[Congressional Record (Bound Edition), Volume 149 (2003), Part 11]
[House]
[Pages 15115-15132]
[From the U.S. Government Publishing Office, www.gpo.gov]




PROVIDING FOR CONSIDERATION OF H.R. 8, DEATH TAX REPEAL PERMANENCY ACT 
                                OF 2003

  Mr. REYNOLDS. Mr. Speaker, by direction of the Committee on Rules, I 
call up House Resolution 281 and ask for its immediate consideration.
  The Clerk read the resolution, as follows:

                              H. Res. 281

       Resolved, That upon the adoption of this resolution it 
     shall be in order to consider in the House the bill (H.R. 8) 
     to make the repeal of the estate tax permanent. The bill 
     shall be considered as read for amendment. The previous 
     question shall be considered as ordered on the bill and on 
     any amendment thereto to final passage without intervening 
     motion except: (1) one hour of debate on the bill equally 
     divided and controlled by the chairman and ranking minority 
     member of the Committee on Ways and Means; (2) the amendment 
     printed in the report of the Committee on Rules accompanying 
     this resolution, if offered by Representative Pomeroy of 
     North Dakota or his designee, which shall be in order without 
     intervention of any point of order, shall be considered as 
     read, and shall be separately debatable for one hour equally 
     divided and controlled by the proponent and an opponent; and 
     (3) one motion to recommit with or without instructions.

  The SPEAKER pro tempore (Mr. Ose). The gentleman from New York (Mr. 
Reynolds) is recognized for 1 hour.
  Mr. REYNOLDS. Mr. Speaker, for the purpose of debate only, I yield 
the customary 30 minutes to the gentlewoman, and my colleague and 
neighbor, from New York (Ms. Slaughter), pending which I yield myself 
such time as I may consume. During consideration of this resolution, 
all time yielded is for the purposes of debate only.
  Mr. Speaker, House Resolution 281 is a modified closed rule providing 
for the consideration of H.R. 8, the Death Tax Repeal Permanency Act of 
2003, legislation to make the repeal of the estate tax permanent. The 
rule makes in order 1 hour of debate, a minority substitute, and one 
motion to recommit, with or without instructions.
  Mr. Speaker, the issue before us today is certainly not a new one. In 
the 106th session, Congress voted several times in a bipartisan fashion 
to eliminate the death tax. In the 107th session, Congress voted on 
three separate occasions to eliminate the death tax; but with the death 
tax relief set to expire in 2011, we might give Dr. Kevorkian a new 
career as a tax and estate planner.
  Today, we have the opportunity to bury the death tax once and for 
all.
  By way of history, this tax was initially imposed to prevent the very

[[Page 15116]]

wealthy from passing on their wealth from one generation to the next. 
At the time, this well-intentioned tax eased concerns about the growing 
concentration of money and power among a small number of wealthy 
families. Later, it was used to fund national emergencies, and it 
became necessary to maintain these high tax rates in high wartime 
levels during the 1930s and the 1940s, but they remained relatively 
unchanged until the Tax Reform Act of 1976.
  Ironically, the death tax served little of the purpose for which it 
was intended. Rather than prevent the concentrated accumulation of vast 
wealth, the death tax punished savings and thrift and hard work among 
American families. Small businesses and farmers have been unfairly 
penalized for their blood, sweat and tears, paying taxes on already-
taxed assets.
  Instead of investing money on productive measures such as creating 
new jobs or purchasing new equipment, businesses and farms are forced 
to divert their earnings to tax accountants and lawyers just to prepare 
their estates.
  The victims of the death tax are typically hardworking Americans of 
medium-sized estates, farmers and small business owners. Their 
enterprises create jobs and growth and opportunities for our 
communities, but every year those families were literally forced to 
sell the family farm or business just to pay off their death taxes.
  Equally disturbing is the fact that the death tax actually raises 
relatively little revenue for the Federal Government. Some studies have 
found that it may cost the government and taxpayers more in 
administrative and compliance fees than it actually raises in revenue.
  Of course, farmers and ranchers are not the only ones facing an 
unfair and unnecessary burden in the death tax. One study conducted by 
the Public Policy Institute of New York State found that in a 5-year 
period family-owned and -operated businesses on an average spent 
$125,000 per company on tax planning alone. These costs are incurred 
prior to any actual payment of Federal estate taxes. They reported that 
an estimated 14 jobs per business were lost as a result of Federal 
estate tax planning. For just the 365 businesses surveyed, the total 
number of jobs already lost due to the Federal estate tax is 5,100. 
That was just in upstate New York.
  My rural and suburban district in New York is laden with small 
businesses and farms that are owned by hardworking families who pay 
their taxes, create jobs, and contribute not only to the quality of 
life in their community but to the Nation's rich heritage. Is it so 
much to ask that they be able to pass on their industry and hard work, 
their small business or their farm to their children? Why should Uncle 
Sam become the Grim Reaper?
  The fact is they paid their taxes in life on every acre sown, on 
every product sold, and on every dollar earned. They should not be 
taxed in death, too.
  Mr. Speaker, death tax relief was a good idea in the 107th Congress, 
and it is a good idea now. We should not provide this kind of relief 
for only a few years. We should provide it permanently. This kind of 
permanent tax relief for farmers, ranchers, and small business owners 
that will keep the family business growing and growing is just the kind 
of relief that is beginning to get this economy moving.
  Wall Street has shown modest gains not only since Congress passed its 
tax cut plan but even since we began working on the tax cut itself. As 
one media report said, ``Economic advisers credit the tax cuts and 
positive first quarter earnings for the gains.''
  Tax cuts work. They work in helping hardworking families keep more of 
what they earn. They work in allowing people to have greater control 
over decisions to save and invest, and they work in creating jobs and 
creating greater economic opportunity for American families. We are on 
the right course. Let us keep moving forward.
  Mr. Speaker, I urge my colleagues to bury this unfair tax once and 
for all. Vote ``yes'' on the rule and the underlying legislation.
  Mr. Speaker, I reserve the balance of my time.
  Ms. SLAUGHTER. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, I thank my colleague and neighbor from New York for 
yielding me the customary 30 minutes.
  Mr. Speaker, at the outset let me say that those of us who oppose 
this bill love the family farms and small businesses no less than 
anyone else in the Congress. The fact of the matter is that this tax is 
paid now by such a small percentage of people, less than 2 percent in 
the United States, that we believe almost every family farm and every 
small business is covered already by not having to pay estate tax, and 
indeed, the 2 percent who pay it, including the Warren Buffetts and the 
Bill Gateses and his father, all claim that this is a very bad 
direction for us to go in. They do not want to build large kingdoms of 
their own wealth. They are asking that we keep this because it has 
always been the American policy for taxation that it is based upon the 
ability to pay.
  We would be wise, I think, to remember our American history. 
Republican President Teddy Roosevelt, a hero of mine, who led the 
charge to create an inheritance tax, believed that the wealthy had a 
special obligation to the government. He said: ``The man of great 
wealth owes a peculiar obligation to the State because he derives 
special advantages from the mere existence of government.''

                              {time}  1045

  It would also be wise to remember the virtues of responsibility and 
accountability, especially now that the deficit has gone from the $5.6 
trillion surplus to a $400 billion deficit in a little more than 2 
years. The underlying legislation before us today would drain $80 
billion more a year from the already empty Federal Treasury. In other 
words, the money would have to be borrowed.
  Now, what does this say to the American people when we prioritize the 
checkbooks of the wealthiest 2 percent of Americans before paying for 
the health care for our veterans and fully funding education? I know 
that the President pledged to repeal estate tax during his campaign, 
and I am sure that he knows some people in the top 2 percent who will 
benefit from the complete and permanent elimination of the inheritance 
tax.
  In fact, he probably mingled with a few of them just last night 
during the event that kicked off the largest political fund-raising 
drive in our history. But I meet those whose Social Security benefits 
are threatened by the drain on the resources of the government, some of 
the 9 million unemployed and 12 million children that are still without 
the help of the child tax credit. Teddy Roosevelt admonished, and this 
is so important because it is so wise, ``The test of our progress is 
not whether we add more to the abundance of those who have much; it is 
whether we provide enough for those who have too little.''
  I hope that in the short time allocated for discussion of this 
legislation that we do not frighten the family farmers and small 
business owners. As I said, all of them, unless they are among the 
wealthiest 2 percent in the United States, are covered already by not 
paying this tax. They have worked hard to keep their farms from falling 
into bankruptcy, and far too many family farms are going under already. 
They fight hard to keep their small businesses going, and we support 
them in every way that we can, especially during this continued 
economic decline. They are not subject to the estate tax as it 
currently exists. I cannot stress that enough.
  Indeed, one of my colleagues on the Committee on Rules last night 
talked about an event in his home State where the convention hall was 
full and the President said he wanted to make permanent the repeal of 
the estate tax and got a humongous response to that. My colleague on 
the Committee on Rules said that he was sure that not more than 40 
people in that room, if that many, would have benefitted from that 
repeal.
  Special estate tax rules for family farms value their farm land at 
less

[[Page 15117]]

than other land, at between 45 percent and 75 percent of its fair 
market value, and already allows farm couples to exempt up to $2.6 
million from taxes. Family businesses pay less than 1 percent of all 
estate taxes. Family business couples can also exempt up to $2.6 
million from taxes. The Pomeroy substitute provides even more 
protections for them. It excludes from the inheritance tax any estate 
owned by a couple worth $6 million.
  Almost a decade ago, the gentleman from California, the distinguished 
Chair of the Committee on Rules, said on the floor that ``all,'' and in 
parentheses the minority members at that time, ``are asking for fair 
treatment on both sides of the aisle here.'' And I agree with my 
colleague, I want fairness on both sides of the aisle. I would also 
like fairness and a little old-fashioned common sense.
  Under H. Res. 281, only one amendment has been made in order, a 
substitute amendment offered by my friend from, the gentleman from 
North Dakota (Mr. Pomeroy). However, instead of choosing his substitute 
amendment that paid for itself, in other words, took money from 
probably from the tax cut from the very wealthy and paid for what he is 
recommending here, where we would have no further drain on the Treasury 
because it would not have added a single penny to the Federal deficit, 
but instead of making that amendment in order, the Committee on Rules 
made a second amendment in order which only partially offsets the cost 
of the elimination of taxes on estates larger than $3 million.
  Even though H.R. 8 falls short, and fails to offset any of the $80 
billion annual losses it creates and adds to our increasing deficit, it 
is very important to note, Mr. Speaker, that one of the differences 
between H.R. 8 and the Pomeroy substitute amendment is .35 percent. 
That's all. H.R. 8 would permanently remove the estate tax on any 
estate, even those as large as $3 billion or $4 billion or $5 billion 
or larger, and cost the Federal Government more than $800 billion over 
10 years. The Pomeroy amendment would exempt every estate in America, 
except for the wealthiest of the wealthy. Only one-third of 1 percent 
of estates would be so large that they surpassed the generous exclusion 
in the Pomeroy substitute.
  This bill does a great deal for a very few. It really does, again, 
add to the deficit. And the most important thing about it are that the 
people who benefit from it the most are the people who most loudly say 
not to do this; that we do not need it. We would much prefer a stronger 
economy in America.
  Mr. Speaker, I reserve the balance of my time.
  Mr. REYNOLDS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, my friends from the left always bring up class warfare 
every time we have a tax cut discussion in this body. I just would 
point to two aspects of my colleague and friend's remarks.
  First, Henry Aaron and Alicia Munnell, who are two prominent liberal 
economists, concluded in their study of the estate tax the following: 
In short, the estate and gift taxes of the United States have failed to 
achieve their intended purposes. They raise little revenue, they impose 
large excess burdens, and they are unfair.
  Alan Binder, a former member of the Federal Reserve Board, appointed 
by former President Bill Clinton, found that only about 2 percent of 
inequity was attributable to the unequal distribution of inherited 
wealth.
  Joseph Stiglitz, who served as Chairman of President Clinton's 
Council of Economic Advisers, found that the estate tax may ultimately 
increase income equality.
  Those are the same type of things that Republicans or conservatives 
or economists who are right of center have said. So there seems to be 
concurrence on that.
  I would also say that it is sometimes difficult being a member of the 
majority to resolve some of the issues of inside baseball upstairs in 
the Committee on Rules. Sometimes we are attacked because we have open 
rules, sometimes we are attacked because we have closed rules, modified 
rules, or whatever happens. In this instance, we just cannot seem to 
win.
  The unfortunate aspect of this is that we have today for our 
colleagues to consider, in the rule that we now have before us, a 
substitute offered by the Democrats. If the gentleman from North Dakota 
(Mr. Pomeroy) does not want this substitute, he should withdraw it. He 
introduced it, he asked the Committee on Rules to consider it, the 
Committee on Rules did just that.
  We also have a recommit, as we have in each and every single rule 
that we put out on behalf of consideration of legislation since the 
majority took its control in 1995.
  Mr. McGOVERN. Mr. Speaker, will the gentleman yield?
  Mr. REYNOLDS. I yield to the gentleman from Massachusetts, though it 
is unfortunate, as a member of the Committee on Rules, the gentleman 
cannot get time from his side.
  Mr. McGOVERN. Mr. Speaker, I thank the gentleman for yielding. I just 
want to assure the gentleman that on our side of the aisle, we will not 
complain if we get open rules, and we certainly would not be 
complaining as much if the majority allowed the substitute that the 
gentleman from North Dakota (Mr. Pomeroy) wanted to offer, with the 
offsets, so this Estate Tax Bill would be paid for.
  Mr. REYNOLDS. Reclaiming my time, Mr. Speaker, the gentleman from 
North Dakota (Mr. Pomeroy) came before the Committee on Rules and he 
introduced his legislation. There is no time I am aware of, in talking 
to the staff, that the gentleman from North Dakota, from the time he 
brought the legislation for our consideration until today, that he has 
asked to withdraw the substitute.
  So we are moving forward on the Pomeroy substitute. After that is 
considered, we will move forward with the motion to recommit and then 
we will, hopefully, go to final passage.
  Mr. Speaker, I reserve the balance of my time.
  Ms. SLAUGHTER. Mr. Speaker, I yield 3 minutes to the gentleman from 
Massachusetts (Mr. McGovern).
  Mr. McGOVERN. Mr. Speaker, a few weeks ago, President Bush signed a 
huge tax cut into law giving billions and billions of dollars in tax 
cuts to the very, very wealthy. Of course, in the dead of night, the 
Republicans stripped out the child tax credit to help low- and middle-
income American families. But those families do not go to the fund-
raisers at the Hilton, so the leadership does not care about them.
  The other body acted quickly and responsibly to fix the child tax 
problem. The leadership of this House, however, dragged their feet and 
then acted irresponsibly. Finally, last week, after a drumbeat of 
public pressure, we saw a child tax credit bill, sort of. What we 
actually saw was a sham, a distraction, a way to kill the issue with 
one hand while sending out a press release with the other.
  Since the House bill is vastly different and vastly more expensive 
than the Senate bill, the differences have to be worked out in a 
conference committee. Conferees have been appointed, but has the 
conference committee met? No.
  Now, it is clear that the leadership of the Committee on Ways and 
Means is not too busy, since they had time to bring up this week's 
installment of Tax Cut Bonanza, a bill to eliminate the sunset on the 
estate tax. Mr. Speaker, the current sunset does not even expire until 
the year 2010, 7 years from now. Now, the Senate-passed child tax 
credit can help working families today, but, clearly, the Republicans 
would rather help the very wealthy 7 years early.
  This bill would burden our children and our grandchildren with $150 
billion in debt over the next 10 years and hundreds of billions of 
dollars more after that. So why are we considering this bill today? The 
answer is simple: Last night, at the Washington Hilton, all the fat 
cats had a fund-raiser for the President's reelection campaign. For 
$2,000, the people who will benefit from this Estate Tax Bill got a 
hamburger and a handshake from the Republican Party.

[[Page 15118]]

  Now, last night in the Committee on Rules, the gentleman from North 
Dakota (Mr. Pomeroy) offered a substitute that would permanently 
exclude estates worth up to $3 million per person or $6 million for a 
married couple, and would exempt 99.65 percent of estates from estate 
tax liability. He offered a substitute that would have been paid for. 
But last night, keeping with the tradition, the Committee on Rules 
basically disallowed his right to offer that substitute. And, also 
keeping with the tradition of shutting out the voices of average 
working families in this House, they did not allow him to offer his 
substitute that had the offsets.
  So I guess the problem with the approach of the gentleman from North 
Dakota is that the people who were raising all the money last night are 
worth more than $6 million. They want more. And they are the people 
that this leadership in the House cares most about. For those people, 
it is Christmas in June. But the soldier serving our country over in 
Iraq, who makes $16,000 a year, gets nothing, because he cannot afford 
to pay $2,000 for a hamburger at the Hilton.
  Mr. Speaker, I urge my colleagues to defeat the previous question 
vote for the responsible Pomeroy substitute.
  Mr. REYNOLDS. Mr. Speaker, I yield myself such time as I may consume.
  As President Reagan would say, Mr. Speaker, there you go again. Class 
warfare. I do not know about my colleagues, but I go home every 
weekend, and I see farmers, and I see small businesses that have worked 
their hearts out. They have worked hard their whole life on their 
family farm or in their Main Street business. They are not rich, but 
they have an estate. They want to pass it to whoever they want. In most 
instances, that is their children. But to pay the estate tax, they have 
to sell the family farm. And that just is not right, because they paid 
taxes on every single portion of the products, goods, and services and 
then they have to do it again at death tax time.
  They are not rich, although this would certainly help them, but as I 
cited in earlier debate, liberal economists and conservative economists 
all agree the tax does not really do the job. But think about this: The 
actuaries and life underwriters and everybody else are saying, if you 
want to die, you want to do it between now and 2010, because God forbid 
if it is January 1, 2011. This thing does not work anymore.
  It is a reasonable thing to tell America and to show America and 
perform for America with permanent death tax relief. This tax relief is 
reasonable. I understand my colleagues on the left do not believe in 
tax cuts. I accept that. But I also want to remind my colleagues and 
friends, as the gentleman from Massachusetts (Mr. McGovern) has 
indicated, in the Committee on Rules every single amendment had a 
rollcall vote yesterday. They were all heard, they were all debated, 
and they all had a vote.
  We have, in this modified closed rule, included the Pomeroy 
substitute, and we have included a motion to recommit. We will then 
have final passage of whatever comes as the result of our colleagues in 
the conference on the other side.
  Mr. Speaker, I reserve the balance of my time.

                              {time}  1100

  Ms. SLAUGHTER. Mr. Speaker, I yield 3 minutes to the gentlewoman from 
Connecticut (Ms. DeLauro).
  Ms. DeLAURO. Mr. Speaker, this is not about family farms. In 2001, 
only 2 percent of the 2.3 million deaths involved any estate or gift 
tax liability at all. Of those deaths, about one-tenth of 1 percent 
incurred any liability at all involving family farm assets. How many is 
that? What does it translate into? Just 46 family farms incurred any 
estate tax liability at all.
  This bill helps 46 family farms, yet will cost $160 billion. So let 
us not be fooled. This bill is only about protecting those wealthy few, 
and the cost of this legislation comes directly out of vital services, 
job training, education, health care for working families. Even in the 
most robust economy, eliminating the estate tax would be totally 
irresponsible, a giveaway to the richest Americans; but at a time when 
we are experiencing $400 billion in record deficits, 9 million 
Americans are unemployed, eliminating the estate tax is not only 
irresponsible, it is immoral.
  This bill is an insult to the 6.5 million families left out of the 
child tax legislation, 200,000 military families, less than a week 
after the majority cynically maneuvered to kill legislation passed 
overwhelmingly by the ordinary body which would have corrected this 
injustice; and the House majority brings up yet another bill to cut 
taxes for only the wealthiest Americans.
  And if Members think it is only the Democrats that are saying that 
the Republicans are cynical in what they did last week, let me quote a 
senior Senate Republican aide. He said that he expected the tax credits 
for those working families would die in a deadlocked conference, and he 
said further that it appeared that was the intention of the House 
Republicans. And today the Republican whip has said our leadership is 
committed to the bill we sent to the conference. The majority of our 
Members are not going to accept anything else. They wanted to destroy 
the opportunity for working people to be able to get a child tax 
credit. That is what they did last week.
  At a time when there are hard-working, tax-paying minimum-wage-
earning families, families of 12 million children, they have not yet 
received a penny of tax relief. The House's consideration of this bill 
is irresponsible.
  This is a debate about priorities. It is about values. I call on my 
colleagues to turn aside this misguided, reckless bill. I call on 
President Bush to use his moral leadership, help deliver the child tax 
credit to those 6.5 million families, those 12 million children. The 
President should urge his Republican leadership to pass a responsible 
child credit bill that reflects the principles of this great Nation. 
Give those 6.5 million low-income families the tax relief they need. 
They pay taxes, property taxes, sales taxes, excise taxes, payroll 
taxes, 8 percent of their income. Give them the tax relief that they 
need. That is what we should be debating today. Those families have 
earned it.
  Mr. REYNOLDS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, apparently as I cited in my remarks before, some of that 
has not been heard as we get some of the facts out. The left does not 
want to cut taxes. I accept that. I understand that. We are going to 
have a debate; and this House has repeatedly cut taxes, including the 
estate tax in the 106th Congress, the 107th Congress, and now in the 
108th Congress. But Henry Aaron and Alicia Munnell, who are two 
prominent liberal economists, concluded in their study of the estate 
tax, the estate and gift taxes in the United States have failed to 
achieve their intended purposes. They raise little revenue, they impose 
large excess burdens, and they are unfair.
  Alan Binder, a former member of the Federal Reserve Board appointed 
by President Clinton, found that 2 percent of the equity was 
attributable to the unequal distribution of inherited wealth.
  And Joseph Stiglitz, who served on President Clinton's Council of 
Economic Advisors, found the estate tax may ultimately increase income 
inequality. The reason I have cited that a second time in this debate 
is we can keep coming forward and say how bad it is. The liberal 
economists, just as we have seen from right-of-center economists, have 
concurred that this is not a functional tax.
  Mr. Speaker, I yield 4 minutes to the gentleman from Georgia (Mr. 
Linder), a member of the Committee on Rules.
  Mr. LINDER. Mr. Speaker, first of all I would like to say that this 
is a typical rule on a tax bill, and it gives the minority an 
opportunity to put all of their eggs in one basket and to vote on a 
substitute; and that is fair.
  But let me speak to the underlying issue, the bill. I was with 
President Bush some months ago at Harrison High School in Cobb County, 
Georgia. He spoke for about 30 minutes in a gymnasium that was filled 
to the rafters. And at one brief time he said

[[Page 15119]]

we must make permanent the repeal of the death tax, and the place 
exploded in spontaneous applause and cheering. I turned to the person I 
was sitting next to, and I said there are not 40 people in this 
auditorium who are going to benefit from that. They are cheering it 
because they think it is a moral issue. People should be able to pass 
on what they earn and keep.
  Mr. Speaker, why are we so angry at success in this body? What do 
rich people do with their money? They give it away, and they do not 
give it away for tax reasons. Some of the great fortunes that were 
given away, the Fricks, the Carnegies, the Mellons, were given away 
before we had a Tax Code. They were given away because they wanted to, 
and we think they have a right to decide where their money goes. Bill 
Gates gives it in Africa for health reasons; Ted Turner gave $1 billion 
to the United Nations. Let them make that choice, rather than take it 
away from them and make the choice for them.
  I have said this before on this floor, and I want to say it again. 
Some years ago and maybe today, if you want to start a business in some 
great cities, you are visited by a pretty scruffy guy who says we are 
going to let you stay in business, but we want 30 percent of your 
profits. And if you sell the business, we are going to take 20 percent 
of what you make off it; but even the Mafia does not show up at the 
widow's doorstep asking for their share of what is left over. Our 
government does. It is immoral, and it ought to end.
  Ms. SLAUGHTER. Mr. Speaker, I yield 1\1/2\ minutes to the gentleman 
from Massachusetts (Mr. McGovern) to ask a question.
  Mr. McGOVERN. Mr. Speaker, I have a question for either of my 
colleagues on the Committee on Rules. The gentleman's party controls 
the House and the Senate and the White House. My question is when are 
we going to have a child tax credit? When are we going to provide 
relief to that soldier in Iraq who is earning $16,000 a year? We are 
talking about helping millionaires today, and my question is since the 
other side of the aisle controls everything, when are they going to 
bring this child tax credit to the floor?
  Mr. REYNOLDS. Mr. Speaker, will the gentleman yield?
  Mr. McGOVERN. I yield to the gentleman from New York.
  Mr. REYNOLDS. Mr. Speaker, I certainly hope that the Senate will 
quickly respond to the legislation we passed last week, in a prompt 
response to the decision that they wanted to look at the child tax 
credit.
  Mr. McGOVERN. Mr. Speaker, some of the gentleman's colleagues in the 
other body have said quite clearly that they are not going to deal with 
the bill sent over there because it was not paid for. I guess since we 
have Republicans that control the House and the Senate, I would like to 
think that they would get along with each other and resolve some of 
these issues; and the issue of the child tax credit is something that 
would help low-income and moderate-income families right now. They need 
help now, and it seems to me while we are talking about this estate tax 
relief bill today, which takes place 7 years from now, why can we not 
help the people hurting right now.
  Mr. REYNOLDS. If the gentleman would continue to yield, I am a little 
confused. Last week the gentleman voted against the child tax credit.
  Mr. McGOVERN. Mr. Speaker, reclaiming my time, no, I voted against 
the child tax credit that was not paid for.
  Mr. REYNOLDS. Mr. Speaker, I yield 2 minutes to the gentlewoman from 
Tennessee (Mrs. Blackburn).
  Mrs. BLACKBURN. Mr. Speaker, I rise in support of the rule that we 
are discussing that would allow us to consider legislation to 
permanently repeal the death tax.
  Mr. Speaker, I am one of those that truly believes the death tax is a 
triple tax. First, Americans pay a tax when they earn this income. Then 
they buy an asset and spend it, and they pay the tax then. Then when an 
American dies, they have to pay the tax again.
  This tax is a tax that affects all Americans, especially our small 
business owners. In fact, 70 percent of small businesses never make it 
past that first generation because of this tax. It is something that 
prohibits people from being able to pass that business on to the next 
generation.
  In addition, it discourages savings. It discourages investment, and 
it is costing our economy hundreds of thousands of jobs.
  Mr. Speaker, the Americans get it; 89 percent of the people want us 
to permanently eliminate the death tax. Small business owners get it. 
Seniors get it. The farmers in my district in Tennessee, they get it. 
They want us to do away with death taxes. I hope my colleagues on the 
other side of the aisle will also get it and vote in favor of this rule 
and in favor of H.R. 8 to rid our country of an unjust tax that 
penalizes all Americans.
  Ms. SLAUGHTER. Mr. Speaker, I yield 5 minutes to the gentlewoman from 
Connecticut (Ms. DeLauro).
  Ms. DeLAURO. Mr. Speaker, I think it is important to note that we are 
dealing with an issue today that, as has been pointed out, that is 
really not in the realm of debate or action for the next 7 years when 
in fact what I think bears importance is to recount what has happened 
here in the last several weeks about a tax credit for working families, 
people who pay payroll taxes, sales taxes, property taxes and excise 
taxes, people who make between $10,500 and $26,625, again working 
people, who were told that they were part of a tax package, a $350 
billion tax package.
  Oddly enough, their portion of the $350 billion tax package, $3.5 
billion, was stolen out of the bill that the President signed 10 days 
ago, 2 weeks ago in the dead of night, and the promise that was made to 
these individuals was just pulled back in order that we meet the demand 
of those people, 184,000 millionaires in this country, who are going to 
get $93,000 a year in a tax cut; but we could not scale back 1 percent 
of that $350 billion to adjust for these working families.
  So the Senate in a bipartisan way, the other body in a bipartisan 
way, because they said that this was just plain wrong, came to the 
conclusion on a vote of 94 to 2 that we could address this wrongdoing 
and put $3.5 billion into a bill and address this injustice. And they 
paid for it.
  The President, I might add, or his spokesperson, said we ought to do 
what the Senate, the other body, did. It came to the House of 
Representatives where the majority leader of the House said we have 
more important things to do. What is more important? What is more 
important to do, give $93,000 in a tax cut to the wealthiest people in 
this country? Or allow corporations to go overseas and not pay taxes at 
all? Is that more important than the hardworking American families who 
pay taxes, 8 percent of their income in taxes, and they should be 
shortchanged on a $400 tax credit for their children?
  There is a basic and fundamental values issue here about who we care 
about and what we care about in this Nation. We had an opportunity and 
what the Republican leadership did, the other side of the aisle did 
last week, was to in fact come forward with an $82 billion package to 
pay for a $3.5 billion issue, and they did it for one reason; and I 
will quote the Senate Republican aide again.

                              {time}  1115

  A senior Senate Republican aide said he expected the tax credits to 
die in a deadlocked conference which he said appeared to be the 
intention of the House Republicans. It was and is the intention of the 
House Republicans to end this tax credit for these hardworking folks. 
What people may not know is that everybody else in that tax bill is 
going to get their tax relief on July 1. Not the families included 
here. Military families are not going to get it. They are going to have 
to apply for next year. Two hundred thousand military families fighting 
a war, fighting a war on our behalf, they are not going to get it. This 
is an outrage. This should not happen. But over and over and over 
again, and today what we are talking about is a tax cut, repealing, 
permanently, the estate tax which I pointed out earlier, 46 families, 
some of the wealthiest families in the country. And we cannot take care 
of these families.

[[Page 15120]]

  I called on the President and the President said he wanted to see 
this fixed. The President needs to talk to the Republican House 
leadership, take them in hand and say, let's do what's right. Take the 
moral leadership, the moral leadership where the President stood up and 
he fought for the dividend tax cut, again to benefit the wealthiest 
people in this country. I believe he should take on the moral 
leadership to fight for these hardworking families.
  Mr. REYNOLDS. Mr. Speaker, I yield myself such time as I may consume. 
I enjoyed that oratory. I would almost think that she voted for the 
child tax credit last week, but the sad fact is that she did not 
because she voted the other way. She voted no. We sent a bill over to 
the other body. I have listened to the presumptions of the other body, 
of what will happen over there. I have talked to a few Senators. They 
give me the hope that they are so desirous of voting on this that they 
are looking forward to a conference and they are looking forward to 
getting it on the floor.
  The fact is we are talking about permanent estate tax repeal now. 
That is what is coming on the floor as we pass this rule, if the body 
does pass it, and I believe that they will and I believe that we will 
get bipartisan, Democrat-Republican, support for a permanent estate 
tax, death tax, however, you want to look at the reality, repeal. As we 
are listening to the debate shift over to the child tax credit, it is 
fine to lecture what that is and how it all happened.
  The fact is last week I voted for a child tax credit and other tax 
cuts and sent it to the other body. And the fact is the last two 
orators on the Democratic side did not vote for it.
  So as we move forward today back on the death tax to make a permanent 
death tax repeal, Members get to vote up or down on the rule and then 
they get to vote on a substitute and then they get to vote on a 
recommit and then final passage. I look forward to today, because I 
believe that we will get bipartisan support to pass the permanent 
repeal of the death tax.
  Ms. DeLAURO. Mr. Speaker, will the gentleman yield?
  Mr. REYNOLDS. I yield to the gentlewoman from Connecticut.
  Ms. DeLAURO. Mr. Speaker, I would just say to the gentleman, he says 
I voted against that bill last week. I will tell him my view and he can 
dispute this with me. It was a very good feel-good vote on the 
Republican side of the aisle, and that may be where his vote was 
because, according to Republican Senate people, Senator Grassley 
today--I am sorry, a member of the other body--a Senator from the other 
body said he does not have time for a conference. The majority whip in 
this body said no time for a conference. The gentleman felt good about 
voting for that bill because he knew that the Senate was not going to 
do it and, therefore, they were going to kill the child tax credit. He 
can say it over and over again. I would not vote for a bill that was 
instrumental in killing the child tax credit nor was it paid for. The 
bill that I voted for was being paid for.
  Mr. REYNOLDS. I guess she did not have a question.
  Mr. Speaker, I reserve the balance of my time.


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. Latham). All Members are reminded 
against making inappropriate references to the Senate.
  Ms. SLAUGHTER. Mr. Speaker, I yield 5 minutes to the gentleman from 
Massachusetts (Mr. McGovern).
  Mr. McGOVERN. Mr. Speaker, I thank the gentlewoman from New York for 
yielding the time, and I certainly want to associate myself with her 
remarks and the remarks of the gentlewoman from Connecticut. I think it 
is important to kind of set the facts straight here because the 
gentleman from New York, for whom I have a great deal of respect, I 
think has said some things that I believe are a little bit misleading. 
One is those of us on our side of the aisle here, we voted for the 
child tax credit six times. They voted against it six times. We voted 
for it six times. The difference with what we voted for and what they 
ended up voting for is we ended up voting for a child tax credit that 
was fully paid for, with offsets, because we are a little concerned 
quite frankly with the way Republicans are on this tax cut/spending 
spree right now because it is adding to our deficit and adding to our 
debt. This year as a result of their policies, CBO tells us that the 
deficit this year is $400 billion, the biggest single year deficit ever 
recorded in our history. That is what we are worried about over here. 
So we feel very strongly that as we support these tax cut measures to 
help working families, that they be paid for, that the offsets be 
specified.
  The other body came forward with a bill to help deal with the child 
tax credit that was going to cost $10 billion, which was fully paid 
for, with offsets. The majority in the House could not get together 
with their counterparts in the other body, even though they are of the 
same party, but the leadership in this House, I think, is so out of 
touch and so radical when it comes to how they spend the taxpayers' 
money in this country that they could not even come up with a bill that 
even approached anything near what the other body did.
  But what the House leadership did is they came up with a bill that 
would cost $82 billion, that was not paid for. In other words, it was 
all borrowed money, money being borrowed from our children and our 
grandchildren and our great-grandchildren. They all talk about cutting 
taxes, but they, in essence, are raising taxes on our kids, something 
called a debt tax. We are paying an ever increasing amount on the 
interest on the debt that is being accumulated in this country, in 
large part because of their fiscally irresponsible policies.
  So do not tell us that we voted against a child tax credit. We voted 
for it six times. We voted for one that would provide immediate relief 
to these families that we have been talking about for these last 
several weeks, including our military families, men and women serving 
in Iraq right now making a base pay of $16,000 a year. They deserve 
help right now. They work hard, they are defending our country, they 
deserve this child tax credit. We tried to bring to this floor just 
like the majority did in the other body brought to the Senate floor a 
responsible child tax credit bill that was fully paid for. They said 
no.
  We voted for one that was paid for six times and then they came up 
with a sham, a public relations ploy, knowing that it will get lost in 
conference committee or that there would never be a conference 
committee and these low- and medium-income families would get nothing. 
And here we are today debating an estate tax relief bill that takes 
effect 7 years from now. We are talking about lifting the sunset 7 
years from now. There are more important and pressing problems for a 
lot of working families, people who will never get to the point where 
they are going to have to deal with whether or not they are going to 
pay estate tax or not.
  I would just respectfully suggest to the gentleman that his facts are 
a little bit wrong with regard to what we on this side of the aisle 
have tried to do and have been championing.
  Mr. REYNOLDS. Mr. Speaker, I yield myself such time as I may consume.
  I probably need to put the gentleman from California (Mr. Thomas) and 
the gentlewoman from Washington (Ms. Dunn) on notice that when we move 
into the bill on the underlying legislation, we will be talking more on 
the child tax credit than the permanent death tax. I am just encouraged 
to see in the 107th Congress, three votes that occurred on the death 
tax. I saw from 41 to 58 Democratic votes along with Republicans and it 
reassures me that we are on the path of a bipartisan tax cut to end the 
death tax once and for all that is in this country.
  We need to see a couple of things. Individuals and families and 
partnerships or family corporations own 99 percent of all U.S. farms 
and ranches. Think about that. Individuals, family partnerships or 
family corporations own 99 percent of all U.S. farms and ranches. I do 
not want us to ever forget that every acre, every piece of equipment, 
every business has already been taxed

[[Page 15121]]

in life, so why should they be taxed in death.
  Mr. Speaker, I yield 2 minutes to the gentleman from Oklahoma (Mr. 
Sullivan).
  Mr. SULLIVAN. Mr. Speaker, today what we are talking about is ending 
the death tax. I believe it is morally wrong that we tax people on 
their death. They should not have to visit the IRS and the undertaker 
on the same day. I know a story of a couple, a man and a woman, who had 
two children who owned a small business. They passed away, 
unfortunately, and left that business to their children. Their children 
thought they would get this business, maybe get a little money. But 
instead to pay the death tax, they had to actually borrow money to sell 
that business. The Republican Party does not want to tax dead people. 
The Democrat Party does. That is the difference here today.
  Mr. Speaker, I rise today in support of H.R. 8, the Death Tax Repeal 
Permanency Act of 2003. This bill permanently repeals the death tax and 
allows families to pass on businesses and farms to their families 
without the enormous, intrusive and burdensome taxes they are often 
forced to incur. The IRS imposes rates of up to 60 percent of the value 
of a family business or farm when the owner passes away. To pay the tax 
man, many families are forced to liquidate assets and sell their 
businesses and farms though some have been in the family for 
generations.
  The death tax is un-American, Mr. Speaker. Ask any small business 
owner. They know all too well that 70 percent of family businesses do 
not survive to the second generation, and 87 percent do not make it to 
the third. They will tell you that repealing the death tax would create 
jobs and grow our economy. It is good for small business owners, it is 
good for our economy and it is good for America.
  Join me in voting for H.R. 8, the repeal of this burdensome tax on 
family-owned farms and businesses. It is morally wrong.
  Ms. SLAUGHTER. Mr. Speaker, I yield myself 5 seconds. Saying that it 
will preserve family farms from taxation does not make it true. They 
are preserved already from taxation.
  Mr. Speaker, I am pleased to yield 1 minute to the gentlewoman from 
Connecticut (Ms. DeLauro).
  Ms. DeLAURO. Mr. Speaker, on the commentary for my not having voted 
for a child tax credit, let me just say we have voted six times on this 
issue. Democrats have voted for, Republicans voted against, including a 
motion to instruct on which Republicans voted for taking the bill that 
the other body passed and bringing it back here. My interest in this 
effort is not today, it is not yesterday, it is not in the last week.
  On March 12, I introduced the child tax credit in the Committee on 
the Budget and it was voted there for the first time. All of the 
members on the Democratic side voted yes. All of the members on the 
Republican side voted no against the child tax credit. This legislation 
we deal with today goes into effect in 7 years. We have an opportunity 
to right a wrong, to right an injustice, to pass a child tax credit, to 
take the bill, to go to conference and address this issue and allow 
these hardworking people to get their benefit on July 1 as every other 
American who is going to get the benefit of this tax credit will. It is 
wrong to do otherwise.
  Mr. REYNOLDS. Mr. Speaker, I yield myself such time as I may consume.
  I welcome so many from the left to join me in cutting taxes. I look 
forward to that vote when it comes out of conference committee and 
maybe she can join us with that.
  Mr. Speaker, I reserve the balance of my time.
  Ms. SLAUGHTER. Mr. Speaker, I want to remind my colleague from New 
York that the gentleman from Texas (Mr. Stenholm) would really hate to 
be put in that category of a lefty.
  Mr. Speaker, I am pleased to yield 2 minutes to the gentleman from 
North Dakota (Mr. Pomeroy).
  Mr. POMEROY. I thank the gentlewoman for yielding me this time.
  Mr. Speaker, I am going to urge that my colleagues vote against this 
rule. On the one hand, they do allow a Democrat substitute that I am 
pleased to offer, one that would provide very meaningful estate tax 
relief. In fact, it would completely take care of any estate tax 
problem of 99.65 percent of the people of this country. It is far more 
relief than offered under the majority proposal in each of the next 5 
years.
  So these family farms and these small businesses we are going to be 
hearing so much about, the alligator tears we are going to be seeing 
cried on the majority side, we help them and we help them now. On the 
other hand, the majority approach is very different. Nobody gets 
nothing until the wealthiest three-tenths of 1 percent get everything 
that they need. That is why we have the inferior plan on their side 
compared to the more generous benefit of ours.
  There is another very big difference. Theirs would drive the deficit 
higher to the tune of $160 plus billion dollars over 10 years. Why I 
want to vote against this rule is that we had a proposal in the 
amendment that I proposed to the Committee on Rules that would have 
completely paid for the relief we provide. There would have been zero 
impact on the deficit. Yet to my surprise, the substitute allowed in 
order only provides for the tax relief portion and does not provide the 
means by which we avoid any impact on the deficit whatsoever. We wanted 
to close the Enron-like tax shelters.

                              {time}  1130

  We also had some customs fees, and yet they have shielded this, 
stripped it out of the rule; and so what we are allowed on the floor 
will have a deficit impact. I vote against the rule.
  Mr. REYNOLDS. Mr. Speaker, I yield myself such time as I may consume.
  I have got to tell the Members, I have only been here since 1999, but 
it never ceases to amaze me to see something new. Yesterday my 
colleague from North Dakota was before the Committee on Rules 
advocating this substitute that is contained in this rule and another 
one, and he was granted one that he actually spoke for; and today he 
wants to bring down the rule.
  Mr. POMEROY. Mr. Speaker, will the gentleman yield?
  Mr. REYNOLDS. I yield to the gentleman from North Dakota.
  Mr. POMEROY. Mr. Speaker, to my friend from New York, we had within 
the substitute proposed to the Committee on Rules, on which the 
gentleman served so well, a pay-for so we were not going to impact the 
deficit. You took out the pay-for provisions of what we submitted to 
the committee. You make us impact the deficit, although it is only a 
fraction to which the majority proposal impacts the deficit. We know 
you do not care about the deficits. In fact, there has been a $9 
trillion reversal in the financial fortunes of this country within the 
last 2 years. We think enough is enough. We do not want to drive the 
deficit deeper and deeper, and that is why I so wish you would have 
allowed for the pay-for portion proposed to the Committee on Rules to 
be considered.
  I thank the gentleman for yielding.
  Mr. REYNOLDS. Mr. Speaker, did the gentleman come before the 
Committee on Rules and advocate the substitute which is contained in 
the rule today? I think he did, did he not? Did he come and advocate 
two different amendments before the Committee on Rules, this one being 
made that was made as substitute inside the rule? Did he or did he not 
come yesterday before the Committee on Rules and submit testimony 
before us asking for consideration of this substitute?
  Mr. POMEROY. I believe the gentleman was out of the room at the time 
I testified, but I would refer him to the transcript.
  Mr. REYNOLDS. I am happy to bring the record down and bring it here.
  Mr. POMEROY. Does the gentleman want me to answer his question or 
does he not?
  Mr. REYNOLDS. The gentleman and I both know that he was before the 
committee and asked for this amendment to be considered by the 
Committee on Rules and now he wants to bring it down. Is that true or 
not, sir?
  Mr. POMEROY. It is not true.
  Mr. REYNOLDS. Is the gentleman saying he was not in the Committee on

[[Page 15122]]

Rules or that he did not request this substitute in his presentation 
before the Committee on Rules when he spoke on two specific amendments, 
this being one?
  Mr. POMEROY. Mr. Speaker, is the gentleman going to yield to me to 
answer his question?
  Mr. REYNOLDS. I will yield to the gentleman from South Dakota.
  Mr. POMEROY. Then I will proceed to answer. If the gentleman will 
check the transcript of my remarks before the Committee on Rules, I 
asked that the proposal I offered be considered that paid for the 
provision for the very meaningful estate tax relief we extend by 
closing the Enron-type tax loopholes.
  I know you probably do not want that considered on the floor of the 
House. So what you have made in order does not allow us to incorporate 
the pay-fors. I think that is unfortunate. My specific request to the 
chairman of the Committee on Rules was to allow the pay-fors.
  Mr. REYNOLDS. Mr. Speaker, I reclaim my time.
  Mr. Speaker, I must say that in the Committee on Rules, we try to 
work with our side of the aisle to advise a Member if they do not want 
their amendment made in order, they should not offer it in the 
Committee on Rules. Maybe that does not happen to Members on the other 
side of the aisle; but on our side, if someone comes up there and asks 
for consideration of an amendment, they ought to be prepared that it 
might be granted.
  I just want to go back and make sure we do not miss anything on the 
death tax inhibiting economic growth because I have listened to my 
colleagues on both sides of the aisle talk about creating jobs. The 
threat of a resurrected death tax will force American families to make 
inefficient investment decisions and to waste resources in an effort to 
comply with the death tax. Studies show that repealing the death tax 
would create as many as 200,000 extra jobs each year across America. 
Jobs are lost when businesses are liquidated to pay death taxes and to 
make decisions not to expand because of anticipated death tax 
liabilities.
  Mr. Speaker, I reserve the balance of my time.
  Ms. SLAUGHTER. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, I will be calling for a ``no'' vote on the previous 
question. And if it is defeated, I will offer an amendment to the rule. 
The amendment will make in order the portion of the gentleman from 
North Dakota's (Mr. Pomeroy) request that made his amendment budget 
neutral and was paid for. The amendment was offered, but was rejected 
on a party-line vote. At least that part was taken out.
  The Pomeroy substitute will provide substantial tax relief from 
estate taxes. In fact, it grants more generous relief to most estates 
than the Republican bill and grants it immediately. The Pomeroy 
substitute completely exempts all but the largest estates from taxation 
and significantly simplifies tax planning for estates of all sizes. It 
also exempts virtually all family farms and small businesses from 
estate taxes. Furthermore, the Pomeroy substitute will not add one 
single penny to the deficit. Unlike the Republican bill, it will be 
completely paid for.
  Republicans in the House have continued for weeks to block any and 
every bill that provides tax relief to the people who need it most in 
this Nation. Even on the issue of estate tax, they favor the rich over 
the middle- and lower-income working Americans. They continue to take 
care of their wealthy friends again today with yet another deficit-
busting bill. Let us take this opportunity to make in order a 
substitute that will immediately eliminate estate taxes for all estates 
of less than $6 million. That is 99.65 percent of all estates, 99.65; 
and it will also do that without costing any additional dollars to the 
deficit.
  Let me make very clear that a ``no'' vote on the previous question 
will not stop consideration of the Death Tax Repeal Permanency Act of 
2003, but a ``no'' vote will allow the House to vote on the Pomeroy 
substitute which is fully paid for. However, a ``yes'' vote on the 
previous question will prevent us from voting on a fiscally responsible 
and revenue-neutral tax bill. I urge a ``no'' vote on the previous 
question.
  Mr. Speaker, I ask unanimous consent that the text of the amendment 
be printed in the Record immediately before the vote on the previous 
question.
  The SPEAKER pro tempore (Mr. Latham). Is there objection to the 
request of the gentlewoman from New York?
  There was no objection.
  Ms. SLAUGHTER. Mr. Speaker, I yield back the balance of my time.
  Mr. REYNOLDS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I guess I believe, looking up at the press gallery, that 
there is probably a view that it is a fair rule. It is a modified 
closed rule that provides a substitute, then a recommit; and then we 
move on to final passage. So there is not much controversy on the rule. 
And we are in a situation as we move forward on a debate that I believe 
once we get through the process, which is the rule vote, we are going 
to see in final passage, just looking at the 107th Congress, somewhere 
between 41 Democratic colleagues and 58 Democratic colleagues who voted 
for death tax in the past Congress that will join us today in a 
bipartisan message of passing this legislation out of the House and 
having it go to the other body.
  Mr. Speaker, Benjamin Franklin once noted in this world nothing can 
be said to be certain except death and taxes. But while death may be 
certain, taxes are immortal. That is because our current tax system 
plays a cruel joke on farmers and small business owners. Simply put, 
the death tax stifles growth, discourages savings, stymies job 
creation, drains resources, and ruins family businesses. It is time we 
permanently repeal this unfair tax and allow the American Dream to be 
passed on to our children and future generations.
  The material previously referred to by Ms. Slaughter is as follows:

Previous Question for H. Res. 281--Rule on H.R. 8: The Death Tax Repeal 
                         Permanency Act of 2003

       Strike all after the resolving clause and insert in lieu 
     thereof the following:
       That upon the adoption of this resolution it shall be in 
     order to consider in the House the bill (H.R. 8) to make the 
     repeal of the estate tax permanent. The bill shall be 
     considered as read for amendment. The previous question shall 
     be considered as ordered on the bill and on any amendment 
     thereto to final passage without intervening motion except: 
     (1) one hour of debate on the bill equally divided and 
     controlled by the chairman and ranking minority member of the 
     Committee on Ways and Means; (2) the amendment specified in 
     section 2 of this resolution if offered by Representative 
     Pomeroy of North Dakota or his designee, which shall be in 
     order without intervention of any point of order, shall be 
     considered as read, and shall be separately debatable for one 
     hour equally divided and controlled by the proponent and an 
     opponent; and (3) one motion to recommit with our without 
     instructions.
       Sec. 2. The amendment referred to in the first section of 
     this resolution is as follows:

           Amendment in the Nature of a Substitute to H.R. 28

                         Offered by Mr. Pomeroy

       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. AMENDMENT OF 1986 CODE.

       (a) References.--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.
       (b) Table of Contents.--

Sec. 1. Amendment of 1986 code.

     TITLE I--RESTORATION OF ESTATE TAX; REPEAL OF CARRYOVER BASIS

Sec. 101. Restoration of estate tax; repeal of carryover basis.
Sec. 102. Modifications to estate tax.
Sec. 103. Valuation rules for certain transfers of nonbusiness assets; 
              limitation on minority discounts.

         TITLE II--PROVISIONS DESIGNED TO CURTAIL TAX SHELTERS

Sec. 201. Clarification of economic substance doctrine.
Sec. 202. Penalty for failing to disclose reportable transaction.
Sec. 203. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 204. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.

[[Page 15123]]

Sec. 205. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 206. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 207. Disclosure of reportable transactions.
Sec. 208. Modifications to penalty for failure to register tax 
              shelters.
Sec. 209. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 210. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 211. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 212. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 213. Frivolous tax submissions.
Sec. 214. Regulation of individuals practicing before the department of 
              treasury.
Sec. 215. Penalty on promoters of tax shelters.
Sec. 216. Statute of limitations for taxable years for which listed 
              transactions not reported.
Sec. 217. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.

                      TITLE III--OTHER PROVISIONS

Sec. 301. Limitation on transfer or importation of built-in losses.
Sec. 302. Disallowance of certain partnership loss transfers.
Sec. 303. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.
Sec. 304. Repeal of special rules for FASITs.
Sec. 305. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 306. Expanded authority to disallow tax benefits under section 
              269.
Sec. 307. Modifications of certain rules relating to controlled foreign 
              corporations.
Sec. 308. Basis for determining loss always reduced by nontaxed portion 
              of dividends.
Sec. 309. Affirmation of consolidated return regulation authority.
Sec. 310. Extension of customs user fees.

     TITLE I--RESTORATION OF ESTATE TAX; REPEAL OF CARRYOVER BASIS

     SEC. 101. RESTORATION OF ESTATE TAX; REPEAL OF CARRYOVER 
                   BASIS.

       (a) In General.--Subtitles A and E of title V of the 
     Economic Growth and Tax Relief Reconciliation Act of 2001, 
     and the amendments made by such subtitles, are hereby 
     repealed; and the Internal Revenue Code of 1986 shall be 
     applied as if such subtitles, and amendments, had never been 
     enacted.
       (b) Sunset Not To Apply.--
       (1) Subsection (a) of section 901 of the Economic Growth 
     and Tax Relief Reconciliation Act of 2001 is amended by 
     striking ``this Act'' and all that follows and inserting 
     ``this Act (other than title V) shall not apply to taxable, 
     plan, or limitation years beginning after December 31, 
     2010.''.
       (2) Subsection (b) of such section 901 is amended by 
     striking ``, estates, gifts, and transfers''.
       (c) Conforming Amendments.--Subsections (d) and (e) of 
     section 511 of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001, and the amendments made by such 
     subsections, are hereby repealed; and the Internal Revenue 
     Code of 1986 shall be applied as if such subsections, and 
     amendments, had never been enacted.

     SEC. 102. MODIFICATIONS TO ESTATE TAX.

       (a) Increase in Exclusion Equivalent of Unified Credit to 
     $3,000,000.--Subsection (c) of section 2010 (relating to 
     applicable credit amount) is amended by striking all that 
     follows ``the applicable exclusion amount'' and inserting ``. 
     For purposes of the preceding sentence, the applicable 
     exclusion amount is $3,000,000.''.
       (b) Maximum Estate Tax Rate To Remain at 49 Percent; 
     Restoration of Phaseout of Graduated Rates and Unified 
     Credit.--
       (1) Paragraph (1) of section 2001(c) is amended by striking 
     the last 2 items in the table and inserting the following new 
     item:

$780,800, plus 49% of the excess over $2,000,000.''....................

       (2) Paragraph (2) of section 2001(c) is amended to read as 
     follows:
       ``(2) Phaseout of graduated rates and unified credit.--The 
     tentative tax determined under paragraph (1) shall be 
     increased by an amount equal to 5 percent of so much of the 
     amount (with respect to which the tentative tax is to be 
     computed) as exceeds $10,000,000. The amount of the increase 
     under the preceding sentence shall not exceed the sum of the 
     applicable credit amount under section 2010(c) and 
     $199,200.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying, and gifts made, 
     after December 31, 2003.

     SEC. 103. VALUATION RULES FOR CERTAIN TRANSFERS OF 
                   NONBUSINESS ASSETS; LIMITATION ON MINORITY 
                   DISCOUNTS.

       (a) In General.--Section 2031 (relating to definition of 
     gross estate) is amended by redesignating subsection (d) as 
     subsection (f) and by inserting after subsection (c) the 
     following new subsections:
       ``(d) Valuation Rules for Certain Transfers of Nonbusiness 
     Assets.--For purposes of this chapter and chapter 12--
       ``(1) In general.--In the case of the transfer of any 
     interest in an entity other than an interest which is 
     actively traded (within the meaning of section 1092)--
       ``(A) the value of any nonbusiness assets held by the 
     entity shall be determined as if the transferor had 
     transferred such assets directly to the transferee (and no 
     valuation discount shall be allowed with respect to such 
     nonbusiness assets), and
       ``(B) the nonbusiness assets shall not be taken into 
     account in determining the value of the interest in the 
     entity.
       ``(2) Nonbusiness assets.--For purposes of this 
     subsection--
       ``(A) In general.--The term `nonbusiness asset' means any 
     asset which is not used in the active conduct of 1 or more 
     trades or businesses.
       ``(B) Exception for certain passive assets.--Except as 
     provided in subparagraph (C), a passive asset shall not be 
     treated for purposes of subparagraph (A) as used in the 
     active conduct of a trade or business unless--
       ``(i) the asset is property described in paragraph (1) or 
     (4) of section 1221(a) or is a hedge with respect to such 
     property, or
       ``(ii) the asset is real property used in the active 
     conduct of 1 or more real property trades or businesses 
     (within the meaning of section 469(c)(7)(C)) in which the 
     transferor materially participates and with respect to which 
     the transferor meets the requirements of section 
     469(c)(7)(B)(ii).

     For purposes of clause (ii), material participation shall be 
     determined under the rules of section 469(h), except that 
     section 469(h)(3) shall be applied without regard to the 
     limitation to farming activity.
       ``(C) Exception for working capital.--Any asset (including 
     a passive asset) which is held as a part of the reasonably 
     required working capital needs of a trade or business shall 
     be treated as used in the active conduct of a trade or 
     business.
       ``(3) Passive asset.--For purposes of this subsection, the 
     term `passive asset' means any--
       ``(A) cash or cash equivalents,
       ``(B) except to the extent provided by the Secretary, stock 
     in a corporation or any other equity, profits, or capital 
     interest in any entity,
       ``(C) evidence of indebtedness, option, forward or futures 
     contract, notional principal contract, or derivative,
       ``(D) asset described in clause (iii), (iv), or (v) of 
     section 351(e)(1)(B),
       ``(E) annuity,
       ``(F) real property used in 1 or more real property trades 
     or businesses (as defined in section 469(c)(7)(C)),
       ``(G) asset (other than a patent, trademark, or copyright) 
     which produces royalty income,
       ``(H) commodity,
       ``(I) collectible (within the meaning of section 401(m)), 
     or
       ``(J) any other asset specified in regulations prescribed 
     by the Secretary.
       ``(4) Look-thru rules.--
       ``(A) In general.--If a nonbusiness asset of an entity 
     consists of a 10-percent interest in any other entity, this 
     subsection shall be applied by disregarding the 10-percent 
     interest and by treating the entity as holding directly its 
     ratable share of the assets of the other entity. This 
     subparagraph shall be applied successively to any 10-percent 
     interest of such other entity in any other entity.
       ``(B) 10-percent interest.--The term `10-percent interest' 
     means--
       ``(i) in the case of an interest in a corporation, 
     ownership of at least 10 percent (by vote or value) of the 
     stock in such corporation,
       ``(ii) in the case of an interest in a partnership, 
     ownership of at least 10 percent of the capital or profits 
     interest in the partnership, and
       ``(iii) in any other case, ownership of at least 10 percent 
     of the beneficial interests in the entity.
       ``(5) Coordination with subsection (b).--Subsection (b) 
     shall apply after the application of this subsection.
       ``(e) Limitation on Minority Discounts.--For purposes of 
     this chapter and chapter 12, in the case of the transfer of 
     any interest in an entity other than an interest which is 
     actively traded (within the meaning of section 1092), no 
     discount shall be allowed by reason of the fact that the 
     transferee does not have control of such entity if the 
     transferee and members of the family (as defined in section 
     2032A(e)(2)) of the transferee have control of such entity.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to transfers after the date of the enactment of 
     this Act.

         TITLE II--PROVISIONS DESIGNED TO CURTAIL TAX SHELTERS

     SEC. 201. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (m) as subsection (n) and by inserting after 
     subsection (l) the following new subsection:

[[Page 15124]]

       ``(m) Clarification of Economic Substance Doctrine; Etc.--
       ``(1) General rules.--
       ``(A) In general.--In applying the economic substance 
     doctrine, the determination of whether a transaction has 
     economic substance shall be made as provided in this 
     paragraph.
       ``(B) Definition of economic substance.--For purposes of 
     subparagraph (A)--
       ``(i) In general.--A transaction has economic substance 
     only if--

       ``(I) the transaction changes in a meaningful way (apart 
     from Federal tax effects and, if there are any Federal tax 
     effects, also apart from any foreign, State, or local tax 
     effects) the taxpayer's economic position, and

       ``(II) the taxpayer has a substantial nontax purpose for 
     entering into such transaction and the transaction is a 
     reasonable means of accomplishing such purpose.

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

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

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).
       ``(2) Special rules for transactions with tax-indifferent 
     parties.--
       ``(A) Special rules for financing transactions.--The form 
     of a transaction which is in substance the borrowing of money 
     or the acquisition of financial capital directly or 
     indirectly from a tax-indifferent party shall not be 
     respected if the present value of the deductions to be 
     claimed with respect to the transaction is substantially in 
     excess of the present value of the anticipated economic 
     returns of the person lending the money or providing the 
     financial capital. A public offering shall be treated as a 
     borrowing, or an acquisition of financial capital, from a 
     tax-indifferent party if it is reasonably expected that at 
     least 50 percent of the offering will be placed with tax-
     indifferent parties.
       ``(B) Artificial income shifting and basis adjustments.--
     The form of a transaction with a tax-indifferent party shall 
     not be respected if--
       ``(i) it results in an allocation of income or gain to the 
     tax-indifferent party in excess of such party's economic 
     income or gain, or
       ``(ii) it results in a basis adjustment or shifting of 
     basis on account of overstating the income or gain of the 
     tax-indifferent party.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or entity not subject to tax imposed 
     by subtitle A. A person shall be treated as a tax-indifferent 
     party with respect to a transaction if the items taken into 
     account with respect to the transaction have no substantial 
     impact on such person's liability under subtitle A.
       ``(C) Substantial nontax purpose.--In applying subclause 
     (II) of paragraph (1)(B)(i), a purpose of achieving a 
     financial accounting benefit shall not be taken into account 
     in determining whether a transaction has a substantial nontax 
     purpose if the origin of such financial accounting benefit is 
     a reduction of income tax.
       ``(D) Exception for personal transactions of individuals.--
     In the case of an individual, this subsection shall apply 
     only to transactions entered into in connection with a trade 
     or business or an activity engaged in for the production of 
     income.
       ``(E) Treatment of lessors.--In applying subclause (I) of 
     paragraph (1)(B)(ii) to the lessor of tangible property 
     subject to a lease, the expected net tax benefits shall not 
     include the benefits of depreciation, or any tax credit, with 
     respect to the leased property and subclause (II) of 
     paragraph (1)(B)(ii) shall be disregarded in determining 
     whether any of such benefits are allowable.
       ``(4) Other common law doctrines not affected.--Except as 
     specifically provided in this subsection, the provisions of 
     this subsection shall not be construed as altering or 
     supplanting any other rule of law, and the requirements of 
     this subsection shall be construed as being in addition to 
     any such other rule of law.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection. Such regulations may include 
     exemptions from the application of this subsection.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after February 13, 
     2003.

     SEC. 202. PENALTY FOR FAILING TO DISCLOSE REPORTABLE 
                   TRANSACTION.

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

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

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

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

[[Page 15125]]

       ``(1) which is required to file periodic reports under 
     section 13 or 15(d) of the Securities Exchange Act of 1934 or 
     is required to be consolidated with another person for 
     purposes of such reports, and
       ``(2) which--
       ``(A) is required to pay a penalty under this section with 
     respect to a listed transaction,
       ``(B) is required to pay a penalty under section 6662A with 
     respect to any reportable transaction at a rate prescribed 
     under section 6662A(c), or
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction,

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

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

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

     SEC. 203. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS 
                   AND OTHER REPORTABLE TRANSACTIONS HAVING A 
                   SIGNIFICANT TAX AVOIDANCE PURPOSE.

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

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

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

     For purposes of subparagraph (A), any reduction of the excess 
     of deductions allowed for the taxable year over gross income 
     for such year, and any reduction in the amount of capital 
     losses which would (without regard to section 1211) be 
     allowed for such year, shall be treated as an increase in 
     taxable income.
       ``(2) Items to which section applies.--This section shall 
     apply to any item which is attributable to--
       ``(A) any listed transaction, and
       ``(B) any reportable transaction (other than a listed 
     transaction) if a significant purpose of such transaction is 
     the avoidance or evasion of Federal income tax.
       ``(c) Higher Penalty for Nondisclosed Listed and Other 
     Avoidance Transactions.--
       ``(1) In general.--Subsection (a) shall be applied by 
     substituting `30 percent' for `20 percent' with respect to 
     the portion of any reportable transaction understatement with 
     respect to which the requirement of section 6664(d)(2)(A) is 
     not met.
       ``(2) Rules applicable to compromise of penalty.--
       ``(A) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which paragraph (1) 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(B) Applicable rules.--The rules of paragraphs (3), (4), 
     and (5) of section 6707A(d) shall apply for purposes of 
     subparagraph (A).
       ``(d) Definitions of Reportable and Listed Transactions.--
     For purposes of this section, the terms `reportable 
     transaction' and `listed transaction' have the respective 
     meanings given to such terms by section 6707A(c).
       ``(e) Special Rules.--
       ``(1) Coordination with penalties, etc., on other 
     understatements.--In the case of an understatement (as 
     defined in section 6662(d)(2))--
       ``(A) the amount of such understatement (determined without 
     regard to this paragraph) shall be increased by the aggregate 
     amount of reportable transaction understatements and 
     noneconomic substance transaction understatements for 
     purposes of determining whether such understatement is a 
     substantial understatement under section 6662(d)(1), and
       ``(B) the addition to tax under section 6662(a) shall apply 
     only to the excess of the amount of the substantial 
     understatement (if any) after the application of subparagraph 
     (A) over the aggregate amount of reportable transaction 
     understatements and noneconomic substance transaction 
     understatements.
       ``(2) Coordination with other penalties.--
       ``(A) Application of fraud penalty.--References to an 
     underpayment in section 6663 shall be treated as including 
     references to a reportable transaction understatement and a 
     noneconomic substance transaction understatement.
       ``(B) No double penalty.--This section shall not apply to 
     any portion of an understatement on which a penalty is 
     imposed under section 6662B or 6663.
       ``(3) Special rule for amended returns.--Except as provided 
     in regulations, in no event shall any tax treatment included 
     with an amendment or supplement to a return of tax be taken 
     into account in determining the amount of any reportable 
     transaction understatement or noneconomic substance 
     transaction understatement if the amendment or supplement is 
     filed after the earlier of the date the taxpayer is first 
     contacted by the Secretary regarding the examination of the 
     return or such other date as is specified by the Secretary.
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).
       ``(5) Cross reference.--

  ``For reporting of section 6662A(c) penalty to the Securities and 
Exchange Commission, see section 6707A(e).''
       (b) Determination of Other Understatements.--Subparagraph 
     (A) of section 6662(d)(2) is amended by adding at the end the 
     following flush sentence:

     ``The excess under the preceding sentence shall be determined 
     without regard to items to which section 6662A applies and 
     without regard to items with respect to which a penalty is 
     imposed by section 6662B.''
       (c) Reasonable Cause Exception.--
       (1) In general.--Section 6664 is amended by adding at the 
     end the following new subsection:
       ``(d) Reasonable Cause Exception for Reportable Transaction 
     Understatements.--
       ``(1) In general.--No penalty shall be imposed under 
     section 6662A with respect to any portion of a reportable 
     transaction understatement if it is shown that there was a 
     reasonable cause for such portion and that the taxpayer acted 
     in good faith with respect to such portion.
       ``(2) Special rules.--Paragraph (1) shall not apply to any 
     reportable transaction understatement unless--
       ``(A) the relevant facts affecting the tax treatment of the 
     item are adequately disclosed in accordance with the 
     regulations prescribed under section 6011,
       ``(B) there is or was substantial authority for such 
     treatment, and
       ``(C) the taxpayer reasonably believed that such treatment 
     was more likely than not the proper treatment.

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

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

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

       ``(I) is a material advisor (within the meaning of section 
     6111(b)(1)) who participates in the organization, management, 
     promotion, or sale of the transaction or who is related 
     (within the meaning of section 267(b) or 707(b)(1)) to any 
     person who so participates,
       ``(II) is compensated directly or indirectly by a material 
     advisor with respect to the transaction,

[[Page 15126]]

       ``(III) has a fee arrangement with respect to the 
     transaction which is contingent on all or part of the 
     intended tax benefits from the transaction being sustained, 
     or
       ``(IV) as determined under regulations prescribed by the 
     Secretary, has a continuing financial interest with respect 
     to the transaction.

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

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

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

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

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

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

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

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

     SEC. 204. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

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

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(m)(1)) for the transaction giving 
     rise to the claimed tax benefit or the transaction was not 
     respected under section 7701(m)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable to Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (3), (4), 
     and (5) of section 6707A(d) shall apply for purposes of 
     paragraph (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

  ``(1) For coordination of penalty with understatements under section 
6662 and other special rules, see section 6662A(e).
  ``(2) For reporting of penalty imposed under this section to the 
Securities and Exchange Commission, see section 6707A(e).''
       (b) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after February 13, 
     2003.

     SEC. 205. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY 
                   FOR NONREPORTABLE TRANSACTIONS.

       (a) Substantial Understatement of Corporations.--Section 
     6662(d)(1)(B) (relating to special rule for corporations) is 
     amended to read as follows:
       ``(B) Special rule for corporations.--In the case of a 
     corporation other than an S corporation or a personal holding 
     company (as defined in section 542), there is a substantial 
     understatement of income tax for any taxable year if the 
     amount of the understatement for the taxable year exceeds the 
     lesser of--
       ``(i) 10 percent of the tax required to be shown on the 
     return for the taxable year (or, if greater, $10,000), or
       ``(ii) $10,000,000.''
       (b) Reduction for Understatement of Taxpayer Due to 
     Position of Taxpayer or Disclosed Item.--
       (1) In general.--Section 6662(d)(2)(B)(i) (relating to 
     substantial authority) is amended to read as follows:
       ``(i) the tax treatment of any item by the taxpayer if the 
     taxpayer had reasonable belief that the tax treatment was 
     more likely than not the proper treatment, or''.
       (2) Conforming amendment.--Section 6662(d) is amended by 
     adding at the end the following new paragraph:
       ``(3) Secretarial list.--For purposes of this subsection, 
     section 6664(d)(2), and section 6694(a)(1), the Secretary may 
     prescribe a list of positions for which the Secretary 
     believes there is not substantial authority or there is no 
     reasonable belief that the tax treatment is more likely than 
     not the proper tax treatment. Such list (and any revisions 
     thereof) shall be published in the Federal Register or the 
     Internal Revenue Bulletin.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 206. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES 
                   RELATING TO TAXPAYER COMMUNICATIONS.

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

     SEC. 207. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

       ``(a) In General.--Each material advisor with respect to 
     any reportable transaction shall make a return (in such form 
     as the Secretary may prescribe) setting forth--
       ``(1) information identifying and describing the 
     transaction,
       ``(2) information describing any potential tax benefits 
     expected to result from the transaction, and
       ``(3) such other information as the Secretary may 
     prescribe.
     Such return shall be filed not later than the date specified 
     by the Secretary.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Material advisor.--

[[Page 15127]]

       ``(A) In general.--The term `material advisor' means any 
     person--
       ``(i) who provides any material aid, assistance, or advice 
     with respect to organizing, promoting, selling, implementing, 
     or carrying out any reportable transaction, and
       ``(ii) who directly or indirectly derives gross income in 
     excess of the threshold amount for such aid, assistance, or 
     advice.
       ``(B) Threshold amount.--For purposes of subparagraph (A), 
     the threshold amount is--
       ``(i) $50,000 in the case of a reportable transaction 
     substantially all of the tax benefits from which are provided 
     to natural persons, and
       ``(ii) $250,000 in any other case.
       ``(2) Reportable transaction.--The term `reportable 
     transaction' has the meaning given to such term by section 
     6707A(c).
       ``(c) Regulations.--The Secretary may prescribe regulations 
     which provide--
       ``(1) that only 1 person shall be required to meet the 
     requirements of subsection (a) in cases in which 2 or more 
     persons would otherwise be required to meet such 
     requirements,
       ``(2) exemptions from the requirements of this section, and
       ``(3) such rules as may be necessary or appropriate to 
     carry out the purposes of this section.''
       (b) Conforming Amendments.--
       (1) The item relating to section 6111 in the table of 
     sections for subchapter B of chapter 61 is amended to read as 
     follows:

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

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

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

       ``(a) In General.--Each material advisor (as defined in 
     section 6111) with respect to any reportable transaction (as 
     defined in section 6707A(c)) shall maintain, in such manner 
     as the Secretary may by regulations prescribe, a list--
       ``(1) identifying each person with respect to whom such 
     advisor acted as such a material advisor with respect to such 
     transaction, and
       ``(2) containing such other information as the Secretary 
     may by regulations require.

     This section shall apply without regard to whether a material 
     advisor is required to file a return under section 6111 with 
     respect to such transaction.''
       (B) Section 6112 is amended by redesignating subsection (c) 
     as subsection (b).
       (C) Section 6112(b), as redesignated by subparagraph (B), 
     is amended--
       (i) by inserting ``written'' before ``request'' in 
     paragraph (1)(A), and
       (ii) by striking ``shall prescribe'' in paragraph (2) and 
     inserting ``may prescribe''.
       (D) The item relating to section 6112 in the table of 
     sections for subchapter B of chapter 61 is amended to read as 
     follows:

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

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

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

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

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

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

     SEC. 208. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER 
                   TAX SHELTERS.

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

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

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

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

     Subparagraph (B) shall be applied by substituting `75 
     percent' for `50 percent' in the case of an intentional 
     failure or act described in subsection (a).
       ``(c) Rescission Authority.--The provisions of section 
     6707A(d) (relating to authority of Commissioner to rescind 
     penalty) shall apply to any penalty imposed under this 
     section.
       ``(d) Reportable and Listed Transactions.--The terms 
     `reportable transaction' and `listed transaction' have the 
     respective meanings given to such terms by section 
     6707A(c).''.
       (b) Clerical Amendment.--The item relating to section 6707 
     in the table of sections for part I of subchapter B of 
     chapter 68 is amended by striking ``tax shelters'' and 
     inserting ``reportable transactions''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns the due date for which is after the 
     date of the enactment of this Act.

     SEC. 209. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN 
                   LISTS OF INVESTORS.

       (a) In General.--Subsection (a) of section 6708 is amended 
     to read as follows:
       ``(a) Imposition of Penalty.--
       ``(1) In general.--If any person who is required to 
     maintain a list under section 6112(a) fails to make such list 
     available upon written request to the Secretary in accordance 
     with section 6112(b)(1)(A) within 20 business days after the 
     date of the Secretary's request, such person shall pay a 
     penalty of $10,000 for each day of such failure after such 
     20th day.
       ``(2) Reasonable cause exception.--No penalty shall be 
     imposed by paragraph (1) with respect to the failure on any 
     day if such failure is due to reasonable cause.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.

     SEC. 210. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT 
                   RELATED TO TAX SHELTERS AND REPORTABLE 
                   TRANSACTIONS.

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

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

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

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

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

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

     SEC. 211. 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''.

[[Page 15128]]

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

     SEC. 212. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN 
                   FINANCIAL ACCOUNTS.

       (a) In General.--Section 5321(a)(5) of title 31, United 
     States Code, is amended to read as follows:
       ``(5) Foreign financial agency transaction violation.--
       ``(A) Penalty authorized.--The Secretary of the Treasury 
     may impose a civil money penalty on any person who violates, 
     or causes any violation of, any provision of section 5314.
       ``(B) Amount of penalty.--
       ``(i) In general.--Except as provided in subparagraph (C), 
     the amount of any civil penalty imposed under subparagraph 
     (A) shall not exceed $5,000.
       ``(ii) Reasonable cause exception.--No penalty shall be 
     imposed under subparagraph (A) with respect to any violation 
     if--

       ``(I) such violation was due to reasonable cause, and
       ``(II) the amount of the transaction or the balance in the 
     account at the time of the transaction was properly reported.

       ``(C) Willful violations.--In the case of any person 
     willfully violating, or willfully causing any violation of, 
     any provision of section 5314--
       ``(i) the maximum penalty under subparagraph (B)(i) shall 
     be increased to the greater of--

       ``(I) $25,000, or
       ``(II) the amount (not exceeding $100,000) determined under 
     subparagraph (D), and

       ``(ii) subparagraph (B)(ii) shall not apply.
       ``(D) Amount.--The amount determined under this 
     subparagraph is--
       ``(i) in the case of a violation involving a transaction, 
     the amount of the transaction, or
       ``(ii) in the case of a violation involving a failure to 
     report the existence of an account or any identifying 
     information required to be provided with respect to an 
     account, the balance in the account at the time of the 
     violation.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to violations occurring after the date of the 
     enactment of this Act.

     SEC. 213. 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. 214. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE 
                   DEPARTMENT OF TREASURY.

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

     ``The Secretary may impose a monetary penalty on any 
     representative described in the preceding sentence. If the 
     representative was acting on behalf of an employer or any 
     firm or other entity in connection with the conduct giving 
     rise to such penalty, the Secretary may impose a monetary 
     penalty on such employer, firm, or entity if it knew, or 
     reasonably should have known, of such conduct. Such penalty 
     shall not exceed the gross income derived (or to be derived) 
     from the conduct giving rise to the penalty and may be in 
     addition to, or in lieu of, any suspension, disbarment, or 
     censure.''
       (2) Effective date.--The amendments made by this subsection 
     shall apply to actions taken after the date of the enactment 
     of this Act.
       (b) Tax Shelter Opinions, etc.--Section 330 of such title 
     31 is amended by adding at the end the following new 
     subsection:
       ``(d) Nothing in this section or in any other provision of 
     law shall be construed to limit the authority of the 
     Secretary of the Treasury to impose standards applicable to 
     the rendering of written advice with respect to any entity, 
     transaction plan or arrangement, or other plan or 
     arrangement, which is of a type which the Secretary 
     determines as having a potential for tax avoidance or 
     evasion.''

     SEC. 215. PENALTY ON PROMOTERS OF TAX SHELTERS.

       (a) Penalty on Promoting Abusive Tax Shelters.--Section 
     6700(a) is amended by

[[Page 15129]]

     adding at the end the following new sentence: 
     ``Notwithstanding the first sentence, if an activity with 
     respect to which a penalty imposed under this subsection 
     involves a statement described in paragraph (2)(A), the 
     amount of the penalty shall be equal to 50 percent of the 
     gross income derived (or to be derived) from such activity by 
     the person on which the penalty is imposed.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

     SEC. 216. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   LISTED TRANSACTIONS NOT REPORTED.

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

     SEC. 217. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND 
                   NONECONOMIC SUBSTANCE TRANSACTIONS.

       (a) In General.--Section 163 (relating to deduction for 
     interest) is amended by redesignating subsection (m) as 
     subsection (n) and by inserting after subsection (l) the 
     following new subsection:
       ``(m) Interest on Unpaid Taxes Attributable to Nondisclosed 
     Reportable Transactions and Noneconomic Substance 
     Transactions.--No deduction shall be allowed under this 
     chapter for any interest paid or accrued under section 6601 
     on any underpayment of tax which is attributable to--
       ``(1) the portion of any reportable transaction 
     understatement (as defined in section 6662A(b)) with respect 
     to which the requirement of section 6664(d)(2)(A) is not met, 
     or
       ``(2) any noneconomic substance transaction understatement 
     (as defined in section 6662B(c)).''
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act in taxable years ending after such date.

                      TITLE III--OTHER PROVISIONS

     SEC. 301. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN 
                   LOSSES.

       (a) In General.--Section 362 (relating to basis to 
     corporations) is amended by adding at the end the following 
     new subsection:
       ``(e) Limitations on Built-In Losses.--
       ``(1) Limitation on importation of built-in losses.--
       ``(A) In general.--If in any transaction described in 
     subsection (a) or (b) there would (but for this subsection) 
     be an importation of a net built-in loss, the basis of each 
     property described in subparagraph (B) which is acquired in 
     such transaction shall (notwithstanding subsections (a) and 
     (b)) be its fair market value immediately after such 
     transaction.
       ``(B) Property described.--For purposes of subparagraph 
     (A), property is described in this paragraph if--
       ``(i) gain or loss with respect to such property is not 
     subject to tax under this subtitle in the hands of the 
     transferor immediately before the transfer, and
       ``(ii) gain or loss with respect to such property is 
     subject to such tax in the hands of the transferee 
     immediately after such transfer.

     In any case in which the transferor is a partnership, the 
     preceding sentence shall be applied by treating each partner 
     in such partnership as holding such partner's proportionate 
     share of the property of such partnership.
       ``(C) Importation of net built-in loss.--For purposes of 
     subparagraph (A), there is an importation of a net built-in 
     loss in a transaction if the transferee's aggregate adjusted 
     bases of property described in subparagraph (B) which is 
     transferred in such transaction would (but for this 
     paragraph) exceed the fair market value of such property 
     immediately after such transaction.''
       ``(2) Limitation on transfer of built-in losses in section 
     351 transactions.--
       ``(A) In general.--If--
       ``(i) property is transferred in any transaction which is 
     described in subsection (a) and which is not described in 
     paragraph (1) of this subsection, and
       ``(ii) the transferee's aggregate adjusted bases of the 
     property so transferred would (but for this paragraph) exceed 
     the fair market value of such property immediately after such 
     transaction,

     then, notwithstanding subsection (a), the transferee's 
     aggregate adjusted bases of the property so transferred shall 
     not exceed the fair market value of such property immediately 
     after such transaction.
       ``(B) Allocation of basis reduction.--The aggregate 
     reduction in basis by reason of subparagraph (A) shall be 
     allocated among the property so transferred in proportion to 
     their respective built-in losses immediately before the 
     transaction.
       ``(C) Exception for transfers within affiliated group.--
     Subparagraph (A) shall not apply to any transaction if the 
     transferor owns stock in the transferee meeting the 
     requirements of section 1504(a)(2). In the case of property 
     to which subparagraph (A) does not apply by reason of the 
     preceding sentence, the transferor's basis in the stock 
     received for such property shall not exceed its fair market 
     value immediately after the transfer.''
       (b) Comparable Treatment Where Liquidation.--Paragraph (1) 
     of section 334(b) (relating to liquidation of subsidiary) is 
     amended to read as follows:
       ``(1) In general.--If property is received by a corporate 
     distributee in a distribution in a complete liquidation to 
     which section 332 applies (or in a transfer described in 
     section 337(b)(1)), the basis of such property in the hands 
     of such distributee shall be the same as it would be in the 
     hands of the transferor; except that the basis of such 
     property in the hands of such distributee shall be the fair 
     market value of the property at the time of the 
     distribution--
       ``(A) in any case in which gain or loss is recognized by 
     the liquidating corporation with respect to such property, or
       ``(B) in any case in which the liquidating corporation is a 
     foreign corporation, the corporate distributee is a domestic 
     corporation, and the corporate distributee's aggregate 
     adjusted bases of property described in section 362(e)(1)(B) 
     which is distributed in such liquidation would (but for this 
     subparagraph) exceed the fair market value of such property 
     immediately after such liquidation.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions after the date of the enactment 
     of this Act.

     SEC. 302. DISALLOWANCE OF CERTAIN PARTNERSHIP LOSS TRANSFERS.

       (a) Treatment of Contributed Property With Built-In Loss.--
     Paragraph (1) of section 704(c) is amended by striking 
     ``and'' at the end of subparagraph (A), by striking the 
     period at the end of subparagraph (B) and inserting ``, 
     and'', and by adding at the end the following:
       ``(C) if any property so contributed has a built-in loss--
       ``(i) such built-in loss shall be taken into account only 
     in determining the amount of items allocated to the 
     contributing partner, and
       ``(ii) except as provided in regulations, in determining 
     the amount of items allocated to other partners, the basis of 
     the contributed property in the hands of the partnership 
     shall be treated as being equal to its fair market value 
     immediately after the contribution.

     For purposes of subparagraph (C), the term `built-in loss' 
     means the excess of the adjusted basis of the property 
     (determined without regard to subparagraph (C)(ii)) over its 
     fair market value immediately after the contribution.''
       (b) Adjustment to Basis of Partnership Property on Transfer 
     of Partnership Interest if There Is Substantial Built-In 
     Loss.--
       (1) Adjustment required.--Subsection (a) of section 743 
     (relating to optional adjustment to basis of partnership 
     property) is amended by inserting before the period ``or 
     unless the partnership has a substantial built-in loss 
     immediately after such transfer''.
       (2) Adjustment.--Subsection (b) of section 743 is amended 
     by inserting ``or with respect to which there is a 
     substantial built-in loss immediately after such transfer'' 
     after ``section 754 is in effect''.
       (3) Substantial built-in loss.--Section 743 is amended by 
     adding at the end the following new subsection:
       ``(d) Substantial Built-In Loss.--
       ``(1) In general.--For purposes of this section, a 
     partnership has a substantial built-in loss with respect to a 
     transfer of an interest in a partnership if the transferee 
     partner's proportionate share of the adjusted basis of the 
     partnership property exceeds by more than $250,000 the basis 
     of such partner's interest in the partnership.
       ``(2) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out the purposes 
     of paragraph (1) and section 734(d), including regulations 
     aggregating related partnerships and disregarding property 
     acquired by the partnership in an attempt to avoid such 
     purposes.''
       (4) Clerical amendments.--
       (A) The section heading for section 743 is amended to read 
     as follows:

     ``SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE 
                   SECTION 754 ELECTION OR SUBSTANTIAL BUILT-IN 
                   LOSS.''

       (B) The table of sections for subpart C of part II of 
     subchapter K of chapter 1 is amended by striking the item 
     relating to section 743 and inserting the following new item:


[[Page 15130]]


``Sec. 743. Adjustment to basis of partnership property where section 
              754 election or substantial built-in loss.''

       (c) Adjustment to Basis of Undistributed Partnership 
     Property if There Is Substantial Basis Reduction.--
       (1) Adjustment required.--Subsection (a) of section 734 
     (relating to optional adjustment to basis of undistributed 
     partnership property) is amended by inserting before the 
     period ``or unless there is a substantial basis reduction''.
       (2) Adjustment.--Subsection (b) of section 734 is amended 
     by inserting ``or unless there is a substantial basis 
     reduction'' after ``section 754 is in effect''.
       (3) Substantial basis reduction.--Section 734 is amended by 
     adding at the end the following new subsection:
       ``(d) Substantial Basis Reduction.--
       ``(1) In general.--For purposes of this section, there is a 
     substantial basis reduction with respect to a distribution if 
     the sum of the amounts described in subparagraphs (A) and (B) 
     of subsection (b)(2) exceeds $250,000.
       ``(2) Regulations.--

  ``For regulations to carry out this subsection, see section 
743(d)(2).''
       (4) Clerical amendments.--
       (A) The section heading for section 734 is amended to read 
     as follows:

     ``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP 
                   PROPERTY WHERE SECTION 754 ELECTION OR 
                   SUBSTANTIAL BASIS REDUCTION.''

       (B) The table of sections for subpart B of part II of 
     subchapter K of chapter 1 is amended by striking the item 
     relating to section 734 and inserting the following new item:

``Sec. 734. Adjustment to basis of undistributed partnership property 
              where section 754 election or substantial basis 
              reduction.''

       (d) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to contributions made after the date of the 
     enactment of this Act.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to transfers after the date of the enactment of 
     this Act.
       (3) Subsection (c).--The amendments made by subsection (c) 
     shall apply to distributions after the date of the enactment 
     of this Act.

     SEC. 303. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK 
                   HELD BY PARTNERSHIP IN CORPORATE PARTNER.

       (a) In General.--Section 755 is amended by adding at the 
     end the following new subsection:
       ``(c) No Allocation of Basis Decrease to Stock of Corporate 
     Partner.--In making an allocation under subsection (a) of any 
     decrease in the adjusted basis of partnership property under 
     section 734(b)--
       ``(1) no allocation may be made to stock in a corporation 
     which is a partner in the partnership, and
       ``(2) any amount not allocable to stock by reason of 
     paragraph (1) shall be allocated under subsection (a) to 
     other partnership property.

     Gain shall be recognized to the partnership to the extent 
     that the amount required to be allocated under paragraph (2) 
     to other partnership property exceeds the aggregate adjusted 
     basis of such other property immediately before the 
     allocation required by paragraph (2).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions after the date of the enactment 
     of this Act.

     SEC. 304. REPEAL OF SPECIAL RULES FOR FASITS.

       (a) In General.--Part V of subchapter M of chapter 1 
     (relating to financial asset securitization investment 
     trusts) is hereby repealed.
       (b) Conforming Amendments.--
       (1) Paragraph (6) of section 56(g) is amended by striking 
     ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (2) Clause (ii) of section 382(l)(4)(B) is amended by 
     striking ``a REMIC to which part IV of subchapter M applies, 
     or a FASIT to which part V of subchapter M applies,'' and 
     inserting ``or a REMIC to which part IV of subchapter M 
     applies,''.
       (3) Paragraph (1) of section 582(c) is amended by striking 
     ``, and any regular interest in a FASIT,''.
       (4) Subparagraph (E) of section 856(c)(5) is amended by 
     striking the last sentence.
       (5) Paragraph (5) of section 860G(a) is amended by adding 
     ``and'' at the end of subparagraph (B), by striking ``, and'' 
     at the end of subparagraph (C) and inserting a period, and by 
     striking subparagraph (D).
       (6) Subparagraph (C) of section 1202(e)(4) is amended by 
     striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (7) Subparagraph (C) of section 7701(a)(19) is amended by 
     adding ``and'' at the end of clause (ix), by striking ``, 
     and'' at the end of clause (x) and inserting a period, and by 
     striking clause (xi).
       (8) The table of parts for subchapter M of chapter 1 is 
     amended by striking the item relating to part V.
       (c) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2003.
       (2) Exception for existing fasits.--
       (A) In general.--Paragraph (1) shall not apply to any FASIT 
     in existence on the date of the enactment of this Act.
       (B) Transfer of additional assets not permitted.--Except as 
     provided in regulations prescribed by the Secretary of the 
     Treasury or the Secretary's delegate, subparagraph (A) shall 
     cease to apply as of the earliest date after the date of the 
     enactment of this Act that any property is transferred to the 
     FASIT.

     SEC. 305. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON 
                   CONVERTIBLE DEBT.

       (a) In General.--Paragraph (2) of section 163(l) is amended 
     by striking ``or a related party'' and inserting ``or equity 
     held by the issuer (or any related party) in any other 
     person''.
       (b) Conforming Amendment.--Paragraph (3) of section 163(l) 
     is amended by striking ``or a related party'' in the material 
     preceding subparagraph (A) and inserting ``or any other 
     person''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after the date of the 
     enactment of this Act.

     SEC. 306. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER 
                   SECTION 269.

       (a) In General.--Subsection (a) of section 269 (relating to 
     acquisitions made to evade or avoid income tax) is amended to 
     read as follows:
       ``(a) In General.--If--
       ``(1)(A) any person acquires stock in a corporation, or
       ``(B) any corporation acquires, directly or indirectly, 
     property of another corporation and the basis of such 
     property, in the hands of the acquiring corporation, is 
     determined by reference to the basis in the hands of the 
     transferor corporation, and
       ``(2) the principal purpose for which such acquisition was 
     made is evasion or avoidance of Federal income tax by 
     securing the benefit of a deduction, credit, or other 
     allowance,

     then the Secretary may disallow such deduction, credit, or 
     other allowance.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to stock and property acquired after February 13, 
     2003.

     SEC. 307. MODIFICATIONS OF CERTAIN RULES RELATING TO 
                   CONTROLLED FOREIGN CORPORATIONS.

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

     ``Such term shall not include any period if there is only a 
     remote likelihood of an inclusion in gross income under 
     section 951(a)(1)(A)(i) of subpart F income of such 
     corporation for such period.''
       (b) Determination of Pro Rata Share of Subpart F Income.--
     Subsection (a) of section 951 (relating to amounts included 
     in gross income of United States shareholders) is amended by 
     adding at the end the following new paragraph:
       ``(4) Special rules for determining pro rata share of 
     subpart f income.--The pro rata share under paragraph (2) 
     shall be determined by disregarding--
       ``(A) any rights lacking substantial economic effect, and
       ``(B) stock owned by a shareholder who is a tax-indifferent 
     party (as defined in section 7701(m)(3)) if the amount which 
     would (but for this paragraph) be allocated to such 
     shareholder does not reflect such shareholder's economic 
     share of the earnings and profits of the corporation.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years on a controlled foreign 
     corporation beginning after February 13, 2003, and to taxable 
     years of United States shareholder in which or with which 
     such taxable years of controlled foreign corporations end.

     SEC. 308. BASIS FOR DETERMINING LOSS ALWAYS REDUCED BY 
                   NONTAXED PORTION OF DIVIDENDS.

       (a) In General.--Section 1059 (relating to corporate 
     shareholder's basis in stock reduced by nontaxed portion of 
     extraordinary dividends) is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Basis for Determining Loss Always Reduced by Nontaxed 
     Portion of Dividends.--The basis of stock in a corporation 
     (for purposes of determining loss) shall be reduced by the 
     nontaxed portion of any dividend received with respect to 
     such stock if this section does not otherwise apply to such 
     dividend.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to dividends received after the date of the 
     enactment of this Act.

     SEC. 309. AFFIRMATION OF CONSOLIDATED RETURN REGULATION 
                   AUTHORITY.

       (a) In General.--Section 1502 (relating to consolidated 
     return regulations) is amended by adding at the end the 
     following new sentence: ``In prescribing such regulations, 
     the Secretary may prescribe rules applicable to

[[Page 15131]]

     corporations filing consolidated returns under section 1501 
     that are different from other provisions of this title that 
     would apply if such corporations filed separate returns.''
       (b) Result Not Overturned.--Notwithstanding subsection (a), 
     the Internal Revenue Code of 1986 shall be construed by 
     treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in 
     effect on January 1, 2001) as being inapplicable to the type 
     of factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
       (c) Effective Date.--The provisions of this section shall 
     apply to taxable years beginning before, on, or after the 
     date of the enactment of this Act.

     SEC. 310. EXTENSION OF CUSTOMS USER FEES.

       Section 13031(j)(3) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended 
     by striking `September 30, 2003' and inserting `September 30, 
     2013'.

       Amend the title so as to read: ``A bill to amend the 
     Internal Revenue Code of 1986 to restore the estate tax, to 
     limit its applicability to estates of over $3,000,000, to 
     curb abusive tax shelters, and for other purposes.''

  Mr. REYNOLDS. Mr. Speaker, I yield back the balance of my time, and I 
move the previous question on the resolution.
  The SPEAKER pro tempore. The question is on ordering the previous 
question.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.
  Ms. SLAUGHTER. Mr. Speaker, I object to the vote on the ground that a 
quorum is not present and make the point of order that a quorum is not 
present.
  The SPEAKER pro tempore. Evidently a quorum is not present.
  The Sergeant at Arms will notify absent Members.
  Pursuant to clauses 8 and 9 of rule XX, the Chair will reduce to 5 
minutes the minimum time for electronic voting, if ordered, on the 
question of adoption of the resolution and then on the question of the 
Speaker's approval of the Journal, if ordered.
  The vote was taken by electronic device, and there were--yeas 227, 
nays 200, not voting 7, as follows:

                             [Roll No. 284]

                               YEAS--227

     Aderholt
     Akin
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Bereuter
     Biggert
     Bilirakis
     Bishop (UT)
     Blackburn
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonner
     Bono
     Boozman
     Bradley (NH)
     Brown (SC)
     Brown-Waite, Ginny
     Burgess
     Burns
     Burr
     Burton (IN)
     Buyer
     Calvert
     Camp
     Cannon
     Cantor
     Capito
     Carter
     Castle
     Chabot
     Chocola
     Coble
     Cole
     Collins
     Cox
     Crane
     Crenshaw
     Cubin
     Culberson
     Cunningham
     Davis, Jo Ann
     Davis, Tom
     Deal (GA)
     DeLay
     DeMint
     Diaz-Balart, L.
     Diaz-Balart, M.
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Emerson
     English
     Everett
     Feeney
     Ferguson
     Flake
     Fletcher
     Foley
     Forbes
     Fossella
     Franks (AZ)
     Frelinghuysen
     Gallegly
     Garrett (NJ)
     Gerlach
     Gibbons
     Gilchrest
     Gillmor
     Gingrey
     Goode
     Goodlatte
     Goss
     Granger
     Graves
     Green (WI)
     Greenwood
     Gutknecht
     Harris
     Hart
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Hensarling
     Herger
     Hobson
     Hoekstra
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hyde
     Isakson
     Issa
     Istook
     Janklow
     Jenkins
     Johnson (CT)
     Johnson (IL)
     Johnson, Sam
     Jones (NC)
     Keller
     Kelly
     Kennedy (MN)
     King (IA)
     King (NY)
     Kingston
     Kirk
     Kline
     Knollenberg
     Kolbe
     LaHood
     Latham
     LaTourette
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     LoBiondo
     Lucas (OK)
     Manzullo
     McCotter
     McCrery
     McHugh
     McInnis
     McKeon
     Mica
     Miller (FL)
     Miller (MI)
     Miller, Gary
     Moran (KS)
     Murphy
     Musgrave
     Myrick
     Nethercutt
     Neugebauer
     Ney
     Northup
     Norwood
     Nunes
     Nussle
     Osborne
     Ose
     Otter
     Oxley
     Paul
     Pearce
     Pence
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Platts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Putnam
     Quinn
     Radanovich
     Ramstad
     Regula
     Rehberg
     Renzi
     Reynolds
     Rogers (AL)
     Rogers (KY)
     Rogers (MI)
     Rohrabacher
     Ros-Lehtinen
     Royce
     Ryan (WI)
     Ryun (KS)
     Saxton
     Schrock
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherwood
     Shimkus
     Shuster
     Simmons
     Simpson
     Smith (MI)
     Smith (NJ)
     Smith (TX)
     Souder
     Stearns
     Sullivan
     Sweeney
     Tancredo
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thornberry
     Tiahrt
     Tiberi
     Toomey
     Turner (OH)
     Upton
     Vitter
     Walden (OR)
     Walsh
     Wamp
     Weldon (FL)
     Weldon (PA)
     Weller
     Whitfield
     Wicker
     Wilson (NM)
     Wilson (SC)
     Wolf
     Young (AK)
     Young (FL)

                               NAYS--200

     Abercrombie
     Ackerman
     Alexander
     Allen
     Andrews
     Baca
     Baird
     Baldwin
     Ballance
     Becerra
     Bell
     Berkley
     Berman
     Berry
     Bishop (GA)
     Bishop (NY)
     Blumenauer
     Boswell
     Boucher
     Boyd
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Capps
     Capuano
     Cardin
     Cardoza
     Carson (OK)
     Case
     Clay
     Clyburn
     Cooper
     Costello
     Cramer
     Crowley
     Cummings
     Davis (AL)
     Davis (CA)
     Davis (FL)
     Davis (IL)
     Davis (TN)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley (CA)
     Doyle
     Edwards
     Emanuel
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank (MA)
     Frost
     Gonzalez
     Gordon
     Green (TX)
     Grijalva
     Gutierrez
     Hall
     Harman
     Hastings (FL)
     Hill
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley (OR)
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kilpatrick
     Kind
     Kleczka
     Kucinich
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lowey
     Lucas (KY)
     Lynch
     Majette
     Maloney
     Markey
     Marshall
     Matheson
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McIntyre
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Michaud
     Millender-McDonald
     Miller (NC)
     Miller, George
     Mollohan
     Moore
     Moran (VA)
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Peterson (MN)
     Pomeroy
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Ross
     Rothman
     Roybal-Allard
     Ruppersberger
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanchez, Loretta
     Sanders
     Sandlin
     Schakowsky
     Schiff
     Scott (GA)
     Scott (VA)
     Serrano
     Sherman
     Skelton
     Slaughter
     Snyder
     Solis
     Spratt
     Stark
     Stenholm
     Strickland
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson (CA)
     Thompson (MS)
     Tierney
     Towns
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Van Hollen
     Velazquez
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Wexler
     Woolsey
     Wu
     Wynn

                             NOT VOTING--7

     Brady (TX)
     Carson (IN)
     Conyers
     Gephardt
     Lofgren
     Smith (WA)
     Weiner


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. Latham) (during the vote). Members are 
reminded there are 2 minutes remaining on this vote.

                              {time}  1201

  Messrs. PASCRELL, OBEY, BELL, and Ms. BERKLEY changed their vote from 
``yea'' to ``nay.''
  So the previous question was ordered.
  The result of the vote was announced as above recorded.
  The SPEAKER pro tempore. The question is on the resolution.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.


                             Recorded Vote

  Ms. SLAUGHTER. Mr. Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The SPEAKER pro tempore. This will be a 5-minute vote.
  The vote was taken by electronic device, and there were--ayes 230, 
noes 199, not voting 5, as follows:

                             [Roll No. 285]

                               AYES--230

     Aderholt
     Akin
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Bartlett (MD)
     Barton (TX)
     Bass
     Beauprez
     Biggert
     Bilirakis
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     Diaz-Balart, M.
     Doolittle
     Dreier
     Duncan
     Dunn
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     English
     Everett
     Feeney
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     Flake
     Fletcher

[[Page 15132]]


     Foley
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     Young (FL)

                               NOES--199

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     Emanuel
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     Frost
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     Gordon
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     Holden
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     Hooley (OR)
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (OH)
     Kanjorski
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     Kilpatrick
     Kind
     Kleczka
     Kucinich
     Lampson
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     Sanchez, Linda T.
     Sanchez, Loretta
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     Waters
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     Watt
     Waxman
     Wexler
     Woolsey
     Wu
     Wynn

                             NOT VOTING--5

     Carson (IN)
     Gephardt
     Lofgren
     Smith (WA)
     Weiner


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (during the vote). Members are reminded there 
are 2 minutes remaining on this vote.

                              {time}  1208

  So the resolution was agreed to.
  The result of the vote was announced as above recorded.
  A motion to reconsider was laid on the table.

                          ____________________