exception to Arbitrage Rebate.--
     Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) 
     is amended by striking subclause (II) and by redesignating 
     subclauses (III) and (IV) as subclauses (II) and (III), 
     respectively.
       (d) Conforming Amendments.--
       (1) Section 149(f)(1) is amended by striking ``paragraphs 
     (2) and (3)'' and inserting ``paragraphs (2), (3), (4), and 
     (5)''.
       (2) Section 149(f)(7)(B), as redesignated by subsection 
     (b), is amended by striking ``paragraph (4)(A)'' and 
     inserting ``paragraph (6)(A)''.
       (3) Section 54(l)(2) is amended by striking ``section 
     149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 458. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

       (a) In General.--Section 6049(b)(2) (relating to 
     exceptions) is amended by striking subparagraph (B) and by 
     redesignating subparagraphs (C) and (D) as subparagraphs (B) 
     and (C), respectively.
       (b) Conforming Amendment.--Section 6049(b)(2)(C), as 
     redesignated by subsection (a), is amended by striking 
     ``subparagraph (C)'' and inserting ``subparagraph (B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest earned after December 31, 2005.

     SEC. 459. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE.

       (a) Taxable Years Ending Before 2006.--
       (1) Modification of phaseout.--
       (A) In general.--Section 29(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 29(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 
     2005.--Section 29(b)(2), as amended by paragraph (1), is 
     amended by adding at the end the following new sentence: 
     ``This paragraph shall not apply with respect to the $3 
     amount in subsection (a) for calendar year 2005 and the 
     amount in effect under subsection (a) for sales in such 
     calendar year shall be the amount which was in effect for 
     sales in calendar year 2004.''.
       (b) Taxable Years Ending After 2005.--
       (1) Modification of phaseout.--
       (A) In general.--Section 45K(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 45K(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 2005, 
     2006, and 2007.--Section 45K(b)(2), as amended by paragraph 
     (1), is amended by adding at the end the following new 
     sentence: ``This paragraph shall not apply with respect to 
     the $3 amount in subsection (a) for calendar years 2005, 
     2006, and 2007 and the amount in effect under subsection (a) 
     for sales in each such calendar year shall be the amount 
     which was in effect for sales in calendar year 2004.''.
       (3) Treatment of coke and coke gas.--
       (A) Nonapplication of phaseout.--Section 45K(g)(2) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Nonapplication of phaseout.--Subsection (b)(1) shall 
     not apply.''.
       (B) Application of inflation adjustment.--Section 
     45K(g)(2)(B) is amended by inserting ``and the last sentence 
     of subsection (b)(2) shall not apply.''.
       (C) Clarification of qualifying facility.--Section 
     45K(g)(1) is amended by inserting ``(other than from 
     petroleum based products)'' after ``coke or coke gas''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to fuel sold after December 31, 2004.

     SEC. 460. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE 
                   HARBOR.

       (a) In General.--Clause (i) of section 6654(d)(1)(C) is 
     amended by striking ``substituting'' and all that follows 
     through ``1997.'' and inserting ``substituting `110 percent 
     (120 percent if the preceding taxable year begins in 2005)' 
     for `100 percent'.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to any installment payment for 
     taxable years beginning after December 31, 2005.

     SEC. 461. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED 
                   OIL COMPANIES.

       (a) General Rule.--Notwithstanding any other provision of 
     law, if a taxpayer is an applicable integrated oil company 
     for its last taxable year ending in calendar year 2005, the 
     taxpayer shall--
       (1) increase, effective as of the close of such taxable 
     year, the value of each historic LIFO layer of inventories of 
     crude oil, natural gas, or any other petroleum product 
     (within the meaning of section 4611) by the layer adjustment 
     amount, and
       (2) decrease its cost of goods sold for such taxable year 
     by the aggregate amount of the increases under paragraph (1).

     If the aggregate amount of the increases under paragraph (1) 
     exceed the taxpayer's cost of goods sold for such taxable 
     year, the taxpayer's gross income for such taxable year shall 
     be increased by the amount of such excess.
       (b) Layer Adjustment Amount.--For purposes of this 
     section--
       (1) In general.--The term ``layer adjustment amount'' 
     means, with respect to any historic LIFO layer, the product 
     of--
       (A) $18.75, and
       (B) the number of barrels of crude oil (or in the case of 
     natural gas or other petroleum products, the number of 
     barrel-of-oil equivalents) represented by the layer.
       (2) Barrel-of-oil equivalent.--The term ``barrel-of-oil 
     equivalent'' has the meaning given such term by section 
     29(d)(5) (as in effect before its redesignation by the Energy 
     Tax Incentives Act of 2005).
       (c) Application of Requirement.--
       (1) No change in method of accounting.--Any adjustment 
     required by this section shall not be treated as a change in 
     method of accounting.
       (2) Underpayments of estimated tax.--o addition to the tax 
     shall be made under section 6655 of the Internal Revenue Code 
     of 1986 (relating to failure by corporation to pay estimated 
     tax) with respect to any underpayment of an installment 
     required to be paid with respect to the taxable year 
     described in subsection (a) to the extent such underpayment 
     was created or increased by this section.
       (d) Applicable Integrated Oil Company.--For purposes of 
     this section, the term ``applicable integrated oil company'' 
     means an integrated oil company (as defined in section 
     291(b)(4) of the Internal Revenue Code of 1986) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for the taxable year and which had gross 
     receipts in excess of $1,000,000,000 for its last taxable 
     year ending during calendar year 2005. For purposes of this 
     subsection all persons treated as a single employer under 
     subsections (a) and (b) of section 52 of the Internal Revenue 
     Code of 1986 shall be treated as 1 person and, in the case of 
     a short taxable year, the rule under section 448(c)(3)(B) 
     shall apply.

     SEC. 462. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND 
                   GEOPHYSICAL EXPENDITURES FOR MAJOR INTEGRATED 
                   OIL COMPANIES.

       (a) In General.--Section 167(h) is amended by adding at the 
     end the following new paragraph:
       ``(5) Nonapplication to major integrated oil companies.--
     This subsection shall not apply with respect to any expenses 
     paid or incurred for any taxable year by any integrated oil 
     company (as defined in section 291(b)(4)) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for such taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendment made by 
     section 1329(a) of the Energy Policy Act of 2005.

     SEC. 463. VALUATION OF EMPLOYEE PERSONAL USE OF NONCOMMERCIAL 
                   AIRCRAFT.

       (a) In General.--For purposes of Federal income tax 
     inclusion, the value of any employee personal use of 
     noncommercial aircraft shall equal the excess (if any) of--
       (1) greater of--
       (A) the fair market value of such use, or
       (B) the actual cost of such use (including all fixed and 
     variable costs), over
       (2) any amount paid by or on behalf of such employee for 
     such use.
       (b) Effective Date.--Subsection (a) shall apply to use 
     after the date of the enactment of this Act.

     SEC. 464. APPLICATION OF FIRPTA TO REGULATED INVESTMENT 
                   COMPANIES.

       (a) In General.--Subclause (II) of section 897(h)(4)(A)(i) 
     (defining qualified investment entity) is amended by 
     inserting ``which is a United States real property holding 
     corporation or which would be a United States real property 
     holding corporation if the exceptions provided in subsections 
     (c)(3) and (h)(2) did not apply to interests in any real 
     estate investment trust or regulated investment

[[Page S605]]

     company'' after ``regulated investment company''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions with respect to taxable years 
     beginning after December 31, 2004.

     SEC. 465. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA 
                   GAINS.

       (a) Qualified Investment Entity.--
       (1) In general.--Section 897(h)(1) is amended--
       (A) by striking ``a nonresident alien individual or a 
     foreign corporation'' in the first sentence and inserting ``a 
     nonresident alien individual, a foreign corporation, or other 
     qualified investment entity'',
       (B) by striking ``such nonresident alien individual or 
     foreign corporation'' in the first sentence and inserting 
     ``such nonresident alien individual, foreign corporation, or 
     other qualified investment entity'', and
       (C) by striking the second sentence and inserting the 
     following new sentence: ``Notwithstanding the preceding 
     sentence, any distribution by a qualified investment entity 
     to a nonresident alien, a foreign corporation, or other 
     qualified investment entity with respect to any class of 
     stock which is regularly traded on an established securities 
     market located in the United States shall not be treated as 
     gain recognized from the sale or exchange of a United States 
     real property interest if the shareholder did not own more 
     than 5 percent of such class of stock at any time during the 
     1 year period ending on the date of such distribution.''.
       (2) Application after 2007.--Clause (ii) of section 
     897(h)(4)(A) is amended by adding at the end the following 
     new sentence: ``Notwithstanding the preceding sentence, an 
     entity described in clause (i)(II) shall be treated as a 
     qualified investment entity for purposes of applying 
     paragraph (1) in any case in which a real estate investment 
     trust makes a distribution to an entity described in clause 
     (i)(II).''.
       (b) Treatment of Certain Distributions as Dividends.--
       (1) In general.--Section 852(b)(3) (relating to capital 
     gains) is amended by adding at the end the following new 
     subparagraph:
       ``(E) Certain distributions.--In the case of a distribution 
     to which section 897 does not apply by reason of the second 
     sentence of section 897(h)(1), the amount of such 
     distribution which would be included in computing long-term 
     capital gains for the shareholder under subparagraph (B) or 
     (D) (without regard to this subparagraph)--
       ``(i) shall not be included in computing such shareholder's 
     long-term capital gains, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the regulated investment company.''.
       (2) Conforming amendment.--Section 871(k)(2) (relating to 
     short-term capital gain dividends) is amended by adding at 
     the end the following new subparagraph:
       ``(E) Certain distributions.--In the case of a distribution 
     to which section 897 does not apply by reason of the second 
     sentence of section 897(h)(1), the amount which would be 
     treated as a short-term capital gain dividend to the 
     shareholder (without regard to this subparagraph)--
       ``(i) shall not be treated as a short-term capital gain 
     dividend, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the regulated investment company.''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     of qualified investment entities beginning after the date of 
     the enactment of this Act.
       (2) Dividends.--The amendments made by subsection (b) shall 
     apply to dividends with respect to taxable years of regulated 
     investment companies beginning after December 31, 2004.

     SEC. 466. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF 
                   FOREIGN PERSONS IN UNITED STATES REAL PROPERTY 
                   THROUGH WASH SALE TRANSACTIONS.

       (a) In General.--Section 897(h) of the Internal Revenue 
     Code of 1986 (relating to special rules in certain investment 
     entities) is amended by redesignating paragraph (4) as 
     paragraph (5) and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) Treatment of certain wash sale transactions.--
       ``(A) In general.--If an interest in a domestically 
     controlled qualified investment entity is disposed of in an 
     applicable wash sale transaction, the taxpayer shall, for 
     purposes of this section, be treated as having gain from the 
     sale or exchange of a United States real property interest in 
     an amount equal to the portion of the distribution described 
     in subparagraph (B) with respect to such interest which, but 
     for the disposition, would have been treated by the taxpayer 
     as gain from the sale or exchange of a United States real 
     property interest under paragraph (1).
       ``(B) Applicable wash sales transaction.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `applicable wash sales 
     transaction' means any transaction (or series of 
     transactions) under which a nonresident alien individual or 
     foreign corporation--

       ``(I) disposes of an interest in a domestically controlled 
     qualified investment entity during the 30-day period 
     preceding a distribution which is to be made with respect to 
     the interest and any portion of which, but for the 
     disposition, would have been treated by the taxpayer as gain 
     from the sale or exchange of a United States real property 
     interest under paragraph (1), and
       ``(II) acquires an identical interest in such entity during 
     the 60-day period beginning with the 1st day of the 30-day 
     period described in subclause (I).

     For purposes of subclause (II), a nonresident alien 
     individual or foreign corporation shall be treated as having 
     acquired any interest acquired by a person related (within 
     the meaning of section 465(b)(3)(C)) to the individual or 
     corporation.
       ``(ii) Exception where distribution actually received.--A 
     transaction shall not be treated as an applicable wash sales 
     transaction if the nonresident alien individual or foreign 
     corporation receives the distribution described in clause 
     (i)(I) with respect to either the interest which was disposed 
     of, or acquired, in the transaction.
       ``(iii) Exception for certain publicly traded stock.--A 
     transaction shall not be treated as an applicable wash sales 
     transaction if it involves the disposition of any class of 
     stock in a qualified investment entity which is regularly 
     traded on an established securities market within the United 
     States but only if the nonresident alien individual or 
     foreign corporation did not own more than 5 percent of such 
     class of stock at any time during the 1-year period ending on 
     the date of the distribution described in clause (i)(I).''.
       (b) No Withholding Required.--Section 1445(b) of the 
     Internal Revenue Code of 1986 (relating to exemptions) is 
     amended by adding at the end the following new paragraph:
       ``(8) Applicable wash sales transactions.--No person shall 
     be required to deduct and withhold any amount under 
     subsection (a) with respect to a disposition which is treated 
     as a disposition of a United States real property interest 
     solely by reason of section 897(h)(4).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to dispositions after December 31, 2005, in 
     taxable years ending after such date.

     SEC. 467. MODIFICATIONS TO RULES RELATING TO TAXATION OF 
                   DISTRIBUTIONS OF STOCK AND SECURITIES OF A 
                   CONTROLLED CORPORATION.

       (a) Modification of Active Business Definition Under 
     Section 355.--
       (1) In general.--Section 355(b) (defining active conduct of 
     a trade or business) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rules relating to active business 
     requirement.--
       ``(A) In general.--For purposes of determining whether a 
     corporation meets the requirement of paragraph (2)(A), all 
     members of such corporation's separate affiliated group shall 
     be treated as 1 corporation. For purposes of the preceding 
     sentence, the term `separate affiliated group' means, with 
     respect to any corporation, the affiliated group which would 
     be determined under section 1504(a) if such corporation were 
     the common parent and section 1504(b) did not apply.
       ``(B) Control.--For purposes of paragraph (2)(D), all 
     distributee corporations which are members of the same 
     affiliated group (as defined in section 1504(a) without 
     regard to section 1504(b)) shall be treated as 1 distributee 
     corporation.''.
       (2) Conforming amendments.--
       (A) Subparagraph (A) of section 355(b)(2) is amended to 
     read as follows:
       ``(A) it is engaged in the active conduct of a trade or 
     business,''.
       (B) Section 355(b)(2) of such Code is amended by striking 
     the last sentence.
       (3) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply--
       (i) to distributions after the date of the enactment of 
     this Act, and before January 1, 2010, and
       (ii) for purposes of determining the continued 
     qualification under section 355(b)(2)(A) of the Internal 
     Revenue Code of 1986 (as amended by paragraph (2)(A)) of 
     distributions made before such date, as a result of an 
     acquisition, disposition, or other restructuring after such 
     date and before January 1, 2010.
       (B) Transition rule.--The amendments made by this 
     subsection shall not apply to any distribution pursuant to a 
     transaction which is--
       (i) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (ii) described in a ruling request submitted to the 
     Internal Revenue Service on or before such date, or
       (iii) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.
       (C) Elections.--
       (i) Out of transition relief.--Subparagraph (B) shall not 
     apply if the distributing corporation elects not to have such 
     subparagraph apply to distributions of such corporation. Any 
     such election, once made, shall be irrevocable.
       (ii) Application to prior distributions.--Subparagraph 
     (A)(ii) shall not apply to a distributing or controlled 
     corporation if the corporation elects not to have such 
     subparagraph apply to such corporation. Any such election, 
     once made, shall be irrevocable.
       (b) Section 355 Not To Apply to Distributions if the 
     Distributing or Controlled Corporation Is a Disqualified 
     Investment Corporation.--

[[Page S606]]

       (1) In general.--Section 355 (relating to distributions of 
     stock and securities of a controlled corporation) is amended 
     by adding at the end the following new subsection:
       ``(g) Section Not To Apply to Distributions Involving 
     Disqualified Investment Corporations.--
       ``(1) In general.--This section (and so much of section 356 
     as relates to this section) shall not apply to any 
     distribution which is part of a transaction if--
       ``(A) either the distributing corporation or controlled 
     corporation is, immediately after the transaction, a 
     disqualified investment corporation, and
       ``(B) any person holds, immediately after the transaction, 
     a 50-percent or greater interest in any disqualified 
     investment corporation, but only if such person did not hold 
     such an interest in such corporation immediately before the 
     transaction.
       ``(2) Disqualified investment corporation.--For purposes of 
     this subsection--
       ``(A) In general.--The term `disqualified investment 
     corporation' means any distributing or controlled corporation 
     if the fair market value of the investment assets of the 
     corporation is 75 percent or more of the fair market value of 
     all assets of the corporation.
       ``(B) Investment assets.--
       ``(i) In general.--Except as otherwise provided in this 
     subparagraph, the term `investment assets' means--

       ``(I) cash,
       ``(II) any stock or securities in a corporation,
       ``(III) any interest in a partnership,
       ``(IV) any debt instrument or other evidence of 
     indebtedness,
       ``(V) any option, forward or futures contract, notional 
     principal contract, or derivative,
       ``(VI) foreign currency, or
       ``(VII) any similar asset.

       ``(ii) Exception for assets used in active conduct of 
     certain financial trades or businesses.--Such term shall not 
     include any asset which is held for use in the active and 
     regular conduct of--

       ``(I) a lending or finance business (within the meaning of 
     section 954(h)(4)),
       ``(II) a banking business through a bank (as defined in 
     section 581), a domestic building and loan association 
     (within the meaning of section 7701(a)(19)), or any similar 
     institution specified by the Secretary, or
       ``(III) an insurance business if the conduct of the 
     business is licensed, authorized, or regulated by an 
     applicable insurance regulatory body.

     This clause shall only apply with respect to any business if 
     substantially all of the income of the business is derived 
     from persons who are not related (within the meaning of 
     section 267(b) or 707(b)(1)) to the person conducting the 
     business.
       ``(iii) Exception for securities marked to market.--Such 
     term shall not include any security (as defined in section 
     475(c)(2)) which is held by a dealer in securities and to 
     which section 475(a) applies.
       ``(iv) Stock or securities in a 25-percent controlled 
     entity.--

       ``(I) In general.--Such term shall not include any stock 
     and securities in, or any asset described in subclause (IV) 
     or (V) of clause (i) issued by, a corporation which is a 25-
     percent controlled entity with respect to the distributing or 
     controlled corporation.
       ``(II) Look-thru rule.--The distributing or controlled 
     corporation shall, for purposes of applying this subsection, 
     be treated as owning its ratable share of the assets of any 
     25-percent controlled entity.
       ``(III) 25-percent controlled entity.--For purposes of this 
     clause, the term `25-percent controlled entity' means, with 
     respect to any distributing or controlled corporation, any 
     corporation with respect to which the distributing or 
     controlled corporation owns directly or indirectly stock 
     meeting the requirements of section 1504(a)(2), except that 
     such section shall be applied by substituting `25 percent' 
     for `80 percent' and without regard to stock described in 
     section 1504(a)(4).

       ``(v) Interests in certain partnerships.--

       ``(I) In general.--Such term shall not include any interest 
     in a partnership, or any debt instrument or other evidence of 
     indebtedness, issued by the partnership, if 1 or more of the 
     trades or businesses of the partnership are (or, without 
     regard to the 5-year requirement under subsection (b)(2)(B), 
     would be) taken into account by the distributing or 
     controlled corporation, as the case may be, in determining 
     whether the requirements of subsection (b) are met with 
     respect to the distribution.
       ``(II) Look-thru rule.--The distributing or controlled 
     corporation shall, for purposes of applying this subsection, 
     be treated as owning its ratable share of the assets of any 
     partnership described in subclause (I).

       ``(3) 50-percent or greater interest.--For purposes of this 
     subsection--
       ``(A) In general.--The term `50-percent or greater 
     interest' has the meaning given such term by subsection 
     (d)(4).
       ``(B) Attribution rules.--The rules of section 318 shall 
     apply for purposes of determining ownership of stock for 
     purposes of this paragraph.
       ``(4) Transaction.--For purposes of this subsection, the 
     term `transaction' includes a series of transactions.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out, or prevent the 
     avoidance of, the purposes of this subsection, including 
     regulations--
       ``(A) to carry out, or prevent the avoidance of, the 
     purposes of this subsection in cases involving--
       ``(i) the use of related persons, intermediaries, pass-thru 
     entities, options, or other arrangements, and
       ``(ii) the treatment of assets unrelated to the trade or 
     business of a corporation as investment assets if, prior to 
     the distribution, investment assets were used to acquire such 
     unrelated assets,
       ``(B) which in appropriate cases exclude from the 
     application of this subsection a distribution which does not 
     have the character of a redemption which would be treated as 
     a sale or exchange under section 302, and
       ``(C) which modify the application of the attribution rules 
     applied for purposes of this subsection.''.
       (2) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (B) Transition rule.--The amendments made by this 
     subsection shall not apply to any distribution pursuant to a 
     transaction which is--
       (i) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (ii) described in a ruling request submitted to the 
     Internal Revenue Service on or before such date, or
       (iii) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.

     SEC. 468. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR 
                   ACQUIRING MUSIC OR MUSIC COPYRIGHTS.

       (a) In General.--Section 263A (relating to capitalization 
     and inclusion in inventory costs of certain expenses) is 
     amended by redesignating subsection (i) as subsection (j) and 
     by adding after subsection (h) the following new subsection:
       ``(i) Special Rules for Certain Musical Works and 
     Copyrights.--
       ``(1) In general.--If--
       ``(A) any expense is paid or incurred by the taxpayer in 
     creating or acquiring any musical composition (including any 
     accompanying words) or any copyright with respect to a 
     musical composition, and
       ``(B) such expense is required to be capitalized under this 
     section,

     then, notwithstanding section 167(g), the amount capitalized 
     shall be amortized ratably over the 5-year period beginning 
     with the month in which the composition or copyright was 
     acquired (or, in the case of expenses paid or incurred in 
     connection with the creation of a musical composition, the 5-
     taxable-year period beginning with the taxable year in which 
     the expenses were paid or incurred).
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     expense--
       ``(A) which is a qualified creative expense under 
     subsection (h),
       ``(B) to which a simplified procedure established under 
     subsection (j)(2) applies,
       ``(C) which is an amortizable section 197 intangible (as 
     defined in section 197(c)), or
       ``(D) which, without regard to this section, would not be 
     allowable as a deduction.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to expenses paid or incurred after December 31, 
     2005, in taxable years ending after such date.

     SEC. 469. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

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

     ``SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

       ``(a) Allowance of Credit.--In the case of a taxpayer who 
     holds a rural renaissance bond on a credit allowance date of 
     such bond, which occurs during the taxable year, there shall 
     be allowed as a credit against the tax imposed by this 
     chapter for such taxable year an amount equal to the sum of 
     the credits determined under subsection (b) with respect to 
     credit allowance dates during such year on which the taxpayer 
     holds such bond.
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any credit allowance 
     date for a rural renaissance bond is 25 percent of the annual 
     credit determined with respect to such bond.
       ``(2) Annual credit.--The annual credit determined with 
     respect to any rural renaissance bond is the product of--
       ``(A) the credit rate determined by the Secretary under 
     paragraph (3) for the day on which such bond was sold, 
     multiplied by
       ``(B) the outstanding face amount of the bond.
       ``(3) Determination.--For purposes of paragraph (2), with 
     respect to any rural renaissance bond, the Secretary shall 
     determine daily or caused to be determined daily a credit 
     rate which shall apply to the first day on which there is a 
     binding, written contract for the sale or exchange of the 
     bond. The credit rate for any day is the credit rate which 
     the Secretary or the Secretary's designee estimates will 
     permit the issuance of rural renaissance bonds with a 
     specified maturity or redemption date without discount and 
     without interest cost to the qualified issuer.
       ``(4) Credit allowance date.--For purposes of this section, 
     the term `credit allowance date' means--
       ``(A) March 15,
       ``(B) June 15,

[[Page S607]]

       ``(C) September 15, and
       ``(D) December 15.

     Such term also includes the last day on which the bond is 
     outstanding.
       ``(5) Special rule for issuance and redemption.--In the 
     case of a bond which is issued during the 3-month period 
     ending on a credit allowance date, the amount of the credit 
     determined under this subsection with respect to such credit 
     allowance date shall be a ratable portion of the credit 
     otherwise determined based on the portion of the 3-month 
     period during which the bond is outstanding. A similar rule 
     shall apply when the bond is redeemed or matures.
       ``(c) Limitation Based on Amount of Tax.--The credit 
     allowed under subsection (a) for any taxable year shall not 
     exceed the excess of--
       ``(1) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(2) the sum of the credits allowable under this part 
     (other than subpart C).
       ``(d) Rural Renaissance Bond.--For purposes of this 
     section--
       ``(1) In general.--The term `rural renaissance bond' means 
     any bond issued as part of an issue if--
       ``(A) the bond is issued by a qualified issuer,
       ``(B) 95 percent or more of the proceeds from the sale of 
     such issue are to be used for capital expenditures incurred 
     for 1 or more qualified projects,
       ``(C) the qualified issuer designates such bond for 
     purposes of this section and the bond is in registered form, 
     and
       ``(D) the issue meets the requirements of subsections (e) 
     and (h).
       ``(2) Qualified project; special use rules.--
       ``(A) In general.--The term `qualified project' means 1 or 
     more projects described in subparagraph (B) located in a 
     rural area.
       ``(B) Projects described.--A project described in this 
     subparagraph is--
       ``(i) a water or waste treatment project,
       ``(ii) an affordable housing project,
       ``(iii) a community facility project, including hospitals, 
     fire and police stations, and nursing and assisted-living 
     facilities,
       ``(iv) a value-added agriculture or renewable energy 
     facility project for agricultural producers or farmer-owned 
     entities, including any project to promote the production, 
     processing, or retail sale of ethanol (including fuel at 
     least 85 percent of the volume of which consists of ethanol), 
     biodiesel, animal waste, biomass, raw commodities, or wind as 
     a fuel,
       ``(v) a distance learning or telemedicine project,
       ``(vi) a rural utility infrastructure project, including 
     any electric or telephone system,
       ``(vii) a project to expand broadband technology,
       ``(viii) a rural teleworks project, and
       ``(ix) any project described in any preceding clause 
     carried out by the Delta Regional Authority.
       ``(C) Special rules.--For purposes of this paragraph--
       ``(i) any project described in subparagraph (B)(iv) for a 
     farmer-owned entity may be considered a qualified project if 
     such entity is located in a rural area, or in the case of a 
     farmer-owned entity the headquarters of which are located in 
     a nonrural area, if the project is located in a rural area, 
     and
       ``(ii) any project for a farmer-owned entity which is a 
     facility described in subparagraph (B)(iv) for agricultural 
     producers may be considered a qualified project regardless of 
     whether the facility is located in a rural or nonrural area.
       ``(3) Special use rules.--
       ``(A) Refinancing rules.--For purposes of paragraph (1)(B), 
     a qualified project may be refinanced with proceeds of a 
     rural renaissance bond only if the indebtedness being 
     refinanced (including any obligation directly or indirectly 
     refinanced by such indebtedness) was originally incurred 
     after the date of the enactment of this section.
       ``(B) Reimbursement.--For purposes of paragraph (1)(B), a 
     rural renaissance bond may be issued to reimburse a borrower 
     for amounts paid after the date of the enactment of this 
     section with respect to a qualified project, but only if--
       ``(i) prior to the payment of the original expenditure, the 
     borrower declared its intent to reimburse such expenditure 
     with the proceeds of a rural renaissance bond,
       ``(ii) not later than 60 days after payment of the original 
     expenditure, the qualified issuer adopts an official intent 
     to reimburse the original expenditure with such proceeds, and
       ``(iii) the reimbursement is made not later than 18 months 
     after the date the original expenditure is paid.
       ``(C) Treatment of changes in use.--For purposes of 
     paragraph (1)(B), the proceeds of an issue shall not be 
     treated as used for a qualified project to the extent that a 
     borrower takes any action within its control which causes 
     such proceeds not to be used for a qualified project. The 
     Secretary shall prescribe regulations specifying remedial 
     actions that may be taken (including conditions to taking 
     such remedial actions) to prevent an action described in the 
     preceding sentence from causing a bond to fail to be a rural 
     renaissance bond.
       ``(e) Maturity Limitations.--
       ``(1) Duration of term.--A bond shall not be treated as a 
     rural renaissance bond if the maturity of such bond exceeds 
     the maximum term determined by the Secretary under paragraph 
     (2) with respect to such bond.
       ``(2) Maximum term.--During each calendar month, the 
     Secretary shall determine the maximum term permitted under 
     this paragraph for bonds issued during the following calendar 
     month. Such maximum term shall be the term which the 
     Secretary estimates will result in the present value of the 
     obligation to repay the principal on the bond being equal to 
     50 percent of the face amount of such bond. Such present 
     value shall be determined without regard to the requirements 
     of subsection (f)(3) and using as a discount rate the average 
     annual interest rate of tax-exempt obligations having a term 
     of 10 years or more which are issued during the month. If the 
     term as so determined is not a multiple of a whole year, such 
     term shall be rounded to the next highest whole year.
       ``(3) Ratable principal amortization required.--A bond 
     shall not be treated as a rural renaissance bond unless it is 
     part of an issue which provides for an equal amount of 
     principal to be paid by the qualified issuer during each 
     calendar year that the issue is outstanding.
       ``(f) Limitation on Amount of Bonds Designated.--
       ``(1) National limitation.--There is a rural renaissance 
     bond limitation of $200,000,000.
       ``(2) Allocation by secretary.--The Secretary shall 
     allocate the amount described in paragraph (1) among 
     qualified projects in such manner as the Secretary determines 
     appropriate.
       ``(g) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this section (determined without regard to subsection 
     (c)) and the amount so included shall be treated as interest 
     income.
       ``(h) Special Rules Relating to Expenditures.--
       ``(1) In general.--An issue shall be treated as meeting the 
     requirements of this subsection if, as of the date of 
     issuance, the qualified issuer reasonably expects--
       ``(A) at least 95 percent of the proceeds from the sale of 
     the issue are to be spent for 1 or more qualified projects 
     within the 5-year period beginning on the date of issuance of 
     the rural renaissance bond,
       ``(B) a binding commitment with a third party to spend at 
     least 10 percent of the proceeds from the sale of the issue 
     will be incurred within the 6-month period beginning on the 
     date of issuance of the rural renaissance bond or, in the 
     case of a rural renaissance bond, the proceeds of which are 
     to be loaned to 2 or more borrowers, such binding commitment 
     will be incurred within the 6-month period beginning on the 
     date of the loan of such proceeds to a borrower, and
       ``(C) such projects will be completed with due diligence 
     and the proceeds from the sale of the issue will be spent 
     with due diligence.
       ``(2) Extension of period.--Upon submission of a request 
     prior to the expiration of the period described in paragraph 
     (1)(A), the Secretary may extend such period if the qualified 
     issuer establishes that the failure to satisfy the 5-year 
     requirement is due to reasonable cause and the related 
     projects will continue to proceed with due diligence.
       ``(3) Failure to spend required amount of bond proceeds 
     within 5 years.--To the extent that less than 95 percent of 
     the proceeds of such issue are expended by the close of the 
     5-year period beginning on the date of issuance (or if an 
     extension has been obtained under paragraph (2), by the close 
     of the extended period), the qualified issuer shall redeem 
     all of the nonqualified bonds within 90 days after the end of 
     such period. For purposes of this paragraph, the amount of 
     the nonqualified bonds required to be redeemed shall be 
     determined in the same manner as under section 142.
       ``(i) Special Rules Relating to Arbitrage.--A bond which is 
     part of an issue shall not be treated as a rural renaissance 
     bond unless, with respect to the issue of which the bond is a 
     part, the qualified issuer satisfies the arbitrage 
     requirements of section 148 with respect to proceeds of the 
     issue.
       ``(j) Qualified Issuer.--For purposes of this section--
       ``(1) In general.--The term `qualified issuer' means any 
     not-for-profit cooperative lender which has as of the date of 
     the enactment of this section received a guarantee under 
     section 306 of the Rural Electrification Act and which meets 
     the requirement of paragraph (2).
       ``(2) User fee requirement.--The requirement of this 
     paragraph is met if the issuer of any rural renaissance bond 
     makes grants for qualified projects as defined under 
     subsection (d)(2) on a semi-annual basis every year that such 
     bond is outstanding in an annual amount equal to one-half of 
     the rate on United States Treasury Bills of the same maturity 
     multiplied by the outstanding principle balance of rural 
     renaissance bonds issued by such issuer.
       ``(k) Special Rules Relating to Pool Bonds.--No portion of 
     a pooled financing bond may be allocable to loan unless the 
     borrower has entered into a written loan commitment for such 
     portion prior to the issue date of such issue.
       ``(l) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Bond.--The term `bond' includes any obligation.
       ``(2) Pooled financing bond.--The term `pooled financing 
     bond' shall have the meaning given such term by section 
     149(f)(4)(A).
       ``(3) Rural area.--The term `rural area' means any area 
     other than--

[[Page S608]]

       ``(A) a city or town which has a population of greater than 
     50,000 inhabitants, or
       ``(B) the urbanized area contiguous and adjacent to such a 
     city or town.
       ``(4) Partnership; s corporation; and other pass-thru 
     entities.--
       ``(A) In general.--Under regulations prescribed by the 
     Secretary, in the case of a partnership, trust, S 
     corporation, or other pass-thru entity, rules similar to the 
     rules of section 41(g) shall apply with respect to the credit 
     allowable under subsection (a).
       ``(B) No basis adjustment.--In the case of a bond held by a 
     partnership or an S corporation, rules similar to the rules 
     under section 1397E(l) shall apply.
       ``(5) Bonds held by regulated investment companies.--If any 
     rural renaissance bond is held by a regulated investment 
     company, the credit determined under subsection (a) shall be 
     allowed to shareholders of such company under procedures 
     prescribed by the Secretary.
       ``(6) Reporting.--Issuers of rural renaissance bonds shall 
     submit reports similar to the reports required under section 
     149(e).''.
       (b) Reporting.--Subsection (d) of section 6049 (relating to 
     returns regarding payments of interest) is amended by adding 
     at the end the following new paragraph:
       ``(9) Reporting of credit on rural renaissance bonds.--
       ``(A) In general.--For purposes of subsection (a), the term 
     `interest' includes amounts includible in gross income under 
     section 54(f) and such amounts shall be treated as paid on 
     the credit allowance date (as defined in section 54(b)(4)).
       ``(B) Reporting to corporations, etc.--Except as otherwise 
     provided in regulations, in the case of any interest 
     described in subparagraph (A), subsection (b)(4) shall be 
     applied without regard to subparagraphs (A), (H), (I), (J), 
     (K), and (L)(i) of such subsection.
       ``(C) Regulatory authority.--The Secretary may prescribe 
     such regulations as are necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations which 
     require more frequent or more detailed reporting.''.
       (c) Conforming Amendments.--
       (1) The table of sections for subpart H of part IV of 
     subchapter A of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 54A. Credit to holders of rural renaissance bonds.''.

       (2) Section 54(c)(2) is amended by inserting ``, section 
     54A,'' after ``subpart C''.
       (d) Issuance of Regulations.--The Secretary of Treasury 
     shall issue regulations required under section 54A of the 
     Internal Revenue Code of 1986 (as added by this section) not 
     later than 120 days after the date of the enactment of this 
     Act.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act and before January 1, 2010.

     SEC. 470. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
                   APPLICABLE TO LARGE INTEGRATED OIL COMPANIES 
                   WHICH ARE DUAL CAPACITY TAXPAYERS.

       (a) In General.--Section 901 (relating to credit for taxes 
     of foreign countries and of possessions of the United 
     States), as amended by this Act, is amended by redesignating 
     subsections (m) and (n) as subsections (n) and (o), 
     respectively, and by inserting after subsection (l) the 
     following new subsection:
       ``(m) Special Rules Relating To Large Integrated Oil 
     Companies Which Are Dual Capacity Taxpayers.--
       ``(1) General rule.--Notwithstanding any other provision of 
     this chapter, any amount paid or accrued by a dual capacity 
     taxpayer which is a large integrated oil company to a foreign 
     country or possession of the United States for any period 
     shall not be considered a tax--
       ``(A) if, for such period, the foreign country or 
     possession does not impose a generally applicable income tax, 
     or
       ``(B) to the extent such amount exceeds the amount 
     (determined in accordance with regulations) which--
       ``(i) is paid by such dual capacity taxpayer pursuant to 
     the generally applicable income tax imposed by the country or 
     possession, or
       ``(ii) would be paid if the generally applicable income tax 
     imposed by the country or possession were applicable to such 
     dual capacity taxpayer.
     Nothing in this paragraph shall be construed to imply the 
     proper treatment of any such amount not in excess of the 
     amount determined under subparagraph (B).
       ``(2) Dual capacity taxpayer.--For purposes of this 
     subsection, the term `dual capacity taxpayer' means, with 
     respect to any foreign country or possession of the United 
     States, a person who--
       ``(A) is subject to a levy of such country or possession, 
     and
       ``(B) receives (or will receive) directly or indirectly a 
     specific economic benefit (as determined in accordance with 
     regulations) from such country or possession.
       ``(3) Generally applicable income tax.--For purposes of 
     this subsection--
       ``(A) In general.--The term `generally applicable income 
     tax' means an income tax (or a series of income taxes) which 
     is generally imposed under the laws of a foreign country or 
     possession on income derived from the conduct of a trade or 
     business within such country or possession.
       ``(B) Exceptions.--Such term shall not include a tax unless 
     it has substantial application, by its terms and in practice, 
     to--
       ``(i) persons who are not dual capacity taxpayers, and
       ``(ii) persons who are citizens or residents of the foreign 
     country or possession.
       ``(4) Large integrated oil company.--For purposes of this 
     subsection, the term `large integrated oil company' means, 
     with respect to any taxable year, an integrated oil company 
     (as defined in section 291(b)(4)) which--
       ``(A) had gross receipts in excess of $1,000,000,000 for 
     such taxable year, and
       ``(B) has an average daily worldwide production of crude 
     oil of at least 500,000 barrels for such taxable year.''
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes paid or accrued in taxable years beginning 
     after the date of the enactment of this Act.
       (2) Contrary treaty obligations upheld.--The amendments 
     made by this section shall not apply to the extent contrary 
     to any treaty obligation of the United States.

     SEC. 471. DISABILITY PREFERENCE PROGRAM FOR TAX COLLECTION 
                   CONTRACTS.

       (a) In General.--The Secretary of the Treasury shall not 
     enter into any qualified tax collection contract after April 
     1, 2006, until the Secretary implements a disability 
     preference program that meets the requirements of subsection 
     (b).
       (b) Disability Preference Program Requirements.--
       (1) In general.--A disability preference program meets the 
     requirements of this subsection if such program requires that 
     not less than 10 percent of the accounts of each dollar value 
     category are awarded to persons described in paragraph (2).
       (2) Person described.--For purposes of paragraph (1), a 
     person is described in this paragraph if--
       (A) as of the date any qualified tax collection contract is 
     awarded--
       (i) such person employs not less than 50 severely disabled 
     individuals within the United States; or
       (ii) not less than 30 percent of the employees of such 
     person within the United States are severely disabled 
     individuals;
       (B) such person agrees as a condition of the qualified tax 
     collection contract that not more than 90 days after the date 
     such contract is awarded, not less than 35 percent of the 
     employees of such person employed in connection with 
     providing services under such contract shall--
       (i) be hired after the date such contract is awarded; and
       (ii) be severely disabled individuals; and
       (C) such person is otherwise qualified to perform the 
     services required.
       (c) Definitions.--For purposes of this section--
       (1) Qualified tax collection contract.--The term 
     ``qualified tax collection contract'' shall have the meaning 
     given such term under section 6306(b) of the Internal Revenue 
     Code of 1986.
       (2) Dollar value category.--The term ``dollar value 
     category'' means the dollar ranges of accounts for collection 
     as determined and assigned by the Secretary under section 
     6306(b)(1)(B) of the Internal Revenue Code of 1986 with 
     respect to a qualified tax collection contract.
       (3) Severely disabled individual.--The term ``severely 
     disabled individual'' means--
       (A) a veteran of the United States armed forces with a 
     disability of 50 percent or greater--
       (i) determined by the Secretary of Veterans Affairs to be 
     service-connected; or
       (ii) deemed by law to be service-connected; or
       (B) any individual who is a disabled beneficiary (as 
     defined in section 1148(k)(2) of the Social Security Act (42 
     U.S.C. 1320b-19(k)(2))) or who would be considered to be such 
     a disabled beneficiary but for having income or resources in 
     excess of the income or resources eligibility limits 
     established under title XVI of the Social Security Act (42 
     U.S.C. 1381 et seq.), respectively.

           TITLE V--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

     SEC. 501. SUNSET OF CERTAIN PROVISIONS AND AMENDMENTS.

       The provisions of, and amendments made by, title I, 
     subtitle A of title II, and title III shall not apply to 
     taxable years beginning after September 30, 2010, and the 
     Internal Revenue Code of 1986 shall be applied and 
     administered to such years as if such provisions and 
     amendments had never been enacted.
                                 ______
                                 
  SA 2709. Mr. FRIST proposed an amendment to amendment SA 2708 
proposed by Mr. Frist (for Mr. Grassley (for himself and Mr. Baucus)) 
to the amendment SA 2707 proposed by Mr. Frist (for Mr. Grassley (for 
himself and Mr. Baucus)) to the bill H.R. 4297, to provide for 
reconciliation pursuant to section 201(b) of the concurrent resolution 
on the budget for fiscal year 2006; as follows:

       At the end of the amendment add the following:
       ``This section shall become effective 1 day after 
     enactment.''
                                 ______
                                 
  SA 2710. Mr. FRIST (for himself, Mr. Grassley and Mr. Baucus) 
proposed an amendment to the bill H.R. 4297, to provide for 
reconciliation pursuant to

[[Page S609]]

section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; as follows:

       Strike all after the enacting clause and insert the 
     following:

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

       (a) Short Title.--This Act may be cited as the ``Tax Relief 
     Act of 2005''.
       (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 EXPIRING PROVISIONS

Sec. 101. Extension of increased expensing for small business.
Sec. 102. Credit for elective deferrals and IRA contributions.
Sec. 103. Above-the-line deduction for higher education.
Sec. 104. Extension and modification of new markets tax credit.
Sec. 105. Election to deduct State and local general sales taxes.
Sec. 106. Extension and increase in minimum tax relief to individuals.
Sec. 107. Allowance of nonrefundable personal credits against regular 
              and alternative minimum tax liability.
Sec. 108. Extension and modification of research credit.
Sec. 109. Work opportunity tax credit and welfare-to-work credit.
Sec. 110. Qualified zone academy bonds.
Sec. 111. Deduction for corporate donations of computer technology and 
              equipment.
Sec. 112. Above-the-line deduction for certain expenses of elementary 
              and secondary school teachers.
Sec. 113. Expensing of brownfields remediation costs.
Sec. 114. Tax incentives for investment in the District of Columbia.
Sec. 115. Indian employment tax credit.
Sec. 116. Accelerated depreciation for business property on Indian 
              reservation.
Sec. 117. Fifteen-year straight-line cost recovery for qualified 
              leasehold improvements and qualified restaurant 
              improvements.
Sec. 118. Extension of full credit for qualified electric vehicles.
Sec. 119. Application of EGTRRA sunset to this title.

         TITLE II--PROVISIONS RELATING TO CHARITABLE DONATIONS

                Subtitle A--Charitable Giving Incentives

Sec. 201. Charitable deduction for nonitemizers.
Sec. 202. Tax-free distributions from individual retirement plans for 
              charitable purposes.
Sec. 203. Modification of charitable deduction for contributions of 
              food inventory.
Sec. 204. Basis adjustment to stock of S corporation contributing 
              property.
Sec. 205. Modification of charitable deduction for contributions of 
              book inventory.
Sec. 206. Modification of tax treatment of certain payments to 
              controlling exempt organizations and public disclosure of 
              information relating to unrelated business income.
Sec. 207. Encouragement of contributions of capital gain real property 
              made for conservation purposes.
Sec. 208. Enhanced deduction for charitable contribution of literary, 
              musical, artistic, and scholarly compositions.
Sec. 209. Mileage reimbursements to charitable volunteers excluded from 
              gross income.
Sec. 210. Alternative percentage limitation for corporate charitable 
              contributions to the mathematics and science partnership 
              program.

             Subtitle B--Reforming Charitable Organizations

                        PART I--General Reforms

Sec. 211. Tax involvement by exempt organizations in tax shelter 
              transactions.
Sec. 212. Excise tax on certain acquisitions of interests in insurance 
              contracts in which certain exempt organizations hold an 
              interest.
Sec. 213. Increase in penalty excise taxes on public charities, social 
              welfare organizations, and private foundations.
Sec. 214. Reform of charitable contributions of certain easements on 
              buildings in registered historic districts.
Sec. 215. Charitable contributions of taxidermy property.
Sec. 216. Recapture of tax benefit for charitable contributions of 
              exempt use property not used for an exempt use.
Sec. 217. Limitation of deduction for charitable contributions of 
              clothing and household items.
Sec. 218. Modification of recordkeeping requirements for certain 
              charitable contributions.
Sec. 219. Contributions of fractional interests in tangible personal 
              property.
Sec. 220. Provisions relating to substantial and gross overstatements 
              of valuations of charitable deduction property.
Sec. 221. Additional standards for credit counseling organizations.
Sec. 222. Expansion of the base of tax on private foundation net 
              investment income.
Sec. 223. Definition of convention or association of churches.
Sec. 224. Notification requirement for entities not currently required 
              to file.
Sec. 225. Disclosure to State officials of proposed actions related to 
              exempt organizations.

        PART II--Improved Accountability of Donor Advised Funds

Sec. 231. Excise tax on sponsoring organizations of donor advised funds 
              for failure to meet distribution requirements.
Sec. 232. Prohibited transactions.
Sec. 233. Treatment of charitable contribution deductions to donor 
              advised funds.
Sec. 234. Returns of, and applications for recognition by, sponsoring 
              organizations.

     PART III--Improved Accountability of Supporting Organizations

Sec. 241. Requirements for supporting organizations.
Sec. 242. Excise tax on supporting organizations for failure to meet 
              distribution requirements.
Sec. 243. Excess benefit transactions.
Sec. 244. Excess business holdings of supporting organizations.
Sec. 245. Treatment of amounts paid to supporting organizations by 
              private foundations.
Sec. 246. Returns of supporting organizations.

                  TITLE III--MISCELLANEOUS PROVISIONS

Sec. 301. Restructuring of New York Liberty Zone tax credits.
Sec. 302. Modification to S corporation passive investment income 
              rules.
Sec. 303. Modification of effective date of disregard of certain 
              capital expenditures for purposes of qualified small 
              issue bonds.
Sec. 304. Premiums for mortgage insurance.
Sec. 305. Sense of the Senate on use of no-bid contracting by Federal 
              Emergency Management Agency.
Sec. 306. Sense of Congress regarding Doha Round.
Sec. 307. Modification of bond rule.
Sec. 308. Treatment of certain stock option plans under nonqualified 
              deferred compensation rules.
Sec. 309. Sense of the Senate regarding the dedication of excess funds.
Sec. 310. Modification of treatment of loans to qualified continuing 
              care facilities.
Sec. 311. Exclusion of gain from sale of a principal residence by 
              certain employees of the intelligence community.

                  TITLE IV--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed to Curtail Tax Shelters

Sec. 401. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 402. Frivolous tax submissions.
Sec. 403. Penalty for promoting abusive tax shelters.
Sec. 404. Penalty for aiding and abetting the understatement of tax 
              liability.

                Subtitle B--Economic Substance Doctrine

Sec. 411. Clarification of economic substance doctrine.
Sec. 412. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 413. Denial of deduction for interest on underpayments 
              attributable to noneconomic substance transactions.

   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

Sec. 421. Waiver of user fee for installment agreements using automated 
              withdrawals.
Sec. 422. Termination of installment agreements.
Sec. 423. Partial payments required with submission of offers-in-
              compromise.

                    Subtitle D--Penalties and Fines

Sec. 431. Increase in criminal monetary penalty limitation for the 
              underpayment or overpayment of tax due to fraud.
Sec. 432. Doubling of certain penalties, fines, and interest on 
              underpayments related to certain offshore financial 
              arrangements.
Sec. 433. Denial of deduction for certain fines, penalties, and other 
              amounts.
Sec. 434. Denial of deduction for punitive damages.
Sec. 435. Increase in penalty for bad checks and money orders.

[[Page S610]]

           Subtitle E--Provisions to Discourage Expatriation

Sec. 441. Tax treatment of inverted entities.
Sec. 442. Revision of tax rules on expatriation of individuals.

                  Subtitle F--Miscellaneous Provisions

Sec. 451. Treatment of contingent payment convertible debt instruments.
Sec. 452. Grant of Treasury regulatory authority to address foreign tax 
              credit transactions involving inappropriate separation of 
              foreign taxes from related foreign income.
Sec. 453. Repeal of special property exception to leasing provisions of 
              the American Jobs Creation Act of 2004.
Sec. 454. Application of earnings stripping rules to partners which are 
              corporations.
Sec. 455. Limitation of employer deduction for certain entertainment 
              expenses.
Sec. 456. Increase in age of minor children whose unearned income is 
              taxed as if parent's income.
Sec. 457. Loan and redemption requirements on pooled financing 
              requirements.
Sec. 458. Reporting of interest on tax-exempt bonds.
Sec. 459. Modification of credit for producing fuel from a 
              nonconventional source.
Sec. 460. Modification of individual estimated tax safe harbor.
Sec. 461. Revaluation of LIFO inventories of large integrated oil 
              companies.
Sec. 462. Elimination of amortization of geological and geophysical 
              expenditures for major integrated oil companies.
Sec. 463. Valuation of employee personal use of noncommercial aircraft.
Sec. 464. Application of FIRPTA to regulated investment companies.
Sec. 465. Treatment of distributions attributable to FIRPTA gains.
Sec. 466. Prevention of avoidance of tax on investments of foreign 
              persons in United States real property through wash sale 
              transactions.
Sec. 467. Modifications to rules relating to taxation of distributions 
              of stock and securities of a controlled corporation.
Sec. 468. Amortization of expenses incurred in creating or acquiring 
              music or music copyrights.
Sec. 469. Credit to holders of rural renaissance bonds.
Sec. 470. Modifications of foreign tax credit rules applicable to large 
              integrated oil companies which are dual capacity 
              taxpayers.
Sec. 471. Disability preference program for tax collection contracts.

           TITLE V--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

Sec. 501. Sunset of certain provisions and amendments.

               TITLE I--EXTENSION OF EXPIRING PROVISIONS

     SEC. 101. EXTENSION OF INCREASED EXPENSING FOR SMALL 
                   BUSINESS.

       Section 179 is amended by striking ``2008'' each place it 
     appears and inserting ``2010''.

     SEC. 102. CREDIT FOR ELECTIVE DEFERRALS AND IRA 
                   CONTRIBUTIONS.

       Section 25B(h) is amended by striking ``2006'' and 
     inserting ``2009''.

     SEC. 103. ABOVE-THE-LINE DEDUCTION FOR HIGHER EDUCATION.

       (a) In General.--Section 222(e) is amended by striking 
     ``2005''and inserting ``2009''.
       (b) Conforming Amendments.--Section 222(b)(2)(B) is 
     amended--
       (1) by striking ``a taxable year beginning in 2004 or 
     2005'' and inserting ``any taxable year beginning after 
     2003'', and
       (2) by striking ``2004 and 2005'' and inserting ``after 
     2003''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 104. EXTENSION AND MODIFICATION OF NEW MARKETS TAX 
                   CREDIT.

       (a) Extension.--Section 45D(f)(1)(D) is amended by striking 
     ``and 2007'' and inserting ``, 2007, and 2008''.
       (b) Regulations Regarding Non-Metropolitan Counties.--
     Section 45D(i) is amended by striking ``and'' at the end of 
     paragraph (4), by striking the period at the end of paragraph 
     (5) and inserting ``, and'', and by adding at the end by the 
     following new paragraph:
       ``(6) which ensure that non-metropolitan counties receive a 
     proportional allocation of qualified equity investments.''.

     SEC. 105. ELECTION TO DEDUCT STATE AND LOCAL GENERAL SALES 
                   TAXES.

       (a) In General.--Section 164(b)(5)(I) is amended by 
     striking ``2006'' and inserting ``2008''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 106. EXTENSION AND INCREASE IN MINIMUM TAX RELIEF TO 
                   INDIVIDUALS.

       (a) In General.--Section 55(d)(1) is amended--
       (1) by striking ``$58,000'' and all that follows through 
     ``2005'' in subparagraph (A) and inserting ``$62,550 in the 
     case of taxable years beginning in 2006'', and
       (2) by striking ``$40,250'' and all that follows through 
     ``2005'' in subparagraph (B) and inserting ``$42,500 in the 
     case of taxable years beginning in 2006''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 107. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST 
                   REGULAR AND ALTERNATIVE MINIMUM TAX LIABILITY.

       (a) In General.--Paragraph (2) of section 26(a) is 
     amended--
       (1) by striking ``2005'' in the heading thereof and 
     inserting ``2007'', and
       (2) by striking ``or 2005'' and inserting ``2005, 2006, or 
     2007''.
       (b) Conforming Provisions.--
       (1) Section 30B(g) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rule for 2006 and 2007.--For purposes of any 
     taxable year beginning during 2006 or 2007, the credit 
     allowed under subsection (a) (after the application of 
     paragraph (1)) shall not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under subpart A and 
     this subpart (other than this section and section 30C).''.
       (2) Section 30C(d) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rule for 2006 and 2007.--For purposes of any 
     taxable year beginning during 2006 or 2007, the credit 
     allowed under subsection (a) (after the application of 
     paragraph (1)) shall not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under subpart A and 
     this subpart (other than this section).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 108. EXTENSION AND MODIFICATION OF RESEARCH CREDIT.

       (a) Extension.--
       (1) In general.--Section 41(h)(1)(B) is amended by striking 
     ``2005'' and inserting ``2007''.
       (2) Conforming amendment.--Section 45C(b)(1)(D) is amended 
     by striking ``2005'' and inserting ``2007''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2005.
       (b) Increase in Rates of Alternative Incremental Credit.--
     Subparagraph (A) of section 41(c)(4) (relating to election of 
     alternative incremental credit) is amended--
       (1) by striking ``2.65 percent'' and inserting ``3 
     percent'',
       (2) by striking ``3.2 percent'' and inserting ``4 
     percent'', and
       (3) by striking ``3.75 percent'' and inserting ``5 
     percent''.
       (c) Alternative Simplified Credit for Qualified Research 
     Expenses.--
       (1) In general.--Subsection (c) of section 41 (relating to 
     base amount) is amended by redesignating paragraphs (5) and 
     (6) as paragraphs (6) and (7), respectively, and by inserting 
     after paragraph (4) the following new paragraph:
       ``(5) Election of alternative simplified credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     12 percent of so much of the qualified research expenses for 
     the taxable year as exceeds 50 percent of the average 
     qualified research expenses for the 3 taxable years preceding 
     the taxable year for which the credit is being determined.
       ``(B) Special rule in case of no qualified research 
     expenses in any of 3 preceding taxable years.--
       ``(i) Taxpayers to which subparagraph applies.--The credit 
     under this paragraph shall be determined under this 
     subparagraph if the taxpayer has no qualified research 
     expenses in any 1 of the 3 taxable years preceding the 
     taxable year for which the credit is being determined.
       ``(ii) Credit rate.--The credit determined under this 
     subparagraph shall be equal to 6 percent of the qualified 
     research expenses for the taxable year.
       ``(C) Election.--An election under this paragraph shall 
     apply to the taxable year for which made and all succeeding 
     taxable years unless revoked with the consent of the 
     Secretary. An election under this paragraph may not be made 
     for any taxable year to which an election under paragraph (4) 
     applies.''.
       (2) Coordination with election of alternative incremental 
     credit.--
       (A) In general.--Section 41(c)(4)(B) (relating to election) 
     is amended by adding at the end the following: ``An election 
     under this paragraph may not be made for any taxable year to 
     which an election under paragraph (5) applies.''.
       (B) Transition rule.--In the case of an election under 
     section 41(c)(4) of the Internal Revenue Code of 1986 which 
     applies to the taxable year which includes the date of the 
     enactment of this Act, such election shall be treated as 
     revoked with the consent of the Secretary of the Treasury if 
     the taxpayer makes an election under section 41(c)(5) of such 
     Code (as added by subsection (a)) for such year.
       (d) Expansion of Credit to Expenses of General 
     Collaborative Research Consortia.--Section 41 is amended--
       (1) by striking ``an energy research consortium'' in 
     subsections (a)(3) and (b)(3)(C)(i) and inserting ``a 
     research consortium'',

[[Page S611]]

       (2) by striking ``energy'' each place it appears in 
     subsection (f)(6)(A),
       (3) by inserting ``or 501(c)(6)'' after ``section 
     501(c)(3)'' in subsection (f)(6)(A)(i)(I), and
       (4) by striking ``Energy research'' in the heading for 
     subsection (f)(6) and inserting ``Research''.
       (e) Effective Date.--Except as provided in subsection 
     (a)(3), the amendments made by this section shall apply to 
     taxable years ending after December 31, 2005.

     SEC. 109. WORK OPPORTUNITY TAX CREDIT AND WELFARE-TO-WORK 
                   CREDIT.

       (a) In General.--Section 51(c)(4)(B) is amended by striking 
     ``2005'' and inserting ``2007''.
       (b) Eligibility of Ex-Felons Determined Without Regard to 
     Family Income.--Paragraph (4) of section 51(d) is amended by 
     adding ``and'' at the end of subparagraph (A), by striking 
     ``, and'' at the end of subparagraph (B) and inserting a 
     period, and by striking all that follows subparagraph (B).
       (c) Increase in Maximum Age for Eligibility of Food Stamp 
     Recipients.--Clause (i) of section 51(d)(8)(A) is amended by 
     striking ``25'' and inserting ``40''.
       (d) Increase in Maximum Age for Designated Community 
     Residents.--
       (1) In general.--Paragraph (5) of section 51(d) is amended 
     to read as follows:
       ``(5) Designated community residents.--
       ``(A) In general.--The term `designated community resident' 
     means any individual who is certified by the designated local 
     agency--
       ``(i) as having attained age 18 but not age 40 on the 
     hiring date, and
       ``(ii) as having his principal place of abode within an 
     empowerment zone, enterprise community, or renewal community.
       ``(B) Individual must continue to reside in zone or 
     community.--In the case of a designated community resident, 
     the term `qualified wages' shall not include wages paid or 
     incurred for services performed while the individual's 
     principal place of abode is outside an empowerment zone, 
     enterprise community, or renewal community.''
       (2) Conforming amendment.--Subparagraph (D) of section 
     51(d)(1) is amended to read as follows:
       ``(D) a designated community resident,''.
       (e) Consolidation of Work Opportunity Credit With Welfare-
     To-Work Credit.--
       (1) In general.--Paragraph (1) of section 51(d) is amended 
     by striking ``or'' at the end of subparagraph (G), by 
     striking the period at the end of subparagraph (H) and 
     inserting ``, or'', and by adding at the end the following 
     new subparagraph:
       ``(I) a long-term family assistance recipient.''
       (2) Long-term family assistance recipient.--Subsection (d) 
     of section 51 is amended by redesignating paragraphs (10) 
     through (12) as paragraphs (11) through (13), respectively, 
     and by inserting after paragraph (9) the following new 
     paragraph:
       ``(10) Long-term family assistance recipient.--The term 
     `long-term family assistance recipient' means any individual 
     who is certified by the designated local agency--
       ``(A) as being a member of a family receiving assistance 
     under a IV-A program (as defined in paragraph (2)(B)) for at 
     least the 18-month period ending on the hiring date,
       ``(B)(i) as being a member of a family receiving such 
     assistance for 18 months beginning after August 5, 1997, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the end of the earliest such 18-month period, or
       ``(C)(i) as being a member of a family which ceased to be 
     eligible for such assistance by reason of any limitation 
     imposed by Federal or State law on the maximum period such 
     assistance is payable to a family, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the date of such cessation.''
       (3) Increased credit for employment of long-term family 
     assistance recipients.--Section 51 is amended by inserting 
     after subsection (d) the following new subsection:
       ``(e) Credit for Second-Year Wages for Employment of Long-
     Term Family Assistance Recipients.--
       ``(1) In general.--With respect to the employment of a 
     long-term family assistance recipient--
       ``(A) the amount of the work opportunity credit determined 
     under this section for the taxable year shall include 50 
     percent of the qualified second-year wages for such year, and
       ``(B) in lieu of applying subsection (b)(3), the amount of 
     the qualified first-year wages, and the amount of qualified 
     second-year wages, which may be taken into account with 
     respect to such a recipient shall not exceed $10,000 per 
     year.
       ``(2) Qualified second-year wages.--For purposes of this 
     subsection, the term `qualified second-year wages' means 
     qualified wages--
       ``(A) which are paid to a long-term family assistance 
     recipient, and
       ``(B) which are attributable to service rendered during the 
     1-year period beginning on the day after the last day of the 
     1-year period with respect to such recipient determined under 
     subsection (b)(2).
       ``(3) Special rules for agricultural and railway labor.--If 
     such recipient is an employee to whom subparagraph (A) or (B) 
     of subsection (h)(1) applies, rules similar to the rules of 
     such subparagraphs shall apply except that--
       ``(A) such subparagraph (A) shall be applied by 
     substituting `$10,000' for `$6,000', and
       ``(B) such subparagraph (B) shall be applied by 
     substituting `$833.33' for `$500'.''
       (4) Repeal of separate welfare-to-work credit.--
       (A) In general.--Section 51A is hereby repealed.
       (B) Clerical amendment.--The table of sections for subpart 
     F of part IV of subchapter A of chapter 1 is amended by 
     striking the item relating to section 51A.
       (f) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 2005.

     SEC. 110. QUALIFIED ZONE ACADEMY BONDS.

       (a) In General.--Paragraph (1) of section 1397E(e) is 
     amended by striking ``and 2005'' and inserting ``2005, 2006, 
     and 2007''.
       (b) Form of Private Business Contributions.--Section 
     1397E(d)(2)(B) is amended by striking ``any contribution'' 
     and all that follows and inserting ``any cash or cash 
     equivalent contribution''.
       (c) Special Rules Relating to Amortization, Expenditures, 
     Arbitrage, and Reporting.--
       (1) In general.--Section 1397E is amended--
       (A) in subsection (d)(1), by striking ``and'' at the end of 
     subparagraph (C)(iii), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) the issue meets the requirements of subsections (f), 
     (g), (h), and (i).'', and
       (B) by redesignating subsections (f), (g), (h), and (i) as 
     subsection (j), (k), (l), and (m), respectively, and by 
     inserting after subsection (e) the following new subsections:
       ``(f) Ratable Principal Amortization Required.--An issue 
     shall be treated as meeting the requirements of this 
     subsection if such issue provides for an equal amount of 
     principal to be paid by the issuer during each calendar year 
     that the issue is outstanding.
       ``(g) Special Rules Relating to Expenditures.--
       ``(1) In general.--An issue shall be treated as meeting the 
     requirements of this subsection if, as of the date of 
     issuance, the issuer reasonably expects--
       ``(A) at least 95 percent of the proceeds from the sale of 
     the issue are to be spent for 1 or more qualified purposes 
     with respect to qualified zone academies within the 5-year 
     period beginning on the date of issuance of the qualified 
     zone academy bond,
       ``(B) a binding commitment with a third party to spend at 
     least 10 percent of the proceeds from the sale of the issue 
     will be incurred within the 6-month period beginning on the 
     date of issuance of the qualified zone academy bond, and
       ``(C) such purposes will be completed with due diligence 
     and the proceeds from the sale of the issue will be spent 
     with due diligence.
       ``(2) Extension of period.--Upon submission of a request 
     prior to the expiration of the period described in paragraph 
     (1)(A), the Secretary may extend such period if the issuer 
     establishes that the failure to satisfy the 5-year 
     requirement is due to reasonable cause and the related 
     purposes will continue to proceed with due diligence.
       ``(3) Failure to spend required amount of bond proceeds 
     within 5 years.--To the extent that less than 95 percent of 
     the proceeds of such issue are expended by the close of the 
     5-year period beginning on the date of issuance (or if an 
     extension has been obtained under paragraph (2), by the close 
     of the extended period), the issuer shall redeem all of the 
     nonqualified bonds within 90 days after the end of such 
     period. For purposes of this paragraph, the amount of the 
     nonqualified bonds required to be redeemed shall be 
     determined in the same manner as under section 142.
       ``(h) Special Rules Relating to Arbitrage.--An issue shall 
     be treated as meeting the requirements of this subsection if 
     the issuer satisfies the arbitrage requirements of section 
     148 with respect to proceeds of the issue.
       ``(i) Reporting.--Issuers of qualified academy zone bonds 
     shall submit reports similar to the reports required under 
     section 149(e).''.
       (2) Conforming amendments.--
       (A) Section 1397E(d)(3) is amended by inserting ``without 
     regard to the requirements of subsection (f) and'' after 
     ``Such present value shall be determined''.
       (B) Sections 54(l)(3)(B) and 1400N(l)(7)(B)(ii) are each 
     amended by striking ``section 1397E(i)'' and inserting 
     ``section 1397E(l)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after December 31, 2005.

     SEC. 111. DEDUCTION FOR CORPORATE DONATIONS OF COMPUTER 
                   TECHNOLOGY AND EQUIPMENT.

       (a) In General.--Section 170(e)(6)(G) is amended by 
     striking ``2005'' and inserting ``2007''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 112. ABOVE-THE-LINE DEDUCTION FOR CERTAIN EXPENSES OF 
                   ELEMENTARY AND SECONDARY SCHOOL TEACHERS.

       (a) In General.--Subparagraph (D) of section 62(a)(2) is 
     amended by striking ``or 2005'' and inserting ``2005, 2006, 
     or 2007''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 113. EXPENSING OF BROWNFIELDS REMEDIATION COSTS.

       (a) Extension.--Subsection (h) of section 198 is amended by 
     striking ``2005'' and inserting ``2007''.

[[Page S612]]

       (b) Expansion.--Section 198(d)(1) (defining hazardous 
     substance) is amended by striking ``and'' at the end of 
     subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any petroleum product (as defined in section 
     4612(a)(3)).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenditures paid or incurred after December 
     31, 2005.

     SEC. 114. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF 
                   COLUMBIA.

       (a) Designation of Zone.--
       (1) In general.--Subsection (f) of section 1400 is amended 
     by striking ``2005'' both places it appears and inserting 
     ``2006''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to periods beginning after December 31, 2005.
       (b) Tax-Exempt Economic Development Bonds.--
       (1) In general.--Subsection (b) of section 1400A is amended 
     by striking ``2005'' and inserting ``2006''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to bonds issued after December 31, 2005.
       (c) Zero Percent Capital Gains Rate.--
       (1) In general.--Subsection (b) of section 1400B is amended 
     by striking ``2006'' each place it appears and inserting 
     ``2007''.
       (2) Conforming amendments.--
       (A) Section 1400B(e)(2) is amended--
       (i) by striking ``2010'' and inserting ``2011'', and
       (ii) by striking ``2010'' in the heading thereof and 
     inserting ``2011''.
       (B) Section 1400B(g)(2) is amended by striking ``2010'' and 
     inserting ``2011''.
       (C) Section 1400F(d) is amended by striking ``2010'' and 
     inserting ``2011''.
       (3) Effective dates.--
       (A) Extension.--The amendments made by paragraph (1) shall 
     apply to acquisitions after December 31, 2005.
       (B) Conforming amendments.--The amendments made by 
     paragraph (2) shall take effect on the date of the enactment 
     of this Act.
       (d) First-Time Homebuyer Credit.--
       (1) In general.--Subsection (i) of section 1400C is amended 
     by striking ``2006'' and inserting ``2007''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to property purchased after December 31, 2005.

     SEC. 115. INDIAN EMPLOYMENT TAX CREDIT.

       (a) In General.--Section 45A(f) is amended by striking 
     ``2005'' and inserting ``2007''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 116. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON 
                   INDIAN RESERVATION.

       (a) In General.--Section 168(j)(8) is amended by striking 
     ``2005'' and inserting ``2007''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to property placed in service after December 31, 
     2005.

     SEC. 117. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY FOR 
                   QUALIFIED LEASEHOLD IMPROVEMENTS AND QUALIFIED 
                   RESTAURANT IMPROVEMENTS.

       (a) In General.--Clauses (iv) and (v) of section 
     168(e)(3)(E) are each amended by striking ``2006'' and 
     inserting ``2008''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after December 31, 
     2005.

     SEC. 118. EXTENSION OF FULL CREDIT FOR QUALIFIED ELECTRIC 
                   VEHICLES.

       (a) In General.--Section 30(e) is amended by striking 
     ``2006'' and inserting ``2007''.
       (b) Repeal of Phaseout.--Section 30(b) (relating to 
     limitations) is amended by striking paragraph (2) and by 
     redesignating paragraph (3) as paragraph (2).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 119. 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--PROVISIONS RELATING TO CHARITABLE DONATIONS

                Subtitle A--Charitable Giving Incentives

     SEC. 201. CHARITABLE DEDUCTION FOR NONITEMIZERS.

       (a) In General.--Section 170 (relating to charitable, etc., 
     contributions and gifts) is amended by redesignating 
     subsection (o) as subsection (p) and by inserting after 
     subsection (n) the following new subsection:
       ``(o) Deduction for Individuals Not Itemizing Deductions.--
     In the case of an individual who does not itemize deductions 
     for any taxable year beginning after December 31, 2005, and 
     before January 1, 2008, there shall be taken into account as 
     a direct charitable deduction under section 63 an amount 
     equal to the amount allowable under subsection (a) for the 
     taxable year for cash contributions (determined without 
     regard to any carryover).''.
       (b) Direct Charitable Deduction.--
       (1) In general.--Subsection (b) of section 63 (defining 
     taxable income) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) the direct charitable deduction.''.
       (2) Definition.--Section 63 is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Direct Charitable Deduction.--For purposes of this 
     section, the term `direct charitable deduction' means that 
     portion of the amount allowable under section 170(a) which is 
     taken as a direct charitable deduction for the taxable year 
     under section 170(o).''.
       (3) Conforming amendment.--Subsection (d) of section 63 is 
     amended by striking ``and'' at the end of paragraph (1), by 
     striking the period at the end of paragraph (2) and inserting 
     ``, and'', and by adding at the end the following new 
     paragraph:
       ``(3) the direct charitable deduction.''.
       (c) Floor on Charitable Contributions by Individuals.--
     Section 170(a) is amended by adding at the end the following 
     new paragraph:
       ``(4) Dollar floor on charitable contributions by 
     individuals.--In the case of an individual, for any taxable 
     year beginning after December 31, 2005, and before January 1, 
     2008, the amount otherwise allowed as a deduction under 
     paragraph (1) shall be allowed only to the extent that such 
     amount exceeds $210 ($420 in the case of a joint return).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 202. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT 
                   PLANS FOR CHARITABLE PURPOSES.

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

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

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

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

     A distribution shall be treated as a qualified charitable 
     distribution only to the extent that the distribution would 
     be includible in gross income without regard to subparagraph 
     (A) and, in the case of a distribution to a split-interest 
     entity, only if no person holds an income interest in the 
     amounts in the split-interest entity attributable to such 
     distribution other than one or more of the following: the 
     individual for whose benefit such plan is maintained, the 
     spouse of such individual, or any organization described in 
     section 170(c).
       ``(C) Contributions must be otherwise deductible.--For 
     purposes of this paragraph--
       ``(i) Direct contributions.--A distribution to an 
     organization described in section 170(c) shall be treated as 
     a qualified charitable distribution only if a deduction for 
     the entire distribution would be allowable under section 170 
     (determined without regard to subsections (a)(4) and (b) 
     thereof and this paragraph).
       ``(ii) Split-interest gifts.--A distribution to a split-
     interest entity shall be treated as a qualified charitable 
     distribution only if a deduction for the entire value of the 
     interest in the distribution for the use of an organization 
     described in section 170(c) would be allowable under section 
     170 (determined without regard to subsections (a)(4) and (b) 
     thereof and this paragraph).
       ``(D) Application of section 72.--Notwithstanding section 
     72, in determining the extent to which a distribution is a 
     qualified charitable distribution, the entire amount of the 
     distribution shall be treated as includible in gross income 
     without regard to subparagraph (A) to the extent that such 
     amount does not exceed the aggregate amount which would have 
     been so includible if all amounts distributed from all 
     individual retirement plans were treated as 1 contract under 
     paragraph (2)(A) for purposes of determining the inclusion of 
     such distribution under section 72. Proper adjustments shall 
     be made in applying section 72 to other distributions in such 
     taxable year and subsequent taxable years.
       ``(E) Special rules for split-interest entities.--
       ``(i) Charitable remainder trusts.--Notwithstanding section 
     664(b), distributions made from a trust described in 
     subparagraph (G)(i) shall be treated as ordinary income in 
     the hands of the beneficiary to whom is paid the annuity 
     described in section 664(d)(1)(A) or the payment described in 
     section 664(d)(2)(A).
       ``(ii) Pooled income funds.--No amount shall be includible 
     in the gross income of a pooled income fund (as defined in 
     subparagraph (G)(ii)) by reason of a qualified charitable 
     distribution to such fund, and all distributions from the 
     fund which are attributable to qualified charitable 
     distributions shall be treated as ordinary income to the 
     beneficiary.

[[Page S613]]

       ``(iii) Charitable gift annuities.--Qualified charitable 
     distributions made for a charitable gift annuity shall not be 
     treated as an investment in the contract.
       ``(F) Denial of deduction.--Qualified charitable 
     distributions shall not be taken into account in determining 
     the deduction under section 170.
       ``(G) Split-interest entity defined.--For purposes of this 
     paragraph, the term `split-interest entity' means--
       ``(i) a charitable remainder annuity trust or a charitable 
     remainder unitrust (as such terms are defined in section 
     664(d)) which must be funded exclusively by qualified 
     charitable distributions,
       ``(ii) a pooled income fund (as defined in section 
     642(c)(5)), but only if the fund accounts separately for 
     amounts attributable to qualified charitable distributions, 
     and
       ``(iii) a charitable gift annuity (as defined in section 
     501(m)(5)).
       ``(H) Termination.--This paragraph shall not apply to 
     distributions made in taxable years beginning after December 
     31, 2007.''.
       (b) Modifications Relating to Information Returns by 
     Certain Trusts.--
       (1) Returns.--Section 6034 (relating to returns by trusts 
     described in section 4947(a)(2) or claiming charitable 
     deductions under section 642(c)) is amended to read as 
     follows:

     ``SEC. 6034. RETURNS BY CERTAIN TRUSTS.

       ``(a) Split-Interest Trusts.--Every trust described in 
     section 4947(a)(2) shall furnish such information with 
     respect to the taxable year as the Secretary may by forms or 
     regulations require.
       ``(b) Trusts Claiming Certain Charitable Deductions.--
       ``(1) In general.--Every trust not required to file a 
     return under subsection (a) but claiming a deduction under 
     section 642(c) for the taxable year shall furnish such 
     information with respect to such taxable year as the 
     Secretary may by forms or regulations prescribe, including--
       ``(A) the amount of the deduction taken under section 
     642(c) within such year,
       ``(B) the amount paid out within such year which represents 
     amounts for which deductions under section 642(c) have been 
     taken in prior years,
       ``(C) the amount for which such deductions have been taken 
     in prior years but which has not been paid out at the 
     beginning of such year,
       ``(D) the amount paid out of principal in the current and 
     prior years for the purposes described in section 642(c),
       ``(E) the total income of the trust within such year and 
     the expenses attributable thereto, and
       ``(F) a balance sheet showing the assets, liabilities, and 
     net worth of the trust as of the beginning of such year.
       ``(2) Exceptions.--Paragraph (1) shall not apply to a trust 
     for any taxable year if--
       ``(A) all the net income for such year, determined under 
     the applicable principles of the law of trusts, is required 
     to be distributed currently to the beneficiaries, or
       ``(B) the trust is described in section 4947(a)(1).''.
       (2) Increase in penalty relating to filing of information 
     return by split-interest trusts.--Paragraph (2) of section 
     6652(c) (relating to returns by exempt organizations and by 
     certain trusts) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Split-interest trusts.--In the case of a trust which 
     is required to file a return under section 6034(a), 
     subparagraphs (A) and (B) of this paragraph shall not apply 
     and paragraph (1) shall apply in the same manner as if such 
     return were required under section 6033, except that--
       ``(i) the 5 percent limitation in the second sentence of 
     paragraph (1)(A) shall not apply,
       ``(ii) in the case of any trust with gross income in excess 
     of $250,000, the first sentence of paragraph (1)(A) shall be 
     applied by substituting `$100' for `$20', and the second 
     sentence thereof shall be applied by substituting `$50,000' 
     for `$10,000', and
       ``(iii) the third sentence of paragraph (1)(A) shall be 
     disregarded.

     In addition to any penalty imposed on the trust pursuant to 
     this subparagraph, if the person required to file such return 
     knowingly fails to file the return, such penalty shall also 
     be imposed on such person who shall be personally liable for 
     such penalty.''.
       (3) Confidentiality of noncharitable beneficiaries.--
     Subsection (b) of section 6104 (relating to inspection of 
     annual information returns) is amended by adding at the end 
     the following new sentence: ``In the case of a trust which is 
     required to file a return under section 6034(a), this 
     subsection shall not apply to information regarding 
     beneficiaries which are not organizations described in 
     section 170(c).''.
       (c) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to distributions made in taxable years beginning 
     after December 31, 2005.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to returns for taxable years beginning after 
     December 31, 2005.

     SEC. 203. MODIFICATION OF CHARITABLE DEDUCTION FOR 
                   CONTRIBUTIONS OF FOOD INVENTORY.

       (a) In General.--Subparagraph (C) of section 170(e)(3) 
     (relating to special rule for certain contributions of 
     inventory and other property) is amended to read as follows:
       ``(C) Special rule for contributions of food inventory.--
       ``(i) General rule.--In the case of a charitable 
     contribution of food from any trade or business of the 
     taxpayer, this paragraph shall be applied--

       ``(I) without regard to whether the contribution is made by 
     a C corporation, and
       ``(II) only to food that is apparently wholesome food.

       ``(ii) Limitation.--In the case of a taxpayer other than a 
     C corporation, the aggregate amount of such contributions for 
     any taxable year which may be taken into account under this 
     section shall not exceed 10 percent of the taxpayer's 
     aggregate net income for such taxable year from all trades or 
     businesses from which such contributions were made for such 
     year, computed without regard to this section.
       ``(iii) Limitation on reduction.--In the case of any such 
     contribution, notwithstanding subparagraph (B), the amount of 
     the reduction determined under paragraph (1)(A) shall not 
     exceed the amount by which the fair market value of the 
     apparently wholesome food exceeds twice the basis of such 
     food.
       ``(iv) Determination of basis.--If a taxpayer--

       ``(I) does not account for inventories under section 471, 
     and
       ``(II) is not required to capitalize indirect costs under 
     section 263A,

     the taxpayer may elect, solely for purposes of subparagraph 
     (B), to treat the basis of any apparently wholesome food as 
     being equal to 25 percent of the fair market value of such 
     food.
       ``(v) Determination of fair market value.--In the case of 
     any such contribution of apparently wholesome food which, 
     solely by reason of internal standards of the taxpayer or 
     lack of market, cannot or will not be sold, the fair market 
     value of such contribution shall be determined--

       ``(I) without regard to such internal standards or such 
     lack of market and
       ``(II) by taking into account the price at which the same 
     or substantially the same food items (as to both type and 
     quality) are sold by the taxpayer at the time of the 
     contribution (or, if not so sold at such time, in the recent 
     past).

       ``(vi) Apparently wholesome food.--For purposes of this 
     subparagraph, the term `apparently wholesome food' has the 
     meaning given to such term by section 22(b)(2) of the Bill 
     Emerson Good Samaritan Food Donation Act (42 U.S.C. 
     1791(b)(2)), as in effect on the date of the enactment of 
     this subparagraph.
       ``(vii) Termination.--This subparagraph shall not apply to 
     contributions made after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after December 31, 2005.

     SEC. 204. BASIS ADJUSTMENT TO STOCK OF S CORPORATION 
                   CONTRIBUTING PROPERTY.

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

     ``The decrease under subparagraph (B) by reason of a 
     charitable contribution (as defined in section 170(c)) of 
     property shall be the amount equal to the shareholder's pro 
     rata share of the adjusted basis of such property. The 
     preceding sentence shall not apply to contributions made in 
     taxable years beginning after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005.

     SEC. 205. MODIFICATION OF CHARITABLE DEDUCTION FOR 
                   CONTRIBUTIONS OF BOOK INVENTORY.

       (a) In General.--Subparagraph (D) of section 170(e)(3) 
     (relating to special rule for certain contributions of 
     inventory and other property) is amended to read as follows:
       ``(D) Special rule for contributions of book inventory for 
     educational purposes.--
       ``(i) Contributions of book inventory.--In determining 
     whether a qualified book contribution is a qualified 
     contribution, subparagraph (A) shall be applied without 
     regard to whether--

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

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

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

[[Page S614]]

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

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

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

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

       ``(vii) Termination.--This subparagraph shall not apply to 
     contributions made after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after December 31, 2005.

     SEC. 206. MODIFICATION OF TAX TREATMENT OF CERTAIN PAYMENTS 
                   TO CONTROLLING EXEMPT ORGANIZATIONS AND PUBLIC 
                   DISCLOSURE OF INFORMATION RELATING TO UNRELATED 
                   BUSINESS INCOME.

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

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

       (2) Effective date.--
       (A) In general.--The amendment made by this subsection 
     shall apply to payments received or accrued after December 
     31, 2000.
       (B) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 did not apply to any amount received or accrued 
     in the first 2 taxable years beginning on or after the date 
     of the enactment of the Taxpayer Relief Act of 1997 under any 
     contract described in subsection (b)(2) of such section, such 
     amendments also shall not apply to amounts received or 
     accrued under such contract before January 1, 2001.
       (b) Public Availability of Unrelated Business Income Tax 
     Returns.--
       (1) In general.--Subparagraph (A) of section 6104(d)(1) is 
     amended by redesignating clauses (ii) and (iii) as clauses 
     (iii) and (iv), respectively, and by inserting after clause 
     (i) the following new clause:
       ``(ii) any annual return filed under section 6011 which 
     relates to any tax imposed by section 511 (relating to 
     imposition of tax on unrelated business income of charitable, 
     etc., organizations) by such organization, but only if such 
     organization is described in section 501(c)(3),''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to returns filed after the date of the enactment 
     of this Act.
       (c) Certification of Unrelated Business Taxable Income for 
     Certain Organizations.--
       (1) In general.--Section 6011 is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Returns of Certain Organizations Relating to 
     Unrelated Business Taxable Income.--
       ``(1) In general.--Every applicable exempt organization 
     shall include with the return under subsection (a) for the 
     taxable year a statement by an independent auditor or an 
     independent counsel which meets the requirements of paragraph 
     (2).
       ``(2) Statement.--A statement meets the requirement of this 
     paragraph if the statement--
       ``(A) contains a certification that--
       ``(i) the information contained in the return--

       ``(I) has been reviewed by the auditor or counsel, and
       ``(II) to the best of the auditor's or counsel's knowledge, 
     is accurate, and

       ``(ii) to the best of the auditor's or counsel's knowledge, 
     the allocation of expenses between the unrelated trades and 
     business of the organization and the activities related to 
     the purpose or function constituting the basis of the 
     organization's exemption under section 501 complies with the 
     requirements set forth by the Secretary under section 512, 
     and
       ``(B) indicates--
       ``(i) whether the auditor or counsel has provided a tax 
     opinion to the organization regarding--

       ``(I) the classification of any trade or business of the 
     organization as an unrelated trade or business, or
       ``(II) the treatment of any income as unrelated business 
     taxable income, and

       ``(ii) a description of any material facts with respect to 
     any such opinion.
       ``(3) Applicable exempt organization.--For purposes of this 
     subsection, the term `applicable exempt organization' means 
     any organization which--
       ``(A) is described in section 501(c)(3),
       ``(B) has--
       ``(i) gross income and receipts of not less than 
     $10,000,000 for the taxable year, or
       ``(ii) gross assets of not less than $10,000,000 on the 
     last day of the taxable year, and
       ``(C) is subject to the tax imposed under section 511 for 
     the taxable year.''.
       (2) Penalty.--
       (A) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by adding at 
     the end the following new section:

     ``SEC. 6720B. UNRELATED BUSINESS INCOME REQUIREMENTS.

       ``(a) In General.--Any applicable exempt organization (as 
     defined in section 6011(g)(3)) which fails to file a 
     statement required under section 6011(g) shall pay a penalty 
     in an amount equal to \1/2\ percent of the gross revenue 
     amount of such organization for the taxable year to which 
     such statement relates.
       ``(b) Gross Revenue Amount.--For purposes of subsection 
     (a), the term `gross revenue amount' means, with respect to 
     any taxable year, the gross income and receipts of the 
     organization determined without regard to any contributions 
     or grants received by the organization.
       ``(c) Reasonable Cause.--No penalty shall be imposed under 
     this section with respect to any failure if it is shown that 
     such failure is due to reasonable cause.''.
       (B) Conforming amendment.--The table of sections of part I 
     of subchapter B of chapter 68 is amended by adding after the 
     item relating to section 6720A the following new item:

``Sec. 6720B. Unrelated business income requirements.''.

       (3) Effective date.--The amendments made by this subsection 
     shall apply to returns for taxable years beginning after the 
     date of the enactment of this Act.

     SEC. 207. ENCOURAGEMENT OF CONTRIBUTIONS OF CAPITAL GAIN REAL 
                   PROPERTY MADE FOR CONSERVATION PURPOSES.

       (a) In General.--
       (1) Individuals.--Paragraph (1) of subsection 170(b) 
     (relating to percentage limitations) is amended by 
     redesignating subparagraphs (E) and (F) as subparagraphs (F) 
     and (G), respectively, and by inserting after subparagraph 
     (D) the following new subparagraph:
       ``(E) Contributions of qualified conservation 
     contributions.--
       ``(i) In general.--Any qualified conservation contribution 
     (as defined in subsection (h)(1)) to an organization 
     described in subparagraph (A) shall be allowed to the extent 
     the aggregate of such contributions does not exceed the 
     excess of 50 percent of the taxpayer's contribution base over 
     the amount of all other charitable contributions allowable 
     under this paragraph.
       ``(ii) Carryover.--If the aggregate amount of contributions 
     described in clause (i) exceeds the limitation of clause (i), 
     such excess shall be treated (in a manner consistent with the 
     rules of subsection (d)(1)) as a charitable contribution to 
     which clause (i) applies in each of the 15 succeeding years 
     in order of time.
       ``(iii) Coordination with other subparagraphs.--For 
     purposes of applying this subsection and subsection (d)(1), 
     contributions described in clause (i) shall not be treated as 
     described in subparagraph (A), (B), (C), or (D) and such 
     subparagraphs shall apply without regard to such 
     contributions.
       ``(iv) Qualified farmer or rancher.--

       ``(I) In general.--If the individual is a qualified farmer 
     or rancher for the taxable year in which the contribution is 
     made, clause (i) shall be applied by substituting `100 
     percent' for `50 percent'.
       ``(II) Definition.--For purposes of subclause (I), the term 
     `qualified farmer or rancher' means a taxpayer whose gross 
     income from the trade or business of farming (within the 
     meaning of section 2032A(e)(5)) is greater than 50 percent of 
     the taxpayer's gross income for the taxable year.

       ``(v) Termination.--This subparagraph shall not apply to 
     any contribution made in taxable years beginning after 
     December 31, 2007.''.
       (2) Corporations.--Paragraph (2) of section 170(b) is 
     amended to read as follows:
       ``(2) Corporations.--In the case of a corporation--
       ``(A) In general.--The total deductions under subsection 
     (a) for any taxable year (other than for contributions to 
     which subparagraph (B) applies) shall not exceed 10 percent 
     of the taxpayer's taxable income.
       ``(B) Qualified conservation contributions by certain 
     corporate farmers and ranchers.--
       ``(i) In general.--Any qualified conservation contribution 
     (as defined in subsection (h)(1)) made--

       ``(I) by a corporation which, for the taxable year during 
     which the contribution is made,

[[Page S615]]

     is a qualified farmer or rancher (as defined in paragraph 
     (1)(E)(iv)(II)) and the stock of which is not readily 
     tradable on an established securities market at any time 
     during such year, and
       ``(II) to an organization described in paragraph (1)(A),

     shall be allowed to the extent the aggregate of such 
     contributions does not exceed the excess of the taxpayer's 
     taxable income over the amount of charitable contributions 
     allowable under subparagraph (A).
       ``(ii) Carryover.--If the aggregate amount of contributions 
     described in clause (i) exceeds the limitation of clause (i), 
     such excess shall be treated (in a manner consistent with the 
     rules of subsection (d)(2)) as a charitable contribution to 
     which clause (i) applies in each of the 15 succeeding years 
     in order of time.
       ``(iii) Termination.--This subparagraph shall not apply to 
     any contribution made in taxable years beginning after 
     December 31, 2007.
       ``(C) Taxable income.--For purposes of this paragraph, 
     taxable income shall be computed without regard to--
       ``(i) this section,
       ``(ii) part VIII (except section 248),
       ``(iii) any net operating loss carrryback to the taxable 
     year under section 172,
       ``(iv) section 199, and
       ``(v) any capital loss carryback to the taxable year under 
     section 1212(a)(1).''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 170(d) is amended by striking 
     ``subsection (b)(2)'' each place it appears and inserting 
     ``subsection (b)(2)(A)''.
       (2) Section 545(b)(2) is amended by striking ``and (D)'' 
     and inserting ``(D), and (E)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005.

     SEC. 208. ENHANCED DEDUCTION FOR CHARITABLE CONTRIBUTION OF 
                   LITERARY, MUSICAL, ARTISTIC, AND SCHOLARLY 
                   COMPOSITIONS.

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

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

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

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

       ``(C) Maximum dollar limitation; no carryover of increased 
     deduction.--
       ``(i) In general.--Subsections (b) and (d) shall not apply 
     to the amount by which any charitable contribution is 
     increased by reason of this paragraph and such increased 
     contribution shall not be taken into account for purposes of 
     applying subparagraphs (A) through (D) of subsection (b)(1) 
     and subsection (d).
       ``(ii) Contribution base limitation.--The increased 
     contributions shall be allowed to the extent the aggregate of 
     such contributions do not exceed the excess of 50 percent of 
     the contribution base (as defined in subparagraph (F) of 
     subsection (b)(1)) over the amount of all other charitable 
     contributions allowable under subparagraphs (A) through (D) 
     of subsection (b)(1).
       ``(iii) Artistic adjusted gross income.--The aggregate 
     increase in the charitable contributions by reason of this 
     paragraph for any taxable year shall not exceed the artistic 
     adjusted gross income of the taxpayer for such taxable year.
       ``(D) Artistic adjusted gross income.--For purposes of this 
     paragraph, the term `artistic adjusted gross income' means 
     that portion of the adjusted gross income of the taxpayer for 
     the taxable year attributable to--
       ``(i) income from the sale or use of property created by 
     the personal efforts of the taxpayer which is of the same 
     type as the donated property, and
       ``(ii) income from teaching, lecturing, performing, or 
     similar activity with respect to property described in clause 
     (i).
       ``(E) Paragraph not to apply to certain contributions.--
     Subparagraph (A) shall not apply to any charitable 
     contribution of any letter, memorandum, or similar property 
     which was written, prepared, or produced by or for an 
     individual while the individual is an officer or employee of 
     any person (including any government agency or 
     instrumentality) unless such letter, memorandum, or similar 
     property is entirely personal.
       ``(F) Copyright treated as separate property for partial 
     interest rule.--In the case of a qualified artistic 
     charitable contribution, the tangible literary, musical, 
     artistic, or scholarly composition, or similar property and 
     the copyright on such work shall be treated as separate 
     properties for purposes of this paragraph and subsection 
     (f)(3).
       ``(G) Termination.--This paragraph shall not apply to 
     contributions made after December 31, 2007.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after December 31, 2005.

     SEC. 209. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS 
                   EXCLUDED FROM GROSS INCOME.

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

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

       ``(a) In General.--Gross income of an individual does not 
     include amounts received, from an organization described in 
     section 170(c), as reimbursement of operating expenses with 
     respect to use of a passenger automobile for the benefit of 
     such organization. The preceding sentence shall apply only to 
     the extent that the expenses which are reimbursed would be 
     deductible under this chapter if section 274(d) were 
     applied--
       ``(1) by using the standard business mileage rate 
     established under such section, and
       ``(2) as if the individual were an employee of an 
     organization not described in section 170(c).
       ``(b) Application to Volunteer Services Only.--Subsection 
     (a) shall not apply with respect to any expenses relating to 
     the performance of services for compensation.
       ``(c) No Double Benefit.--A taxpayer may not claim a 
     deduction or credit under any other provision of this title 
     with respect to the expenses under subsection (a).
       ``(d) Exemption From Reporting Requirements.--Section 6041 
     shall not apply with respect to reimbursements excluded from 
     income under subsection (a).
       ``(e) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 2007.''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 139A the following new item:

``Sec. 139B. Mileage reimbursements to charitable volunteers.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 210. ALTERNATIVE PERCENTAGE LIMITATION FOR CORPORATE 
                   CHARITABLE CONTRIBUTIONS TO THE MATHEMATICS AND 
                   SCIENCE PARTNERSHIP PROGRAM.

       (a) In General.--Section 170(b) (related to percentage 
     limitations) is amended by adding at the end the following 
     new paragraph:
       ``(3) Special rule for corporate contributions to the 
     mathematics and science partnership program.--
       ``(A) In general.--In the case of a corporation which makes 
     an eligible mathematics and science contribution--
       ``(i) the limitation under paragraph (2) shall apply 
     separately with respect to all such contributions and all 
     other charitable contributions, and
       ``(ii) paragraph (2)(A) shall be applied by substituting 
     for `10 percent of the taxpayer's taxable income' the 
     following: `the sum of (i) the lesser of all eligible 
     mathematics and science contributions or 15 percent of the 
     taxpayer's taxable income, plus (ii) the lesser of the 
     contributions (other than eligible mathematics and science 
     contributions and contributions to which subparagraph (B) 
     applies) or 10 percent of the taxpayer's taxable income 
     reduced by all eligible mathematics and science 
     contributions'.
       ``(B) Eligible mathematics and science contribution.--
       ``(i) In general.--For purposes of this paragraph, the term 
     `eligible mathematics and science contribution' means a 
     charitable contribution (other than a contribution of used 
     equipment) to a qualified partnership for the purpose of an 
     activity described in section 2202(c) of the Elementary and 
     Secondary Education Act of 1965.

[[Page S616]]

       ``(ii) Qualified partnership.--The term `qualified 
     partnership' means an eligible partnership (within the 
     meaning of section 2201(b)(1) of the Elementary and Secondary 
     Education Act of 1965), but only to the extent that such 
     partnership does not include a person other than a person 
     described in paragraph (1)(A).
       ``(C) Termination.--This paragraph shall not apply to any 
     contributions made in taxable years beginning after December 
     31, 2006.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2005.

             Subtitle B--Reforming Charitable Organizations

                        PART I--GENERAL REFORMS

     SEC. 211. TAX INVOLVEMENT BY EXEMPT ORGANIZATIONS IN TAX 
                   SHELTER TRANSACTIONS.

       (a) Imposition of Excise Tax.--
       (1) In general.--Chapter 42 (relating to private 
     foundations and certain other tax-exempt organizations) is 
     amended by adding at the end the following new subchapter:

                ``Subchapter F--Tax Shelter Transactions

``Sec. 4965. Excise tax on certain tax-exempt entities entering into 
              prohibited tax shelter transactions

     ``SEC. 4965. EXCISE TAX ON CERTAIN TAX-EXEMPT ENTITIES 
                   ENTERING INTO PROHIBITED TAX SHELTER 
                   TRANSACTIONS.

       ``(a) Participation in and Approval of Prohibited 
     Transactions.--
       ``(1) Tax-exempt entity.--
       ``(A) In general.--If any tax-exempt entity (other than a 
     tax-exempt entity described in paragraph (4), (5), (6), or 
     (7) of subsection (c)) is a party to a prohibited tax shelter 
     transaction at any time during the taxable year and knows or 
     has reason to know such transaction is a prohibited tax 
     shelter transaction, such entity shall pay a tax for such 
     taxable year in the amount determined under subsection 
     (b)(1)(A).
       ``(B) Post-transaction determination.--If any tax-exempt 
     entity (other than a tax-exempt entity described in paragraph 
     (4), (5), (6), or (7) of subsection (c)) is a party to a 
     subsequently listed transaction at any time during the 
     taxable year, such entity shall pay a tax in the amount 
     determined under subsection (b)(1)(B).
       ``(2) Entity manager.--If any entity manager of a tax-
     exempt entity approves such entity as (or otherwise causes 
     such entity to be) a party to a prohibited tax shelter 
     transaction at any time during the taxable year and knows or 
     has reason to know that the transaction is a prohibited tax 
     shelter transaction, such manager shall pay a tax for such 
     taxable year in the amount determined under subsection 
     (b)(2).
       ``(3) Reasonable cause exception.--No tax shall be imposed 
     under paragraph (1)(A) or (2) if it is shown that the 
     participation of the tax-exempt entity in the transaction was 
     not willful and was due to reasonable cause.
       ``(b) Amount of Tax.--
       ``(1) Entity.--In the case of a tax-exempt entity--
       ``(A) In general.--The amount of the tax imposed under 
     subsection (a)(1)(A) on the entity with respect to a taxable 
     year shall be the greater of--
       ``(i) 100 percent of the entity's net income (after taking 
     into account any tax imposed by this subtitle with respect to 
     the prohibited tax shelter transaction) for such taxable year 
     which is attributable to the prohibited tax shelter 
     transaction, or
       ``(ii) 75 percent of the proceeds received by the entity 
     which are attributable to the prohibited tax shelter 
     transaction.
       ``(B) Post-transaction determination.--The amount of the 
     tax imposed under subsection (a)(1)(B) on the entity with 
     respect to any taxable year shall be an amount equal to the 
     product of--
       ``(i) the highest rate of tax under section 11, and
       ``(ii) the greater of--

       ``(I) the entity's net income (after taking into account 
     any tax imposed by this subtitle with respect to the 
     subsequently listed transaction) for such taxable year which 
     is attributable to the subsequently listed transaction and 
     which is properly allocable to the period beginning on the 
     later of the date such transaction is identified by guidance 
     as a listed transaction by the Secretary or the first day of 
     the taxable year, or
       ``(II) 75 percent of the proceeds received by the entity 
     which are attributable to the subsequently listed transaction 
     and which are properly allocable to the period beginning on 
     the later of the date such transaction is identified by 
     guidance as a listed transaction by the Secretary or the 
     first day of the taxable year.

       ``(2) Entity manager.--In the case of each entity manager 
     to whom subsection (a)(2) applies, the amount of the tax 
     under such subsection shall be $20,000 for each approval.
       ``(c) Tax-Exempt Entity.--For purposes of this section, the 
     term `tax-exempt entity' means an entity which is--
       ``(1) described in section 501(c) or 501(d),
       ``(2) described in section 170(c) (other than an agency or 
     instrumentality of the United States) to which paragraph (1) 
     of this subsection does not apply,
       ``(3) an Indian tribal government (within the meaning of 
     section 7701(a)(40)),
       ``(4) described in paragraph (1), (2), or (3) of section 
     4979(e),
       ``(5) a program described in section 529,
       ``(6) an eligible deferred compensation plan described in 
     section 457(b) which is maintained by an employer described 
     in section 4457(e)(1)(A), or
       ``(7) an arrangement described in section 4973(a).
       ``(d) Entity Manager.--For purposes of this section, the 
     term `entity manager' means--
       ``(1) with respect to a tax-exempt entity described in 
     paragraph (3) or (4) of section 501(c)--
       ``(A) in the case of an entity other than a private 
     foundation, an organization manager (as defined in section 
     4958(f)(2)), and
       ``(B) in the case of a private foundation, a foundation 
     manager (as defined in section 4946(b)), and
       ``(2) in all other cases, the person with authority or 
     responsibility similar to that exercised by an officer, 
     director, or trustee of an organization.
       ``(e) Prohibited Tax Shelter Transaction; Subsequently 
     Listed Transaction.--For purposes of this section--
       ``(1) Prohibited tax shelter transaction.--
       ``(A) In general.--The term `prohibited tax shelter 
     transaction' means--
       ``(i) any listed transaction, or
       ``(ii) any prohibited reportable transaction if the tax-
     exempt entity knows or has reason to know that such 
     transaction is a reportable transaction.
       ``(B) Listed transaction.--The term `listed transaction' 
     has the meaning given such term by section 6707A(c)(2).
       ``(C) Prohibited reportable transaction.--The term 
     `prohibited reportable transaction' means any confidential 
     transaction or any transaction with contractual protection 
     (as defined under regulations prescribed by the Secretary) 
     which is a reportable transaction (as defined in section 
     6707A(c)(1)).
       ``(2) Subsequently listed transaction.--The term 
     `subsequently listed transaction' means any transaction to 
     which a tax-exempt entity is a party and which is determined 
     by the Secretary to be a listed transaction at any time after 
     the entity has entered into the transaction.
       ``(f) Regulatory Authority.--The Secretary is authorized to 
     promulgate regulations which provide guidance regarding the 
     determination of the allocation of net income of a tax-exempt 
     entity attributable to a transaction to various periods, 
     including before and after the listing of the transaction or 
     the date which is 90 days after the date of the enactment of 
     this section.
       ``(g) Coordination With Other Taxes and Penalties.--The tax 
     imposed by this section is in addition to any other tax, 
     addition to tax, or penalty imposed under this title.''.
       (2) Conforming amendment.--The table of subchapters for 
     chapter 42 is amended by adding at the end the following new 
     item:


              ``Subchapter F. Tax Shelter Transactions.''.

       (b) Disclosure Requirements.--
       (1) Disclosure by organization to the internal revenue 
     service.--
       (A) In general.--Section 6033(a) (relating to organizations 
     required to file) is amended by redesignating paragraph (2) 
     as paragraph (3), and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Participation in certain reportable transactions.--
     Every tax-exempt entity described in section 4965(c) shall 
     file (in such form and manner and at such time as determined 
     by the Secretary) a disclosure of--
       ``(A) such entity's participation in any prohibited tax 
     shelter transaction (as defined in section 4965(e)), and
       ``(B) the identity of any other party participating in such 
     transaction which is known by such tax-exempt entity.''.
       (B) Conforming amendment.--Section 6033(a)(1) is amended by 
     striking ``paragraph (2)'' and inserting ``paragraph (3)''.
       (2) Disclosure by other taxpayers to the tax-exempt 
     entity.--Section 6011 (relating to general requirement of 
     return, statement, or list), as amended by this Act, is 
     amended by redesignating subsection (h) as subsection (i) and 
     by inserting after subsection (g) the following new 
     subsection:
       ``(h) Disclosure of Reportable Transaction to Tax-Exempt 
     Entity.--Any taxable party to a prohibited tax shelter 
     transaction (as defined in section 4965(e)(1)) shall by 
     statement disclose to any tax-exempt entity (as defined in 
     section 4965(c)) which is a party to such transaction that 
     such transaction is such a prohibited tax shelter 
     transaction.''.
       (c) Penalty for Nondisclosure.--
       (1) In general.--Section 6652(c) (relating to returns by 
     exempt organizations and by certain trusts), as amended by 
     this Act, is amended by redesignating paragraphs (2), (3), 
     and (4) as paragraphs (3), (4), and (5), respectively, and by 
     inserting after paragraph (1) the following new paragraph:
       ``(2) Disclosure under section 6033.--
       ``(A) Penalty on organizations.--In the case of a failure 
     to file a disclosure required under section 6033(a)(2), there 
     shall be paid by the tax-exempt entity (the entity manager in 
     the case of a tax-exempt entity described in paragraph (4), 
     (5), (6), or (7) of section 4965(c)) $100 for each day during 
     which such failure continues. The maximum penalty under this 
     subparagraph on failures with respect to any 1 disclosure 
     shall not exceed $50,000.
       ``(B) Persons.--
       ``(i) In general.--The Secretary may make a written demand 
     on any tax-exempt entity subject to penalty under 
     subparagraph (A) specifying therein a reasonable future date 
     by which the disclosure shall be filed for purposes of this 
     subparagraph.

[[Page S617]]

       ``(ii) Failure to comply with demand.--If any person fails 
     to comply with any demand under clause (i) on or before the 
     date specified in such demand, there shall be paid by such 
     person failing to so comply $100 for each day after the 
     expiration of the time specified in such demand during which 
     such failure continues. The maximum penalty imposed under 
     this subparagraph on all tax-exempt entities for failures 
     with respect to any 1 disclosure shall not exceed $10,000.
       ``(C) Definitions.--Any term used in this section which is 
     also used in section 4965 shall have the meaning given such 
     term under section 4965.''.
       (2) Conforming amendment.--Subparagraph (A) of section 
     6652(c)(1) of such Code is amended by striking ``6033'' each 
     place it appears in the text and heading thereof and 
     inserting ``6033(a)(1)''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transactions 
     after the date of the enactment of this Act, except that no 
     tax under section 4965(a) of the Internal Revenue Code of 
     1986 (as added by this section) shall apply with respect to 
     income that is properly allocable to any period on or before 
     the date which is 90 days after such date of enactment.
       (2) Disclosure.--The amendments made by subsections (b) and 
     (c) shall apply to disclosures the due date for which are 
     after the date of the enactment of this Act.

     SEC. 212. EXCISE TAX ON CERTAIN ACQUISITIONS OF INTERESTS IN 
                   INSURANCE CONTRACTS IN WHICH CERTAIN EXEMPT 
                   ORGANIZATIONS HOLD AN INTEREST.

       (a) Imposition of Tax.--
       (1) In general.--Subchapter F of chapter 42 (relating to 
     tax shelter transactions), as added by this Act, is amended 
     by adding at the end the following new section:

     ``SEC. 4966. EXCISE TAX ON ACQUISITION OF INTERESTS IN 
                   INSURANCE CONTRACTS IN WHICH CERTAIN EXEMPT 
                   ORGANIZATIONS HOLD AN INTEREST.

       ``(a) Imposition of Tax.--If there is a taxable acquisition 
     of any interest in an applicable insurance contract, there is 
     hereby imposed on the person acquiring the interest a tax 
     equal to 100 percent of the acquisition costs of the 
     interest.
       ``(b) Taxable Acquisition.--For purposes of this section--
       ``(1) In general.--The term `taxable acquisition' means the 
     acquisition of any direct or indirect interest in an 
     applicable insurance contract by--
       ``(A) an applicable exempt organization, or
       ``(B) a person other than an applicable exempt organization 
     if such interest in the hands of such person is not an 
     interest described in clause (i), (ii), (iii), or (iv) of 
     paragraph (2)(B).
       ``(2) Applicable insurance contract.--
       ``(A) In general.--The term `applicable insurance contract' 
     means any life insurance, annuity, or endowment contract with 
     respect to which both an applicable exempt organization and a 
     person other than an applicable exempt organization have 
     directly or indirectly held an interest in the contract 
     (whether or not at the same time).
       ``(B) Exceptions.--Such term shall not include a life 
     insurance, annuity, or endowment contract if--
       ``(i) all persons directly or indirectly holding any 
     interest in the contract (other than applicable exempt 
     organizations) have an insurable interest in the insured 
     under the contract independent of any interest of an 
     applicable exempt organization in the contract,
       ``(ii) the sole interest in the contract of each person 
     other than an applicable exempt organization is as a named 
     beneficiary,
       ``(iii) the sole interest in the contract of each person 
     other than an applicable exempt organization is--

       ``(I) as a beneficiary of a trust holding an interest in 
     the contract, but only if the person's designation as such 
     beneficiary was made without consideration and solely on a 
     purely gratuitous basis, or
       ``(II) as a trustee who holds an interest in the contract 
     in a fiduciary capacity solely for the benefit of applicable 
     exempt organizations or persons otherwise described in 
     clauses (i), (ii), and (iv) or subclause (I) of this clause, 
     or

       ``(iv) except as provided in subparagraph (C), the sole 
     interest in the contract of each person other than an 
     applicable exempt organization is as a lender with respect to 
     the contract and the contract covers only 1 individual and 
     such individual is an officer, director, or employee of the 
     applicable exempt organization with an interest in the 
     contract.
       ``(C) Restrictions on exception for lenders.--
       ``(i) Numerical limit.--The number of contracts that may be 
     taken into account under subparagraph (B)(iv) with respect to 
     officers, directors, or employees of the applicable exempt 
     organization with interests in the contracts shall not exceed 
     the greater of--

       ``(I) the lesser of 5 percent of the total officers, 
     directors, and employees of the organization or 20, or
       ``(II) 5.

       ``(ii) Aggregate indebtedness.--The exception under 
     subparagraph (B)(iv) shall apply only to the extent that the 
     aggregate amount of the indebtedness with respect to 1 or 
     more contracts covering a single individual does not exceed 
     $50,000.
       ``(D) Secretarial authority.--The Secretary may exempt a 
     contract from treatment as an applicable insurance contract 
     based on specific factors, including factors such as whether 
     the transaction is at arms length, whether economic benefits 
     to the applicable exempt organization substantially exceed 
     the economic benefits to all other persons with an interest 
     in the contract (determined without regard to whether, or the 
     extent to which, such organization has paid or contributed 
     with respect to the contract), and the likelihood of abuse.
       ``(3) Definition and rule relating to acquisition costs.--
       ``(A) Acquisition costs defined.--The term `acquisition 
     costs' means the direct or indirect costs of acquiring an 
     interest in an applicable insurance contract. Such term shall 
     include any fees, commissions, charges, or other amounts paid 
     in connection with the acquisition, whether or not paid to 
     the issuer of the contract.
       ``(B) Timing of payments.--Except as provided in 
     regulations, if acquisition costs of any acquisition are paid 
     or incurred in more than 1 calendar year, the tax imposed by 
     subsection (a) with respect to the acquisition shall be 
     imposed each time the costs are so paid or incurred.
       ``(4) Rules relating to interests.--
       ``(A) In general.--An interest in the contract includes any 
     right with respect to the contract, whether as an owner, 
     beneficiary, or otherwise.
       ``(B) Indirect interests.--
       ``(i) In general.--Except as provided in clause (ii), an 
     indirect interest in a contract includes an interest in an 
     entity which directly or indirectly holds an interest in the 
     contract.
       ``(ii) Portfolio investments.--If an applicable exempt 
     organization holds an interest in a contract solely because 
     the organization holds, as part of a diversified investment 
     strategy, a de minimis interest in an entity which directly 
     or indirectly holds the interest in the contract, such 
     indirect interest in the contract shall not be taken into 
     account for purposes of this section.
       ``(C) Exchanged contracts.--In the case of an exchange of 
     an applicable insurance contract on which no gain or loss is 
     recognized under section 1035, any interest in any of the 
     contracts involved in the exchange shall be treated as an 
     interest in all such contracts.
       ``(5) Increase in interest.--If a person increases an 
     interest in an applicable insurance contract, the increase 
     shall be treated as a separate acquisition for purposes of 
     this section.
       ``(6) Prior acquisitions.--Except as provided in 
     regulations, if a person acquires an interest in a contract 
     before the contract is treated as an applicable insurance 
     contract, the acquisition shall be treated as a taxable 
     acquisition of an interest in an applicable insurance 
     contract as of the date the contract becomes an applicable 
     insurance contract.
       ``(c) Applicable Exempt Organization.--For purposes of this 
     section, the term `applicable exempt organization' means--
       ``(1) an organization described in section 170(c),
       ``(2) an organization described in section 
     168(h)(2)(A)(iv), or
       ``(3) an organization not described in paragraph (1) or (2) 
     which is described in section 2055(a) or section 2522(a).
       ``(d) Tax Not Treated as Investment in the Contract.--For 
     purposes of section 72, the tax imposed by this section shall 
     not be included in investment in the contract.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the provisions 
     of this section. Such regulations may include regulations 
     which--
       ``(1) provide, for purposes of subsection (b)(6), 
     appropriate rules for the application of this section in any 
     case where an interest is acquired before a contract becomes 
     an applicable insurance contract,
       ``(2) prevent, in cases the Secretary determines 
     appropriate, the imposition of more than one tax under this 
     section if the same interest is acquired more than once, and
       ``(3) are designed to prevent avoidance of the purposes of 
     this section, including through the use of intermediaries.''.
       (2) Conforming amendment.--The table of sections for 
     subchapter F of chapter 42, as added by this Act, is amended 
     by adding at the end the following new item:

``Sec. 4966. Excise tax on acquisition of interests in insurance 
              contracts in which certain exempt organizations hold an 
              interest.''.

       (b) Reporting Requirements.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 (relating to information concerning transactions 
     with other persons) is amended by adding at the end the 
     following new section:

     ``SEC. 6050U. RETURNS RELATING TO APPLICABLE INSURANCE 
                   CONTRACTS IN WHICH CERTAIN EXEMPT ORGANIZATIONS 
                   HOLD INTERESTS.

       ``(a) Requirements of Reporting.--
       ``(1) Exempt organizations.--Each--
       ``(A) applicable exempt organization which acquires (within 
     the meaning of section 4966) an interest in any applicable 
     insurance contract, and
       ``(B) other person which makes an acquisition of such an 
     interest if such acquisition is taxable under section 4966,
     shall make the return described in subsection (c).
       ``(2) Transfers.--If a person (including an applicable 
     exempt organization) acquires an

[[Page S618]]

     interest in an applicable insurance contract in an 
     acquisition which is taxable under section 4966 and then 
     transfers such interest to 1 or more other persons, each 
     person acquiring all or a portion of such interest shall make 
     the return described in subsection (c).
       ``(b) Time for Making Return.--Any organization or person 
     required to make a return under subsection (a) shall file 
     such return at such time as may be established by the 
     Secretary with respect to--
       ``(1) in the case of a person described in subsection 
     (a)(1), the calendar year in which the acquisition occurs, 
     any calendar year in which acquisition costs are paid or 
     incurred, and any other calendar years specified by the 
     Secretary, and
       ``(2) in the case of a person described in subsection 
     (a)(2), the calendar year in which the transfer occurs.
       ``(c) Form and Manner of Returns.--A return is described in 
     this subsection if such return--
       ``(1) is in such form as the Secretary prescribes,
       ``(2) in the case of--
       ``(A) a return required under subsection (a)(1)(A), 
     contains the name, address, and taxpayer identification 
     number of the applicable exempt organization, the issuer of 
     the applicable insurance contract, and any person acquiring 
     an interest in the contract if the acquisition is taxable 
     under section 4966,
       ``(B) a return required under subsection (a)(1)(B), 
     contains the name, address, and taxpayer identification 
     number of the person acquiring an interest in the applicable 
     insurance contract if the acquisition is taxable under 
     section 4966, any applicable exempt organization holding an 
     interest in the contract, and the issuer of the contract, and
       ``(C) a return required under subsection (a)(2), contains 
     the name, address, and taxpayer identification number of the 
     transferor and transferee, and
       ``(3) contains such other information as the Secretary may 
     prescribe.
       ``(d) Statements To Be Furnished to Persons With Respect to 
     Whom Information Is Required.--Every person required to make 
     a return under subsection (a) shall furnish to each person 
     whose taxpayer identification information is required to be 
     included in such return under subsection (c) a written 
     statement showing--
       ``(1) the name and address of the person required to make 
     such return and the telephone number of the information 
     contact for such person, and
       ``(2) the taxpayer identity and other information required 
     to be shown on the return with respect to such person.
     The written statement required under the preceding sentence 
     shall be furnished on or before the date specified by the 
     Secretary.
       ``(e) Definitions.--For purposes of this section, any term 
     used in this section which is also used in section 4966 shall 
     have the meaning given such term by section 4966.''.
       (2) Penalties.--
       (A) In general.--Section 6724(d) is amended--
       (i) in paragraph (1)(B), by redesignating clauses (xiii) 
     through (xviii) as clauses (xiv) through (xix) and by 
     inserting after clause (xii) the following new clause:
       ``(xiii) section 6050U (relating to returns relating to 
     applicable insurance contracts in which certain exempt 
     organizations hold interests),'', and
       (ii) in paragraph (3), by striking ``and'' at the end of 
     subparagraph (C), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) the statement required by subsection (d) of section 
     6050U (relating to returns relating to applicable insurance 
     contracts in which certain exempt organizations hold 
     interests).''.
       (B) Intentional disregard.--Section 6721(e)(2) is amended 
     by striking ``or'' at the end of subparagraph (B), by 
     striking ``and'' at the end of subparagraph (C) and inserting 
     ``or'', and by adding at the end the following new 
     subparagraph:
       ``(D) in the case of a return required to be filed under 
     section 6050U, the amount of tax imposed under section 4966 
     which has not been paid with respect to items required to be 
     included on the return, and''.
       (3) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61is amended 
     by adding at the end the following new item:

``Sec. 6050U. Returns relating to applicable insurance contracts in 
              which certain exempt organizations hold interests.''.

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to contracts issued after May 3, 2005.
       (2) Reporting of existing contracts.--In the case of any 
     life insurance, annuity, or endowment contract--
       (A) which was issued on or before May 3, 2005,
       (B) with respect to which an applicable exempt organization 
     (as defined in section 4966 of the Internal Revenue Code of 
     1986, as added by this section) holds an interest on May 3, 
     2005, and
       (C) which would be treated as an applicable insurance 
     contract (as so defined) if issued after May 3, 2005,
     such organization shall, not later than the date which is 1 
     year after the date of the enactment of this Act, report to 
     the Secretary of the Treasury with respect to such contract. 
     Such report shall be in such form and manner, and contain 
     such information, as the Secretary may prescribe. The 
     Secretary shall submit such reports, along with any 
     recommendations for legislation as the Secretary considers 
     appropriate, to the Committee on Ways and Means of the House 
     of Representatives and to the Committee on Finance of the 
     Senate within 6 months of the date such reports are required 
     to be filed.

     SEC. 213. INCREASE IN PENALTY EXCISE TAXES ON PUBLIC 
                   CHARITIES, SOCIAL WELFARE ORGANIZATIONS, AND 
                   PRIVATE FOUNDATIONS.

       (a) Taxes on Self-Dealing and Excess Benefit 
     Transactions.--
       (1) In general.--Section 4941(a) (relating to initial 
     taxes) is amended--
       (A) in paragraph (1), by striking ``5 percent'' and 
     inserting ``10 percent'', and
       (B) in paragraph (2), by striking ``2\1/2\ percent'' and 
     inserting ``5 percent''.
       (2) Increase in tax if self-dealing includes compensation 
     to disqualified person.--Section 4941(a)(1) is amended by 
     adding at the end the following new sentence: ``If the act of 
     self-dealing includes acts described in subsection (d)(1)(D), 
     `25 percent' shall be substituted for `10 percent', except 
     that the Secretary may abate under section 4962 (determined 
     without regard to the exception under subsection (b) thereof) 
     not more than 15 percentage points of such tax.''.
       (3) Increased limitation for managers on self-dealing.--
     Section 4941(c)(2) is amended by striking ``$10,000'' each 
     place it appears in the text and heading thereof and 
     inserting ``$20,000''.
       (4) Increased limitation for managers on excess benefit 
     transactions.--Section 4958(d)(2) is amended by striking 
     ``$10,000'' and inserting ``$20,000''.
       (b) Taxes on Failure To Distribute Income.--Section 4942(a) 
     (relating to initial tax) is amended by striking ``15 
     percent'' and inserting ``30 percent''.
       (c) Taxes on Excess Business Holdings.--Section 4943(a)(1) 
     (relating to imposition) is amended by striking ``5 percent'' 
     and inserting ``10 percent''.
       (d) Taxes on Investments Which Jeopardize Charitable 
     Purpose.--
       (1) In general.--Section 4944(a) (relating to initial 
     taxes) is amended by striking ``5 percent'' both places it 
     appears and inserting ``10 percent''.
       (2) Increased limitation for managers.--Section 4944(d)(2) 
     is amended--
       (A) by striking ``$5,000,'' and inserting ``$10,000,'', and
       (B) by striking ``$10,000.'' and inserting ``$20,000.''.
       (e) Taxes on Taxable Expenditures.--
       (1) In general.--Section 4945(a) (relating to initial 
     taxes) is amended--
       (A) in paragraph (1), by striking ``10 percent'' and 
     inserting ``20 percent'', and
       (B) in paragraph (2), by striking ``2\1/2\ percent'' and 
     inserting ``5 percent''.
       (2) Increased limitation for managers.--Section 4945(c)(2) 
     is amended--
       (A) by striking ``$5,000,'' and inserting ``$10,000,'', and
       (B) by striking ``$10,000.'' and inserting ``$20,000.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 214. REFORM OF CHARITABLE CONTRIBUTIONS OF CERTAIN 
                   EASEMENTS ON BUILDINGS IN REGISTERED HISTORIC 
                   DISTRICTS.

       (a) Special Rules With Respect to Buildings in Registered 
     Historic Districts.--
       (1) In general.--Paragraph (4) of section 170(h) (relating 
     to definition of conservation purpose) is amended by 
     redesignating subparagraph (B) as subparagraph (C) and by 
     inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Special rules with respect to buildings in registered 
     historic districts.--In the case of any contribution of a 
     qualified real property interest which is a restriction with 
     respect to the exterior of a building described in 
     subparagraph (C)(ii), such contribution shall not be 
     considered to be exclusively for conservation purposes 
     unless--
       ``(i) such interest--

       ``(I) includes a restriction which preserves the entire 
     exterior of the building (including the front, sides, rear, 
     and height of the building), and
       ``(II) prohibits any change in the exterior of the building 
     which is inconsistent with the historical character of such 
     exterior,

       ``(ii) the donor and donee enter into a written agreement 
     certifying, under penalty of perjury, that the donee--

       ``(I) is a qualified organization (as defined in paragraph 
     (3)) with a purpose of environmental protection, land 
     conservation, open space preservation, or historic 
     preservation, and
       ``(II) has the resources to manage and enforce the 
     restriction and a commitment to do so, and

       ``(iii) in the case of any contribution made in a taxable 
     year beginning after the date of the enactment of this 
     subparagraph, the taxpayer includes with the taxpayer's 
     return for the taxable year of the contribution--

       ``(I) a qualified appraisal (within the meaning of 
     subsection (f)(11)(E)) of the qualified property interest,
       ``(II) photographs of the entire exterior of the building, 
     and
       ``(III) a description of all restrictions on the 
     development of the building.''.

       (b) Disallowance of Deduction for Structures and Land in 
     Registered Historic Districts.--Subparagraph (C) of section 
     170(h)(4), as redesignated by subsection (a), is amended--

[[Page S619]]

       (1) by striking ``any building, structure, or land area 
     which'',
       (2) by inserting ``any building, structure, or land area 
     which'' before ``is listed'' in clause (i), and
       (3) by inserting ``any building which'' before ``is 
     located'' in clause (ii).
       (c) Filing Fee for Certain Contributions.--Subsection (f) 
     of section 170 (relating to disallowance of deduction in 
     certain cases and special rules) is amended by inserting at 
     the end the following new paragraph:
       ``(13) Contributions of certain interests in buildings 
     located in registered historic districts.--
       ``(A) In general.--No deduction shall be allowed with 
     respect to any contribution described in subparagraph (B) 
     unless the taxpayer includes with the return for the taxable 
     year of the contribution a $500 filing fee.
       ``(B) Contribution described.--A contribution is described 
     in this subparagraph if such contribution is a qualified 
     conservation contribution (as defined in subsection (h)) 
     which is a restriction with respect to the exterior of a 
     building described in subsection (h)(4)(C)(ii) and for which 
     a deduction is claimed in excess of the greater of--
       ``(i) 3 percent of the fair market value of the building 
     (determined immediately before such contribution), or
       ``(ii) $10,000.
       ``(C) Dedication of fee.--Any fee collected under this 
     paragraph shall be used for the enforcement of the provisions 
     of subsection (h).''.
       (d) Effective Date.--
       (1) Special rules for buildings in registered historic 
     districts.--The amendments made by subsection (a) shall apply 
     to contributions made after November 15, 2005.
       (2) Disallowance of deduction for structures and land.--The 
     amendments made by subsection (b) shall apply to 
     contributions made after the date of the enactment of this 
     Act.
       (3) Filing fee.--The amendment made by subsection (c) shall 
     apply to contributions made 180 days after the date of the 
     enactment of this Act.

     SEC. 215. CHARITABLE CONTRIBUTIONS OF TAXIDERMY PROPERTY.

       (a) In General.--Subsection (f) of section 170, as amended 
     by this Act, is amended by adding at the end the following 
     new paragraph:
       ``(14) Contributions of taxidermy property.--
       ``(A) Contributions of more than $500.--In the case of any 
     contribution of taxidermy property for which a deduction of 
     more than $500 is claimed, no deduction shall be allowed 
     under subsection (a) unless the donor includes with the 
     return for the taxable year in which the contribution is made 
     a photograph of the taxidermy property and data with respect 
     to the sales prices of similar taxidermy property.
       ``(B) Contributions of more than $5,000.--In the case of 
     any contribution of taxidermy property for which a deduction 
     of more than $5,000 is claimed, no deduction shall be allowed 
     under subsection (a) unless the donor--
       ``(i) notifies the Internal Revenue Service of such 
     deduction, and
       ``(ii) includes with the return for the taxable year in 
     which the contribution is made--

       ``(I) a statement of value from the Internal Revenue 
     Service, or
       ``(II) a request for a statement of value from the Internal 
     Revenue Service and a $500 fee.

       ``(C) Taxidermy property.--For purposes of this section, 
     the term `taxidermy property' means a mounted work of art 
     which contains any part of a dead animal.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after November 15, 2005.

     SEC. 216. RECAPTURE OF TAX BENEFIT FOR CHARITABLE 
                   CONTRIBUTIONS OF EXEMPT USE PROPERTY NOT USED 
                   FOR AN EXEMPT USE.

       (a) Recapture of Deduction on Certain Sales of Exempt Use 
     Property.--
       (1) In general.--Clause (i) of section 170(e)(1)(B) 
     (related to certain contributions of ordinary income and 
     capital gain property) is amended to read as follows:
       ``(i) of tangible personal property--

       ``(I) if the use by the donee is unrelated to the purpose 
     or function constituting the basis for its exemption under 
     section 501 (or, in the case of a governmental unit, to any 
     purpose or function described in subsection (c)), or
       ``(II) which is applicable property (as defined in 
     paragraph (8)(C)) which is sold, exchanged, or otherwise 
     disposed of by the donee before the last day of the taxable 
     year in which the contribution was made and with respect to 
     which the donee has not made a certification in accordance 
     with paragraph (8)(D),''.

       (2) Dispositions after close of taxable year.--Section 
     170(e), as amended by this Act, is amended by adding at the 
     end the following new paragraph:
       ``(8) Recapture of deduction on certain dispositions of 
     exempt use property.--
       ``(A) In general.--In the case of an applicable disposition 
     of applicable property, there shall be included in the income 
     of the donor of such property for the taxable year of such 
     donor in which the applicable disposition occurs an amount 
     equal to the excess (if any) of--
       ``(i) the amount of the deduction allowed to the donor 
     under this section with respect to such property, over
       ``(ii) the donor's basis in such property at the time such 
     property was contributed.
       ``(B) Applicable disposition.--For purposes of this 
     paragraph, the term `applicable disposition' means any sale, 
     exchange, or other disposition by the donee of applicable 
     property--
       ``(i) after the last day of the taxable year of the donor 
     in which such property was contributed, and
       ``(ii) before the last day of the 3-year period beginning 
     on the date of the contribution of such property,
     unless the donee makes a certification in accordance with 
     subparagraph (D).
       ``(C) Applicable property.--For purposes of this paragraph, 
     the term `applicable property' means charitable deduction 
     property (as defined in section 6050L(a)(2)(A))--
       ``(i) which is tangible personal property the use of which 
     is identified by the donee as related to the purpose or 
     function constituting the basis of the donee's exemption 
     under section 501, and
       ``(ii) for which a deduction in excess of the donor's basis 
     is allowed.
       ``(D) Certification.--A certification meets the 
     requirements of this subparagraph if it is a written 
     statement which is signed under penalty of perjury by an 
     officer of the donee organization and--
       ``(i) which--

       ``(I) certifies that the use of the property by the donee 
     was related to the purpose or function constituting the basis 
     for the donee's exemption under section 501, and
       ``(II) describes how the property was used and how such use 
     furthered such purpose or function, or

       ``(ii) which--

       ``(I) states the intended use of the property by the donee 
     at the time of the contribution, and
       ``(II) certifies that such intended use has become 
     impossible or infeasible to implement.''.

       (b) Reporting Requirements.--Paragraph (1) of section 
     6050L(a) (relating to returns relating to certain 
     dispositions of donated property) is amended--
       (1) by striking ``2 years'' and inserting ``3 years'', and
       (2) by striking ``and'' at the end of subparagraph (D), by 
     striking the period at the end of subparagraph (E) and 
     inserting a comma, and by inserting at the end the following:
       ``(F) a description of the donee's use of the property, and
       ``(G) a statement indicating whether the use of the 
     property was related to the purpose or function constituting 
     the basis for the donee's exemption under section 501.
     In any case in which the donee indicates that the use of 
     applicable property (as defined in section 170(e)(1)(C)) was 
     related to the purpose or function constituting the basis for 
     the exemption of the donee under section 501 under 
     subparagraph (G), the donee shall include with the return the 
     certification described in section 170(e)(8)(D) if such 
     certification is required under section 170(e)(8).''.
       (c) Penalty.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties), as amended by this Act, 
     is amended by inserting after section 6720B the following new 
     section:

     ``SEC. 6720C. FRAUDULENT IDENTIFICATION OF EXEMPT USE 
                   PROPERTY.

       ``In addition to any criminal penalty provided by law, any 
     person who identifies applicable property (as defined in 
     section 170(e)(8)(C)) as having a use which is related to a 
     purpose or function constituting the basis for the donee's 
     exemption under section 501 and who knows that such property 
     is not intended for such a use shall pay a penalty of 
     $10,000.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68, as amended by this Act, is 
     amended by adding after the item relating to section 6720B 
     the following new item:

``Sec. 6720C. Fraudulent identification of exempt use property.''.

       (d) Effective Date.--
       (1) Recapture.--The amendments made by subsection (a) shall 
     apply to contributions after June 1, 2006.
       (2) Reporting.--The amendments made by subsection (b) shall 
     apply to returns filed after June 1, 2006.
       (3) Penalty.--The amendments made by subsection (c) shall 
     apply to identifications made after the date of the enactment 
     of this Act.

     SEC. 217. LIMITATION OF DEDUCTION FOR CHARITABLE 
                   CONTRIBUTIONS OF CLOTHING AND HOUSEHOLD ITEMS.

       (a) In General.--Subsection (f) of section 170, as amended 
     by this Act, is amended by adding at the end the following 
     new paragraph:
       ``(15) Contributions of clothing and household items.--
       ``(A) In general.--In the case of an individual, 
     partnership, or S corporation, the deduction allowed under 
     subsection (a) for any contribution of clothing or household 
     items with respect to which the donor has not obtained a 
     qualified appraisal shall be--
       ``(i) in the case of an item which is in good used 
     condition or better, no more than the amount assigned to such 
     item under subparagraph (B) for such year,
       ``(ii) except as provided by clause (iii), in the case of 
     an item which is not in good used condition or better, no 
     more than 20 percent of the amount assigned to such item 
     under subparagraph (B) for such year, and

[[Page S620]]

       ``(iii) in the case of an item which is not functional with 
     respect to the use for which it was designed, zero.
       ``(B) Assigned values.--Each year the Secretary shall 
     publish an itemized list of clothing and household items and 
     shall assign an amount with respect to each item on the list 
     which represents the fair market value of such item in good 
     used condition.
       ``(C) Exception for items sold by the donee.--Subparagraph 
     (A) shall not apply to any contribution of clothing or 
     household items for which a deduction of more than $500 is 
     claimed if--
       ``(i) the donee sells the clothing or household items 
     before the earlier of--

       ``(I) the due date (including extensions) for filing the 
     return of tax for the taxable year of the donor in which the 
     contribution was made, or
       ``(II) the date on which such return was filed,

       ``(ii) the donee reports the sales price of the clothing or 
     household items to the donor, and
       ``(iii) the amount claimed as a deduction with respect to 
     such clothing or household items does not exceed the amount 
     of the sales price reported to the donor.
       ``(D) Household items.--For purposes of this paragraph--
       ``(i) In general.--The term `household items' includes 
     furniture, furnishings, electronics, appliances, linens, and 
     other similar items.
       ``(ii) Excluded items.--Such term does not include--

       ``(I) food,
       ``(II) paintings, antiques, and other objects of art,
       ``(III) jewelry and gems, and
       ``(IV) collections.

       ``(E) Special rule for pass-thru entities.--In the case of 
     a partnership or S corporation, this paragraph shall be 
     applied at the entity level, except that the deduction shall 
     be denied at the partner or shareholder level.''.
       (b) Substantiation.--
       (1) Items of $250 or more.--Subparagraph (B) of section 
     170(f)(8) is amended by inserting after clause (iii) the 
     following new clause:
       ``(iv) In the case of a contribution consisting of clothing 
     or household items, the number of items contributed, an 
     indication of the condition of each item, a description of 
     the type of item contributed, and a copy of the list 
     published under paragraph (15)(B) or an instruction on how to 
     obtain such list.''.
       (2) Items of $500 or more.--Subparagraph (B) of section 
     170(f)(11) is amended by inserting ``, the information 
     contained in the acknowledgment required under paragraph (8) 
     in the case of any contribution of clothing or household 
     items,'' after ``a description of such property''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made after December 31, 2006.

     SEC. 218. MODIFICATION OF RECORDKEEPING REQUIREMENTS FOR 
                   CERTAIN CHARITABLE CONTRIBUTIONS.

       (a) Recordkeeping Requirement.--Subsection (f) of section 
     170, as amended by this Act, is amended by adding at the end 
     the following new paragraph:
       ``(16) Recordkeeping.--No deduction shall be allowed under 
     subsection (a) for any contribution of a cash, check, or 
     other monetary gift unless the donor maintains as a record of 
     such contribution--
       ``(A) a cancelled check, or
       ``(B) a receipt or a letter or other written communication 
     from the donee showing the name of the donee organization, 
     the date of the contribution, and the amount of the 
     contribution.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made in taxable years beginning 
     after the date of the enactment of this Act.

     SEC. 219. CONTRIBUTIONS OF FRACTIONAL INTERESTS IN TANGIBLE 
                   PERSONAL PROPERTY.

       (a) Income Tax.--Section 170 (relating to charitable, etc., 
     contributions and gifts), as amended by this Act, is amended 
     by redesignating subsection (p) as subsection (q) and by 
     inserting after subsection (o) the following new subsection:
       ``(p) Special Rules for Fractional Gifts.--
       ``(1) Valuation of subsequent gifts.--
       ``(A) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(i) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(ii) the fair market value of the property at the time of 
     the additional contribution.
       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Additional contribution.--The term `additional 
     contribution' means any charitable contribution by the 
     taxpayer of any interest in property with respect to which 
     the taxpayer has previously made an initial fractional 
     contribution.
       ``(ii) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any taxpayer, 
     the first charitable contribution of an undivided portion of 
     the taxpayer's entire interest in any tangible personal 
     property.
       ``(2) Recapture of deduction in certain cases.--
       ``(A) In general.--The Secretary shall provide for the 
     recapture of an amount equal to the amount of any deduction 
     allowed under this section (plus interest) with respect to 
     any contribution of an undivided interest of a taxpayer's 
     entire interest in property in any case where such property 
     is not in the physical possession of the donee during any 
     applicable period for a period of time which bears 
     substantially the same ratio to 1 year as--
       ``(i) the percentage of the undivided interest of the donee 
     in the property (determined on the day after such 
     contribution was made), bears to
       ``(ii) 100 percent.
       ``(B) Applicable period.--For purposes of subparagraph (A), 
     the term `applicable period' means any 1-year period which 
     begins on--
       ``(i) in the year of the contribution, the date of the 
     contribution, and
       ``(ii) in any subsequent calendar year, the date which 
     corresponds to the date described in clause (i).
       ``(C) Anti-abuse rules.--The Secretary shall prescribe such 
     regulations as necessary to prevent the avoidance of the 
     purposes of this paragraph through the transfer of any such 
     undivided interest to a third party controlled by the 
     taxpayer.''.
       (b) Estate Tax.--Section 2055 (relating to transfers for 
     public, charitable, and religious uses) is amended by 
     redesignating subsection (g) as subsection (h) and by 
     inserting after subsection (f) the following new subsection:
       ``(g) Valuation of Subsequent Gifts.--
       ``(1) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(A) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(B) the fair market value of the property at the time of 
     the additional contribution.
       ``(2) Definitions.--For purposes of this paragraph--
       ``(A) Additional contribution.--The term `additional 
     contribution' means a bequest, legacy, devise, or transfer 
     described in subsection (a) of any interest in a property 
     with respect to which the decedent had previously made an 
     initial fractional contribution.
       ``(B) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any decedent, 
     any charitable contribution of an undivided portion of the 
     decedent's entire interest in any tangible personal property 
     for which a deduction was allowed under section 170.''.
       (c) Gift Tax.--Section 2522 (relating to charitable and 
     similar gifts) is amended by redesignating subsection (e) as 
     subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Special Rules for Fractional Gifts.--
       ``(1) Valuation of subsequent gifts.--
       ``(A) In general.--In the case of any additional 
     contribution, the fair market value of such contribution 
     shall be determined by using the lesser of--
       ``(i) the fair market value of the property at the time of 
     the initial fractional contribution, or
       ``(ii) the fair market value of the property at the time of 
     the additional contribution.
       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Additional contribution.--The term `additional 
     contribution' means any gift for which a deduction is allowed 
     under subsection (a) or (b) of any interest in a property 
     with respect to which the donor has previously made an 
     initial fractional contribution.
       ``(ii) Initial fractional contribution.--The term `initial 
     fractional contribution' means, with respect to any donor, 
     the first gift of an undivided portion of the donor's entire 
     interest in any tangible personal property for which a 
     deduction is allowed under subsection (a) or (b).
       ``(2) Recapture of deduction in certain cases.--
       ``(A) In general.--The Secretary shall provide for the 
     recapture of an amount equal to the amount of any deduction 
     allowed under this section (plus interest) with respect to 
     any contribution of an undivided interest of a donor's entire 
     interest in property in any case where such property is not 
     in the physical possession of the donee during any applicable 
     period for a period of time which bears substantially the 
     same ratio to 1 year as--
       ``(i) the percentage of the undivided interest of the donee 
     in the property (determined on the day after such 
     contribution was made), bears to
       ``(ii) 100 percent.
       ``(B) Applicable period.--For purposes of subparagraph (A), 
     the term `applicable period' means any 1-year period which 
     begins on--
       ``(i) in the year of the contribution, the date of the 
     contribution, and
       ``(ii) in any subsequent calendar year, the date which 
     corresponds to the date described in clause (i).
       ``(C) Anti-abuse rules.--The Secretary shall prescribe such 
     regulations as necessary to prevent the avoidance of the 
     purposes of this paragraph though the transfer of any such 
     undivided interest to a third party controlled by the 
     donor.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to contributions, bequests, and gifts made after 
     the date of the enactment of this Act.

[[Page S621]]

     SEC. 220. PROVISIONS RELATING TO SUBSTANTIAL AND GROSS 
                   OVERSTATEMENTS OF VALUATIONS OF CHARITABLE 
                   DEDUCTION PROPERTY.

       (a) Substantial and Gross Overstatements of Valuations of 
     Charitable Deduction Property.--
       (1) In general.--Section 6662 (relating to imposition of 
     accuracy-related penalties) is amended by adding at the end 
     the following new subsection:
       ``(i) Special Rules for Charitable Deduction Property.--In 
     the case of charitable deduction property (as defined in 
     section 6664(c)(3)(A))--
       ``(1) the determination under subsection (e)(1)(A) as to 
     whether there is a substantial valuation misstatement under 
     chapter 1 with respect to the value of the property shall be 
     made by substituting `150 percent' for `200 percent', and
       ``(2) the determination under subsection (h)(2)(A)(i) as to 
     whether there is a gross valuation misstatement with respect 
     to the value of the property shall be made by substituting 
     `200 percent' for `400 percent' and by substituting `150 
     percent' for `200 percent' in applying subsection (e)(1)(A) 
     for purposes of such determination.''.
       (2) Elimination of reasonable cause exception for gross 
     misstatements.--Section 6664(c)(2) (relating to reasonable 
     cause exception for underpayments) is amended by striking 
     ``paragraph (1) shall not apply unless'' and inserting 
     ``paragraph (1) shall not apply. The preceding sentence shall 
     not apply to a substantial valuation overstatement under 
     chapter 1 if''.
       (b) Penalty on Appraisers Whose Appraisals Result in 
     Substantial or Gross Valuation Misstatements.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by inserting 
     after section 6695 the following new section:

     ``SEC. 6695A. SUBSTANTIAL AND GROSS VALUATION MISSTATEMENTS 
                   ATTRIBUTABLE TO INCORRECT APPRAISALS.

       ``(a) Imposition of Penalty.--If--
       ``(1) a person prepares an appraisal of the value of 
     property and such person knows, or reasonably should have 
     known, that the appraisal would be used in connection with a 
     return or a claim for refund, and
       ``(2) the claimed value of the property on a return or 
     claim for refund which is based on such appraisal results in 
     a substantial valuation misstatement under chapter 1 (within 
     the meaning of section 6662(e)), or a gross valuation 
     misstatement (within the meaning of section 6662(h)), with 
     respect to such property,
     then such person shall pay a penalty in the amount determined 
     under subsection (b).
       ``(b) Amount of Penalty.--The amount of the penalty imposed 
     under subsection (a) on any person with respect to an 
     appraisal shall be equal to the lesser of--
       ``(1) the greater of--
       ``(A) 10 percent of the amount of the underpayment (as 
     defined in section 6664(a)) attributable to the misstatement 
     described in subsection (a)(2), or
       ``(B) $1,000, or
       ``(2) 125 percent of the gross income received by the 
     person described in subsection (a)(1) from the preparation of 
     the appraisal.
       ``(c) Exception.--No penalty shall be imposed under 
     subsection (a) if the person establishes to the satisfaction 
     of the Secretary that the value established in the appraisal 
     was more likely than not the proper value.''.
       (2) Rules applicable to penalty.--Section 6696 (relating to 
     rules applicable with respect to sections 6694 and 6695) is 
     amended--
       (A) by striking ``6694 and 6695'' each place it appears in 
     the text and heading thereof and inserting ``6694, 6695, and 
     6695A'', and
       (B) by striking ``6694 or 6695'' each place it appears in 
     the text and inserting ``6694, 6695, or 6695A''.
       (3) Conforming amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by striking the item 
     relating to section 6696 and inserting the following new 
     items:

``Sec. 6695A. Substantial and gross valuation misstatements 
              attributable to incorrect appraisals.
``Sec. 6696. Rules applicable with respect to sections 6694, 6695, and 
              6695A.''.

       (c) Qualified Appraisers and Appraisals.--
       (1) In general.--Subparagraph (E) of section 170(f)(11) is 
     amended to read as follows:
       ``(E) Qualified appraisal and appraiser.--For purposes of 
     this paragraph--
       ``(i) Qualified appraisal.--The term `qualified appraisal' 
     means, with respect to any property, an appraisal of such 
     property which--

       ``(I) is treated for purposes of this paragraph as a 
     qualified appraisal under regulations or other guidance 
     prescribed by the Secretary, and
       ``(II) is conducted by a qualified appraiser in accordance 
     with generally accepted appraisal standards and any 
     regulations or other guidance prescribed under subclause (I).

       ``(ii) Qualified appraiser.--Except as provided in clause 
     (iii), the term `qualified appraiser' means an individual 
     who--

       ``(I) has earned an appraisal designation from a recognized 
     professional appraiser organization or has otherwise met 
     minimum education and experience requirements set forth in 
     regulations prescribed by the Secretary,
       ``(II) regularly performs appraisals for which the 
     individual receives compensation, and
       ``(III) meets such other requirements as may be prescribed 
     by the Secretary in regulations or other guidance.

       ``(iii) Specific appraisals.--An individual shall not be 
     treated as a qualified appraiser with respect to any specific 
     appraisal unless--

       ``(I) the individual demonstrates verifiable education and 
     experience in valuing the type of property subject to the 
     appraisal, and
       ``(II) the individual has not been prohibited from 
     practicing before the Internal Revenue Service by the 
     Secretary under section 330(c) of title 31, United States 
     Code, at any time during the 3-year period ending on the date 
     of the appraisal.''.

       (2) Reasonable cause exception.--Subparagraphs (B) and (C) 
     of section 6664(c)(3) are amended to read as follows:
       ``(B) Qualified appraisal.--The term `qualified appraisal' 
     has the meaning given such term by section 170(f)(11)(E)(i).
       ``(C) Qualified appraiser.--The term `qualified appraiser' 
     has the meaning given such term by section 
     170(f)(11)(E)(ii).''.
       (d) Disciplinary Actions Against Appraisers.--Section 
     330(c) of title 31, United States Code, is amended by 
     striking ``with respect to whom a penalty has been assessed 
     under section 6701(a) of the Internal Revenue Code of 1986''.
       (e) Effective Dates.--
       (1) Misstatement penalties.--Except as provided in 
     paragraph (3), the amendments made by subsection (a) shall 
     apply to returns filed after the date of the enactment of 
     this Act.
       (2) Appraiser provisions.--Except as provided in paragraph 
     (3), the amendments made by subsections (b), (c), and (d) 
     shall apply to appraisals prepared with respect to returns or 
     submissions filed after the date of the enactment of this 
     Act.
       (3) Special rule for certain easements.--In the case of a 
     contribution of a qualified real property interest which is a 
     restriction with respect to the exterior of a building 
     described in section 170(h)(4)(C)(ii) of the Internal Revenue 
     Code of 1986, and an appraisal with respect to the 
     contribution, the amendments made by subsections (a) and (b) 
     shall apply to returns filed after December 16, 2004.

     SEC. 221. ADDITIONAL STANDARDS FOR CREDIT COUNSELING 
                   ORGANIZATIONS.

       (a) In General.--Section 501 (relating to exemption from 
     tax on corporations, certain trusts, etc.) is amended by 
     redesignating subsection (q) as subsection (r) and by 
     inserting after subsection (p) the following new subsection:
       ``(q) Special Rules for Credit Counseling Organizations.--
       ``(1) In general.--An organization with respect to which 
     the provision of credit counseling services is a substantial 
     purpose shall not be exempt from tax under subsection (a) 
     unless such organization is described in paragraph (3) or (4) 
     of subsection (c) and such organization is organized and 
     operated in accordance with the following requirements:
       ``(A) The organization--
       ``(i) provides credit counseling services tailored to the 
     specific needs and circumstances of consumers,
       ``(ii) makes no loans to debtors and does not negotiate the 
     making of loans on behalf of debtors, and
       ``(iii) does not promote, or charge any separate fee for, 
     any service for the purpose of improving any consumer's 
     credit record, credit history, or credit rating.
       ``(B) The organization does not refuse to provide credit 
     counseling services to a consumer due to the inability of the 
     consumer to pay, the ineligibility of the consumer for debt 
     management plan enrollment, or the unwillingness of the 
     consumer to enroll in a debt management plan.
       ``(C) The organization establishes and implements a fee 
     policy which--
       ``(i) requires that any fees charged to a consumer for 
     services are reasonable, and
       ``(ii) prohibits charging any fee based in whole or in part 
     on a percentage of the consumer's debt, the consumer's 
     payments to be made pursuant to a debt management plan, or 
     the projected or actual savings to the consumer resulting 
     from enrolling in a debt management plan.
       ``(D) At all times the organization has a board of 
     directors or other governing body--
       ``(i) which is controlled by persons who represent the 
     broad interests of the public, such as public officials 
     acting in their capacities as such, persons having special 
     knowledge or expertise in credit or financial education, and 
     community leaders,
       ``(ii) not more than 20 percent of the voting power of 
     which is vested in persons who are employed by the 
     organization or who will benefit financially, directly or 
     indirectly, from the organization's activities (other than 
     through the receipt of reasonable directors' fees or the 
     repayment of consumer debt to creditors other than the credit 
     counseling organization or its affiliates), and
       ``(iii) not more than 49 percent of the voting power of 
     which is vested in persons who are employed by the 
     organization or who will benefit financially, directly or 
     indirectly, from the organization's activities (other than 
     through the receipt of reasonable directors' fees).
       ``(E) The organization does not own more than 35 percent 
     of--

[[Page S622]]

       ``(i) the total combined voting power of a corporation 
     which is in the business of lending money, repairing credit, 
     or providing debt management plan services, payment 
     processing, or similar services,
       ``(ii) the profits interest of a partnership which is in 
     the business of lending money, repairing credit, or providing 
     debt management plan services, payment processing, or similar 
     services, and
       ``(iii) the beneficial interest of a trust or estate which 
     is in the business of lending money, repairing credit, or 
     providing debt management plan services, payment processing, 
     or similar services.
       ``(F) The organization receives no amount for providing 
     referrals to others for financial services (including debt 
     management services) or credit counseling services to be 
     provided to consumers, and pays no amount to others for 
     obtaining referrals of consumers.
       ``(2) Requirements under subsection (c)(3).--In addition to 
     the requirements under paragraph (1), an organization with 
     respect to which the provision of credit counseling services 
     is a substantial purpose and which is described in paragraph 
     (3) of subsection (c) shall not be exempt from tax under 
     subsection (a) unless such organization is organized and 
     operated in accordance with the following requirements:
       ``(A) The organization--
       ``(i) charges no fees (other than nominal fees) for debt 
     management plan services or credit counseling services and 
     waives any fees if the consumer is unable to pay such fees, 
     and
       ``(ii) does not solicit contributions from consumers during 
     the initial counseling process or while the consumer is 
     receiving services from the organization.
       ``(B) The activities of the organization related to debt 
     management plan services (in the aggregate) do not exceed 25 
     percent of the total activities of the organization 
     activities measured by any of the following:
       ``(i) The time spent on activities.
       ``(ii) The resources dedicated to activities.
       ``(iii) The effort expended by the organization with 
     respect to activities.
       ``(iv) The sources of revenue of the organization.
       ``(v) Any other measures prescribed by the Secretary.
       ``(3) Requirements under subsection (c)(4).--In addition to 
     the requirements under paragraph (1), an organization with 
     respect to which the provision of credit counseling services 
     is a substantial purpose and which is described in paragraph 
     (4) of subsection (c) shall not be exempt from tax under 
     subsection (a) unless such organization--
       ``(A) is organized and operated such that it charges no 
     fees (other than nominal fees) for credit counseling services 
     and waives any fees if the consumer is unable to pay such 
     fees, and
       ``(B) notifies the Secretary, in such manner as the 
     Secretary may by regulations prescribe, that it is applying 
     for recognition as a credit counseling organization.
       ``(4) Secretarial authority.--The Secretary may require any 
     organization described in paragraph (1) to submit such 
     information as the Secretary requires to verify that such 
     organization meets the requirements of this section.
       ``(5) Credit counseling services; debt management plan 
     services.--For purposes of this subsection--
       ``(A) Credit counseling services.--The term `credit 
     counseling services' means--
       ``(i) the providing of educational information to the 
     general public on budgeting, personal finance, financial 
     literacy, saving and spending practices, and the sound use of 
     consumer credit,
       ``(ii) the assisting of individuals and families with 
     financial problems by providing them with counseling, or
       ``(iii) a combination of the activities described in 
     clauses (i) and (ii).
       ``(B) Debt management plan services.--The term `debt 
     management plan services' means services related to the 
     repayment, consolidation, or restructuring of a consumer's 
     debt, and includes the negotiation with creditors of lower 
     interest rates, the waiver or reduction of fees, and the 
     marketing and processing of debt management plans.''.
       (b) Debt Management Plan Services Treated as an Unrelated 
     Business.--Section 513 (relating to unrelated trade or 
     business) is amended by adding at the end the following:
       ``(j) Debt Management Plan Services.--The term `unrelated 
     trade or business' includes--
       ``(1) the provision of debt management plan services (as 
     defined in section 501(q)(4)(B)) by an organization described 
     in section 501(q) to the extent such services are not 
     substantially related to the provision of credit counseling 
     services (as defined in section 501(q)(4)(A)) to a consumer, 
     and
       ``(2) the provision of debt management plan services (as so 
     defined) by any organization other than an organization which 
     meets the requirements of section 501(q).''.
       (c) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after the date of the enactment of this Act.
       (2) Transition rule for existing organizations.--In the 
     case of any organization described in paragraph (3) or (4) 
     section 501(c) of the Internal Revenue Code of 1986 and with 
     respect to which the provision of credit counseling services 
     is a substantial purpose on the date of the enactment of this 
     Act, the amendments made by this section shall apply to 
     taxable years beginning after the date which is 1 year after 
     the date of the enactment of this Act.

     SEC. 222. EXPANSION OF THE BASE OF TAX ON PRIVATE FOUNDATION 
                   NET INVESTMENT INCOME.

       (a) Gross Investment Income.--
       (1) In general.--Paragraph (2) of section 4940(c) (relating 
     to gross investment income) is amended by adding at the end 
     the following new sentence: ``Such term shall also include 
     income from sources similar to those in the preceding 
     sentence.''.
       (2) Conforming amendment.--Subsection (e) of section 509 
     (relating to gross investment income) is amended by adding at 
     the end the following new sentence: ``Such term shall also 
     include income from sources similar to those in the preceding 
     sentence.''.
       (b) Capital Gain Net Income.--Paragraph (4) of section 
     4940(c) (relating to capital gains and losses) is amended--
       (1) in subparagraph (A), by striking ``used for the 
     production of interest, dividends, rents, and royalties'' and 
     inserting ``used for the production of gross investment 
     income (as defined in paragraph (2))'', and
       (2) in subparagraph (C), by inserting ``or carrybacks'' 
     after ``carryovers''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 223. DEFINITION OF CONVENTION OR ASSOCIATION OF 
                   CHURCHES.

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

     SEC. 224. NOTIFICATION REQUIREMENT FOR ENTITIES NOT CURRENTLY 
                   REQUIRED TO FILE.

       (a) In General.--Section 6033 (relating to returns by 
     exempt organizations) is amended by redesignating subsection 
     (h) as subsection (i) and by inserting after subsection (g) 
     the following new subsection:
       ``(h) Additional Notification Requirements.--Any 
     organization the gross receipts of which in any taxable year 
     result in such organization being referred to in subsection 
     (a)(3)(A)(ii) or (a)(3)(B)--
       ``(1) shall furnish annually, at such time and in such 
     manner as the Secretary may by forms or regulations 
     prescribe, information setting forth--
       ``(A) the legal name of the organization,
       ``(B) any name under which such organization operates or 
     does business,
       ``(C) the organization's mailing address and Internet web 
     site address (if any),
       ``(D) the organization's taxpayer identification number,
       ``(E) the name and address of a principal officer, and
       ``(F) evidence of the continuing basis for the 
     organization's exemption from the filing requirements under 
     subsection (a)(1), and
       ``(2) upon the termination of the existence of the 
     organization, shall furnish notice of such termination.''.
       (b) Loss of Exempt Status for Failure To File Return or 
     Notice.--Section 6033 (relating to returns by exempt 
     organizations), as amended by subsection (a), is amended by 
     redesignating subsection (i) as subsection (j) and by 
     inserting after subsection (h) the following new subsection:
       ``(i) Loss of Exempt Status for Failure To File Return or 
     Notice.--
       ``(1) In general.--If an organization described in 
     subsection (a)(1) or (k) fails to file an annual return or 
     notice required under either subsection for 3 consecutive 
     years, such organization's status as an organization exempt 
     from tax under section 501(a) shall be considered revoked on 
     and after the date set by the Secretary for the filing of the 
     third annual return or notice. The Secretary shall publish 
     and maintain a list of any organization the status of which 
     is so revoked.
       ``(2) Application necessary for reinstatement.--Any 
     organization the tax-exempt status of which is revoked under 
     paragraph (1) must apply in order to obtain reinstatement of 
     such status regardless of whether such organization was 
     originally required to make such an application.
       ``(3) Retroactive reinstatement if reasonable cause shown 
     for failure.--If upon application for reinstatement of status 
     as an organization exempt from tax under section 501(a), an 
     organization described in paragraph (1) can show to the 
     satisfaction of the Secretary evidence of reasonable cause 
     for the failure described in such paragraph, the 
     organization's exempt status may, in the discretion of the 
     Secretary, be reinstated effective from the date of the 
     revocation under such paragraph.''.
       (c) No Declaratory Judgment Relief.--Section 7428(b) 
     (relating to limitations) is amended by adding at the end the 
     following new paragraph:
       ``(4) Nonapplication for certain revocations.--No action 
     may be brought under this section with respect to any 
     revocation of status described in section 6033(i)(1).''.
       (d) No Inspection Requirement.--Section 6104(b) (relating 
     to inspection of annual information returns), as amended by 
     this Act,

[[Page S623]]

     is amended by inserting ``(other than subsection (h) 
     thereof)'' after ``6033''.
       (e) No Disclosure Requirement.--Section 6104(d)(3) 
     (relating to exceptions from disclosure requirements) is 
     amended by redesignating subparagraph (B) as subparagraph (C) 
     and by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Nondisclosure of annual notices.--Paragraph (1) shall 
     not require the disclosure of any notice required under 
     section 6033(h).''.
       (f) No Monetary Penalty for Failure To Notify.--Section 
     6652(c)(1) (relating to annual returns under section 6033 or 
     6012(a)(6)) is amended by adding at the end the following new 
     subparagraph:
       ``(E) No penalty for certain annual notices.--This 
     paragraph shall not apply with respect to any notice required 
     under section 6033(h).''.
       (g) Secretarial Outreach Requirements.--
       (1) Notice requirement.--The Secretary of the Treasury 
     shall notify in a timely manner every organization described 
     in section 6033(h) of the Internal Revenue Code of 1986 (as 
     added by this section) of the requirement under such section 
     6033(h) and of the penalty established under section 6033(i) 
     of such Code--
       (A) by mail, in the case of any organization the identity 
     and address of which is included in the list of exempt 
     organizations maintained by the Secretary, and
       (B) by Internet or other means of outreach, in the case of 
     any other organization.
       (2) Loss of status penalty for failure to file return.--The 
     Secretary of the Treasury shall publicize in a timely manner 
     in appropriate forms and instructions and through other 
     appropriate means, the penalty established under section 
     6033(i) of such Code for the failure to file a return under 
     section 6033(a)(1) of such Code.
       (h) Effective Date.--The amendments made by this section 
     shall apply to notices and returns with respect to annual 
     periods beginning after 2005.

     SEC. 225. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS 
                   RELATED TO EXEMPT ORGANIZATIONS.

       (a) In General.--Subsection (c) of section 6104 is amended 
     by striking paragraph (2) and inserting the following new 
     paragraphs:
       ``(2) Disclosure of proposed actions related to charitable 
     organizations.--
       ``(A) Specific notifications.--In the case of an 
     organization to which paragraph (1) applies, the Secretary 
     may disclose to the appropriate State officer--
       ``(i) a notice of proposed refusal to recognize such 
     organization as an organization described in section 
     501(c)(3) or a notice of proposed revocation of such 
     organization's recognition as an organization exempt from 
     taxation,
       ``(ii) the issuance of a letter of proposed deficiency of 
     tax imposed under section 507 or chapter 41 or 42, and
       ``(iii) the names, addresses, and taxpayer identification 
     numbers of organizations which have applied for recognition 
     as organizations described in section 501(c)(3).
       ``(B) Additional disclosures.--Returns and return 
     information of organizations with respect to which 
     information is disclosed under subparagraph (A) may be made 
     available for inspection by or disclosed to an appropriate 
     State officer.
       ``(C) Procedures for disclosure.--Information may be 
     inspected or disclosed under subparagraph (A) or (B) only--
       ``(i) upon written request by an appropriate State officer, 
     and
       ``(ii) for the purpose of, and only to the extent necessary 
     in, the administration of State laws regulating such 
     organizations.
     Such information may only be inspected by or disclosed to a 
     person other than the appropriate State officer if such 
     person is an officer or employee of the State and is 
     designated by the appropriate State officer to receive the 
     returns or return information under this paragraph on behalf 
     of the appropriate State officer.
       ``(D) Disclosures other than by request.--The Secretary may 
     make available for inspection or disclose returns and return 
     information of an organization to which paragraph (1) applies 
     to an appropriate State officer of any State if the Secretary 
     determines that such inspection or disclosure may facilitate 
     the resolution of Federal or State issues relating to the 
     tax-exempt status of such organization.
       ``(3) Disclosure with respect to certain other exempt 
     organizations.--Upon written request by an appropriate State 
     officer, the Secretary may make available for inspection or 
     disclosure returns and return information of an organization 
     described in paragraph (2), (4), (6), (7), (8), (10), or (13) 
     of section 501(c) for the purpose of, and to the extent 
     necessary in, the administration of State laws regulating the 
     solicitation or administration of the charitable funds or 
     charitable assets of such organizations. Such information may 
     only be inspected by or disclosed to a person other than the 
     appropriate State officer if such person is an officer or 
     employee of the State and is designated by the appropriate 
     State officer to receive the returns or return information 
     under this paragraph on behalf of the appropriate State 
     officer.
       ``(4) Use in civil judicial and administrative 
     proceedings.--Returns and return information disclosed 
     pursuant to this subsection may be disclosed in civil 
     administrative and civil judicial proceedings pertaining to 
     the enforcement of State laws regulating such organizations 
     in a manner prescribed by the Secretary similar to that for 
     tax administration proceedings under section 6103(h)(4).
       ``(5) No disclosure if impairment.--Returns and return 
     information shall not be disclosed under this subsection, or 
     in any proceeding described in paragraph (4), to the extent 
     that the Secretary determines that such disclosure would 
     seriously impair Federal tax administration.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Return and return information.--The terms `return' 
     and `return information' have the respective meanings given 
     to such terms by section 6103(b).
       ``(B) Appropriate state officer.--The term `appropriate 
     State officer' means--
       ``(i) the State attorney general,
       ``(ii) the State tax officer,
       ``(iii) in the case of an organization to which paragraph 
     (1) applies, any other State official charged with overseeing 
     organizations of the type described in section 501(c)(3), and
       ``(iv) in the case of an organization to which paragraph 
     (3) applies, the head of an agency designated by the State 
     attorney general as having primary responsibility for 
     overseeing the solicitation of funds for charitable 
     purposes.''.
       (b) Conforming Amendments.--
       (1) Subparagraph (A) of section 6103(p)(3) is amended by 
     inserting ``an section 6104(c)'' after ``section'' in the 
     first sentence.
       (2) Paragraph (4) of section 6103(p) is amended--
       (A) in the matter preceding subparagraph (A), by inserting 
     ``, or any appropriate State officer (as defined in section 
     6104(c)),'' before ``or any other person'',
       (B) in subparagraph (F)(i), by inserting ``or any 
     appropriate State officer (as defined in section 6104(c)),'' 
     before ``or any other person'', and
       (C) in the matter following subparagraph (F), by inserting 
     ``, an appropriate State officer (as defined in section 
     6104(c)),'' after ``including an agency'' each place it 
     appears.
       (3) The heading for paragraph (1) of section 6104(c) is 
     amended by inserting ``for charitable organizations'' after 
     ``rule''.
       (4) Paragraph (2) of section 7213(a) is amended by 
     inserting ``or under section 6104(c)'' after ``6103''.
       (5) Paragraph (2) of section 7213A(a) is amended by 
     inserting ``or 6104(c)'' after ``6103''.
       (6) Paragraph (2) of section 7431(a) is amended by 
     inserting ``(including any disclosure in violation of section 
     6014(c)'' after ``6103''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act 
     but shall not apply to requests made before such date.

        PART II--IMPROVED ACCOUNTABILITY OF DONOR ADVISED FUNDS

     SEC. 231. EXCISE TAX ON SPONSORING ORGANIZATIONS OF DONOR 
                   ADVISED FUNDS FOR FAILURE TO MEET DISTRIBUTION 
                   REQUIREMENTS.

       (a) In General.--Chapter 42 (relating to private 
     foundations and certain other tax-exempt organizations), as 
     amended by this Act, is amended by adding at the end the 
     following new subchapter:

                  ``Subchapter G--Donor Advised Funds

``Sec. 4967. Taxes on sponsoring organizations of donor advised funds 
              for failure to meet distributions requirements.
``Sec. 4968. Taxes on prohibited distributions.
``Sec. 4969. Taxes on prohibited benefits.

     ``SEC. 4967. TAXES ON SPONSORING ORGANIZATIONS OF DONOR 
                   ADVISED FUNDS FOR FAILURE TO MEET DISTRIBUTION 
                   REQUIREMENTS.

       ``(a) Initial Tax.--There is hereby imposed on any 
     sponsoring organization a tax equal to 30 percent of each of 
     the following amounts:
       ``(1) The organization level undistributed amount of such 
     sponsoring organization (other than any organization subject 
     to tax under section 4942) for any taxable year which has not 
     been distributed before the first day of the second (or any 
     succeeding) taxable year following such taxable year (if such 
     first day falls within the taxable period).
       ``(2) The fund level undistributed amount of any donor 
     advised fund of such sponsoring organization for any taxable 
     year which has not been distributed before the 181st day of 
     the first (or any succeeding) taxable year following the 
     applicable period (if such 181st day falls within the taxable 
     period).
       ``(3) The illiquid fund undistributed amount of any 
     illiquid asset donor advised fund of such sponsoring 
     organization for any taxable year which has not been 
     distributed before the 181st day of the second (or any 
     succeeding) taxable year following such taxable year (if such 
     181st day falls within the taxable period).
       ``(b) Additional Tax.--In any case in which an initial tax 
     is imposed under subsection (a) on any amount, if any portion 
     of such amount remains undistributed at the close of the 
     taxable period, there is hereby imposed a tax equal to 100 
     percent of the amount remaining undistributed at such time.
       ``(c) Organization Level Undistributed Amount; Fund Level 
     Undistributed Amount; Illiquid Fund Undistributed Amount.--
     For purposes of this section--

[[Page S624]]

       ``(1) Organization level undistributed amount.--The term 
     `organization level undistributed amount' means, with respect 
     to any sponsoring organization for any taxable year, the 
     amount by which--
       ``(A) the organization level distributable amount for such 
     taxable year, exceeds
       ``(B) the qualifying distributions made during such taxable 
     year and designated for the purpose of reducing such amount.
       ``(2) Fund level undistributed amount.--The term `fund 
     level undistributed amount' means, with respect to any donor 
     advised fund of a sponsoring organization for any applicable 
     period, the amount by which--
       ``(A) the fund level distributable amount for such 
     applicable period, exceeds
       ``(B) the qualifying distributions made during such 
     applicable period and designated for the purpose of reducing 
     such amount.
       ``(3) Illiquid fund undistributed amount.--
       ``(A) In general.--The term `illiquid fund undistributed 
     amount' means, with respect to any illiquid asset donor 
     advised fund of a sponsoring organization for any taxable 
     year, the amount by which--
       ``(i) the illiquid fund distributable amount for such 
     taxable year, exceeds
       ``(ii) the qualifying distributions made during such 
     taxable year and designated for the purpose of reducing such 
     amount.
       ``(B) Illiquid asset donor advised fund.--The term 
     `illiquid asset donor advised fund' means for any taxable 
     year a donor advised fund the value of the illiquid assets of 
     which (as of the end of the preceding taxable year) exceeds 
     10 percent of the value of the total assets of such fund.
       ``(C) Illiquid asset.--The term `illiquid asset' means for 
     any taxable year any asset other than cash and marketable 
     securities the value of which is held for the entire taxable 
     year as such asset or any other illiquid asset.
       ``(d) Organization Level Distributable Amount; Fund Level 
     Distributable Amount; Illiquid Fund Distributable Amount.--
     For purposes of this section--
       ``(1) Organization level distributable amount.--The term 
     `organization level distributable amount' means, with respect 
     to any sponsoring organization for any taxable year, an 
     amount equal to the applicable percentage of the fair market 
     value of the aggregate assets of all donor advised funds 
     maintained by such organization as determined on the last day 
     of the preceding taxable year (other than such funds which 
     have been in existence for less than 1 year as so 
     determined).
       ``(2) Fund level distributable amount.--The term `fund 
     level distributable amount' means, with respect to any donor 
     advised fund of any sponsoring organization for any 
     applicable 3-consecutive taxable year period, an amount equal 
     to the greater of--
       ``(A) $250, or
       ``(B) 2.5 percent of the greater of--
       ``(i) the average of the sponsoring organization's required 
     minimum initial contribution amount for such period, or
       ``(ii) the average of the sponsoring organization's 
     required minimum balance for such period,
     for the type of donor with respect to such donor advised 
     fund.
       ``(3) Illiquid fund distributable amount.--The term 
     `illiquid fund distributable amount' means, with respect to 
     any illiquid asset donor advised fund of any sponsoring 
     organization for any taxable year, an amount equal to the 
     applicable percentage of the value of the assets in such fund 
     as determined at the end of the preceding taxable year.
       ``(4) Applicable percentage.--For purposes of paragraphs 
     (1) and (3), the applicable percentage is--
       ``(A) 3 percent for the first taxable year beginning after 
     the date of the enactment of this section,
       ``(B) 4 percent for the second taxable year beginning after 
     such date, and
       ``(C) 5 percent for any taxable year beginning after the 
     second taxable year beginning after such date.
       ``(e) Qualifying Distribution.--For purposes of this 
     section--
       ``(1) In general.--The term `qualifying distribution' 
     means--
       ``(A) any amount paid by the sponsoring organization from a 
     donor advised fund--
       ``(i) to any organization described in section 170(b)(1)(A) 
     (other than any organization described in section 509(a)(3) 
     or any sponsoring organization if such amount is for 
     maintenance in a donor advised fund), and
       ``(ii) notwithstanding clause (i), to any organization 
     described section 170(f)(17)(B)(ii), but only to the extent 
     not prohibited by regulations, and
       ``(B) any amount set aside in such donor advised fund for 
     purposes, and under procedures similar to those, described in 
     section 4942(g)(2).
     Such term shall also include any amount paid during any 
     taxable year for reasonable and necessary administrative 
     expenses charged to a donor advised fund by a sponsoring 
     organization.
       ``(2) Distributions to sponsoring organizations.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     such term shall include any distribution to a sponsoring 
     organization.
       ``(B) Organization level distributions.--For purposes of 
     subsection (c)(1)(B), such term shall not include any 
     distribution to a sponsoring organization unless such 
     distribution is designated for use in connection with a 
     charitable program of such organization.
       ``(3) Purpose of distribution.--Each qualifying 
     distribution shall be taken into account in determining 
     whether each of the requirements of paragraphs (1), (2), and 
     (3) of subsection (a) are met, except that only qualifying 
     distributions from a donor advised fund shall be taken into 
     account in determining whether the requirements of paragraphs 
     (2) and (3) of subsection (a) are met with respect to the 
     fund.
       ``(4) Designation of taxable year.--
       ``(A) In general.--A sponsoring organization shall 
     designate the taxable years or applicable periods with 
     respect to which any qualifying distribution shall be applied 
     for purposes of satisfying the distribution requirements of 
     such taxable year or applicable period.
       ``(B) Carryover of excess distribution designations.--If a 
     sponsoring organization designates an amount of qualifying 
     distributions in excess of the amount necessary to meet the 
     distribution requirements for all taxable years and all 
     applicable periods, the sponsoring organization may designate 
     such excess as a carryover distribution which may be applied 
     for purposes of satisfying the distribution requirements of 
     the succeeding 5 taxable years.
       ``(f) Valuation Rules.--For purposes of determining the 
     value of any asset held by a donor advised fund, the 
     following rules shall apply:
       ``(1) Securities for which market quotations are readily 
     available shall be valued at fair market value determined on 
     a monthly basis.
       ``(2) Cash shall be determined on an average monthly basis.
       ``(3) Any illiquid asset transferred by a donor to a 
     sponsoring organization for maintenance in such donor advised 
     fund shall be valued in an amount equal to the sum of--
       ``(A) the value of such asset claimed by the donor for 
     purposes of determining the donor's deduction under section 
     170, 2055, or 2522 with respect to such transfer and reported 
     by the donor to the sponsoring organization (in any manner 
     specified by the Secretary), and
       ``(B) an assumed annual rate of return of 5 percent of such 
     value.
       ``(4) Any illiquid asset purchased by such fund shall be 
     valued in an amount equal to--
       ``(A) the purchase price paid for such asset by such fund, 
     and
       ``(B) an assumed annual rate of return of 5 percent of such 
     value.
       ``(g) Sponsoring Organization; Donor Advised Fund.--For 
     purposes of this subchapter--
       ``(1) Sponsoring organization.--The term `sponsoring 
     organization' means any organization which--
       ``(A) is described in section 170(c) (other than in 
     paragraph (1) thereof, and without regard to paragraph (2)(A) 
     thereof), and
       ``(B) maintains 1 or more donor advised funds.
       ``(2) Donor advised fund.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `donor advised fund' means a fund or account--
       ``(i) which is separately identified by reference to 
     contributions of a donor or donors,
       ``(ii) which is owned and controlled by a sponsoring 
     organization, and
       ``(iii) with respect to which a donor or any person 
     appointed or designated by such person) has, or reasonably 
     expects to have, advisory privileges with respect to the 
     distribution or investment of amounts held in such fund or 
     account by reason of the donor's status as a donor.
       ``(B) Exception.--The term `donor advised fund' shall not 
     include any fund or account with respect to which a person 
     described in subparagraph (A)(iii) advises as to which 
     individuals receive grants for travel, study, or other 
     similar purposes, but only if--
       ``(i) such person's advisory privileges are performed 
     exclusively by such person in the person's capacity as a 
     member of a committee appointed by the sponsoring 
     organization,
       ``(ii) no combination of persons described in subparagraph 
     (A)(iii) (or persons related to such persons) control, 
     directly or indirectly, such committee, and
       ``(iii) all grants from such fund or account satisfy 
     requirements similar to those described in section 4945(g) 
     (concerning grants to individuals by private foundations).
       ``(C) Secretarial authority.--The Secretary may exempt a 
     fund or account from treatment as a donor advised fund 
     which--
       ``(i) is advised by committee not directly or indirectly 
     controlled by the donor or advisor (and any related parties), 
     or
       ``(ii) will benefit a single identified organization or 
     governmental entity or a single identified charitable 
     purpose.
       ``(h) Other Definitions.--For purposes of this section--
       ``(1) Taxable period.--The term `taxable period' means, 
     with respect to the undistributed amount for any taxable 
     year, the period beginning with the first day of the taxable 
     year and ending on the earlier of--
       ``(A) the date of mailing of a notice of deficiency with 
     respect to the tax imposed by subsection (a) under section 
     6212, or
       ``(B) the date on which the tax imposed by subsection (a) 
     is assessed.
       ``(2) Applicable period.--The term `applicable period' 
     means, with respect to any donor advised fund of any 
     sponsoring organization, a 3-consecutive taxable year period 
     determined under the following rules:

[[Page S625]]

       ``(A) The first applicable 3-consecutive taxable year 
     period for any donor advised fund shall begin on the first 
     day of the first taxable year of the sponsoring organization 
     beginning after the date such fund has been in existence for 
     1 year.
       ``(B) Any applicable 3-consecutive taxable year period 
     after the first such period shall begin on the day after the 
     termination of any preceding applicable 3-consecutive taxable 
     year period with respect to such donor advised fund.
       ``(i) Regulations.--The Secretary may issue such 
     regulations as are necessary to carry out the purposes of 
     this section, including regulations regarding--
       ``(1) the acceptable methods for calculating the 
     organization level undistributed amount for sponsoring 
     organizations,
       ``(2) the allowable adjustments in the determination of the 
     value of any illiquid asset where the asset value has 
     declined significantly after a contribution to, or purchase 
     by, the donor advised fund, and
       ``(3) the treatment or disregard of transactions designed 
     to avoid the application of the illiquid asset rules, such as 
     through exchanges of illiquid assets for other assets.

     ``SEC. 4968. TAXES ON PROHIBITED DISTRIBUTIONS.

       ``(a) Imposition of Taxes.--
       ``(1) On the donor or donor advisor.--There is hereby 
     imposed on the advice of any person described in section 
     4967(g)(2)(A)(iii) to have a sponsoring organization of a 
     donor advised fund make a taxable distribution from such fund 
     a tax equal to 20 percent of the amount thereof. The tax 
     imposed by this paragraph shall be paid by such person who 
     advised the sponsoring organization of the donor advised fund 
     to make the distribution.
       ``(2) On the fund management.--There is hereby imposed on 
     the agreement of any fund manager to the making of a 
     distribution, knowing that it is a taxable distribution, a 
     tax equal to 5 percent of the amount thereof, unless such 
     agreement is not willful and is due to reasonable cause. The 
     tax imposed by this paragraph shall be paid by any fund 
     manager who agreed to the making of the distribution.
       ``(b) Joint and Several Liability.--For purposes of 
     subsection (a), if more than one person is liable under 
     subsection (a)(1) or (a)(2) with respect to the making of a 
     taxable distribution, all such persons shall be jointly and 
     severally liable under such paragraph with respect to such 
     distribution.
       ``(c) Taxable Distribution.--For purposes of this 
     subsection--
       ``(1) In general.--The term `taxable distribution' means 
     any distribution from a donor advised fund to any person 
     other than the sponsoring organization's non donor advised 
     funds or accounts or organizations described in section 
     170(b)(1)(A) (other than any organization described in 
     section 509(a)(3) or any sponsoring organization if such 
     amount is for maintenance in a donor advised fund).
       ``(2) Exception.--Notwithstanding paragraph (1), such term 
     shall not include any distribution from a donor advised fund 
     to any organization described in section 170(f)(17)(B)(ii) to 
     the extent such distribution is not prohibited under 
     regulations.
       ``(d) Fund Manager.--For purposes of this subchapter, the 
     term `fund manager' means, with respect to any sponsoring 
     organization of a donor advised fund--
       ``(1) an officer, director, or trustee of such sponsoring 
     organization (or an individual having powers or 
     responsibilities similar to those of officers, directors, or 
     trustees of the sponsoring organization), and
       ``(2) with respect to any act (or failure to act), the 
     employees of the sponsoring organization having authority or 
     responsibility with respect to such act (or failure to act).

     ``SEC. 4969. TAXES ON PROHIBITED BENEFITS.

       ``(a) Imposition of Taxes.--
       ``(1) On the donor, donor advisor, or related person.--
     There is hereby imposed on the advice of any person described 
     in subsection (c) to have a sponsoring organization of a 
     donor advised fund make a distribution from such fund which 
     results in such a person receiving, directly or indirectly, a 
     more than incidental benefit as a result of such 
     distribution, a tax equal to 25 percent of the amount of such 
     distribution. The tax imposed by this paragraph shall be paid 
     by such person who advised the sponsoring organization of the 
     donor advised fund to make the distribution.
       ``(2) On the recipient of the benefit.--There is hereby 
     imposed on any person described in subsection (c) who 
     receives a benefit described in paragraph (1), a tax equal to 
     25 percent of the amount of the distribution described in 
     paragraph (1).
       ``(3) On the fund management.--There is hereby imposed on 
     the agreement of any fund manager to the making of a 
     distribution, knowing that such distribution would confer a 
     benefit described in paragraph (1), a tax equal to 10 percent 
     of the amount of such distribution, unless such agreement is 
     not willful and is due to reasonable cause. The tax imposed 
     by this paragraph shall be paid by any fund manager who 
     agreed to the making of the distribution.
       ``(b) Joint and Several Liability.--For purposes of 
     subsection (a), if more than one person is liable under 
     subsection (a)(1), (a)(2), or (a)(3) with respect to the 
     making of a distribution described in subsection (a), all 
     such persons shall be jointly and severally liable under such 
     paragraph with respect to such distribution.
       ``(c) Donor, Donor Advisor, or Related Person.--A person is 
     described in this subsection if such person is described in 
     section 4958(f)(1)(D) (determined without regard to any 
     investment advisor).''.
       (b) Abatement of Taxes Allowed.--Section 4963 is amended--
       (1) by inserting ``4967, 4968, 4969,'' after ``4958,'' each 
     place it appears in subsections (a) and (c),
       (2) by inserting ``4967,'' after ``4958,'' in subsection 
     (b),
       (3) in subsection (d)(2), by striking ``and'' at the end of 
     subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(D) in the case of the second tier tax imposed by section 
     4967(b), reducing the amount of the undistributed amount to 
     zero.'', and
       (4) in subsection (e)(2), by redesignating subparagraphs 
     (C) and (D) as subparagraphs (E) and (F), respectively, and 
     by inserting after subparagraph (B) the following new 
     subparagraphs:
       ``(C) in the case of section 4967(a)(1), on the first day 
     of the taxable year for which there was a failure to 
     distribute,
       ``(D) in the case of paragraph (2) or (3) of section 
     4967(a), on the 181st day of the taxable year for which there 
     was a failure to distribute,''.
       (c) Conforming Amendments.--
       (1) The table of subchapters for chapter 42, as amended by 
     this Act, is amended by adding at the end the following new 
     item:


                ``Subchapter G. Donor Advised Funds.''.

       (2) Section 6213(e) is amended by inserting ``4967 
     (relating to taxes on sponsoring organizations of donor 
     advised funds for failure to meet distribution 
     requirements),'' after ``benefit),''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 232. PROHIBITED TRANSACTIONS.

       (a) Disqualified Persons.--
       (1) In general.--Paragraph (1) of section 4958(f) is 
     amended by striking ``and'' at the end of subparagraph (B), 
     by striking the period at the end of subparagraph (C) and 
     inserting ``, and'', and by adding after subparagraph (C) the 
     following new subparagraph:
       ``(D) any person who is described in paragraph (7) with 
     respect to any sponsoring organization (as defined in section 
     4967(g)(1)).''.
       (2) Donors, donor advisors, and investment advisors treated 
     as disqualified persons.--Section 4958(f) is amended by 
     adding at the end the following new paragraph:
       ``(7) Donors, donor advisors, and investment advisors with 
     respect to sponsoring organizations.--For purposes of 
     paragraph (1)(D)--
       ``(A) In general.--A person is described in this paragraph 
     if such person--
       ``(i) is described in section 4967(g)(2)(A)(iii),
       ``(ii) is an investment advisor,
       ``(iii) is a member of the family of an individual 
     described in clause (i) or (ii), or
       ``(iv) is a 35-percent controlled entity (as defined in 
     paragraph (3) by substituting `persons described in clause 
     (i), (ii), or (iii) of paragraph (7)(A)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(B) Investment advisor.--The term `investment advisor' 
     means, with respect to any sponsoring organization (as 
     defined in section 4967(g)(1)), any person (other than an 
     employee of such organization) compensated by such 
     organization for managing the investment of, or providing 
     investment advice with respect to, assets maintained in donor 
     advised funds (as defined in section 4967(g)(2)) owned by 
     such organization.''.
       (3) Donors, donor advisors, and investment advisors treated 
     as disqualified persons with respect to a sponsoring 
     organization which is a private foundation.--Section 
     4946(a)(1) is amended by striking ``and'' at the end of 
     subparagraph (H), by striking the period at the end of 
     subparagraph (I) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(J) a person described in section 4958(f)(1)(D).''.
       (b) Certain Transactions Treated as Excess Benefit 
     Transactions.--
       (1) In general.--Section 4958(c) is amended by 
     redesignating paragraph (2) as paragraph (3) and by inserting 
     after paragraph (1) the following new paragraph:
       ``(2) Special rules for donor advised funds owned by 
     sponsoring organizations.--In the case of any donor advised 
     fund (as defined in section 4967(g)(2)) of a sponsoring 
     organization (as defined in section 4967(g)(1))--
       ``(A) the term `excess benefit transaction' includes any 
     grant, loan, compensation, or other payment from such fund to 
     a person described in subsection (f)(1)(D) (determined 
     without regard to any investment advisor) with respect to 
     such fund, and
       ``(B) the term `excess benefit' includes, with respect to 
     any transaction described in subparagraph (A), the amount of 
     any such grant, loan, compensation, or other payment.

     Notwithstanding the last sentence of subsection (e), a 
     sponsoring organization shall be treated as an applicable 
     tax-exempt organization to the extent necessary to carry out 
     this paragraph.''.

[[Page S626]]

       (2) Special rule for correction of transaction.--Section 
     4958(f)(6) is amended by inserting ``, except that in the 
     case of any correction of an excess benefit transaction 
     described in subsection (c)(2), no amount repaid in a manner 
     prescribed by the Secretary may be held in, or credited to, 
     any donor advised fund'' after ``standards''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 233. TREATMENT OF CHARITABLE CONTRIBUTION DEDUCTIONS TO 
                   DONOR ADVISED FUNDS.

       (a) Income.--Section 170(f) (relating to disallowance of 
     deduction in certain cases and special rules), as amended by 
     this Act, is amended by adding at the end the following new 
     paragraph:
       ``(17) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3), (4), or (5) of subsection (c) or section 
     509(a)(3), and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of paragraph (8)(C) from the sponsoring organization that 
     such organization has exclusive legal control over the assets 
     contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (b) Estate.--Section 2055(e) is amended by adding at the 
     end the following new paragraph:
       ``(5) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3) or (4) of subsection (a) or section 509(a)(3), 
     and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of section 170(f)(8)(C)) from the sponsoring organization 
     that such organization has exclusive legal control over the 
     assets contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (c) Gift.--Section 2522(c) is amended by adding at the end 
     the following new paragraph:
       ``(13) Contributions to donor advised funds.--
       ``(A) In general.--A deduction otherwise allowed under 
     subsection (a) for any contribution to a sponsoring 
     organization (as defined in section 4967(g)(1)) to be 
     maintained in any donor advised fund (as defined in section 
     4967(g)(2)) of such organization shall only be allowed if--
       ``(i) such sponsoring organization is not described in 
     paragraph (3) or (4) of subsection (a) or section 509(a)(3), 
     and
       ``(ii) the taxpayer obtains a contemporaneous written 
     acknowledgment (determined under rules similar to the rules 
     of section 170(f)(8)(C)) from the sponsoring organization 
     that such organization has exclusive legal control over the 
     assets contributed.
       ``(B) Contributions to type i or type ii supporting 
     organizations.--
       ``(i) In general.--Notwithstanding subparagraph (A)(i), a 
     contribution to a sponsoring organization (as so defined) 
     described in clause (ii) to be maintained in any donor 
     advised fund (as so defined) of such organization shall be 
     allowed to the extent not prohibited by regulations.
       ``(ii) Organization described.--An organization is 
     described in this clause if the organization meets the 
     requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and is--

       ``(I) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), or
       ``(II) supervised or controlled in connection with one or 
     more such organizations.''.

       (d) Regulations.--The regulations prescribed under sections 
     170(f)(17)(B)(i), 2055(e)(5)(B)(i), 2522(c)(13)(B)(i), 
     4967(e)(i)(A)(ii), and 4968(c)(2) of the Internal Revenue 
     Code of 1986 shall deny a deduction for contributions to 
     sponsoring organizations (as defined in section 4967(g)(1) of 
     such Code) which are described in section 170(f)(17)(B)(ii) 
     of such Code and shall apply excise taxes to distributions 
     from donor advised funds (as defined in section 4967(g)(2) of 
     such Code) and sponsoring organizations (as so defined) to 
     organizations so described in cases where the donor of the 
     contributions or the donor or donor advisor of the amounts 
     distributed directly or indirectly controls a supported 
     organization (as defined in section 509(f)(3) of such Code) 
     of such organization.
       (e) Effective Date.--The amendments made by this section 
     shall apply to contributions made after the date which is 180 
     days after the date of the enactment of this Act.

     SEC. 234. RETURNS OF, AND APPLICATIONS FOR RECOGNITION BY, 
                   SPONSORING ORGANIZATIONS.

       (a) Matters Included on Returns.--
       (1) In general.--Section 6033, as amended by this Act, is 
     amended by redesignating subsection (j) as subsection (k) and 
     by inserting after subsection (i) the following new 
     subsection:
       ``(j) Additional Provisions Relating to Sponsoring 
     Organizations.--Every organization described in section 
     4967(g)(1) shall, on the return required under subsection (a) 
     for the taxable year--
       ``(1) list the total number of donor advised funds (as 
     defined in section 4967(g)(2)) it owns at the end of such 
     taxable year,
       ``(2) indicate the aggregate value of assets held in such 
     funds at the end of such taxable year, and
       ``(3) indicate the aggregate contributions to and grants 
     made from such funds during such taxable year.''.
       (2) Extension of statute of limitations.--Section 6501(c) 
     is amended by adding at the end the following new paragraph:
       ``(11) Donor advised funds.--If a sponsoring organization 
     (as defined in section 4967(g)(1)) fails to include on any 
     return for any taxable year any information with respect to 
     any donor advised fund of such organization which is required 
     under section 6033(j) to be included with such return, the 
     time for assessment of any tax imposed under subchapter G of 
     chapter 42 with respect to any distribution from such donor 
     advised fund shall not expire before the date which is 3 
     years after the date on which the secretary is furnished the 
     information so required.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to returns filed for taxable years ending after 
     the date of the enactment of this Act.
       (b) Matters Included on Exempt Status Application.--
       (1) In general.--Section 508 is amended by adding at the 
     end the following new subsection:
       ``(f) Additional Provisions Relating to Sponsoring 
     Organizations.--A sponsoring organization (as defined in 
     section 4967(g)(1)) shall give notice to the Secretary (in 
     such manner as the Secretary may provide) whether such 
     organization maintains or intends to maintain donor advised 
     funds (as defined in section 4967(g)(2)) and the manner in 
     which such organization plans to operate such funds.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to organizations applying for tax-exempt status 
     after the date of the enactment of this Act.

     PART III--IMPROVED ACCOUNTABILITY OF SUPPORTING ORGANIZATIONS

     SEC. 241. REQUIREMENTS FOR SUPPORTING ORGANIZATIONS.

       (a) Types of Supporting Organizations.--Subparagraph (B) of 
     section 509(a)(3) is amended to read as follows:
       ``(B) is--
       ``(i) operated, supervised, or controlled by one or more 
     organizations described in paragraph (1) or (2),
       ``(ii) supervised or controlled in connection with one or 
     more such organizations, or
       ``(iii) operated in connection with one or more such 
     organizations, and''.
       (b) Requirements for Supporting Organizations.--Section 509 
     (relating to private foundation defined) is amended by adding 
     at the end the following new subsection:
       ``(f) Requirements for Supporting Organizations.--
       ``(1) Type iii supporting organizations.--For purposes of 
     subsection (a)(3)(B)(iii), an organization shall not be 
     considered to be operated in connection with any organization 
     described in paragraph (1) or (2) of subsection (a) unless 
     such organization meets the following requirements:
       ``(A) Application requirement.--The organization provides 
     to the Secretary, as a part of any notification filed under 
     section 508(a) after the date of the enactment of this 
     subsection, a letter from each supported organization 
     acknowledging that the supported organization has been 
     designated by such organization as a supported organization.
       ``(B) Responsiveness.--For each taxable year beginning 
     after the date of the enactment of this subsection, the 
     organization provides to each supported organization such 
     information as the Secretary may require to ensure that such 
     organization is responsive to the needs or demands of the 
     supported organization.

[[Page S627]]

       ``(C) Supported organizations.--
       ``(i) In general.--The organization--

       ``(I) is not operated in connection with more than 5 
     supported organizations, and
       ``(II) is not operated in connection with any supported 
     organization that is not organized in the United States on 
     any date after the date which is 180 days after the date of 
     the enactment of this subsection.

       ``(ii) Special rule for existing organizations.--If the 
     organization is operated in connection with more than 5 
     supported organizations on the date of the enactment of this 
     subsection--

       ``(I) clause (i)(I) shall not apply, and
       ``(II) the organization may not be operated in connection 
     with any other organization after such date unless the total 
     number of supported organizations is 5 or less.

       ``(D) Contributions to donor advised funds.--The 
     organization makes no contributions to or for the use of any 
     donor advised fund (as defined in section 4967(g)(2)).
       ``(2) Organizations controlled by donors.--
       ``(A) In general.--For purposes of subsection (a)(3)(B), an 
     organization shall not be considered to be--
       ``(i) operated, supervised, or controlled by any 
     organization described in paragraph (1) or (2) of subsection 
     (a), or
       ``(ii) operated in connection with any organization 
     described in paragraph (1) or (2) of subsection (a),
     if such organization accepts any gift or contribution from 
     any person described in subparagraph (B).
       ``(B) Person described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a person (other than an organization described in 
     paragraph (1), (2), or (4) of section 509(a)) who controls, 
     directly or indirectly, either alone or together with persons 
     described in clauses (ii) and (iii), the governing body of a 
     supported organization,
       ``(ii) a member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i), or
       ``(iii) a 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 509(f)(2)(B)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(3) Supported organization.--For purposes of this 
     subsection, the term `supported organization' means, with 
     respect to an organization described in subsection (a)(3), an 
     organization described in paragraph (1) or (2) of subsection 
     (a)--
       ``(A) for whose benefit the organization described in 
     subsection (a)(3) is organized and operated, or
       ``(B) with respect to which the organization performs the 
     functions of, or carries out the purposes of.''.
       (c) Charitable Trusts Which Are Type III Supporting 
     Organizations.--For purposes of section 509(a)(3)(B)(iii) of 
     the Internal Revenue Code of 1986, an organization which is a 
     trust shall not be considered to be operated in connection 
     with any organization described in paragraph (1) or (2) of 
     section 509(a) of such Code solely because--
       (1) it is a charitable trust under State law,
       (2) the supported organization (as defined in section 
     509(f)(3) of such Code) is a beneficiary of such trust, and
       (3) the supported organization (as so defined) has the 
     power to enforce the trust and compel an accounting.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 242. EXCISE TAX ON SUPPORTING ORGANIZATIONS FOR FAILURE 
                   TO MEET DISTRIBUTION REQUIREMENTS.

       (a) In General.--Subchapter D of chapter 42 (relating to 
     failure by certain charitable organizations to meet certain 
     qualification requirements) is amended by adding at the end 
     the following new section:

     ``SEC. 4959. TAXES ON CERTAIN SUPPORTING ORGANIZATIONS 
                   FAILING TO MEET DISTRIBUTION REQUIREMENTS.

       ``(a) Initial Tax.--There is hereby imposed on the 
     undistributed income of any type III supporting organization 
     for any taxable year, which has not been distributed before 
     the first day of the second (or any succeeding) taxable year 
     following such taxable year (if such first day falls within 
     the taxable period), a tax equal to 30 percent of the amount 
     of such income remaining undistributed at the beginning of 
     such second (or succeeding) taxable year.
       ``(b) Additional Tax.--In any case in which an initial tax 
     is imposed under subsection (a) on the undistributed income 
     of a type III supporting organization for any taxable year, 
     if any portion of such income remains undistributed at the 
     close of the taxable period, there is hereby imposed a tax 
     equal to 100 percent of the amount remaining undistributed at 
     such time.
       ``(c) Undistributed Income.--For purposes of this section, 
     the term `undistributed income' means, with respect to any 
     type III supporting organization for any taxable year as of 
     any time, the amount by which--
       ``(1) the distributable amount for such taxable year, 
     exceeds
       ``(2) the qualifying distributions made before such time 
     out of such distributable amount.
       ``(d) Distributable Amount.--For purposes of this section--
       ``(1) In general.--the term `distributable amount' means, 
     with respect to any type III supporting organization for any 
     taxable year, an amount equal to the sum of--
       ``(A) the greater of--
       ``(i) 85 percent of the adjusted net income (as defined in 
     section 4942(f)) of the type III supporting organization for 
     the preceding taxable year, or
       ``(ii) the applicable percentage of the fair market value 
     of the aggregate assets of such organization (other than 
     assets used or held to perform the functions of, or carry out 
     the purposes of, a supported organization) on the last day of 
     the preceding taxable year, and
       ``(B) any amount received during the preceding taxable year 
     which is a repayment of amounts paid by the organization in 
     any prior taxable year to a supported organization 
     exclusively for the benefit of such supported organization or 
     to perform the functions of, or carry out the purposes of 
     such supported organization.
       ``(2) Investment assets.--For purposes of paragraph 
     (1)(A)(ii), assets held for investment or for the operation 
     of an unrelated trade or business shall not be considered as 
     assets used or held to perform the functions of, or carry out 
     the purposes of, a supported organization.
       ``(3) Applicable percentage.--For purposes of paragraph 
     (1)(A)(ii), the applicable percentage is--
       ``(A) 3 percent for the first taxable year beginning after 
     the date of the enactment of this section,
       ``(B) 4 percent for the second taxable year beginning after 
     such date, and
       ``(C) 5 percent for any taxable year beginning after the 
     second taxable year beginning after such date.
       ``(e) Qualifying Distribution.--For purposes of this 
     section--
       ``(1) In general.--The term `qualifying distribution' means 
     amounts paid by the type III supporting organization to or 
     for the use of a supported organization.
       ``(2) Administrative and operating expenses.--Reasonable 
     and necessary administrative expenses of a type III 
     supporting organization shall be treated as a qualifying 
     distribution to a supported organization.
       ``(f) Treatment of Qualifying Distributions.--
       ``(1) In general.--Except as provided in paragraph (2), any 
     qualifying distribution made during a taxable year shall be 
     treated as made--
       ``(A) first out of the undistributed income of the 
     immediately preceding taxable year (if the type III 
     supporting organization was subject to the tax imposed by 
     this section for such preceding taxable year) to the extent 
     thereof, and
       ``(B) second out of the undistributed income for the 
     taxable year to the extent thereof.
     For purposes of this paragraph, distributions shall be taken 
     into account in the order of time in which made.
       ``(2) Correction of deficient distributions for prior 
     taxable years, etc.--In the case of any qualifying 
     distribution which (under paragraph (1)) is not treated as 
     made out of the undistributed income of the immediately 
     preceding taxable year, the type III supporting organization 
     may elect to treat any portion of such distribution as made 
     out of the undistributed income of a designated prior taxable 
     year. The election shall be made by the type III supporting 
     organization at such time and in such manner as the Secretary 
     shall by regulations prescribe.
       ``(g) Adjustment of Distributable Amount Where 
     Distributions During Prior Years Have Exceeded Income.--
       ``(1) In general.--If, for the taxable years in the 
     adjustment period for which an organization is a type III 
     supporting organization--
       ``(A) the aggregate qualifying distributions treated (under 
     subsection (f)) as made out of the undistributed income for 
     such taxable years, exceeds
       ``(B) the distributable amounts for such taxable years 
     (determined without regard to this subsection),
     then, for purposes of this section (other than subsection 
     (f)), the distributable amount for the taxable year shall be 
     reduced by an amount equal to such excess.
       ``(2) Taxable years in adjustment period.--For purposes of 
     paragraph (1), with respect to any taxable year of a type III 
     supporting organization, the taxable years in the adjustment 
     period are the taxable years (not exceeding 5) beginning 
     after the date of the enactment of this section and 
     immediately preceding the taxable year.
       ``(h) Other Definitions.--For purposes of this section--
       ``(1) Taxable period.--The term `taxable period' means, 
     with respect to the undistributed income for any taxable 
     year, the period beginning with the first day of the taxable 
     year and ending on the earlier of--
       ``(A) the date of mailing of a notice of deficiency with 
     respect to the tax imposed by subsection (a) under section 
     6212, or
       ``(B) the date on which the tax imposed by subsection (a) 
     is assessed.
       ``(2) Type iii supporting organization.--The term `type III 
     supporting organization' means an organization which meets 
     the requirements of subparagraphs (A) and (C) of section 
     509(a)(3) and which is operated in connection with one or 
     more organizations described in paragraph (1) or (2) of 
     section 509(a).
       ``(3) Supported organization.--The term `supported 
     organization' has the meaning given such term under section 
     509(f)(3).''.

[[Page S628]]

       (b) Conforming Amendment.--The table of sections for 
     subchapter D of chapter 42 is amended by inserting after the 
     item relating to section 4958 the following new item:

``Sec. 4959. Taxes on certain supporting organizations failing to meet 
              distribution requirements.''.

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

     SEC. 243. EXCESS BENEFIT TRANSACTIONS.

       (a) In General.--Section 4958(c), as amended by this Act, 
     is amended by redesignating paragraph (3) as paragraph (4) 
     and by inserting after paragraph (2) the following new 
     paragraph:
       ``(3) Special rules for supporting organizations.--
       ``(A) In general.--In the case of any organization 
     described in section 509(a)(3)--
       ``(i) the term `excess benefit transaction' includes--

       ``(I) any grant, loan, compensation, or other payment 
     provided by such organization to a person described in 
     subparagraph (B), and
       ``(II) any loan provided by such organization to a 
     disqualified person (other than an organization described in 
     paragraph (1), (2), or (4) of section 509(a)), and

       ``(ii) the term `excess benefit' includes, with respect to 
     any transaction described in clause (i), the amount of any 
     such grant, loan, compensation, or other payment.
       ``(B) Person described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a substantial contributor to such organization,
       ``(ii) a member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i), or
       ``(iii) a 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 4958(c)(3)(B)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof).
       ``(C) Substantial contributor.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `substantial contributor' means 
     any person who contributed or bequeathed an aggregate amount 
     of more than $5,000 to the organization, if such amount is 
     more than 2 percent of the total contributions and bequests 
     received by the organization before the close of the taxable 
     year of the organization in which the contribution or bequest 
     is received by the organization from such person. In the case 
     of a trust, such term also means the creator of the trust.
       ``(ii) Exception.--Such term shall not include any 
     organization described in paragraph (1), (2), or (4) of 
     section 509(a).''.
       (b) Disqualified Persons.--Paragraph (1) of section 
     4958(f), as amended by this Act, is amended by striking 
     ``and'' at the end of subparagraph (D), by striking the 
     period at the end of subparagraph (E) and inserting ``, 
     and'', and by adding after subparagraph (D) the following new 
     subparagraph:
       ``(E) any person who is described in subparagraph (A), (B), 
     or (C) with respect to an organization described in section 
     509(a)(3) which is organized and operated exclusively for the 
     benefit of, to perform the functions of, or to carry out the 
     purposes of the applicable tax-exempt organization.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 244. EXCESS BUSINESS HOLDINGS OF SUPPORTING 
                   ORGANIZATIONS.

       (a) In General.--Section 4943 is amended by adding at the 
     end the following new subsection:
       ``(e) Application of Tax to Supporting Organizations.--
       ``(1) In general.--For purposes of this section, a 
     qualified supporting organization shall be treated as a 
     private foundation.
       ``(2) Exception.--The Secretary may exempt any qualified 
     supporting organization from the application of this 
     subsection if the Secretary determines that the excess 
     business holdings of such organization are consistent with 
     the purpose or function constituting the basis for its 
     exemption under section 501.
       ``(3) Qualified supporting organization.--For purposes of 
     this subsection, the term `qualified supporting organization' 
     means any--
       ``(A) type III supporting organization (as defined in 
     section 4959(h)(2)), or
       ``(B) organization which meets the requirements of 
     subparagraphs (A) and (C) of section 509(a)(3) and which is 
     supervised or controlled in connection with or one or more 
     organizations described in paragraph (1) or (2) of section 
     509(a), but only if such organization accepts any gift or 
     contribution from any person described in section 
     509(f)(2)(B).
       ``(4) Disqualified person.--
       ``(A) In general.--In applying this section to any 
     organization described in section 509(a)(3), the term 
     `disqualified person' means, with respect to the 
     organization--
       ``(i) any person who was, at any time during the 5-year 
     period ending on date described in subsection (a)(2)(A), in a 
     position to exercise substantial influence over the affairs 
     of the organization,
       ``(ii) any member of the family (determined under section 
     4958(f)(4)) of an individual described in clause (i),
       ``(iii) any 35-percent controlled entity (as defined in 
     section 4958(f)(3) by substituting `persons described in 
     clause (i) or (ii) of section 4943(e)(2)(A)' for `persons 
     described in subparagraph (A) or (B) of paragraph (1)' in 
     subparagraph (A)(i) thereof),
       ``(iv) any person described in section 4958(c)(3)(B), and
       ``(v) any organization--

       ``(I) which is effectively controlled (directly or 
     indirectly) by the same person or persons who control the 
     organization in question, or
       ``(II) substantially all of the contributions to which were 
     made (directly or indirectly) by the same person or persons 
     described in subparagraph (B) or a member of their family 
     (within the meaning of section 4946(d)) who made (directly or 
     indirectly) substantially all of the contributions to the 
     organization in question.

       ``(B) Persons described.--A person is described in this 
     subparagraph if such person is--
       ``(i) a substantial contributor to the organization (as 
     defined in section 4958(c)(3)(C)),
       ``(ii) an officer, director, or trustee of the organization 
     (or an individual having powers or responsibilities similar 
     to those officers, directors, or trustees of the 
     organization), or
       ``(iii) an owner of more than 20 percent of--

       ``(I) the total combined voting power of a corporation,
       ``(II) the profits interest of a partnership, or
       ``(III) the beneficial interest of a trust or 
     unincorporated enterprise,

     which is a substantial contributor (as so defined) to the 
     organization.
       ``(5) Special rule for certain holdings of type iii 
     supporting organizations.--For purposes of this subsection, 
     the term `excess business holdings' shall not include any 
     holdings of a type III supporting organization (as defined in 
     section 4959(h)(2)) in any business enterprise if the 
     holdings are held for the benefit of the community pursuant 
     to the direction of a State attorney general or a State 
     official with jurisdiction over the type III supporting 
     organization.
       ``(6) Present holdings.--For purposes of this subsection, 
     rules similar to the rules of paragraphs (4), (5), and (6) of 
     subsection (c) shall apply to organizations described in 
     section 509(a)(3), except that--
       ``(A) `the date of the enactment of this subsection' shall 
     be substituted for `May 26, 1969' each place it appears in 
     paragraphs (4), (5), and (6), and
       ``(B) `January 1, 2007' shall be substituted for `January 
     1, 1970' in paragraph (4)(E).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 245. TREATMENT OF AMOUNTS PAID TO SUPPORTING 
                   ORGANIZATIONS BY PRIVATE FOUNDATIONS.

       (a) Qualifying Distributions.--Paragraph (4) of section 
     4942(g) is amended to read as follows:
       ``(4) Limitation on distributions by nonoperating private 
     foundations to supporting organizations.--For purposes of 
     this section, the term `qualifying distribution' shall not 
     include any amount paid by a private foundation which is not 
     an operating foundation to an organization described in 
     section 509(a)(3).''.
       (b) Taxable Expenditures.--
       (1) In general.--Subsection (d) of section 4945 is amended 
     by redesignating paragraphs (4) and (5) as paragraphs (5) and 
     (6), respectively, and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) to an organization described in section 509(a)(3),''.
       (2) Conforming amendments.--
       (A) Section 4945(d)(5), as redesignated by subparagraph 
     (A), is amended--
       (i) by striking ``a grant to an organization'' and 
     inserting ``a grant to any other organization'', and
       (ii) by striking ``paragraph (1), (2), or (3) of section 
     509(a)'' in subparagraph (A) and inserting ``paragraph (1) or 
     (2) of section 509(a)''.
       (B) Section 4945(f) is amended by striking ``Subsection 
     (d)(4)'' in the last sentence thereof and inserting 
     ``Subsection (d)(5)''.
       (C) Section 4945(h) is amended by striking ``subsection 
     (d)(4)'' and inserting ``subsection (d)(5)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions and expenditures after the date 
     of the enactment of this Act.

     SEC. 246. RETURNS OF SUPPORTING ORGANIZATIONS.

       (a) Requirement To File Return.--Subparagraph (B) of 
     section 6033(a)(3), as redesignated by this Act, is amended 
     by inserting ``(other than an organization described in 
     section 509(a)(3))'' after ``paragraph (1)''.
       (b) Matters Included on Returns.--Section 6033, as amended 
     by this Act, is amended by redesignating subsection (k) as 
     subsection (l) and by inserting after subsection (j) the 
     following new subsection:
       ``(k) Additional Provisions Relating to Supporting 
     Organizations.--
       ``(1) In general.--Every organization described in section 
     509(a)(3) shall, on the return required under subsection 
     (a)--
       ``(A) list the organizations described in section 
     509(a)(3)(A) with respect to which such organization provides 
     support,
       ``(B) indicate whether the organization meets the 
     requirements of clause (i), (ii), or (iii) of section 
     509(a)(3)(B), and
       ``(C) certify that the organization meets the requirements 
     of section 509(a)(3)(C).

[[Page S629]]

       ``(2) Type iii supporting organizations.--Every type III 
     supporting organization (as defined in section 4959(h)(2)) 
     shall indicate on the return required under subsection (a) 
     for the taxable year whether the organization has received a 
     letter from each supported organization (as defined in 
     section 509(f)(3)) during the taxable year which--
       ``(A) acknowledges that the supporting organization has 
     designated such organization as a supported organization,
       ``(B) details the type of support provided by the 
     supporting organization, and
       ``(C) explains how such support furthers the charitable 
     purpose of the supported organization.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns filed for taxable years ending after 
     the date of the enactment of this Act.

                  TITLE III--MISCELLANEOUS PROVISIONS

     SEC. 301. RESTRUCTURING OF NEW YORK LIBERTY ZONE TAX CREDITS.

       (a) In General.--Subchapter Y of chapter 1 is amended by 
     adding at the end the following new section:

     ``SEC. 1400M. NEW YORK LIBERTY ZONE TAX CREDITS.

       ``(a) In General.--There shall be allowed as a credit 
     against any taxes imposed by this title (other than by 
     section 3111(a), section 3403, or subtitle D) paid or 
     incurred by any governmental unit of the State of New York 
     and the City of New York, New York (including any agency or 
     instrumentality thereof) for any calendar year an amount 
     equal to the lesser of--
       ``(1) the total expenditures during such year by such 
     governmental unit for qualifying projects, or
       ``(2) the amount allocated to such governmental unit for 
     such calendar year under subsection (b)(2).
       ``(b) Qualifying Project.--For purposes of this section--
       ``(1) In general.--The term `qualifying project' means any 
     transportation infrastructure project, including highways, 
     mass transit systems, railroads, airports, ports, and 
     waterways, in or connecting with the New York Liberty Zone 
     (as defined in section 1400L(h)), which is designated as a 
     qualifying project under this section jointly by the Governor 
     of the State of New York and the Mayor of the City of New 
     York, New York.
       ``(2) Dollar limitation.--
       ``(A) In general.--The Governor of the State of New York 
     and the Mayor of the City of New York, New York, shall 
     jointly allocate to a governmental unit the amount of 
     expenditures which may be taken into account under subsection 
     (a) for any calendar year in the credit period with respect 
     to a qualifying project.
       ``(B) Aggregate limit.--The aggregate amount which may be 
     allocated under subparagraph (A) for all calendar years in 
     the credit period shall not exceed $2,000,000,000.
       ``(C) Annual limit.--The aggregate amount which may be 
     allocated under subparagraph (A) for any calendar year in the 
     credit period shall not exceed the sum of--
       ``(i) $200,000,000, plus
       ``(ii) the aggregate amount authorized to be allocated 
     under this paragraph for all preceding calendar years in the 
     credit period which was not so allocated.
       ``(D) Unallocated amounts at end of credit period.--If, as 
     of the close of the credit period, the amount under 
     subparagraph (B) exceeds the aggregate amount allocated under 
     subparagraph (A) for all calendar years in the credit period, 
     the Governor of the State of New York and the Mayor of the 
     City of New York, New York, may jointly allocate for any 
     calendar year following the credit period for expenditures 
     with respect to qualifying projects which may be taken into 
     account under subsection (a) an amount equal to such excess, 
     reduced by the aggregate amount allocated under this 
     subparagraph for all preceding calendar years.
       ``(c) Carryover of Unused Allocations.--
       ``(1) In general.--If the amount allocated under subsection 
     (b)(2) to a governmental unit for any calendar year exceeds 
     the total expenditures for such year by such governmental 
     unit for qualifying projects, the allocation of such 
     governmental unit for the succeeding calendar year shall be 
     increased by the amount of such excess.
       ``(2) Reallocation.--If a governmental unit does not use an 
     amount allocated to it under subsection (b)(2) within the 
     time prescribed by the Governor of the State of New York and 
     the Mayor of the City of New York, New York, then such amount 
     shall after such time be treated for purposes of subsection 
     (b)(2) in the same manner as if it had never been allocated.
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Credit period.--The term `credit period' means the 
     10-year period beginning on January 1, 2006.
       ``(2) Treatment of funds.--Any expenditure for a qualifying 
     project taken into account for purposes of the credit under 
     this section shall be considered State and local funds for 
     the purpose of any Federal program.
       ``(e) Regulations.--The Secretary may prescribe such 
     regulations as are necessary to ensure compliance with the 
     purposes of this section.''.
       (b) Termination of Certain New York Liberty Zone 
     Benefits.--
       (1) Special allowance and expensing.--Section 
     1400L(b)(2)(A)(v) is amended by striking ``the termination 
     date'' and inserting ``the date of the enactment of the Tax 
     Relief Act of 2005 or the termination date if pursuant to a 
     binding contract in effect on such enactment date''.
       (2) Leasehold.--Section 1400L(c)(2)(B) is amended by 
     striking ``before January 1, 2007'' and inserting ``on or 
     before the date of the enactment of the Tax Relief Act of 
     2005 or before January 1, 2007, if pursuant to a binding 
     contract in effect on such enactment date''.

     SEC. 302. MODIFICATION TO S CORPORATION PASSIVE INVESTMENT 
                   INCOME RULES.

       (a) Increased Percentage Limit.--Paragraph (2) of section 
     1375(a) is amended by striking ``25 percent'' and inserting 
     ``60 percent''.
       (b) Other Provisions.--
       (1) Repeal of excessive passive income as a termination 
     event.--Section 1362(d) is amended by striking paragraph (3).
       (2) Capital gain not treated as passive investment 
     income.--Subsection (b) of section 1375 is amended by 
     striking paragraphs (3) and (4) and inserting the following 
     new paragraph:
       ``(3) Passive investment income defined.--
       ``(A) Except as otherwise provided in this paragraph, the 
     term `passive investment income' means gross receipts derived 
     from royalties, rents, dividends, interest, and annuities.
       ``(B) Exception for interest on notes from sales of 
     inventory.--The term `passive investment income' shall not 
     include interest on any obligation acquired in the ordinary 
     course of the corporation's trade or business from its sale 
     of property described in section 1221(a)(1).
       ``(C) Treatment of certain lending or finance companies.--
     If the S corporation meets the requirements of section 
     542(c)(6) for the taxable year, the term `passive investment 
     income' shall not include gross receipts for the taxable year 
     which are derived directly from the active and regular 
     conduct of a lending or finance business (as defined in 
     section 542(d)(1)).
       ``(D) Treatment of certain dividends.--If an S corporation 
     holds stock in a C corporation meeting the requirements of 
     section 1504(a)(2), the term `passive investment income' 
     shall not include dividends from such C corporation to the 
     extent such dividends are attributable to the earnings and 
     profits of such C corporation derived from the active conduct 
     of a trade or business.
       ``(E) Exception for banks, etc.--In the case of a bank (as 
     defined in section 581) or a depository institution holding 
     company (as defined in section 3(w)(1) of the Federal Deposit 
     Insurance Act (12 U.S.C. 1813(w)(1)), the term `passive 
     investment income' shall not include--
       ``(i) interest income earned by such bank or company, or
       ``(ii) dividends on assets required to be held by such bank 
     or company, including stock in the Federal Reserve Bank, the 
     Federal Home Loan Bank, or the Federal Agricultural Mortgage 
     Bank or participation certificates issued by a Federal 
     Intermediate Credit Bank.
       ``(F) Coordination with section 1374.--The amount of 
     passive investment income shall be determined by not taking 
     into account any recognized built-in gain or loss of the S 
     corporation for any taxable year in the recognition period. 
     Terms used in the preceding sentence shall have the same 
     respective meanings as when used in section 1374.''.
       (c) Conforming Amendments.--
       (1) Subparagraph (J) of section 26(b)(2) is amended by 
     striking ``25 percent'' and inserting ``60 percent''.
       (2) Clause (i) of section 1042(c)(4)(A) is amended by 
     striking ``section 1362(d)(3)(C)'' and inserting ``section 
     1375(b)(3)''.
       (3) Subparagraph (B) of section 1362(f)(1) is amended by 
     striking ``or (3)''.
       (4) Clause (i) of section 1375(b)(1)(A) is amended by 
     striking ``25 percent'' and inserting ``60 percent''.
       (5) The heading for section 1375 is amended by striking 
     ``25 PERCENT'' and inserting ``60 PERCENT''.
       (6) The item relating to section 1375 in the table of 
     sections for part III of subchapter S of chapter 1 is amended 
     by striking ``25 percent'' and inserting ``60 percent''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006 and before October 1, 2009.

     SEC. 303. MODIFICATION OF EFFECTIVE DATE OF DISREGARD OF 
                   CERTAIN CAPITAL EXPENDITURES FOR PURPOSES OF 
                   QUALIFIED SMALL ISSUE BONDS.

       (a) In General.--Section 144(a)(4)(G) is amended by 
     striking ``September 30, 2009'' and inserting ``December 31, 
     2006''.
       (b) Conforming Amendment.--Section 144(a)(4)(F) is amended 
     by striking ``September 30, 2009'' and inserting ``December 
     31, 2006''.

     SEC. 304. PREMIUMS FOR MORTGAGE INSURANCE.

       (a) In General.--Section 163(h)(3) (relating to qualified 
     residence interest) is amended by adding at the end the 
     following new subparagraph:
       ``(E) Mortgage insurance premiums treated as interest.--
       ``(i) In general.--Premiums paid or accrued for qualified 
     mortgage insurance by a taxpayer during the taxable year in 
     connection with acquisition indebtedness with respect to a 
     qualified residence of the taxpayer shall be treated for 
     purposes of this section as interest which is qualified 
     residence interest.

[[Page S630]]

       ``(ii) Phaseout.--The amount otherwise treated as interest 
     under clause (i) shall be reduced (but not below zero) by 10 
     percent of such amount for each $1,000 ($500 in the case of a 
     married individual filing a separate return) (or fraction 
     thereof) that the taxpayer's adjusted gross income for the 
     taxable year exceeds $100,000 ($50,000 in the case of a 
     married individual filing a separate return).''.
       (b) Definition and Special Rules.--Section 163(h)(4) 
     (relating to other definitions and special rules) is amended 
     by adding at the end the following new subparagraphs:
       ``(E) Qualified mortgage insurance.--The term `qualified 
     mortgage insurance' means--
       ``(i) mortgage insurance provided by the Veterans 
     Administration, the Federal Housing Administration, or the 
     Rural Housing Administration, and
       ``(ii) private mortgage insurance (as defined by section 2 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as 
     in effect on the date of the enactment of this subparagraph).
       ``(F) Special rules for prepaid qualified mortgage 
     insurance.--Any amount paid by the taxpayer for qualified 
     mortgage insurance that is properly allocable to any mortgage 
     the payment of which extends to periods that are after the 
     close of the taxable year in which such amount is paid shall 
     be chargeable to capital account and shall be treated as paid 
     in such periods to which so allocated. No deduction shall be 
     allowed for the unamortized balance of such account if such 
     mortgage is satisfied before the end of its term. The 
     preceding sentences shall not apply to amounts paid for 
     qualified mortgage insurance provided by the Veterans 
     Administration or the Rural Housing Administration.''.
       (c) Information Returns Relating to Mortgage Insurance.--
     Section 6050H (relating to returns relating to mortgage 
     interest received in trade or business from individuals) is 
     amended by adding at the end the following new subsection:
       ``(h) Returns Relating to Mortgage Insurance Premiums.--
       ``(1) In general.--The Secretary may prescribe, by 
     regulations, that any person who, in the course of a trade or 
     business, receives from any individual premiums for mortgage 
     insurance aggregating $600 or more for any calendar year, 
     shall make a return with respect to each such individual. 
     Such return shall be in such form, shall be made at such 
     time, and shall contain such information as the Secretary may 
     prescribe.
       ``(2) Statement to be furnished to individuals with respect 
     to whom information is required.--Every person required to 
     make a return under paragraph (1) shall furnish to each 
     individual with respect to whom a return is made a written 
     statement showing such information as the Secretary may 
     prescribe. Such written statement shall be furnished on or 
     before January 31 of the year following the calendar year for 
     which the return under paragraph (1) was required to be made.
       ``(3) Special rules.--For purposes of this subsection--
       ``(A) rules similar to the rules of subsection (c) shall 
     apply, and
       ``(B) the term `mortgage insurance' means--
       ``(i) mortgage insurance provided by the Veterans 
     Administration, the Federal Housing Administration, or the 
     Rural Housing Administration, and
       ``(ii) private mortgage insurance (as defined by section 2 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as 
     in effect on the date of the enactment of this 
     subsection).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued during the period 
     beginning after December 31, 2006, and before January 1, 
     2008, and properly allocable to such period, with respect to 
     mortgage insurance contracts issued after December 31, 2006.

     SEC. 305. SENSE OF THE SENATE ON USE OF NO-BID CONTRACTING BY 
                   FEDERAL EMERGENCY MANAGEMENT AGENCY.

       (a) Findings.--The Senate finds that--
       (1) on September 8, 2005, the Federal Emergency Management 
     Agency announced that it had awarded 4 contracts for 
     emergency housing relief following Hurricane Katrina to The 
     Shaw Group of Baton Rouge, Louisiana, Fluor Corporation of 
     Aliso Viejo, California, Bechtel National of San Francisco, 
     California, and CH2M Hill of Denver, Colorado;
       (2) these contracts were awarded with no competition from 
     other capable firms, and up to $100,000,000 in taxpayer funds 
     were authorized for each of these contracts;
       (3) in the midst of concerns about abusive and 
     irresponsible spending of taxpayer funds, the Federal 
     Emergency Management Agency pledged to re-bid these 
     noncompetitive contracts, with Acting Under Secretary of 
     Emergency Preparedness and Response, R. David Paulison, 
     stating before the Committee on Homeland Security and 
     Government Affairs of the Senate that ``[a]ll of these no-bid 
     contracts, we are going to go back and re-bid'';
       (4) the Federal Emergency Management Agency has yet to 
     reopen these 4 contracts to competitive bidding, and declared 
     on November 11, 2005, that these contracts would not be 
     reopened for bidding until February 2006;
       (5) by February 2006, the majority of the contracts will 
     have been completed and the majority of taxpayer funds will 
     have been spent;
       (6) large and politically-connected firms continue to 
     benefit from no-bid and limited-competition contracts, and 
     contracts are not being awarded to capable, local companies;
       (7) according to an analysis in the Washington Post, 
     companies outside the States most affected by Hurricane 
     Katrina have received more than 90 percent of the Federal 
     contracts for recovery and reconstruction;
       (8) the monitoring of Federal contracting practices remains 
     difficult, with a report by the San Jose Mercury News stating 
     ``The database of contracts is incomplete. Information 
     released by Federal agencies is spotty and sporadic. And 
     disclosure of many no-bid contracts isn't required by law''; 
     and
       (9)(A) there is currently no Chief Financial Officer 
     charged with monitoring the flow of all funds to the affected 
     areas; and
       (B) the task of financial management is spread across 
     disparate Federal departments and agencies with inadequate 
     oversight of taxpayer funds.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that the Federal Emergency Management Agency should--
       (1) immediately rebid noncompetitive contracts entered into 
     following Hurricane Katrina, consistent with the commitment 
     of the Agency made on October 6, 2005, before millions of 
     taxpayer dollars are wasted on irresponsible and inefficient 
     spending;
       (2)(A) immediately implement the planned competitive 
     contracting strategy of the Agency for recovery work in all 
     current and future reconstruction efforts; and
       (B) in carrying out that strategy, should prioritize local 
     and small disadvantaged businesses in the contracting and 
     subcontracting process; and
       (3) immediately after the awarding of a contract, publicly 
     disclose the amount and competitive or noncompetitive nature 
     of the contract.

     SEC. 306. SENSE OF CONGRESS REGARDING DOHA ROUND.

       (a) Findings.--The Congress makes the following findings:
       (1) Members of the World Trade Organization (WTO) are 
     currently engaged in a round of trade negotiations known as 
     the Doha Development Agenda (Doha Round).
       (2) The Doha Round includes negotiations aimed at 
     clarifying and improving disciplines under the Agreement on 
     Implementation of Article VI of the General Agreement on 
     Tariffs and Trade 1994 (Antidumping Agreement) and the 
     Agreement on Subsidies and Countervailing Measures (Subsidies 
     Agreement).
       (3) The WTO Ministerial Declaration adopted on November 14, 
     2001 (WTO Paper No. WT/MIN(01)/DEC/1) specifically provides 
     that the Doha Round negotiations are to preserve the ``basic 
     concepts, principles and effectiveness'' of the Antidumping 
     Agreement and the Subsidies Agreement.
       (4) In section 2102(b)(14)(A) of the Bipartisan Trade 
     Promotion Authority Act of 2002, the Congress mandated that 
     the principal negotiating objective of the United States with 
     respect to trade remedy laws was to ``preserve the ability of 
     the United States to enforce rigorously its trade laws . . . 
     and avoid agreements that lessen the effectiveness of 
     domestic and international disciplines on unfair trade, 
     especially dumping and subsidies''.
       (5) The countries that have been the most persistent and 
     egregious violators of international fair trade rules are 
     engaged in an aggressive effort to significantly weaken the 
     disciplines provided in the Antidumping Agreement and the 
     Subsidies Agreement and undermine the ability of the United 
     States to effectively enforce its trade remedy laws.
       (6) Chronic violators of fair trade disciplines have put 
     forward proposals that would substantially weaken United 
     States trade remedy laws and practices, including mandating 
     that unfair trade orders terminate after a set number of 
     years even if unfair trade and injury are likely to recur, 
     mandating that trade remedy duties reflect less than the full 
     margin of dumping or subsidization, mandating higher de 
     minimis levels of unfair trade, making cumulation of the 
     effects of imports from multiple countries more difficult in 
     unfair trade investigations, outlawing the critical practice 
     of ``zeroing'' in antidumping investigations, mandating the 
     weighing of causes, and mandating other provisions that make 
     it more difficult to prove injury.
       (7) United States trade remedy laws have already been 
     significantly weakened by numerous unjust and activist WTO 
     dispute settlement decisions which have created new 
     obligations to which the United States never agreed.
       (8) Trade remedy laws remain a critical resource for 
     American manufacturers, agricultural producers, and 
     aquacultural producers in responding to closed foreign 
     markets, subsidized imports, and other forms of unfair trade, 
     particularly in the context of the challenges currently faced 
     by these vital sectors of the United States economy.
       (9) The United States had a current account trade deficit 
     of approximately $668,000,000,000 in 2004, including a trade 
     deficit of almost $162,000,000,000 with China alone, as well 
     as a trade deficit of $40,000,000,000 in advanced technology.
       (10) United States manufacturers have lost over 3,000,000 
     jobs since June 2000, and United States manufacturing 
     employment is currently at its lowest level since 1950.

[[Page S631]]

       (11) Many industries critical to United States national 
     security are at severe risk from unfair foreign competition.
       (12) The Congress strongly believes that the proposals put 
     forward by countries seeking to undermine trade remedy 
     disciplines in the Doha Round would result in serious harm to 
     the United States economy, including significant job losses 
     and trade disadvantages.
       (b) Sense of Congress.--It is the sense of Congress that--
       (1) the United States should not be a signatory to any 
     agreement or protocol with respect to the Doha Development 
     Round of the World Trade Organization negotiations, or any 
     other bilateral or multilateral trade negotiations, that--
       (A) adopts any proposal to lessen the effectiveness of 
     domestic and international disciplines on unfair trade or 
     safeguard provisions, including proposals--
       (i) mandating that unfair trade orders terminate after a 
     set number of years even if unfair trade and injury are 
     likely to recur;
       (ii) mandating that trade remedy duties reflect less than 
     the full margin of dumping or subsidization;
       (iii) mandating higher de minimis levels of unfair trade;
       (iv) making cumulation of the effects of imports from 
     multiple countries more difficult in unfair trade 
     investigations;
       (v) outlawing the critical practice of ``zeroing'' in 
     antidumping investigations; or
       (vi) mandating the weighing of causes or other provisions 
     making it more difficult to prove injury in unfair trade 
     cases; and
       (B) would lessen in any manner the ability of the United 
     States to enforce rigorously its trade laws, including the 
     antidumping, countervailing duty, and safeguard laws;
       (2) the United States trade laws and international rules 
     appropriately serve the public interest by offsetting 
     injurious unfair trade, and that further ``balancing 
     modifications'' or other similar provisions are unnecessary 
     and would add to the complexity and difficulty of achieving 
     relief against injurious unfair trade practices; and
       (3) the United States should ensure that any new agreement 
     relating to international disciplines on unfair trade or 
     safeguard provisions fully rectifies and corrects decisions 
     by WTO dispute settlement panels or the Appellate Body that 
     have unjustifiably and negatively impacted, or threaten to 
     negatively impact, United States law or practice, including a 
     law or practice with respect to foreign dumping or 
     subsidization.

     SEC. 307. MODIFICATION OF BOND RULE.

       In the case of bonds issued after the date of the enactment 
     of this Act and before August 31, 2009--
       (1) the requirement of paragraph (1) of section 648 of the 
     Deficit Reduction Act of 1984 (98 Stat. 941) shall be treated 
     as met with respect to the securities or obligations referred 
     to in such section if such securities or obligations are held 
     in a fund the annual distributions from which cannot exceed 7 
     percent of the average fair market value of the assets held 
     in such fund except to the extent distributions are necessary 
     to pay debt service on the bond issue,
       (2) paragraph (3) of such section shall be applied by 
     substituting ``distributions from'' for ``the investment 
     earnings of'' both places it appears, and
       (3) Paragraph (4) of such section shall be applied by 
     substituting ``March 1, 1985'' for ``October 9, 1969''.

     SEC. 308. TREATMENT OF CERTAIN STOCK OPTION PLANS UNDER 
                   NONQUALIFIED DEFERRED COMPENSATION RULES.

       (a) In General.--The Secretary of the Treasury shall modify 
     the regulations under section 409A of the Internal Revenue 
     Code of 1986 to extend to applicable foreign option plans the 
     exception under such section for incentive stock options 
     under section 422 of such Code and options granted under an 
     employee stock purchase plan meeting the requirements of 
     section 423 of such Code. Such extension shall be subject to 
     such terms and conditions as may be prescribed in such 
     regulations.
       (b) Applicable Foreign Option Plans.--For purposes of 
     subsection (a)--
       (1) In general.--The term ``applicable foreign option 
     plan'' means a plan providing for the issuance of employee 
     stock options--
       (A) which is established under the laws of a foreign 
     jurisdiction, and
       (B) which, under such laws or the terms of the plan (or 
     both), is subject to requirements substantially similar to 
     the requirements under section 422 or 423 of such Code.
       (2) Substantially similar.--A plan shall not be treated as 
     subject to substantially similar requirements under paragraph 
     (1)(B) unless--
       (A) the plan is required to cover substantially all 
     employees,
       (B) in the case of an option under an employee stock 
     purchase plan, the plan is required to provide an option 
     price which is not less than the amount specified in section 
     423(b)(6) of such Code, except that such section shall be 
     applied by substituting ``80 percent'' for ``85 percent'' 
     each place it appears,
       (C) the plan is required to provide coverage of individuals 
     who, but for the exception of the application of section 409A 
     of such Code by reason of this section, would be subject to 
     tax under such section with respect to the plan, and
       (D) the plan meets such other requirements as the Secretary 
     of the Treasury prescribes in the regulations under 
     subsection (a).

     SEC. 309. SENSE OF THE SENATE REGARDING THE DEDICATION OF 
                   EXCESS FUNDS.

       It is the sense of the Senate that any increases in 
     revenues to the Treasury as a result of this Act and the 
     amendments made by this Act that exceed the amounts specified 
     in the reconciliation instructions shall be dedicated to the 
     Low-Income Home Energy Assistance Program, in an amount not 
     to exceed the amount which is $2,900,000,000 more than the 
     funding levels established for such Program for fiscal year 
     2005.

     SEC. 310. MODIFICATION OF TREATMENT OF LOANS TO QUALIFIED 
                   CONTINUING CARE FACILITIES.

       (a) In General.--Subsection (g) of section 7872 is amended 
     to read as follows:
       ``(g) Exception for Loans to Qualified Continuing Care 
     Facilities.--
       ``(1) In general.--This section shall not apply for any 
     calendar year to any below-market loan owed by a facility 
     which on the last day of such year is a continuing care 
     facility, if such loan was made pursuant to a continuing care 
     contract and if the lender (or the lender's spouse) attains 
     age 62 before the close of such year.
       ``(2) Continuing care contract.--For purposes of this 
     section, the term `continuing care contract' means a written 
     contract between an individual and a qualified continuing 
     care facility under which--
       ``(A) the individual or individual's spouse may use a 
     qualified continuing care facility for their life or lives,
       ``(B) the individual or individual's spouse will be 
     provided with housing in an independent living unit (which 
     has additional available facilities outside such unit for the 
     provision of meals and other personal care), an assisted 
     living facility or a nursing facility, as is available in the 
     continuing care facility, as appropriate for the health of 
     such individual or individual's spouse, and
       ``(C) the individual or individual's spouse will be 
     provided assisted living or nursing care as the health of 
     such individual or individual's spouse requires, and as is 
     available in the continuing care facility.
       ``(3) Qualified continuing care facility.--
       ``(A) In general.--For purposes of this section, the term 
     `qualified continuing care facility' means 1 or more 
     facilities--
       ``(i) which are designed to provide services under 
     continuing care contracts,
       ``(ii) that include an independent living unit, plus an 
     assisted living or nursing facility, or both, and
       ``(iii) substantially all of the independent living unit 
     residents of which are covered by continuing care contracts.
       ``(B) Nursing homes excluded.--The term `qualified 
     continuing care facility' shall not include any facility 
     which is of a type which is traditionally considered a 
     nursing home.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to loans made after December 31, 2005.

     SEC. 311. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                   RESIDENCE BY CERTAIN EMPLOYEES OF THE 
                   INTELLIGENCE COMMUNITY.

       (a) In General.--Subparagraph (A) of section 121(d)(9) 
     (relating to exclusion of gain from sale of principal 
     residence) is amended by striking ``duty'' and all that 
     follows and inserting ``duty--
       ``(i) as a member of the uniformed services,
       ``(ii) as a member of the Foreign Service of the United 
     States, or
       ``(iii) as an employee of the intelligence community.''.
       (b) Employee of Intelligence Community Defined.--
     Subparagraph (C) of section 121(d)(9) is amended by 
     redesignating clause (iv) as clause (v) and by inserting 
     after clause (iii) the following new clause:
       ``(iv) Employee of intelligence community.--The term 
     `employee of the intelligence community' means an employee 
     (as defined by section 2105 of title 5, United States Code) 
     of--

       ``(I) the Office of the Director of National Intelligence,
       ``(II) the Central Intelligence Agency,
       ``(III) the National Security Agency,
       ``(IV) the Defense Intelligence Agency,
       ``(V) the National Geospatial-Intelligence Agency,
       ``(VI) the National Reconnaissance Office,
       ``(VII) any other office within the Department of Defense 
     for the collection of specialized national intelligence 
     through reconnaissance programs,
       ``(VIII) any of the intelligence elements of the Army, the 
     Navy, the Air Force, the Marine Corps, the Federal Bureau of 
     Investigation, the Department of Treasury, the Department of 
     Energy, and the Coast Guard,
       ``(IX) the Bureau of Intelligence and Research of the 
     Department of State, or
       ``(X) any of the elements of the Department of Homeland 
     Security concerned with the analyses of foreign intelligence 
     information.''.

       (c) Special Rule.--Subparagraph (C) of section 121(d)(9), 
     as amended by subsection (b), is amended by adding at the end 
     the following new clause:
       ``(vi) Special rule relating to intelligence community.--An 
     employee of the intelligence community shall not be treated 
     as serving on qualified extended duty unless--

       ``(I) for purposes of such duty such employee has moved 
     from 1 duty station to another, and
       ``(II) at least 1 of such duty stations is located outside 
     of the Washington, District of Columbia, and Baltimore 
     metropolitan statistical areas (as defined by the Secretary 
     of Commerce).''.

       (d) Conforming Amendment.--The heading for section 
     121(d)(9) is amended by striking ``Members of uniformed 
     services and foreign service'' and inserting ``Uniformed

[[Page S632]]

     services, foreign service, and intelligence community''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to sales or exchanges after the date of the 
     enactment of this Act.

                  TITLE IV--REVENUE OFFSET PROVISIONS

        Subtitle A--Provisions Designed to Curtail Tax Shelters

     SEC. 401. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

       (a) Standards Conformed to Taxpayer Standards.--Section 
     6694(a) (relating to understatements due to unrealistic 
     positions) is amended--
       (1) by striking ``realistic possibility of being sustained 
     on its merits'' in paragraph (1) and inserting ``reasonable 
     belief that the tax treatment in such position was more 
     likely than not the proper treatment'',
       (2) by striking ``or was frivolous'' in paragraph (3) and 
     inserting ``or there was no reasonable basis for the tax 
     treatment of such position'', and
       (3) by striking ``Unrealistic'' in the heading thereof and 
     inserting ``Improper''.
       (b) Amount of Penalty.--Section 6694 is amended--
       (1) by striking ``$250'' in subsection (a) and inserting 
     ``$1,000'', and
       (2) by striking ``$1,000'' in subsection (b) and inserting 
     ``$5,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to documents prepared after the date of the 
     enactment of this Act.

     SEC. 402. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

       ``(ii) an application under--

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

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

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

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

     SEC. 403. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

       (a) Penalty for Promoting Abusive Tax Shelters.--Section 
     6700 (relating to promoting abusive tax shelters, etc.) is 
     amended--
       (1) by redesignating subsections (b) and (c) as subsections 
     (d) and (e), respectively,
       (2) by striking ``a penalty'' and all that follows through 
     the period in the first sentence of subsection (a) and 
     inserting ``a penalty determined under subsection (b)'', and
       (3) by inserting after subsection (a) the following new 
     subsections:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall be 100 percent of the gross income 
     derived (or to be derived) from such activity by the person 
     or persons subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of an activity described in 
     subsection (a), each instance in which income was derived by 
     the person or persons subject to such penalty, and each 
     person who participated in such an activity.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to such activity, 
     all such persons shall be jointly and severally liable for 
     the penalty under such subsection.
       ``(c) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     considered an ordinary and necessary expense in carrying on a 
     trade or business for purposes of this title and shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (b) Conforming Amendment.--Section 6700(a) is amended by 
     striking the last sentence.
       (c) Effective Date.--The amendments made by this section 
     shall apply to the activities described in paragraphs (1) and 
     (2) of section 6700(a) of the Internal Revenue Code of 1986 
     and after the date of the enactment of this Act.

     SEC. 404. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT 
                   OF TAX LIABILITY.

       (a) In General.--Section 6701(a) (relating to imposition of 
     penalty) is amended--
       (1) by inserting ``, or tax liability reflected in,'' after 
     ``the preparation or presentation of'' in paragraph (1),
       (2) by inserting ``aid, assistance, procurement, or advice 
     with respect to such'' before ``portion'' both places it 
     appears in paragraphs (2) and (3), and
       (3) by inserting ``instance of aid, assistance, 
     procurement, or advice or each such'' before ``document'' in 
     the matter following paragraph (3).
       (b) Amount of Penalty.--Subsection (b) of section 6701 
     (relating to penalties for aiding and abetting understatement 
     of tax liability) is amended to read as follows:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall

[[Page S633]]

     be 100 percent of the gross income derived (or to be derived) 
     from such aid, assistance, procurement, or advice provided by 
     the person or persons subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of aid, assistance, procurement, or 
     advice described in subsection (a), each instance in which 
     income was derived by the person or persons subject to such 
     penalty, and each person who made such an understatement of 
     the liability for tax.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to providing such 
     aid, assistance, procurement, or advice, all such persons 
     shall be jointly and severally liable for the penalty under 
     such subsection.''.
       (c) Penalty Not Deductible.--Section 6701 is amended by 
     adding at the end the following new subsection:
       ``(g) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     considered an ordinary and necessary expense in carrying on a 
     trade or business for purposes of this title and shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to the activities described in section 6701(a) of 
     the Internal Revenue Code of 1986 after the date of the 
     enactment of this Act.

                Subtitle B--Economic Substance Doctrine

     SEC. 411. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

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

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

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

     SEC. 412. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

     ``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable to Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2) and 
     (3) of section 6707A(d) shall apply for purposes of paragraph 
     (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

       ``(1) For coordination of penalty with understatements 
     under section 6662 and other special rules, see section 
     6662A(e).
       ``(2) For reporting of penalty imposed under this section 
     to the Securities and Exchange Commission, see section 
     6707A(e).''.

       (b) Coordination With Other Understatements and 
     Penalties.--
       (1) The second sentence of section 6662(d)(2)(A) is amended 
     by inserting ``and without regard to items with respect to 
     which a penalty is imposed by section 6662B'' before the 
     period at the end.
       (2) Subsection (e) of section 6662A is amended--
       (A) in paragraph (1), by inserting ``and noneconomic 
     substance transaction understatements'' after ``reportable 
     transaction understatements'' both places it appears,

[[Page S634]]

       (B) in paragraph (2)(A), by inserting ``and a noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'',
       (C) in paragraph (2)(B), by inserting ``6662B or'' before 
     ``6663'',
       (D) in paragraph (2)(C)(i), by inserting ``or section 
     6662B'' before the period at the end,
       (E) in paragraph (2)(C)(ii), by inserting ``and section 
     6662B'' after ``This section'',
       (F) in paragraph (3), by inserting ``or noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'', and
       (G) by adding at the end the following new paragraph:
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).''.
       (3) Subsection (e) of section 6707A is amended--
       (A) by striking ``or'' at the end of subparagraph (B), and
       (B) by striking subparagraph (C) and inserting the 
     following new subparagraphs:
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction, or
       ``(D) is required to pay a penalty under section 6662(h) 
     with respect to any transaction and would (but for section 
     6662A(e)(2)(C)) have been subject to penalty under section 
     6662A at a rate prescribed under section 6662A(c) or under 
     section 6662B,''.
       (c) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

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

     SEC. 413. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONECONOMIC SUBSTANCE 
                   TRANSACTIONS.

       (a) In General.--Section 163(m) (relating to interest on 
     unpaid taxes attributable to nondisclosed reportable 
     transactions) is amended--
       (1) by striking ``attributable'' and all that follows and 
     inserting the following: ``attributable to--
       ``(1) the portion of any reportable transaction 
     understatement (as defined in section 6662A(b)) with respect 
     to which the requirement of section 6664(d)(2)(A) is not met, 
     or
       ``(2) any noneconomic substance transaction understatement 
     (as defined in section 6662B(c)).'', and
       (2) by inserting ``and Noneconomic Substance Transactions'' 
     in the heading thereof after ``Transactions''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act in taxable years ending after such date.

   Subtitle C--Improvements in Efficiency and Safeguards in Internal 
                       Revenue Service Collection

     SEC. 421. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING 
                   AUTOMATED WITHDRAWALS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following:
       ``(e) Waiver of User Fees for Installment Agreements Using 
     Automated Withdrawals.--In the case of a taxpayer who enters 
     into an installment agreement in which automated installment 
     payments are agreed to, the Secretary shall waive the fee (if 
     any) for entering into the installment agreement.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     which is 180 days after the date of the enactment of this 
     Act.

     SEC. 422. TERMINATION OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159(b)(4) (relating to failure to 
     pay an installment or any other tax liability when due or to 
     provide requested financial information) is amended by 
     striking ``or'' at the end of subparagraph (B), by 
     redesignating subparagraph (C) as subparagraph (E), and by 
     inserting after subparagraph (B) the following:
       ``(C) to make a Federal tax deposit under section 6302 at 
     the time such deposit is required to be made,
       ``(D) to file a return of tax imposed under this title by 
     its due date (including extensions), or''.
       (b) Conforming Amendment.--The heading for section 
     6159(b)(4) is amended by striking ``Failure to pay an 
     installment or any other tax liability when due or to provide 
     requested financial information'' and inserting ``Failure to 
     make payments or deposits or file returns when due or to 
     provide requested financial information''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to failures occurring on or after the date of the 
     enactment of this Act.

     SEC. 423. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF 
                   OFFERS-IN-COMPROMISE.

       (a) In General.--Section 7122 (relating to compromises), as 
     amended by this Act, is amended by redesignating subsections 
     (c), (d), and (e) as subsections (d), (e), and (f), 
     respectively, and by inserting after subsection (b) the 
     following new subsection:
       ``(c) Rules for Submission of Offers-in-Compromise.--
       ``(1) Partial payment required with submission.--
       ``(A) Lump-sum offers.--
       ``(i) In general.--The submission of any lump-sum offer-in-
     compromise shall be accompanied by the payment of 20 percent 
     of amount of such offer.
       ``(ii) Lump-sum offer-in-compromise.--For purposes of this 
     section, the term `lump-sum offer-in-compromise' means any 
     offer of payments made in 5 or fewer installments.
       ``(B) Periodic payment offers.--The submission of any 
     periodic payment offer-in-compromise shall be accompanied by 
     the payment of the amount of the first proposed installment 
     and each proposed installment due during the period such 
     offer is being evaluated for acceptance and has not been 
     rejected by the Secretary. Any failure to make a payment 
     required under the preceding sentence shall be deemed a 
     withdrawal of the offer-in-compromise.
       ``(2) Rules of application.--
       ``(A) Use of payment.--The application of any payment made 
     under this subsection to the assessed tax or other amounts 
     imposed under this title with respect to such tax may be 
     specified by the taxpayer.
       ``(B) No user fee imposed.--Any user fee which would 
     otherwise be imposed under this section shall not be imposed 
     on any offer-in-compromise accompanied by a payment required 
     under this subsection.
       ``(C) Waiver authority.--The Secretary may issue 
     regulations waiving any payment required under paragraph (1) 
     in a manner consistent with the practices established in 
     accordance with the requirements under subsection (d)(3).''.
       (b) Additional Rules Relating to Treatment of Offers.--
       (1) Unprocessable offer if payment requirements are not 
     met.--Paragraph (3) of section 7122(d) (relating to standards 
     for evaluation of offers), as redesignated by subsection (a), 
     is amended by striking ``; and'' at the end of subparagraph 
     (A) and inserting a comma, by striking the period at the end 
     of subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any offer-in-compromise which does not meet the 
     requirements of subsection (c) shall be returned to the 
     taxpayer as unprocessable.''.
       (2) Deemed acceptance of offer not rejected within certain 
     period.--Section 7122, as amended by subsection (a), is 
     amended by adding at the end the following new subsection:
       ``(g) Deemed Acceptance of Offer Not Rejected Within 
     Certain Period.--Any offer-in-compromise submitted under this 
     section shall be deemed to be accepted by the Secretary if 
     such offer is not rejected by the Secretary before the date 
     which is 24 months after the date of the submission of such 
     offer. For purposes of the preceding sentence, any period 
     during which any tax liability which is the subject of such 
     offer-in-compromise is in dispute in any judicial proceeding 
     shall not be taken in to account in determining the 
     expiration of the 24-month period.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted on and after 
     the date which is 60 days after the date of the enactment of 
     this Act.

                    Subtitle D--Penalties and Fines

     SEC. 431. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``Any person'' and inserting the following:
       ``(a) In General.--Any person'', and
       (ii) by striking ``$25,000'' and inserting ``$50,000'',
       (B) in the third sentence, by striking ``section'' and 
     inserting ``subsection'', and
       (C) by adding at the end the following new subsection:

[[Page S635]]

       ``(b) Aggravated Failure to File.--
       ``(1) In general.--In the case of any failure described in 
     paragraph (2), the first sentence of subsection (a) shall be 
     applied by substituting--
       ``(A) `felony' for `misdemeanor',
       ``(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and
       ``(C) `10 years' for `1 year'.
       ``(2) Failure described.--A failure described in this 
     paragraph is a failure to make a return described in 
     subsection (a) for a period of 3 or more consecutive taxable 
     years.''.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to actions, and failures to act, occurring after 
     the date of the enactment of this Act.

     SEC. 432. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) Determination of Penalty.--
       (1) In general.--Notwithstanding any other provision of 
     law, in the case of an applicable taxpayer--
       (A) the determination as to whether any interest or 
     applicable penalty is to be imposed with respect to any 
     arrangement described in paragraph (2), or to any 
     underpayment of Federal income tax attributable to items 
     arising in connection with any such arrangement, shall be 
     made without regard to the rules of subsections (b), (c), and 
     (d) of section 6664 of the Internal Revenue Code of 1986, and
       (B) if any such interest or applicable penalty is imposed, 
     the amount of such interest or penalty shall be equal to 
     twice that determined without regard to this section.
       (2) Applicable taxpayer.--For purposes of this subsection--
       (A) In general.--The term ``applicable taxpayer'' means a 
     taxpayer which--
       (i) has underreported its United States income tax 
     liability with respect to any item which directly or 
     indirectly involves--

       (I) any financial arrangement which in any manner relies on 
     the use of offshore payment mechanisms (including credit, 
     debit, or charge cards) issued by banks or other entities in 
     foreign jurisdictions, or
       (II) any offshore financial arrangement (including any 
     arrangement with foreign banks, financial institutions, 
     corporations, partnerships, trusts, or other entities), and

       (ii) has neither signed a closing agreement pursuant to the 
     Voluntary Offshore Compliance Initiative established by the 
     Department of the Treasury under Revenue Procedure 2003-11 
     nor voluntarily disclosed its participation in such 
     arrangement by notifying the Internal Revenue Service of such 
     arrangement prior to the issue being raised by the Internal 
     Revenue Service during an examination.
       (B) Authority to waive.--The Secretary of the Treasury or 
     the Secretary's delegate may waive the application of 
     paragraph (1) to any taxpayer if the Secretary or the 
     Secretary's delegate determines that the use of such offshore 
     payment mechanisms is incidental to the transaction and, in 
     addition, in the case of a trade or business, such use is 
     conducted in the ordinary course of the type of trade or 
     business of the taxpayer.
       (C) Issues raised.--For purposes of subparagraph (A)(ii), 
     an item shall be treated as an issue raised during an 
     examination if the individual examining the return--
       (i) communicates to the taxpayer knowledge about the 
     specific item, or
       (ii) has made a request to the taxpayer for information and 
     the taxpayer could not make a complete response to that 
     request without giving the examiner knowledge of the specific 
     item.
       (b) Applicable Penalty.--For purposes of this section, the 
     term ``applicable penalty'' means any penalty, addition to 
     tax, or fine imposed under chapter 68 of the Internal Revenue 
     Code of 1986.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if, as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 433. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution or 
     paid to come into compliance with law.--Paragraph (1) shall 
     not apply to any amount which--
       ``(A) the taxpayer establishes--
       ``(i) constitutes restitution (including remediation of 
     property) for damage or harm caused by or which may be caused 
     by the violation of any law or the potential violation of any 
     law, or
       ``(ii) is paid to come into compliance with any law which 
     was violated or involved in the investigation or inquiry, and
       ``(B) is identified as restitution or as an amount paid to 
     come into compliance with the law, as the case may be, in the 
     court order or settlement agreement.

     Identification pursuant to subparagraph (B) alone shall not 
     satisfy the requirement under subparagraph (A). This 
     paragraph shall not apply to any amount paid or incurred as 
     reimbursement to the government or entity for the costs of 
     any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Reporting of Deductible Amounts.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61, as amended by this Act, is amended by inserting 
     after section 6050U the following new section:

     ``SEC. 6050V. INFORMATION WITH RESPECT TO CERTAIN FINES, 
                   PENALTIES, AND OTHER AMOUNTS.

       ``(a) Requirement of Reporting.--
       ``(1) In general.--The appropriate official of any 
     government or entity which is described in section 162(f)(4) 
     which is involved in a suit or agreement described in 
     paragraph (2) shall make a return in such form as determined 
     by the Secretary setting forth--
       ``(A) the amount required to be paid as a result of the 
     suit or agreement to which paragraph (1) of section 162(f) 
     applies,
       ``(B) any amount required to be paid as a result of the 
     suit or agreement which constitutes restitution or 
     remediation of property, and
       ``(C) any amount required to be paid as a result of the 
     suit or agreement for the purpose of coming into compliance 
     with any law which was violated or involved in the 
     investigation or inquiry.
       ``(2) Suit or agreement described.--
       ``(A) In general.--A suit or agreement is described in this 
     paragraph if--
       ``(i) it is--

       ``(I) a suit with respect to a violation of any law over 
     which the government or entity has authority and with respect 
     to which there has been a court order, or
       ``(II) an agreement which is entered into with respect to a 
     violation of any law over which the government or entity has 
     authority, or with respect to an investigation or inquiry by 
     the government or entity into the potential violation of any 
     law over which such government or entity has authority, and

       ``(ii) the aggregate amount involved in all court orders 
     and agreements with respect to the violation, investigation, 
     or inquiry is $600 or more.
       ``(B) Adjustment of reporting threshold.--The Secretary may 
     adjust the $600 amount in subparagraph (A)(ii) as necessary 
     in order to ensure the efficient administration of the 
     internal revenue laws.
       ``(3) Time of filing.--The return required under this 
     subsection shall be filed not later than--
       ``(A) 30 days after the date on which a court order is 
     issued with respect to the suit or the date the agreement is 
     entered into, as the case may be, or
       ``(B) the date specified Secretary.
       ``(b) Statements To Be Furnished to Individuals Involved in 
     the Settlement.--Every person required to make a return under 
     subsection (a) shall furnish to each person who is a party to 
     the suit or agreement a written statement showing--
       ``(1) the name of the government or entity, and
       ``(2) the information supplied to the Secretary under 
     subsection (a)(1).

     The written statement required under the preceding sentence 
     shall be furnished to the person at the same time the 
     government or entity provides the Secretary with the 
     information required under subsection (a).
       ``(c) Appropriate Official Defined.--For purposes of this 
     section, the term `appropriate official' means the officer or 
     employee having control of the suit, investigation, or 
     inquiry or the person appropriately designated for purposes 
     of this section.''.
       (2) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61, as 
     amended by this Act, is amended by inserting after the item 
     relating to section 6050U the following new item:


[[Page S636]]


``Sec. 6050V. Information with respect to certain fines, penalties, and 
              other amounts.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred on or after the date 
     of the enactment of this Act, except that such amendments 
     shall not apply to amounts paid or incurred under any binding 
     order or agreement entered into before such date. Such 
     exception shall not apply to an order or agreement requiring 
     court approval unless the approval was obtained before such 
     date.

     SEC. 434. DENIAL OF DEDUCTION FOR PUNITIVE DAMAGES.

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

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

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section To Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to damages paid or incurred on or after the date 
     of the enactment of this Act.

     SEC. 435. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
                   ORDERS.

       (a) In General.--Section 6657 (relating to bad checks) is 
     amended--
       (1) by striking ``$750'' and inserting ``$2,000'', and
       (2) by striking ``$15'' and inserting ``$40''.
       (b) Effective Date.--The amendments made by this section 
     apply to checks or money orders received after the date of 
     the enactment of this Act.

           Subtitle E--Provisions to Discourage Expatriation

     SEC. 441. TAX TREATMENT OF INVERTED ENTITIES.

       (a) In General.--Section 7874 is amended--
       (1) by striking ``March 4, 2003'' in subsection 
     (a)(2)(B)(i) and in the matter following subsection 
     (a)(2)(B)(iii) and inserting ``March 20, 2002'',
       (2) by striking ``at least 60 percent'' in subsection 
     (a)(2)(B)(ii) and inserting ``more than 50 percent'',
       (3) by striking ``80 percent'' in subsection (b) and 
     inserting ``at least 80 percent'',
       (4) by striking ``60 percent'' in subsection (b) and 
     inserting ``more than 50 percent'',
       (5) by adding at the end of subsection (a)(2) the following 
     new sentence: ``Except as provided in regulations, an 
     acquisition of properties of a domestic corporation shall not 
     be treated as described in subparagraph (B) if none of the 
     corporation's stock was readily tradeable on an established 
     securities market at any time during the 4-year period ending 
     on the date of the acquisition.'', and
       (6) by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Special Rules Applicable to Expatriated Entities.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an expatriated entity--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an expatriated entity, section 163(j) shall be 
     applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after March 20, 2002.

     SEC. 442. REVISION OF TAX RULES ON EXPATRIATION OF 
                   INDIVIDUALS.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.

     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2005, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2004' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election To Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.

[[Page S637]]

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

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

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

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

       ``(D) Allocable expatriation gain.--For purposes of this 
     paragraph, the allocable expatriation gain with respect to 
     any beneficiary's interest in a trust is the amount of

[[Page S638]]

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

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

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

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

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

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(49) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation) is 
     inadmissible.''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(21) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.

[[Page S639]]

       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (20)'' each place it 
     appears and inserting ``(20), or (21)''.
       (3) Effective dates.--The amendments made by this 
     subsection shall apply to individuals who relinquish United 
     States citizenship on or after the date of the enactment of 
     this Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(h) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after the date of the 
     enactment of this subsection.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4) Section 6039G(a) is amended by inserting ``or 877A'' 
     after ``section 877(b)''.
       (5) The second sentence of section 6039G(d) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after ``section 
     877(a))''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after the date 
     of the enactment of this Act.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after the date of the 
     enactment of this Act, from an individual or the estate of an 
     individual whose expatriation date (as so defined) occurs 
     after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

                  Subtitle F--Miscellaneous Provisions

     SEC. 451. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT 
                   INSTRUMENTS.

       (a) In General.--Section 1275(d) (relating to regulation 
     authority) is amended--
       (1) by striking ``The Secretary'' and inserting the 
     following:
       ``(1) In general.--The Secretary'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Treatment of contingent payment convertible debt.--
       ``(A) In general.--In the case of a debt instrument which--
       ``(i) is convertible into stock of the issuing corporation, 
     into stock or debt of a related party (within the meaning of 
     section 267(b) or 707(b)(1)), or into cash or other property 
     in an amount equal to the approximate value of such stock or 
     debt, and
       ``(ii) provides for contingent payments,

     any regulations which require original issue discount to be 
     determined by reference to the comparable yield of a 
     noncontingent fixed-rate debt instrument shall be applied as 
     if the regulations require that such comparable yield be 
     determined by reference to a noncontingent fixed-rate debt 
     instrument which is convertible into stock.
       ``(B) Special rule.--For purposes of subparagraph (A), the 
     comparable yield shall be determined without taking into 
     account the yield resulting from the conversion of a debt 
     instrument into stock.''.
       (b) Cross Reference.--Section 163(e)(6) (relating to cross 
     references) is amended by adding at the end the following:
       ``For the treatment of contingent payment convertible debt, 
     see section 1275(d)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued on or after the date 
     of the enactment of this Act.

     SEC. 452. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS 
                   FOREIGN TAX CREDIT TRANSACTIONS INVOLVING 
                   INAPPROPRIATE SEPARATION OF FOREIGN TAXES FROM 
                   RELATED FOREIGN INCOME.

       (a) In General.--Section 901 (relating to taxes of foreign 
     countries and of possessions of United States) is amended by 
     redesignating subsection (m) as subsection (n) and by 
     inserting after subsection (l) the following new subsection:
       ``(m) Regulations.--The Secretary may prescribe regulations 
     disallowing a credit under subsection (a) for all or a 
     portion of any foreign tax, or allocating a foreign tax among 
     2 or more persons, in cases where the foreign tax is imposed 
     on any person in respect of income of another person or in 
     other cases involving the inappropriate separation of the 
     foreign tax from the related foreign income.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after the date of 
     the enactment of this Act.

     SEC. 453. REPEAL OF SPECIAL PROPERTY EXCEPTION TO LEASING 
                   PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 
                   2004.

       (a) In General.--Section 849(b) of the American Jobs 
     Creation Act of 2004 is amended by striking paragraphs (1) 
     and (2), by redesignating paragraphs (3) and (4) as 
     paragraphs (1) and (2), respectively.
       (b) Leases to Foreign Entities.--Section 849(b) of the 
     American Jobs Creation Act of 2004, as amended by subsection 
     (a), is amended by adding at the end the following new 
     paragraph:
       ``(3) Leases to foreign entities.--In the case of tax-
     exempt use property leased to a tax-exempt entity which is a 
     foreign person or entity, the amendments made by this part 
     shall apply to taxable years beginning after December 31, 
     2005, with respect to leases entered into on or before March 
     12, 2004.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     American Jobs Creation Act of 2004.

     SEC. 454. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS 
                   WHICH ARE CORPORATIONS.

       (a) In General.--Section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Treatment of corporate partners.--Except to the 
     extent provided by regulations, in applying this subsection 
     to a corporation which owns (directly or indirectly) an 
     interest in a partnership--
       ``(A) such corporation's distributive share of interest 
     income paid or accrued to such partnership shall be treated 
     as interest income paid or accrued to such corporation,
       ``(B) such corporation's distributive share of interest 
     paid or accrued by such partnership shall be treated as 
     interest paid or accrued by such corporation, and
       ``(C) such corporation's share of the liabilities of such 
     partnership shall be treated as liabilities of such 
     corporation.''.
       (b) Additional Regulatory Authority.--Section 163(j)(9) 
     (relating to regulations), as redesignated by subsection (a), 
     is amended by striking ``and'' at the end of subparagraph 
     (B), by striking the period at the end of subparagraph (C) 
     and inserting ``, and'', and by adding at the end the 
     following new subparagraph:
       ``(D) regulations providing for the reallocation of shares 
     of partnership indebtedness, or distributive shares of the 
     partnership's interest income or interest expense, as may be 
     appropriate to carry out the purposes of this subsection.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning on or after the date 
     of the enactment of this Act.

     SEC. 455. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN 
                   ENTERTAINMENT EXPENSES.

       (a) In General.--Paragraph (2) of section 274(e) (relating 
     to expenses treated as compensation) is amended to read as 
     follows:
       ``(2) Expenses treated as compensation.--Expenses for 
     goods, services, and facilities, to the extent that the 
     expenses do not exceed the amount of the expenses which are 
     treated by the taxpayer, with respect to the recipient of the 
     entertainment, amusement, or recreation, as compensation to 
     an employee on the taxpayer's return of tax under this 
     chapter and as wages to such employee for purposes of chapter 
     24 (relating to withholding of income tax at source on 
     wages).''.
       (b) Persons Not Employees.--Paragraph (9) of section 274(e) 
     is amended by striking ``to the extent that the expenses are 
     includible in the gross income'' and inserting ``to the 
     extent that the expenses do not exceed the amount of the 
     expenses which are includible in the gross income''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses incurred after the date of the 
     enactment of this Act.

     SEC. 456. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Treatment of Distributions From Qualified Disability 
     Trusts.--Section 1(g)(4) (relating to net unearned income) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Treatment of distributions from qualified disability 
     trusts.--For purposes of this subsection, in the case of any 
     child who is a beneficiary of a qualified disability trust 
     (as defined in section 642(b)(2)(C)(ii)), any amount included 
     in the income of such child under sections 652 and 662 during 
     a taxable year shall be considered earned income of such 
     child for such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 457. LOAN AND REDEMPTION REQUIREMENTS ON POOLED 
                   FINANCING REQUIREMENTS.

       (a) Strengthened Reasonable Expectation Requirement.--
     Subparagraph (A) of section 149(f)(2) (relating to reasonable 
     expectation requirement) is amended to read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to an issue if the issuer reasonably expects 
     that--

[[Page S640]]

       ``(i) as of the close of the 1-year period beginning on the 
     date of issuance of the issue, at least 50 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been used directly or indirectly to make or finance 
     loans to ultimate borrowers, and
       ``(ii) as of the close of the 3-year period beginning on 
     such date of issuance, at least 95 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been so used.''.
       (b) Written Loan Commitment and Redemption Requirements.--
     Section 149(f) (relating to treatment of certain pooled 
     financing bonds) is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (6) and (7), respectively, and by 
     inserting after paragraph (3) the following new paragraphs:
       ``(4) Written loan commitment requirement.--
       ``(A) In general.--The requirement of this paragraph is met 
     with respect to an issue if the issuer receives prior to 
     issuance written loan commitments identifying the ultimate 
     potential borrowers of at least 50 percent of the net 
     proceeds of such issue.
       ``(B) Exception.--Subparagraph (A) shall not apply with 
     respect to any issuer which is a State (or an integral part 
     of a State) issuing pooled financing bonds to make or finance 
     loans to subordinate governmental units of such State or to 
     State-created entities providing financing for water-
     infrastructure projects through the federally-sponsored State 
     revolving fund program.
       ``(5) Redemption requirement.--The requirement of this 
     paragraph is met if to the extent that less than the 
     percentage of the proceeds of an issue required to be used 
     under clause (i) or (ii) of paragraph (2)(A) is used by the 
     close of the period identified in such clause, the issuer 
     uses an amount of proceeds equal to the excess of--
       ``(A) the amount required to be used under such clause, 
     over
       ``(B) the amount actually used by the close of such period,
       ``to redeem outstanding bonds within 90 days after the end 
     of such period.''.
       (c) Elimination of Disregard of Pooled Bonds in Determining 
     Eligibility for Small Issuer Exception to Arbitrage Rebate.--
     Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) 
     is amended by striking subclause (II) and by redesignating 
     subclauses (III) and (IV) as subclauses (II) and (III), 
     respectively.
       (d) Conforming Amendments.--
       (1) Section 149(f)(1) is amended by striking ``paragraphs 
     (2) and (3)'' and inserting ``paragraphs (2), (3), (4), and 
     (5)''.
       (2) Section 149(f)(7)(B), as redesignated by subsection 
     (b), is amended by striking ``paragraph (4)(A)'' and 
     inserting ``paragraph (6)(A)''.
       (3) Section 54(l)(2) is amended by striking ``section 
     149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 458. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

       (a) In General.--Section 6049(b)(2) (relating to 
     exceptions) is amended by striking subparagraph (B) and by 
     redesignating subparagraphs (C) and (D) as subparagraphs (B) 
     and (C), respectively.
       (b) Conforming Amendment.--Section 6049(b)(2)(C), as 
     redesignated by subsection (a), is amended by striking 
     ``subparagraph (C)'' and inserting ``subparagraph (B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest earned after December 31, 2005.

     SEC. 459. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE.

       (a) Taxable Years Ending Before 2006.--
       (1) Modification of phaseout.--
       (A) In general.--Section 29(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 29(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 
     2005.--Section 29(b)(2), as amended by paragraph (1), is 
     amended by adding at the end the following new sentence: 
     ``This paragraph shall not apply with respect to the $3 
     amount in subsection (a) for calendar year 2005 and the 
     amount in effect under subsection (a) for sales in such 
     calendar year shall be the amount which was in effect for 
     sales in calendar year 2004.''.
       (b) Taxable Years Ending After 2005.--
       (1) Modification of phaseout.--
       (A) In general.--Section 45K(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 45K(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 2005, 
     2006, and 2007.--Section 45K(b)(2), as amended by paragraph 
     (1), is amended by adding at the end the following new 
     sentence: ``This paragraph shall not apply with respect to 
     the $3 amount in subsection (a) for calendar years 2005, 
     2006, and 2007 and the amount in effect under subsection (a) 
     for sales in each such calendar year shall be the amount 
     which was in effect for sales in calendar year 2004.''.
       (3) Treatment of coke and coke gas.--
       (A) Nonapplication of phaseout.--Section 45K(g)(2) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Nonapplication of phaseout.--Subsection (b)(1) shall 
     not apply.''.
       (B) Application of inflation adjustment.--Section 
     45K(g)(2)(B) is amended by inserting ``and the last sentence 
     of subsection (b)(2) shall not apply.''.
       (C) Clarification of qualifying facility.--Section 
     45K(g)(1) is amended by inserting ``(other than from 
     petroleum based products)'' after ``coke or coke gas''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to fuel sold after December 31, 2004.

     SEC. 460. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE 
                   HARBOR.

       (a) In General.--Clause (i) of section 6654(d)(1)(C) is 
     amended by striking ``substituting'' and all that follows 
     through ``1997.'' and inserting ``substituting `110 percent 
     (120 percent if the preceding taxable year begins in 2005)' 
     for `100 percent'.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to any installment payment for 
     taxable years beginning after December 31, 2005.

     SEC. 461. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED 
                   OIL COMPANIES.

       (a) General Rule.--Notwithstanding any other provision of 
     law, if a taxpayer is an applicable integrated oil company 
     for its last taxable year ending in calendar year 2005, the 
     taxpayer shall--
       (1) increase, effective as of the close of such taxable 
     year, the value of each historic LIFO layer of inventories of 
     crude oil, natural gas, or any other petroleum product 
     (within the meaning of section 4611) by the layer adjustment 
     amount, and
       (2) decrease its cost of goods sold for such taxable year 
     by the aggregate amount of the increases under paragraph (1).

     If the aggregate amount of the increases under paragraph (1) 
     exceed the taxpayer's cost of goods sold for such taxable 
     year, the taxpayer's gross income for such taxable year shall 
     be increased by the amount of such excess.
       (b) Layer Adjustment Amount.--For purposes of this 
     section--
       (1) In general.--The term ``layer adjustment amount'' 
     means, with respect to any historic LIFO layer, the product 
     of--
       (A) $18.75, and
       (B) the number of barrels of crude oil (or in the case of 
     natural gas or other petroleum products, the number of 
     barrel-of-oil equivalents) represented by the layer.
       (2) Barrel-of-oil equivalent.--The term ``barrel-of-oil 
     equivalent'' has the meaning given such term by section 
     29(d)(5) (as in effect before its redesignation by the Energy 
     Tax Incentives Act of 2005).
       (c) Application of Requirement.--
       (1) No change in method of accounting.--Any adjustment 
     required by this section shall not be treated as a change in 
     method of accounting.
       (2) Underpayments of estimated tax.--o addition to the tax 
     shall be made under section 6655 of the Internal Revenue Code 
     of 1986 (relating to failure by corporation to pay estimated 
     tax) with respect to any underpayment of an installment 
     required to be paid with respect to the taxable year 
     described in subsection (a) to the extent such underpayment 
     was created or increased by this section.
       (d) Applicable Integrated Oil Company.--For purposes of 
     this section, the term ``applicable integrated oil company'' 
     means an integrated oil company (as defined in section 
     291(b)(4) of the Internal Revenue Code of 1986) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for the taxable year and which had gross 
     receipts in excess of $1,000,000,000 for its last taxable 
     year ending during calendar year 2005. For purposes of this 
     subsection all persons treated as a single employer under 
     subsections (a) and (b) of section 52 of the Internal Revenue 
     Code of 1986 shall be treated as 1 person and, in the case of 
     a short taxable year, the rule under section 448(c)(3)(B) 
     shall apply.

     SEC. 462. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND 
                   GEOPHYSICAL EXPENDITURES FOR MAJOR INTEGRATED 
                   OIL COMPANIES.

       (a) In General.--Section 167(h) is amended by adding at the 
     end the following new paragraph:
       ``(5) Nonapplication to major integrated oil companies.--
     This subsection shall not apply with respect to any expenses 
     paid or incurred for any taxable year by any integrated oil 
     company (as defined in section 291(b)(4)) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for such taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendment made by 
     section 1329(a) of the Energy Policy Act of 2005.

     SEC. 463. VALUATION OF EMPLOYEE PERSONAL USE OF NONCOMMERCIAL 
                   AIRCRAFT.

       (a) In General.--For purposes of Federal income tax 
     inclusion, the value of any employee personal use of 
     noncommercial aircraft shall equal the excess (if any) of--
       (1) greater of--
       (A) the fair market value of such use, or
       (B) the actual cost of such use (including all fixed and 
     variable costs), over

[[Page S641]]

       (2) any amount paid by or on behalf of such employee for 
     such use.
       (b) Effective Date.--Subsection (a) shall apply to use 
     after the date of the enactment of this Act.

     SEC. 464. APPLICATION OF FIRPTA TO REGULATED INVESTMENT 
                   COMPANIES.

       (a) In General.--Subclause (II) of section 897(h)(4)(A)(i) 
     (defining qualified investment entity) is amended by 
     inserting ``which is a United States real property holding 
     corporation or which would be a United States real property 
     holding corporation if the exceptions provided in subsections 
     (c)(3) and (h)(2) did not apply to interests in any real 
     estate investment trust or regulated investment company'' 
     after ``regulated investment company''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions with respect to taxable years 
     beginning after December 31, 2004.

     SEC. 465. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA 
                   GAINS.

       (a) Qualified Investment Entity.--
       (1) In general.--Section 897(h)(1) is amended--
       (A) by striking ``a nonresident alien individual or a 
     foreign corporation'' in the first sentence and inserting ``a 
     nonresident alien individual, a foreign corporation, or other 
     qualified investment entity'',
       (B) by striking ``such nonresident alien individual or 
     foreign corporation'' in the first sentence and inserting 
     ``such nonresident alien individual, foreign corporation, or 
     other qualified investment entity'', and
       (C) by striking the second sentence and inserting the 
     following new sentence: ``Notwithstanding the preceding 
     sentence, any distribution by a qualified investment entity 
     to a nonresident alien, a foreign corporation, or other 
     qualified investment entity with respect to any class of 
     stock which is regularly traded on an established securities 
     market located in the United States shall not be treated as 
     gain recognized from the sale or exchange of a United States 
     real property interest if the shareholder did not own more 
     than 5 percent of such class of stock at any time during the 
     1 year period ending on the date of such distribution.''.
       (2) Application after 2007.--Clause (ii) of section 
     897(h)(4)(A) is amended by adding at the end the following 
     new sentence: ``Notwithstanding the preceding sentence, an 
     entity described in clause (i)(II) shall be treated as a 
     qualified investment entity for purposes of applying 
     paragraph (1) in any case in which a real estate investment 
     trust makes a distribution to an entity described in clause 
     (i)(II).''.
       (b) Treatment of Certain Distributions as Dividends.--
       (1) In general.--Section 852(b)(3) (relating to capital 
     gains) is amended by adding at the end the following new 
     subparagraph:
       ``(E) Certain distributions.--In the case of a distribution 
     to which section 897 does not apply by reason of the second 
     sentence of section 897(h)(1), the amount of such 
     distribution which would be included in computing long-term 
     capital gains for the shareholder under subparagraph (B) or 
     (D) (without regard to this subparagraph)--
       ``(i) shall not be included in computing such shareholder's 
     long-term capital gains, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the regulated investment company.''.
       (2) Conforming amendment.--Section 871(k)(2) (relating to 
     short-term capital gain dividends) is amended by adding at 
     the end the following new subparagraph:
       ``(E) Certain distributions.--In the case of a distribution 
     to which section 897 does not apply by reason of the second 
     sentence of section 897(h)(1), the amount which would be 
     treated as a short-term capital gain dividend to the 
     shareholder (without regard to this subparagraph)--
       ``(i) shall not be treated as a short-term capital gain 
     dividend, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the regulated investment company.''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     of qualified investment entities beginning after the date of 
     the enactment of this Act.
       (2) Dividends.--The amendments made by subsection (b) shall 
     apply to dividends with respect to taxable years of regulated 
     investment companies beginning after December 31, 2004.

     SEC. 466. PREVENTION OF AVOIDANCE OF TAX ON INVESTMENTS OF 
                   FOREIGN PERSONS IN UNITED STATES REAL PROPERTY 
                   THROUGH WASH SALE TRANSACTIONS.

       (a) In General.--Section 897(h) of the Internal Revenue 
     Code of 1986 (relating to special rules in certain investment 
     entities) is amended by redesignating paragraph (4) as 
     paragraph (5) and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) Treatment of certain wash sale transactions.--
       ``(A) In general.--If an interest in a domestically 
     controlled qualified investment entity is disposed of in an 
     applicable wash sale transaction, the taxpayer shall, for 
     purposes of this section, be treated as having gain from the 
     sale or exchange of a United States real property interest in 
     an amount equal to the portion of the distribution described 
     in subparagraph (B) with respect to such interest which, but 
     for the disposition, would have been treated by the taxpayer 
     as gain from the sale or exchange of a United States real 
     property interest under paragraph (1).
       ``(B) Applicable wash sales transaction.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `applicable wash sales 
     transaction' means any transaction (or series of 
     transactions) under which a nonresident alien individual or 
     foreign corporation--

       ``(I) disposes of an interest in a domestically controlled 
     qualified investment entity during the 30-day period 
     preceding a distribution which is to be made with respect to 
     the interest and any portion of which, but for the 
     disposition, would have been treated by the taxpayer as gain 
     from the sale or exchange of a United States real property 
     interest under paragraph (1), and
       ``(II) acquires an identical interest in such entity during 
     the 60-day period beginning with the 1st day of the 30-day 
     period described in subclause (I).

     For purposes of subclause (II), a nonresident alien 
     individual or foreign corporation shall be treated as having 
     acquired any interest acquired by a person related (within 
     the meaning of section 465(b)(3)(C)) to the individual or 
     corporation.
       ``(ii) Exception where distribution actually received.--A 
     transaction shall not be treated as an applicable wash sales 
     transaction if the nonresident alien individual or foreign 
     corporation receives the distribution described in clause 
     (i)(I) with respect to either the interest which was disposed 
     of, or acquired, in the transaction.
       ``(iii) Exception for certain publicly traded stock.--A 
     transaction shall not be treated as an applicable wash sales 
     transaction if it involves the disposition of any class of 
     stock in a qualified investment entity which is regularly 
     traded on an established securities market within the United 
     States but only if the nonresident alien individual or 
     foreign corporation did not own more than 5 percent of such 
     class of stock at any time during the 1-year period ending on 
     the date of the distribution described in clause (i)(I).''.
       (b) No Withholding Required.--Section 1445(b) of the 
     Internal Revenue Code of 1986 (relating to exemptions) is 
     amended by adding at the end the following new paragraph:
       ``(8) Applicable wash sales transactions.--No person shall 
     be required to deduct and withhold any amount under 
     subsection (a) with respect to a disposition which is treated 
     as a disposition of a United States real property interest 
     solely by reason of section 897(h)(4).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to dispositions after December 31, 2005, in 
     taxable years ending after such date.

     SEC. 467. MODIFICATIONS TO RULES RELATING TO TAXATION OF 
                   DISTRIBUTIONS OF STOCK AND SECURITIES OF A 
                   CONTROLLED CORPORATION.

       (a) Modification of Active Business Definition Under 
     Section 355.--
       (1) In general.--Section 355(b) (defining active conduct of 
     a trade or business) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rules relating to active business 
     requirement.--
       ``(A) In general.--For purposes of determining whether a 
     corporation meets the requirement of paragraph (2)(A), all 
     members of such corporation's separate affiliated group shall 
     be treated as 1 corporation. For purposes of the preceding 
     sentence, the term `separate affiliated group' means, with 
     respect to any corporation, the affiliated group which would 
     be determined under section 1504(a) if such corporation were 
     the common parent and section 1504(b) did not apply.
       ``(B) Control.--For purposes of paragraph (2)(D), all 
     distributee corporations which are members of the same 
     affiliated group (as defined in section 1504(a) without 
     regard to section 1504(b)) shall be treated as 1 distributee 
     corporation.''.
       (2) Conforming amendments.--
       (A) Subparagraph (A) of section 355(b)(2) is amended to 
     read as follows:
       ``(A) it is engaged in the active conduct of a trade or 
     business,''.
       (B) Section 355(b)(2) of such Code is amended by striking 
     the last sentence.
       (3) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply--
       (i) to distributions after the date of the enactment of 
     this Act, and before January 1, 2010, and
       (ii) for purposes of determining the continued 
     qualification under section 355(b)(2)(A) of the Internal 
     Revenue Code of 1986 (as amended by paragraph (2)(A)) of 
     distributions made before such date, as a result of an 
     acquisition, disposition, or other restructuring after such 
     date and before January 1, 2010.
       (B) Transition rule.--The amendments made by this 
     subsection shall not apply to any distribution pursuant to a 
     transaction which is--
       (i) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (ii) described in a ruling request submitted to the 
     Internal Revenue Service on or before such date, or
       (iii) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.
       (C) Elections.--
       (i) Out of transition relief.--Subparagraph (B) shall not 
     apply if the distributing

[[Page S642]]

     corporation elects not to have such subparagraph apply to 
     distributions of such corporation. Any such election, once 
     made, shall be irrevocable.
       (ii) Application to prior distributions.--Subparagraph 
     (A)(ii) shall not apply to a distributing or controlled 
     corporation if the corporation elects not to have such 
     subparagraph apply to such corporation. Any such election, 
     once made, shall be irrevocable.
       (b) Section 355 Not To Apply to Distributions if the 
     Distributing or Controlled Corporation Is a Disqualified 
     Investment Corporation.--
       (1) In general.--Section 355 (relating to distributions of 
     stock and securities of a controlled corporation) is amended 
     by adding at the end the following new subsection:
       ``(g) Section Not To Apply to Distributions Involving 
     Disqualified Investment Corporations.--
       ``(1) In general.--This section (and so much of section 356 
     as relates to this section) shall not apply to any 
     distribution which is part of a transaction if--
       ``(A) either the distributing corporation or controlled 
     corporation is, immediately after the transaction, a 
     disqualified investment corporation, and
       ``(B) any person holds, immediately after the transaction, 
     a 50-percent or greater interest in any disqualified 
     investment corporation, but only if such person did not hold 
     such an interest in such corporation immediately before the 
     transaction.
       ``(2) Disqualified investment corporation.--For purposes of 
     this subsection--
       ``(A) In general.--The term `disqualified investment 
     corporation' means any distributing or controlled corporation 
     if the fair market value of the investment assets of the 
     corporation is 75 percent or more of the fair market value of 
     all assets of the corporation.
       ``(B) Investment assets.--
       ``(i) In general.--Except as otherwise provided in this 
     subparagraph, the term `investment assets' means--

       ``(I) cash,
       ``(II) any stock or securities in a corporation,
       ``(III) any interest in a partnership,
       ``(IV) any debt instrument or other evidence of 
     indebtedness,
       ``(V) any option, forward or futures contract, notional 
     principal contract, or derivative,
       ``(VI) foreign currency, or
       ``(VII) any similar asset.

       ``(ii) Exception for assets used in active conduct of 
     certain financial trades or businesses.--Such term shall not 
     include any asset which is held for use in the active and 
     regular conduct of--

       ``(I) a lending or finance business (within the meaning of 
     section 954(h)(4)),
       ``(II) a banking business through a bank (as defined in 
     section 581), a domestic building and loan association 
     (within the meaning of section 7701(a)(19)), or any similar 
     institution specified by the Secretary, or
       ``(III) an insurance business if the conduct of the 
     business is licensed, authorized, or regulated by an 
     applicable insurance regulatory body.

     This clause shall only apply with respect to any business if 
     substantially all of the income of the business is derived 
     from persons who are not related (within the meaning of 
     section 267(b) or 707(b)(1)) to the person conducting the 
     business.
       ``(iii) Exception for securities marked to market.--Such 
     term shall not include any security (as defined in section 
     475(c)(2)) which is held by a dealer in securities and to 
     which section 475(a) applies.
       ``(iv) Stock or securities in a 25-percent controlled 
     entity.--

       ``(I) In general.--Such term shall not include any stock 
     and securities in, or any asset described in subclause (IV) 
     or (V) of clause (i) issued by, a corporation which is a 25-
     percent controlled entity with respect to the distributing or 
     controlled corporation.
       ``(II) Look-thru rule.--The distributing or controlled 
     corporation shall, for purposes of applying this subsection, 
     be treated as owning its ratable share of the assets of any 
     25-percent controlled entity.
       ``(III) 25-percent controlled entity.--For purposes of this 
     clause, the term `25-percent controlled entity' means, with 
     respect to any distributing or controlled corporation, any 
     corporation with respect to which the distributing or 
     controlled corporation owns directly or indirectly stock 
     meeting the requirements of section 1504(a)(2), except that 
     such section shall be applied by substituting `25 percent' 
     for `80 percent' and without regard to stock described in 
     section 1504(a)(4).

       ``(v) Interests in certain partnerships.--

       ``(I) In general.--Such term shall not include any interest 
     in a partnership, or any debt instrument or other evidence of 
     indebtedness, issued by the partnership, if 1 or more of the 
     trades or businesses of the partnership are (or, without 
     regard to the 5-year requirement under subsection (b)(2)(B), 
     would be) taken into account by the distributing or 
     controlled corporation, as the case may be, in determining 
     whether the requirements of subsection (b) are met with 
     respect to the distribution.
       ``(II) Look-thru rule.--The distributing or controlled 
     corporation shall, for purposes of applying this subsection, 
     be treated as owning its ratable share of the assets of any 
     partnership described in subclause (I).

       ``(3) 50-percent or greater interest.--For purposes of this 
     subsection--
       ``(A) In general.--The term `50-percent or greater 
     interest' has the meaning given such term by subsection 
     (d)(4).
       ``(B) Attribution rules.--The rules of section 318 shall 
     apply for purposes of determining ownership of stock for 
     purposes of this paragraph.
       ``(4) Transaction.--For purposes of this subsection, the 
     term `transaction' includes a series of transactions.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out, or prevent the 
     avoidance of, the purposes of this subsection, including 
     regulations--
       ``(A) to carry out, or prevent the avoidance of, the 
     purposes of this subsection in cases involving--
       ``(i) the use of related persons, intermediaries, pass-thru 
     entities, options, or other arrangements, and
       ``(ii) the treatment of assets unrelated to the trade or 
     business of a corporation as investment assets if, prior to 
     the distribution, investment assets were used to acquire such 
     unrelated assets,
       ``(B) which in appropriate cases exclude from the 
     application of this subsection a distribution which does not 
     have the character of a redemption which would be treated as 
     a sale or exchange under section 302, and
       ``(C) which modify the application of the attribution rules 
     applied for purposes of this subsection.''.
       (2) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (B) Transition rule.--The amendments made by this 
     subsection shall not apply to any distribution pursuant to a 
     transaction which is--
       (i) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (ii) described in a ruling request submitted to the 
     Internal Revenue Service on or before such date, or
       (iii) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.

     SEC. 468. AMORTIZATION OF EXPENSES INCURRED IN CREATING OR 
                   ACQUIRING MUSIC OR MUSIC COPYRIGHTS.

       (a) In General.--Section 263A (relating to capitalization 
     and inclusion in inventory costs of certain expenses) is 
     amended by redesignating subsection (i) as subsection (j) and 
     by adding after subsection (h) the following new subsection:
       ``(i) Special Rules for Certain Musical Works and 
     Copyrights.--
       ``(1) In general.--If--
       ``(A) any expense is paid or incurred by the taxpayer in 
     creating or acquiring any musical composition (including any 
     accompanying words) or any copyright with respect to a 
     musical composition, and
       ``(B) such expense is required to be capitalized under this 
     section,

     then, notwithstanding section 167(g), the amount capitalized 
     shall be amortized ratably over the 5-year period beginning 
     with the month in which the composition or copyright was 
     acquired (or, in the case of expenses paid or incurred in 
     connection with the creation of a musical composition, the 5-
     taxable-year period beginning with the taxable year in which 
     the expenses were paid or incurred).
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     expense--
       ``(A) which is a qualified creative expense under 
     subsection (h),
       ``(B) to which a simplified procedure established under 
     subsection (j)(2) applies,
       ``(C) which is an amortizable section 197 intangible (as 
     defined in section 197(c)), or
       ``(D) which, without regard to this section, would not be 
     allowable as a deduction.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to expenses paid or incurred after December 31, 
     2005, in taxable years ending after such date.

     SEC. 469. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

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

     ``SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

       ``(a) Allowance of Credit.--In the case of a taxpayer who 
     holds a rural renaissance bond on a credit allowance date of 
     such bond, which occurs during the taxable year, there shall 
     be allowed as a credit against the tax imposed by this 
     chapter for such taxable year an amount equal to the sum of 
     the credits determined under subsection (b) with respect to 
     credit allowance dates during such year on which the taxpayer 
     holds such bond.
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any credit allowance 
     date for a rural renaissance bond is 25 percent of the annual 
     credit determined with respect to such bond.
       ``(2) Annual credit.--The annual credit determined with 
     respect to any rural renaissance bond is the product of--
       ``(A) the credit rate determined by the Secretary under 
     paragraph (3) for the day on which such bond was sold, 
     multiplied by
       ``(B) the outstanding face amount of the bond.
       ``(3) Determination.--For purposes of paragraph (2), with 
     respect to any rural renaissance bond, the Secretary shall 
     determine daily or caused to be determined daily a credit 
     rate which shall apply to the first day on which there is a 
     binding, written contract

[[Page S643]]

     for the sale or exchange of the bond. The credit rate for any 
     day is the credit rate which the Secretary or the Secretary's 
     designee estimates will permit the issuance of rural 
     renaissance bonds with a specified maturity or redemption 
     date without discount and without interest cost to the 
     qualified issuer.
       ``(4) Credit allowance date.--For purposes of this section, 
     the term `credit allowance date' means--
       ``(A) March 15,
       ``(B) June 15,
       ``(C) September 15, and
       ``(D) December 15.

     Such term also includes the last day on which the bond is 
     outstanding.
       ``(5) Special rule for issuance and redemption.--In the 
     case of a bond which is issued during the 3-month period 
     ending on a credit allowance date, the amount of the credit 
     determined under this subsection with respect to such credit 
     allowance date shall be a ratable portion of the credit 
     otherwise determined based on the portion of the 3-month 
     period during which the bond is outstanding. A similar rule 
     shall apply when the bond is redeemed or matures.
       ``(c) Limitation Based on Amount of Tax.--The credit 
     allowed under subsection (a) for any taxable year shall not 
     exceed the excess of--
       ``(1) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(2) the sum of the credits allowable under this part 
     (other than subpart C).
       ``(d) Rural Renaissance Bond.--For purposes of this 
     section--
       ``(1) In general.--The term `rural renaissance bond' means 
     any bond issued as part of an issue if--
       ``(A) the bond is issued by a qualified issuer,
       ``(B) 95 percent or more of the proceeds from the sale of 
     such issue are to be used for capital expenditures incurred 
     for 1 or more qualified projects,
       ``(C) the qualified issuer designates such bond for 
     purposes of this section and the bond is in registered form, 
     and
       ``(D) the issue meets the requirements of subsections (e) 
     and (h).
       ``(2) Qualified project; special use rules.--
       ``(A) In general.--The term `qualified project' means 1 or 
     more projects described in subparagraph (B) located in a 
     rural area.
       ``(B) Projects described.--A project described in this 
     subparagraph is--
       ``(i) a water or waste treatment project,
       ``(ii) an affordable housing project,
       ``(iii) a community facility project, including hospitals, 
     fire and police stations, and nursing and assisted-living 
     facilities,
       ``(iv) a value-added agriculture or renewable energy 
     facility project for agricultural producers or farmer-owned 
     entities, including any project to promote the production, 
     processing, or retail sale of ethanol (including fuel at 
     least 85 percent of the volume of which consists of ethanol), 
     biodiesel, animal waste, biomass, raw commodities, or wind as 
     a fuel,
       ``(v) a distance learning or telemedicine project,
       ``(vi) a rural utility infrastructure project, including 
     any electric or telephone system,
       ``(vii) a project to expand broadband technology,
       ``(viii) a rural teleworks project, and
       ``(ix) any project described in any preceding clause 
     carried out by the Delta Regional Authority.
       ``(C) Special rules.--For purposes of this paragraph--
       ``(i) any project described in subparagraph (B)(iv) for a 
     farmer-owned entity may be considered a qualified project if 
     such entity is located in a rural area, or in the case of a 
     farmer-owned entity the headquarters of which are located in 
     a nonrural area, if the project is located in a rural area, 
     and
       ``(ii) any project for a farmer-owned entity which is a 
     facility described in subparagraph (B)(iv) for agricultural 
     producers may be considered a qualified project regardless of 
     whether the facility is located in a rural or nonrural area.
       ``(3) Special use rules.--
       ``(A) Refinancing rules.--For purposes of paragraph (1)(B), 
     a qualified project may be refinanced with proceeds of a 
     rural renaissance bond only if the indebtedness being 
     refinanced (including any obligation directly or indirectly 
     refinanced by such indebtedness) was originally incurred 
     after the date of the enactment of this section.
       ``(B) Reimbursement.--For purposes of paragraph (1)(B), a 
     rural renaissance bond may be issued to reimburse a borrower 
     for amounts paid after the date of the enactment of this 
     section with respect to a qualified project, but only if--
       ``(i) prior to the payment of the original expenditure, the 
     borrower declared its intent to reimburse such expenditure 
     with the proceeds of a rural renaissance bond,
       ``(ii) not later than 60 days after payment of the original 
     expenditure, the qualified issuer adopts an official intent 
     to reimburse the original expenditure with such proceeds, and
       ``(iii) the reimbursement is made not later than 18 months 
     after the date the original expenditure is paid.
       ``(C) Treatment of changes in use.--For purposes of 
     paragraph (1)(B), the proceeds of an issue shall not be 
     treated as used for a qualified project to the extent that a 
     borrower takes any action within its control which causes 
     such proceeds not to be used for a qualified project. The 
     Secretary shall prescribe regulations specifying remedial 
     actions that may be taken (including conditions to taking 
     such remedial actions) to prevent an action described in the 
     preceding sentence from causing a bond to fail to be a rural 
     renaissance bond.
       ``(e) Maturity Limitations.--
       ``(1) Duration of term.--A bond shall not be treated as a 
     rural renaissance bond if the maturity of such bond exceeds 
     the maximum term determined by the Secretary under paragraph 
     (2) with respect to such bond.
       ``(2) Maximum term.--During each calendar month, the 
     Secretary shall determine the maximum term permitted under 
     this paragraph for bonds issued during the following calendar 
     month. Such maximum term shall be the term which the 
     Secretary estimates will result in the present value of the 
     obligation to repay the principal on the bond being equal to 
     50 percent of the face amount of such bond. Such present 
     value shall be determined without regard to the requirements 
     of subsection (f)(3) and using as a discount rate the average 
     annual interest rate of tax-exempt obligations having a term 
     of 10 years or more which are issued during the month. If the 
     term as so determined is not a multiple of a whole year, such 
     term shall be rounded to the next highest whole year.
       ``(3) Ratable principal amortization required.--A bond 
     shall not be treated as a rural renaissance bond unless it is 
     part of an issue which provides for an equal amount of 
     principal to be paid by the qualified issuer during each 
     calendar year that the issue is outstanding.
       ``(f) Limitation on Amount of Bonds Designated.--
       ``(1) National limitation.--There is a rural renaissance 
     bond limitation of $200,000,000.
       ``(2) Allocation by secretary.--The Secretary shall 
     allocate the amount described in paragraph (1) among 
     qualified projects in such manner as the Secretary determines 
     appropriate.
       ``(g) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this section (determined without regard to subsection 
     (c)) and the amount so included shall be treated as interest 
     income.
       ``(h) Special Rules Relating to Expenditures.--
       ``(1) In general.--An issue shall be treated as meeting the 
     requirements of this subsection if, as of the date of 
     issuance, the qualified issuer reasonably expects--
       ``(A) at least 95 percent of the proceeds from the sale of 
     the issue are to be spent for 1 or more qualified projects 
     within the 5-year period beginning on the date of issuance of 
     the rural renaissance bond,
       ``(B) a binding commitment with a third party to spend at 
     least 10 percent of the proceeds from the sale of the issue 
     will be incurred within the 6-month period beginning on the 
     date of issuance of the rural renaissance bond or, in the 
     case of a rural renaissance bond, the proceeds of which are 
     to be loaned to 2 or more borrowers, such binding commitment 
     will be incurred within the 6-month period beginning on the 
     date of the loan of such proceeds to a borrower, and
       ``(C) such projects will be completed with due diligence 
     and the proceeds from the sale of the issue will be spent 
     with due diligence.
       ``(2) Extension of period.--Upon submission of a request 
     prior to the expiration of the period described in paragraph 
     (1)(A), the Secretary may extend such period if the qualified 
     issuer establishes that the failure to satisfy the 5-year 
     requirement is due to reasonable cause and the related 
     projects will continue to proceed with due diligence.
       ``(3) Failure to spend required amount of bond proceeds 
     within 5 years.--To the extent that less than 95 percent of 
     the proceeds of such issue are expended by the close of the 
     5-year period beginning on the date of issuance (or if an 
     extension has been obtained under paragraph (2), by the close 
     of the extended period), the qualified issuer shall redeem 
     all of the nonqualified bonds within 90 days after the end of 
     such period. For purposes of this paragraph, the amount of 
     the nonqualified bonds required to be redeemed shall be 
     determined in the same manner as under section 142.
       ``(i) Special Rules Relating to Arbitrage.--A bond which is 
     part of an issue shall not be treated as a rural renaissance 
     bond unless, with respect to the issue of which the bond is a 
     part, the qualified issuer satisfies the arbitrage 
     requirements of section 148 with respect to proceeds of the 
     issue.
       ``(j) Qualified Issuer.--For purposes of this section--
       ``(1) In general.--The term `qualified issuer' means any 
     not-for-profit cooperative lender which has as of the date of 
     the enactment of this section received a guarantee under 
     section 306 of the Rural Electrification Act and which meets 
     the requirement of paragraph (2).
       ``(2) User fee requirement.--The requirement of this 
     paragraph is met if the issuer of any rural renaissance bond 
     makes grants for qualified projects as defined under 
     subsection (d)(2) on a semi-annual basis every year that such 
     bond is outstanding in an annual amount equal to one-half of 
     the rate on United States Treasury Bills of the same maturity 
     multiplied by the outstanding principle balance of rural 
     renaissance bonds issued by such issuer.
       ``(k) Special Rules Relating to Pool Bonds.--No portion of 
     a pooled financing bond may be allocable to loan unless the 
     borrower has entered into a written loan commitment for such 
     portion prior to the issue date of such issue.

[[Page S644]]

       ``(l) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Bond.--The term `bond' includes any obligation.
       ``(2) Pooled financing bond.--The term `pooled financing 
     bond' shall have the meaning given such term by section 
     149(f)(4)(A).
       ``(3) Rural area.--The term `rural area' means any area 
     other than--
       ``(A) a city or town which has a population of greater than 
     50,000 inhabitants, or
       ``(B) the urbanized area contiguous and adjacent to such a 
     city or town.
       ``(4) Partnership; s corporation; and other pass-thru 
     entities.--
       ``(A) In general.--Under regulations prescribed by the 
     Secretary, in the case of a partnership, trust, S 
     corporation, or other pass-thru entity, rules similar to the 
     rules of section 41(g) shall apply with respect to the credit 
     allowable under subsection (a).
       ``(B) No basis adjustment.--In the case of a bond held by a 
     partnership or an S corporation, rules similar to the rules 
     under section 1397E(l) shall apply.
       ``(5) Bonds held by regulated investment companies.--If any 
     rural renaissance bond is held by a regulated investment 
     company, the credit determined under subsection (a) shall be 
     allowed to shareholders of such company under procedures 
     prescribed by the Secretary.
       ``(6) Reporting.--Issuers of rural renaissance bonds shall 
     submit reports similar to the reports required under section 
     149(e).''.
       (b) Reporting.--Subsection (d) of section 6049 (relating to 
     returns regarding payments of interest) is amended by adding 
     at the end the following new paragraph:
       ``(9) Reporting of credit on rural renaissance bonds.--
       ``(A) In general.--For purposes of subsection (a), the term 
     `interest' includes amounts includible in gross income under 
     section 54(f) and such amounts shall be treated as paid on 
     the credit allowance date (as defined in section 54(b)(4)).
       ``(B) Reporting to corporations, etc.--Except as otherwise 
     provided in regulations, in the case of any interest 
     described in subparagraph (A), subsection (b)(4) shall be 
     applied without regard to subparagraphs (A), (H), (I), (J), 
     (K), and (L)(i) of such subsection.
       ``(C) Regulatory authority.--The Secretary may prescribe 
     such regulations as are necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations which 
     require more frequent or more detailed reporting.''.
       (c) Conforming Amendments.--
       (1) The table of sections for subpart H of part IV of 
     subchapter A of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 54A. Credit to holders of rural renaissance bonds.''.

       (2) Section 54(c)(2) is amended by inserting ``, section 
     54A,'' after ``subpart C''.
       (d) Issuance of Regulations.--The Secretary of Treasury 
     shall issue regulations required under section 54A of the 
     Internal Revenue Code of 1986 (as added by this section) not 
     later than 120 days after the date of the enactment of this 
     Act.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act and before January 1, 2010.

     SEC. 470. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
                   APPLICABLE TO LARGE INTEGRATED OIL COMPANIES 
                   WHICH ARE DUAL CAPACITY TAXPAYERS.

       (a) In General.--Section 901 (relating to credit for taxes 
     of foreign countries and of possessions of the United 
     States), as amended by this Act, is amended by redesignating 
     subsections (m) and (n) as subsections (n) and (o), 
     respectively, and by inserting after subsection (l) the 
     following new subsection:
       ``(m) Special Rules Relating To Large Integrated Oil 
     Companies Which Are Dual Capacity Taxpayers.--
       ``(1) General rule.--Notwithstanding any other provision of 
     this chapter, any amount paid or accrued by a dual capacity 
     taxpayer which is a large integrated oil company to a foreign 
     country or possession of the United States for any period 
     shall not be considered a tax--
       ``(A) if, for such period, the foreign country or 
     possession does not impose a generally applicable income tax, 
     or
       ``(B) to the extent such amount exceeds the amount 
     (determined in accordance with regulations) which--
       ``(i) is paid by such dual capacity taxpayer pursuant to 
     the generally applicable income tax imposed by the country or 
     possession, or
       ``(ii) would be paid if the generally applicable income tax 
     imposed by the country or possession were applicable to such 
     dual capacity taxpayer.

     Nothing in this paragraph shall be construed to imply the 
     proper treatment of any such amount not in excess of the 
     amount determined under subparagraph (B).
       ``(2) Dual capacity taxpayer.--For purposes of this 
     subsection, the term `dual capacity taxpayer' means, with 
     respect to any foreign country or possession of the United 
     States, a person who--
       ``(A) is subject to a levy of such country or possession, 
     and
       ``(B) receives (or will receive) directly or indirectly a 
     specific economic benefit (as determined in accordance with 
     regulations) from such country or possession.
       ``(3) Generally applicable income tax.--For purposes of 
     this subsection--
       ``(A) In general.--The term `generally applicable income 
     tax' means an income tax (or a series of income taxes) which 
     is generally imposed under the laws of a foreign country or 
     possession on income derived from the conduct of a trade or 
     business within such country or possession.
       ``(B) Exceptions.--Such term shall not include a tax unless 
     it has substantial application, by its terms and in practice, 
     to--
       ``(i) persons who are not dual capacity taxpayers, and
       ``(ii) persons who are citizens or residents of the foreign 
     country or possession.
       ``(4) Large integrated oil company.--For purposes of this 
     subsection, the term `large integrated oil company' means, 
     with respect to any taxable year, an integrated oil company 
     (as defined in section 291(b)(4)) which--
       ``(A) had gross receipts in excess of $1,000,000,000 for 
     such taxable year, and
       ``(B) has an average daily worldwide production of crude 
     oil of at least 500,000 barrels for such taxable year.''
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes paid or accrued in taxable years beginning 
     after the date of the enactment of this Act.
       (2) Contrary treaty obligations upheld.--The amendments 
     made by this section shall not apply to the extent contrary 
     to any treaty obligation of the United States.

     SEC. 471. DISABILITY PREFERENCE PROGRAM FOR TAX COLLECTION 
                   CONTRACTS.

       (a) In General.--The Secretary of the Treasury shall not 
     enter into any qualified tax collection contract after April 
     1, 2006, until the Secretary implements a disability 
     preference program that meets the requirements of subsection 
     (b).
       (b) Disability Preference Program Requirements.--
       (1) In general.--A disability preference program meets the 
     requirements of this subsection if such program requires that 
     not less than 10 percent of the accounts of each dollar value 
     category are awarded to persons described in paragraph (2).
       (2) Person described.--For purposes of paragraph (1), a 
     person is described in this paragraph if--
       (A) as of the date any qualified tax collection contract is 
     awarded--
       (i) such person employs not less than 50 severely disabled 
     individuals within the United States; or
       (ii) not less than 30 percent of the employees of such 
     person within the United States are severely disabled 
     individuals;
       (B) such person agrees as a condition of the qualified tax 
     collection contract that not more than 90 days after the date 
     such contract is awarded, not less than 35 percent of the 
     employees of such person employed in connection with 
     providing services under such contract shall--
       (i) be hired after the date such contract is awarded; and
       (ii) be severely disabled individuals; and
       (C) such person is otherwise qualified to perform the 
     services required.
       (c) Definitions.--For purposes of this section--
       (1) Qualified tax collection contract.--The term 
     ``qualified tax collection contract'' shall have the meaning 
     given such term under section 6306(b) of the Internal Revenue 
     Code of 1986.
       (2) Dollar value category.--The term ``dollar value 
     category'' means the dollar ranges of accounts for collection 
     as determined and assigned by the Secretary under section 
     6306(b)(1)(B) of the Internal Revenue Code of 1986 with 
     respect to a qualified tax collection contract.
       (3) Severely disabled individual.--The term ``severely 
     disabled individual'' means--
       (A) a veteran of the United States armed forces with a 
     disability of 50 percent or greater--
       (i) determined by the Secretary of Veterans Affairs to be 
     service-connected; or
       (ii) deemed by law to be service-connected; or
       (B) any individual who is a disabled beneficiary (as 
     defined in section 1148(k)(2) of the Social Security Act (42 
     U.S.C. 1320b-19(k)(2))) or who would be considered to be such 
     a disabled beneficiary but for having income or resources in 
     excess of the income or resources eligibility limits 
     established under title XVI of the Social Security Act (42 
     U.S.C. 1381 et seq.), respectively.

           TITLE V--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

     SEC. 501. SUNSET OF CERTAIN PROVISIONS AND AMENDMENTS.

       The provisions of, and amendments made by, title I, 
     subtitle A of title II, and title III shall not apply to 
     taxable years beginning after September 30, 2010, and the 
     Internal Revenue Code of 1986 shall be applied and 
     administered to such years as if such provisions and 
     amendments had never been enacted.
                                 ______
                                 
  SA 2711. Mr. FRIST (for Mr. Talent) proposed an amendment to 
amendment SA 2710 proposed by Mr. Frist (for himself, Mr. Grassley, and 
Mr. Baucus) to the bill H.R. 4297, to provide for reconciliation 
pursuant to section 201(b) of the concurrent resolution on the budget 
for fiscal year 2006; as follows:

       At the end of the amendment add the following:

[[Page S645]]

     SEC. ___. PERMANENT EXTENSION OF EGTRRA PROVISIONS RELATING 
                   TO CHILD TAX CREDIT.

       Section 901 of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 (relating to sunset provisions) 
     shall not apply to the amendments made by section 201 of such 
     Act.
                                 ______
                                 
  SA 2712. Mr. LEVIN submitted an amendment intended to be proposed by 
him to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; which was ordered to lie on the table; as follows:

       At the appropriate place, insert the following:

                       TITLE --__MEDICARE REFORM

     SECTION _01. SHORT TITLE.

       This title may be cited as the ``Medicare Part D Reform Act 
     of 2006''.

     SEC. _02. REMOVAL OF COVERED PART D DRUGS FROM THE 
                   PRESCRIPTION DRUG PLAN FORMULARY.

       Section 1860D-4(b)(3)(E) of the Social Security Act (42 
     U.S.C. 1395w-104(b)(3)(E)) is amended to read as follows:
       ``(E) Removing drug from formulary or changing preferred or 
     tier status of drug.--
       ``(i) Limitation on removal or change.--Beginning with 
     2006, the PDP sponsor of a prescription drug plan may not 
     remove a covered part D drug from the plan formulary or 
     change the preferred or tiered cost-sharing status of such a 
     drug other than during the period beginning on September 1 
     and ending on October 31. Subject to clause (ii), such 
     removal or change shall only be effective beginning on 
     January 1 of the immediately succeeding calendar year.
       ``(ii) Notice.--Any removal or change under this 
     subparagraph shall not take effect unless appropriate notice 
     is made available (such as under subsection (a)(3)) to the 
     Secretary, affected enrollees, physicians, pharmacies, and 
     pharmacists. Such notice shall ensure that such information 
     is made available prior to the annual, coordinated open 
     election period described in section 1851(e)(3)(B)(iii), as 
     applied under section 1860D-1(b)(1)(B)(iii).''.

     SEC. _03. PHARMACEUTICAL PATIENT ASSISTANCE PROGRAMS.

       (a) Providing a Safe Harbor for Pharmaceutical Patient 
     Assistance Programs.--Section 1128B(b)(3) of the Social 
     Security Act (42 U.S.C. 1320a-7b(b)(3)) is amended--
       (1) in subparagraph (G)--
       (A) by inserting ``or under a patient assistance program 
     (including a pharmaceutical manufacturer patient assistance 
     program)'' after ``Indian organizations)''; and
       (B) by striking ``and'' at the end;
       (2) in subparagraph (H), as added by section 237(d) of the 
     Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003 (Public Law 108-173; 117 Stat. 2213)--
       (A) by moving such subparagraph 2 ems to the left; and
       (B) by striking the period at the end and inserting ``; 
     and''; and
       (3) by redesignating subparagraph (H), as added by section 
     431(a) of the Medicare Prescription Drug, Improvement, and 
     Modernization Act of 2003 (Public Law 108-173; 117 Stat. 
     2287), as subparagraph (I) and moving such subparagraph 2 ems 
     to the left.
       (b) Exclusion of Expenditures Under Certain Pharmacy 
     Assistance Programs From TROOP.--Section 1860D-2(b)(4)(C)(ii) 
     of such Act (42 U.S.C. 1395w-102(b)(4)(C)(ii)) is amended by 
     inserting ``under a pharmaceutical manufacturer patient 
     assistance program,'' after ``a group health plan,''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of enactment of this Act.

     SEC. _04. PROTECTION AGAINST COST-SHARING FOR FULL-BENEFIT 
                   DUAL ELIGIBLE INDIVIDUALS.

       (a) In General.--Section 1860D-14(a)(1)(D)(ii) of the 
     Social Security Act (42 U.S.C. 1395w-114(a)(1)(D)(ii)) is 
     amended--
       (1) in the heading, by striking ``Lowest income'';
       (2) by striking ``and whose income does not exceed 100 
     percent of the poverty line applicable to a family of the 
     size involved''; and
       (3) by adding at the end the following new sentence: ``In 
     the case of an individual who is unable to pay the copayment 
     applicable under the preceding sentence, such copayment shall 
     be waived.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to drugs dispensed on or after the date of 
     enactment of this Act.

     SEC. _05. NEGOTIATING FAIR PRICES FOR MEDICARE PRESCRIPTION 
                   DRUGS.

       (a) In General.--Section 1860D-11 of the Social Security 
     Act (42 U.S.C. 1395w-111) is amended by striking subsection 
     (i) (relating to noninterference) and by inserting the 
     following new subsection:
       ``(i) Authority To Negotiate Prices With Manufacturers.--In 
     order to ensure that beneficiaries enrolled under 
     prescription drug plans and MA-PD plans pay the lowest 
     possible price, the Secretary shall have authority similar to 
     that of other Federal entities that purchase prescription 
     drugs in bulk to negotiate contracts with manufacturers of 
     covered part D drugs, consistent with the requirements and in 
     furtherance of the goals of providing quality care and 
     containing costs under this part.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of enactment of this Act.
                                 ______
                                 
  SA 2713. Mrs. FEINSTEIN (for herself, Mr. Kohl, Mr. Dorgan, Mr. 
Bingaman, Mr. Schumer, Mrs. Boxer, and Mrs. Clinton) submitted an 
amendment intended to be proposed by her to the bill H.R. 4297, to 
provide for reconciliation pursuant to section 201(b) of the concurrent 
resolution on the budget for fiscal year 2006; which was ordered to lie 
on the table; as follows:

       At the appropriate place, insert the following:

     SEC. __. REMOVAL OF COVERED PART D DRUGS FROM THE 
                   PRESCRIPTION DRUG PLAN FORMULARY.

       (a) Limitation on Removal or Change of Covered Part D Drugs 
     From the Prescription Drug Plan Formulary.--Section 1860D-
     4(b)(3)(E) of the Social Security Act (42 U.S.C. 1395w-
     104(b)(3)(E)) is amended to read as follows:
       ``(E) Removing drug from formulary or changing preferred or 
     tier status of drug.--
       ``(i) Limitation on removal or change.--

       ``(I) In general.--Subject to subclause (II) and clause 
     (ii), beginning with 2006, the PDP sponsor of a prescription 
     drug plan may not remove a covered part D drug from the plan 
     formulary or change the preferred or tiered cost-sharing 
     status of such a drug other than at the beginning of each 
     plan year except as the Secretary may permit to take into 
     account new therapeutic uses and newly covered part D drugs.
       ``(II) Special rule for newly enrolled individuals.--
     Subject to clause (ii), in the case of an individual who 
     enrolls in a prescription drug plan on or after the date of 
     enactment of this subparagraph, the PDP sponsor of such plan 
     may not remove a covered part D drug from the plan formulary 
     or change the preferred or tiered cost-sharing status of such 
     a drug during the period beginning on the date of such 
     enrollment and ending on December 31 of the immediately 
     succeeding plan year except as the Secretary may permit to 
     take into account new therapeutic uses and newly covered part 
     D drugs.

       ``(ii) Exceptions to limitation on removal.--Clause (i) 
     shall not apply with respect to a covered part D drug that--

       ``(I) is a brand name drug for which there is a generic 
     drug approved under section 505(j) of the Food and Drug 
     Cosmetic Act (21 U.S.C. 355(j)) that is placed on the market 
     during the period in which there are limitations on removal 
     or change in the formulary under subclause (I) or (II) of 
     clause (i);
       ``(II) is a brand name drug that goes off-patent during 
     such period;
       ``(III) is a drug for which the Commissioner of Food and 
     Drugs issues a clinical warning that imposes a restriction or 
     limitation on the drug during such period; or
       ``(IV) has been determined to be ineffective during such 
     period.

       ``(iii) Notice of removal under application of exception to 
     limitation.--The PDP sponsor of a prescription drug plan 
     shall provide appropriate notice (such as under subsection 
     (a)(3)) of any removal or change under clause (ii) to the 
     Secretary, affected enrollees, physicians, pharmacies, and 
     pharmacists.''.
       (b) Notice for Change in Formulary and Other Restrictions 
     or Limitations on Coverage.--
       (1) In general.--Section 1860D-4(a) of such Act (42 U.S.C. 
     1395w-104(a)) is amended by adding at the end the following 
     new paragraph:
       ``(5) Annual notice of changes in formulary and other 
     restrictions or limitations on coverage.--Each PDP sponsor 
     offering a prescription drug plan shall furnish to each 
     enrollee at the time of each annual coordinated election 
     period (referred to in section 1860D-1(b)(1)(B)(iii)) for a 
     plan year a notice of any changes in the formulary or other 
     restrictions or limitations on coverage of a covered part D 
     drug under the plan that will take effect for the plan 
     year.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to annual coordinated election periods beginning 
     after the date of the enactment of this Act.
                                 ______
                                 
  SA 2714. Mr. DURBIN (for himself, Mrs. Murray, Mr. Lieberman, Mr. 
Lautenberg, and Mrs. Clinton) submitted an amendment intended to be 
proposed by him to the bill H.R. 4297, to provide for reconciliation 
pursuant to section 201(b) of the concurrent resolution on the budget 
for fiscal year 2006; which was ordered to lie on the table; as 
follows:

       On page 19, strike lines 19 through 22 and insert the 
     following:

     SEC. 203. ELIGIBILITY OF ALL UNINSURED CHILDREN FOR SCHIP.

       (a) In General.--Section 2110(b) of the Social Security Act 
     (42 U.S.C. 1397jj(b)) is amended--
       (1) in paragraph (1)--
       (A) by striking subparagraph (B); and
       (B) by redesignating subparagraph (C) as subparagraph (B);
       (2) in paragraph (2)--
       (A) by striking ``include'' and all that follows through 
     ``a child who is an'' and inserting ``include a child who is 
     an''; and
       (B) by striking the semicolon and all that follows through 
     the period and inserting a period; and

[[Page S646]]

       (3) by striking paragraph (4).
       (b) No Exclusion of Children With Access to High-Cost 
     Coverage.--Section 2110(b)(3) of the Social Security Act (42 
     U.S.C. 1397jj(b)(3)) is amended--
       (1) in the paragraph heading, by striking ``rule'' and 
     inserting ``rules'';
       (2) by striking ``A child shall not be considered to be 
     described in paragraph (1)(C)'' and inserting the following:
       ``(A) Certain non federally funded coverage.--A child shall 
     not be considered to be described in paragraph (1)(C)''; and
       (3) by adding at the end the following:
       ``(B) No exclusion of children with access to high-cost 
     coverage.--A State may include a child as a targeted 
     vulnerable child if the child has access to coverage under a 
     group health plan or health insurance coverage and the total 
     annual aggregate cost for premiums, deductibles, cost 
     sharing, and similar charges imposed under the group health 
     plan or health insurance coverage with respect to all 
     targeted vulnerable children in the child's family exceeds 5 
     percent of such family's income for the year involved.''.
       (c) Conforming Amendments.--
       (1) Titles XIX and XXI of the Social Security Act (42 
     U.S.C. 1396 et seq.; 1397aa et. seq.) are amended by striking 
     ``targeted low-income'' each place it appears and inserting 
     ``targeted vulnerable''.
       (2) Section 2101(a) of such Act (42 U.S.C. 1397aa(a)) is 
     amended by striking ``uninsured, low-income'' and inserting 
     ``low-income''.
       (3) Section 2102(b)(3)(C) of such Act (42 U.S.C. 
     1397bb(b)(3)(C)) is amended by inserting ``, particularly 
     with respect to children whose family income exceeds 200 
     percent of the poverty line'' before the semicolon.
       (4) Section 2102(b)(3)(E), section 2105(a)(1)(D)(ii), 
     paragraphs (1)(C) and (2) of section 2107, and subsections 
     (a)(1) and (d)(1)(B) of section 2108 of such Act (42 U.S.C. 
     1397bb(b)(3)(E); 1397ee(a)(1)(D)(ii); 1397gg; 1397hh) are 
     amended by striking ``low-income'' each place it appears.
       (5) Section 2110(a)(27) of such Act (42 U.S.C. 
     1397jj(a)(27)) is amended by striking ``eligible low-income 
     individuals'' and inserting ``targeted vulnerable 
     individuals''.
       (d) Effective Date.--The amendments made by this section 
     take effect on October 1, 2006.

     SEC. 203A. INCREASE IN FEDERAL FINANCIAL PARTICIPATION UNDER 
                   SCHIP AND MEDICAID FOR STATES WITH SIMPLIFIED 
                   ENROLLMENT AND RENEWAL PROCEDURES FOR CHILDREN.

       (a) SCHIP.--Section 2105(c)(2) of the Social Security Act 
     (42 U.S.C. 1397ee(c)(2)) is amended by adding at the end the 
     following:
       ``(C) Nonapplication of limitation and increase in federal 
     payment for states with simplified enrollment and renewal 
     procedures.--
       ``(i) In general.--Notwithstanding subsection (a)(1) and 
     subparagraph (A)--

       ``(I) the limitation under subparagraph (A) on expenditures 
     for items described in subsection (a)(1)(D) shall not apply 
     with respect to expenditures incurred to carry out any of the 
     outreach strategies described in clause (ii), but only if the 
     State carries out the same outreach strategies for children 
     under title XIX; and
       ``(II) the enhanced FMAP for a State for a fiscal year 
     otherwise determined under subsection (b) shall be increased 
     by 5 percentage points (without regard to the application of 
     the 85 percent limitation under that subsection) with respect 
     to such expenditures.

       ``(ii) Outreach strategies described.--For purposes of 
     clause (i), the outreach strategies described in this clause 
     are the following:

       ``(I) Presumptive eligibility.--The State provides for 
     presumptive eligibility for children under this title and 
     under title XIX.
       ``(II) Adoption of 12-month continuous eligibility.--The 
     State provides that eligibility for children shall not be 
     redetermined more often than once every year under this title 
     or under title XIX.
       ``(III) Elimination of asset test.--The State does not 
     apply any asset test for eligibility under this title or 
     title XIX with respect to children.
       ``(IV) Passive renewal.--The State provides for the 
     automatic renewal of the eligibility of children for 
     assistance under this title and under title XIX if the family 
     of which such a child is a member does not report any changes 
     to family income or other relevant circumstances, subject to 
     verification of information from State databases.''.

       (b) Medicaid.--
       (1) In general.--Section 1902(l) of the Social Security Act 
     (42 U.S.C. 1396a(l)) is amended--
       (A) in paragraph (3), by inserting ``subject to paragraph 
     (5)'', after ``Notwithstanding subsection (a)(17),''; and
       (B) by adding at the end the following:
       ``(5)(A) Notwithstanding the first sentence of section 
     1905(b), with respect to expenditures incurred to carry out 
     any of the outreach strategies described in subparagraph (B) 
     for individuals under 19 years of age who are eligible for 
     medical assistance under subsection (a)(10)(A), the Federal 
     medical assistance percentage is equal to the enhanced FMAP 
     described in section 2105(b) and increased under section 
     2105(c)(2)(C)(i)(II), but only if the State carries out the 
     same outreach strategies for children under title XXI.
       ``(B) For purposes of subparagraph (A), the outreach 
     strategies described in this subparagraph are the following:
       ``(i) Presumptive eligibility.--The State provides for 
     presumptive eligibility for such individuals under this title 
     and title XXI.
       ``(ii) Adoption of 12-month continuous eligibility.--The 
     State provides that eligibility for such individuals shall 
     not be redetermined more often than once every year under 
     this title or under title XXI.
       ``(iii) Elimination of asset test.--The State does not 
     apply any asset test for eligibility under this title or 
     title XXI with respect to such individuals.
       ``(iv) Passive renewal.--The State provides for the 
     automatic renewal of the eligibility of such individuals for 
     assistance under this title and under title XXI if the family 
     of which such an individual is a member does not report any 
     changes to family income or other relevant circumstances, 
     subject to verification of information from State 
     databases.''.
       (2) Conforming amendment.--The first sentence of section 
     1905(b) of the Social Security Act (42 U.S.C. 1396d(b)) is 
     amended by striking ``section 1933(d)'' and inserting 
     ``sections 1902(l)(5) and 1933(d)''.
       (c) Effective Date.--The amendments made by this section 
     take effect on October 1, 2006.

     SEC. 203B. LIMITATION ON PAYMENTS TO STATES THAT HAVE AN 
                   ENROLLMENT CAP BUT HAVE NOT EXHAUSTED THE 
                   STATE'S AVAILABLE ALLOTMENTS.

       (a) In General.--Section 2105 of the Social Security Act 
     (42 U.S.C. 1397ee) is amended by adding at the end the 
     following:
       ``(h) Limitation on Payments to States That Have an 
     Enrollment Cap but Have Not Exhausted the State's Available 
     Allotments.--
       ``(1) In general.--Notwithstanding any other provision of 
     this section, payment shall not be made to a State under this 
     section if the State has an enrollment freeze, enrollment 
     cap, procedures to delay consideration of, or not to 
     consider, submitted applications for child health assistance, 
     or a waiting list for the submission or consideration of such 
     applications or for such assistance, and the State has not 
     fully expended the amount of all allotments available with 
     respect to a fiscal year for expenditure by the State, 
     including allotments for prior fiscal years that remain 
     available for expenditure during the fiscal year under 
     subsection (c) or (g) of section 2104 or that were 
     redistributed to the State under subsection (f) or (g) of 
     section 2104.
       ``(2) Rule of construction.--Paragraph (1) shall not be 
     construed as prohibiting a State from establishing regular 
     open enrollment periods for the submission of applications 
     for child health assistance.''.
       (b) Effective Date.--The amendments made by this section 
     take effect on October 1, 2006.

     SEC. 203C. ADDITIONAL ENHANCEMENT TO FMAP TO PROMOTE 
                   EXPANSION OF COVERAGE TO ALL UNINSURED CHILDREN 
                   UNDER MEDICAID AND SCHIP.

       (a) In General.--Title XXI (42 U.S.C. 1397aa et seq.) is 
     amended by adding at the end the following:

     ``SEC. 2111. ADDITIONAL ENHANCEMENT TO FMAP TO PROMOTE 
                   EXPANSION OF COVERAGE TO ALL UNINSURED CHILDREN 
                   UNDER MEDICAID AND SCHIP.

       ``(a) In General.--Notwithstanding subsection (b) of 
     section 2105 (and without regard to the application of the 85 
     percent limitation under that subsection), the enhanced FMAP 
     with respect to expenditures in a quarter for providing child 
     health assistance to uninsured children whose family income 
     exceeds 200 percent of the poverty line, shall be increased 
     by 5 percentage points.
       ``(b) Uninsured Child Defined.--
       ``(1) In general.--For purposes of subsection (a), subject 
     to paragraph (2), the term `uninsured child' means an 
     uncovered child who has been without creditable coverage for 
     a period determined by the Secretary, except that such period 
     shall not be less than 6 months.
       ``(2) Special rule for newborn children.--In the case of a 
     child 12 months old or younger, the period determined under 
     paragraph (1) shall be 0 months and such child shall be 
     considered uninsured upon birth.
       ``(3) Special rule for children losing medicaid or schip 
     coverage due to increased family income.--In the case of a 
     child who, due to an increase in family income, becomes 
     ineligible for coverage under title XIX or this title during 
     the period beginning on the date that is 12 months prior to 
     the date of enactment of the All Kids Health Insurance 
     Coverage Act of 2005 and ending on the date of enactment of 
     such Act, the period determined under paragraph (1) shall be 
     0 months and such child shall be considered uninsured upon 
     the date of enactment of the All Kids Health Insurance 
     Coverage Act of 2005.
       ``(4) Monitoring and adjustment of period required to be 
     uninsured.--The Secretary shall--
       ``(A) monitor the availability and retention of employer-
     sponsored health insurance coverage of dependent children; 
     and
       ``(B) adjust the period determined under paragraph (1) as 
     needed for the purpose of promoting the retention of private 
     or employer-sponsored health insurance coverage of dependent 
     children and timely access to health care services for such 
     children.''.
       (b) Cost-Sharing for Children in Families With High Family 
     Income.--Section 2103(e)(3) of the Social Security Act (42 
     U.S.C. 1397cc(e)(3)) is amended by adding at the end the 
     following new subparagraph:

[[Page S647]]

       ``(C) Children in families with high family income.--
       ``(i) In general.--For children not described in 
     subparagraph (A) whose family income exceeds 400 percent of 
     the poverty line for a family of the size involved, subject 
     to paragraphs (1)(B) and (2), the State shall impose a 
     premium that is not less than the cost of providing child 
     health assistance to children in such families, and 
     deductibles, cost sharing, or similar charges shall be 
     imposed under the State child health plan (without regard to 
     a sliding scale based on income), except that the total 
     annual aggregate cost-sharing with respect to all such 
     children in a family under this title may not exceed 5 
     percent of such family's income for the year involved.
       ``(ii) Inflation adjustment.--The dollar amount specified 
     in clause (i) shall be increased, beginning with fiscal year 
     2008, from year to year based on the percentage increase in 
     the consumer price index for all urban consumers (all items; 
     United States city average). Any dollar amount established 
     under this clause that is not a multiple of $100 shall be 
     rounded to the nearest multiple of $100.''.
       (c) Additional Allotments for States Providing Coverage to 
     All Uninsured Children in the State.--
       (1) In general.--Section 2104 of the Social Security Act 
     (42 U.S.C. 1397dd) is amended by inserting after subsection 
     (c) the following:
       ``(d) Additional Allotments for States Providing Coverage 
     to All Uninsured Children in the State.--
       ``(1) Appropriation; total allotment.--For the purpose of 
     providing additional allotments to States to provide coverage 
     of all uninsured children (as defined in section 2111(b)) in 
     the State under the State child health plan, there is 
     appropriated, out of any money in the Treasury not otherwise 
     appropriated--
       ``(A) for fiscal years 2007, 2008, and 2009, 
     $3,000,000,000;
       ``(B) for fiscal year 2010, $5,000,000,000; and
       ``(C) for fiscal year 2011, $7,000,000,000.
       ``(2) State and territorial allotments.--
       ``(A) In general.--In addition to the allotments provided 
     under subsections (b) and (c), subject to subparagraph (B) 
     and paragraphs (3) and (4), of the amount available for the 
     additional allotments under paragraph (1) for a fiscal year, 
     the Secretary shall allot to each State with a State child 
     health plan that provides coverage of all uninsured children 
     (as so defined) in the State approved under this title--
       ``(i) in the case of such a State other than a commonwealth 
     or territory described in subsection (ii), the same 
     proportion as the proportion of the State's allotment under 
     subsection (b) (determined without regard to subsection (f)) 
     to 98.95 percent of the total amount of the allotments under 
     such section for such States eligible for an allotment under 
     this subparagraph for such fiscal year; and
       ``(ii) in the case of a commonwealth or territory described 
     in subsection (c)(3), the same proportion as the proportion 
     of the commonwealth's or territory's allotment under 
     subsection (c) (determined without regard to subsection (f)) 
     to 1.05 percent of the total amount of the allotments under 
     such section for commonwealths and territories eligible for 
     an allotment under this subparagraph for such fiscal year.
       ``(B) Minimum allotment.--
       ``(i) In general.--No allotment to a State for a fiscal 
     year under this subsection shall be less than 50 percent of 
     the amount of the allotment to the State determined under 
     subsections (b) and (c) for the preceding fiscal year.
       ``(ii) Pro rata reductions.--The Secretary shall make such 
     pro rata reductions to the allotments determined under this 
     subsection as are necessary to comply with the requirements 
     of clause (i).
       ``(C) Availability and redistribution of unused 
     allotments.--In applying subsections (e) and (f) with respect 
     to additional allotments made available under this 
     subsection, the procedures established under such subsections 
     shall ensure such additional allotments are only made 
     available to States which have elected to provide coverage 
     under section 2111.
       ``(3) Use of additional allotment.--Additional allotments 
     provided under this subsection are not available for amounts 
     expended before October 1, 2005. Such amounts are available 
     for amounts expended on or after such date for child health 
     assistance for uninsured children (as defined in section 
     2111(b)).
       ``(4) Requiring election to provide coverage.--No payments 
     may be made to a State under this title from an allotment 
     provided under this subsection unless the State has made an 
     election to provide child health assistance for all uninsured 
     children (as so defined) in the State, including such 
     children whose family income exceeds 200 percent of the 
     poverty line.''.
       (2) Conforming amendments.--Section 2104 of the Social 
     Security Act (42 U.S.C. 1397dd) is amended--
       (A) in subsection (a), by inserting ``subject to subsection 
     (d),'' after ``under this section,'';
       (B) in subsection (b)(1), by inserting ``and subsection 
     (d)'' after ``Subject to paragraph (4)''; and
       (C) in subsection (c)(1), by inserting ``subject to 
     subsection (d),'' after ``for a fiscal year,''.
       (d) Effective Date.--The amendments made by this section 
     take effect on October 1, 2006.
                                 ______
                                 
  SA 2715. Mr. DURBIN submitted an amendment intended to be proposed by 
him to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; which was ordered to lie on the table; as follows:

       On page 19, strike lines 19 through 22 and insert the 
     following:

     SEC. 203. REDUCED TAXES FOR PATRIOT EMPLOYERS.

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

     ``SEC. 45N. REDUCTION IN TAX OF PATRIOT EMPLOYERS.

       ``(a) In General.--In the case of any taxable year 
     beginning after December 31, 2005, and before January 1, 
     2011, with respect to which a taxpayer is certified by the 
     Secretary as a Patriot employer, the Patriot employer credit 
     determined under this section for purposes of section 38 
     shall be equal to 1 percent of the taxable income of the 
     taxpayer which is properly allocable to all trades or 
     businesses with respect to which the taxpayer is certified as 
     a Patriot employer for the taxable year.
       ``(b) Patriot Employer.--For purposes of subsection (a), 
     the term `Patriot employer' means, with respect to any 
     taxable year, any taxpayer which--
       ``(1) maintains its headquarters in the United States if 
     the taxpayer has ever been headquartered in the United 
     States,
       ``(2) pays at least 60 percent of each employee's health 
     care premiums,
       ``(3) if such taxpayer employs at least 50 employees on 
     average during the taxable year--
       ``(A) maintains or increases the number of full-time 
     workers in the United States relative to the number of full-
     time workers outside of United States,
       ``(B) compensates each employee of the taxpayer at an 
     hourly rate (or equivalent thereof) not less than an amount 
     equal to the Federal poverty level for a family of three for 
     the calendar year in which the taxable year begins divided by 
     2,080,
       ``(C) provides either a defined benefit plan or a defined 
     contribution plan which fully matches at least 5 percent of 
     each employee's contributions to the plan, and
       ``(D) provides full differential salary and insurance 
     benefits for all National Guard and Reserve employees who are 
     called for active duty, and
       ``(4) if such taxpayer employs less than 50 employees on 
     average during the taxable year, either--
       ``(A) compensates each employee of the taxpayer at an 
     hourly rate (or equivalent thereof) not less than an amount 
     equal to the Federal poverty level for a family of 3 for the 
     calendar year in which the taxable year begins divided by 
     2,080, or
       ``(B) provides either a defined benefit plan or a defined 
     contribution plan which fully matches at least 5 percent of 
     each employee's contributions to the plan.''.
       (b) Allowance as General Business Credit.--Section 38(b) is 
     amended by striking ``and'' at the end of paragraph (25), by 
     striking the period at the end of paragraph (26) and 
     inserting ``, and'', and by adding at the end the following:
       ``(27) the Patriot employer credit determined under section 
     45N.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.
                                 ______
                                 
  SA 2716. Mrs. CLINTON (for herself, Ms. Mikulski, Mr. Harkin, Mr. 
Lautenberg, Mr. Reed, Mr. Salazar, Mr. Obama, Mrs. Boxer, Ms. Stabenow, 
Mr. Schumer, Mr. Durbin, Mrs. Feinstein, Mr. Feingold, Mr. Carper, Mr. 
Johnson, Mr. Leahy, and Mr. Jeffords) submitted an amendment intended 
to be proposed to amendment SA 2707 proposed by Mr. Frist (for Mr. 
Grassley (for himself and Mr. Baucus)) to the bill H.R. 4297, to 
provide for reconciliation pursuant to section 201(b) of the concurrent 
resolution on the budget for fiscal year 2006; as follows:

       At the end of the amendment, insert the following:

                      TITLE __--KATRINA COMMISSION

     SEC. _01. ESTABLISHMENT OF COMMISSION.

       There is established in the legislative branch the Katrina 
     Commission (in this title referred to as the ``Commission'').

     SEC. _02. COMPOSITION OF COMMISSION.

       (a) Members.--The Commission shall be composed of 10 
     members, of whom--
       (1) 1 member shall be appointed by the President, who shall 
     serve as chairman of the Commission;
       (2) 1 member shall be appointed by the leader of the Senate 
     (majority or minority leader, as the case may be) of the 
     Democratic Party, in consultation with the leader of the 
     House of Representatives (majority or minority leader, as the 
     case may be) of the Democratic Party, who shall serve as vice 
     chairman of the Commission;
       (3) 2 members shall be appointed by the senior member of 
     the Senate leadership of the Democratic Party;
       (4) 2 members shall be appointed by the senior member of 
     the leadership of the House of Representatives of the 
     Republican Party;

[[Page S648]]

       (5) 2 members shall be appointed by the senior member of 
     the Senate leadership of the Republican Party; and
       (6) 2 members shall be appointed by the senior member of 
     the leadership of the House of Representatives of the 
     Democratic Party.
       (b) Qualifications; Initial Meeting.--
       (1) Political party affiliation.--Not more than 5 members 
     of the Commission shall be from the same political party.
       (2) Nongovernmental appointees.--An individual appointed to 
     the Commission may not be an officer or employee of the 
     Federal Government or any State or local government.
       (3) Other qualifications.--It is the sense of Congress that 
     individuals appointed to the Commission should be prominent 
     United States citizens who represent a diverse range of 
     citizens and enjoy national recognition and significant depth 
     of experience in such professions as governmental service, 
     emergency preparedness, mitigation planning, cataclysmic 
     planning and response, intergovernmental management, resource 
     planning, recovery operations and planning, Federal 
     coordination, military coordination, and other extensive 
     natural disaster and emergency response experience.
       (4) Deadline for appointment.--All members of the 
     Commission shall be appointed on or before October 1, 2005.
       (5) Initial meeting.--The Commission shall meet and begin 
     the operations of the Commission as soon as practicable.
       (c) Quorum; Vacancies.--After its initial meeting, the 
     Commission shall meet upon the call of the chairman or a 
     majority of its members. Six members of the Commission shall 
     constitute a quorum. Any vacancy in the Commission shall not 
     affect its powers, but shall be filled in the same manner in 
     which the original appointment was made.

     SEC. _03. DUTIES.

       The duties of the Commission are to--
       (1) examine and report upon the Federal, State, and local 
     response to the devastation wrought by Hurricane Katrina in 
     the Gulf Region of the United States of America especially in 
     the States of Louisiana, Mississippi, Alabama, and other 
     areas impacted in the aftermath;
       (2) ascertain, evaluate, and report on the information 
     developed by all relevant governmental agencies regarding the 
     facts and circumstances related to Hurricane Katrina prior to 
     striking the United States and in the days and weeks 
     following;
       (3) build upon concurrent and prior investigations of other 
     entities, and avoid unnecessary duplication concerning 
     information related to existing vulnerabilities;
       (4) make a full and complete accounting of the 
     circumstances surrounding the approach of Hurricane Katrina 
     to the Gulf States, and the extent of the United States 
     government's preparedness for, and response to, the 
     hurricane;
       (5) planning necessary for future cataclysmic events 
     requiring a significant marshaling of Federal resources, 
     mitigation, response, and recovery to avoid significant loss 
     of life;
       (6) an analysis as to whether any decisions differed with 
     respect to response and recovery for different communities, 
     neighborhoods, parishes, and locations and what problems 
     occurred as a result of a lack of a common plan, 
     communication structure, and centralized command structure; 
     and
       (7) investigate and report to the President and Congress on 
     its findings, conclusions, and recommendations for immediate 
     corrective measures that can be taken to prevent problems 
     with Federal response that occurred in the preparation for, 
     and in the aftermath of, Hurricane Katrina so that future 
     cataclysmic events are responded to adequately.

     SEC. _04. FUNCTIONS OF COMMISSION.

       (a) In General.--The functions of the Commission are to--
       (1) conduct an investigation that--
       (A) investigates relevant facts and circumstances relating 
     to the catastrophic impacts that Hurricane Katrina exacted 
     upon the Gulf Region of the United States especially in New 
     Orleans and surrounding parishes, and impacted areas of 
     Mississippi and Alabama; and
       (B) shall include relevant facts and circumstances relating 
     to--
       (i) Federal emergency response planning and execution at 
     the Federal Emergency Management Agency, the Department of 
     Homeland Security, the White House, and all other Federal 
     entities with responsibility for assisting during, and 
     responding to, natural disasters;
       (ii) military and law enforcement response planning and 
     execution;
       (iii) Federal mitigation plans, programs, and policies 
     including prior assessments of existing vulnerabilities and 
     exercises designed to test those vulnerabilities;
       (iv) Federal, State, and local communication 
     interoperability successes and failures;
       (v) past, present, and future Federal budgetary provisions 
     for preparedness, mitigation, response, and recovery;
       (vi) the Federal Emergency Management Agency's response 
     capabilities as an independent agency and as part of the 
     Department of Homeland Security;
       (vii) the role of congressional oversight and resource 
     allocation;
       (viii) other areas of the public and private sectors 
     determined relevant by the Commission for its inquiry; and
       (ix) long-term needs for people impacted by Hurricane 
     Katrina and other forms of Federal assistance necessary for 
     large-scale recovery;
       (2) identify, review, and evaluate the lessons learned from 
     Hurricane Katrina including coordination, management 
     policies, and procedures of the Federal Government, State and 
     local governments, and nongovernmental entities, relative to 
     detection, planning, mitigation, asset prepositioning, and 
     responding to cataclysmic natural disasters such as Hurricane 
     Katrina; and
       (3) submit to the President and Congress such reports as 
     are required by this title containing such findings, 
     conclusions, and recommendations as the Commission shall 
     determine, including proposing organization, coordination, 
     planning, management arrangements, procedures, rules, and 
     regulations.

     SEC. _05. POWERS OF COMMISSION.

       (a) In General.--
       (1) Hearings and evidence.--The Commission or, on the 
     authority of the Commission, any subcommittee or member 
     thereof, may, for the purpose of carrying out this title--
       (A) hold such hearings and sit and act at such times and 
     places, take such testimony, receive such evidence, 
     administer such oaths; and
       (B) subject to paragraph (2)(A), require, by subpoena or 
     otherwise, the attendance and testimony of such witnesses and 
     the production of such books, records, correspondence, 
     memoranda, papers, and documents, as the Commission or such 
     designated subcommittee or designated member may determine 
     advisable.
       (2) Subpoenas.--
       (A) Issuance.--
       (i) In general.--A subpoena may be issued under this 
     subsection only--

       (I) by the agreement of the chairman and the vice chairman; 
     or
       (II) by the affirmative vote of 6 members of the 
     Commission.

       (ii) Signature.--Subject to clause (i), subpoenas issued 
     under this subsection may be issued under the signature of 
     the chairman or any member designated by a majority of the 
     Commission, and may be served by any person designated by the 
     chairman or by a member designated by a majority of the 
     Commission.
       (B) Enforcement.--
       (i) In general.--In the case of contumacy or failure to 
     obey a subpoena issued under subsection (a), the United 
     States district court for the judicial district in which the 
     subpoenaed person resides, is served, or may be found, or 
     where the subpoena is returnable, may issue an order 
     requiring such person to appear at any designated place to 
     testify or to produce documentary or other evidence. Any 
     failure to obey the order of the court may be punished by the 
     court as a contempt of that court.
       (ii) Additional enforcement.--In the case of any failure of 
     any witness to comply with any subpoena or to testify when 
     summoned under authority of this section, the Commission may, 
     by majority vote, certify a statement of fact constituting 
     such failure to the appropriate United States attorney, who 
     may bring the matter before the grand jury for its action, 
     under the same statutory authority and procedures as if the 
     United States attorney had received a certification under 
     sections 102 through 104 of the Revised Statutes of the 
     United States (2 U.S.C. 192 through 194).
       (b) Contracting.--The Commission may, to such extent and in 
     such amounts as are provided in appropriation Acts, enter 
     into contracts to enable the Commission to discharge its 
     duties under this title.
       (c) Information From Federal Agencies.--
       (1) In general.--The Commission is authorized to secure 
     directly from any executive department, bureau, agency, 
     board, commission, office, independent establishment, or 
     instrumentality of the Government, information, suggestions, 
     estimates, and statistics for the purposes of this Act. Each 
     department, bureau, agency, board, commission, office, 
     independent establishment, or instrumentality shall, to the 
     extent authorized by law, furnish such information, 
     suggestions, estimates, and statistics directly to the 
     Commission, upon request made by the chairman, the chairman 
     of any subcommittee created by a majority of the Commission, 
     or any member designated by a majority of the Commission.
       (2) Receipt, handling, storage, and dissemination.--
     Information shall only be received, handled, stored, and 
     disseminated by members of the Commission and its staff 
     consistent with all applicable statutes, regulations, and 
     Executive orders.
       (d) Assistance From Federal Agencies.--
       (1) General services administration.--The Administrator of 
     General Services shall provide to the Commission on a 
     reimbursable basis administrative support and other services 
     for the performance of the Commission's functions.
       (2) Other departments and agencies.--In addition to the 
     assistance prescribed in paragraph (1), departments and 
     agencies of the United States may provide to the Commission 
     such services, funds, facilities, staff, and other support 
     services as they may determine advisable and as may be 
     authorized by law.
       (e) Gifts.--The Commission may accept, use, and dispose of 
     gifts or donations of services or property.
       (f) Postal Services.--The Commission may use the United 
     States mails in the same

[[Page S649]]

     manner and under the same conditions as departments and 
     agencies of the United States.

     SEC. _06. NONAPPLICABILITY OF FEDERAL ADVISORY COMMITTEE ACT.

       (a) In General.--The Federal Advisory Committee Act (5 
     U.S.C. App.) shall not apply to the Commission.
       (b) Public Meetings and Release of Public Versions of 
     Reports.--The Commission shall--
       (1) hold public hearings and meetings to the extent 
     appropriate; and
       (2) release public versions of the reports required under 
     section _10.
       (c) Public Hearings.--Any public hearings of the Commission 
     shall be conducted in a manner consistent with the protection 
     of information provided to or developed for or by the 
     Commission as required by any applicable statute, regulation, 
     or Executive order.

     SEC. _07. STAFF OF COMMISSION.

       (a) In General.--
       (1) Appointment and compensation.--The chairman, in 
     consultation with the vice chairman, in accordance with rules 
     agreed upon by the Commission, may appoint and fix the 
     compensation of a staff director and such other personnel as 
     may be necessary to enable the Commission to carry out its 
     functions, without regard to the provisions of title 5, 
     United States Code, governing appointments in the competitive 
     service, and without regard to the provisions of chapter 51 
     and subchapter III of chapter 53 of such title relating to 
     classification and General Schedule pay rates, except that no 
     rate of pay fixed under this subsection may exceed the 
     equivalent of that payable for a position at level V of the 
     Executive Schedule under section 5316 of title 5, United 
     States Code.
       (2) Personnel as federal employees.--
       (A) In general.--The executive director and any personnel 
     of the Commission who are employees shall be employees under 
     section 2105 of title 5, United States Code, for purposes of 
     chapters 63, 81, 83, 84, 85, 87, 89, and 90 of that title.
       (B) Members of commission.--Subparagraph (A) shall not be 
     construed to apply to members of the Commission.
       (b) Detailees.--Any Federal Government employee may be 
     detailed to the Commission without reimbursement from the 
     Commission, and such detailee shall retain the rights, 
     status, and privileges of his or her regular employment 
     without interruption.
       (c) Consultant Services.--The Commission is authorized to 
     procure the services of experts and consultants in accordance 
     with section 3109 of title 5, United States Code, but at 
     rates not to exceed the daily rate paid a person occupying a 
     position at level IV of the Executive Schedule under section 
     5315 of title 5, United States Code.

     SEC. _08. COMPENSATION AND TRAVEL EXPENSES.

       (a) Compensation.--Each member of the Commission may be 
     compensated at not to exceed the daily equivalent of the 
     annual rate of basic pay in effect for a position at level IV 
     of the Executive Schedule under section 5315 of title 5, 
     United States Code, for each day during which that member is 
     engaged in the actual performance of the duties of the 
     Commission.
       (b) Travel Expenses.--While away from their homes or 
     regular places of business in the performance of services for 
     the Commission, members of the Commission shall be allowed 
     travel expenses, including per diem in lieu of subsistence, 
     in the same manner as persons employed intermittently in the 
     Government service are allowed expenses under section 5703(b) 
     of title 5, United States Code.

     SEC. _09. SECURITY CLEARANCES FOR COMMISSION MEMBERS AND 
                   STAFF.

       The appropriate Federal agencies or departments shall 
     cooperate with the Commission in expeditiously providing to 
     the Commission members and staff appropriate security 
     clearances to the extent possible pursuant to existing 
     procedures and requirements, except that no person shall be 
     provided with access to classified information under this 
     title without the appropriate security clearances.

     SEC. _10. REPORTS OF COMMISSION; TERMINATION.

       (a) Interim Reports.--The Commission may submit to the 
     President and Congress interim reports containing such 
     findings, conclusions, and recommendations for corrective 
     measures as have been agreed to by a majority of Commission 
     members.
       (b) Final Report.--Not later than 6 months after the date 
     of the enactment of this Act, the Commission shall submit to 
     the President and Congress a final report containing such 
     findings, conclusions, and recommendations for corrective 
     measures as have been agreed to by a majority of Commission 
     members.
       (c) Termination.--
       (1) In general.--The Commission, and all the authorities of 
     this Act, shall terminate 61 days after the date on which the 
     final report is submitted under subsection (b).
       (2) Administrative activities before termination.--The 
     Commission may use the 60-day period referred to in paragraph 
     (1) for the purpose of concluding its activities, including 
     providing testimony to committees of Congress concerning its 
     reports and disseminating the final report.

     SEC. _11. FUNDING.

       (a) Emergency Appropriation of Funds.--There are authorized 
     to be appropriated $3,000,000 for purposes of the activities 
     of the Commission under this title and such funding is 
     designated as emergency spending under section 402 of H. Con. 
     Res. 95 (109th Congress).
       (b) Duration of Availability.--Amounts made available to 
     the Commission under subsection (a) shall remain available 
     until the termination of the Commission.
                                 ______
                                 
  SA 2717. Mr. LAUTENBERG submitted an amendment intended to be 
proposed by him to the bill H.R. 4297, to provide for reconciliation 
pursuant to section 201(b) of the concurrent resolution on the budget 
for fiscal year 2006; which was ordered to lie on the table; as 
follows:

       On page 2, line 3, strike ``Tax Relief Extension 
     Reconciliation Act of 2005'' and insert ``More Tax Breaks for 
     the Rich and More Debt for Our Grandchildren Deficit 
     Expansion Reconciliation Act of 2006''.
                                 ______
                                 
  SA 2718. Mr. GRASSLEY submitted an amendment intended to be proposed 
by him to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; which was ordered to lie on the table; as follows:

       At the appropriate place, insert the following:

     SEC. __. SENSE OF THE SENATE REGARDING THE MEDICARE PART D 
                   PRESCRIPTION DRUG PROGRAM.

       (a) Findings.--The Senate finds the following:
       (1) It is not acceptable that startup issues under the new 
     Medicare prescription drug program have resulted in some of 
     our Nation's most vulnerable citizens having difficulties 
     getting their prescription drugs covered under the program, 
     and these issues must be addressed and resolved.
       (2) The Department of Health and Human Services and the 
     Centers for Medicare & Medicaid Services are working 
     tirelessly to address these startup issues and have taken 
     numerous steps to smooth the transition process.
       (3) All prescription drug plans under part D of title XVIII 
     of the Social Security Act and MA-PD plans under part C of 
     such title (in this section referred to as ``Medicare 
     prescription drug plans'') already have a ``first fill'' 
     policy in place that provides a new enrollee with coverage 
     for prescription drugs during at least the first 30 days of 
     enrollment regardless of whether the particular prescription 
     drug is on the plan's formulary, and the Centers for Medicare 
     & Medicaid Services is enforcing this requirement.
       (4) Under current law, full-benefit dual eligible 
     individuals (as defined in section 1935(c)(6) of the Social 
     Security Act (42 U.S.C. 1395u-5(c)(6)) are already 
     automatically enrolled into Medicare prescription drug 
     coverage so no change in law is necessary.
       (5) Medicare prescription drug plans are already 
     responsible for covering the cost of covered prescriptions 
     filled for enrollees, including short term transition 
     prescriptions.
       (6) Medicare prescription drug plans are already 
     responsible for reimbursing any enrollee, including full-
     benefit dual eligible individuals, for any out-of-pocket 
     costs incurred by the enrollee that should have been covered 
     by the plan.
       (7) The Centers for Medicare & Medicaid Services is already 
     reimbursing States for the reasonable administrative costs 
     incurred by States that have temporarily covered some claims 
     for prescription drug coverage during the transition period.
       (8) Enrollment is exceeding projections, with at least 
     24,000,000 Medicare beneficiaries who now have drug coverage 
     and another 90,000 are enrolling each day in the Medicare 
     prescription drug program;
       (9) In addition, the Secretary of Health and Human Services 
     has taken many other actions to smooth the implementation of 
     the Medicare prescription drug program, including the 
     following:
       (A) Establishing processes to ensure that full-benefit dual 
     eligible individuals are not overcharged for their 
     prescriptions and to require Medicare prescription drug plans 
     to refund overcharges to such individuals.
       (B) Establishing a reconciliation process to ensure that 
     Medicare prescription drug plans reimburse pharmacies for 
     costs incurred by pharmacies that are payable by such plans.
       (C) Conducting extensive and continuing outreach to 
     pharmacies and pharmacy associations on the implementation of 
     the Medicare prescription drug benefit, particularly with 
     respect to full-benefit dual eligible individuals, as well as 
     establishing a special pharmacy telephone help line.
       (D) Requiring Medicare prescription drug plans to have 
     comprehensive formularies and procedures for enrollees to 
     rapidly secure an exception to the limitation of coverage of 
     a prescription drug when medical necessity is demonstrated.
       (E) Permitting full-benefit dual eligible individuals to 
     switch Medicare prescription drug plan under the Medicare 
     prescription drug benefit at any time, for any reason, and 
     improving data flows and communication with plans to ensure 
     that plan switches by such individuals become fully effective 
     as quickly as possible.
       (F) Partnering with national, State, and local groups that 
     work with full-benefit dual eligible individuals to educate 
     such individuals about the Medicare prescription drug 
     program, and assisting in their transition to, and enrollment 
     under, such program.

[[Page S650]]

       (b) Sense of the Senate.--It is the sense of the Senate 
     that--
       (1) the Secretary of Health and Human Services is making 
     significant progress in smoothing the implementation of the 
     new Medicare prescription drug program, legislation changing 
     the program is not needed at this time, and legislation at 
     this time would also likely complicate implementation of the 
     program and confuse beneficiaries;
       (2) each of the implementation problems identified under 
     the Medicare prescription drug program will be resolved more 
     quickly through administrative actions, which the Secretary 
     of Health and Human Services already has the authority to 
     take under current law, rather than through Congressional 
     action followed by administrative action;
       (3) the Senate fully supports the efforts of the Secretary 
     of Health and Human Services, Medicare prescription drug 
     plans, pharmacists, and others to implement the Medicare 
     prescription drug program and to resolve problems that have 
     occurred during the implementation of the program; and
       (4) the pace of enrollment in the Medicare prescription 
     drug benefit indicates that extending the six-month 
     enrollment period is not warranted and, by contrast, such an 
     action could exacerbate implementation issues under the 
     program.
                                 ______
                                 
  SA 2719. Mr. HARKIN (for himself, Mr. Kennedy, Mr. Kohl, and Mr. 
Levin) submitted an amendment intended to be proposed by him to the 
bill H.R. 4297, to provide for reconciliation pursuant to section 
201(b) of the concurrent resolution on the budget for fiscal year 2006; 
which was ordered to lie on the table; as follows:

       At the appropriate place, insert the following:

     SEC. ___. RESTORATION OF THE PHASEOUT OF PERSONAL EXEMPTIONS 
                   AND THE OVERALL LIMITATION ON ITEMIZED 
                   DEDUCTION; EXPANSION OF CHILD AND DEPENDANT 
                   CARE CREDIT.

       (a) Restoration of the Phaseout of Personal Exemptions and 
     the Overall Limitation on Itemized Deductions.--
       (1) Restoration of phaseout of personal exemptions.--
       (A) In general.--Paragraph (3) of section 151(d) (relating 
     to exemption amount) is amended by striking subparagraphs (E) 
     and (F).
       (B) Effective date.--The amendment made by this paragraph 
     shall apply to taxable years beginning after December 31, 
     2005.
       (2) Restoration of phaseout of overall limitation on 
     itemized deductions.--
       (A) In general.--Section 68 is amended by striking 
     subsections (f) and (g).
       (B) Effective date.--The amendment made by this paragraph 
     shall apply to taxable years beginning after December 31, 
     2005.
       (b) Expansion of Child and Dependant Care Credit.--
       (1) Increase in credit.--Paragraph (2) of section 21(a) 
     (relating to credit for expenses for household and dependent 
     care services necessary for gainful employment) is amended to 
     read as follows:
       ``(2) Applicable percentage defined.--For purposes of 
     paragraph (1), the term `applicable percentage' means 35 
     percent reduced (but not below 20 percent) by 1 percentage 
     point for each $3,000 (or fraction thereof) by which the 
     taxpayer's adjusted gross income exceeds $60,000.''.
       (2) Increase in maximum amount creditable.--
       (A) In general.--Section 21(c) (relating to dollar limit on 
     amount creditable) is amended--
       (i) in paragraph (1), by striking ``$3,000'' and inserting 
     ``$5,000''; and
       (ii) in paragraph (2), by striking ``$6,000 '' and 
     inserting ``$10,000''.
       (B) Phase-out for taxpayers with adjusted gross income in 
     excess of $50,000.--
       (i) In general.--Section 21(c) is amended by adding at the 
     end the following new paragraph:
       ``(2) Limitation based on adjusted gross income.--If the 
     taxpayer's adjusted gross income for the taxable year exceeds 
     $50,000, the dollar amounts under paragraph (1) shall be 
     reduced as follows:
       ``(A) The $5,000 amount under paragraph (1)(A) shall be 
     reduced (but not below $3,000) by $50 for each $1,000 (or 
     fraction thereof) of such excess.
       ``(B) The $10,000 amount under paragraph (1)(B) shall be 
     reduced (but not below $6,000) by $100 for each $1,000 (or 
     fraction thereof) of such excess.''.
       (3) Conforming amendments.--Section 21(c), as amended by 
     paragraph (2), is amended--
       (A) by striking ``The amount'' and inserting:
       ``(1) In general.--The amount'';
       (B) by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively; and
       (C) by striking ``paragraph (1) or (2)'' and inserting 
     ``subparagraph (A) or (B)''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2006, and before January 1, 2010.
                                 ______
                                 
  SA 2720. Mr. BURNS (for himself and Ms. Murkowski) submitted an 
amendment intended to be proposed by him to the bill H.R. 4297, to 
provide for reconciliation pursuant to section 201(b) of the concurrent 
resolution on the budget for fiscal year 2006; which was ordered to lie 
on the table; as follows:

       At the appropriate place, insert the following:

     SEC. __. NONREFUNDABLE CREDIT FOR CERTAIN PRIMARY HEALTH 
                   SERVICES PROVIDERS SERVING HEALTH PROFESSIONAL 
                   SHORTAGE AREAS.

       (a) In General.--Subpart A of part IV of subchapter A of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     nonrefundable personal credits) is amended by inserting after 
     section 25D the following new section:

     ``SEC. 25E. PRIMARY HEALTH SERVICES PROVIDERS SERVING HEALTH 
                   PROFESSIONAL SHORTAGE AREAS.

       ``(a) Allowance of Credit.--In the case of an individual 
     who is a qualified primary health services provider for any 
     month during the taxable year, there shall be allowed as a 
     credit against the tax imposed by this chapter for such 
     taxable year an amount equal to $1,000 for each month during 
     such taxable year--
       ``(1) which is part of the eligible service period of such 
     individual, and
       ``(2) for which such individual is a qualified primary 
     health services provider.
       ``(b) Qualified Primary Health Services Provider.--For 
     purposes of this section, the term `qualified primary health 
     services provider' means, with respect to any month, any 
     physician who is certified for such month by the Bureau to be 
     a primary health services provider or a licensed mental 
     health provider who--
       ``(1) is providing primary health services full time and 
     substantially all of whose primary health services are 
     provided in a health professional shortage area,
       ``(2) is not receiving during the calendar year which 
     includes such month a scholarship under the National Health 
     Service Corps Scholarship Program or the Indian health 
     professions scholarship program or a loan repayment under the 
     National Health Service Corps Loan Repayment Program or the 
     Indian Health Service Loan Repayment Program,
       ``(3) is not fulfilling service obligations under such 
     Programs, and
       ``(4) has not defaulted on such obligations.
     Such term shall not include any individual who is described 
     in paragraph (1) with respect to any of the 3 most recent 
     months ending before the date of the enactment of this 
     section.
       ``(c) Eligible Service Period.--For purposes of this 
     section, the term `eligible service period' means the period 
     of 60 consecutive calendar months beginning with the first 
     month the taxpayer is a qualified primary health services 
     provider.
       ``(d) Other Definitions and Special Rule.--For purposes of 
     this section--
       ``(1) Bureau.--The term `Bureau' means the Bureau of Health 
     Care Delivery and Assistance, Health Resources and Services 
     Administration of the United States Public Health Service.
       ``(2) Physician.--The term `physician' has the meaning 
     given to such term by section 1861(r) of the Social Security 
     Act.
       ``(3) Primary health services provider.--The term `primary 
     health services provider' means a provider of basic health 
     services (as described in section 330(b)(1)(A)(i) of the 
     Public Health Service Act).
       ``(4) Health professional shortage area.--
       ``(A) In general.--The term `health professional shortage 
     area' means any area located in 1 or more qualifying counties 
     which, as of the beginning of the eligible service period, is 
     a health professional shortage area (as defined in section 
     332(a)(1) of the Public Health Service Act) taking into 
     account only the category of health services provided by the 
     qualified primary health services provider.
       ``(B) Qualifying county.--The term `qualifying county' 
     means any county which--
       ``(i) is outside a metropolitan statistical area (defined 
     as such by the Office of Management and Budget), and
       ``(B) during the 20-year period ending with the calendar 
     year preceding the date of enactment of this Act, has a net 
     out-migration of inhabitants from the county of at least 10 
     percent of the population of the county at the beginning of 
     such period.
       ``(5) Only 60 months taken into account.--In no event shall 
     more than 60 months be taken into account under subsection 
     (a) by any individual for all taxable years.''
       (b) Clerical Amendment.--The table of sections for subpart 
     A of part IV of subchapter A of chapter 1 of the Internal 
     Revenue Code of 1986 is amended by inserting after the item 
     relating to section 25D the following new item:

``Sec. 25E. Primary health services providers serving health 
              professional shortage areas.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.
                                 ______
                                 
  SA 2721. Ms. LANDRIEU submitted an amendment to be proposed by her to 
the bill H.R. 4297, to provide for reconciliation pursuant to section 
201(b) of the concurrent resolution on the budget for fiscal year 2006; 
which was ordered to lie on the table; as follows:

       At the appropriate place, insert the following:

[[Page S651]]

     SEC. __. MODIFICATION OF HOUSING CREDIT FOR THE GULF 
                   OPPORTUNITY ZONE.

       (a) In General.--Section 1400N(c) is amended by 
     redesignating paragraphs (5) as paragraph (6) and by 
     inserting after paragraph (4) the following new paragraph:
       ``(5) Special rule for determining low-income unit.--For 
     purposes of section 42--
       ``(A) In general.--In the case of property place in service 
     during 2006, 2007, or 2008 in the Gulf Opportunity Zone, the 
     term `low-income unit' means any unit in a building if--
       ``(i) such unit is rent restricted (as defined in section 
     42 (g)(2)), and
       ``(ii) the individuals occupying such unit have an income 
     of 100 percent or less of--

       ``(I) in the case of a unit located in a nonmetropolitan 
     area (as defined in section 42(d)(5)(C)(iv)(IV), the 
     nonmetropolitan area median gross income (determined under 
     rules similar to the rules of section 142(d)(2)(B)), and
       ``(II) in the case of any other unit, the area median gross 
     income (determined under the rules of section 142(d)(2)(B)).

       ``(B) Exceptions and special rules.--For purposes of 
     subparagraph (A), the rules of subparagraphs (B), (C), (D), 
     and (E) of section 42(i)(3) shall apply.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in section 101 of the Gulf 
     Opportunity Zone Act of 2005.
                                 ______
                                 
  SA 2722. Mr. DORGAN (for himself, Ms. Mikulski, Ms. Stabenow, Mr. 
Durbin, Mr. Levin, Mr. Feingold, Mr. Kohl, Mr. Leahy, Mr. Harkin, Mr. 
Kennedy, and Mrs. Feinstein) submitted an amendment intended to be 
proposed by him to the bill H.R. 4297, to provide for reconciliation 
pursuant to section 201(b) of the concurrent resolution on the budget 
for fiscal year 2006; which was ordered to lie on the table; as 
follows:

       At the appropriate place insert the following:

     SEC. __. TAXATION OF INCOME OF CONTROLLED FOREIGN 
                   CORPORATIONS ATTRIBUTABLE TO IMPORTED PROPERTY.

       (a) General Rule.--Subsection (a) of section 954 (defining 
     foreign base company income) is amended by striking ``and'' 
     at the end of paragraph (4), by striking the period at the 
     end of paragraph (5) and inserting ``, and'', and by adding 
     at the end the following new paragraph:
       ``(6) imported property income for the taxable year 
     (determined under subsection (j) and reduced as provided in 
     subsection (b)(5)).''.
       (b) Definition of Imported Property Income.--Section 954 is 
     amended by adding at the end the following new subsection:
       ``(j) Imported Property Income.--
       ``(1) In general.--For purposes of subsection (a)(6), the 
     term `imported property income' means income (whether in the 
     form of profits, commissions, fees, or otherwise) derived in 
     connection with--
       ``(A) manufacturing, producing, growing, or extracting 
     imported property;
       ``(B) the sale, exchange, or other disposition of imported 
     property; or
       ``(C) the lease, rental, or licensing of imported property.

     Such term shall not include any foreign oil and gas 
     extraction income (within the meaning of section 907(c)) or 
     any foreign oil related income (within the meaning of section 
     907(c)).
       ``(2) Imported property.--For purposes of this subsection--
       ``(A) In general.--Except as otherwise provided in this 
     paragraph, the term `imported property' means property which 
     is imported into the United States by the controlled foreign 
     corporation or a related person.
       ``(B) Imported property includes certain property imported 
     by unrelated persons.--The term `imported property' includes 
     any property imported into the United States by an unrelated 
     person if, when such property was sold to the unrelated 
     person by the controlled foreign corporation (or a related 
     person), it was reasonable to expect that--
       ``(i) such property would be imported into the United 
     States; or
       ``(ii) such property would be used as a component in other 
     property which would be imported into the United States.
       ``(C) Exception for property subsequently exported.--The 
     term `imported property' does not include any property which 
     is imported into the United States and which--
       ``(i) before substantial use in the United States, is sold, 
     leased, or rented by the controlled foreign corporation or a 
     related person for direct use, consumption, or disposition 
     outside the United States; or
       ``(ii) is used by the controlled foreign corporation or a 
     related person as a component in other property which is so 
     sold, leased, or rented.
       ``(3) Definitions and special rules.--
       ``(A) Import.--For purposes of this subsection, the term 
     `import' means entering, or withdrawal from warehouse, for 
     consumption or use. Such term includes any grant of the right 
     to use intangible property (as defined in section 
     936(h)(3)(B)) in the United States.
       ``(B) United states.--For purposes of this subsection, the 
     term `United States' includes the Commonwealth of Puerto 
     Rico, the Virgin Islands of the United States, Guam, American 
     Samoa, and the Commonwealth of the Northern Mariana Islands.
       ``(C) Unrelated person.--For purposes of this subsection, 
     the term `unrelated person' means any person who is not a 
     related person with respect to the controlled foreign 
     corporation.
       ``(D) Coordination with foreign base company sales 
     income.--For purposes of this section, the term `foreign base 
     company sales income' shall not include any imported property 
     income.''.
       (c) Separate Application of Limitations on Foreign Tax 
     Credit for Imported Property Income.--
       (1) Before 2007.--
       (A) In general.--Paragraph (1) of section 904(d) (relating 
     to separate application of section with respect to certain 
     categories of income), as in effect for taxable years 
     beginning before January 1, 2007, is amended by striking 
     ``and'' at the end of subparagraph (H), by redesignating 
     subparagraph (I) as subparagraph (J), and by inserting after 
     subparagraph (H) the following new subparagraph:
       ``(I) imported property income, and''.
       (B) Imported property income defined.--Paragraph (2) of 
     section 904(d), as so in effect, is amended by redesignating 
     subparagraphs (H) and (I) as subparagraphs (I) and (J), 
     respectively, and by inserting after subparagraph (G) the 
     following new subparagraph:
       ``(H) Imported property income.--The term `imported 
     property income' means any income received or accrued by any 
     person which is of a kind which would be imported property 
     income (as defined in section 954(j)).''.
       (C) Look-thru rules to apply.--Subparagraph (F) of section 
     904(d)(3), as so in effect, is amended by striking ``or (D)'' 
     and inserting ``(D), or (I)''.
       (2) After 2006.--
       (A) In general.--Paragraph (1) of section 904(d) (relating 
     to separate application of section with respect to certain 
     categories of income), as in effect for taxable years 
     beginning after December 31, 2006, is amended by striking 
     ``and'' at the end of subparagraph (A), by redesignating 
     subparagraph (B) as subparagraph (C), and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) imported property income, and''.
       (B) Imported property income defined.--Paragraph (2) of 
     section 904(d), as so in effect, is amended by redesignating 
     subparagraphs (I) and (J) as subparagraphs (J) and (K), 
     respectively, and by inserting after subparagraph (H) the 
     following new subparagraph:
       ``(I) Imported property income.--The term `imported 
     property income' means any income received or accrued by any 
     person which is of a kind which would be imported property 
     income (as defined in section 954(j)).''.
       (C) Conforming amendment.--Clause (ii) of section 
     904(d)(2)(A), as so in effect, is amended by inserting ``or 
     imported property income'' after ``passive category income''.
       (d) Technical Amendments.--
       (1) Clause (iii) of section 952(c)(1)(B) (relating to 
     certain prior year deficits may be taken into account) is 
     amended--
       (A) by redesignating subclauses (II), (III), (IV), and (V) 
     as subclauses (III), (IV), (V), and (VI), and
       (B) by inserting after subclause (I) the following new 
     subclause:

       ``(II) imported property income,''.

       (2) Paragraph (5) of section 954(b) (relating to deductions 
     to be taken into account) is amended by striking ``and the 
     foreign base company oil related income'' and inserting ``the 
     foreign base company oil related income, and the imported 
     property income''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (1), the 
     amendments made by this section shall apply to taxable years 
     of foreign corporations beginning after the date of the 
     enactment of this Act, and to taxable years of United States 
     shareholders within which or with which such taxable years of 
     such foreign corporations end.
       (2) Subsection (c).--The amendments made by subsection 
     (c)(1) shall apply to taxable years beginning after the date 
     of the enactment of this Act and before January 1, 2007, and 
     the amendments made by subsection (c)(2) shall apply to 
     taxable years beginning after December 31, 2006.
                                 ______
                                 
  SA 2723. Mr. BIDEN submitted an amendment intended to be proposed by 
him to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; which was ordered to lie on the table; as follows:

       On page 28, after line 11, insert the following:

                      TITLE IV--HOMELAND SECURITY

                       Subtitle A--Appropriations

     SEC. 401. HOMELAND SECURITY APPROPRIATIONS.

       There are appropriated--
       (1) $140,000,000 for each of fiscal years 2006 through 
     2015, to the Federal Bureau of Investigation to hire 
     additional agents to ensure that the Federal Bureau of 
     Investigation can perform its dual capabilities of 
     investigating crimes and preventing terrorism;
       (2) $1,100,000,000 for fiscal year 2006, to the Secretary 
     of Transportation for security upgrades for Amtrak passenger 
     and freight rail and transit;

[[Page S652]]

       (3) $18,300,000 for each of fiscal years 2006 through 2015, 
     to the Secretary of Transportation to provide a raise of 25 
     percent to Amtrak police officers and to hire 200 Amtrak 
     police officers, including 40 canine officers;
       (4) $1,100,000,000 for fiscal year 2006, to the Office of 
     Community Oriented Policing Services to make grants for the 
     hiring of officers to--
       (A) provide security at high threat targets; and
       (B) conduct joint operations with the Federal Bureau of 
     Investigation on terrorism cases;
       (5) $2,600,000,000 for each of fiscal years 2006 through 
     2015, to the Department of Homeland Security for--
       (A) the Emergency Management Performance Grant program;
       (B) the fire grant programs authorized by sections 33 and 
     34 of the Federal Fire Prevention and Control Act of 1974 (15 
     U.S.C. 2229, 2229a);
       (C) the Law Enforcement Terrorism Prevention program;
       (D) State and local training programs through the Office of 
     State and Local Government Coordination and Preparedness; and
       (E) the Metropolitan Medical Response System;
       (6) $5,000,000,000 for fiscal year 2006, to the Department 
     of Homeland Security to ensure interoperable communications 
     for emergency response providers (as that term is defined in 
     section 2 of the Homeland Security Act of 2002 (6 U.S.C. 
     101)) that allow emergency response providers to communicate 
     in the event of an emergency;
       (7) $70,000,000 for fiscal year 2006, to the Department of 
     Homeland Security to enhance security at chemical plants;
       (8) $80,000,000 for fiscal year 2006, to the Department of 
     Homeland Security to conduct a threat assessment that shall 
     address threats and vulnerabilities in the sectors of--
       (A) telecommunications;
       (B) energy;
       (C) financial services;
       (D) manufacturing;
       (E) water;
       (F) agriculture;
       (G) transportation;
       (H) health care; and
       (I) emergency services;
       (9) $50,000,000 for fiscal year 2006, to the Department of 
     Homeland Security for the integration of terrorist watch 
     lists;
       (10) $175,000,000 for fiscal year 2006, to the Department 
     of Justice to ensure the appropriate dissemination of 
     information regarding threats to homeland security and 
     investigations of terrorism;
       (11) $55,000,000 for fiscal year 2006, to the Department of 
     Homeland Security for screening of checked baggage and cargo 
     on commercial airplanes;
       (12) $5,000,000,000 for fiscal year 2006, to the Department 
     of Homeland Security to enhance port security; and
       (13) $10,800,000 for each of fiscal years 2006 through 
     2015, to the Department of Homeland Security for screening of 
     shipping containers at ports.

            Subtitle B--Provisions Relating to Tax Shelters

     SEC. 411. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

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

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

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

     SEC. 412. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

     ``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable to Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer

[[Page S653]]

     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals has been sent with respect 
     to a penalty to which this section applies, only the 
     Commissioner of Internal Revenue may compromise all or any 
     portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2) and 
     (3) of section 6707A(d) shall apply for purposes of paragraph 
     (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

       ``(1) For coordination of penalty with understatements 
     under section 6662 and other special rules, see section 
     6662A(e)
       ``(2) For reporting of penalty imposed under this section 
     to the Securities and Exchange Commission, see section 
     6707A(e)''.

       (b) Coordination With Other Understatements and 
     Penalties.--
       (1) The second sentence of section 6662(d)(2)(A) is amended 
     by inserting ``and without regard to items with respect to 
     which a penalty is imposed by section 6662B'' before the 
     period at the end.
       (2) Subsection (e) of section 6662A is amended--
       (A) in paragraph (1), by inserting ``and noneconomic 
     substance transaction understatements'' after ``reportable 
     transaction understatements'' both places it appears,
       (B) in paragraph (2)(A), by inserting ``and a noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'',
       (C) in paragraph (2)(B), by inserting ``6662B or'' before 
     ``6663'',
       (D) in paragraph (2)(C)(i), by inserting ``or section 
     6662B'' before the period at the end,
       (E) in paragraph (2)(C)(ii), by inserting ``and section 
     6662B'' after ``This section'',
       (F) in paragraph (3), by inserting ``or noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'', and
       (G) by adding at the end the following new paragraph:
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).''.
       (3) Subsection (e) of section 6707A is amended--
       (A) by striking ``or'' at the end of subparagraph (B), and
       (B) by striking subparagraph (C) and inserting the 
     following new subparagraphs:
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction, or
       ``(D) is required to pay a penalty under section 6662(h) 
     with respect to any transaction and would (but for section 
     6662A(e)(2)(C)) have been subject to penalty under section 
     6662A at a rate prescribed under section 6662A(c) or under 
     section 6662B,''.
       (c) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

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

     SEC. 413. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONECONOMIC SUBSTANCE 
                   TRANSACTIONS.

       (a) In General.--Section 163(m) (relating to interest on 
     unpaid taxes attributable to nondisclosed reportable 
     transactions) is amended--
       (1) by striking ``attributable'' and all that follows and 
     inserting the following: ``attributable to--
       ``(1) the portion of any reportable transaction 
     understatement (as defined in section 6662A(b)) with respect 
     to which the requirement of section 6664(d)(2)(A) is not met, 
     or
       ``(2) any noneconomic substance transaction understatement 
     (as defined in section 6662B(c)).'', and
       (2) by inserting ``and Noneconomic Substance Transactions'' 
     in the heading thereof after ``Transactions''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act in taxable years ending after such date.

     SEC. 414. MODIFICATIONS OF EFFECTIVE DATES OF LEASING 
                   PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 
                   2004.

       (a) In General.--Section 849(b) of the American Jobs 
     Creation Act of 2004 is amended by striking paragraphs (1) 
     and (2), by redesignating paragraphs (3) and (4) as 
     paragraphs (1) and (2), respectively, and by adding at the 
     end the following new paragraph:
       ``(3) Leases to foreign entities.--In the case of tax-
     exempt use property leased to a tax-exempt entity which is a 
     foreign person or entity, the amendments made by this part 
     shall apply to taxable years beginning after December 31, 
     2004, with respect to leases entered into on or before March 
     12, 2004.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     American Jobs Creation Act of 2004.

     SEC. 415. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED 
                   OIL COMPANIES.

       (a) General Rule.--Notwithstanding any other provision of 
     law, if a taxpayer is an applicable integrated oil company 
     for its last taxable year ending in calendar year 2005, the 
     taxpayer shall--
       (1) increase, effective as of the close of such taxable 
     year, the value of each historic LIFO layer of inventories of 
     crude oil, natural gas, or any other petroleum product 
     (within the meaning of section 4611) by the layer adjustment 
     amount, and
       (2) decrease its cost of goods sold for such taxable year 
     by the aggregate amount of the increases under paragraph (1).

     If the aggregate amount of the increases under paragraph (1) 
     exceed the taxpayer's cost of goods sold for such taxable 
     year, the taxpayer's gross income for such taxable year shall 
     be increased by the amount of such excess.
       (b) Layer Adjustment Amount.--For purposes of this 
     section--
       (1) In general.--The term ``layer adjustment amount'' 
     means, with respect to any historic LIFO layer, the product 
     of--
       (A) $18.75, and
       (B) the number of barrels of crude oil (or in the case of 
     natural gas or other petroleum products, the number of 
     barrel-of-oil equivalents) represented by the layer.
       (2) Barrel-of-oil equivalent.--The term ``barrel-of-oil 
     equivalent'' has the meaning given such term by section 
     29(d)(5) (as in effect before its redesignation by the Energy 
     Tax Incentives Act of 2005).
       (c) Application of Requirement.--
       (1) No change in method of accounting.--Any adjustment 
     required by this section shall not be treated as a change in 
     method of accounting.
       (2) Underpayments of estimated tax.--No addition to the tax 
     shall be made under section 6655 of the Internal Revenue Code 
     of 1986 (relating to failure by corporation to pay estimated 
     tax) with respect to any underpayment of an installment 
     required to be paid with respect to the taxable year 
     described in subsection (a) to the extent such underpayment 
     was created or increased by this section.
       (d) Applicable Integrated Oil Company.--For purposes of 
     this section, the term ``applicable integrated oil company'' 
     means an integrated oil company (as defined in section 
     291(b)(4) of the Internal Revenue Code of 1986) which--
       (1) had gross receipts in excess of $1,000,000,000 for its 
     last taxable year ending during calendar year 2005, and
       (2) uses the last-in, first-out (LIFO) method of accounting 
     with respect to its crude oil inventories for such taxable 
     year.

     For purposes of paragraph (1), all persons treated as a 
     single employer under subsections (a) and (b) of section 52 
     of the Internal Revenue Code of 1986 shall be treated as 1 
     person and, in the case of a short taxable year, the rule 
     under section 448(c)(3)(B) shall apply.

     SEC. 416. MODIFICATION OF EFFECTIVE DATE OF EXCEPTION FROM 
                   SUSPENSION RULES FOR CERTAIN LISTED AND 
                   REPORTABLE TRANSACTIONS.

       (a) In General.--Paragraph (2) of section 903(d) of the 
     American Jobs Creation Act of 2004 is amended to read as 
     follows:
       ``(2) Exception for reportable or listed transactions.--
       ``(A) In general.--The amendments made by subsection (c) 
     shall apply with respect to interest accruing after October 
     3, 2004.
       ``(B) Special rule for certain listed and reportable 
     transactions.--
       ``(i) In general.--Except as provided in clause (ii), the 
     amendments made by subsection (c) shall also apply with 
     respect to interest accruing on or before October 3, 2004.
       ``(ii) Participants in settlement initiatives.--Clause (i) 
     shall not apply to any transaction if, as of January 23, 
     2006--

       ``(I) the taxpayer is participating in a settlement 
     initiative described in Internal Revenue Service Announcement 
     2005-80 with respect to such transaction, or
       ``(II) the taxpayer has entered into a settlement agreement 
     pursuant to such an initiative.

       ``(iii) Termination of exception.--Clause (ii)(I) shall not 
     apply to any taxpayer if, after January 23, 2006, the 
     taxpayer withdraws from, or terminates, participation in the 
     initiative or the Secretary of the Treasury or the 
     Secretary's delegate determines that a settlement agreement 
     will not be reached pursuant to the initiative within a 
     reasonable period of time.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the provisions of the 
     American Jobs Creation Act of 2004 to which it relates.

     SEC. 417. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) Determination of Penalty.--
       (1) In general.--Notwithstanding any other provision of 
     law, in the case of an applicable taxpayer--
       (A) the determination as to whether any interest or 
     applicable penalty is to be imposed with respect to any 
     arrangement described in paragraph (2), or to any 
     underpayment of Federal income tax attributable to items 
     arising in connection with any such

[[Page S654]]

     arrangement, shall be made without regard to the rules of 
     subsections (b), (c), and (d) of section 6664 of the Internal 
     Revenue Code of 1986, and
       (B) if any such interest or applicable penalty is imposed, 
     the amount of such interest or penalty shall be equal to 
     twice that determined without regard to this section.
       (2) Applicable taxpayer.--For purposes of this subsection--
       (A) In general.--The term ``applicable taxpayer'' means a 
     taxpayer which--
       (i) has underreported its United States income tax 
     liability with respect to any item which directly or 
     indirectly involves--

       (I) any financial arrangement which in any manner relies on 
     the use of offshore payment mechanisms (including credit, 
     debit, or charge cards) issued by banks or other entities in 
     foreign jurisdictions, or
       (II) any offshore financial arrangement (including any 
     arrangement with foreign banks, financial institutions, 
     corporations, partnerships, trusts, or other entities), and

       (ii) has neither signed a closing agreement pursuant to the 
     Voluntary Offshore Compliance Initiative established by the 
     Department of the Treasury under Revenue Procedure 2003-11 
     nor voluntarily disclosed its participation in such 
     arrangement by notifying the Internal Revenue Service of such 
     arrangement prior to the issue being raised by the Internal 
     Revenue Service during an examination.
       (B) Authority to waive.--The Secretary of the Treasury or 
     the Secretary's delegate may waive the application of 
     paragraph (1) to any taxpayer if the Secretary or the 
     Secretary's delegate determines that the use of such offshore 
     payment mechanisms is incidental to the transaction and, in 
     addition, in the case of a trade or business, such use is 
     conducted in the ordinary course of the type of trade or 
     business of the taxpayer.
       (C) Issues raised.--For purposes of subparagraph (A)(ii), 
     an item shall be treated as an issue raised during an 
     examination if the individual examining the return--
       (i) communicates to the taxpayer knowledge about the 
     specific item, or
       (ii) has made a request to the taxpayer for information and 
     the taxpayer could not make a complete response to that 
     request without giving the examiner knowledge of the specific 
     item.
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition to tax, or fine imposed under 
     chapter 68 of the Internal Revenue Code of 1986.
       (2) Fees and expenses.--The Secretary of the Treasury may 
     retain and use an amount not in excess of 25 percent of all 
     additional interest, penalties, additions to tax, and fines 
     collected under this section to be used for enforcement and 
     collection activities of the Internal Revenue Service. The 
     Secretary shall keep adequate records regarding amounts so 
     retained and used. The amount credited as paid by any 
     taxpayer shall be determined without regard to this 
     paragraph.
       (c) Report by Secretary.--The Secretary shall each year 
     conduct a study and report to Congress on the implementation 
     of this section during the preceding year, including 
     statistics on the number of taxpayers affected by such 
     implementation and the amount of interest and applicable 
     penalties asserted, waived, and assessed during such 
     preceding year.
       (d) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if, as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 418. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT 
                   OF TAX LIABILITY.

       (a) In General.--Section 6701(a) (relating to imposition of 
     penalty) is amended--
       (1) by inserting ``the tax liability or'' after ``respect 
     to,'' in paragraph (1),
       (2) by inserting ``aid, assistance, procurement, or advice 
     with respect to such'' before ``portion'' both places it 
     appears in paragraphs (2) and (3), and
       (3) by inserting ``instance of aid, assistance, 
     procurement, or advice or each such'' before ``document'' in 
     the matter following paragraph (3).
       (b) Amount of Penalty.--Subsection (b) of section 6701 
     (relating to penalties for aiding and abetting understatement 
     of tax liability) is amended to read as follows:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall not exceed 100 percent of the gross 
     income derived (or to be derived) from such aid, assistance, 
     procurement, or advice provided by the person or persons 
     subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of aid, assistance, procurement, or 
     advice described in subsection (a), each instance in which 
     income was derived by the person or persons subject to such 
     penalty, and each person who made such an understatement of 
     the liability for tax.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to providing such 
     aid, assistance, procurement, or advice, all such persons 
     shall be jointly and severally liable for the penalty under 
     such subsection.''.
       (c) Penalty Not Deductible.--Section 6701 is amended by 
     adding at the end the following new subsection:
       ``(g) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

   Subtitle C--Provisions to Close Corporate and Individual Loopholes

     SEC. 421. TAX TREATMENT OF INVERTED ENTITIES.

       (a) In General.--Section 7874 is amended--
       (1) by striking ``March 4, 2003'' in subsection 
     (a)(2)(B)(i) and in the matter following subsection 
     (a)(2)(B)(iii) and inserting ``March 20, 2002'',
       (2) by striking ``at least 60 percent'' in subsection 
     (a)(2)(B)(ii) and inserting ``more than 50 percent'',
       (3) by striking ``80 percent'' in subsection (b) and 
     inserting ``at least 80 percent'',
       (4) by striking ``60 percent'' in subsection (b) and 
     inserting ``more than 50 percent'',
       (5) by adding at the end of subsection (a)(2) the following 
     new sentence: ``Except as provided in regulations, an 
     acquisition of properties of a domestic corporation shall not 
     be treated as described in subparagraph (B) if none of the 
     corporation's stock was readily tradeable on an established 
     securities market at any time during the 4-year period ending 
     on the date of the acquisition.'', and
       (6) by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Special Rules Applicable to Expatriated Entities.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an expatriated entity--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an expatriated entity, section 163(j) shall be 
     applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after March 20, 2002.

     SEC. 422. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS 
                   FOREIGN TAX CREDIT TRANSACTIONS INVOLVING 
                   INAPPROPRIATE SEPARATION OF FOREIGN TAXES FROM 
                   RELATED FOREIGN INCOME.

       (a) In General.--Section 901 (relating to taxes of foreign 
     countries and of possessions of United States) is amended by 
     redesignating subsection (m) as subsection (n) and by 
     inserting after subsection (l) the following new subsection:
       ``(m) Regulations.--The Secretary may prescribe regulations 
     disallowing a credit under subsection (a) for all or a 
     portion of any foreign tax, or allocating a foreign tax among 
     2 or more persons, in cases where the foreign tax is imposed 
     on any person in respect of income of another person or in 
     other cases involving the inappropriate separation of the 
     foreign tax from the related foreign income.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after the date of 
     the enactment of this Act.

     SEC. 423. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT 
                   INSTRUMENTS.

       (a) In General.--Section 1275(d) (relating to regulation 
     authority) is amended--
       (1) by striking ``The Secretary'' and inserting the 
     following:
       ``(1) In general.--The Secretary'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Treatment of contingent payment convertible debt.--
       ``(A) In general.--In the case of a debt instrument which--
       ``(i) is convertible into stock of the issuing corporation, 
     into stock or debt of a related party (within the meaning of 
     section 267(b) or 707(b)(1)), or into cash or other property 
     in an amount equal to the approximate value of such stock or 
     debt, and
       ``(ii) provides for contingent payments,

     any regulations which require original issue discount to be 
     determined by reference to the comparable yield of a 
     noncontingent fixed-rate debt instrument shall be applied as 
     if the regulations require that such comparable yield be 
     determined by reference to a noncontingent fixed-rate debt 
     instrument which is convertible into stock.
       ``(B) Special rule.--For purposes of subparagraph (A), the 
     comparable yield shall be determined without taking into 
     account the yield resulting from the conversion of a debt 
     instrument into stock.''.
       (b) Cross Reference.--Section 163(e)(6) (relating to cross 
     references) is amended by adding at the end the following:
       ``For the treatment of contingent payment convertible debt, 
     see section 1275(d)(2).''.

[[Page S655]]

       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued on or after the date 
     of the enactment of this Act.

     SEC. 424. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS 
                   WHICH ARE CORPORATIONS.

       (a) In General.--Section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Treatment of corporate partners.--Except to the 
     extent provided by regulations, in applying this subsection 
     to a corporation which owns (directly or indirectly) an 
     interest in a partnership--
       ``(A) such corporation's distributive share of interest 
     income paid or accrued to such partnership shall be treated 
     as interest income paid or accrued to such corporation,
       ``(B) such corporation's distributive share of interest 
     paid or accrued by such partnership shall be treated as 
     interest paid or accrued by such corporation, and
       ``(C) such corporation's share of the liabilities of such 
     partnership shall be treated as liabilities of such 
     corporation.''.
       (b) Additional Regulatory Authority.--Section 163(j)(9) 
     (relating to regulations), as redesignated by subsection (a), 
     is amended by striking ``and'' at the end of subparagraph 
     (B), by striking the period at the end of subparagraph (C) 
     and inserting ``, and'', and by adding at the end the 
     following new subparagraph:
       ``(D) regulations providing for the reallocation of shares 
     of partnership indebtedness, or distributive shares of the 
     partnership's interest income or interest expense, as may be 
     appropriate to carry out the purposes of this subsection.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning on or after the date 
     of the enactment of this Act.

     SEC. 425. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution or 
     paid to come into compliance with law.--Paragraph (1) shall 
     not apply to any amount which--
       ``(A) the taxpayer establishes--
       ``(i) constitutes restitution (including remediation of 
     property) for damage or harm caused by or which may be caused 
     by the violation of any law or the potential violation of any 
     law, or
       ``(ii) is paid to come into compliance with any law which 
     was violated or involved in the investigation or inquiry, and
       ``(B) is identified as restitution or as an amount paid to 
     come into compliance with the law, as the case may be, in the 
     court order or settlement agreement.

     Identification pursuant to subparagraph (B) alone shall not 
     satisfy the requirement under subparagraph (A). This 
     paragraph shall not apply to any amount paid or incurred as 
     reimbursement to the government or entity for the costs of 
     any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Reporting of Deductible Amounts.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6050T the 
     following new section:

     ``SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN FINES, 
                   PENALTIES, AND OTHER AMOUNTS.

       ``(a) Requirement of Reporting.--
       ``(1) In general.--The appropriate official of any 
     government or entity which is described in section 162(f)(4) 
     which is involved in a suit or agreement described in 
     paragraph (2) shall make a return in such form as determined 
     by the Secretary setting forth--
       ``(A) the amount required to be paid as a result of the 
     suit or agreement to which paragraph (1) of section 162(f) 
     applies,
       ``(B) any amount required to be paid as a result of the 
     suit or agreement which constitutes restitution or 
     remediation of property, and
       ``(C) any amount required to be paid as a result of the 
     suit or agreement for the purpose of coming into compliance 
     with any law which was violated or involved in the 
     investigation or inquiry.
       ``(2) Suit or agreement described.--
       ``(A) In general.--A suit or agreement is described in this 
     paragraph if--
       ``(i) it is--

       ``(I) a suit with respect to a violation of any law over 
     which the government or entity has authority and with respect 
     to which there has been a court order, or
       ``(II) an agreement which is entered into with respect to a 
     violation of any law over which the government or entity has 
     authority, or with respect to an investigation or inquiry by 
     the government or entity into the potential violation of any 
     law over which such government or entity has authority, and

       ``(ii) the aggregate amount involved in all court orders 
     and agreements with respect to the violation, investigation, 
     or inquiry is $600 or more.
       ``(B) Adjustment of reporting threshold.--The Secretary may 
     adjust the $600 amount in subparagraph (A)(ii) as necessary 
     in order to ensure the efficient administration of the 
     internal revenue laws.
       ``(3) Time of filing.--The return required under this 
     subsection shall be filed not later than--
       ``(A) 30 days after the date on which a court order is 
     issued with respect to the suit or the date the agreement is 
     entered into, as the case may be, or
       ``(B) the date specified Secretary.
       ``(b) Statements to Be Furnished to Individuals Involved in 
     the Settlement.--Every person required to make a return under 
     subsection (a) shall furnish to each person who is a party to 
     the suit or agreement a written statement showing--
       ``(1) the name of the government or entity, and
       ``(2) the information supplied to the Secretary under 
     subsection (a)(1).
     The written statement required under the preceding sentence 
     shall be furnished to the person at the same time the 
     government or entity provides the Secretary with the 
     information required under subsection (a).
       ``(c) Appropriate Official Defined.--For purposes of this 
     section, the term `appropriate official' means the officer or 
     employee having control of the suit, investigation, or 
     inquiry or the person appropriately designated for purposes 
     of this section.''.
       (2) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61 is 
     amended by inserting after the item relating to section 6050T 
     the following new item:

``Sec. 6050U. Information with respect to certain fines, penalties, and 
              other amounts.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred on or after the date 
     of the enactment of this Act, except that such amendments 
     shall not apply to amounts paid or incurred under any binding 
     order or agreement entered into before such date. Such 
     exception shall not apply to an order or agreement requiring 
     court approval unless the approval was obtained before such 
     date.

     SEC. 426. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

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

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

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section to Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to damages

[[Page S656]]

     paid or incurred on or after the date of the enactment of 
     this Act.

     SEC. 427. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN 
                   ENTERTAINMENT EXPENSES.

       (a) In General.--Paragraph (2) of section 274(e) (relating 
     to expenses treated as compensation) is amended to read as 
     follows:
       ``(2) Expenses treated as compensation.--Expenses for 
     goods, services, and facilities, to the extent that the 
     expenses do not exceed the amount of the expenses which are 
     treated by the taxpayer, with respect to the recipient of the 
     entertainment, amusement, or recreation, as compensation to 
     an employee on the taxpayer's return of tax under this 
     chapter and as wages to such employee for purposes of chapter 
     24 (relating to withholding of income tax at source on 
     wages).''.
       (b) Persons Not Employees.--Paragraph (9) of section 274(e) 
     is amended by striking ``to the extent that the expenses are 
     includible in the gross income'' and inserting ``to the 
     extent that the expenses do not exceed the amount of the 
     expenses which are includible in the gross income''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses incurred after the date of the 
     enactment of this Act.

     SEC. 428. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO 
                   EXPATRIATE.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.
     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2005, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2004' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election to Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution

[[Page S657]]

     described in subparagraph (B) in the same manner as such 
     distribution would be treated without regard to this 
     paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.
     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.
     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

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

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

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

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

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

[[Page S658]]

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(49) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(21) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (20)'' each place it 
     appears and inserting ``(20), or (21)''.
       (3) Effective dates.--The amendments made by this 
     subsection shall apply to individuals who relinquish United 
     States citizenship on or after the date of the enactment of 
     this Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(h) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after the date of the 
     enactment of this subsection.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4) Section 6039G(a) is amended by inserting ``or 877A'' 
     after ``section 877(b)''.
       (5) The second sentence of section 6039G(d) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after ``section 
     877(a))''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.
       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after the date 
     of the enactment of this Act.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after the date of the 
     enactment of this Act, from an individual or the estate of an 
     individual whose expatriation date (as so defined) occurs 
     after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 429. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING 
                   ABROAD.

       (a) Inflation Adjustment of Foreign Earned Income 
     Limitation.--Clause (ii) of section 911(b)(2)(D) (relating to 
     inflation adjustment) is amended--
       (1) by striking ``2007'' and inserting ``2005'', and
       (2) by striking ``2006'' in subclause (II) and inserting 
     ``2004''.
       (b) Modification of Housing Cost Amount.--
       (1) Minimum amount.--Clause (i) of section 911(c)(1)(B) is 
     amended to read as follows:
       ``(i) 16 percent of the amount (computed on a daily basis) 
     in effect under subsection (b)(2)(D) for the calendar year in 
     which such taxable year begins, multiplied by''.
       (2) Maximum amount of exclusion.--
       (A) In general.--Subparagraph (A) of section 911(c)(1) is 
     amended by inserting ``to the extent such expenses do not 
     exceed the amount determined under paragraph (2)'' after 
     ``the taxable year''.
       (B) Limitation.--Subsection (c) of section 911 is amended 
     by redesignating paragraphs (2) and (3) as paragraphs (3) and 
     (4), respectively, and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Limitation.--The amount determined under this 
     paragraph is an amount equal to the product of--
       ``(A) 30 percent of the amount (computed on a daily basis) 
     in effect under subsection (b)(2)(D) for the calendar year in 
     which the taxable year of the individual begins, multiplied 
     by
       ``(B) the number of days of such taxable year within the 
     applicable period described

[[Page S659]]

     in subparagraph (A) or (B) of subsection (d)(1).''.
       (C) Conforming amendments.--
       (i) Section 911(d)(4) is amended by striking ``and 
     (c)(1)(B)(ii)'' and inserting ``, (c)(1)(B)(ii), and 
     (c)(2)(B)''
       (ii) Section 911(d)(7) is amended by striking ``subsection 
     (c)(3)'' and inserting ``subsection (c)(4)''.
       (c) Rates of Tax Applicable to Nonexcluded Income.--Section 
     911 (relating to exclusion of certain income of citizens and 
     residents of the United States living abroad) is amended by 
     redesignating subsection (f) as subsection (g) and by 
     inserting after subsection (e) the following new subsection:
       ``(f) Determination of Tax Liability on Nonexcluded 
     Amounts.--If any amount is excluded from the gross income of 
     a taxpayer under subsection (a) for any taxable year, then, 
     notwithstanding section 1 or 55--
       ``(1) the tax imposed by section 1 on the taxpayer for such 
     taxable year shall be equal to the excess (if any) of--
       ``(A) the tax which would be imposed by section 1 for the 
     taxable year if the taxpayer's taxable income were equal to 
     the sum of--
       ``(i) the taxpayer's taxable income for the taxable year 
     (determined without regard to this subsection), plus
       ``(ii) the amount excluded under subsection (a) for the 
     taxable year, over
       ``(B) the tax which would be imposed by section 1 for the 
     taxable year if the taxpayer's taxable income were equal to 
     the amount excluded under subsection (a) for the taxable 
     year, and
       ``(2) the tax imposed by section 55 for such taxable year 
     shall be equal to the excess (if any) of--
       ``(A) the amount which would be the tentative minimum tax 
     under section 55 for the taxable year if the taxpayer's 
     alternative minimum taxable income were equal to the sum of--
       ``(i) the taxpayer's alternative minimum taxable income for 
     the taxable year (determined without regard to this 
     subsection), plus
       ``(ii) the amount excluded under subsection (a) for the 
     taxable year, over
       ``(B) the sum of--
       ``(i) the amount which would be the tentative minimum tax 
     under section 55 for the taxable year if the taxpayer's 
     alternative minimum taxable income were equal to the amount 
     excluded under subsection (a) for the taxable year, plus
       ``(ii) the amount which would be the regular tax for the 
     taxable year if the tax imposed by section 1 were the tax 
     computed under paragraph (1).
     For purposes of this subsection, the amount excluded under 
     subsection (a) shall be reduced by the aggregate amount of 
     any deductions or exclusions disallowed under subsection 
     (d)(6) with respect to such excluded amount.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 430. LIMITATION ON ANNUAL AMOUNTS WHICH MAY BE DEFERRED 
                   UNDER NONQUALIFIED DEFERRED COMPENSATION 
                   ARRANGEMENTS.

       (a) In General.--Section 409A (relating to inclusion of 
     gross income under nonqualified deferred compensation plans) 
     is amended by redesignating subsections (c), (d), and (e) as 
     subsections (d), (e), and (f), respectively, and by inserting 
     after subsection (b) the following new subsection:
       ``(c) Annual Limitation on Aggregate Deferred Amounts.--
       ``(1) Limitation.--If the aggregate amount of compensation 
     which--
       ``(A) is deferred for any taxable year with respect to a 
     participant under 1 or more nonqualified deferred 
     compensation plans maintained by the same employer, and
       ``(B) is not otherwise includible in gross income of the 
     participant for the taxable year,
     exceeds the applicable dollar amount for the taxable year, 
     then such excess shall be included in the participant's gross 
     income for the taxable year.
       ``(2) Inclusion of earnings.--If--
       ``(A) an amount is includible under paragraph (1) in the 
     gross income of a participant for any taxable year, and
       ``(B) any portion of any assets set aside in a trust or 
     other arrangement under a nonqualified deferred compensation 
     plan are properly allocable to such amount,

     then any increase in value in, or earnings with respect to, 
     such portion for the taxable year or any succeeding taxable 
     year shall be included in gross income of the participant for 
     such taxable year or succeeding taxable year.
       ``(3) Applicable dollar amount.--For purposes of this 
     subsection--
       ``(A) In general.--The term `applicable dollar amount' 
     means, with respect to any participant, the lesser of--
       ``(i) the average annual compensation which--

       ``(I) was payable during the base period to the participant 
     by the employer described in paragraph (1)(A), and
       ``(II) was includible in the participant's gross income for 
     taxable years in the base period, or

       ``(ii) $1,000,000.
       ``(B) Base period.--The term `base period' means, with 
     respect to any computation year, the 5-taxable year period 
     ending with the taxable year preceding the taxable year in 
     which the election described in subsection (a)(4)(B) is made 
     by the participant to have compensation for services 
     performed in the computation year deferred under a 
     nonqualified deferred compensation plan, except that if the 
     election is made after the beginning of the computation year, 
     such period shall be the 5-taxable year period ending with 
     the taxable year preceding the computation year. For purposes 
     of this subparagraph, the term `computation year' means any 
     taxable year of the participant for which the limitation 
     under paragraph (1) is being determined.''.
       (b) Conforming Amendments.--Sections 6041(g)(1) and 
     6051(a)(13) are each amended by striking ``409A(d)'' and 
     inserting ``409A(e)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005, except that taxable years beginning on or before such 
     date shall be taken into account in determining the average 
     annual compensation of a participant during any base period 
     for purposes of section 409A(c)(2) of the Internal Revenue 
     Code of 1986 (as added by such amendments).

     SEC. 431. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Treatment of Distributions From Qualified Disability 
     Trusts.--Section 1(g)(4) (relating to net unearned income) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Treatment of distributions from qualified disability 
     trusts.--For purposes of this subsection, in the case of any 
     child who is a beneficiary of a qualified disability trust 
     (as defined in section 642(b)(2)(C)(ii)), any amount included 
     in the income of such child under sections 652 and 662 during 
     a taxable year shall be considered earned income of such 
     child for such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

                   Subtitle D--Oil and Gas Provisions

     SEC. 441. EXTENSION OF SUPERFUND TAXES.

       (a) Excise Taxes.--Section 4611(e) is amended to read as 
     follows:
       ``(e) Application of Hazardous Substance Superfund 
     Financing Rate.--The Hazardous Substance Superfund financing 
     rate under this section shall apply after December 31, 1986, 
     and before January 1, 1996, and after December 31, 2005, and 
     before January 1, 2015.''
       (b) Corporate Environmental Income Tax.--Section 59A(e) is 
     amended to read as follows:
       ``(e) Application of Tax.--The tax imposed by this section 
     shall apply to taxable years beginning after December 31, 
     1986, and before January 1, 1996, and to taxable years 
     beginning after December 31, 2005, and before January 1, 
     2015.''
       (c) Effective Dates.--
       (1) Excise taxes.--The amendments made by subsection (a) 
     shall take effect on the date of the enactment of this Act.
       (2) Income tax.--The amendment made by subsection (b) shall 
     apply to taxable years beginning after December 31, 2005.

     SEC. 442. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
                   APPLICABLE TO DUAL CAPACITY TAXPAYERS.

       (a) In General.--Section 901 (relating to credit for taxes 
     of foreign countries and of possessions of the United States) 
     is amended by redesignating subsection (m) as subsection (n) 
     and by inserting after subsection (l) the following new 
     subsection:
       ``(m) Special Rules Relating To Dual Capacity Taxpayers.--
       ``(1) General rule.--Notwithstanding any other provision of 
     this chapter, any amount paid or accrued by a dual capacity 
     taxpayer to a foreign country or possession of the United 
     States for any period shall not be considered a tax--
       ``(A) if, for such period, the foreign country or 
     possession does not impose a generally applicable income tax, 
     or
       ``(B) to the extent such amount exceeds the amount 
     (determined in accordance with regulations) which--
       ``(i) is paid by such dual capacity taxpayer pursuant to 
     the generally applicable income tax imposed by the country or 
     possession, or
       ``(ii) would be paid if the generally applicable income tax 
     imposed by the country or possession were applicable to such 
     dual capacity taxpayer.
     Nothing in this paragraph shall be construed to imply the 
     proper treatment of any such amount not in excess of the 
     amount determined under subparagraph (B).
       ``(2) Dual capacity taxpayer.--For purposes of this 
     subsection, the term `dual capacity taxpayer' means, with 
     respect to any foreign country or possession of the United 
     States, a person who--
       ``(A) is subject to a levy of such country or possession, 
     and
       ``(B) receives (or will receive) directly or indirectly a 
     specific economic benefit (as determined in accordance with 
     regulations) from such country or possession.
       ``(3) Generally applicable income tax.--For purposes of 
     this subsection--
       ``(A) In general.--The term `generally applicable income 
     tax' means an income tax (or a series of income taxes) which 
     is generally imposed under the laws of a foreign country or 
     possession on income derived from the conduct of a trade or 
     business within such country or possession.
       ``(B) Exceptions.--Such term shall not include a tax unless 
     it has substantial application, by its terms and in practice, 
     to--
       ``(i) persons who are not dual capacity taxpayers, and

[[Page S660]]

       ``(ii) persons who are citizens or residents of the foreign 
     country or possession.''
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes paid or accrued in taxable years beginning 
     after the date of the enactment of this Act.
       (2) Contrary treaty obligations upheld.--The amendments 
     made by this section shall not apply to the extent contrary 
     to any treaty obligation of the United States.

     SEC. 443. RULES RELATING TO FOREIGN OIL AND GAS INCOME.

       (a) Separate Basket for Foreign Tax Credit.--
       (1) Separate basket.--
       (A) Years before 2007.--Paragraph (1) of section 904(d) 
     (relating to separate application of section with respect to 
     certain categories of income), as in effect for years 
     beginning before 2007, is amended by striking ``and'' at the 
     end of subparagraph (H), by redesignating subparagraph (I) as 
     subparagraph (J), and by inserting after subparagraph (H) the 
     following new subparagraph:
       ``(I) foreign oil and gas income, and''.
       (B) 2007 and after.--Paragraph (1) of section 904(d), as in 
     effect for years beginning after 2006, is amended by striking 
     ``and'' at the end of subparagraph (A), by striking the 
     period at the end of subparagraph (B) and inserting ``, 
     and'', and by adding at the end the following:
       ``(C) foreign oil and gas income.''
       (2) Definition.--
       (A) Years before 2007.--Paragraph (2) of section 904(d), as 
     in effect for years beginning before 2007, is amended by 
     redesignating subparagraphs (H) and (I) as subparagraphs (I) 
     and (J), respectively, and by inserting after subparagraph 
     (G) the following new subparagraph:
       ``(H) Foreign oil and gas income.--The term `foreign oil 
     and gas income' has the meaning given such term by section 
     954(g).''
       (B) 2007 and after.--Section 904(d)(2), as in effect for 
     years after 2006, is amended by redesignating subparagraphs 
     (J) and (K) as subparagraphs (K) and (L) and by inserting 
     after subparagraph (I) the following:
       ``(J) Foreign oil and gas income.--For purposes of this 
     section--
       ``(i) In general.--The term `foreign oil and gas income' 
     has the meaning given such term by section 954(g).
       ``(ii) Coordination.--Passive category income and general 
     category income shall not include foreign oil and gas income 
     (as so defined).''
       (3) Conforming amendments.--
       (A) Section 904(d)(3)(F)(i) is amended by striking ``or 
     (E)'' and inserting ``(E), or (I)''.
       (B) Section 907(a) is hereby repealed.
       (C) Section 907(c)(4) is hereby repealed.
       (D) Section 907(f) is hereby repealed.
       (4) Effective dates.--
       (A) In general.--The amendments made by this section shall 
     apply to taxable years beginning after the date of the 
     enactment of this Act.
       (B) Years after 2006.--The amendments made by paragraphs 
     (1)(B) and (2)(B) shall apply to taxable years beginning 
     after December 31, 2006.
       (C) Transitional rules.--
       (i) Separate basket treatment.--Any taxes paid or accrued 
     in a taxable year beginning on or before the date of the 
     enactment of this Act, with respect to income which was 
     described in subparagraph (I) of section 904(d)(1) of such 
     Code (as in effect on the day before the date of the 
     enactment of this Act), shall be treated as taxes paid or 
     accrued with respect to foreign oil and gas income to the 
     extent the taxpayer establishes to the satisfaction of the 
     Secretary of the Treasury that such taxes were paid or 
     accrued with respect to foreign oil and gas income.
       (ii) Carryovers.--Any unused oil and gas extraction taxes 
     which under section 907(f) of such Code (as so in effect) 
     would have been allowable as a carryover to the taxpayer's 
     first taxable year beginning after the date of the enactment 
     of this Act (without regard to the limitation of paragraph 
     (2) of such section 907(f) for first taxable year) shall be 
     allowed as carryovers under section 904(c) of such Code in 
     the same manner as if such taxes were unused taxes under such 
     section 904(c) with respect to foreign oil and gas extraction 
     income.
       (iii) Losses.--The amendment made by paragraph (3)(C) shall 
     not apply to foreign oil and gas extraction losses arising in 
     taxable years beginning on or before the date of the 
     enactment of this Act.
       (b) Elimination of Deferral for Foreign Oil and Gas 
     Extraction Income.--
       (1) General rule.--Paragraph (1) of section 954(g) 
     (defining foreign base company oil related income) is amended 
     to read as follows:
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the term `foreign oil and gas income' means any 
     income of a kind which would be taken into account in 
     determining the amount of--
       ``(A) foreign oil and gas extraction income (as defined in 
     section 907(c)), or
       ``(B) foreign oil related income (as defined in section 
     907(c)).''
       (2) Conforming amendments.--
       (A) Subsections (a)(5), (b)(5), and (b)(6) of section 954, 
     and section 952(c)(1)(B)(ii)(I), are each amended by striking 
     ``base company oil related income'' each place it appears 
     (including in the heading of subsection (b)(8)) and inserting 
     ``oil and gas income''.
       (B) Subsection (b)(4) of section 954 is amended by striking 
     ``base company oil-related income'' and inserting ``oil and 
     gas income''.
       (C) The subsection heading for subsection (g) of section 
     954 is amended by striking ``Foreign Base Company Oil Related 
     Income'' and inserting ``Foreign Oil and Gas Income''.
       (D) Subparagraph (A) of section 954(g)(2) is amended by 
     striking ``foreign base company oil related income'' and 
     inserting ``foreign oil and gas income''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years of foreign corporations 
     beginning after the date of the enactment of this Act, and to 
     taxable years of United States shareholders ending with or 
     within such taxable years of foreign corporations.

     SEC. 444. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE.

       (a) Taxable Years Ending Before 2006.--
       (1) Modification of phaseout.--
       (A) In general.--Section 29(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 29(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 
     2005.--Section 29(b)(2), as amended by paragraph (1), is 
     amended by adding at the end the following new sentence: 
     ``This paragraph shall not apply with respect to the $3 
     amount in subsection (a) for calendar year 2005 and the 
     amount in effect under subsection (a) for sales in such 
     calendar year shall be the amount which was in effect for 
     sales in calendar year 2004.''.
       (b) Taxable Years Ending After 2005.--
       (1) Modification of phaseout.--
       (A) In general.--Section 45K(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 45K(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 2005, 
     2006, and 2007.--Section 45K(b)(2), as amended by paragraph 
     (1), is amended by adding at the end the following new 
     sentence: ``This paragraph shall not apply with respect to 
     the $3 amount in subsection (a) for calendar years 2005, 
     2006, and 2007 and the amount in effect under subsection (a) 
     for sales in each such calendar year shall be the amount 
     which was in effect for sales in calendar year 2004.''.
       (3) Treatment of coke and coke gas.--
       (A) Nonapplication of phaseout.--Section 45K(g)(2) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Nonapplication of phaseout.--Subsection (b)(1) shall 
     not apply.''.
       (B) Application of inflation adjustment .--Section 
     45K(g)(2)(B) is amended by inserting ``and the last sentence 
     of subsection (b)(2) shall not apply.''.
       (C) Clarification of qualifying facility.--Section 
     45K(g)(1) is amended by inserting ``(other than from 
     petroleum based products)'' after ``coke or coke gas''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to fuel sold after December 31, 2004.

     SEC. 445. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND 
                   GEOPHYSICAL EXPENDITURES FOR MAJOR INTEGRATED 
                   OIL COMPANIES.

       (a) In General.--Section 167(h) is amended by adding at the 
     end the following new paragraph:
       ``(5) Nonapplication to major integrated oil companies.--
     This subsection shall not apply with respect to any expenses 
     paid or incurred for any taxable year by any integrated oil 
     company (as defined in section 291(b)(4)) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for such taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendment made by 
     section 1329(a) of the Energy Policy Act of 2005.

               Subtitle E--Tax Administration Provisions

     SEC. 451. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE 
                   BY GOVERNMENT ENTITIES.

       (a) In General.--Section 3402 is amended by adding at the 
     end the following new subsection:
       ``(t) Extension of Withholding to Certain Payments Made by 
     Government Entities.--
       ``(1) General rule.--The Government of the United States, 
     every State, every political subdivision thereof, and every 
     instrumentality of the foregoing (including multi-State 
     agencies) making any payment for goods and services which is 
     subject to withholding shall deduct and withhold form such 
     payment a tax in an amount equal to 3 percent of such 
     payment.
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     payment--
       ``(A) except as provided in subparagraph (B), which is 
     subject to withholding under any other provision of this 
     chapter or chapter 3,
       ``(B) which is subject to withholding under section 3406 
     and from which amounts are being withheld under such section,
       ``(C) of interest,
       ``(D) for real property,

[[Page S661]]

       ``(E) to any tax-exempt entity, foreign government, or 
     other entity subject to the requirements of paragraph (1),
       ``(F) made pursuant to a classified or confidential 
     contract (as defined in section 6050M(e)(3)), and
       ``(G) made by a political subdivision of a State (or any 
     instrumentality thereof) which makes less than $100,000,000 
     of such payments annually.
       ``(3) Coordination with other sections.--For purposes of 
     sections 3403 and 3404 and for purposes of so much of 
     subtitle F (except section 7205) as relates to this chapter, 
     payments to any person of any payment for goods and services 
     which is subject to withholding shall be treated as if such 
     payments were wages paid by an employer to an employee.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 2005.

     SEC. 452. INCREASE IN CERTAIN CRIMINAL PENALTIES.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``Any person'' and inserting the following:
       ``(a) In General.--Any person'', and
       (ii) by striking ``$25,000'' and inserting ``$50,000'',
       (B) in the third sentence, by striking ``section'' and 
     inserting ``subsection'', and
       (C) by adding at the end the following new subsection:
       ``(b) Aggravated Failure to File.--
       ``(1) In general.--In the case of any failure described in 
     paragraph (2), the first sentence of subsection (a) shall be 
     applied by substituting--
       ``(A) `felony' for `misdemeanor',
       ``(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and
       ``(C) `10 years' for `1 year'.
       ``(2) Failure described.--A failure described in this 
     paragraph is a failure to make a return described in 
     subsection (a) for a period of 3 or more consecutive taxable 
     years.''.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to actions, and failures to act, occurring after 
     the date of the enactment of this Act.

     SEC. 453. REPEAL OF SUSPENSION OF INTEREST AND CERTAIN 
                   PENALTIES WHERE SECRETARY FAILS TO CONTACT 
                   TAXPAYER.

       (a) In General.--Section 6404 (relating to abatements) is 
     amended by striking subsection (g) and by redesignating 
     subsections (h) and (i) as subsections (g) and (h), 
     respectively.
       (b) Effective Date.--The amendments made by this section 
     shall apply to returns of tax filed after December 31, 2005.

     SEC. 454. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
                   ORDERS.

       (a) In General.--Section 6657 (relating to bad checks) is 
     amended--
       (1) by striking ``$750'' and inserting ``$1,250'', and
       (2) by striking ``$15'' and inserting ``$25''.
       (b) Effective Date.--The amendments made by this section 
     apply to checks or money orders received after the date of 
     the enactment of this Act.

     SEC. 455. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

       ``(ii) an application under--

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

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

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

       (f) Effective Date.--The amendments made by this section 
     shall apply to submissions made and issues raised after the 
     date

[[Page S662]]

     on which the Secretary first prescribes a list under section 
     6702(c) of the Internal Revenue Code of 1986, as amended by 
     subsection (a).

     SEC. 456. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF 
                   OFFERS-IN-COMPROMISE.

       (a) In General.--Section 7122 (relating to compromises), as 
     amended by this Act, is amended by redesignating subsections 
     (c), (d), and (e) as subsections (d), (e), and (f), 
     respectively, and by inserting after subsection (b) the 
     following new subsection:
       ``(c) Rules for Submission of Offers-in-Compromise.--
       ``(1) Partial payment required with submission.--
       ``(A) Lump-sum offers.--
       ``(i) In general.--The submission of any lump-sum offer-in-
     compromise shall be accompanied by the payment of 20 percent 
     of amount of such offer.
       ``(ii) Lump-sum offer-in-compromise.--For purposes of this 
     section, the term `lump-sum offer-in-compromise' means any 
     offer of payments made in 5 or fewer installments.
       ``(B) Periodic payment offers.--The submission of any 
     periodic payment offer-in-compromise shall be accompanied by 
     the payment of the amount of the first proposed installment 
     and each proposed installment due during the period such 
     offer is being evaluated for acceptance and has not been 
     rejected by the Secretary. Any failure to make a payment 
     required under the preceding sentence shall be deemed a 
     withdrawal of the offer-in-compromise.
       ``(2) Rules of application.--
       ``(A) Use of payment.--The application of any payment made 
     under this subsection to the assessed tax or other amounts 
     imposed under this title with respect to such tax may be 
     specified by the taxpayer.
       ``(B) No user fee imposed.--Any user fee which would 
     otherwise be imposed under this section shall not be imposed 
     on any offer-in-compromise accompanied by a payment required 
     under this subsection.
       ``(C) Waiver authority.--The Secretary may issue 
     regulations waiving any payment required under paragraph (1) 
     in a manner consistent with the practices established in 
     accordance with the requirements under subsection (d)(3).''.
       (b) Additional Rules Relating to Treatment of Offers.--
       (1) Unprocessable offer if payment requirements are not 
     met.--Paragraph (3) of section 7122(d) (relating to standards 
     for evaluation of offers), as redesignated by subsection (a), 
     is amended by striking ``; and'' at the end of subparagraph 
     (A) and inserting a comma, by striking the period at the end 
     of subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any offer-in-compromise which does not meet the 
     requirements of subsection (c) shall be returned to the 
     taxpayer as unprocessable.''.
       (2) Deemed acceptance of offer not rejected within certain 
     period.--Section 7122, as amended by subsection (a), is 
     amended by adding at the end the following new subsection:
       ``(g) Deemed Acceptance of Offer Not Rejected Within 
     Certain Period.--Any offer-in-compromise submitted under this 
     section shall be deemed to be accepted by the Secretary if 
     such offer is not rejected by the Secretary before the date 
     which is 24 months after the date of the submission of such 
     offer (12 months for offers-in-compromise submitted after the 
     date which is 5 years after the date of the enactment of this 
     subsection). For purposes of the preceding sentence, any 
     period during which any tax liability which is the subject of 
     such offer-in-compromise is in dispute in any judicial 
     proceeding shall not be taken in to account in determining 
     the expiration of the 24-month period (or 12-month period, if 
     applicable).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted on and after 
     the date which is 60 days after the date of the enactment of 
     this Act.

     SEC. 457. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING 
                   AUTOMATED WITHDRAWALS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following:
       ``(e) Waiver of User Fees for Installment Agreements Using 
     Automated Withdrawals.--In the case of a taxpayer who enters 
     into an installment agreement in which automated installment 
     payments are agreed to, the Secretary shall waive the fee (if 
     any) for entering into the installment agreement.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     which is 180 days after the date of the enactment of this 
     Act.

     SEC. 458. TERMINATION OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159(b)(4) (relating to failure to 
     pay an installment or any other tax liability when due or to 
     provide requested financial information) is amended by 
     striking ``or'' at the end of subparagraph (B), by 
     redesignating subparagraph (C) as subparagraph (E), and by 
     inserting after subparagraph (B) the following:
       ``(C) to make a Federal tax deposit under section 6302 at 
     the time such deposit is required to be made,
       ``(D) to file a return of tax imposed under this title by 
     its due date (including extensions), or''.
       (b) Conforming Amendment.--The heading for section 
     6159(b)(4) is amended by striking ``Failure to pay an 
     installment or any other tax liability when due or to provide 
     requested financial information'' and inserting ``Failure to 
     make payments or deposits or file returns when due or to 
     provide requested financial information''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to failures occurring on or after the date of the 
     enactment of this Act.

                   Subtitle F--Additional Provisions

     SEC. 461. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE 
                   HARBOR.

       (a) In General.--The table contained in section 
     6654(d)(1)(C) is amended by striking ``2002 or thereafter'' 
     and inserting ``2002, 2003, 2004, or 2005'' and by adding at 
     the end the following new items:
  ``2006...........................................................111 
  2007 or thereafter.............................................110''.

       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to any installment payment for 
     taxable years beginning after December 31, 2005.

     SEC. 462. LOAN AND REDEMPTION REQUIREMENTS ON POOLED 
                   FINANCING REQUIREMENTS.

       (a) Strengthened Reasonable Expectation Requirement.--
     Subparagraph (A) of section 149(f)(2) (relating to reasonable 
     expectation requirement) is amended to read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to an issue if the issuer reasonably expects 
     that--
       ``(i) as of the close of the 1-year period beginning on the 
     date of issuance of the issue, at least 50 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been used directly or indirectly to make or finance 
     loans to ultimate borrowers, and
       ``(ii) as of the close of the 3-year period beginning on 
     such date of issuance, at least 95 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been so used.''.
       (b) Written Loan Commitment and Redemption Requirements.--
     Section 149(f) (relating to treatment of certain pooled 
     financing bonds) is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (6) and (7), respectively, and by 
     inserting after paragraph (3) the following new paragraphs:
       ``(4) Written loan commitment requirement.--
       ``(A) In general.--The requirement of this paragraph is met 
     with respect to an issue if the issuer receives prior to 
     issuance written loan commitments identifying the ultimate 
     potential borrowers of at least 50 percent of the net 
     proceeds of such issue.
       ``(B) Exception.--Subparagraph (A) shall not apply with 
     respect to any issuer which is a State (or an integral part 
     of a State) issuing pooled financing bonds to make or finance 
     loans to subordinate governmental units of such State or to 
     State-created entities providing financing for water-
     infrastructure projects through the federally-sponsored State 
     revolving fund program.
       ``(5) Redemption requirement.--The requirement of this 
     paragraph is met if to the extent that less than the 
     percentage of the proceeds of an issue required to be used 
     under clause (i) or (ii) of paragraph (2)(A) is used by the 
     close of the period identified in such clause, the issuer 
     uses an amount of proceeds equal to the excess of--
       ``(A) the amount required to be used under such clause, 
     over
       ``(B) the amount actually used by the close of such period,

     to redeem outstanding bonds within 90 days after the end of 
     such period.''.
       (c) Elimination of Disregard of Pooled Bonds in Determining 
     Eligibility for Small Issuer Exception to Arbitrage Rebate.--
     Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) 
     is amended by striking subclause (II) and by redesignating 
     subclauses (III) and (IV) as subclauses (II) and (III), 
     respectively.
       (d) Conforming Amendments.--
       (1) Section 149(f)(1) is amended by striking ``paragraphs 
     (2) and (3)'' and inserting ``paragraphs (2), (3), (4), and 
     (5)''.
       (2) Section 149(f)(7)(B), as redesignated by subsection 
     (b), is amended by striking ``paragraph (4)(A)'' and 
     inserting ``paragraph (6)(A)''.
       (3) Section 54(l)(2) is amended by striking ``section 
     149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 463. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

       (a) In General.--Section 6049(b)(2) (relating to 
     exceptions) is amended by striking subparagraph (B) and by 
     redesignating subparagraphs (C) and (D) as subparagraphs (B) 
     and (C), respectively.
       (b) Conforming Amendment.--Section 6049(b)(2)(C), as 
     redesignated by subsection (a), is amended by striking 
     ``subparagraph (C)'' and inserting ``subparagraph (B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest earned after December 31, 2005.
                                 ______
                                 
  SA 2724. Mrs. CLINTON (for herself, Ms. Mikulski, Mr. Harkin, Mr. 
Lautenberg, Mr. Reed, Mr. Salazar, Mr. Obama, Mrs. Boxer, Ms. Stabenow, 
Mr.

[[Page S663]]

Schumer, Mr. Durbin, Mrs. Feinstein, Mr. Feingold, Mr. Carper, Mr. 
Johnson, Mr. Leahy, and Mr. Jeffords) submitted an amendment intended 
to be proposed to amendment SA 2710 proposed by Mr. Frist (for himself, 
Mr. Grassley, and Mr. Baucus) to the bill H.R. 4297, to provide for 
reconciliation pursuant to section 201(b) of the concurrent resolution 
on the budget for fiscal year 2006; which was ordered to lie on the 
table; as follows:

       At the end of the amendment, insert the following:

                      TITLE __--KATRINA COMMISSION

     SEC. _01. ESTABLISHMENT OF COMMISSION.

       There is established in the legislative branch the Katrina 
     Commission (in this title referred to as the ``Commission'').

     SEC. _02. COMPOSITION OF COMMISSION.

       (a) Members.--The Commission shall be composed of 10 
     members, of whom--
       (1) 1 member shall be appointed by the President, who shall 
     serve as chairman of the Commission;
       (2) 1 member shall be appointed by the leader of the Senate 
     (majority or minority leader, as the case may be) of the 
     Democratic Party, in consultation with the leader of the 
     House of Representatives (majority or minority leader, as the 
     case may be) of the Democratic Party, who shall serve as vice 
     chairman of the Commission;
       (3) 2 members shall be appointed by the senior member of 
     the Senate leadership of the Democratic Party;
       (4) 2 members shall be appointed by the senior member of 
     the leadership of the House of Representatives of the 
     Republican Party;
       (5) 2 members shall be appointed by the senior member of 
     the Senate leadership of the Republican Party; and
       (6) 2 members shall be appointed by the senior member of 
     the leadership of the House of Representatives of the 
     Democratic Party.
       (b) Qualifications; Initial Meeting.--
       (1) Political party affiliation.--Not more than 5 members 
     of the Commission shall be from the same political party.
       (2) Nongovernmental appointees.--An individual appointed to 
     the Commission may not be an officer or employee of the 
     Federal Government or any State or local government.
       (3) Other qualifications.--It is the sense of Congress that 
     individuals appointed to the Commission should be prominent 
     United States citizens who represent a diverse range of 
     citizens and enjoy national recognition and significant depth 
     of experience in such professions as governmental service, 
     emergency preparedness, mitigation planning, cataclysmic 
     planning and response, intergovernmental management, resource 
     planning, recovery operations and planning, Federal 
     coordination, military coordination, and other extensive 
     natural disaster and emergency response experience.
       (4) Deadline for appointment.--All members of the 
     Commission shall be appointed on or before October 1, 2005.
       (5) Initial meeting.--The Commission shall meet and begin 
     the operations of the Commission as soon as practicable.
       (c) Quorum; Vacancies.--After its initial meeting, the 
     Commission shall meet upon the call of the chairman or a 
     majority of its members. Six members of the Commission shall 
     constitute a quorum. Any vacancy in the Commission shall not 
     affect its powers, but shall be filled in the same manner in 
     which the original appointment was made.

     SEC. _03. DUTIES.

       The duties of the Commission are to--
       (1) examine and report upon the Federal, State, and local 
     response to the devastation wrought by Hurricane Katrina in 
     the Gulf Region of the United States of America especially in 
     the States of Louisiana, Mississippi, Alabama, and other 
     areas impacted in the aftermath;
       (2) ascertain, evaluate, and report on the information 
     developed by all relevant governmental agencies regarding the 
     facts and circumstances related to Hurricane Katrina prior to 
     striking the United States and in the days and weeks 
     following;
       (3) build upon concurrent and prior investigations of other 
     entities, and avoid unnecessary duplication concerning 
     information related to existing vulnerabilities;
       (4) make a full and complete accounting of the 
     circumstances surrounding the approach of Hurricane Katrina 
     to the Gulf States, and the extent of the United States 
     government's preparedness for, and response to, the 
     hurricane;
       (5) planning necessary for future cataclysmic events 
     requiring a significant marshaling of Federal resources, 
     mitigation, response, and recovery to avoid significant loss 
     of life;
       (6) an analysis as to whether any decisions differed with 
     respect to response and recovery for different communities, 
     neighborhoods, parishes, and locations and what problems 
     occurred as a result of a lack of a common plan, 
     communication structure, and centralized command structure; 
     and
       (7) investigate and report to the President and Congress on 
     its findings, conclusions, and recommendations for immediate 
     corrective measures that can be taken to prevent problems 
     with Federal response that occurred in the preparation for, 
     and in the aftermath of, Hurricane Katrina so that future 
     cataclysmic events are responded to adequately.

     SEC. _04. FUNCTIONS OF COMMISSION.

       (a) In General.--The functions of the Commission are to--
       (1) conduct an investigation that--
       (A) investigates relevant facts and circumstances relating 
     to the catastrophic impacts that Hurricane Katrina exacted 
     upon the Gulf Region of the United States especially in New 
     Orleans and surrounding parishes, and impacted areas of 
     Mississippi and Alabama; and
       (B) shall include relevant facts and circumstances relating 
     to--
       (i) Federal emergency response planning and execution at 
     the Federal Emergency Management Agency, the Department of 
     Homeland Security, the White House, and all other Federal 
     entities with responsibility for assisting during, and 
     responding to, natural disasters;
       (ii) military and law enforcement response planning and 
     execution;
       (iii) Federal mitigation plans, programs, and policies 
     including prior assessments of existing vulnerabilities and 
     exercises designed to test those vulnerabilities;
       (iv) Federal, State, and local communication 
     interoperability successes and failures;
       (v) past, present, and future Federal budgetary provisions 
     for preparedness, mitigation, response, and recovery;
       (vi) the Federal Emergency Management Agency's response 
     capabilities as an independent agency and as part of the 
     Department of Homeland Security;
       (vii) the role of congressional oversight and resource 
     allocation;
       (viii) other areas of the public and private sectors 
     determined relevant by the Commission for its inquiry; and
       (ix) long-term needs for people impacted by Hurricane 
     Katrina and other forms of Federal assistance necessary for 
     large-scale recovery;
       (2) identify, review, and evaluate the lessons learned from 
     Hurricane Katrina including coordination, management 
     policies, and procedures of the Federal Government, State and 
     local governments, and nongovernmental entities, relative to 
     detection, planning, mitigation, asset prepositioning, and 
     responding to cataclysmic natural disasters such as Hurricane 
     Katrina; and
       (3) submit to the President and Congress such reports as 
     are required by this title containing such findings, 
     conclusions, and recommendations as the Commission shall 
     determine, including proposing organization, coordination, 
     planning, management arrangements, procedures, rules, and 
     regulations.

     SEC. _05. POWERS OF COMMISSION.

       (a) In General.--
       (1) Hearings and evidence.--The Commission or, on the 
     authority of the Commission, any subcommittee or member 
     thereof, may, for the purpose of carrying out this title--
       (A) hold such hearings and sit and act at such times and 
     places, take such testimony, receive such evidence, 
     administer such oaths; and
       (B) subject to paragraph (2)(A), require, by subpoena or 
     otherwise, the attendance and testimony of such witnesses and 
     the production of such books, records, correspondence, 
     memoranda, papers, and documents, as the Commission or such 
     designated subcommittee or designated member may determine 
     advisable.
       (2) Subpoenas.--
       (A) Issuance.--
       (i) In general.--A subpoena may be issued under this 
     subsection only--

       (I) by the agreement of the chairman and the vice chairman; 
     or
       (II) by the affirmative vote of 6 members of the 
     Commission.

       (ii) Signature.--Subject to clause (i), subpoenas issued 
     under this subsection may be issued under the signature of 
     the chairman or any member designated by a majority of the 
     Commission, and may be served by any person designated by the 
     chairman or by a member designated by a majority of the 
     Commission.
       (B) Enforcement.--
       (i) In general.--In the case of contumacy or failure to 
     obey a subpoena issued under subsection (a), the United 
     States district court for the judicial district in which the 
     subpoenaed person resides, is served, or may be found, or 
     where the subpoena is returnable, may issue an order 
     requiring such person to appear at any designated place to 
     testify or to produce documentary or other evidence. Any 
     failure to obey the order of the court may be punished by the 
     court as a contempt of that court.
       (ii) Additional enforcement.--In the case of any failure of 
     any witness to comply with any subpoena or to testify when 
     summoned under authority of this section, the Commission may, 
     by majority vote, certify a statement of fact constituting 
     such failure to the appropriate United States attorney, who 
     may bring the matter before the grand jury for its action, 
     under the same statutory authority and procedures as if the 
     United States attorney had received a certification under 
     sections 102 through 104 of the Revised Statutes of the 
     United States (2 U.S.C. 192 through 194).
       (b) Contracting.--The Commission may, to such extent and in 
     such amounts as are provided in appropriation Acts, enter 
     into contracts to enable the Commission to discharge its 
     duties under this title.
       (c) Information From Federal Agencies.--
       (1) In general.--The Commission is authorized to secure 
     directly from any executive department, bureau, agency, 
     board, commission, office, independent establishment, or 
     instrumentality of the Government,

[[Page S664]]

     information, suggestions, estimates, and statistics for the 
     purposes of this Act. Each department, bureau, agency, board, 
     commission, office, independent establishment, or 
     instrumentality shall, to the extent authorized by law, 
     furnish such information, suggestions, estimates, and 
     statistics directly to the Commission, upon request made by 
     the chairman, the chairman of any subcommittee created by a 
     majority of the Commission, or any member designated by a 
     majority of the Commission.
       (2) Receipt, handling, storage, and dissemination.--
     Information shall only be received, handled, stored, and 
     disseminated by members of the Commission and its staff 
     consistent with all applicable statutes, regulations, and 
     Executive orders.
       (d) Assistance From Federal Agencies.--
       (1) General services administration.--The Administrator of 
     General Services shall provide to the Commission on a 
     reimbursable basis administrative support and other services 
     for the performance of the Commission's functions.
       (2) Other departments and agencies.--In addition to the 
     assistance prescribed in paragraph (1), departments and 
     agencies of the United States may provide to the Commission 
     such services, funds, facilities, staff, and other support 
     services as they may determine advisable and as may be 
     authorized by law.
       (e) Gifts.--The Commission may accept, use, and dispose of 
     gifts or donations of services or property.
       (f) Postal Services.--The Commission may use the United 
     States mails in the same manner and under the same conditions 
     as departments and agencies of the United States.

     SEC. _06. NONAPPLICABILITY OF FEDERAL ADVISORY COMMITTEE ACT.

       (a) In General.--The Federal Advisory Committee Act (5 
     U.S.C. App.) shall not apply to the Commission.
       (b) Public Meetings and Release of Public Versions of 
     Reports.--The Commission shall--
       (1) hold public hearings and meetings to the extent 
     appropriate; and
       (2) release public versions of the reports required under 
     section _10.
       (c) Public Hearings.--Any public hearings of the Commission 
     shall be conducted in a manner consistent with the protection 
     of information provided to or developed for or by the 
     Commission as required by any applicable statute, regulation, 
     or Executive order.

     SEC. _07. STAFF OF COMMISSION.

       (a) In General.--
       (1) Appointment and compensation.--The chairman, in 
     consultation with the vice chairman, in accordance with rules 
     agreed upon by the Commission, may appoint and fix the 
     compensation of a staff director and such other personnel as 
     may be necessary to enable the Commission to carry out its 
     functions, without regard to the provisions of title 5, 
     United States Code, governing appointments in the competitive 
     service, and without regard to the provisions of chapter 51 
     and subchapter III of chapter 53 of such title relating to 
     classification and General Schedule pay rates, except that no 
     rate of pay fixed under this subsection may exceed the 
     equivalent of that payable for a position at level V of the 
     Executive Schedule under section 5316 of title 5, United 
     States Code.
       (2) Personnel as federal employees.--
       (A) In general.--The executive director and any personnel 
     of the Commission who are employees shall be employees under 
     section 2105 of title 5, United States Code, for purposes of 
     chapters 63, 81, 83, 84, 85, 87, 89, and 90 of that title.
       (B) Members of commission.--Subparagraph (A) shall not be 
     construed to apply to members of the Commission.
       (b) Detailees.--Any Federal Government employee may be 
     detailed to the Commission without reimbursement from the 
     Commission, and such detailee shall retain the rights, 
     status, and privileges of his or her regular employment 
     without interruption.
       (c) Consultant Services.--The Commission is authorized to 
     procure the services of experts and consultants in accordance 
     with section 3109 of title 5, United States Code, but at 
     rates not to exceed the daily rate paid a person occupying a 
     position at level IV of the Executive Schedule under section 
     5315 of title 5, United States Code.

     SEC. _08. COMPENSATION AND TRAVEL EXPENSES.

       (a) Compensation.--Each member of the Commission may be 
     compensated at not to exceed the daily equivalent of the 
     annual rate of basic pay in effect for a position at level IV 
     of the Executive Schedule under section 5315 of title 5, 
     United States Code, for each day during which that member is 
     engaged in the actual performance of the duties of the 
     Commission.
       (b) Travel Expenses.--While away from their homes or 
     regular places of business in the performance of services for 
     the Commission, members of the Commission shall be allowed 
     travel expenses, including per diem in lieu of subsistence, 
     in the same manner as persons employed intermittently in the 
     Government service are allowed expenses under section 5703(b) 
     of title 5, United States Code.

     SEC. _09. SECURITY CLEARANCES FOR COMMISSION MEMBERS AND 
                   STAFF.

       The appropriate Federal agencies or departments shall 
     cooperate with the Commission in expeditiously providing to 
     the Commission members and staff appropriate security 
     clearances to the extent possible pursuant to existing 
     procedures and requirements, except that no person shall be 
     provided with access to classified information under this 
     title without the appropriate security clearances.

     SEC. _10. REPORTS OF COMMISSION; TERMINATION.

       (a) Interim Reports.--The Commission may submit to the 
     President and Congress interim reports containing such 
     findings, conclusions, and recommendations for corrective 
     measures as have been agreed to by a majority of Commission 
     members.
       (b) Final Report.--Not later than 6 months after the date 
     of the enactment of this Act, the Commission shall submit to 
     the President and Congress a final report containing such 
     findings, conclusions, and recommendations for corrective 
     measures as have been agreed to by a majority of Commission 
     members.
       (c) Termination.--
       (1) In general.--The Commission, and all the authorities of 
     this Act, shall terminate 61 days after the date on which the 
     final report is submitted under subsection (b).
       (2) Administrative activities before termination.--The 
     Commission may use the 60-day period referred to in paragraph 
     (1) for the purpose of concluding its activities, including 
     providing testimony to committees of Congress concerning its 
     reports and disseminating the final report.

     SEC. _11. FUNDING.

       (a) Emergency Appropriation of Funds.--There are authorized 
     to be appropriated $3,000,000 for purposes of the activities 
     of the Commission under this title and such funding is 
     designated as emergency spending under section 402 of H. Con. 
     Res. 95 (109th Congress).
       (b) Duration of Availability.--Amounts made available to 
     the Commission under subsection (a) shall remain available 
     until the termination of the Commission.
                                 ______
                                 
  SA 2725. Mr. SPECTER submitted an amendment intended to be proposed 
by her to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; which was ordered to lie on the table; as follows:

       On page 28, after line 11, insert the following:

     SEC. 307. SALE OF PROPERTY BY JUDICIAL OFFICERS AND 
                   EMPLOYEES.

       Section 1043(b) of the Internal Revenue Code of 1986 
     (relating to the sale of property to comply with conflict-of-
     interest requirements) is amended--
       (1) in paragraph (1)--
       (A) in subparagraph (A), by inserting ``or the judicial 
     branch'' after ``an officer or employee of the executive 
     branch''; and
       (B) in subparagraph (B), by inserting ``judicial canon,'' 
     after ``any statute, regulation, rule,'';
       (2) in paragraph (2)--
       (A) in subparagraph (A), by inserting ``judicial canon,'' 
     after ``any Federal conflict of interest statute, regulation, 
     rule,''; and
       (B) in subparagraph (B), by inserting after ``the Director 
     of the Office of Government Ethics,'' the following: ``in the 
     case of executive branch officers or employees, or by the 
     Judicial Conference of the United States (or its designee), 
     in the case of judicial branch officers and employees,''; and
       (3) in paragraph (5)(B), by inserting ``judicial canon,'' 
     after ``any statute, regulation, rule,''.
                                 ______
                                 
  SA 2726. Mr. KENNEDY submitted an amendment intended to be proposed 
by him to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; which was ordered to lie on the table; as follows:

       On page 19 of the bill, strike lines 19 through 22, and 
     insert the following:

     SEC. 203. REPEAL OF STATE OPTIONS FOR ALTERNATIVE PREMIUMS 
                   AND COST SHARING AND FLEXIBILITY IN BENEFIT 
                   PACKAGES UNDER THE MEDICAID PROGRAM.

       (a) Repeal of State Option for Alternative Premiums and 
     Cost Sharing.--
       (1) Repeal.--Section 1916A of the Social Security Act, as 
     added by sections 6041(a), 6042(a), and 6043(a) of the 
     Deficit Reduction Act of 2005, is repealed.
       (2) Conforming amendments.--
       (A) Subsection (y) of section 1903 of the Social Security 
     Act (42 U.S.C. 1396b), as added by section 6043(b) of the 
     Deficit Reduction Act of 2005, is repealed.
       (B) Section 1916 of the Social Security Act (42 U.S.C. 
     1396o) is amended--
       (i) in subsection (f), by striking ``and section 1916A'' 
     after ``(b)(3)''; and
       (ii) by striking subsection (h).
       (C) Section 1938(c) of the Social Security Act, as added by 
     section 6082 of the Deficit Reduction Act of 2005, is 
     amended--
       (i) in paragraph (3), by striking ``and 1916A''; and
       (ii) in paragraph (5), by striking ``sections 1916 and 
     1916A'' and inserting ``section 1916''.
       (b) Repeal of State Option of Providing Benchmark Benefit 
     Packages.--
       (1) Repeal.--Section 1937 of the Social Security Act, as 
     added by section 6044(a) of the Deficit Reduction Act of 
     2005, is repealed.
       (2) Conforming amendments.--
       (A) Sections 1938 and 1939 of the Social Security Act, as 
     added and redesignated, respectively, by section 6082 of the 
     Deficit Reduction Act of 2005, are redesignated as sections 
     1937 and 1938, respectively, of the Social Security Act.

[[Page S665]]

       (B) 1937(b)(3) of the Social Security Act, as redesignated 
     by subparagraph (A), is amended by inserting ``(as added by 
     section 6044(a) of S. 1932 of the 109th Congress, as passed 
     by the Senate on December 21, 2005)''.
       (c) Effective Date.--The repeals and amendments made by 
     subsections (a) and (b) shall take effect as if included in 
     the enactment of the Deficit Reduction Act of 2005.

     SEC. 203A. ADDITIONAL FUNDING FOR THE STATE CHILDREN'S HEALTH 
                   INSURANCE PROGRAM.

       (a) In General.--Section 2104(a) of the Social Security Act 
     (42 U.S.C. 1397dd(a)) is amended--
       (1) in paragraph (9), by striking ``$4,050,000,000'' and 
     inserting ``$6,550,000,000''; and
       (2) in paragraph (10), by striking ``$5,000,000,000'' and 
     inserting ``$7,500,000,000''.
       (b) Funds in Addition to Funds Provided to Eliminate Fiscal 
     Year 2006 Shortfalls.--The Secretary of Health and Human 
     Services shall carry out subsection (d) of section 2104 of 
     the Social Security Act (42 U.S.C. 1397dd(d)), as added by 
     section 6101(a) of the Deficit Reduction Act of 2005, 
     (including the determination of a State's allotment for 
     fiscal year 2006 under paragraph (2)(C) of that subsection), 
     without regard to the amendment made by subsection (a)(1) 
     providing increased funding for State allotments for fiscal 
     year 2006.
                                 ______
                                 
  SA 2727. Mr. FRIST (for Mr. Talent) proposed an amendment to 
amendment SA 2707 proposed by Mr. Frist (for Mr. Grassley (for himself 
and Mr. Baucus)) to the bill H.R. 4297, to provide for reconciliation 
pursuant to section 201(b) of the concurrent resolution on the budget 
for fiscal year 2006; as follows:

       At the appropriate place insert the following:

     SEC. ___. SENSE OF THE SENATE REGARDING THE PERMANENT 
                   EXTENSION OF EGTRRA AND JGTRRA PROVISIONS 
                   RELATING TO CHILD TAX CREDIT.

       It is the sense of the Senate that the conferees for the 
     Tax Relief Act of 2006 should strive to permanently extend 
     the amendments to the child tax credit under section 24 of 
     the Internal Revenue Code of 1986 made by the Economic Growth 
     and Tax Relief Reconciliation Act of 2001 and the Jobs and 
     Growth Tax Relief Reconciliation Act of 2003.
                                 ______
                                 
  SA 2728. Mr. BAUCUS (for Mr. Byrd (for himself, Mr. Rockefeller, Mr. 
Santorum, Mr. Kerry, Mr. Durbin, Mr. Obama, Mr. McConnell, and Mr. 
Bunning)) proposed an amendment to amendment SA 2707 proposed by Mr. 
Frist (for Mr. Grassley (for himself and Mr. Baucus)) to the bill H.R. 
4297, to provide for reconciliation pursuant to section 201(b) of the 
concurrent resolution on the budget for fiscal year 2006; as follows:

       At the appropriate place insert the following:

     SEC. __. PARTIAL EXPENSING FOR ADVANCED MINE SAFETY 
                   EQUIPMENT.

       (a) In General.--Part VI of subchapter B of chapter 1 is 
     amended by inserting after section 179D the following new 
     section:

     ``SEC. 179E. ELECTION TO EXPENSE ADVANCED MINE SAFETY 
                   EQUIPMENT.

       ``(a) Treatment as Expenses.--A taxpayer may elect to treat 
     50 percent of the cost of any qualified advanced mine safety 
     equipment property as an expense which is not chargeable to 
     capital account. Any cost so treated shall be allowed as a 
     deduction for the taxable year in which the qualified 
     advanced mine safety equipment property is placed in service.
       ``(b) Election.--
       ``(1) In general.--An election under this section for any 
     taxable year shall be made on the taxpayer's return of the 
     tax imposed by this chapter for the taxable year. Such 
     election shall specify the advanced mine safety equipment 
     property to which the election applies and shall be made in 
     such manner as the Secretary may by regulations prescribe.
       ``(2) Election irrevocable.--Any election made under this 
     section may not be revoked except with the consent of the 
     Secretary.
       ``(c) Qualified Advanced Mine Safety Equipment Property.--
     For purposes of this section, the term `qualified advanced 
     mine safety equipment property' means any advanced mine 
     safety equipment property for use in any underground mine 
     located in the United States--
       ``(1) the original use of which commences with the 
     taxpayer, and
       ``(2) which is placed in service by the taxpayer after the 
     date of the enactment of this section.
       ``(d) Advanced Mine Safety Equipment Property.--For 
     purposes of this section, the term `advanced mine safety 
     equipment property' means any of the following:
       ``(1) Emergency communication technology or device which is 
     used to allow a miner to maintain constant communication with 
     an individual who is not in the mine.
       ``(2) Electronic identification and location device which 
     allows an individual who is not in the mine to track at all 
     times the movements and location of miners working in or at 
     the mine.
       ``(3) Emergency oxygen-generating, self-rescue device which 
     provides oxygen for at least 90 minutes.
       ``(4) Pre-positioned supplies of oxygen which (in 
     combination with self-rescue devices) can be used to provide 
     each miner on a shift, in the event of an accident or other 
     event which traps the miner in the mine or otherwise 
     necessitates the use of such a self-rescue device, the 
     ability to survive for at least 48 hours.
       ``(5) Comprehensive atmospheric monitoring system which 
     monitors the levels of carbon monoxide, methane, and oxygen 
     that are present in all areas of the mine and which can 
     detect smoke in the case of a fire in a mine.
       ``(e) Special Rules.--
       ``(1) Coordination with section 179.--No expenditures shall 
     be taken into account under subsection (a) with respect to 
     the portion of the cost of any property specified in an 
     election under section 179.
       ``(2) Basis reduction.--For purposes of this title, the 
     basis of any property shall be reduced by the portion of the 
     cost of such property taken into account under subsection 
     (a).
       ``(f) Reporting.--No deduction shall be allowed under 
     subsection (a) to any taxpayer for any taxable year unless 
     such taxpayer files with the Secretary a report containing 
     such information with respect to the operation of the mines 
     of the taxpayer as the Secretary shall require.
       ``(g) Termination.--This section shall not apply to 
     property placed in service after the date which is 3 years 
     after the date of the enactment of this section.''.
       (b) Conforming Amendments.--
       (1) Section 263(a)(1) is amended by striking ``or'' at the 
     end of subparagraph (J), by striking the period at the end of 
     subparagraph (K) and inserting ``, or'', and by inserting 
     after subparagraph (K) the following new subparagraph:
       ``(L) expenditures for which a deduction is allowed under 
     section 179E.''.
       (2) Section 312(k)(3)(B) is amended by striking ``or 179D'' 
     each place it appears in the heading and text thereof and 
     inserting ``179D, or 179E''.
       (3) Section 1016(a) is amended by striking ``and'' at the 
     end of paragraph (36), by striking the period at the end of 
     paragraph (37) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(38) to the extent provided in section 179E(e)(2).''.
       (4) Section 1245(a)(2)(C) is amended by inserting ``179E,'' 
     after ``179D,''.
       (5) The table of sections for part VI of subchapter B of 
     chapter 1 is amended by inserting after the item relating to 
     section 179D the following new item:

``Sec. 179E. Election to expense advanced mine safety equipment.''.

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

     SEC. __. MINE RESCUE TEAM TRAINING TAX CREDIT.

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

     ``SEC. 45N. MINE RESCUE TEAM TRAINING CREDIT.

       ``(a) Amount of Credit.--For purposes of section 38, the 
     mine rescue team training credit determined under this 
     section with respect to any eligible employer for any taxable 
     year is an amount equal to the lesser of--
       ``(1) 20 percent of the amount paid or incurred by the 
     taxpayer during the taxable year with respect to the training 
     program costs of each qualified mine rescue team employee 
     (including wages of such employee while attending such 
     program), or
       ``(2) $10,000.
       ``(b) Qualified Mine Rescue Team Employee.--For purposes of 
     this section, the term `qualified mine rescue team employee' 
     means with respect to any taxable year any full-time employee 
     of the taxpayer who is--
       ``(1) a miner eligible for more than 6 months of such 
     taxable year to serve as a mine rescue team member as a 
     result of completing, at a minimum, an initial 20-hour course 
     of instruction as prescribed by the Mine Safety and Health 
     Administration's Office of Educational Policy and 
     Development, or
       ``(2) a miner eligible for more than 6 months of such 
     taxable year to serve as a mine rescue team member by virtue 
     of receiving at least 40 hours of refresher training in such 
     instruction.
       ``(c) Eligible Employer.--For purposes of this section, the 
     term `eligible employer' means any taxpayer which employs 
     individuals as miners in underground mines in the United 
     States.
       ``(d) Wages.--For purposes of this section, the term 
     `wages' has the meaning given to such term by subsection (b) 
     of section 3306 (determined without regard to any dollar 
     limitation contained in such section).
       ``(e) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 2008.''.
       (b) Credit Made Part of General Business Credit.--Section 
     38(b) is amended by striking ``and'' at the end of paragraph 
     (25), by striking the period at the end of paragraph (26) and 
     inserting ``, and'', and by adding at the end the following 
     new paragraph:
       ``(27) the mine rescue team training credit determined 
     under section 45N(a).''.
       (c) No Double Benefit.--Section 280C is amended by adding 
     at the end the following new subsection:
       ``(e) Mine Rescue Team Training Credit.--No deduction shall 
     be allowed for that portion of the expenses otherwise 
     allowable as a

[[Page S666]]

     deduction for the taxable year which is equal to the amount 
     of the credit determined for the taxable year under section 
     45N(a).''.
       (d) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following new item:

``Sec. 45N. Mine rescue team training credit.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.
                                 ______
                                 
  SA 2729. Mr. CONRAD (for himself and Mr. Bingaman) proposed an 
amendment to amendment SA 2707 proposed by Mr. Frist (for Mr. Grassley 
(for himself and Mr. Baucus)) to the bill H.R. 4297, to provide for 
reconciliation pursuant to section 201(b) of the concurrent resolution 
on the budget for fiscal year 2006; as follows:

       Strike all of Title V and insert the following:

                      TITLE V--REVENUE PROVISIONS

            Subtitle A--Provisions Relating to Tax Shelters

     SEC. 401. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

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

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

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

     SEC. 402. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

     ``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable to Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2) and 
     (3) of section 6707A(d) shall apply for purposes of paragraph 
     (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

    ``(1) For coordination of penalty with understatements under 
      section 6662 and other special rules, see section 6662A(e)
    ``(2) For reporting of penalty imposed under this section to the 
      Securities and Exchange Commission, see section 6707A(e)''.
       (b) Coordination With Other Understatements and 
     Penalties.--
       (1) The second sentence of section 6662(d)(2)(A) is amended 
     by inserting ``and without regard to items with respect to 
     which a penalty is imposed by section 6662B'' before the 
     period at the end.
       (2) Subsection (e) of section 6662A is amended--
       (A) in paragraph (1), by inserting ``and noneconomic 
     substance transaction understatements'' after ``reportable 
     transaction understatements'' both places it appears,
       (B) in paragraph (2)(A), by inserting ``and a noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'',
       (C) in paragraph (2)(B), by inserting ``6662B or'' before 
     ``6663'',

[[Page S667]]

       (D) in paragraph (2)(C)(i), by inserting ``or section 
     6662B'' before the period at the end,
       (E) in paragraph (2)(C)(ii), by inserting ``and section 
     6662B'' after ``This section'',
       (F) in paragraph (3), by inserting ``or noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'', and
       (G) by adding at the end the following new paragraph:
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).''.
       (3) Subsection (e) of section 6707A is amended--
       (A) by striking ``or'' at the end of subparagraph (B), and
       (B) by striking subparagraph (C) and inserting the 
     following new subparagraphs:
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction, or
       ``(D) is required to pay a penalty under section 6662(h) 
     with respect to any transaction and would (but for section 
     6662A(e)(2)(C)) have been subject to penalty under section 
     6662A at a rate prescribed under section 6662A(c) or under 
     section 6662B,''.
       (c) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions 
              lacking economic substance, etc''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after the date of 
     the enactment of this Act.

     SEC. 403. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONECONOMIC SUBSTANCE 
                   TRANSACTIONS.

       (a) In General.--Section 163(m) (relating to interest on 
     unpaid taxes attributable to nondisclosed reportable 
     transactions) is amended--
       (1) by striking ``attributable'' and all that follows and 
     inserting the following: ``attributable to--
       ``(1) the portion of any reportable transaction 
     understatement (as defined in section 6662A(b)) with respect 
     to which the requirement of section 6664(d)(2)(A) is not met, 
     or
       ``(2) any noneconomic substance transaction understatement 
     (as defined in section 6662B(c)).'', and
       (2) by inserting ``and Noneconomic Substance Transactions'' 
     in the heading thereof after ``Transactions''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act in taxable years ending after such date.

     SEC. 404. MODIFICATIONS OF EFFECTIVE DATES OF LEASING 
                   PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 
                   2004.

       (a) In General.--Section 849(b) of the American Jobs 
     Creation Act of 2004 is amended by striking paragraphs (1) 
     and (2), by redesignating paragraphs (3) and (4) as 
     paragraphs (1) and (2), respectively, and by adding at the 
     end the following new paragraph:
       ``(3) Leases to foreign entities.--In the case of tax-
     exempt use property leased to a tax-exempt entity which is a 
     foreign person or entity, the amendments made by this part 
     shall apply to taxable years beginning after December 31, 
     2004, with respect to leases entered into on or before March 
     12, 2004.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     American Jobs Creation Act of 2004.

     SEC. 405. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED 
                   OIL COMPANIES.

       (a) General Rule.--Notwithstanding any other provision of 
     law, if a taxpayer is an applicable integrated oil company 
     for its last taxable year ending in calendar year 2005, the 
     taxpayer shall--
       (1) increase, effective as of the close of such taxable 
     year, the value of each historic LIFO layer of inventories of 
     crude oil, natural gas, or any other petroleum product 
     (within the meaning of section 4611) by the layer adjustment 
     amount, and
       (2) decrease its cost of goods sold for such taxable year 
     by the aggregate amount of the increases under paragraph (1).
     If the aggregate amount of the increases under paragraph (1) 
     exceed the taxpayer's cost of goods sold for such taxable 
     year, the taxpayer's gross income for such taxable year shall 
     be increased by the amount of such excess.
       (b) Layer Adjustment Amount.--For purposes of this 
     section--
       (1) In general.--The term ``layer adjustment amount'' 
     means, with respect to any historic LIFO layer, the product 
     of--
       (A) $18.75, and
       (B) the number of barrels of crude oil (or in the case of 
     natural gas or other petroleum products, the number of 
     barrel-of-oil equivalents) represented by the layer.
       (2) Barrel-of-oil equivalent.--The term ``barrel-of-oil 
     equivalent'' has the meaning given such term by section 
     29(d)(5) (as in effect before its redesignation by the Energy 
     Tax Incentives Act of 2005).
       (c) Application of Requirement.--
       (1) No change in method of accounting.--Any adjustment 
     required by this section shall not be treated as a change in 
     method of accounting.
       (2) Underpayments of estimated tax.--No addition to the tax 
     shall be made under section 6655 of the Internal Revenue Code 
     of 1986 (relating to failure by corporation to pay estimated 
     tax) with respect to any underpayment of an installment 
     required to be paid with respect to the taxable year 
     described in subsection (a) to the extent such underpayment 
     was created or increased by this section.
       (d) Applicable Integrated Oil Company.--For purposes of 
     this section, the term ``applicable integrated oil company'' 
     means an integrated oil company (as defined in section 
     291(b)(4) of the Internal Revenue Code of 1986) which--
       (1) had gross receipts in excess of $1,000,000,000 for its 
     last taxable year ending during calendar year 2005, and
       (2) uses the last-in, first-out (LIFO) method of accounting 
     with respect to its crude oil inventories for such taxable 
     year.
     For purposes of paragraph (1), all persons treated as a 
     single employer under subsections (a) and (b) of section 52 
     of the Internal Revenue Code of 1986 shall be treated as 1 
     person and, in the case of a short taxable year, the rule 
     under section 448(c)(3)(B) shall apply.

     SEC. 406. MODIFICATION OF EFFECTIVE DATE OF EXCEPTION FROM 
                   SUSPENSION RULES FOR CERTAIN LISTED AND 
                   REPORTABLE TRANSACTIONS.

       (a) In General.--Paragraph (2) of section 903(d) of the 
     American Jobs Creation Act of 2004 is amended to read as 
     follows:
       ``(2) Exception for reportable or listed transactions.--
       ``(A) In general.--The amendments made by subsection (c) 
     shall apply with respect to interest accruing after October 
     3, 2004.
       ``(B) Special rule for certain listed and reportable 
     transactions.--
       ``(i) In general.--Except as provided in clause (ii), the 
     amendments made by subsection (c) shall also apply with 
     respect to interest accruing on or before October 3, 2004.
       ``(ii) Participants in settlement initiatives.--Clause (i) 
     shall not apply to any transaction if, as of January 23, 
     2006--

       ``(I) the taxpayer is participating in a settlement 
     initiative described in Internal Revenue Service Announcement 
     2005-80 with respect to such transaction, or
       ``(II) the taxpayer has entered into a settlement agreement 
     pursuant to such an initiative.

       ``(iii) Termination of exception.--Clause (ii)(I) shall not 
     apply to any taxpayer if, after January 23, 2006, the 
     taxpayer withdraws from, or terminates, participation in the 
     initiative or the Secretary of the Treasury or the 
     Secretary's delegate determines that a settlement agreement 
     will not be reached pursuant to the initiative within a 
     reasonable period of time.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the provisions of the 
     American Jobs Creation Act of 2004 to which it relates.

     SEC. 407. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) Determination of Penalty.--
       (1) In general.--Notwithstanding any other provision of 
     law, in the case of an applicable taxpayer--
       (A) the determination as to whether any interest or 
     applicable penalty is to be imposed with respect to any 
     arrangement described in paragraph (2), or to any 
     underpayment of Federal income tax attributable to items 
     arising in connection with any such arrangement, shall be 
     made without regard to the rules of subsections (b), (c), and 
     (d) of section 6664 of the Internal Revenue Code of 1986, and
       (B) if any such interest or applicable penalty is imposed, 
     the amount of such interest or penalty shall be equal to 
     twice that determined without regard to this section.
       (2) Applicable taxpayer.--For purposes of this subsection--
       (A) In general.--The term ``applicable taxpayer'' means a 
     taxpayer which--
       (i) has underreported its United States income tax 
     liability with respect to any item which directly or 
     indirectly involves--

       (I) any financial arrangement which in any manner relies on 
     the use of offshore payment mechanisms (including credit, 
     debit, or charge cards) issued by banks or other entities in 
     foreign jurisdictions, or
       (II) any offshore financial arrangement (including any 
     arrangement with foreign banks, financial institutions, 
     corporations, partnerships, trusts, or other entities), and

       (ii) has neither signed a closing agreement pursuant to the 
     Voluntary Offshore Compliance Initiative established by the 
     Department of the Treasury under Revenue Procedure 2003-11 
     nor voluntarily disclosed its participation in such 
     arrangement by notifying the Internal Revenue Service of such 
     arrangement prior to the issue being raised by the Internal 
     Revenue Service during an examination.
       (B) Authority to waive.--The Secretary of the Treasury or 
     the Secretary's delegate may waive the application of 
     paragraph (1) to any taxpayer if the Secretary or the 
     Secretary's delegate determines that the use of such offshore 
     payment mechanisms is incidental to the transaction and, in 
     addition, in the case of a trade or business, such use is 
     conducted in the ordinary course of the type of trade or 
     business of the taxpayer.

[[Page S668]]

       (C) Issues raised.--For purposes of subparagraph (A)(ii), 
     an item shall be treated as an issue raised during an 
     examination if the individual examining the return--
       (i) communicates to the taxpayer knowledge about the 
     specific item, or
       (ii) has made a request to the taxpayer for information and 
     the taxpayer could not make a complete response to that 
     request without giving the examiner knowledge of the specific 
     item.
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition to tax, or fine imposed under 
     chapter 68 of the Internal Revenue Code of 1986.
       (2) Fees and expenses.--The Secretary of the Treasury may 
     retain and use an amount not in excess of 25 percent of all 
     additional interest, penalties, additions to tax, and fines 
     collected under this section to be used for enforcement and 
     collection activities of the Internal Revenue Service. The 
     Secretary shall keep adequate records regarding amounts so 
     retained and used. The amount credited as paid by any 
     taxpayer shall be determined without regard to this 
     paragraph.
       (c) Report by Secretary.--The Secretary shall each year 
     conduct a study and report to Congress on the implementation 
     of this section during the preceding year, including 
     statistics on the number of taxpayers affected by such 
     implementation and the amount of interest and applicable 
     penalties asserted, waived, and assessed during such 
     preceding year.
       (d) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if, as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 408. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT 
                   OF TAX LIABILITY.

       (a) In General.--Section 6701(a) (relating to imposition of 
     penalty) is amended--
       (1) by inserting ``the tax liability or'' after ``respect 
     to,'' in paragraph (1),
       (2) by inserting ``aid, assistance, procurement, or advice 
     with respect to such'' before ``portion'' both places it 
     appears in paragraphs (2) and (3), and
       (3) by inserting ``instance of aid, assistance, 
     procurement, or advice or each such'' before ``document'' in 
     the matter following paragraph (3).
       (b) Amount of Penalty.--Subsection (b) of section 6701 
     (relating to penalties for aiding and abetting understatement 
     of tax liability) is amended to read as follows:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall not exceed 100 percent of the gross 
     income derived (or to be derived) from such aid, assistance, 
     procurement, or advice provided by the person or persons 
     subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of aid, assistance, procurement, or 
     advice described in subsection (a), each instance in which 
     income was derived by the person or persons subject to such 
     penalty, and each person who made such an understatement of 
     the liability for tax.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to providing such 
     aid, assistance, procurement, or advice, all such persons 
     shall be jointly and severally liable for the penalty under 
     such subsection.''.
       (c) Penalty Not Deductible.--Section 6701 is amended by 
     adding at the end the following new subsection:
       ``(g) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

   Subtitle B--Provisions to Close Corporate and Individual Loopholes

     SEC. 411. TAX TREATMENT OF INVERTED ENTITIES.

       (a) In General.--Section 7874 is amended--
       (1) by striking ``March 4, 2003'' in subsection 
     (a)(2)(B)(i) and in the matter following subsection 
     (a)(2)(B)(iii) and inserting ``March 20, 2002'',
       (2) by striking ``at least 60 percent'' in subsection 
     (a)(2)(B)(ii) and inserting ``more than 50 percent'',
       (3) by striking ``80 percent'' in subsection (b) and 
     inserting ``at least 80 percent'',
       (4) by striking ``60 percent'' in subsection (b) and 
     inserting ``more than 50 percent'',
       (5) by adding at the end of subsection (a)(2) the following 
     new sentence: ``Except as provided in regulations, an 
     acquisition of properties of a domestic corporation shall not 
     be treated as described in subparagraph (B) if none of the 
     corporation's stock was readily tradeable on an established 
     securities market at any time during the 4-year period ending 
     on the date of the acquisition.'', and
       (6) by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Special Rules Applicable to Expatriated Entities.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an expatriated entity--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an expatriated entity, section 163(j) shall be 
     applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after March 20, 2002.

     SEC. 412. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS 
                   FOREIGN TAX CREDIT TRANSACTIONS INVOLVING 
                   INAPPROPRIATE SEPARATION OF FOREIGN TAXES FROM 
                   RELATED FOREIGN INCOME.

       (a) In General.--Section 901 (relating to taxes of foreign 
     countries and of possessions of United States) is amended by 
     redesignating subsection (m) as subsection (n) and by 
     inserting after subsection (l) the following new subsection:
       ``(m) Regulations.--The Secretary may prescribe regulations 
     disallowing a credit under subsection (a) for all or a 
     portion of any foreign tax, or allocating a foreign tax among 
     2 or more persons, in cases where the foreign tax is imposed 
     on any person in respect of income of another person or in 
     other cases involving the inappropriate separation of the 
     foreign tax from the related foreign income.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after the date of 
     the enactment of this Act.

     SEC. 413. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT 
                   INSTRUMENTS.

       (a) In General.--Section 1275(d) (relating to regulation 
     authority) is amended--
       (1) by striking ``The Secretary'' and inserting the 
     following:
       ``(1) In general.--The Secretary'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Treatment of contingent payment convertible debt.--
       ``(A) In general.--In the case of a debt instrument which--
       ``(i) is convertible into stock of the issuing corporation, 
     into stock or debt of a related party (within the meaning of 
     section 267(b) or 707(b)(1)), or into cash or other property 
     in an amount equal to the approximate value of such stock or 
     debt, and
       ``(ii) provides for contingent payments,
     any regulations which require original issue discount to be 
     determined by reference to the comparable yield of a 
     noncontingent fixed-rate debt instrument shall be applied as 
     if the regulations require that such comparable yield be 
     determined by reference to a noncontingent fixed-rate debt 
     instrument which is convertible into stock.
       ``(B) Special rule.--For purposes of subparagraph (A), the 
     comparable yield shall be determined without taking into 
     account the yield resulting from the conversion of a debt 
     instrument into stock.''.
       (b) Cross Reference.--Section 163(e)(6) (relating to cross 
     references) is amended by adding at the end the following:
       ``For the treatment of contingent payment convertible debt, 
     see section 1275(d)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued on or after the date 
     of the enactment of this Act.

     SEC. 414. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS 
                   WHICH ARE CORPORATIONS.

       (a) In General.--Section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Treatment of corporate partners.--Except to the 
     extent provided by regulations, in applying this subsection 
     to a corporation which owns (directly or indirectly) an 
     interest in a partnership--
       ``(A) such corporation's distributive share of interest 
     income paid or accrued to such partnership shall be treated 
     as interest income paid or accrued to such corporation,
       ``(B) such corporation's distributive share of interest 
     paid or accrued by such partnership shall be treated as 
     interest paid or accrued by such corporation, and
       ``(C) such corporation's share of the liabilities of such 
     partnership shall be treated as liabilities of such 
     corporation.''.
       (b) Additional Regulatory Authority.--Section 163(j)(9) 
     (relating to regulations), as redesignated by subsection (a), 
     is amended by striking ``and'' at the end of subparagraph 
     (B), by striking the period at the end of subparagraph (C) 
     and inserting ``, and'', and by adding at the end the 
     following new subparagraph:
       ``(D) regulations providing for the reallocation of shares 
     of partnership indebtedness, or distributive shares of the 
     partnership's interest income or interest expense, as may be 
     appropriate to carry out the purposes of this subsection.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning on or after the date 
     of the enactment of this Act.

[[Page S669]]

     SEC. 415. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution or 
     paid to come into compliance with law.--Paragraph (1) shall 
     not apply to any amount which--
       ``(A) the taxpayer establishes--
       ``(i) constitutes restitution (including remediation of 
     property) for damage or harm caused by or which may be caused 
     by the violation of any law or the potential violation of any 
     law, or
       ``(ii) is paid to come into compliance with any law which 
     was violated or involved in the investigation or inquiry, and
       ``(B) is identified as restitution or as an amount paid to 
     come into compliance with the law, as the case may be, in the 
     court order or settlement agreement.
     Identification pursuant to subparagraph (B) alone shall not 
     satisfy the requirement under subparagraph (A). This 
     paragraph shall not apply to any amount paid or incurred as 
     reimbursement to the government or entity for the costs of 
     any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Reporting of Deductible Amounts.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6050T the 
     following new section:

     ``SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN FINES, 
                   PENALTIES, AND OTHER AMOUNTS.

       ``(a) Requirement of Reporting.--
       ``(1) In general.--The appropriate official of any 
     government or entity which is described in section 162(f)(4) 
     which is involved in a suit or agreement described in 
     paragraph (2) shall make a return in such form as determined 
     by the Secretary setting forth--
       ``(A) the amount required to be paid as a result of the 
     suit or agreement to which paragraph (1) of section 162(f) 
     applies,
       ``(B) any amount required to be paid as a result of the 
     suit or agreement which constitutes restitution or 
     remediation of property, and
       ``(C) any amount required to be paid as a result of the 
     suit or agreement for the purpose of coming into compliance 
     with any law which was violated or involved in the 
     investigation or inquiry.
       ``(2) Suit or agreement described.--
       ``(A) In general.--A suit or agreement is described in this 
     paragraph if--
       ``(i) it is--

       ``(I) a suit with respect to a violation of any law over 
     which the government or entity has authority and with respect 
     to which there has been a court order, or
       ``(II) an agreement which is entered into with respect to a 
     violation of any law over which the government or entity has 
     authority, or with respect to an investigation or inquiry by 
     the government or entity into the potential violation of any 
     law over which such government or entity has authority, and

       ``(ii) the aggregate amount involved in all court orders 
     and agreements with respect to the violation, investigation, 
     or inquiry is $600 or more.
       ``(B) Adjustment of reporting threshold.--The Secretary may 
     adjust the $600 amount in subparagraph (A)(ii) as necessary 
     in order to ensure the efficient administration of the 
     internal revenue laws.
       ``(3) Time of filing.--The return required under this 
     subsection shall be filed not later than--
       ``(A) 30 days after the date on which a court order is 
     issued with respect to the suit or the date the agreement is 
     entered into, as the case may be, or
       ``(B) the date specified Secretary.
       ``(b) Statements to Be Furnished to Individuals Involved in 
     the Settlement.--Every person required to make a return under 
     subsection (a) shall furnish to each person who is a party to 
     the suit or agreement a written statement showing--
       ``(1) the name of the government or entity, and
       ``(2) the information supplied to the Secretary under 
     subsection (a)(1).
     The written statement required under the preceding sentence 
     shall be furnished to the person at the same time the 
     government or entity provides the Secretary with the 
     information required under subsection (a).
       ``(c) Appropriate Official Defined.--For purposes of this 
     section, the term `appropriate official' means the officer or 
     employee having control of the suit, investigation, or 
     inquiry or the person appropriately designated for purposes 
     of this section.''.
       (2) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61 is 
     amended by inserting after the item relating to section 6050T 
     the following new item:

``Sec. 6050U. Information with respect to certain fines, penalties, and 
              other amounts.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred on or after the date 
     of the enactment of this Act, except that such amendments 
     shall not apply to amounts paid or incurred under any binding 
     order or agreement entered into before such date. Such 
     exception shall not apply to an order or agreement requiring 
     court approval unless the approval was obtained before such 
     date.

     SEC. 416. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

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

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

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section to Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

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

     SEC. 417. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN 
                   ENTERTAINMENT EXPENSES.

       (a) In General.--Paragraph (2) of section 274(e) (relating 
     to expenses treated as compensation) is amended to read as 
     follows:
       ``(2) Expenses treated as compensation.--Expenses for 
     goods, services, and facilities, to the extent that the 
     expenses do not exceed the amount of the expenses which are 
     treated by the taxpayer, with respect to the recipient of the 
     entertainment, amusement, or recreation, as compensation to 
     an employee on the taxpayer's return of tax under this 
     chapter and as wages to such employee for purposes of chapter 
     24 (relating to withholding of income tax at source on 
     wages).''.
       (b) Persons Not Employees.--Paragraph (9) of section 274(e) 
     is amended by striking ``to the extent that the expenses are 
     includible in the gross income'' and inserting ``to the 
     extent that the expenses do not exceed the amount of the 
     expenses which are includible in the gross income''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses incurred after the date of the 
     enactment of this Act.

     SEC. 418. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO 
                   EXPATRIATE.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.

[[Page S670]]

       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.
     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2005, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2004' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election to Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.
       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of

[[Page S671]]

     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.
     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.
     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

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

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

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

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

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

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable

[[Page S672]]

     penalty, and costs attributable to the deferred amount) shall 
     be a lien in favor of the United States on all property of 
     the expatriate located in the United States (without regard 
     to whether this section applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(49) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(21) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (20)'' each place it 
     appears and inserting ``(20), or (21)''.
       (3) Effective dates.--The amendments made by this 
     subsection shall apply to individuals who relinquish United 
     States citizenship on or after the date of the enactment of 
     this Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(h) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after the date of the 
     enactment of this subsection.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4) Section 6039G(a) is amended by inserting ``or 877A'' 
     after ``section 877(b)''.
       (5) The second sentence of section 6039G(d) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after ``section 
     877(a))''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.
       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after the date 
     of the enactment of this Act.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after the date of the 
     enactment of this Act, from an individual or the estate of an 
     individual whose expatriation date (as so defined) occurs 
     after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 419. TAX TREATMENT OF CONTROLLED FOREIGN CORPORATIONS 
                   ESTABLISHED IN TAX HAVENS.

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

     ``SEC. 7875. CONTROLLED FOREIGN CORPORATIONS IN TAX HAVENS 
                   TREATED AS DOMESTIC CORPORATIONS.

       ``(a) General Rule.--If a controlled foreign corporation is 
     a tax-haven CFC, then, notwithstanding section 7701(a)(4), 
     such corporation shall be treated for purposes of this title 
     as a domestic corporation.
       ``(b) Tax-Haven CFC.--For purposes of this section--
       ``(1) In general.--The term `tax-haven CFC' means, with 
     respect to any taxable year, a foreign corporation which--
       ``(A) was created or organized under the laws of a tax-
     haven country, and
       ``(B) is a controlled foreign corporation (determined 
     without regard to this section) for an uninterrupted period 
     of 30 days or more during the taxable year.
       ``(2) Exception.--The term `tax-haven CFC' does not include 
     a foreign corporation for any taxable year if substantially 
     all of its income for the taxable year is derived from the 
     active conduct of trades or businesses within the country 
     under the laws of which the corporation was created or 
     organized.
       ``(c) Tax-Haven Country.--For purposes of this section--
       ``(1) In general.--The term `tax-haven country' means any 
     of the following:

 
 
 
 
``Andorra                                Guernsey                                 Panama
Anguilla                                 Isle of Man                              Samoa
Antigua and Barbuda                      Jersey                                   San Marino
Aruba                                    Liberia                                  Federation of
Commonwealth of the                      Principality of                            Saint Christ-
Bahamas                                  Liechtenstein                            opher
Bahrain                                  Republic of the                          and Nevis
Barbados                                 Maldives                                 Saint Lucia
Belize                                   Malta                                    Saint Vincent
Bermuda                                  Republic of the                          and the Grena-
British Virgin Islands                   Marshall Islands                         dines
Cayman Islands                           Mauritius                                Republic of the
Cook Islands                             Principality of Monaco                   Seychelles
Cyprus                                   Montserrat                               Tonga
Commonwealth of the                      Republic of Nauru                        Turks and Caicos
 Dominica                                Netherlands                              Republic of
Gibraltar                                Antilles                                 Vanuatu
Grenada                                  Niue                                     ..............................
 


[[Page S673]]

       ``(2) Secretarial authority.--The Secretary may remove or 
     add a foreign jurisdiction from the list of tax-haven 
     countries under paragraph (1) if the Secretary determines 
     such removal or addition is consistent with the purposes of 
     this section.''.
       (b) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7875. Controlled foreign corporations in tax havens treated as 
              domestic corporations.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2007.

     SEC. 420. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING 
                   ABROAD.

       (a) Inflation Adjustment of Foreign Earned Income 
     Limitation.--Clause (ii) of section 911(b)(2)(D) (relating to 
     inflation adjustment) is amended--
       (1) by striking ``2007'' and inserting ``2005'', and
       (2) by striking ``2006'' in subclause (II) and inserting 
     ``2004''.
       (b) Modification of Housing Cost Amount.--
       (1) Minimum amount.--Clause (i) of section 911(c)(1)(B) is 
     amended to read as follows:
       ``(i) 16 percent of the amount (computed on a daily basis) 
     in effect under subsection (b)(2)(D) for the calendar year in 
     which such taxable year begins, multiplied by''.
       (2) Maximum amount of exclusion.--
       (A) In general.--Subparagraph (A) of section 911(c)(1) is 
     amended by inserting ``to the extent such expenses do not 
     exceed the amount determined under paragraph (2)'' after 
     ``the taxable year''.
       (B) Limitation.--Subsection (c) of section 911 is amended 
     by redesignating paragraphs (2) and (3) as paragraphs (3) and 
     (4), respectively, and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Limitation.--The amount determined under this 
     paragraph is an amount equal to the product of--
       ``(A) 30 percent of the amount (computed on a daily basis) 
     in effect under subsection (b)(2)(D) for the calendar year in 
     which the taxable year of the individual begins, multiplied 
     by
       ``(B) the number of days of such taxable year within the 
     applicable period described in subparagraph (A) or (B) of 
     subsection (d)(1).''.
       (C) Conforming amendments.--
       (i) Section 911(d)(4) is amended by striking ``and 
     (c)(1)(B)(ii)'' and inserting ``, (c)(1)(B)(ii), and 
     (c)(2)(B)''
       (ii) Section 911(d)(7) is amended by striking ``subsection 
     (c)(3)'' and inserting ``subsection (c)(4)''.
       (c) Rates of Tax Applicable to Nonexcluded Income.--Section 
     911 (relating to exclusion of certain income of citizens and 
     residents of the United States living abroad) is amended by 
     redesignating subsection (f) as subsection (g) and by 
     inserting after subsection (e) the following new subsection:
       ``(f) Determination of Tax Liability on Nonexcluded 
     Amounts.--If any amount is excluded from the gross income of 
     a taxpayer under subsection (a) for any taxable year, then, 
     notwithstanding section 1 or 55--
       ``(1) the tax imposed by section 1 on the taxpayer for such 
     taxable year shall be equal to the excess (if any) of--
       ``(A) the tax which would be imposed by section 1 for the 
     taxable year if the taxpayer's taxable income were equal to 
     the sum of--
       ``(i) the taxpayer's taxable income for the taxable year 
     (determined without regard to this subsection), plus
       ``(ii) the amount excluded under subsection (a) for the 
     taxable year, over
       ``(B) the tax which would be imposed by section 1 for the 
     taxable year if the taxpayer's taxable income were equal to 
     the amount excluded under subsection (a) for the taxable 
     year, and
       ``(2) the tax imposed by section 55 for such taxable year 
     shall be equal to the excess (if any) of--
       ``(A) the amount which would be the tentative minimum tax 
     under section 55 for the taxable year if the taxpayer's 
     alternative minimum taxable income were equal to the sum of--
       ``(i) the taxpayer's alternative minimum taxable income for 
     the taxable year (determined without regard to this 
     subsection), plus
       ``(ii) the amount excluded under subsection (a) for the 
     taxable year, over
       ``(B) the sum of--
       ``(i) the amount which would be the tentative minimum tax 
     under section 55 for the taxable year if the taxpayer's 
     alternative minimum taxable income were equal to the amount 
     excluded under subsection (a) for the taxable year, plus
       ``(ii) the amount which would be the regular tax for the 
     taxable year if the tax imposed by section 1 were the tax 
     computed under paragraph (1).
     For purposes of this subsection, the amount excluded under 
     subsection (a) shall be reduced by the aggregate amount of 
     any deductions or exclusions disallowed under subsection 
     (d)(6) with respect to such excluded amount.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 421. LIMITATION ON ANNUAL AMOUNTS WHICH MAY BE DEFERRED 
                   UNDER NONQUALIFIED DEFERRED COMPENSATION 
                   ARRANGEMENTS.

       (a) In General.--Section 409A (relating to inclusion of 
     gross income under nonqualified deferred compensation plans) 
     is amended by redesignating subsections (c), (d), and (e) as 
     subsections (d), (e), and (f), respectively, and by inserting 
     after subsection (b) the following new subsection:
       ``(c) Annual Limitation on Aggregate Deferred Amounts.--
       ``(1) Limitation.--If the aggregate amount of compensation 
     which--
       ``(A) is deferred for any taxable year with respect to a 
     participant under 1 or more nonqualified deferred 
     compensation plans maintained by the same employer, and
       ``(B) is not otherwise includible in gross income of the 
     participant for the taxable year,
     exceeds the applicable dollar amount for the taxable year, 
     then such excess shall be included in the participant's gross 
     income for the taxable year.
       ``(2) Inclusion of earnings.--If--
       ``(A) an amount is includible under paragraph (1) in the 
     gross income of a participant for any taxable year, and
       ``(B) any portion of any assets set aside in a trust or 
     other arrangement under a nonqualified deferred compensation 
     plan are properly allocable to such amount,
     then any increase in value in, or earnings with respect to, 
     such portion for the taxable year or any succeeding taxable 
     year shall be included in gross income of the participant for 
     such taxable year or succeeding taxable year.
       ``(3) Applicable dollar amount.--For purposes of this 
     subsection--
       ``(A) In general.--The term `applicable dollar amount' 
     means, with respect to any participant, the lesser of--
       ``(i) the average annual compensation which--

       ``(I) was payable during the base period to the participant 
     by the employer described in paragraph (1)(A), and
       ``(II) was includible in the participant's gross income for 
     taxable years in the base period, or

       ``(ii) $1,000,000.
       ``(B) Base period.--The term `base period' means, with 
     respect to any computation year, the 5-taxable year period 
     ending with the taxable year preceding the taxable year in 
     which the election described in subsection (a)(4)(B) is made 
     by the participant to have compensation for services 
     performed in the computation year deferred under a 
     nonqualified deferred compensation plan, except that if the 
     election is made after the beginning of the computation year, 
     such period shall be the 5-taxable year period ending with 
     the taxable year preceding the computation year. For purposes 
     of this subparagraph, the term `computation year' means any 
     taxable year of the participant for which the limitation 
     under paragraph (1) is being determined.''.
       (b) Conforming Amendments.--Sections 6041(g)(1) and 
     6051(a)(13) are each amended by striking ``409A(d)'' and 
     inserting ``409A(e)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005, except that taxable years beginning on or before such 
     date shall be taken into account in determining the average 
     annual compensation of a participant during any base period 
     for purposes of section 409A(c)(2) of the Internal Revenue 
     Code of 1986 (as added by such amendments).

     SEC. 422. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Treatment of Distributions From Qualified Disability 
     Trusts.--Section 1(g)(4) (relating to net unearned income) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Treatment of distributions from qualified disability 
     trusts.--For purposes of this subsection, in the case of any 
     child who is a beneficiary of a qualified disability trust 
     (as defined in section 642(b)(2)(C)(ii)), any amount included 
     in the income of such child under sections 652 and 662 during 
     a taxable year shall be considered earned income of such 
     child for such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

                   Subtitle C--Oil and Gas Provisions

     SEC. 431. EXTENSION OF SUPERFUND TAXES.

       (a) Excise Taxes.--Section 4611(e) is amended to read as 
     follows:

[[Page S674]]

       ``(e) Application of Hazardous Substance Superfund 
     Financing Rate.--The Hazardous Substance Superfund financing 
     rate under this section shall apply after December 31, 1986, 
     and before January 1, 1996, and after December 31, 2005, and 
     before January 1, 2015.''
       (b) Corporate Environmental Income Tax.--Section 59A(e) is 
     amended to read as follows:
       ``(e) Application of Tax.--The tax imposed by this section 
     shall apply to taxable years beginning after December 31, 
     1986, and before January 1, 1996, and to taxable years 
     beginning after December 31, 2005, and before January 1, 
     2015.''
       (c) Effective Dates.--
       (1) Excise taxes.--The amendments made by subsection (a) 
     shall take effect on the date of the enactment of this Act.
       (2) Income tax.--The amendment made by subsection (b) shall 
     apply to taxable years beginning after December 31, 2005.

     SEC. 432. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
                   APPLICABLE TO DUAL CAPACITY TAXPAYERS.

       (a) In General.--Section 901 (relating to credit for taxes 
     of foreign countries and of possessions of the United States) 
     is amended by redesignating subsection (m) as subsection (n) 
     and by inserting after subsection (l) the following new 
     subsection:
       ``(m) Special Rules Relating To Dual Capacity Taxpayers.--
       ``(1) General rule.--Notwithstanding any other provision of 
     this chapter, any amount paid or accrued by a dual capacity 
     taxpayer to a foreign country or possession of the United 
     States for any period shall not be considered a tax--
       ``(A) if, for such period, the foreign country or 
     possession does not impose a generally applicable income tax, 
     or
       ``(B) to the extent such amount exceeds the amount 
     (determined in accordance with regulations) which--
       ``(i) is paid by such dual capacity taxpayer pursuant to 
     the generally applicable income tax imposed by the country or 
     possession, or
       ``(ii) would be paid if the generally applicable income tax 
     imposed by the country or possession were applicable to such 
     dual capacity taxpayer.
     Nothing in this paragraph shall be construed to imply the 
     proper treatment of any such amount not in excess of the 
     amount determined under subparagraph (B).
       ``(2) Dual capacity taxpayer.--For purposes of this 
     subsection, the term `dual capacity taxpayer' means, with 
     respect to any foreign country or possession of the United 
     States, a person who--
       ``(A) is subject to a levy of such country or possession, 
     and
       ``(B) receives (or will receive) directly or indirectly a 
     specific economic benefit (as determined in accordance with 
     regulations) from such country or possession.
       ``(3) Generally applicable income tax.--For purposes of 
     this subsection--
       ``(A) In general.--The term `generally applicable income 
     tax' means an income tax (or a series of income taxes) which 
     is generally imposed under the laws of a foreign country or 
     possession on income derived from the conduct of a trade or 
     business within such country or possession.
       ``(B) Exceptions.--Such term shall not include a tax unless 
     it has substantial application, by its terms and in practice, 
     to--
       ``(i) persons who are not dual capacity taxpayers, and
       ``(ii) persons who are citizens or residents of the foreign 
     country or possession.''
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes paid or accrued in taxable years beginning 
     after the date of the enactment of this Act.
       (2) Contrary treaty obligations upheld.--The amendments 
     made by this section shall not apply to the extent contrary 
     to any treaty obligation of the United States.

     SEC. 433. RULES RELATING TO FOREIGN OIL AND GAS INCOME.

       (a) Separate Basket for Foreign Tax Credit.--
       (1) Separate basket.--
       (A) Years before 2007.--Paragraph (1) of section 904(d) 
     (relating to separate application of section with respect to 
     certain categories of income), as in effect for years 
     beginning before 2007, is amended by striking ``and'' at the 
     end of subparagraph (H), by redesignating subparagraph (I) as 
     subparagraph (J), and by inserting after subparagraph (H) the 
     following new subparagraph:
       ``(I) foreign oil and gas income, and''.
       (B) 2007 and after.--Paragraph (1) of section 904(d), as in 
     effect for years beginning after 2006, is amended by striking 
     ``and'' at the end of subparagraph (A), by striking the 
     period at the end of subparagraph (B) and inserting ``, 
     and'', and by adding at the end the following:
       ``(C) foreign oil and gas income.''
       (2) Definition.--
       (A) Years before 2007.--Paragraph (2) of section 904(d), as 
     in effect for years beginning before 2007, is amended by 
     redesignating subparagraphs (H) and (I) as subparagraphs (I) 
     and (J), respectively, and by inserting after subparagraph 
     (G) the following new subparagraph:
       ``(H) Foreign oil and gas income.--The term `foreign oil 
     and gas income' has the meaning given such term by section 
     954(g).''
       (B) 2007 and after.--Section 904(d)(2), as in effect for 
     years after 2006, is amended by redesignating subparagraphs 
     (J) and (K) as subparagraphs (K) and (L) and by inserting 
     after subparagraph (I) the following:
       ``(J) Foreign oil and gas income.--For purposes of this 
     section--
       ``(i) In general.--The term `foreign oil and gas income' 
     has the meaning given such term by section 954(g).
       ``(ii) Coordination.--Passive category income and general 
     category income shall not include foreign oil and gas income 
     (as so defined).''
       (3) Conforming amendments.--
       (A) Section 904(d)(3)(F)(i) is amended by striking ``or 
     (E)'' and inserting ``(E), or (I)''.
       (B) Section 907(a) is hereby repealed.
       (C) Section 907(c)(4) is hereby repealed.
       (D) Section 907(f) is hereby repealed.
       (4) Effective dates.--
       (A) In general.--The amendments made by this section shall 
     apply to taxable years beginning after the date of the 
     enactment of this Act.
       (B) Years after 2006.--The amendments made by paragraphs 
     (1)(B) and (2)(B) shall apply to taxable years beginning 
     after December 31, 2006.
       (C) Transitional rules.--
       (i) Separate basket treatment.--Any taxes paid or accrued 
     in a taxable year beginning on or before the date of the 
     enactment of this Act, with respect to income which was 
     described in subparagraph (I) of section 904(d)(1) of such 
     Code (as in effect on the day before the date of the 
     enactment of this Act), shall be treated as taxes paid or 
     accrued with respect to foreign oil and gas income to the 
     extent the taxpayer establishes to the satisfaction of the 
     Secretary of the Treasury that such taxes were paid or 
     accrued with respect to foreign oil and gas income.
       (ii) Carryovers.--Any unused oil and gas extraction taxes 
     which under section 907(f) of such Code (as so in effect) 
     would have been allowable as a carryover to the taxpayer's 
     first taxable year beginning after the date of the enactment 
     of this Act (without regard to the limitation of paragraph 
     (2) of such section 907(f) for first taxable year) shall be 
     allowed as carryovers under section 904(c) of such Code in 
     the same manner as if such taxes were unused taxes under such 
     section 904(c) with respect to foreign oil and gas extraction 
     income.
       (iii) Losses.--The amendment made by paragraph (3)(C) shall 
     not apply to foreign oil and gas extraction losses arising in 
     taxable years beginning on or before the date of the 
     enactment of this Act.
       (b) Elimination of Deferral for Foreign Oil and Gas 
     Extraction Income.--
       (1) General rule.--Paragraph (1) of section 954(g) 
     (defining foreign base company oil related income) is amended 
     to read as follows:
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the term `foreign oil and gas income' means any 
     income of a kind which would be taken into account in 
     determining the amount of--
       ``(A) foreign oil and gas extraction income (as defined in 
     section 907(c)), or
       ``(B) foreign oil related income (as defined in section 
     907(c)).''
       (2) Conforming amendments.--
       (A) Subsections (a)(5), (b)(5), and (b)(6) of section 954, 
     and section 952(c)(1)(B)(ii)(I), are each amended by striking 
     ``base company oil related income'' each place it appears 
     (including in the heading of subsection (b)(8)) and inserting 
     ``oil and gas income''.
       (B) Subsection (b)(4) of section 954 is amended by striking 
     ``base company oil-related income'' and inserting ``oil and 
     gas income''.
       (C) The subsection heading for subsection (g) of section 
     954 is amended by striking ``Foreign Base Company Oil Related 
     Income'' and inserting ``Foreign Oil and Gas Income''.
       (D) Subparagraph (A) of section 954(g)(2) is amended by 
     striking ``foreign base company oil related income'' and 
     inserting ``foreign oil and gas income''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years of foreign corporations 
     beginning after the date of the enactment of this Act, and to 
     taxable years of United States shareholders ending with or 
     within such taxable years of foreign corporations.

     SEC. 434. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE.

       (a) Taxable Years Ending Before 2006.--
       (1) Modification of phaseout.--
       (A) In general.--Section 29(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 29(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 
     2005.--Section 29(b)(2), as amended by paragraph (1), is 
     amended by adding at the end the following new sentence: 
     ``This paragraph shall not apply with respect to the $3 
     amount in subsection (a) for calendar year 2005 and the 
     amount in effect under subsection (a) for sales in such 
     calendar year shall be the amount which was in effect for 
     sales in calendar year 2004.''.
       (b) Taxable Years Ending After 2005.--
       (1) Modification of phaseout.--
       (A) In general.--Section 45K(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 45K(b)((2) is amended--

[[Page S675]]

       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 2005, 
     2006, and 2007.--Section 45K(b)(2), as amended by paragraph 
     (1), is amended by adding at the end the following new 
     sentence: ``This paragraph shall not apply with respect to 
     the $3 amount in subsection (a) for calendar years 2005, 
     2006, and 2007 and the amount in effect under subsection (a) 
     for sales in each such calendar year shall be the amount 
     which was in effect for sales in calendar year 2004.''.
       (3) Treatment of coke and coke gas.--
       (A) Nonapplication of phaseout.--Section 45K(g)(2) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Nonapplication of phaseout.--Subsection (b)(1) shall 
     not apply.''.
       (B) Application of inflation adjustment .--Section 
     45K(g)(2)(B) is amended by inserting ``and the last sentence 
     of subsection (b)(2) shall not apply.''.
       (C) Clarification of qualifying facility.--Section 
     45K(g)(1) is amended by inserting ``(other than from 
     petroleum based products)'' after ``coke or coke gas''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to fuel sold after December 31, 2004.

     SEC. 435. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND 
                   GEOPHYSICAL EXPENDITURES FOR MAJOR INTEGRATED 
                   OIL COMPANIES.

       (a) In General.--Section 167(h) is amended by adding at the 
     end the following new paragraph:
       ``(5) Nonapplication to major integrated oil companies.--
     This subsection shall not apply with respect to any expenses 
     paid or incurred for any taxable year by any integrated oil 
     company (as defined in section 291(b)(4)) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for such taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendment made by 
     section 1329(a) of the Energy Policy Act of 2005.

               Subtitle D--Tax Administration Provisions

     SEC. 441. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE 
                   BY GOVERNMENT ENTITIES.

       (a) In General.--Section 3402 is amended by adding at the 
     end the following new subsection:
       ``(t) Extension of Withholding to Certain Payments Made by 
     Government Entities.--
       ``(1) General rule.--The Government of the United States, 
     every State, every political subdivision thereof, and every 
     instrumentality of the foregoing (including multi-State 
     agencies) making any payment for goods and services which is 
     subject to withholding shall deduct and withhold form such 
     payment a tax in an amount equal to 3 percent of such 
     payment.
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     payment--
       ``(A) except as provided in subparagraph (B), which is 
     subject to withholding under any other provision of this 
     chapter or chapter 3,
       ``(B) which is subject to withholding under section 3406 
     and from which amounts are being withheld under such section,
       ``(C) of interest,
       ``(D) for real property,
       ``(E) to any tax-exempt entity, foreign government, or 
     other entity subject to the requirements of paragraph (1),
       ``(F) made pursuant to a classified or confidential 
     contract (as defined in section 6050M(e)(3)), and
       ``(G) made by a political subdivision of a State (or any 
     instrumentality thereof) which makes less than $100,000,000 
     of such payments annually.
       ``(3) Coordination with other sections.--For purposes of 
     sections 3403 and 3404 and for purposes of so much of 
     subtitle F (except section 7205) as relates to this chapter, 
     payments to any person of any payment for goods and services 
     which is subject to withholding shall be treated as if such 
     payments were wages paid by an employer to an employee.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 2005.

     SEC. 442. INCREASE IN CERTAIN CRIMINAL PENALTIES.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``Any person'' and inserting the following:
       ``(a) In General.--Any person'', and
       (ii) by striking ``$25,000'' and inserting ``$50,000'',
       (B) in the third sentence, by striking ``section'' and 
     inserting ``subsection'', and
       (C) by adding at the end the following new subsection:
       ``(b) Aggravated Failure to File.--
       ``(1) In general.--In the case of any failure described in 
     paragraph (2), the first sentence of subsection (a) shall be 
     applied by substituting--
       ``(A) `felony' for `misdemeanor',
       ``(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and
       ``(C) `10 years' for `1 year'.
       ``(2) Failure described.--A failure described in this 
     paragraph is a failure to make a return described in 
     subsection (a) for a period of 3 or more consecutive taxable 
     years.''.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to actions, and failures to act, occurring after 
     the date of the enactment of this Act.

     SEC. 443. REPEAL OF SUSPENSION OF INTEREST AND CERTAIN 
                   PENALTIES WHERE SECRETARY FAILS TO CONTACT 
                   TAXPAYER.

       (a) In General.--Section 6404 (relating to abatements) is 
     amended by striking subsection (g) and by redesignating 
     subsections (h) and (i) as subsections (g) and (h), 
     respectively.
       (b) Effective Date.--The amendments made by this section 
     shall apply to returns of tax filed after December 31, 2005.

     SEC. 444. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
                   ORDERS.

       (a) In General.--Section 6657 (relating to bad checks) is 
     amended--
       (1) by striking ``$750'' and inserting ``$1,250'', and
       (2) by striking ``$15'' and inserting ``$25''.
       (b) Effective Date.--The amendments made by this section 
     apply to checks or money orders received after the date of 
     the enactment of this Act.

     SEC. 445. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

       ``(ii) an application under--

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

       ``(3) Opportunity to withdraw submission.--If the Secretary 
     provides a person with notice that a submission is a 
     specified frivolous submission and such person withdraws such 
     submission within 30 days after such notice, the penalty 
     imposed under paragraph (1) shall not apply with respect to 
     such submission.
       ``(c) Listing of Frivolous Positions.--The Secretary shall 
     prescribe (and periodically

[[Page S676]]

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

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

     SEC. 446. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF 
                   OFFERS-IN-COMPROMISE.

       (a) In General.--Section 7122 (relating to compromises), as 
     amended by this Act, is amended by redesignating subsections 
     (c), (d), and (e) as subsections (d), (e), and (f), 
     respectively, and by inserting after subsection (b) the 
     following new subsection:
       ``(c) Rules for Submission of Offers-in-Compromise.--
       ``(1) Partial payment required with submission.--
       ``(A) Lump-sum offers.--
       ``(i) In general.--The submission of any lump-sum offer-in-
     compromise shall be accompanied by the payment of 20 percent 
     of amount of such offer.
       ``(ii) Lump-sum offer-in-compromise.--For purposes of this 
     section, the term `lump-sum offer-in-compromise' means any 
     offer of payments made in 5 or fewer installments.
       ``(B) Periodic payment offers.--The submission of any 
     periodic payment offer-in-compromise shall be accompanied by 
     the payment of the amount of the first proposed installment 
     and each proposed installment due during the period such 
     offer is being evaluated for acceptance and has not been 
     rejected by the Secretary. Any failure to make a payment 
     required under the preceding sentence shall be deemed a 
     withdrawal of the offer-in-compromise.
       ``(2) Rules of application.--
       ``(A) Use of payment.--The application of any payment made 
     under this subsection to the assessed tax or other amounts 
     imposed under this title with respect to such tax may be 
     specified by the taxpayer.
       ``(B) No user fee imposed.--Any user fee which would 
     otherwise be imposed under this section shall not be imposed 
     on any offer-in-compromise accompanied by a payment required 
     under this subsection.
       ``(C) Waiver authority.--The Secretary may issue 
     regulations waiving any payment required under paragraph (1) 
     in a manner consistent with the practices established in 
     accordance with the requirements under subsection (d)(3).''.
       (b) Additional Rules Relating to Treatment of Offers.--
       (1) Unprocessable offer if payment requirements are not 
     met.--Paragraph (3) of section 7122(d) (relating to standards 
     for evaluation of offers), as redesignated by subsection (a), 
     is amended by striking ``; and'' at the end of subparagraph 
     (A) and inserting a comma, by striking the period at the end 
     of subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any offer-in-compromise which does not meet the 
     requirements of subsection (c) shall be returned to the 
     taxpayer as unprocessable.''.
       (2) Deemed acceptance of offer not rejected within certain 
     period.--Section 7122, as amended by subsection (a), is 
     amended by adding at the end the following new subsection:
       ``(g) Deemed Acceptance of Offer Not Rejected Within 
     Certain Period.--Any offer-in-compromise submitted under this 
     section shall be deemed to be accepted by the Secretary if 
     such offer is not rejected by the Secretary before the date 
     which is 24 months after the date of the submission of such 
     offer (12 months for offers-in-compromise submitted after the 
     date which is 5 years after the date of the enactment of this 
     subsection). For purposes of the preceding sentence, any 
     period during which any tax liability which is the subject of 
     such offer-in-compromise is in dispute in any judicial 
     proceeding shall not be taken in to account in determining 
     the expiration of the 24-month period (or 12-month period, if 
     applicable).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted on and after 
     the date which is 60 days after the date of the enactment of 
     this Act.

     SEC. 447. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING 
                   AUTOMATED WITHDRAWALS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following:
       ``(e) Waiver of User Fees for Installment Agreements Using 
     Automated Withdrawals.--In the case of a taxpayer who enters 
     into an installment agreement in which automated installment 
     payments are agreed to, the Secretary shall waive the fee (if 
     any) for entering into the installment agreement.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     which is 180 days after the date of the enactment of this 
     Act.

     SEC. 448. TERMINATION OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159(b)(4) (relating to failure to 
     pay an installment or any other tax liability when due or to 
     provide requested financial information) is amended by 
     striking ``or'' at the end of subparagraph (B), by 
     redesignating subparagraph (C) as subparagraph (E), and by 
     inserting after subparagraph (B) the following:
       ``(C) to make a Federal tax deposit under section 6302 at 
     the time such deposit is required to be made,
       ``(D) to file a return of tax imposed under this title by 
     its due date (including extensions), or''.
       (b) Conforming Amendment.--The heading for section 
     6159(b)(4) is amended by striking ``Failure to pay an 
     installment or any other tax liability when due or to provide 
     requested financial information'' and inserting ``Failure to 
     make payments or deposits or file returns when due or to 
     provide requested financial information''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to failures occurring on or after the date of the 
     enactment of this Act.

                   Subtitle E--Additional Provisions

     SEC. 451. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE 
                   HARBOR.

       (a) In General.--The table contained in section 
     6654(d)(1)(C) is amended by striking ``2002 or thereafter'' 
     and inserting ``2002, 2003, 2004, or 2005'' and by adding at 
     the end the following new items:
  ``2006...........................................................111 
  2007 or thereafter.............................................110''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to any installment payment for 
     taxable years beginning after December 31, 2005.

     SEC. 452. LOAN AND REDEMPTION REQUIREMENTS ON POOLED 
                   FINANCING REQUIREMENTS.

       (a) Strengthened Reasonable Expectation Requirement.--
     Subparagraph (A) of section 149(f)(2) (relating to reasonable 
     expectation requirement) is amended to read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to an issue if the issuer reasonably expects 
     that--
       ``(i) as of the close of the 1-year period beginning on the 
     date of issuance of the issue, at least 50 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been used directly or indirectly to make or finance 
     loans to ultimate borrowers, and
       ``(ii) as of the close of the 3-year period beginning on 
     such date of issuance, at least 95

[[Page S677]]

     percent of the net proceeds of the issue (as of the close of 
     such period) will have been so used.''.
       (b) Written Loan Commitment and Redemption Requirements.--
     Section 149(f) (relating to treatment of certain pooled 
     financing bonds) is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (6) and (7), respectively, and by 
     inserting after paragraph (3) the following new paragraphs:
       ``(4) Written loan commitment requirement.--
       ``(A) In general.--The requirement of this paragraph is met 
     with respect to an issue if the issuer receives prior to 
     issuance written loan commitments identifying the ultimate 
     potential borrowers of at least 50 percent of the net 
     proceeds of such issue.
       ``(B) Exception.--Subparagraph (A) shall not apply with 
     respect to any issuer which is a State (or an integral part 
     of a State) issuing pooled financing bonds to make or finance 
     loans to subordinate governmental units of such State or to 
     State-created entities providing financing for water-
     infrastructure projects through the federally-sponsored State 
     revolving fund program.
       ``(5) Redemption requirement.--The requirement of this 
     paragraph is met if to the extent that less than the 
     percentage of the proceeds of an issue required to be used 
     under clause (i) or (ii) of paragraph (2)(A) is used by the 
     close of the period identified in such clause, the issuer 
     uses an amount of proceeds equal to the excess of--
       ``(A) the amount required to be used under such clause, 
     over
       ``(B) the amount actually used by the close of such period,
     to redeem outstanding bonds within 90 days after the end of 
     such period.''.
       (c) Elimination of Disregard of Pooled Bonds in Determining 
     Eligibility for Small Issuer Exception to Arbitrage Rebate.--
     Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) 
     is amended by striking subclause (II) and by redesignating 
     subclauses (III) and (IV) as subclauses (II) and (III), 
     respectively.
       (d) Conforming Amendments.--
       (1) Section 149(f)(1) is amended by striking ``paragraphs 
     (2) and (3)'' and inserting ``paragraphs (2), (3), (4), and 
     (5)''.
       (2) Section 149(f)(7)(B), as redesignated by subsection 
     (b), is amended by striking ``paragraph (4)(A)'' and 
     inserting ``paragraph (6)(A)''.
       (3) Section 54(l)(2) is amended by striking ``section 
     149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 453. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

       (a) In General.--Section 6049(b)(2) (relating to 
     exceptions) is amended by striking subparagraph (B) and by 
     redesignating subparagraphs (C) and (D) as subparagraphs (B) 
     and (C), respectively.
       (b) Conforming Amendment.--Section 6049(b)(2)(C), as 
     redesignated by subsection (a), is amended by striking 
     ``subparagraph (C)'' and inserting ``subparagraph (B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest earned after December 31, 2005.
                                 ______
                                 
  SA 2730. Mr. NELSON of Florida (for himself, Mr. Bingaman, Mrs. 
Clinton, Mr. Lieberman, Mr. Schumer, and Mr. Salazar) proposed an 
amendment to amendment SA 2707 proposed by Mr. Frist (for Mr. Grassley 
(for himself and Mr. Baucus)) to the bill H.R. 4297, to provide for 
reconciliation pursuant to section 201(b) of the concurrent resolution 
on the budget for fiscal year 2006; as follows:

       At the appropriate place, insert the following:

     SEC. ___. TRANSITION REQUIREMENTS.

       (a) Requirement.--
       (1) In general.--Section 1860D-4(b) of the Social Security 
     Act (42 U.S.C. 1395w-104(b)) is amended by adding at the end 
     the following new paragraph:
       ``(4) Formulary transition.--The sponsor of a prescription 
     drug plan is required to provide at least a 30-day supply of 
     any drug that a new enrollee in the plan was taking prior to 
     enrolling in such plan. For individuals residing in a long-
     term care setting, the sponsor of a prescription drug plan is 
     required to provide at least a 90-day supply of any drug such 
     individual was taking prior to enrolling in such plan. A 
     formulary transition supply provided under this section shall 
     be made by the sponsor of a prescription drug plan without 
     imposing any prior authorization requirements or other access 
     restrictions for individuals stabilized on a course of 
     treatment and at the dosage previously prescribed by a 
     physician or recommended by a physician going forward.
       ``(5) Customer service.--The sponsor of a prescription drug 
     plan is required to provide--
       ``(A) accessible and trained customer service 
     representatives available for full business hours from coast 
     to coast to provide knowledgeable assistance to individuals 
     seeking help with Medicare Part D including, but not limited 
     to, beneficiaries, caseworkers, SHIP counselors, pharmacists, 
     doctors, and caregivers;
       ``(B) at least one dedicated phone line for pharmacists 
     with sufficient staff to reduce wait times for pharmacists 
     seeking Medicare Part D assistance to no more than 20 
     minutes; and
       ``(C) sufficient staff to reduce wait times for all 
     Medicare Part D-related calls to plan phone lines to no more 
     than 20 minutes.''.
       (2) Application.--The requirements under paragraphs (4) and 
     (5) of section 1860D-4(b) of the Social Security Act (42 
     U.S.C. 1395w-104(b)), as added by subsection (a), shall apply 
     to the plan serving as the national point of sale contractor 
     under part D of title XVIII of such Act.
       (b) Effective Date and Enforcement.--
       (1) Effective date.--The amendment made by subsection (a) 
     shall take effect on the date of enactment of this Act.
       (2) Enforcement.--The Secretary may impose a civil monetary 
     penalty in an amount not to exceed $15,000 for conduct that a 
     sponsor of a prescription drug plan or an organization 
     offering an MA-PD plan knows or should know is a violation of 
     the provisions of paragraph (4) or (5) of section 1860D-4(b) 
     of the Social Security Act (42 U.S.C. 1395w-104(b)), as added 
     by subsection (a). The provisions of section 1128A of the 
     Social Security Act (42 U.S.C. a-7a), other than subsections 
     (a) and (b) and the second sentence of subsection (f), shall 
     apply to a civil monetary penalty under the previous sentence 
     in the same manner as such provisions apply to a penalty or 
     proceeding under subsection (a) of such section 1128A(a).

     SEC. ___. FEDERAL FALLBACK FOR FULL-BENEFIT DUAL ELIGIBLE 
                   INDIVIDUALS FOR 2006.

       (a) In General.--
       (1) In general.--If a full-benefit dual eligible individual 
     (as defined in section 1935(c)(6) of the Social Security Act 
     (42 U.S.C. 1396u-5(c)(6))), or an individual who is presumed 
     to be such an individual pursuant to subsection (b), presents 
     a prescription for a covered part D drug (as defined in 
     section 1860D-2(e) of such Act (42 U.S.C. 1395w-102(e))) at a 
     pharmacy in 2006 and the pharmacy is unable to locate or 
     verify the individual's enrollment through a reasonable 
     effort, including the use of the pharmacy billing system or 
     by calling an official Medicare hotline, or to bill for the 
     prescription through the plan serving as the national point 
     of sale contractor, the pharmacy may provide a 30-day supply 
     of the drug to the individual.
       (2) Refill.--The pharmacy may provide an additional 30-day 
     supply of a drug if the pharmacy continues to be unable to 
     locate the individual's enrollment through such reasonable 
     efforts or to bill for the prescription through the plan 
     serving as the national point of sale contractor when a 
     prescription is presented on or after the date that a 
     prescription refill is appropriate, but in no case after 
     December 31, 2006.
       (3) Cost-sharing.--The cost-sharing for a prescription 
     filled pursuant to this subsection shall be cost-sharing 
     provided for under section 1860D-14(a) of the Social Security 
     Act (42 U.S.C. 1395w-114(a)).
       (b) Presumptive Eligibility.--An individual shall be 
     presumed to be a full-benefit dual eligible individual (as so 
     defined) if the individual presents at the pharmacy with--
       (1) a government issued picture identification card;
       (2) reliable evidence of Medicaid enrollment, such as a 
     Medicaid card, recent history of Medicaid billing in the 
     pharmacy patient profile, or a copy of a current Medicaid 
     award letter; and
       (3) reliable evidence of Medicare enrollment, such as a 
     Medicare identification card, a Medicare enrollment approval 
     letter, a Medicare Summary Notice, or confirmation from an 
     official Medicare hotline.
       (c) Payments to Pharmacists.--
       (1) In general.--The Secretary of Health and Human Services 
     shall reimburse pharmacists, to the extent that such 
     pharmacists are not otherwise reimbursed by States or plans, 
     for the costs incurred in complying with the requirements 
     under subsection (a), including acquisition costs, dispensing 
     costs, and other overhead costs. Such payments shall be made 
     in a timely manner from the Medicare Prescription Drug 
     Account under section 1860D-16 of the Social Security Act (42 
     U.S.C. 1395w-116) and shall be deemed to be payments from 
     such Account under subsection (b) of such section.
       (2) Retroactive application to beginning of 2006.--The 
     costs incurred by a pharmacy which may be reimbursed under 
     paragraph (1) shall include costs incurred during the period 
     beginning on January 1, 2006, and before the date of 
     enactment of this Act.
       (d) Recovery of Costs From Plans by Secretary Not 
     Pharmacies.--The Secretary of Health and Human Services shall 
     establish a process for recovering the costs described in 
     subsection (c)(1) from prescription drug plans (as defined in 
     section 1860D-1(a)(3)(C) of the Social Security Act (42 
     U.S.C. 1394w-101(a)(3)(C))) and MA-PD plans (as defined in 
     section 1860D-41(a)(14) of such Act (42 U.S.C. 1395w-
     151(a)(14))) if the Secretary determines that such plans 
     should have incurred such costs. Amounts recovered pursuant 
     to the preceding sentence shall be deposited in the Medicare 
     Prescription Drug Account described in subsection (c)(1).

     SEC. ___. ENSURING THAT FULL-BENEFIT DUAL ELIGIBLE 
                   INDIVIDUALS ARE NOT OVERCHARGED.

       (a) In General.--Section 1860D-14 of the Social Security 
     Act (42 U.S.C. 1395w-114) is amended--
       (1) by redesignating subsection (d) as subsection (e); and
       (2) by inserting after subsection (c) the following new 
     subsection:
       ``(d) Ensuring Full-Benefit Dual Eligible Individuals Are 
     Not Overcharged.--

[[Page S678]]

       ``(1) In general.--The Secretary shall, as soon a possible 
     after the date of enactment of this subsection, establish 
     processes for the following:
       ``(A) Tracking inappropriate payments.--The Secretary shall 
     track full-benefit dual eligible individuals enrolled in a 
     prescription drug plan or an MA-PD plan to determine whether 
     such individuals were inappropriately subject under the plan 
     to a deductible or cost-sharing that is greater than is 
     required under section 1860D-14.
       ``(B) Reduction in payments to plans and refunds to 
     individuals.--If the Secretary determines under subparagraph 
     (A) that an individual was overcharged, the Secretary shall--
       ``(i) reduce payments to the sponsor of the prescription 
     drug plan under section 1860D-15 or to the organization 
     offering the MA-PD plan under section 1853 that 
     inappropriately charged the individual by an amount equal to 
     the inappropriate charges; and
       ``(ii) refund such amount to the individual within 60 days 
     of the determination that the individual was inappropriately 
     charged.
     If the Secretary does not provide for the refund under clause 
     (i) within the 60 days provided for under such clause, 
     interest at the rate established under section 6621(a)(1) of 
     the Internal Revenue Code of 1986 shall be payable from the 
     end of such 60-day period until the date of the refund.
       ``(2) Requirement.--The processes established under 
     paragraph (1) shall provide for the ability of an individual 
     to notify the Secretary if the individual believes that they 
     were inappropriately subject under the plan to a deductible 
     or cost-sharing that is greater than is required under 
     section 1860D-14.''.
       (b) Report to Congress.--Not later than January 1, 2007, 
     the Secretary of Health and Human Services shall submit a 
     report to Congress on the implementation of the processes 
     established under subsection (d) of section 1860D-14 of the 
     Social Security Act (42 U.S.C. 1395w-114), as added by 
     subsection (a).

     SEC. ___. REIMBURSEMENT OF STATES FOR 2006 TRANSITION COSTS.

       (a) Reimbursement.--
       (1) In general.--Notwithstanding section 1935(d) of the 
     Social Security Act (42 U.S.C. 1396u-5(d) or any other 
     provision of law, the Secretary of Health and Human Services 
     shall reimburse States for 100 percent of the costs incurred 
     by the State during 2006 for covered part D drugs (as defined 
     in section 1860D-2(e) of such Act (42 U.S.C. 1395w-102(e))) 
     for part D eligible individuals (as defined in section 1860D-
     1(a)(3)(A) of the Social Security Act (42 U.S.C. 1394w-
     101(a)(3)(A))) which the State reasonably expected would have 
     been covered under such part but were not because the 
     individual was unable to access on a timely basis 
     prescription drug benefits to which they were entitled under 
     such part. Such payments shall be made from the Medicare 
     Prescription Drug Account under section 1860D-16 of the 
     Social Security Act (42 U.S.C. 1395w-116) and shall be deemed 
     to be payments from such Account under subsection (b) of such 
     section.
       (2) Retroactive application to beginning of 2006.--The 
     costs incurred by a State which may be reimbursed under 
     paragraph (1) shall include costs incurred during the period 
     beginning on January 1, 2006, and before the date of 
     enactment of this Act.
       (b) Recovery of Costs From Plans by Secretary Not States.--
     The Secretary of Health and Human Services shall establish a 
     process for recovering the costs described in subsection 
     (a)(1) from prescription drug plans (as defined in section 
     1860D-1(a)(3)(C) of the Social Security Act (42 U.S.C. 1394w-
     101(a)(3)(C))) and MA-PD plans (as defined in section 1860D-
     41(a)(14) of such Act (42 U.S.C. 1395w-151(a)(14))) if the 
     Secretary determines that such plans should have incurred 
     such costs. Amounts recovered pursuant to the preceding 
     sentence shall be deposited in the Medicare Prescription Drug 
     Account described in subsection (a)(1).
       (c) State.--For purposes of this section, the term 
     ``State'' includes the District of Columbia.

     SEC. ___. FACILITATION OF IDENTIFICATION AND ENROLLMENT 
                   THROUGH PHARMACIES OF FULL-BENEFIT DUAL 
                   ELIGIBLE INDIVIDUALS IN THE MEDICARE PART D 
                   DRUG PROGRAM.

       (a) In General.--The Secretary of Health and Human Services 
     shall provide for outreach and education to every pharmacy 
     that has participated in the Medicaid program under title XIV 
     of the Social Security Act, particularly independent 
     pharmacies, on the following:
       (1) The needs of full-benefit dual eligible individuals and 
     the challenges of meeting those needs.
       (2) The processes for the transition from Medicaid 
     prescription drug coverage to coverage under such part D for 
     such individuals.
       (3) The processes established by the Secretary to 
     facilitate, at point of sale, identification of drug plan 
     assignment of such population or enrollment of previously 
     unidentified or new full-benefit dual eligible individuals 
     into Medicare part D prescription drug coverage, including 
     how pharmacies can use such processes to help ensure that 
     such population makes a successful transition to Medicare 
     part D without a lapse in prescription drug coverage.
       (b) Holding Pharmacies Harmless for Certain Costs.--
       (1) In general.--The Secretary of Health and Human Services 
     shall provide for such payments to pharmacies as may be 
     necessary to reimburse pharmacies fully for--
       (A) transaction fees associated with the point-of-sale 
     facilitated identification and enrollment processes referred 
     to in subsection (a)(3); and
       (B) costs associated with technology or software upgrades 
     necessary to make any identification and enrollment inquiries 
     as part of the processes under subsection (a)(3).
       (2) Time.--Payments under paragraph (1) shall be made with 
     respect to fees and costs incurred during the period 
     beginning on December 1, 2005, and ending on June 1, 2006.
       (3) Payments from account.--Payments under paragraph (1) 
     shall be made from the Medicare Prescription Drug Account 
     under section 1860D-16 of the Social Security Act (42 U.S.C. 
     1395w-116) and shall be deemed to be payments from such 
     Account under subsection (b) of such section.

     SEC. ___. STATE COVERAGE OF NON-FORMULARY PRESCRIPTION DRUGS 
                   FOR FULL-BENEFIT DUAL ELIGIBLE INDIVIDUALS 
                   DURING 2006.

       (a) State Coverage of Non-Formulary Prescription Drugs for 
     Full-Benefit Dual Eligible Individuals During 2006.--For 
     prescriptions filled during 2006, notwithstanding section 
     1935(d) of the Social Security Act (42 U.S.C. 1396v(d)), a 
     State (as defined for purposes of title XIX of such Act) may 
     provide (and receive Federal financial participation for) 
     medical assistance under such title with respect to 
     prescription drugs provided to a full-benefit dual eligible 
     individual (as defined in section 1935(c)(6) of such Act (42 
     U.S.C. 1396v(c)(6)) that are not on the formulary of the 
     prescription drug plan under part D or the MA-PD plan under 
     part C of title XVIII of such Act in which such individual is 
     enrolled.
       (b) Application.--
       (1) Medicare as primary payer.--Nothing in subsection (a) 
     shall be construed as changing or affecting the primary payer 
     status of a prescription drug plan under part D or an MA-PD 
     plan under part C of title XVIII of the Social Security Act 
     with respect to prescription drugs furnished to any full-
     benefit dual eligible individual (as defined in section 
     1935(c)(6) of such Act (42 U.S.C. 1396v(c)(6)) during 2006.
       (2) Third party liability.--Nothing in subsection (a) shall 
     be construed as limiting the authority or responsibility of a 
     State under section 1902(a)(25) of the Social Security Act 
     (42 U.S.C. 1396a(a)(25)) to seek reimbursement from a 
     prescription drug plan, an MA-PD plan, or any other third 
     party, of the costs incurred by the State in providing 
     prescription drug coverage during 2006.

     SEC. __. PROTECTION FOR MEDICARE BENEFICIARIES WHO ENROLL IN 
                   THE PRESCRIPTION DRUG BENEFIT DURING 2006.

       (a) Extended Period of Open Enrollment During All of 2006 
     Without Late Enrollment Penalty.--Section 1851(e)(3)(B) of 
     the Social Security Act (42 U.S.C. 1395w-21(e)(3)(B)) is 
     amended--
       (1) in clause (iii), by striking ``May 15, 2006'' and 
     inserting ``December 31, 2006''; and
       (2) by adding at the end the following new sentence:
     ``An individual making an election during the period 
     beginning on November 15, 2006, and ending on December 15, 
     2006, shall specify whether the election is to be effective 
     with respect to 2006 or with respect to 2007 (or both).''.
       (b) One-Time Change of Plan Enrollment for Medicare 
     Prescription Drug Benefit During All of 2006.--
       (1) In general.--Section 1851(e) of the Social Security Act 
     (42 U.S.C. 1395w-21(e)) is amended--
       (A) in paragraph (2)(B)--
       (i) in the heading, by striking ``for first 6 months'';
       (ii) in clause (i), by striking ``the first 6 months of 
     2006,'' and all that follows through ``is a Medicare+Choice 
     eligible individual,'' and inserting ``2006,''; and
       (iii) in clause (ii), by inserting ``(other than during 
     2006)'' after ``paragraph (3)''; and
       (B) in paragraph (4), by striking ``2006'' and inserting 
     ``2007'' each place it appears.
       (2) Conforming amendment.--Section 1860D-1(b)(1)(B)(iii) of 
     the Social Security Act (42 U.S.C. 1395w-101(b)(1)(B)(iii)) 
     is amended by striking ``subparagraphs (B) and (C) of 
     paragraph (2)'' and inserting ``paragraph (2)(C)''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003 (Public Law 108-173).
                                 ______
                                 
  SA 2731. Mr. GRASSLEY proposed an amendment to amendment SA 2707 
proposed by Mr. Frist (for Mr. Grassley (for himself and Mr. Baucus)) 
to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; as follows:

       At the appropriate place, insert the following:

     SEC. __. SENSE OF THE SENATE REGARDING THE MEDICARE PART D 
                   PRESCRIPTION DRUG PROGRAM.

       (a) Findings.--The Senate finds the following:
       (1) It is not acceptable that startup issues under the new 
     Medicare prescription drug program have resulted in some of 
     our Nation's most vulnerable citizens having difficulties 
     getting their prescription drugs covered under the program, 
     and these issues must be addressed and resolved.
       (2) The Department of Health and Human Services and the 
     Centers for Medicare &

[[Page S679]]

     Medicaid Services are working tirelessly to address these 
     startup issues and have taken numerous steps to smooth the 
     transition process.
       (3) All prescription drug plans under part D of title XVIII 
     of the Social Security Act and MA-PD plans under part C of 
     such title (in this section referred to as ``Medicare 
     prescription drug plans'') already have a ``first fill'' 
     policy in place that provides a new enrollee with coverage 
     for prescription drugs during at least the first 30 days of 
     enrollment regardless of whether the particular prescription 
     drug is on the plan's formulary, and the Centers for Medicare 
     & Medicaid Services is enforcing this requirement.
       (4) Under current law, full-benefit dual eligible 
     individuals (as defined in section 1935(c)(6) of the Social 
     Security Act (42 U.S.C. 1395u-5(c)(6)) are already 
     automatically enrolled into Medicare prescription drug 
     coverage so no change in law is necessary.
       (5) Medicare prescription drug plans are already 
     responsible for covering the cost of covered prescriptions 
     filled for enrollees, including short term transition 
     prescriptions.
       (6) Medicare prescription drug plans are already 
     responsible for reimbursing any enrollee, including full-
     benefit dual eligible individuals, for any out-of-pocket 
     costs incurred by the enrollee that should have been covered 
     by the plan.
       (7) The Centers for Medicare & Medicaid Services is already 
     reimbursing States for the reasonable administrative costs 
     incurred by States that have temporarily covered some claims 
     for prescription drug coverage during the transition period.
       (8) Enrollment is exceeding projections, with at least 
     24,000,000 Medicare beneficiaries who now have drug coverage 
     and another 90,000 are enrolling each day in the Medicare 
     prescription drug program;
       (9) In addition, the Secretary of Health and Human Services 
     has taken many other actions to smooth the implementation of 
     the Medicare prescription drug program, including the 
     following:
       (A) Establishing processes to ensure that full-benefit dual 
     eligible individuals are not overcharged for their 
     prescriptions and to require Medicare prescription drug plans 
     to refund overcharges to such individuals.
       (B) Establishing a reconciliation process to ensure that 
     Medicare prescription drug plans reimburse pharmacies for 
     costs incurred by pharmacies that are payable by such plans.
       (C) Conducting extensive and continuing outreach to 
     pharmacies and pharmacy associations on the implementation of 
     the Medicare prescription drug benefit, particularly with 
     respect to full-benefit dual eligible individuals, as well as 
     establishing a special pharmacy telephone help line.
       (D) Requiring Medicare prescription drug plans to have 
     comprehensive formularies and procedures for enrollees to 
     rapidly secure an exception to the limitation of coverage of 
     a prescription drug when medical necessity is demonstrated.
       (E) Permitting full-benefit dual eligible individuals to 
     switch Medicare prescription drug plan under the Medicare 
     prescription drug benefit at any time, for any reason, and 
     improving data flows and communication with plans to ensure 
     that plan switches by such individuals become fully effective 
     as quickly as possible.
       (F) Partnering with national, State, and local groups that 
     work with full-benefit dual eligible individuals to educate 
     such individuals about the Medicare prescription drug 
     program, and assisting in their transition to, and enrollment 
     under, such program.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that--
       (1) the Secretary of Health and Human Services is making 
     significant progress in smoothing the implementation of the 
     new Medicare prescription drug program, legislation changing 
     the program is not needed at this time, and legislation at 
     this time would also likely complicate implementation of the 
     program and confuse beneficiaries;
       (2) each of the implementation problems identified under 
     the Medicare prescription drug program will be resolved more 
     quickly through administrative actions, which the Secretary 
     of Health and Human Services already has the authority to 
     take under current law, rather than through Congressional 
     action followed by administrative action;
       (3) the Senate fully supports the efforts of the Secretary 
     of Health and Human Services, Medicare prescription drug 
     plans, pharmacists, and others to implement the Medicare 
     prescription drug program and to resolve problems that have 
     occurred during the implementation of the program; and
       (4) the pace of enrollment in the Medicare prescription 
     drug benefit indicates that extending the six-month 
     enrollment period is not warranted at this time, and, by 
     contrast, such an action could exacerbate implementation 
     issues under the program.
                                 ______
                                 
  SA 2732. Mr. GRASSLEY proposed an amendment to amendment SA 2707 
proposed by Mr. Frist (for Mr. Grassley (for himself and Mr. Baucus)) 
to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; as follows:

       At the appropriate place, insert the following:

     SEC. __. FUNDING FOR VETERANS HEALTH CARE AND DISABILITY 
                   COMPENSATION AND HOSPITAL INFRASTRUCTURE FOR 
                   VETERANS.

       (a) Funding for Medical Services.--
       (1) Authorization of appropriations.--There is hereby 
     authorized to be appropriated for the Department of Veterans 
     Affairs for the Veterans Health Administration for Medical 
     Care amounts as follows:
       (A) $900,000,000 for fiscal year 2006.
       (B) $1,300,000,000 for fiscal year 2007.
       (C) $1,500,000,000 for fiscal year 2008.
       (D) $1,600,000,000 for fiscal year 2009.
       (E) $1,600,000,000 for fiscal year 2010.
       (2) Supplement not supplant.--The amounts authorized to be 
     appropriated by this subsection are in addition to any other 
     amounts authorized to be appropriated for the Veterans Health 
     Administration for Medical Care under any other provisions of 
     law.
       (b) Funding for Disability Compensation Benefits.--
       (1) Authorization of appropriations.--There is hereby 
     authorized to be appropriated for the Department of Veterans 
     Affairs for the Veterans Benefits Administration for 
     Compensation and Pensions amounts as follows:
       (A) $2,300,000,000 for fiscal year 2006.
       (B) $2,700,000,000 for fiscal year 2007.
       (C) $3,000,000,000 for fiscal year 2008.
       (D) $3,000,000,000 for fiscal year 2009.
       (E) $3,000,000,000 for fiscal year 2010.
       (2) Supplement not supplant.--The amounts authorized to be 
     appropriated by this subsection are in addition to any other 
     amounts authorized to be appropriated for the Veterans 
     Benefits Administration for Compensation and Pensions under 
     any other provisions of law.
       (c) Funding for Infrastructure Improvements for Hospitals 
     Providing Health Care and Services to Veterans.--
       (1) Establishment of fund.--There is hereby established on 
     the books of the Treasury an account to be known as the 
     ``Veterans Hospital Improvement Fund'' (in this subsection 
     referred to as the ``Fund'').
       (2) Elements.--The Fund shall consist of the following:
       (A) $1,000,000,000, which shall be deposited in the Fund 
     upon the enactment of this subsection.
       (B) Any other amounts authorized for transfer to or deposit 
     in the Fund by law.
       (3) Administration.--The Funds shall be administered by the 
     Secretary of Veterans Affairs.
       (4) Use of funds.--
       (A) In general.--Amounts in the Fund shall be available 
     expenditures for improvements of health facilities treating 
     veterans, including military medical treatment facilities, 
     medical centers and other facilities administered by the 
     Secretary of Veterans Affairs for the provision of medical 
     care and services to veterans, and other State, local, and 
     private facilities providing medical care and services to 
     veterans.
       (B) Application for funds.--A non-Federal health facility 
     seeking amounts from the Fund shall submit to the Secretary 
     of Veterans Affairs an application therefor setting forth 
     such information as the Secretary shall require.
       (C) Availability.--Amounts in the Fund shall remain 
     available until expended.
                                 ______
                                 
  SA 2733. Mr. KENNEDY submitted an amendment intended to be proposed 
by him to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; which was ordered to lie on the table; as follows:

       On page 19 of the bill, strike lines 19 through 22, and 
     insert the following:

     SEC. 203. REPEAL OF STATE OPTIONS FOR ALTERNATIVE PREMIUMS 
                   AND COST SHARING AND FLEXIBILITY IN BENEFIT 
                   PACKAGES UNDER THE MEDICAID PROGRAM.

       (a) Repeal of State Option for Alternative Premiums and 
     Cost Sharing.--
       (1) Repeal.--Section 1916A of the Social Security Act, as 
     added by sections 6041(a), 6042(a), and 6043(a) of the 
     Deficit Reduction Act of 2005, is repealed.
       (2) Conforming amendments.--
       (A) Subsection (y) of section 1903 of the Social Security 
     Act (42 U.S.C. 1396b), as added by section 6043(b) of the 
     Deficit Reduction Act of 2005, is repealed.
       (B) Section 1916 of the Social Security Act (42 U.S.C. 
     1396o) is amended--
       (i) in subsection (f), by striking ``and section 1916A'' 
     after ``(b)(3)''; and
       (ii) by striking subsection (h).
       (C) Section 1938(c) of the Social Security Act, as added by 
     section 6082 of the Deficit Reduction Act of 2005, is 
     amended--
       (i) in paragraph (3), by striking ``and 1916A''; and
       (ii) in paragraph (5), by striking ``sections 1916 and 
     1916A'' and inserting ``section 1916''.
       (b) Repeal of State Option of Providing Benchmark Benefit 
     Packages.--
       (1) Repeal.--Section 1937 of the Social Security Act, as 
     added by section 6044(a) of the Deficit Reduction Act of 
     2005, is repealed.
       (2) Conforming amendments.--
       (A) Sections 1938 and 1939 of the Social Security Act, as 
     added and redesignated, respectively, by section 6082 of the 
     Deficit Reduction Act of 2005, are redesignated as sections 
     1937 and 1938, respectively, of the Social Security Act.
       (B) 1937(b)(3) of the Social Security Act, as redesignated 
     by subparagraph (A), is amended by inserting ``(as added by 
     section 6044(a) of S. 1932 of the 109th Congress, as passed 
     by the Senate on December 21, 2005)''.

[[Page S680]]

       (c) Effective Date.--The repeals and amendments made by 
     subsections (a) and (b) shall take effect as if included in 
     the enactment of the Deficit Reduction Act of 2005.

     SEC. 203A. ADDITIONAL FUNDING FOR THE STATE CHILDREN'S HEALTH 
                   INSURANCE PROGRAM.

       (a) In General.--Section 2104(a) of the Social Security Act 
     (42 U.S.C. 1397dd(a)) is amended--
       (1) in paragraph (9), by striking ``$4,050,000,000'' and 
     inserting ``$6,550,000,000''; and
       (2) in paragraph (10), by striking ``$5,000,000,000'' and 
     inserting ``$7,500,000,000''.
       (b) Funds in Addition to Funds Provided to Eliminate Fiscal 
     Year 2006 Shortfalls.--The Secretary of Health and Human 
     Services shall carry out subsection (d) of section 2104 of 
     the Social Security Act (42 U.S.C. 1397dd(d)), as added by 
     section 6101(a) of the Deficit Reduction Act of 2005, 
     (including the determination of a State's allotment for 
     fiscal year 2006 under paragraph (2)(C) of that subsection), 
     without regard to the amendment made by subsection (a)(1) 
     providing increased funding for State allotments for fiscal 
     year 2006.
                                 ______
                                 
  SA 2734. Mr. MENENDEZ (for himself and Mr. Kennedy) submitted an 
amendment intended to be proposed by him to the bill H.R. 4297, to 
provide for reconciliation pursuant to section 201(b) of the concurrent 
resolution on the budget for fiscal year 2006; which was ordered to lie 
on the table; as follows:

       At the appropriate place, insert the following:

     SEC. __. HOPE SCHOLARSHIP CREDIT EXPANDED TO COVER EXPENSES 
                   FOR OTHER EDUCATIONAL EXPENSES.

       (a) Expansion of Credit.--
       (1) In general.--Sections 25A(b) is amended by striking 
     ``qualified tuition and related expenses'' each place it 
     appears and inserting ``qualified higher education 
     expenses''.
       (2) Conforming amendments.--
       (A) Subsections (e) and (g)(1) of section 25A are each 
     amended by inserting ``or the qualified higher education 
     expenses'' after ``the qualified tuition and related 
     expenses'' each place it appears.
       (B) Paragraphs (2) and (3)(B) of section 25A(g) are each 
     amended by inserting ``and qualified higher education 
     expenses'' after ``qualified tuition and related expenses'' 
     each place it appears.
       (C) Subsection (g)(4) of section 25A is amended by 
     inserting ``or qualified higher education expenses'' after 
     ``qualified tuition and related expenses''.
       (D) Section 6050S is amended by inserting ``and qualified 
     higher education expenses'' after ``qualified tuition and 
     related expenses'' each place it appears.
       (b) Qualified Higher Education Expenses.--Section 25A(f) is 
     amended by adding at the end the following new paragraph:
       ``(3) Qualified higher education expenses.--
       ``(A) In general.--The term `qualified higher education 
     expenses' means the tuition, fees, books, supplies, and 
     equipment required for the enrollment or attendance of--
       ``(i) the taxpayer,
       ``(ii) the taxpayer's spouse, or
       ``(iii) any dependent of the taxpayer with respect to whom 
     the taxpayer is allowed a deduction under section 151,
     at an eligible educational institution for courses of 
     instruction of such individual at such institution.
       ``(B) Special needs services.--In the case of an individual 
     described in subparagraph (A) with special needs, such term 
     includes expenses for special needs services which are 
     incurred in connection with such enrollment or attendance.
       ``(C) Room and board.--
       ``(i) In general.--Such term shall also include reasonable 
     costs for such period incurred by an individual described in 
     subparagraph (A) for room and board while attending such 
     institution.
       ``(ii) Limitation.--The amount treated as qualified higher 
     education expenses by reason of clause (i) shall not exceed--

       ``(I) the allowance (applicable to the individual) for room 
     and board included in the cost of attendance (as defined in 
     section 472 of the Higher Education Act of 1965 (20 U.S.C. 
     1087ll), as in effect on the date of the enactment of the 
     Economic Growth and Tax Relief Reconciliation Act of 2001) as 
     determined by the eligible educational institution for such 
     period, or
       ``(II) if greater, the actual invoice amount the student 
     residing in housing owned or operated by the eligible 
     educational institution is charged by such institution for 
     room and board costs for such period.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses paid after December 31, 2005, (in 
     taxable years ending after such date) for education furnished 
     in academic periods beginning after such date.

     SEC. __. MODIFICATION OF EFFECTIVE DATE OF LEASING PROVISIONS 
                   OF THE AMERICAN JOBS CREATION ACT OF 2004 FOR 
                   FOREIGN ENTITITES .

       (a) In General.--Section 849(b)(3) of the American Jobs 
     Creation Act of 2004, as amended by this Act, is amended by 
     striking ``December 31, 2005'' and inserting ``December 31, 
     2004''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the enactment of the 
     American Jobs Creation Act of 2004.
                                 ______
                                 
  SA 2735. Mr. DODD (for himself, Mr. Kennedy, Mr. Kerry, Mr. 
Lautenberg, Mrs. Boxer, Ms. Mikulski, Mr. Akaka, Mr. Reed, and Mr. 
Salazar) proposed an amendment to amendment SA 2707 proposed by Mr. 
Frist (for Mr. Grassley (for himself and Mr. Baucus)) to the bill H.R. 
4297, to provide for reconciliation pursuant to section 201(b) of the 
concurrent resolution on the budget for fiscal year 2006; as follows:

       At the appropriate place, insert the following:

     SEC. __. FUNDING FOR VETERANS HEALTH CARE AND DISABILITY 
                   COMPENSATION AND HOSPITAL INFRASTRUCTURE FOR 
                   VETERANS.

       (a) Funding for Medical Services.--
       (1) Authorization of appropriations.--There is hereby 
     authorized to be appropriated for the Department of Veterans 
     Affairs for the Veterans Health Administration for Medical 
     Care amounts as follows:
       (A) $900,000,000 for fiscal year 2006.
       (B) $1,300,000,000 for fiscal year 2007.
       (C) $1,500,000,000 for fiscal year 2008.
       (D) $1,600,000,000 for fiscal year 2009.
       (E) $1,600,000,000 for fiscal year 2010.
       (2) Supplement not supplant.--The amounts authorized to be 
     appropriated by this subsection are in addition to any other 
     amounts authorized to be appropriated for the Veterans Health 
     Administration for Medical Care under any other provisions of 
     law.
       (b) Funding for Disability Compensation Benefits.--
       (1) Authorization of appropriations.--There is hereby 
     authorized to be appropriated for the Department of Veterans 
     Affairs for the Veterans Benefits Administration for 
     Compensation and Pensions amounts as follows:
       (A) $2,300,000,000 for fiscal year 2006.
       (B) $2,700,000,000 for fiscal year 2007.
       (C) $3,000,000,000 for fiscal year 2008.
       (D) $3,000,000,000 for fiscal year 2009.
       (E) $3,000,000,000 for fiscal year 2010.
       (2) Supplement not supplant.--The amounts authorized to be 
     appropriated by this subsection are in addition to any other 
     amounts authorized to be appropriated for the Veterans 
     Benefits Administration for Compensation and Pensions under 
     any other provisions of law.
       (c) Funding for Infrastructure Improvements for Hospitals 
     Providing Health Care and Services to Veterans.--
       (1) Establishment of fund.--There is hereby established on 
     the books of the Treasury an account to be known as the 
     ``Veterans Hospital Improvement Fund'' (in this subsection 
     referred to as the ``Fund'').
       (2) Elements.--The Fund shall consist of the following:
       (A) $1,000,000,000, which shall be deposited in the Fund 
     upon the enactment of this subsection.
       (B) Any other amounts authorized for transfer to or deposit 
     in the Fund by law.
       (3) Administration.--The Funds shall be administered by the 
     Secretary of Veterans Affairs.
       (4) Use of funds.--
       (A) In general.--Amounts in the Fund shall be available 
     expenditures for improvements of health facilities treating 
     veterans, including military medical treatment facilities, 
     medical centers and other facilities administered by the 
     Secretary of Veterans Affairs for the provision of medical 
     care and services to veterans, and other State, local, and 
     private facilities providing medical care and services to 
     veterans.
       (B) Application for funds.--A non-Federal health facility 
     seeking amounts from the Fund shall submit to the Secretary 
     of Veterans Affairs an application therefor setting forth 
     such information as the Secretary shall require.
       (C) Availability.--Amounts in the Fund shall remain 
     available until expended.
       (d) Offset Through Modification of Tax Rates on Capital 
     Gains and Dividends for Individuals With $1,000,000 or More 
     of Taxable Income.--
       (1) In general.--Section 1(h) is amended by adding at the 
     end the following new paragraph:
       ``(12) Modified rates for individuals with $1,000,000 or 
     more of taxable income.--If a taxpayer has taxable income of 
     $1,000,000 or more for any taxable year--
       ``(A) paragraph (11) (relating to dividends taxed as 
     capital gain) shall not apply to any qualified dividend 
     income of the taxpayer for the taxable year, and
       ``(B) paragraph (1)(C) shall be applied by substituting `20 
     percent' for `15 percent' with respect to the adjusted net 
     capital gain of the taxpayer for the taxable year, determined 
     by only taking into account gain or loss properly allocable 
     to the portion of the taxable year after December 31, 2006.''
       (2) Application to minimum tax.--Section 55(b)(3) is 
     amended by adding at the end the following new sentence: ``In 
     the case of a taxpayer with alternative minimum taxable 
     income of $1,000,000 or more for any taxable year, the rules 
     of section 1(h)(12) shall apply for purposes of this 
     paragraph.''
       (3) Effective dates.--
       (A) Capital gains.--Section 1(h)(12)(B) of the Internal 
     Revenue Code of 1986 (as added by paragraph (1)) shall apply 
     to taxable years beginning after December 31, 2006.
       (B) Dividend rates.--Section 1(h)(12)(A) of such Code (as 
     added by paragraph (1)) shall

[[Page S681]]

     apply to dividends received after December 31, 2006.
       (4) Application of jgtrra sunset.--The amendments made by 
     this subsection shall be subject to section 303 of the Jobs 
     and Growth Tax Relief Reconciliation Act of 2003 to the same 
     extent and in the same manner as the provision of such Act to 
     which such amendment relates.
                                 ______
                                 
  SA 2736. Mr. GRASSLEY proposed an amendment to amendment SA 2707 
proposed by Mr. Frist (for Mr. Grassley (for himself and Mr. Baucus)) 
to the bill H.R. 4297, to provide for reconciliation pursuant to 
section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; as follows:

       At the appropriate place:

               TITLE IV--STRENGTHENING AMERICA'S MILITARY

     SEC. 401. SHORT TITLE.

       This title may be cited as the ``Strengthening America's 
     Military Act''.

                      Subtitle A--Military Funding

     SEC. 402. FUNDING FOR MILITARY OPERATIONS.

       There is appropriated, out of any money in the Treasury 
     which is not otherwise appropriated, for the fiscal years 
     2006 through 2010, the following amounts, to be used for 
     resetting and recapitalizing equipment being used in theaters 
     of operations:
       (1) $16,900,000,000 for operations and maintenance of the 
     Army.
       (2) $1,800,000,000 for aircraft for the Army.
       (3) $6,300,000,000 for other Army procurement.
       (4) $10,000,000,000 for wheeled and tracked combat vehicles 
     for the Army.
       (5) $467,000,000 for the Army working capital fund.
       (6) $6,000,000 for missiles for the Department of Defense.
       (7) $100,000,000 for defense wide procurement for the 
     Department of Defense.
       (8) $4,500,000,000 for Marine Corps procurement.
       (9) $4,500,000,000 for operations and maintenance of the 
     Marine Corps.
       (10) $2,700,000,000 for Navy aircraft procurement.
                                 ______
                                 
  SA 2737. Mr. REED (for himself, Ms. Stabenow, Mr. Lautenberg, Mrs. 
Clinton, Mr. Kerry, and Mr. Salazar) proposed an amendment to amendment 
SA 2707 proposed by Mr. Frist (for Mr. Grassley (for himself and Mr. 
Baucus)) to the bill H.R. 4297, to provide for reconciliation pursuant 
to section 201(b) of the concurrent resolution on the budget for fiscal 
year 2006; as follows:

       On page 28, after line 11, insert the following:

               TITLE IV--STRENGTHENING AMERICA'S MILITARY

     SEC. 401. SHORT TITLE.

       This title may be cited as the ``Strengthening America's 
     Military Act''.

                      Subtitle A--Military Funding

     SEC. 411. FUNDING FOR MILITARY OPERATIONS.

       There is appropriated, out of any money in the Treasury 
     which is not otherwise appropriated, for the fiscal years 
     2006 through 2010, the following amounts, to be used for 
     resetting and recapitalizing equipment being used in theaters 
     of operations:
       (1) $16,900,000,000 for operations and maintenance of the 
     Army.
       (2) $1,800,000,000 for aircraft for the Army.
       (3) $6,300,000,000 for other Army procurement.
       (4) $10,000,000,000 for wheeled and tracked combat vehicles 
     for the Army.
       (5) $467,000,000 for the Army working capital fund.
       (6) $6,000,000 for missiles for the Department of Defense.
       (7) $100,000,000 for defense wide procurement for the 
     Department of Defense.
       (8) $4,500,000,000 for Marine Corps procurement.
       (9) $4,500,000,000 for operations and maintenance of the 
     Marine Corps.
       (10) $2,700,000,000 for Navy aircraft procurement.

   Subtitle B--Repeal of Extension of Tax Rate for Capital Gains and 
                               Dividends

     SEC. 421. REPEAL OF EXTENSION OF TAX RATE FOR CAPITAL GAINS 
                   AND DIVIDENDS.

       The amendment made by section 203 of this Act is repealed.

            Subtitle C--Provisions Relating to Tax Shelters

     SEC. 431. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

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

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

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

     SEC. 432. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

     ``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to

[[Page S682]]

     40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable to Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2) and 
     (3) of section 6707A(d) shall apply for purposes of paragraph 
     (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

       ``(1) For coordination of penalty with understatements 
     under section 6662 and other special rules, see section 
     6662A(e)
       ``(2) For reporting of penalty imposed under this section 
     to the Securities and Exchange Commission, see section 
     6707A(e)''.

       (b) Coordination With Other Understatements and 
     Penalties.--
       (1) The second sentence of section 6662(d)(2)(A) is amended 
     by inserting ``and without regard to items with respect to 
     which a penalty is imposed by section 6662B'' before the 
     period at the end.
       (2) Subsection (e) of section 6662A is amended--
       (A) in paragraph (1), by inserting ``and noneconomic 
     substance transaction understatements'' after ``reportable 
     transaction understatements'' both places it appears,
       (B) in paragraph (2)(A), by inserting ``and a noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'',
       (C) in paragraph (2)(B), by inserting ``6662B or'' before 
     ``6663'',
       (D) in paragraph (2)(C)(i), by inserting ``or section 
     6662B'' before the period at the end,
       (E) in paragraph (2)(C)(ii), by inserting ``and section 
     6662B'' after ``This section'',
       (F) in paragraph (3), by inserting ``or noneconomic 
     substance transaction understatement'' after ``reportable 
     transaction understatement'', and
       (G) by adding at the end the following new paragraph:
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).''.
       (3) Subsection (e) of section 6707A is amended--
       (A) by striking ``or'' at the end of subparagraph (B), and
       (B) by striking subparagraph (C) and inserting the 
     following new subparagraphs:
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction, or
       ``(D) is required to pay a penalty under section 6662(h) 
     with respect to any transaction and would (but for section 
     6662A(e)(2)(C)) have been subject to penalty under section 
     6662A at a rate prescribed under section 6662A(c) or under 
     section 6662B,''.
       (c) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

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

     SEC. 433. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONECONOMIC SUBSTANCE 
                   TRANSACTIONS.

       (a) In General.--Section 163(m) (relating to interest on 
     unpaid taxes attributable to nondisclosed reportable 
     transactions) is amended--
       (1) by striking ``attributable'' and all that follows and 
     inserting the following: ``attributable to--
       ``(1) the portion of any reportable transaction 
     understatement (as defined in section 6662A(b)) with respect 
     to which the requirement of section 6664(d)(2)(A) is not met, 
     or
       ``(2) any noneconomic substance transaction understatement 
     (as defined in section 6662B(c)).'', and
       (2) by inserting ``and Noneconomic Substance Transactions'' 
     in the heading thereof after ``Transactions''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act in taxable years ending after such date.

     SEC. 434. MODIFICATIONS OF EFFECTIVE DATES OF LEASING 
                   PROVISIONS OF THE AMERICAN JOBS CREATION ACT OF 
                   2004.

       (a) In General.--Section 849(b) of the American Jobs 
     Creation Act of 2004 is amended by striking paragraphs (1) 
     and (2), by redesignating paragraphs (3) and (4) as 
     paragraphs (1) and (2), respectively, and by adding at the 
     end the following new paragraph:
       ``(3) Leases to foreign entities.--In the case of tax-
     exempt use property leased to a tax-exempt entity which is a 
     foreign person or entity, the amendments made by this part 
     shall apply to taxable years beginning after December 31, 
     2004, with respect to leases entered into on or before March 
     12, 2004.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     American Jobs Creation Act of 2004.

     SEC. 435. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED 
                   OIL COMPANIES.

       (a) General Rule.--Notwithstanding any other provision of 
     law, if a taxpayer is an applicable integrated oil company 
     for its last taxable year ending in calendar year 2005, the 
     taxpayer shall--
       (1) increase, effective as of the close of such taxable 
     year, the value of each historic LIFO layer of inventories of 
     crude oil, natural gas, or any other petroleum product 
     (within the meaning of section 4611) by the layer adjustment 
     amount, and
       (2) decrease its cost of goods sold for such taxable year 
     by the aggregate amount of the increases under paragraph (1).
     If the aggregate amount of the increases under paragraph (1) 
     exceed the taxpayer's cost of goods sold for such taxable 
     year, the taxpayer's gross income for such taxable year shall 
     be increased by the amount of such excess.
       (b) Layer Adjustment Amount.--For purposes of this 
     section--
       (1) In general.--The term ``layer adjustment amount'' 
     means, with respect to any historic LIFO layer, the product 
     of--
       (A) $18.75, and
       (B) the number of barrels of crude oil (or in the case of 
     natural gas or other petroleum products, the number of 
     barrel-of-oil equivalents) represented by the layer.
       (2) Barrel-of-oil equivalent.--The term ``barrel-of-oil 
     equivalent'' has the meaning given such term by section 
     29(d)(5) (as in effect before its redesignation by the Energy 
     Tax Incentives Act of 2005).
       (c) Application of Requirement.--
       (1) No change in method of accounting.--Any adjustment 
     required by this section shall not be treated as a change in 
     method of accounting.
       (2) Underpayments of estimated tax.--No addition to the tax 
     shall be made under section 6655 of the Internal Revenue Code 
     of 1986 (relating to failure by corporation to pay estimated 
     tax) with respect to any underpayment of an installment 
     required to be paid with respect to the taxable year 
     described in subsection (a) to the extent such underpayment 
     was created or increased by this section.
       (d) Applicable Integrated Oil Company.--For purposes of 
     this section, the term ``applicable integrated oil company'' 
     means an integrated oil company (as defined in section 
     291(b)(4) of the Internal Revenue Code of 1986) which--
       (1) had gross receipts in excess of $1,000,000,000 for its 
     last taxable year ending during calendar year 2005, and
       (2) uses the last-in, first-out (LIFO) method of accounting 
     with respect to its crude oil inventories for such taxable 
     year.
     For purposes of paragraph (1), all persons treated as a 
     single employer under subsections (a) and (b) of section 52 
     of the Internal Revenue Code of 1986 shall be treated as 1 
     person and, in the case of a short taxable year, the rule 
     under section 448(c)(3)(B) shall apply.

     SEC. 436. MODIFICATION OF EFFECTIVE DATE OF EXCEPTION FROM 
                   SUSPENSION RULES FOR CERTAIN LISTED AND 
                   REPORTABLE TRANSACTIONS.

       (a) In General.--Paragraph (2) of section 903(d) of the 
     American Jobs Creation Act of 2004 is amended to read as 
     follows:
       ``(2) Exception for reportable or listed transactions.--
       ``(A) In general.--The amendments made by subsection (c) 
     shall apply with respect to interest accruing after October 
     3, 2004.
       ``(B) Special rule for certain listed and reportable 
     transactions.--
       ``(i) In general.--Except as provided in clause (ii), the 
     amendments made by subsection (c) shall also apply with 
     respect to interest accruing on or before October 3, 2004.
       ``(ii) Participants in settlement initiatives.--Clause (i) 
     shall not apply to any transaction if, as of January 23, 
     2006--

[[Page S683]]

       ``(I) the taxpayer is participating in a settlement 
     initiative described in Internal Revenue Service Announcement 
     2005-80 with respect to such transaction, or
       ``(II) the taxpayer has entered into a settlement agreement 
     pursuant to such an initiative.

       ``(iii) Termination of exception.--Clause (ii)(I) shall not 
     apply to any taxpayer if, after January 23, 2006, the 
     taxpayer withdraws from, or terminates, participation in the 
     initiative or the Secretary of the Treasury or the 
     Secretary's delegate determines that a settlement agreement 
     will not be reached pursuant to the initiative within a 
     reasonable period of time.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the provisions of the 
     American Jobs Creation Act of 2004 to which it relates.

     SEC. 437. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENTS.

       (a) Determination of Penalty.--
       (1) In general.--Notwithstanding any other provision of 
     law, in the case of an applicable taxpayer--
       (A) the determination as to whether any interest or 
     applicable penalty is to be imposed with respect to any 
     arrangement described in paragraph (2), or to any 
     underpayment of Federal income tax attributable to items 
     arising in connection with any such arrangement, shall be 
     made without regard to the rules of subsections (b), (c), and 
     (d) of section 6664 of the Internal Revenue Code of 1986, and
       (B) if any such interest or applicable penalty is imposed, 
     the amount of such interest or penalty shall be equal to 
     twice that determined without regard to this section.
       (2) Applicable taxpayer.--For purposes of this subsection--
       (A) In general.--The term ``applicable taxpayer'' means a 
     taxpayer which--
       (i) has underreported its United States income tax 
     liability with respect to any item which directly or 
     indirectly involves--

       (I) any financial arrangement which in any manner relies on 
     the use of offshore payment mechanisms (including credit, 
     debit, or charge cards) issued by banks or other entities in 
     foreign jurisdictions, or
       (II) any offshore financial arrangement (including any 
     arrangement with foreign banks, financial institutions, 
     corporations, partnerships, trusts, or other entities), and

       (ii) has neither signed a closing agreement pursuant to the 
     Voluntary Offshore Compliance Initiative established by the 
     Department of the Treasury under Revenue Procedure 2003-11 
     nor voluntarily disclosed its participation in such 
     arrangement by notifying the Internal Revenue Service of such 
     arrangement prior to the issue being raised by the Internal 
     Revenue Service during an examination.
       (B) Authority to waive.--The Secretary of the Treasury or 
     the Secretary's delegate may waive the application of 
     paragraph (1) to any taxpayer if the Secretary or the 
     Secretary's delegate determines that the use of such offshore 
     payment mechanisms is incidental to the transaction and, in 
     addition, in the case of a trade or business, such use is 
     conducted in the ordinary course of the type of trade or 
     business of the taxpayer.
       (C) Issues raised.--For purposes of subparagraph (A)(ii), 
     an item shall be treated as an issue raised during an 
     examination if the individual examining the return--
       (i) communicates to the taxpayer knowledge about the 
     specific item, or
       (ii) has made a request to the taxpayer for information and 
     the taxpayer could not make a complete response to that 
     request without giving the examiner knowledge of the specific 
     item.
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition to tax, or fine imposed under 
     chapter 68 of the Internal Revenue Code of 1986.
       (2) Fees and expenses.--The Secretary of the Treasury may 
     retain and use an amount not in excess of 25 percent of all 
     additional interest, penalties, additions to tax, and fines 
     collected under this section to be used for enforcement and 
     collection activities of the Internal Revenue Service. The 
     Secretary shall keep adequate records regarding amounts so 
     retained and used. The amount credited as paid by any 
     taxpayer shall be determined without regard to this 
     paragraph.
       (c) Report by Secretary.--The Secretary shall each year 
     conduct a study and report to Congress on the implementation 
     of this section during the preceding year, including 
     statistics on the number of taxpayers affected by such 
     implementation and the amount of interest and applicable 
     penalties asserted, waived, and assessed during such 
     preceding year.
       (d) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if, as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 438. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT 
                   OF TAX LIABILITY.

       (a) In General.--Section 6701(a) (relating to imposition of 
     penalty) is amended--
       (1) by inserting ``the tax liability or'' after ``respect 
     to,'' in paragraph (1),
       (2) by inserting ``aid, assistance, procurement, or advice 
     with respect to such'' before ``portion'' both places it 
     appears in paragraphs (2) and (3), and
       (3) by inserting ``instance of aid, assistance, 
     procurement, or advice or each such'' before ``document'' in 
     the matter following paragraph (3).
       (b) Amount of Penalty.--Subsection (b) of section 6701 
     (relating to penalties for aiding and abetting understatement 
     of tax liability) is amended to read as follows:
       ``(b) Amount of Penalty; Calculation of Penalty; Liability 
     for Penalty.--
       ``(1) Amount of penalty.--The amount of the penalty imposed 
     by subsection (a) shall not exceed 100 percent of the gross 
     income derived (or to be derived) from such aid, assistance, 
     procurement, or advice provided by the person or persons 
     subject to such penalty.
       ``(2) Calculation of penalty.--The penalty amount 
     determined under paragraph (1) shall be calculated with 
     respect to each instance of aid, assistance, procurement, or 
     advice described in subsection (a), each instance in which 
     income was derived by the person or persons subject to such 
     penalty, and each person who made such an understatement of 
     the liability for tax.
       ``(3) Liability for penalty.--If more than 1 person is 
     liable under subsection (a) with respect to providing such 
     aid, assistance, procurement, or advice, all such persons 
     shall be jointly and severally liable for the penalty under 
     such subsection.''.
       (c) Penalty Not Deductible.--Section 6701 is amended by 
     adding at the end the following new subsection:
       ``(g) Penalty Not Deductible.--The payment of any penalty 
     imposed under this section or the payment of any amount to 
     settle or avoid the imposition of such penalty shall not be 
     deductible by the person who is subject to such penalty or 
     who makes such payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

   Subtitle D--Provisions to Close Corporate and Individual Loopholes

     SEC. 441. TAX TREATMENT OF INVERTED ENTITIES.

       (a) In General.--Section 7874 is amended--
       (1) by striking ``March 4, 2003'' in subsection 
     (a)(2)(B)(i) and in the matter following subsection 
     (a)(2)(B)(iii) and inserting ``March 20, 2002'',
       (2) by striking ``at least 60 percent'' in subsection 
     (a)(2)(B)(ii) and inserting ``more than 50 percent'',
       (3) by striking ``80 percent'' in subsection (b) and 
     inserting ``at least 80 percent'',
       (4) by striking ``60 percent'' in subsection (b) and 
     inserting ``more than 50 percent'',
       (5) by adding at the end of subsection (a)(2) the following 
     new sentence: ``Except as provided in regulations, an 
     acquisition of properties of a domestic corporation shall not 
     be treated as described in subparagraph (B) if none of the 
     corporation's stock was readily tradeable on an established 
     securities market at any time during the 4-year period ending 
     on the date of the acquisition.'', and
       (6) by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Special Rules Applicable to Expatriated Entities.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an expatriated entity--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an expatriated entity, section 163(j) shall be 
     applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after March 20, 2002.

     SEC. 442. GRANT OF TREASURY REGULATORY AUTHORITY TO ADDRESS 
                   FOREIGN TAX CREDIT TRANSACTIONS INVOLVING 
                   INAPPROPRIATE SEPARATION OF FOREIGN TAXES FROM 
                   RELATED FOREIGN INCOME.

       (a) In General.--Section 901 (relating to taxes of foreign 
     countries and of possessions of United States) is amended by 
     redesignating subsection (m) as subsection (n) and by 
     inserting after subsection (l) the following new subsection:
       ``(m) Regulations.--The Secretary may prescribe regulations 
     disallowing a credit under subsection (a) for all or a 
     portion of any foreign tax, or allocating a foreign tax among 
     2 or more persons, in cases where the foreign tax is imposed 
     on any person in respect of income of another person or in 
     other cases involving the inappropriate separation of the 
     foreign tax from the related foreign income.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after the date of 
     the enactment of this Act.

     SEC. 443. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT 
                   INSTRUMENTS.

       (a) In General.--Section 1275(d) (relating to regulation 
     authority) is amended--
       (1) by striking ``The Secretary'' and inserting the 
     following:

[[Page S684]]

       ``(1) In general.--The Secretary'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Treatment of contingent payment convertible debt.--
       ``(A) In general.--In the case of a debt instrument which--
       ``(i) is convertible into stock of the issuing corporation, 
     into stock or debt of a related party (within the meaning of 
     section 267(b) or 707(b)(1)), or into cash or other property 
     in an amount equal to the approximate value of such stock or 
     debt, and
       ``(ii) provides for contingent payments,
     any regulations which require original issue discount to be 
     determined by reference to the comparable yield of a 
     noncontingent fixed-rate debt instrument shall be applied as 
     if the regulations require that such comparable yield be 
     determined by reference to a noncontingent fixed-rate debt 
     instrument which is convertible into stock.
       ``(B) Special rule.--For purposes of subparagraph (A), the 
     comparable yield shall be determined without taking into 
     account the yield resulting from the conversion of a debt 
     instrument into stock.''.
       (b) Cross Reference.--Section 163(e)(6) (relating to cross 
     references) is amended by adding at the end the following:
       ``For the treatment of contingent payment convertible debt, 
     see section 1275(d)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued on or after the date 
     of the enactment of this Act.

     SEC. 444. APPLICATION OF EARNINGS STRIPPING RULES TO PARTNERS 
                   WHICH ARE CORPORATIONS.

       (a) In General.--Section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Treatment of corporate partners.--Except to the 
     extent provided by regulations, in applying this subsection 
     to a corporation which owns (directly or indirectly) an 
     interest in a partnership--
       ``(A) such corporation's distributive share of interest 
     income paid or accrued to such partnership shall be treated 
     as interest income paid or accrued to such corporation,
       ``(B) such corporation's distributive share of interest 
     paid or accrued by such partnership shall be treated as 
     interest paid or accrued by such corporation, and
       ``(C) such corporation's share of the liabilities of such 
     partnership shall be treated as liabilities of such 
     corporation.''.
       (b) Additional Regulatory Authority.--Section 163(j)(9) 
     (relating to regulations), as redesignated by subsection (a), 
     is amended by striking ``and'' at the end of subparagraph 
     (B), by striking the period at the end of subparagraph (C) 
     and inserting ``, and'', and by adding at the end the 
     following new subparagraph:
       ``(D) regulations providing for the reallocation of shares 
     of partnership indebtedness, or distributive shares of the 
     partnership's interest income or interest expense, as may be 
     appropriate to carry out the purposes of this subsection.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning on or after the date 
     of the enactment of this Act.

     SEC. 445. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution or 
     paid to come into compliance with law.--Paragraph (1) shall 
     not apply to any amount which--
       ``(A) the taxpayer establishes--
       ``(i) constitutes restitution (including remediation of 
     property) for damage or harm caused by or which may be caused 
     by the violation of any law or the potential violation of any 
     law, or
       ``(ii) is paid to come into compliance with any law which 
     was violated or involved in the investigation or inquiry, and
       ``(B) is identified as restitution or as an amount paid to 
     come into compliance with the law, as the case may be, in the 
     court order or settlement agreement.
     Identification pursuant to subparagraph (B) alone shall not 
     satisfy the requirement under subparagraph (A). This 
     paragraph shall not apply to any amount paid or incurred as 
     reimbursement to the government or entity for the costs of 
     any investigation or litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Reporting of Deductible Amounts.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6050T the 
     following new section:

     ``SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN FINES, 
                   PENALTIES, AND OTHER AMOUNTS.

       ``(a) Requirement of Reporting.--
       ``(1) In general.--The appropriate official of any 
     government or entity which is described in section 162(f)(4) 
     which is involved in a suit or agreement described in 
     paragraph (2) shall make a return in such form as determined 
     by the Secretary setting forth--
       ``(A) the amount required to be paid as a result of the 
     suit or agreement to which paragraph (1) of section 162(f) 
     applies,
       ``(B) any amount required to be paid as a result of the 
     suit or agreement which constitutes restitution or 
     remediation of property, and
       ``(C) any amount required to be paid as a result of the 
     suit or agreement for the purpose of coming into compliance 
     with any law which was violated or involved in the 
     investigation or inquiry.
       ``(2) Suit or agreement described.--
       ``(A) In general.--A suit or agreement is described in this 
     paragraph if--
       ``(i) it is--

       ``(I) a suit with respect to a violation of any law over 
     which the government or entity has authority and with respect 
     to which there has been a court order, or
       ``(II) an agreement which is entered into with respect to a 
     violation of any law over which the government or entity has 
     authority, or with respect to an investigation or inquiry by 
     the government or entity into the potential violation of any 
     law over which such government or entity has authority, and

       ``(ii) the aggregate amount involved in all court orders 
     and agreements with respect to the violation, investigation, 
     or inquiry is $600 or more.
       ``(B) Adjustment of reporting threshold.--The Secretary may 
     adjust the $600 amount in subparagraph (A)(ii) as necessary 
     in order to ensure the efficient administration of the 
     internal revenue laws.
       ``(3) Time of filing.--The return required under this 
     subsection shall be filed not later than--
       ``(A) 30 days after the date on which a court order is 
     issued with respect to the suit or the date the agreement is 
     entered into, as the case may be, or
       ``(B) the date specified by the Secretary.
       ``(b) Statements to Be Furnished to Individuals Involved in 
     the Settlement.--Every person required to make a return under 
     subsection (a) shall furnish to each person who is a party to 
     the suit or agreement a written statement showing--
       ``(1) the name of the government or entity, and
       ``(2) the information supplied to the Secretary under 
     subsection (a)(1).
     The written statement required under the preceding sentence 
     shall be furnished to the person at the same time the 
     government or entity provides the Secretary with the 
     information required under subsection (a).
       ``(c) Appropriate Official Defined.--For purposes of this 
     section, the term `appropriate official' means the officer or 
     employee having control of the suit, investigation, or 
     inquiry or the person appropriately designated for purposes 
     of this section.''.
       (2) Conforming amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 61 is 
     amended by inserting after the item relating to section 6050T 
     the following new item:

``Sec. 6050U. Information with respect to certain fines, penalties, and 
              other amounts.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred on or after the date 
     of the enactment of this Act, except that such amendments 
     shall not apply to amounts paid or incurred under any binding 
     order or agreement entered into before such date. Such 
     exception shall not apply to an order or agreement requiring 
     court approval unless the approval was obtained before such 
     date.

     SEC. 446. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

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

[[Page S685]]

       (b) Inclusion in Income of Punitive Damages Paid by Insurer 
     or Otherwise.--
       (1) In general.--Part II of subchapter B of chapter 1 
     (relating to items specifically included in gross income) is 
     amended by adding at the end the following new section:

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

       ``Gross income shall include any amount paid to or on 
     behalf of a taxpayer as insurance or otherwise by reason of 
     the taxpayer's liability (or agreement) to pay punitive 
     damages.''.
       (2) Reporting requirements.--Section 6041 (relating to 
     information at source) is amended by adding at the end the 
     following new subsection:
       ``(f) Section to Apply to Punitive Damages Compensation.--
     This section shall apply to payments by a person to or on 
     behalf of another person as insurance or otherwise by reason 
     of the other person's liability (or agreement) to pay 
     punitive damages.''.
       (3) Conforming amendment.--The table of sections for part 
     II of subchapter B of chapter 1 is amended by adding at the 
     end the following new item:

``Sec. 91. Punitive damages compensated by insurance or otherwise.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to damages paid or incurred on or after the date 
     of the enactment of this Act.

     SEC. 447. LIMITATION OF EMPLOYER DEDUCTION FOR CERTAIN 
                   ENTERTAINMENT EXPENSES.

       (a) In General.--Paragraph (2) of section 274(e) (relating 
     to expenses treated as compensation) is amended to read as 
     follows:
       ``(2) Expenses treated as compensation.--Expenses for 
     goods, services, and facilities, to the extent that the 
     expenses do not exceed the amount of the expenses which are 
     treated by the taxpayer, with respect to the recipient of the 
     entertainment, amusement, or recreation, as compensation to 
     an employee on the taxpayer's return of tax under this 
     chapter and as wages to such employee for purposes of chapter 
     24 (relating to withholding of income tax at source on 
     wages).''.
       (b) Persons Not Employees.--Paragraph (9) of section 274(e) 
     is amended by striking ``to the extent that the expenses are 
     includible in the gross income'' and inserting ``to the 
     extent that the expenses do not exceed the amount of the 
     expenses which are includible in the gross income''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses incurred after the date of the 
     enactment of this Act.

     SEC. 448. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO 
                   EXPATRIATE.

       (a) In General.--Subpart A of part II of subchapter N of 
     chapter 1 is amended by inserting after section 877 the 
     following new section:

     ``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.
     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2005, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2004' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election to Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the taxable year during which the 
     expatriation date occurs, or
       ``(B)(i) the individual's relinquishment of United States 
     citizenship occurs before such individual attains age 18\1/
     2\, and
       ``(ii) the individual has been a resident of the United 
     States (as so defined) for not more than 5 taxable years 
     before the date of relinquishment.
       ``(d) Exempt Property; Special Rules for Pension Plans.--
       ``(1) Exempt property.--This section shall not apply to the 
     following:
       ``(A) United states real property interests.--Any United 
     States real property interest (as defined in section 
     897(c)(1)), other than stock of a United States real property 
     holding corporation which does not, on the day before the 
     expatriation date, meet the requirements of section 
     897(c)(2).
       ``(B) Specified property.--Any property or interest in 
     property not described in subparagraph (A) which the 
     Secretary specifies in regulations.

[[Page S686]]

       ``(2) Special rules for certain retirement plans.--
       ``(A) In general.--If a covered expatriate holds on the day 
     before the expatriation date any interest in a retirement 
     plan to which this paragraph applies--
       ``(i) such interest shall not be treated as sold for 
     purposes of subsection (a)(1), but
       ``(ii) an amount equal to the present value of the 
     expatriate's nonforfeitable accrued benefit shall be treated 
     as having been received by such individual on such date as a 
     distribution under the plan.
       ``(B) Treatment of subsequent distributions.--In the case 
     of any distribution on or after the expatriation date to or 
     on behalf of the covered expatriate from a plan from which 
     the expatriate was treated as receiving a distribution under 
     subparagraph (A), the amount otherwise includible in gross 
     income by reason of the subsequent distribution shall be 
     reduced by the excess of the amount includible in gross 
     income under subparagraph (A) over any portion of such amount 
     to which this subparagraph previously applied.
       ``(C) Treatment of subsequent distributions by plan.--For 
     purposes of this title, a retirement plan to which this 
     paragraph applies, and any person acting on the plan's 
     behalf, shall treat any subsequent distribution described in 
     subparagraph (B) in the same manner as such distribution 
     would be treated without regard to this paragraph.
       ``(D) Applicable plans.--This paragraph shall apply to--
       ``(i) any qualified retirement plan (as defined in section 
     4974(c)),
       ``(ii) an eligible deferred compensation plan (as defined 
     in section 457(b)) of an eligible employer described in 
     section 457(e)(1)(A), and
       ``(iii) to the extent provided in regulations, any foreign 
     pension plan or similar retirement arrangements or programs.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.
     Subparagraph (A) or (B) shall not apply to any individual 
     unless the renunciation or voluntary relinquishment is 
     subsequently approved by the issuance to the individual of a 
     certificate of loss of nationality by the United States 
     Department of State.
       ``(4) Long-term resident.--The term `long-term resident' 
     has the meaning given to such term by section 877(e)(2).
       ``(f) Special Rules Applicable to Beneficiaries' Interests 
     in Trust.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     an individual is determined under paragraph (3) to hold an 
     interest in a trust on the day before the expatriation date--
       ``(A) the individual shall not be treated as having sold 
     such interest,
       ``(B) such interest shall be treated as a separate share in 
     the trust, and
       ``(C)(i) such separate share shall be treated as a separate 
     trust consisting of the assets allocable to such share,
       ``(ii) the separate trust shall be treated as having sold 
     its assets on the day before the expatriation date for their 
     fair market value and as having distributed all of its assets 
     to the individual as of such time, and
       ``(iii) the individual shall be treated as having 
     recontributed the assets to the separate trust.
     Subsection (a)(2) shall apply to any income, gain, or loss of 
     the individual arising from a distribution described in 
     subparagraph (C)(ii). In determining the amount of such 
     distribution, proper adjustments shall be made for 
     liabilities of the trust allocable to an individual's share 
     in the trust.
       ``(2) Special rules for interests in qualified trusts.--
       ``(A) In general.--If the trust interest described in 
     paragraph (1) is an interest in a qualified trust--
       ``(i) paragraph (1) and subsection (a) shall not apply, and
       ``(ii) in addition to any other tax imposed by this title, 
     there is hereby imposed on each distribution with respect to 
     such interest a tax in the amount determined under 
     subparagraph (B).
       ``(B) Amount of tax.--The amount of tax under subparagraph 
     (A)(ii) shall be equal to the lesser of--
       ``(i) the highest rate of tax imposed by section 1(e) for 
     the taxable year which includes the day before the 
     expatriation date, multiplied by the amount of the 
     distribution, or
       ``(ii) the balance in the deferred tax account immediately 
     before the distribution determined without regard to any 
     increases under subparagraph (C)(ii) after the 30th day 
     preceding the distribution.
       ``(C) Deferred tax account.--For purposes of subparagraph 
     (B)(ii)--
       ``(i) Opening balance.--The opening balance in a deferred 
     tax account with respect to any trust interest is an amount 
     equal to the tax which would have been imposed on the 
     allocable expatriation gain with respect to the trust 
     interest if such gain had been included in gross income under 
     subsection (a).
       ``(ii) Increase for interest.--The balance in the deferred 
     tax account shall be increased by the amount of interest 
     determined (on the balance in the account at the time the 
     interest accrues), for periods after the 90th day after the 
     expatriation date, by using the rates and method applicable 
     under section 6621 for underpayments of tax for such periods, 
     except that section 6621(a)(2) shall be applied by 
     substituting `5 percentage points' for `3 percentage points' 
     in subparagraph (B) thereof.
       ``(iii) Decrease for taxes previously paid.--The balance in 
     the tax deferred account shall be reduced--

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

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

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

       ``(F) Disposition.--If a trust ceases to be a qualified 
     trust at any time, a covered expatriate disposes of an 
     interest in a qualified trust, or a covered expatriate 
     holding an interest in a qualified trust dies, then, in lieu 
     of the tax imposed by subparagraph (A)(ii), there is hereby 
     imposed a tax equal to the lesser of--
       ``(i) the tax determined under paragraph (1) as if the day 
     before the expatriation date were the date of such cessation, 
     disposition, or death, whichever is applicable, or
       ``(ii) the balance in the tax deferred account immediately 
     before such date.
     Such tax shall be imposed on the trust and each trustee shall 
     be personally liable for the amount of such tax and any other 
     beneficiary of the trust shall be entitled to recover from 
     the covered expatriate or the estate the amount of such tax 
     imposed on the other beneficiary.
       ``(G) Definitions and special rules.--For purposes of this 
     paragraph--
       ``(i) Qualified trust.--The term `qualified trust' means a 
     trust which is described in section 7701(a)(30)(E).
       ``(ii) Vested interest.--The term `vested interest' means 
     any interest which, as of the day before the expatriation 
     date, is vested in the beneficiary.
       ``(iii) Nonvested interest.--The term `nonvested interest' 
     means, with respect to any beneficiary, any interest in a 
     trust which is not a vested interest. Such interest shall be 
     determined by assuming the maximum exercise of discretion in 
     favor of the beneficiary and the occurrence of all 
     contingencies in favor of the beneficiary.
       ``(iv) Adjustments.--The Secretary may provide for such 
     adjustments to the bases of assets in a trust or a deferred 
     tax account, and the timing of such adjustments, in order to 
     ensure that gain is taxed only once.
       ``(v) Coordination with retirement plan rules.--This 
     subsection shall not apply to

[[Page S687]]

     an interest in a trust which is part of a retirement plan to 
     which subsection (d)(2) applies.
       ``(3) Determination of beneficiaries' interest in trust.--
       ``(A) Determinations under paragraph (1).--For purposes of 
     paragraph (1), a beneficiary's interest in a trust shall be 
     based upon all relevant facts and circumstances, including 
     the terms of the trust instrument and any letter of wishes or 
     similar document, historical patterns of trust distributions, 
     and the existence of and functions performed by a trust 
     protector or any similar adviser.
       ``(B) Other determinations.--For purposes of this section--
       ``(i) Constructive ownership.--If a beneficiary of a trust 
     is a corporation, partnership, trust, or estate, the 
     shareholders, partners, or beneficiaries shall be deemed to 
     be the trust beneficiaries for purposes of this section.
       ``(ii) Taxpayer return position.--A taxpayer shall clearly 
     indicate on its income tax return--

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

       ``(g) Termination of Deferrals, Etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(49) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(21) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--Section 6103(p)(4) (relating to 
     safeguards) is amended by striking ``or (20)'' each place it 
     appears and inserting ``(20), or (21)''.
       (3) Effective dates.--The amendments made by this 
     subsection shall apply to individuals who relinquish United 
     States citizenship on or after the date of the enactment of 
     this Act.
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(h) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after the date of the 
     enactment of this subsection.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4) Section 6039G(a) is amended by inserting ``or 877A'' 
     after ``section 877(b)''.
       (5) The second sentence of section 6039G(d) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after ``section 
     877(a))''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after the date 
     of the enactment of this Act.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after the date of the 
     enactment of this Act, from an individual or the estate of an 
     individual whose expatriation date (as so defined) occurs 
     after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 449. MODIFICATION OF EXCLUSION FOR CITIZENS LIVING 
                   ABROAD.

       (a) Inflation Adjustment of Foreign Earned Income 
     Limitation.--Clause (ii) of section 911(b)(2)(D) (relating to 
     inflation adjustment) is amended--

[[Page S688]]

       (1) by striking ``2007'' and inserting ``2005'', and
       (2) by striking ``2006'' in subclause (II) and inserting 
     ``2004''.
       (b) Modification of Housing Cost Amount.--
       (1) Minimum amount.--Clause (i) of section 911(c)(1)(B) is 
     amended to read as follows:
       ``(i) 16 percent of the amount (computed on a daily basis) 
     in effect under subsection (b)(2)(D) for the calendar year in 
     which such taxable year begins, multiplied by''.
       (2) Maximum amount of exclusion.--
       (A) In general.--Subparagraph (A) of section 911(c)(1) is 
     amended by inserting ``to the extent such expenses do not 
     exceed the amount determined under paragraph (2)'' after 
     ``the taxable year''.
       (B) Limitation.--Subsection (c) of section 911 is amended 
     by redesignating paragraphs (2) and (3) as paragraphs (3) and 
     (4), respectively, and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Limitation.--The amount determined under this 
     paragraph is an amount equal to the product of--
       ``(A) 30 percent of the amount (computed on a daily basis) 
     in effect under subsection (b)(2)(D) for the calendar year in 
     which the taxable year of the individual begins, multiplied 
     by
       ``(B) the number of days of such taxable year within the 
     applicable period described in subparagraph (A) or (B) of 
     subsection (d)(1).''.
       (C) Conforming amendments.--
       (i) Section 911(d)(4) is amended by striking ``and 
     (c)(1)(B)(ii)'' and inserting ``, (c)(1)(B)(ii), and 
     (c)(2)(B)''
       (ii) Section 911(d)(7) is amended by striking ``subsection 
     (c)(3)'' and inserting ``subsection (c)(4)''.
       (c) Rates of Tax Applicable to Nonexcluded Income.--Section 
     911 (relating to exclusion of certain income of citizens and 
     residents of the United States living abroad) is amended by 
     redesignating subsection (f) as subsection (g) and by 
     inserting after subsection (e) the following new subsection:
       ``(f) Determination of Tax Liability on Nonexcluded 
     Amounts.--If any amount is excluded from the gross income of 
     a taxpayer under subsection (a) for any taxable year, then, 
     notwithstanding section 1 or 55--
       ``(1) the tax imposed by section 1 on the taxpayer for such 
     taxable year shall be equal to the excess (if any) of--
       ``(A) the tax which would be imposed by section 1 for the 
     taxable year if the taxpayer's taxable income were equal to 
     the sum of--
       ``(i) the taxpayer's taxable income for the taxable year 
     (determined without regard to this subsection), plus
       ``(ii) the amount excluded under subsection (a) for the 
     taxable year, over
       ``(B) the tax which would be imposed by section 1 for the 
     taxable year if the taxpayer's taxable income were equal to 
     the amount excluded under subsection (a) for the taxable 
     year, and
       ``(2) the tax imposed by section 55 for such taxable year 
     shall be equal to the excess (if any) of--
       ``(A) the amount which would be the tentative minimum tax 
     under section 55 for the taxable year if the taxpayer's 
     alternative minimum taxable income were equal to the sum of--
       ``(i) the taxpayer's alternative minimum taxable income for 
     the taxable year (determined without regard to this 
     subsection), plus
       ``(ii) the amount excluded under subsection (a) for the 
     taxable year, over
       ``(B) the sum of--
       ``(i) the amount which would be the tentative minimum tax 
     under section 55 for the taxable year if the taxpayer's 
     alternative minimum taxable income were equal to the amount 
     excluded under subsection (a) for the taxable year, plus
       ``(ii) the amount which would be the regular tax for the 
     taxable year if the tax imposed by section 1 were the tax 
     computed under paragraph (1).
     For purposes of this subsection, the amount excluded under 
     subsection (a) shall be reduced by the aggregate amount of 
     any deductions or exclusions disallowed under subsection 
     (d)(6) with respect to such excluded amount.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

     SEC. 450. LIMITATION ON ANNUAL AMOUNTS WHICH MAY BE DEFERRED 
                   UNDER NONQUALIFIED DEFERRED COMPENSATION 
                   ARRANGEMENTS.

       (a) In General.--Section 409A (relating to inclusion of 
     gross income under nonqualified deferred compensation plans) 
     is amended by redesignating subsections (c), (d), and (e) as 
     subsections (d), (e), and (f), respectively, and by inserting 
     after subsection (b) the following new subsection:
       ``(c) Annual Limitation on Aggregate Deferred Amounts.--
       ``(1) Limitation.--If the aggregate amount of compensation 
     which--
       ``(A) is deferred for any taxable year with respect to a 
     participant under 1 or more nonqualified deferred 
     compensation plans maintained by the same employer, and
       ``(B) is not otherwise includible in gross income of the 
     participant for the taxable year,
     exceeds the applicable dollar amount for the taxable year, 
     then such excess shall be included in the participant's gross 
     income for the taxable year.
       ``(2) Inclusion of earnings.--If--
       ``(A) an amount is includible under paragraph (1) in the 
     gross income of a participant for any taxable year, and
       ``(B) any portion of any assets set aside in a trust or 
     other arrangement under a nonqualified deferred compensation 
     plan are properly allocable to such amount,

     then any increase in value in, or earnings with respect to, 
     such portion for the taxable year or any succeeding taxable 
     year shall be included in gross income of the participant for 
     such taxable year or succeeding taxable year.
       ``(3) Applicable dollar amount.--For purposes of this 
     subsection--
       ``(A) In general.--The term `applicable dollar amount' 
     means, with respect to any participant, the lesser of--
       ``(i) the average annual compensation which--

       ``(I) was payable during the base period to the participant 
     by the employer described in paragraph (1)(A), and
       ``(II) was includible in the participant's gross income for 
     taxable years in the base period, or

       ``(ii) $1,000,000.
       ``(B) Base period.--The term `base period' means, with 
     respect to any computation year, the 5-taxable year period 
     ending with the taxable year preceding the taxable year in 
     which the election described in subsection (a)(4)(B) is made 
     by the participant to have compensation for services 
     performed in the computation year deferred under a 
     nonqualified deferred compensation plan, except that if the 
     election is made after the beginning of the computation year, 
     such period shall be the 5-taxable year period ending with 
     the taxable year preceding the computation year. For purposes 
     of this subparagraph, the term `computation year' means any 
     taxable year of the participant for which the limitation 
     under paragraph (1) is being determined.''.
       (b) Conforming Amendments.--Sections 6041(g)(1) and 
     6051(a)(13) are each amended by striking ``409A(d)'' and 
     inserting ``409A(e)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005, except that taxable years beginning on or before such 
     date shall be taken into account in determining the average 
     annual compensation of a participant during any base period 
     for purposes of section 409A(c)(2) of the Internal Revenue 
     Code of 1986 (as added by such amendments).

     SEC. 451. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Treatment of Distributions From Qualified Disability 
     Trusts.--Section 1(g)(4) (relating to net unearned income) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Treatment of distributions from qualified disability 
     trusts.--For purposes of this subsection, in the case of any 
     child who is a beneficiary of a qualified disability trust 
     (as defined in section 642(b)(2)(C)(ii)), any amount included 
     in the income of such child under sections 652 and 662 during 
     a taxable year shall be considered earned income of such 
     child for such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.

                   Subtitle E--Oil and Gas Provisions

     SEC. 461. EXTENSION OF SUPERFUND TAXES.

       (a) Excise Taxes.--Section 4611(e) is amended to read as 
     follows:
       ``(e) Application of Hazardous Substance Superfund 
     Financing Rate.--The Hazardous Substance Superfund financing 
     rate under this section shall apply after December 31, 1986, 
     and before January 1, 1996, and after December 31, 2005, and 
     before January 1, 2015.''
       (b) Corporate Environmental Income Tax.--Section 59A(e) is 
     amended to read as follows:
       ``(e) Application of Tax.--The tax imposed by this section 
     shall apply to taxable years beginning after December 31, 
     1986, and before January 1, 1996, and to taxable years 
     beginning after December 31, 2005, and before January 1, 
     2015.''
       (c) Effective Dates.--
       (1) Excise taxes.--The amendments made by subsection (a) 
     shall take effect on the date of the enactment of this Act.
       (2) Income tax.--The amendment made by subsection (b) shall 
     apply to taxable years beginning after December 31, 2005.

     SEC. 462. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 
                   APPLICABLE TO DUAL CAPACITY TAXPAYERS.

       (a) In General.--Section 901 (relating to credit for taxes 
     of foreign countries and of possessions of the United States) 
     is amended by redesignating subsection (m) as subsection (n) 
     and by inserting after subsection (l) the following new 
     subsection:
       ``(m) Special Rules Relating To Dual Capacity Taxpayers.--
       ``(1) General rule.--Notwithstanding any other provision of 
     this chapter, any amount paid or accrued by a dual capacity 
     taxpayer to a foreign country or possession of the United 
     States for any period shall not be considered a tax--
       ``(A) if, for such period, the foreign country or 
     possession does not impose a generally applicable income tax, 
     or
       ``(B) to the extent such amount exceeds the amount 
     (determined in accordance with regulations) which--
       ``(i) is paid by such dual capacity taxpayer pursuant to 
     the generally applicable income tax imposed by the country or 
     possession, or

[[Page S689]]

       ``(ii) would be paid if the generally applicable income tax 
     imposed by the country or possession were applicable to such 
     dual capacity taxpayer.
     Nothing in this paragraph shall be construed to imply the 
     proper treatment of any such amount not in excess of the 
     amount determined under subparagraph (B).
       ``(2) Dual capacity taxpayer.--For purposes of this 
     subsection, the term `dual capacity taxpayer' means, with 
     respect to any foreign country or possession of the United 
     States, a person who--
       ``(A) is subject to a levy of such country or possession, 
     and
       ``(B) receives (or will receive) directly or indirectly a 
     specific economic benefit (as determined in accordance with 
     regulations) from such country or possession.
       ``(3) Generally applicable income tax.--For purposes of 
     this subsection--
       ``(A) In general.--The term `generally applicable income 
     tax' means an income tax (or a series of income taxes) which 
     is generally imposed under the laws of a foreign country or 
     possession on income derived from the conduct of a trade or 
     business within such country or possession.
       ``(B) Exceptions.--Such term shall not include a tax unless 
     it has substantial application, by its terms and in practice, 
     to--
       ``(i) persons who are not dual capacity taxpayers, and
       ``(ii) persons who are citizens or residents of the foreign 
     country or possession.''
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes paid or accrued in taxable years beginning 
     after the date of the enactment of this Act.
       (2) Contrary treaty obligations upheld.--The amendments 
     made by this section shall not apply to the extent contrary 
     to any treaty obligation of the United States.

     SEC. 463. RULES RELATING TO FOREIGN OIL AND GAS INCOME.

       (a) Separate Basket for Foreign Tax Credit.--
       (1) Separate basket.--
       (A) Years before 2007.--Paragraph (1) of section 904(d) 
     (relating to separate application of section with respect to 
     certain categories of income), as in effect for years 
     beginning before 2007, is amended by striking ``and'' at the 
     end of subparagraph (H), by redesignating subparagraph (I) as 
     subparagraph (J), and by inserting after subparagraph (H) the 
     following new subparagraph:
       ``(I) foreign oil and gas income, and''.
       (B) 2007 and after.--Paragraph (1) of section 904(d), as in 
     effect for years beginning after 2006, is amended by striking 
     ``and'' at the end of subparagraph (A), by striking the 
     period at the end of subparagraph (B) and inserting ``, 
     and'', and by adding at the end the following:
       ``(C) foreign oil and gas income.''
       (2) Definition.--
       (A) Years before 2007.--Paragraph (2) of section 904(d), as 
     in effect for years beginning before 2007, is amended by 
     redesignating subparagraphs (H) and (I) as subparagraphs (I) 
     and (J), respectively, and by inserting after subparagraph 
     (G) the following new subparagraph:
       ``(H) Foreign oil and gas income.--The term `foreign oil 
     and gas income' has the meaning given such term by section 
     954(g).''
       (B) 2007 and after.--Section 904(d)(2), as in effect for 
     years after 2006, is amended by redesignating subparagraphs 
     (J) and (K) as subparagraphs (K) and (L) and by inserting 
     after subparagraph (I) the following:
       ``(J) Foreign oil and gas income.--For purposes of this 
     section--
       ``(i) In general.--The term `foreign oil and gas income' 
     has the meaning given such term by section 954(g).
       ``(ii) Coordination.--Passive category income and general 
     category income shall not include foreign oil and gas income 
     (as so defined).''
       (3) Conforming amendments.--
       (A) Section 904(d)(3)(F)(i) is amended by striking ``or 
     (E)'' and inserting ``(E), or (I)''.
       (B) Section 907(a) is hereby repealed.
       (C) Section 907(c)(4) is hereby repealed.
       (D) Section 907(f) is hereby repealed.
       (4) Effective dates.--
       (A) In general.--The amendments made by this section shall 
     apply to taxable years beginning after the date of the 
     enactment of this Act.
       (B) Years after 2006.--The amendments made by paragraphs 
     (1)(B) and (2)(B) shall apply to taxable years beginning 
     after December 31, 2006.
       (C) Transitional rules.--
       (i) Separate basket treatment.--Any taxes paid or accrued 
     in a taxable year beginning on or before the date of the 
     enactment of this Act, with respect to income which was 
     described in subparagraph (I) of section 904(d)(1) of such 
     Code (as in effect on the day before the date of the 
     enactment of this Act), shall be treated as taxes paid or 
     accrued with respect to foreign oil and gas income to the 
     extent the taxpayer establishes to the satisfaction of the 
     Secretary of the Treasury that such taxes were paid or 
     accrued with respect to foreign oil and gas income.
       (ii) Carryovers.--Any unused oil and gas extraction taxes 
     which under section 907(f) of such Code (as so in effect) 
     would have been allowable as a carryover to the taxpayer's 
     first taxable year beginning after the date of the enactment 
     of this Act (without regard to the limitation of paragraph 
     (2) of such section 907(f) for first taxable year) shall be 
     allowed as carryovers under section 904(c) of such Code in 
     the same manner as if such taxes were unused taxes under such 
     section 904(c) with respect to foreign oil and gas extraction 
     income.
       (iii) Losses.--The amendment made by paragraph (3)(C) shall 
     not apply to foreign oil and gas extraction losses arising in 
     taxable years beginning on or before the date of the 
     enactment of this Act.
       (b) Elimination of Deferral for Foreign Oil and Gas 
     Extraction Income.--
       (1) General rule.--Paragraph (1) of section 954(g) 
     (defining foreign base company oil related income) is amended 
     to read as follows:
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the term `foreign oil and gas income' means any 
     income of a kind which would be taken into account in 
     determining the amount of--
       ``(A) foreign oil and gas extraction income (as defined in 
     section 907(c)), or
       ``(B) foreign oil related income (as defined in section 
     907(c)).''
       (2) Conforming amendments.--
       (A) Subsections (a)(5), (b)(5), and (b)(6) of section 954, 
     and section 952(c)(1)(B)(ii)(I), are each amended by striking 
     ``base company oil related income'' each place it appears 
     (including in the heading of subsection (b)(8)) and inserting 
     ``oil and gas income''.
       (B) Subsection (b)(4) of section 954 is amended by striking 
     ``base company oil-related income'' and inserting ``oil and 
     gas income''.
       (C) The subsection heading for subsection (g) of section 
     954 is amended by striking ``Foreign Base Company Oil Related 
     Income'' and inserting ``Foreign Oil and Gas Income''.
       (D) Subparagraph (A) of section 954(g)(2) is amended by 
     striking ``foreign base company oil related income'' and 
     inserting ``foreign oil and gas income''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years of foreign corporations 
     beginning after the date of the enactment of this Act, and to 
     taxable years of United States shareholders ending with or 
     within such taxable years of foreign corporations.

     SEC. 464. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE.

       (a) Taxable Years Ending Before 2006.--
       (1) Modification of phaseout.--
       (A) In general.--Section 29(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 29(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 
     2005.--Section 29(b)(2), as amended by paragraph (1), is 
     amended by adding at the end the following new sentence: 
     ``This paragraph shall not apply with respect to the $3 
     amount in subsection (a) for calendar year 2005 and the 
     amount in effect under subsection (a) for sales in such 
     calendar year shall be the amount which was in effect for 
     sales in calendar year 2004.''.
       (b) Taxable Years Ending After 2005.--
       (1) Modification of phaseout.--
       (A) In general.--Section 45K(b)(1)(A) is amended by 
     inserting ``the calendar year preceding'' before ``the 
     calendar year''.
       (B) Conforming amendments.--Section 45K(b)((2) is amended--
       (i) by striking ``The'' and inserting ``With respect to any 
     calendar year, the'', and
       (ii) by striking ``for the calendar year in which the sale 
     occurs'' and inserting ``for such calendar year''.
       (2) No inflation adjustment for the credit amount in 2005, 
     2006, and 2007.--Section 45K(b)(2), as amended by paragraph 
     (1), is amended by adding at the end the following new 
     sentence: ``This paragraph shall not apply with respect to 
     the $3 amount in subsection (a) for calendar years 2005, 
     2006, and 2007 and the amount in effect under subsection (a) 
     for sales in each such calendar year shall be the amount 
     which was in effect for sales in calendar year 2004.''.
       (3) Treatment of coke and coke gas.--
       (A) Nonapplication of phaseout.--Section 45K(g)(2) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Nonapplication of phaseout.--Subsection (b)(1) shall 
     not apply.''.
       (B) Application of inflation adjustment .--Section 
     45K(g)(2)(B) is amended by inserting ``and the last sentence 
     of subsection (b)(2) shall not apply.''.
       (C) Clarification of qualifying facility.--Section 
     45K(g)(1) is amended by inserting ``(other than from 
     petroleum based products)'' after ``coke or coke gas''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to fuel sold after December 31, 2004.

     SEC. 465. ELIMINATION OF AMORTIZATION OF GEOLOGICAL AND 
                   GEOPHYSICAL EXPENDITURES FOR MAJOR INTEGRATED 
                   OIL COMPANIES.

       (a) In General.--Section 167(h) is amended by adding at the 
     end the following new paragraph:
       ``(5) Nonapplication to major integrated oil companies.--
     This subsection shall not apply with respect to any expenses 
     paid or incurred for any taxable year by any integrated oil 
     company (as defined in section 291(b)(4)) which has an 
     average daily worldwide production of crude oil of at least 
     500,000 barrels for such taxable year.''.

[[Page S690]]

       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendment made by 
     section 1329(a) of the Energy Policy Act of 2005.

               Subtitle F--Tax Administration Provisions

     SEC. 471. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE 
                   BY GOVERNMENT ENTITIES.

       (a) In General.--Section 3402 is amended by adding at the 
     end the following new subsection:
       ``(t) Extension of Withholding to Certain Payments Made by 
     Government Entities.--
       ``(1) General rule.--The Government of the United States, 
     every State, every political subdivision thereof, and every 
     instrumentality of the foregoing (including multi-State 
     agencies) making any payment for goods and services which is 
     subject to withholding shall deduct and withhold from such 
     payment a tax in an amount equal to 3 percent of such 
     payment.
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     payment--
       ``(A) except as provided in subparagraph (B), which is 
     subject to withholding under any other provision of this 
     chapter or chapter 3,
       ``(B) which is subject to withholding under section 3406 
     and from which amounts are being withheld under such section,
       ``(C) of interest,
       ``(D) for real property,
       ``(E) to any tax-exempt entity, foreign government, or 
     other entity subject to the requirements of paragraph (1),
       ``(F) made pursuant to a classified or confidential 
     contract (as defined in section 6050M(e)(3)), and
       ``(G) made by a political subdivision of a State (or any 
     instrumentality thereof) which makes less than $100,000,000 
     of such payments annually.
       ``(3) Coordination with other sections.--For purposes of 
     sections 3403 and 3404 and for purposes of so much of 
     subtitle F (except section 7205) as relates to this chapter, 
     payments to any person of any payment for goods and services 
     which is subject to withholding shall be treated as if such 
     payments were wages paid by an employer to an employee.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 2005.

     SEC. 472. INCREASE IN CERTAIN CRIMINAL PENALTIES.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``Any person'' and inserting the following:
       ``(a) In General.--Any person'', and
       (ii) by striking ``$25,000'' and inserting ``$50,000'',
       (B) in the third sentence, by striking ``section'' and 
     inserting ``subsection'', and
       (C) by adding at the end the following new subsection:
       ``(b) Aggravated Failure to File.--
       ``(1) In general.--In the case of any failure described in 
     paragraph (2), the first sentence of subsection (a) shall be 
     applied by substituting--
       ``(A) `felony' for `misdemeanor',
       ``(B) `$500,000 ($1,000,000' for `$25,000 ($100,000', and
       ``(C) `10 years' for `1 year'.
       ``(2) Failure described.--A failure described in this 
     paragraph is a failure to make a return described in 
     subsection (a) for a period of 3 or more consecutive taxable 
     years.''.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$500,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to actions, and failures to act, occurring after 
     the date of the enactment of this Act.

     SEC. 473. REPEAL OF SUSPENSION OF INTEREST AND CERTAIN 
                   PENALTIES WHERE SECRETARY FAILS TO CONTACT 
                   TAXPAYER.

       (a) In General.--Section 6404 (relating to abatements) is 
     amended by striking subsection (g) and by redesignating 
     subsections (h) and (i) as subsections (g) and (h), 
     respectively.
       (b) Effective Date.--The amendments made by this section 
     shall apply to returns of tax filed after December 31, 2005.

     SEC. 474. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY 
                   ORDERS.

       (a) In General.--Section 6657 (relating to bad checks) is 
     amended--
       (1) by striking ``$750'' and inserting ``$1,250'', and
       (2) by striking ``$15'' and inserting ``$25''.
       (b) Effective Date.--The amendments made by this section 
     apply to checks or money orders received after the date of 
     the enactment of this Act.

     SEC. 475. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

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

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

       ``(ii) an application under--

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

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

[[Page S691]]

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

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

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

     SEC. 476. PARTIAL PAYMENTS REQUIRED WITH SUBMISSION OF 
                   OFFERS-IN-COMPROMISE.

       (a) In General.--Section 7122 (relating to compromises), as 
     amended by this Act, is amended by redesignating subsections 
     (c), (d), and (e) as subsections (d), (e), and (f), 
     respectively, and by inserting after subsection (b) the 
     following new subsection:
       ``(c) Rules for Submission of Offers-in-Compromise.--
       ``(1) Partial payment required with submission.--
       ``(A) Lump-sum offers.--
       ``(i) In general.--The submission of any lump-sum offer-in-
     compromise shall be accompanied by the payment of 20 percent 
     of amount of such offer.
       ``(ii) Lump-sum offer-in-compromise.--For purposes of this 
     section, the term `lump-sum offer-in-compromise' means any 
     offer of payments made in 5 or fewer installments.
       ``(B) Periodic payment offers.--The submission of any 
     periodic payment offer-in-compromise shall be accompanied by 
     the payment of the amount of the first proposed installment 
     and each proposed installment due during the period such 
     offer is being evaluated for acceptance and has not been 
     rejected by the Secretary. Any failure to make a payment 
     required under the preceding sentence shall be deemed a 
     withdrawal of the offer-in-compromise.
       ``(2) Rules of application.--
       ``(A) Use of payment.--The application of any payment made 
     under this subsection to the assessed tax or other amounts 
     imposed under this title with respect to such tax may be 
     specified by the taxpayer.
       ``(B) No user fee imposed.--Any user fee which would 
     otherwise be imposed under this section shall not be imposed 
     on any offer-in-compromise accompanied by a payment required 
     under this subsection.
       ``(C) Waiver authority.--The Secretary may issue 
     regulations waiving any payment required under paragraph (1) 
     in a manner consistent with the practices established in 
     accordance with the requirements under subsection (d)(3).''.
       (b) Additional Rules Relating to Treatment of Offers.--
       (1) Unprocessable offer if payment requirements are not 
     met.--Paragraph (3) of section 7122(d) (relating to standards 
     for evaluation of offers), as redesignated by subsection (a), 
     is amended by striking ``; and'' at the end of subparagraph 
     (A) and inserting a comma, by striking the period at the end 
     of subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) any offer-in-compromise which does not meet the 
     requirements of subsection (c) shall be returned to the 
     taxpayer as unprocessable.''.
       (2) Deemed acceptance of offer not rejected within certain 
     period.--Section 7122, as amended by subsection (a), is 
     amended by adding at the end the following new subsection:
       ``(g) Deemed Acceptance of Offer Not Rejected Within 
     Certain Period.--Any offer-in-compromise submitted under this 
     section shall be deemed to be accepted by the Secretary if 
     such offer is not rejected by the Secretary before the date 
     which is 24 months after the date of the submission of such 
     offer (12 months for offers-in-compromise submitted after the 
     date which is 5 years after the date of the enactment of this 
     subsection). For purposes of the preceding sentence, any 
     period during which any tax liability which is the subject of 
     such offer-in-compromise is in dispute in any judicial 
     proceeding shall not be taken in to account in determining 
     the expiration of the 24-month period (or 12-month period, if 
     applicable).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to offers-in-compromise submitted on and after 
     the date which is 60 days after the date of the enactment of 
     this Act.

     SEC. 477. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING 
                   AUTOMATED WITHDRAWALS.

       (a) In General.--Section 6159 (relating to agreements for 
     payment of tax liability in installments) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following:
       ``(e) Waiver of User Fees for Installment Agreements Using 
     Automated Withdrawals.--In the case of a taxpayer who enters 
     into an installment agreement in which automated installment 
     payments are agreed to, the Secretary shall waive the fee (if 
     any) for entering into the installment agreement.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     which is 180 days after the date of the enactment of this 
     Act.

     SEC. 478. TERMINATION OF INSTALLMENT AGREEMENTS.

       (a) In General.--Section 6159(b)(4) (relating to failure to 
     pay an installment or any other tax liability when due or to 
     provide requested financial information) is amended by 
     striking ``or'' at the end of subparagraph (B), by 
     redesignating subparagraph (C) as subparagraph (E), and by 
     inserting after subparagraph (B) the following:
       ``(C) to make a Federal tax deposit under section 6302 at 
     the time such deposit is required to be made,
       ``(D) to file a return of tax imposed under this title by 
     its due date (including extensions), or''.
       (b) Conforming Amendment.--The heading for section 
     6159(b)(4) is amended by striking ``Failure to pay an 
     installment or any other tax liability when due or to provide 
     requested financial information'' and inserting ``Failure to 
     make payments or deposits or file returns when due or to 
     provide requested financial information''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to failures occurring on or after the date of the 
     enactment of this Act.

                   Subtitle G--Additional Provisions

     SEC. 481. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE 
                   HARBOR.

       (a) In General.--The table contained in section 
     6654(d)(1)(C) is amended by striking ``2002 or thereafter'' 
     and inserting ``2002, 2003, 2004, or 2005'' and by adding at 
     the end the following new items:
  ``2006...........................................................111 
  2007 or thereafter.............................................110''.

       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to any installment payment for 
     taxable years beginning after December 31, 2005.

     SEC. 482. LOAN AND REDEMPTION REQUIREMENTS ON POOLED 
                   FINANCING REQUIREMENTS.

       (a) Strengthened Reasonable Expectation Requirement.--
     Subparagraph (A) of section 149(f)(2) (relating to reasonable 
     expectation requirement) is amended to read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to an issue if the issuer reasonably expects 
     that--
       ``(i) as of the close of the 1-year period beginning on the 
     date of issuance of the issue, at least 50 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been used directly or indirectly to make or finance 
     loans to ultimate borrowers, and
       ``(ii) as of the close of the 3-year period beginning on 
     such date of issuance, at least 95 percent of the net 
     proceeds of the issue (as of the close of such period) will 
     have been so used.''.
       (b) Written Loan Commitment and Redemption Requirements.--
     Section 149(f) (relating to treatment of certain pooled 
     financing bonds) is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (6) and (7), respectively, and by 
     inserting after paragraph (3) the following new paragraphs:
       ``(4) Written loan commitment requirement.--
       ``(A) In general.--The requirement of this paragraph is met 
     with respect to an issue if the issuer receives prior to 
     issuance written loan commitments identifying the ultimate 
     potential borrowers of at least 50 percent of the net 
     proceeds of such issue.
       ``(B) Exception.--Subparagraph (A) shall not apply with 
     respect to any issuer which is a State (or an integral part 
     of a State) issuing pooled financing bonds to make or finance 
     loans to subordinate governmental units of such State or to 
     State-created entities providing financing for water-
     infrastructure projects through the federally-sponsored State 
     revolving fund program.
       ``(5) Redemption requirement.--The requirement of this 
     paragraph is met if to the extent that less than the 
     percentage of the proceeds of an issue required to be used 
     under clause (i) or (ii) of paragraph (2)(A) is used by the 
     close of the period identified in such clause, the issuer 
     uses an amount of proceeds equal to the excess of--
       ``(A) the amount required to be used under such clause, 
     over
       ``(B) the amount actually used by the close of such period,
     to redeem outstanding bonds within 90 days after the end of 
     such period.''.
       (c) Elimination of Disregard of Pooled Bonds in Determining 
     Eligibility for Small Issuer Exception to Arbitrage Rebate.--
     Section 148(f)(4)(D)(ii) (relating to aggregation of issuers) 
     is amended by striking

[[Page S692]]

     subclause (II) and by redesignating subclauses (III) and (IV) 
     as subclauses (II) and (III), respectively.
       (d) Conforming Amendments.--
       (1) Section 149(f)(1) is amended by striking ``paragraphs 
     (2) and (3)'' and inserting ``paragraphs (2), (3), (4), and 
     (5)''.
       (2) Section 149(f)(7)(B), as redesignated by subsection 
     (b), is amended by striking ``paragraph (4)(A)'' and 
     inserting ``paragraph (6)(A)''.
       (3) Section 54(l)(2) is amended by striking ``section 
     149(f)(4)(A)'' and inserting ``section 149(f)(6)(A)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 483. REPORTING OF INTEREST ON TAX-EXEMPT BONDS.

       (a) In General.--Section 6049(b)(2) (relating to 
     exceptions) is amended by striking subparagraph (B) and by 
     redesignating subparagraphs (C) and (D) as subparagraphs (B) 
     and (C), respectively.
       (b) Conforming Amendment.--Section 6049(b)(2)(C), as 
     redesignated by subsection (a), is amended by striking 
     ``subparagraph (C)'' and inserting ``subparagraph (B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest earned after December 31, 2005.

                          ____________________