[Congressional Record (Bound Edition), Volume 149 (2003), Part 9]
[Senate]
[Pages 11593-11737]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           TEXT OF AMENDMENTS

  SA 544. Mr. KENNEDY (for himself, Mr. Daschle, Mr. Bingaman, Mr. 
Durbin, Mr. Reed, Mrs. Clinton, Ms. Cantwell, Mr. Sarbanes, Mr. Levin, 
Mrs. Murray, Mr. Rockefeller, Mr. Kerry, Mr. Baucus, Mr. Schumer, Mr. 
Dodd, and Mr. Corzine) submitted an amendment intended to be proposed 
by him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; as follows:

       At the end, add the following:

                    TITLE--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

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

       (a) In General.--Section 208 of the Temporary Extended 
     Unemployment Compensation Act of 2002 (Public Law 107-147; 
     116 Stat. 30), as amended by Public Law 108-1 (117 Stat. 3), 
     is amended--
       (1) in subsection (a)(2), by striking ``before June 1'' and 
     inserting ``on or before November 30'';
       (2) in subsection (b)(1), by striking ``May 31, 2003'' and 
     inserting ``November 30, 2003'';
       (3) in subsection (b)(2)--
       (A) in the heading, by striking ``may 31, 2003'' and 
     inserting ``november 30, 2003''; and

[[Page 11594]]

       (B) by striking ``May 31, 2003'' and inserting ``November 
     30, 2003''; and
       (4) in subsection (b)(3), by striking ``August 30, 2003'' 
     and inserting ``February 28, 2004''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 21).

     SEC. __02. ENTITLEMENT TO ADDITIONAL WEEKS OF TEMPORARY 
                   EXTENDED UNEMPLOYMENT COMPENSATION.

       (a) Entitlement to Additional Weeks.--
       (1) In general.--Paragraph (1) of section 203(b) of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 28) is amended--
       (A) in subparagraph (A), by striking ``50 percent'' and 
     inserting ``100 percent''; and
       (B) in subparagraph (B), by striking ``13 times'' and 
     inserting ``26 times''.
       (2) Repeal of restriction on augmentation during 
     transitional period.--Section 208(b) of the Temporary 
     Extended Unemployment Compensation Act of 2002 (Public Law 
     107-147), as amended by Public Law 108-1 (117 Stat. 3) and 
     section __01(a), is amended--
       (A) in paragraph (1)--
       (i) by striking ``paragraphs (2) and (3)'' and inserting 
     ``paragraph (2)''; and
       (ii) by inserting before the period at the end the 
     following: ``, including such compensation payable by reason 
     of amounts deposited in such account after such date pursuant 
     to the application of subsection (c) of such section'';
       (B) by striking paragraph (2); and
       (C) by redesignating paragraph (3) as paragraph (2).
       (3) Extension of transition limitation.--Section 208(b)(2) 
     of the Temporary Extended Unemployment Compensation Act of 
     2002 (Public Law 107-147), as amended by Public Law 108-1 
     (117 Stat. 3) and section __01(a)(4) and as redesignated by 
     paragraph (2), is amended by striking ``February 28, 2004'' 
     and inserting ``May 29, 2004''.
       (4) Conforming amendment for augmented benefits.--Section 
     203(c)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended by 
     striking ``the amount originally established in such account 
     (as determined under subsection (b)(1))'' and inserting ``7 
     times the individual's average weekly benefit amount for the 
     benefit year''.
       (b) Effective Date and Application.--
       (1) In general.--The amendments made by subsection (a) 
     shall apply with respect to weeks of unemployment beginning 
     on or after the date of enactment this Act.
       (2) TEUC-X amounts deposited in account prior to date of 
     enactment deemed to be the additional teuc amounts provided 
     by this section.--In applying the amendments made by 
     subsection (a) under the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 26), 
     the Secretary of Labor shall deem any amounts deposited into 
     an individual's temporary extended unemployment compensation 
     account by reason of section 203(c) of such Act (commonly 
     known as ``TEUC-X amounts'') prior to the date of enactment 
     of this Act to be amounts deposited in such account by reason 
     of section 203(b) of such Act, as amended by subsection (a) 
     (commonly known as ``TEUC amounts'').
       (3) Application to exhaustees and current beneficiaries.--
       (A) Exhaustees.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) who exhausted such individual's rights to such 
     compensation (by reason of the payment of all amounts in such 
     individual's temporary extended unemployment compensation 
     account) before such date,

     such individual's eligibility for any additional weeks of 
     temporary extended unemployment compensation by reason of the 
     amendments made by subsection (a) shall apply with respect to 
     weeks of unemployment beginning on or after the date of 
     enactment of this Act.
       (B) Current beneficiaries.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) as to whom the condition described in subparagraph 
     (A)(ii) does not apply,

     such individual shall be eligible for temporary extended 
     unemployment compensation (in accordance with the provisions 
     of the Temporary Extended Unemployment Compensation Act of 
     2002, as amended by subsection (a)) with respect to weeks of 
     unemployment beginning on or after the date of enactment of 
     this Act.
       (4) Redetermination of eligibility for augmented amounts 
     for individuals for whom such a determination was made prior 
     to the date of enactment.--Any determination of whether the 
     individual's State is in an extended benefit period under 
     section 203(c) of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 28) 
     made prior to the date of enactment of this Act shall be 
     disregarded and the determination under such section shall be 
     made as follows:
       (A) Individuals who exhausted all teuc and teuc-x amounts 
     prior to the date of enactment.--In the case of an individual 
     whose temporary extended unemployment account has, prior to 
     the date of enactment of this Act, been both augmented under 
     such section 203(c) and exhausted of all amounts by which it 
     was so augmented, the determination shall be made as of such 
     date of enactment.
       (B) All other individuals.--In the case of an individual 
     who is not described in subparagraph (A), the determination 
     shall be made at the time that the individual's account 
     established under such section 203, as amended by subsection 
     (a), is exhausted.
       (5) No effect on provisions related to displaced airline 
     related workers.--The amendments made by this section and 
     section __01 shall have no effect on the provisions of 
     section 4002 of the Emergency Wartime Supplemental 
     Appropriations Act, 2003 (Public Law 108-11).

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

     SEC. __11. FEDERAL-STATE AGREEMENTS.

       (a) In General.--Any State which desires to do so may enter 
     into and participate in an agreement under this title with 
     the Secretary of Labor (in this title referred to as the 
     ``Secretary''). Any State which is a party to an agreement 
     under this title may, upon providing 30 days' written notice 
     to the Secretary, terminate such agreement.
       (b) Provisions of Agreement.--
       (1) In general.--Subject to paragraph (3), any agreement 
     under subsection (a) shall provide that the State agency of 
     the State, in addition to any amounts of regular compensation 
     to which an individual may be entitled under the State law, 
     shall make payments of temporary enhanced regular 
     unemployment compensation to an individual in an amount and 
     to the extent that the individual would be entitled to 
     regular compensation if the State law were applied with the 
     modifications described in paragraph (2).
       (2) Modifications described.--The modifications described 
     in this paragraph are as follows:
       (A) In the case of an individual who is not eligible for 
     regular compensation under the State law because of the use 
     of a definition of base period that does not count wages 
     earned in the most recently completed calendar quarter, then 
     eligibility for compensation shall be determined by applying 
     a base period ending at the close of the most recently 
     completed calendar quarter.
       (B) In the case of an individual who is not eligible for 
     regular compensation under the State law because such 
     individual does not meet requirements relating to 
     availability for work, active search for work, or refusal to 
     accept work, because such individual is seeking, or is 
     available for, less than full-time work, then compensation 
     shall not be denied by such State to an otherwise eligible 
     individual who seeks less than full-time work or fails to 
     accept full-time work.
       (3) Reduction of amounts of regular compensation available 
     for individuals who sought part-time work or failed to accept 
     full-time work.--Any agreement under subsection (a) shall 
     provide that the State agency of the State shall reduce the 
     amount of regular compensation available to an individual who 
     has received temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in paragraph (2)(B) by the amount of 
     such temporary enhanced regular unemployment compensation.
       (c) Coordination Rule.--The modifications described in 
     subsection (b)(2) shall also apply in determining the amount 
     of benefits payable under any Federal law to the extent that 
     those benefits are determined by reference to regular 
     compensation payable under the State law of the State 
     involved.

     SEC. __12. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS 
                   TITLE.

       (a) General Rule.--There shall be paid to each State which 
     has entered into an agreement under this title an amount 
     equal to--
       (1) 100 percent of any temporary enhanced regular 
     unemployment compensation; and
       (2) 100 percent of any regular compensation which is paid 
     to individuals by such State by reason of the fact that its 
     State law contains provisions comparable to the modifications 
     described in subparagraphs (A) and (B) of section __11(b)(2), 
     but only to the extent that those amounts would, if such 
     amounts were instead payable by virtue of the State law's 
     being deemed to be so modified pursuant to section 
     __11(b)(1), have been reimbursable under paragraph (1).
       (b) Determination of Amount.--Sums under subsection (a) 
     payable to any State by reason of such State having an 
     agreement under this title shall be payable, either in 
     advance or by way of reimbursement (as may be determined by 
     the Secretary), in such amounts as the Secretary estimates 
     the State will be entitled to receive under this title for 
     each calendar month, reduced or increased, as the case may 
     be, by any amount by which the Secretary finds that the 
     Secretary's estimates for any prior calendar month were 
     greater or less than the amounts which should have been paid 
     to the State. Such estimates may be made on the basis of such 
     statistical, sampling, or other method as may be agreed upon 
     by the Secretary and the State agency of the State involved.

[[Page 11595]]



     SEC. __13. FINANCING PROVISIONS.

       (a) In General.--Funds in the extended unemployment 
     compensation account (as established by section 905(a) of the 
     Social Security Act (42 U.S.C. 1105(a))), and the Federal 
     unemployment account (as established by section 904(g) of 
     such Act (42 U.S.C. 1104(g))), of the Unemployment Trust Fund 
     (as established by section 904(a) of such Act (42 U.S.C. 
     1104(a))) shall be used for the making of payments to States 
     having agreements entered into under this title.
       (b) Certification.--The Secretary shall from time to time 
     certify to the Secretary of the Treasury for payment to each 
     State the sums which are payable to such State under this 
     title. The Secretary of the Treasury, prior to audit or 
     settlement by the General Accounting Office, shall make 
     payments to the State in accordance with such certification 
     by transfers from the extended unemployment compensation 
     account (as so established), or, to the extent that there are 
     insufficient funds in that account, from the Federal 
     unemployment account, to the account of such State in the 
     Unemployment Trust Fund (as so established).
       (c) Assistance to States.--There are appropriated out of 
     the employment security administration account of the 
     Unemployment Trust Fund (as established by section 901(a) of 
     the Social Security Act (42 U.S.C. 1101(a))) $500,000,000 to 
     reimburse States for the costs of the administration of 
     agreements under this title (including any improvements in 
     technology in connection therewith) and to provide 
     reemployment services to unemployment compensation claimants 
     in States having agreements under this title. Each State's 
     share of the amount appropriated by the preceding sentence 
     shall be determined by the Secretary according to the factors 
     described in section 302(a) of the Social Security Act (42 
     U.S.C. 502(a)) and certified by the Secretary to the 
     Secretary of the Treasury.
       (d) Appropriations for Certain Payments.--There are 
     appropriated from the general fund of the Treasury, without 
     fiscal year limitation, to the extended unemployment 
     compensation account (as so established) of the Unemployment 
     Trust Fund (as so established) such sums as the Secretary 
     estimates to be necessary to make the payments under this 
     section in respect of--
       (1) compensation payable under chapter 85 of title 5, 
     United States Code; and
       (2) compensation payable on the basis of services to which 
     section 3309(a)(1) of the Internal Revenue Code of 1986 
     applies.

     Amounts appropriated pursuant to the preceding sentence shall 
     not be required to be repaid.

     SEC. __14. DEFINITIONS.

       For purposes of this title, the terms ``compensation'', 
     ``base period'', ``regular compensation'', ``State'', ``State 
     agency'', ``State law'', and ``week'' have the respective 
     meanings given such terms under section 205 of the Federal-
     State Extended Unemployment Compensation Act of 1970.

     SEC. __15. APPLICABILITY.

       (a) In General.--Except as provided in subsection (b), an 
     agreement entered into under this title shall apply to weeks 
     of unemployment--
       (1) beginning after the date on which such agreement is 
     entered into; and
       (2) ending before July 1, 2004.
       (b) Phase-Out of TERUC.--
       (1) In general.--Subject to paragraph (2), in the case of 
     an individual who has established eligibility for temporary 
     enhanced regular unemployment compensation, but who has not 
     exhausted all rights to such compensation, as of the last day 
     of the week ending before July 1, 2004, such compensation 
     shall continue to be payable to such individual for any week 
     beginning after such date for which the individual meets the 
     eligibility requirements of this title.
       (2) Limitation.--No compensation shall be payable by reason 
     of paragraph (1) for any week beginning after December 31, 
     2004.

     SEC. __16. COORDINATION WITH THE TEMPORARY EXTENDED 
                   UNEMPLOYMENT COMPENSATION ACT OF 2002.

       (a) In General.--The Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended--
       (1) in section 202(b)(1), by inserting ``, and who have 
     exhausted all rights to temporary enhanced regular 
     unemployment compensation'' before the semicolon at the end;
       (2) in section 202(b)(2), by inserting ``, temporary 
     enhanced regular unemployment compensation,'' after ``regular 
     compensation'';
       (3) in section 202(c), by inserting ``(or, as the case may 
     be, such individual's rights to temporary enhanced regular 
     unemployment compensation)'' after ``State law'' in the 
     matter preceding paragraph (1);
       (4) in section 202(c)(1), by inserting ``and no payments of 
     temporary enhanced regular unemployment compensation can be 
     made'' after ``under such law'';
       (5) in section 202(d)(1), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     (including dependents' allowances) payable to such individual 
     for such a week,'' after ``total unemployment'';
       (6) in section 202(d)(2)(A), by inserting ``, or, as the 
     case may be, to temporary enhanced regular unemployment 
     compensation,'' after ``State law'';
       (7) in section 203(b)(1)(A), by inserting ``plus the amount 
     of any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``under 
     such law''; and
       (8) in section 203(b)(2), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``total 
     unemployment''.
       (b) Amount of TEUC Offset by Amount of TERUC.--Section 
     203(b)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended--
       (1) in subparagraph (B), by striking the period at the end 
     and inserting a comma; and
       (2) by adding at the end the following:
     ``minus the number of weeks in which the individual was 
     entitled to temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in section __11(b)(2)(A) of the ____ 
     Act of 2003 (relating to the alternative base period) 
     multiplied by the individual's average weekly benefit amount 
     for the benefit year.''.
       (c) Temporary Enhanced Regular Unemployment Compensation 
     Defined.--Section 207 of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended to read as follows:

     ``SEC. 207. DEFINITIONS.

       ``In this title:
       ``(1) General definitions.--The terms `compensation', 
     `regular compensation', `extended compensation', `additional 
     compensation', `benefit year', `base period', `State', `State 
     agency', `State law', and `week' have the respective meanings 
     given such terms under section 205 of the Federal-State 
     Extended Unemployment Compensation Act of 1970 (26 U.S.C. 
     3304 note).
       ``(2) Temporary enhanced regular unemployment 
     compensation.--The term `temporary enhanced regular 
     unemployment compensation' means temporary enhanced regular 
     unemployment benefits payable under title II of the ____ Act 
     of 2003.''.

              Subtitle C--Railroad Unemployment Insurance

     SEC. __21. TEMPORARY INCREASE IN EXTENDED UNEMPLOYMENT 
                   BENEFITS UNDER THE RAILROAD UNEMPLOYMENT 
                   INSURANCE ACT.

       Section 2(c)(2) of the Railroad Unemployment Insurance Act 
     (45 U.S.C. 352(c)(2)) is amended by adding at the end the 
     following:
       ``(D) Temporary increase in extended unemployment 
     benefits.--
       ``(i) Employees with 10 or more years of service.--Subject 
     to clause (iii), in the case of an employee who has 10 or 
     more years of service (as so defined), with respect to 
     extended unemployment benefits--

       ``(I) subparagraph (A) shall be applied by substituting 
     ``130 days of unemployment'' for ``65 days of unemployment''; 
     and
       ``(II) subparagraph (B) shall be applied by inserting 
     ``(or, in the case of unemployment benefits, 13 consecutive 
     14-day periods'' after ``7 consecutive 14-day periods''.

       ``(ii) Employees with less than 10 years of service.--
     Subject to clause (iii), in the case of an employee who has 
     less than 10 years of service (as so defined), with respect 
     to extended unemployment benefits, this paragraph shall apply 
     to such an employee in the same manner as this paragraph 
     would apply to an employee described in clause (i) if such 
     clause had not been enacted.
       ``(iii) Application.--The provisions of clauses (i) and 
     (ii) shall apply to--

       ``(I) an employee who received normal benefits for days of 
     unemployment under this Act during the period beginning on 
     July 1, 2002, and ending on November 30, 2003; and
       ``(II) days of unemployment beginning on or after the date 
     of enactment of __ Act of 2003.''.

                     Subtitle D--Revenue Provision

     SEC. __31. ELIMINATION OF ACCELERATION OF TOP RATE REDUCTION 
                   IN INDIVIDUAL INCOME TAX RATES.

       (a) In General.--Notwithstanding the amendment made by 
     section 102(a) of this Act, in lieu of the percent specified 
     in the last column of the table in paragraph (2) of section 
     1(i) of the Internal Revenue Code of 1986, as amended by such 
     section 102(a), for taxable years beginning during calendar 
     years 2003, 2004, and 2005, the following percentages shall 
     be substituted for such years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
       (b) Effective Date.--Subsection (a) shall take effect on 
     the date of enactment of this Act.
                                 ______
                                 
  SA 545. Mr. KENNEDY (for himself, Mr. Graham of Florida, Mr. 
Rockefeller, Mr. Johnson, and Mr. Corzine) submitted an amendment 
intended to be proposed by him to the bill S. 1054, to provide for 
reconciliation pursuant to section 201 of the concurrent resolution on 
the budget for fiscal year 2004; which was ordered to lie on the table; 
as follows:

       At the end of subtitle C of title V, add the following:

[[Page 11596]]



     SEC. __. REPEAL OF PARTIAL EXCLUSION OF DIVIDENDS AND 
                   ELIMINATION OF ACCELERATION OF TOP RATE 
                   REDUCTION IN INDIVIDUAL INCOME TAX RATES.

       (a) Repeal of Partial Exclusion of Dividends.--Section 201 
     of this Act, and the amendments made by such section, are 
     repealed.
       (b) Elimination of Acceleration of Top Rate Reduction In 
     Individual Income Tax Rates.--Notwithstanding the amendment 
     made by section 102(a) of this Act, in lieu of the percent 
     specified in the last column of the table in paragraph (2) of 
     section 1(i) of the Internal Revenue Code of 1986, as amended 
     by such section 102(a), for taxable years beginning during 
     calendar years 2003, 2004, and 2005, the following 
     percentages shall be substituted for such years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
       (c) Effective Date.--Subsection (a) and (b) shall take 
     effect on the date of enactment of this Act.
                                 ______
                                 
  SA 546. Mr. KENNEDY submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of end of subtitle C of title V add the 
     following:

     SEC. __. REPEAL OF PARTIAL EXCLUSION OF DIVIDENDS AND 
                   ELIMINATION OF ACCELERATION OF TOP RATE 
                   REDUCTION IN INDIVIDUAL INCOME TAX RATES.

       (a) Repeal of Partial Exclusion of Dividends.--Section 201 
     of this Act, and the amendments made by such section, are 
     repealed.
       (b) Elimination of Acceleration of Top Rate Reduction In 
     Individual Income Tax Rates.--Notwithstanding the amendment 
     made by section 102(a) of this Act, in lieu of the percent 
     specified in the last column of the table in paragraph (2) of 
     section 1(i) of the Internal Revenue Code of 1986, as amended 
     by such section 102(a), for taxable years beginning during 
     calendar years 2003, 2004, and 2005, the following 
     percentages shall be substituted for such years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
       (c) Effective Date.--Subsection (a) and (b) shall take 
     effect on the date of enactment of this Act.
                                 ______
                                 
  SA 547. Mr. KENNEDY submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of end of subtitle C of title V add the 
     following:

     SEC. __. REPEAL OF PARTIAL EXCLUSION OF DIVIDENDS AND 
                   ELIMINATION OF ACCELERATION OF TOP RATE 
                   REDUCTION IN INDIVIDUAL INCOME TAX RATES.

       (a) Repeal of Partial Exclusion of Dividends.--Section 201 
     of this Act, and the amendments made by such section, are 
     repealed.
       (b) Elimination of Acceleration of Top Rate Reduction In 
     Individual Income Tax Rates.--Notwithstanding the amendment 
     made by section 102(a) of this Act, in lieu of the percent 
     specified in the last column of the table in paragraph (2) of 
     section 1(i) of the Internal Revenue Code of 1986, as amended 
     by such section 102(a), for taxable years beginning during 
     calendar years 2003, 2004, and 2005, the following 
     percentages shall be substituted for such years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
       (c) Effective Date.--Subsection (a) and (b) shall take 
     effect on the date of enactment of this Act.
                                 ______
                                 
  SA 548. Mr. KENNEDY submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of end of subtitle C of title V add the 
     following:

     SEC. __. ELIMINATION OF ACCELERATION OF TOP RATE REDUCTION IN 
                   INDIVIDUAL INCOME TAX RATES.

       (a) In General.--Notwithstanding the amendment made by 
     section 102(a) of this Act, in lieu of the percent specified 
     in the last column of the table in paragraph (2) of section 
     1(i) of the Internal Revenue Code of 1986, as amended by such 
     section 102(a), for taxable years beginning during calendar 
     years 2003, 2004, and 2005, the following percentages shall 
     be substituted for such years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
       (b) Effective Date.--Subsection (a) shall take effect on 
     the date of enactment of this Act.
                                 ______
                                 
  SA 549. Mr. BAUCUS submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide reconciliation pursuant to section 
201 of the concurrent resolution on the budget for fiscal year 2004; 
which was ordered to lie on the table; as follows:

       On page 2, strike line 13 and insert:
       (b) Increase in Penalties.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (1) by striking ``$100,000'' and inserting ``$250,000'',
       (2) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (3) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by
                                 ______
                                 
  SA 550. Mr. WARNER (for himself, Mr. Allen, and Ms. Collins) 
submitted an amendment intended to be proposed by him to the bill S. 
1054, to provide reconciliation pursuant to section 201 of the 
concurrent resolution on the budget for fiscal year 2004; as follows

       At the end of subtitle C of title V, insert the following:

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

       (a) In General.--Subparagraph (D) of section 62(a)(2) 
     (relating to certain trade and business deductions of 
     employees) is amended to read as follows:
       ``(D) Certain expenses of elementary and secondary school 
     teachers.--The deductions allowed by section 162 which 
     consist of expenses, not in excess of $500, paid or incurred 
     by an eligible educator--
       ``(i) by reason of the participation of the educator in 
     professional development courses related to the curriculum 
     and academic subjects in which the educator provides 
     instruction or to the students for which the educator 
     provides instruction, and
       ``(ii) in connection with books, supplies (other than 
     nonathletic supplies for courses of instruction in health or 
     physical education), computer equipment (including related 
     software and services) and other equipment, and supplementary 
     materials used by the eligible educator in the classroom.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
                                 ______
                                 
  SA 551. Mr. SCHUMER (for himself and Mrs. Clinton) submitted an 
amendment intended to be proposed by him to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; which was ordered to lie 
on the table; as follows:

       At the end of subtitle C of title V, insert the following:

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

       (a) Renewal Communities.--
       (1) In general.--Section 1400E (relating to designation of 
     renewal communities) is amended by adding at the end the 
     following new subsection:
       ``(g) Expansion of Designated Areas.--
       ``(1) Expansion based on 2000 Census.--At the request of 
     the nominating entity with respect to a renewal community, 
     the Secretary of Housing and Urban Development may expand the 
     area of a renewal community to include any census tract--
       ``(A) which, at the time such community was nominated, met 
     the requirements of this section for inclusion in such 
     community but for the failure of such tract to meet 1 or more 
     of the population and poverty rate requirements of this 
     section using 1990 census data, and
       ``(B) which meets all failed population and poverty rate 
     requirements of this section using 2000 census data.
       ``(2) Expansion to certain areas which do not meet 
     population requirements.--
       ``(A) In general.--At the request of 1 or more local 
     governments and the State or States in which an area 
     described in subparagraph (B) is located, the Secretary of 
     Housing and Urban Development may expand a designated area to 
     include such area.
       ``(B) Area.--An area is described in this subparagraph if--
       ``(i) the area is adjacent to at least 1 other area 
     designated as a renewal community,
       ``(ii) the area has a population less than the population 
     required under subsection (c)(2)(C), and
       ``(iii) the area meets the requirements of subparagraphs 
     (A) and (B) of subsection (c)(2) and subparagraph (A) of 
     subsection (c)(3).
       ``(3) Applicability.--Any expansion of a renewal community 
     under this section shall take effect as provided in 
     subsection (b).''.
       (2) Effective date.--The amendment made by this subsection 
     shall take effect as if included in the amendments made by 
     section 101 of the Community Renewal Tax Relief Act of 2000.
       (b) Change of Top Income Rate.--
       (1) In general.--The table in paragraph (2) of section 1(i) 
     (relating to reductions in rates after June 30, 2001), as 
     amended by section 102 of this Act, is amended by striking

[[Page 11597]]

     ``35.0%'' in the last column and inserting ``37.6%''.
       (2) Effective date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
       (3) Application of EGTRRA.--The amendment made by this 
     subsection shall be subject to title IX of the Economic 
     Growth and Tax Relief Reconciliation Act of 2001 to the same 
     extent and in the same manner as the provision of such Act to 
     which such amendment relates.
                                 ______
                                 
  SA 552. Mr. Schumer (for himself and Mrs. Clinton) submitted an 
amendment intended to be proposed by him to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; which was ordered to lie 
on the table; as follows:

       At the end of subtitle C of title V, insert the following:

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

       (a) In General.--Section 1400E of the Internal Revenue Code 
     of 1986 (relating to designation of renewal communities) is 
     amended by adding at the end the following new subsection:
       ``(g) Expansion of Designated Areas.--
       ``(1) Expansion based on 2000 census.--At the request of 
     the nominating entity with respect to a renewal community, 
     the Secretary of Housing and Urban Development may expand the 
     area of a renewal community to include any census tract--
       ``(A) which, at the time such community was nominated, met 
     the requirements of this section for inclusion in such 
     community but for the failure of such tract to meet 1 or more 
     of the population and poverty rate requirements of this 
     section using 1990 census data, and
       ``(B) which meets all failed population and poverty rate 
     requirements of this section using 2000 census data.
       ``(2) Expansion to certain areas which do not meet 
     population requirements.--
       ``(A) In general.--At the request of 1 or more local 
     governments and the State or States in which an area 
     described in subparagraph (B) is located, the Secretary of 
     Housing and Urban Development may expand a designated area to 
     include such area.
       ``(B) Area.--An area is described in this subparagraph if--
       ``(i) the area is adjacent to at least 1 other area 
     designated as a renewal community,
       ``(ii) the area has a population less than the population 
     required under subsection (c)(2)(C), and
       ``(iii) the area meets the requirements of subparagraphs 
     (A) and (B) of subsection (c)(2) and subparagraph (A) of 
     subsection (c)(3).
       ``(3) Applicability.--Any expansion of a renewal community 
     under this section shall take effect as provided in 
     subsection (b).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect as if included in the amendments made by 
     section 101 of the Community Renewal Tax Relief Act of 2000.
                                 ______
                                 
  SA 553. Mr. SCHUMER (for himself, Mr. Corzine, Mrs. Boxer, Mrs. 
Feinstein, Mr. Edwards, and Mr. Kerry) submitted an amendment intended 
to be proposed by him to the bill S. 1054, to provide for 
reconciliation pursuant to section 201 of the concurrent resolution on 
the budget for fiscal year 2004; which was ordered to lie on the table; 
as follows:

       Section 371 is amended by striking subsections (c) through 
     (g) and inserting the following:
       (c) Certifications.--In order to receive a payment under 
     this section, the State shall provide the Secretary with 
     certifications that--
       (1) the State's proposed uses of the funds are consistent 
     with subsection (b); and
       (2) the State will allocate 50 percent of the funds 
     directly to units of general local government based on the 
     relative local population proportion for the State (as 
     defined in subsection (d)(5)) and not use the funds to 
     supplant State funding or revenue that the State otherwise 
     provides to units of general local government.
       (d) Amount of Payment.--
       (1) In general.--The amount of payment made to a State 
     under this section shall be the minimum payment amount 
     described in paragraph (2) plus the relative population 
     proportion amount described in paragraph (3).
       (2) Minimum payment amount.--The minimum payment amount 
     described in this paragraph is--
       (A) in the case of any of the several States, the District 
     of Columbia, or the Commonwealth of Puerto Rico, one-quarter 
     of 1 percent of the aggregate amount made available for 
     payments under this section (after the application of section 
     1903(x)(3) of the Social Security Act); and
       (B) in the case of the United States Virgin Islands, Guam, 
     the Commonwealth of the Northern Mariana Islands, or American 
     Samoa, one-twentieth of 1 percent of such aggregate amount 
     (after the application of section 1903(x)(3) of the Social 
     Security Act).
       (3) Relative population proportion amount.--The relative 
     population proportion amount described in this paragraph is 
     the product of--
       (A) the aggregate amount made available for payments under 
     this section (after the application of section 1903(x)(3) of 
     the Social Security Act) minus the total of all of the 
     minimum payment amounts determined under paragraph (2); and
       (B) the relative State population proportion (as defined in 
     paragraph (4)).
       (4) Relative state population proportion defined.--In this 
     section, the term ``relative State population proportion'' 
     means, with respect to a State, the amount equal to the 
     quotient of--
       (A) the population of the State (as reported in the most 
     recent decennial census); and
       (B) the total population of all States (as reported in the 
     most recent decennial census).
       (5) Relative local population proportion defined.--In this 
     section, the term ``relative local population proportion'' 
     means, with respect to a unit of general local government 
     within a State, the amount equal to the quotient of--
       (A) the population of such unit of general local government 
     (as reported in the most recent decennial census); and
       (B) the total population of the State (as reported in the 
     most recent decennial census).
       (e) Appropriation.--There is authorized to be appropriated 
     and is appropriated for making payments under this section, 
     $40,000,000,000 for fiscal year 2003. Amounts appropriated 
     under this subsection shall remain available for expenditure 
     through December 31, 2004.
       (f) Increased Payments To States Under the Medicaid 
     Program.--Section 1903 of the Social Security Act (42 U.S.C. 
     1396b) is amended by adding at the end the following:
       ``(x) Temporary Increased Payments To States.--
       ``(1) In general.--From the amounts made available under 
     paragraph (3), the Secretary shall increase payments to 
     States under this section for the third and fourth calendar 
     quarters of fiscal year 2003, each calendar quarter of fiscal 
     year 2004, and the first calendar quarter of fiscal year 
     2005.
       ``(2) Method of increase.--The Secretary shall determine 
     the appropriate method for increasing payments to States in 
     accordance with this subsection.
       ``(3) Funding.--Notwithstanding section 371(e) of the Jobs 
     and Growth Tax Relief Reconciliation Act of 2003, from the 
     amounts appropriated in such section for fiscal year 2003, 
     $499,999 of such amount is hereby transferred and made 
     available for the purpose of increasing payments to States 
     under this section in accordance with this subsection. 
     Amounts transferred under this paragraph shall remain 
     available for expenditure through December 31, 2004.''.
       (g) Repeal.--Effective as of January 1, 2005, this section 
     and the amendments made by this section are repealed.
       (h) Elimination of 20 Percent Partial Exclusion of 
     Dividends Received By Individuals.--
       (1) In general.--Section 116(a)(2)(B), as added by section 
     201 of this Act, is amended by striking ``(20 percent in the 
     case of taxable years beginning after 2007)''.
       (2) Nonapplication.--Subsection (g) of this section shall 
     not apply to the amendment made by paragraph (1).
                                 ______
                                 
  SA 554. Mr. SCHUMER submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       Section 371 is amended by striking subsections (c) through 
     (g) inserting the following:
       (c) Certifications.--In order to receive a payment under 
     this section, the State shall provide the Secretary with 
     certifications that--
       (1) the State's proposed uses of the funds are consistent 
     with subsection (b); and
       (2) the State will allocate 50 percent of the funds 
     directly to units of general local government based on the 
     relative local population proportion for the State (as 
     defined in subsection (d)(5)) and not use the funds to 
     supplant State funding or revenue that the State otherwise 
     provides to units of general local government.
       (d) Amount of Payment.--
       (1) In general.--The amount of payment made to a State 
     under this section shall be the minimum payment amount 
     described in paragraph (2) plus the relative population 
     proportion amount described in paragraph (3).
       (2) Minimum payment amount.--The minimum payment amount 
     described in this paragraph is--
       (A) in the case of any of the several States, the District 
     of Columbia, or the Commonwealth of Puerto Rico, one-third of 
     1 percent of the aggregate amount made available for payments 
     under this section (after the application of section 
     1903(x)(3) of the Social Security Act); and
       (B) in the case of the United States Virgin Islands, Guam, 
     the Commonwealth of the

[[Page 11598]]

     Northern Mariana Islands, or American Samoa, one-fifteenth of 
     1 percent of such aggregate amount (after the application of 
     section 1903(x)(3) of the Social Security Act).
       (3) Relative population proportion amount.--The relative 
     population proportion amount described in this paragraph is 
     the product of--
       (A) the aggregate amount made available for payments under 
     this section (after the application of section 1903(x)(3) of 
     the Social Security Act) minus the total of all of the 
     minimum payment amounts determined under paragraph (2); and
       (B) the relative State population proportion (as defined in 
     paragraph (4)).
       (4) Relative state population proportion defined.--In this 
     section, the term ``relative State population proportion'' 
     means, with respect to a State, the amount equal to the 
     quotient of--
       (A) the population of the State (as reported in the most 
     recent decennial census); and
       (B) the total population of all States (as reported in the 
     most recent decennial census).
       (5) Relative local population proportion defined.--In this 
     section, the term ``relative local population proportion'' 
     means, with respect to a unit of general local government 
     within a State, the amount equal to the quotient of--
       (A) the population of such unit of general local government 
     (as reported in the most recent decennial census); and
       (B) the total population of the State (as reported in the 
     most recent decennial census).
       (e) Appropriation.--There is authorized to be appropriated 
     and is appropriated for making payments under this section, 
     $30,000,000,000 for fiscal year 2003. Amounts appropriated 
     under this subsection shall remain available for expenditure 
     through December 31, 2004.
       (f) Increased Payments To States Under the Medicaid 
     Program.--Section 1903 of the Social Security Act (42 U.S.C. 
     1396b) is amended by adding at the end the following:
       ``(x) Temporary Increased Payments To States.--
       ``(1) In general.--From the amounts made available under 
     paragraph (3), the Secretary shall increase payments to 
     States under this section for the third and fourth calendar 
     quarters of fiscal year 2003, each calendar quarter of fiscal 
     year 2004, and the first calendar quarter of fiscal year 
     2005.
       ``(2) Method of increase.--The Secretary shall determine 
     the appropriate method for increasing payments to States in 
     accordance with this subsection.
       ``(3) Funding.--Notwithstanding section 371(e) of the Jobs 
     and Growth Tax Relief Reconciliation Act of 2003, from the 
     amounts appropriated in such section for fiscal year 2003, 
     $499,999 of such amount is hereby transferred and made 
     available for the purpose of increasing payments to States 
     under this section in accordance with this subsection. 
     Amounts transferred under this paragraph shall remain 
     available for expenditure through December 31, 2004.''.
       (g) Repeal.--Effective as of January 1, 2005, this section 
     and the amendments made by this section are repealed.
       (h) Revision of Partial Exclusion of Dividends Received By 
     Individuals.--
       (1) In general.--Section 116(a)(2)(B), as added by section 
     201 of this Act, is amended by striking ``2007'' and 
     inserting ``2010''.
       (2) Application of sunset.--Section 601(a) of this Act 
     shall apply to the amendment made by paragraph (1).
       (3) Nonapplication.--Subsection (g) of this section shall 
     not apply to the amendment made by paragraph (1).
                                 ______
                                 
  SA 555. Mr. GRASSLEY proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       At the end of part I of subtitle C of title III add the 
     following:

     SEC. 335. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due To Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to underpayments and overpayments attributable to 
     actions occurring after the date of the enactment of this 
     Act.
                                 ______
                                 
  SA 556. Mr. DORGAN (for himself, Mr. Baucus, Mr. Conrad, and Mr. 
Corzine) proposed an amendment to the bill S. 1054, to provide for 
reconciliation pursuant to section 201 of the concurrent resolution on 
the budget for fiscal year 2004; as follows:

       Strike section 102.
       Strike title II.
       At the end of subtitle C of title V, add the following:

     SEC. __. REPEAL OF 1993 INCOME TAX INCREASE ON SOCIAL 
                   SECURITY BENEFITS.

       (a) Restoration of Prior Law Formula.--Subsection (a) of 
     section 86 is amended to read as follows:
       ``(a) In General.--Gross income for the taxable year of any 
     taxpayer described in subsection (b) (notwithstanding section 
     207 of the Social Security Act) includes social security 
     benefits in an amount equal to the lesser of--
       ``(1) one-half of the social security benefits received 
     during the taxable year, or
       ``(2) one-half of the excess described in subsection 
     (b)(1).''
       (b) Repeal of Adjusted Base Amount.--Subsection (c) of 
     section 86 is amended to read as follows:
       ``(c) Base Amount.--For purposes of this section, the term 
     `base amount' means--
       ``(1) except as otherwise provided in this subsection, 
     $25,000,
       ``(2) $32,000 in the case of a joint return, and
       ``(3) zero in the case of a taxpayer who--
       ``(A) is married as of the close of the taxable year 
     (within the meaning of section 7703) but does not file a 
     joint return for such year, and
       ``(B) does not live apart from his spouse at all times 
     during the taxable year.''
       (c) Conforming Amendments.--
       (1) Subparagraph (A) of section 871(a)(3) is amended by 
     striking ``85 percent'' and inserting ``50 percent''.
       (2)(A) Subparagraph (A) of section 121(e)(1) of the Social 
     Security Amendments of 1983 (Public Law 98-21) is amended--
       (i) by striking ``(A) There'' and inserting ``There'';
       (ii) by striking ``(i)'' immediately following ``amounts 
     equivalent to''; and
       (iii) by striking ``, less (ii)'' and all that follows and 
     inserting a period.
       (B) Paragraph (1) of section 121(e) of such Act is amended 
     by striking subparagraph (B).
       (C) Paragraph (3) of section 121(e) of such Act is amended 
     by striking subparagraph (B) and by redesignating 
     subparagraph (C) as subparagraph (B).
       (D) Paragraph (2) of section 121(e) of such Act is amended 
     in the first sentence by striking ``paragraph (1)(A)'' and 
     inserting ``paragraph (1)''.
       (d) Maintenance of Transfers to Hospital Insurance Trust 
     Fund.--There are hereby appropriated to the Hospital 
     Insurance Trust Fund established under section 1817 of the 
     Social Security Act amounts equal to the reduction in 
     revenues to the Treasury by reason of the enactment of this 
     section. Amounts appropriated by the preceding sentence shall 
     be transferred from the general fund at such times and in 
     such manner as to replicate to the extent possible the 
     transfers which would have occurred to such Trust Fund had 
     this section not been enacted.
       (e) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to taxable years beginning after December 31, 2003.
       (2) Subsection (c)(1).--The amendment made by subsection 
     (c)(1) shall apply to benefits paid after December 31, 2003.
       (3) Subsection (c)(2).--The amendments made by subsection 
     (c)(2) shall apply to tax liabilities for taxable years 
     beginning after December 31, 2003.
                                 ______
                                 
  SA 557. Mr. SCHUMER (for himself, Mr. Biden, Mrs. Boxer, Mr. Durbin, 
Ms. Cantwell, and Mr. Lieberman) submitted an amendment intended to be 
proposed by him to the bill S. 1054, to provide for reconciliation 
pursuant to section 201 of the concurrent resolution on the budget for 
fiscal year 2004; as follows:

       At the end of subtitle C of title V, insert the following:

     SEC. __. EXPANSION OF DEDUCTION FOR HIGHER EDUCATION 
                   EXPENSES.

       (a) In General.--
       (1) Amount of deduction.--Subsection (b) of section 222 
     (relating to deduction for qualified tuition and related 
     expenses) is amended to read as follows:
       ``(b) Limitations.--
       ``(1) Dollar limitations.--
       ``(A) In general.--Except as provided in paragraph (2), the 
     amount allowed as a deduction under subsection (a) with 
     respect to the taxpayer for any taxable year shall not exceed 
     the applicable dollar limit.
       ``(B) Applicable dollar limit.--The applicable dollar limit 
     for any taxable year shall be determined as follows:

                                                             Applicable
``Taxable year:                                          dollar amount:
  2003......................................................$8,000 ....

[[Page 11599]]

  2004 and thereafter......................................$12,000.....

       ``(2) Limitation based on modified adjusted gross income.--
       ``(A) In general.--The amount which would (but for this 
     paragraph) be taken into account under subsection (a) shall 
     be reduced (but not below zero) by the amount determined 
     under subparagraph (B).
       ``(B) Amount of reduction.--The amount determined under 
     this subparagraph equals the amount which bears the same 
     ratio to the amount which would be so taken into account as--
       ``(i) the excess of--

       ``(I) the taxpayer's modified adjusted gross income for 
     such taxable year, over
       ``(II) $65,000 ($130,000 in the case of a joint return), 
     bears to

       ``(ii) $15,000 ($30,000 in the case of a joint return).
       ``(C) Modified adjusted gross income.--For purposes of this 
     paragraph, the term `modified adjusted gross income' means 
     the adjusted gross income of the taxpayer for the taxable 
     year determined--
       ``(i) without regard to this section and sections 911, 931, 
     and 933, and
       ``(ii) after the application of sections 86, 135, 137, 219, 
     221, and 469.

     For purposes of the sections referred to in clause (ii), 
     adjusted gross income shall be determined without regard to 
     the deduction allowed under this section.
       ``(D) Inflation adjustments.--
       ``(i) In general.--In the case of any taxable year 
     beginning in a calendar year after 2003, both of the dollar 
     amounts in subparagraph (B)(i)(II) shall be increased by an 
     amount equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, by substituting `calendar year 2002' for 
     `calendar year 1992' in subparagraph (B) thereof.

       ``(ii) Rounding.--If any amount as adjusted under clause 
     (i) is not a multiple of $50, such amount shall be rounded to 
     the nearest multiple of $50.''.
       (2) Qualified tuition and related expenses of eligible 
     students.--
       (A) In general.--Section 222(a) (relating to allowance of 
     deduction) is amended by inserting ``of eligible students'' 
     after ``expenses''.
       (B) Definition of eligible student.--Section 222(d) 
     (relating to definitions and special rules) is amended by 
     redesignating paragraphs (2) through (6) as paragraphs (3) 
     through (7), respectively, and by inserting after paragraph 
     (1) the following new paragraph:
       ``(2) Eligible student.--The term `eligible student' has 
     the meaning given such term by section 25A(b)(3).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to payments made in taxable years beginning after 
     December 31, 2002.
       (b) Slower Acceleration of Top Income Rate.--
       (1) In general.--The table in paragraph (2) of section 1(i) 
     (relating to reductions in rates after June 30, 2001), as 
     amended by this Act, is amended to read as follows:

------------------------------------------------------------------------
                                     The corresponding percentages shall
                                       be substituted for the following
   ``In the case of taxable years                percentages:
  beginning during calendar year:   ------------------------------------
                                        28%      31%      36%      39.6%
------------------------------------------------------------------------
2001...............................    27.5%    30.5%    35.5%     39.1%
2002...............................    27.0%    30.0%    35.0%     38.6%
2003...............................    25.0%    28.0%    33.0%     38.6%
2004...............................    25.0%    28.0%    33.0%     37.6%
2005...............................    25.0%    28.0%    33.0%     37.6%
2006 and thereafter................    25.0%    28.0%    33.0%     35.0%''.
------------------------------------------------------------------------

       (2) Effective date.--The amendment made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2002.
       (c) Application of EGTRRA.--The amendment made by 
     subsection (b) shall be subject to title IX of the Economic 
     Growth and Tax Relief Reconciliation Act of 2001 to the same 
     extent and in the same manner as the provision of such Act to 
     which such amendment relates.
                                 ______
                                 
  SA 558. Mr. SCHUMER (for himself, Mr. Biden, Mrs. Boxer, Mr. Durbin, 
and Ms. Cantwell) submitted an amendment intended to be proposed by him 
to the bill S. 1054, to provide for reconciliation pursuant to section 
201 of the concurrent resolution on the budget for fiscal year 2004; 
which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V, insert the following:

     SEC. __. EXPANSION OF DEDUCTION FOR HIGHER EDUCATION 
                   EXPENSES.

       (a) In General.--
       (1) Amount of deduction.--Subsection (b) of section 222 
     (relating to deduction for qualified tuition and related 
     expenses) is amended to read as follows:
       ``(b) Limitations.--
       ``(1) Dollar limitations.--
       ``(A) In general.--Except as provided in paragraph (2), the 
     amount allowed as a deduction under subsection (a) with 
     respect to the taxpayer for any taxable year shall not exceed 
     the applicable dollar limit.
       ``(B) Applicable dollar limit.--The applicable dollar limit 
     for any taxable year shall be determined as follows:

                                                             Applicable
``Taxable year:                                          dollar amount:
  2003......................................................$8,000 ....

  2004 and thereafter......................................$12,000.....

       ``(2) Limitation based on modified adjusted gross income.--
       ``(A) In general.--The amount which would (but for this 
     paragraph) be taken into account under subsection (a) shall 
     be reduced (but not below zero) by the amount determined 
     under subparagraph (B).
       ``(B) Amount of reduction.--The amount determined under 
     this subparagraph equals the amount which bears the same 
     ratio to the amount which would be so taken into account as--
       ``(i) the excess of--

       ``(I) the taxpayer's modified adjusted gross income for 
     such taxable year, over
       ``(II) $65,000 ($130,000 in the case of a joint return), 
     bears to

       ``(ii) $15,000 ($30,000 in the case of a joint return).
       ``(C) Modified adjusted gross income.--For purposes of this 
     paragraph, the term `modified adjusted gross income' means 
     the adjusted gross income of the taxpayer for the taxable 
     year determined--
       ``(i) without regard to this section and sections 911, 931, 
     and 933, and
       ``(ii) after the application of sections 86, 135, 137, 219, 
     221, and 469.

     For purposes of the sections referred to in clause (ii), 
     adjusted gross income shall be determined without regard to 
     the deduction allowed under this section.
       ``(D) Inflation adjustments.--
       ``(i) In general.--In the case of any taxable year 
     beginning in a calendar year after 2003, both of the dollar 
     amounts in subparagraph (B)(i)(II) shall be increased by an 
     amount equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, by substituting `calendar year 2002' for 
     `calendar year 1992' in subparagraph (B) thereof.

       ``(ii) Rounding.--If any amount as adjusted under clause 
     (i) is not a multiple of $50, such amount shall be rounded to 
     the nearest multiple of $50.''.
       (2) Qualified tuition and related expenses of eligible 
     students.--
       (A) In general.--Section 222(a) (relating to allowance of 
     deduction) is amended by inserting ``of eligible students'' 
     after ``expenses''.
       (B) Definition of eligible student.--Section 222(d) 
     (relating to definitions and special rules) is amended by 
     redesignating paragraphs (2) through (6) as paragraphs (3) 
     through (7), respectively, and by inserting after paragraph 
     (1) the following new paragraph:
       ``(2) Eligible student.--The term `eligible student' has 
     the meaning given such term by section 25A(b)(3).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to payments made in taxable years beginning after 
     December 31, 2002 and before January 1, 2009.
       (b) Interest on Higher Education Loans.--
       (1) In general.--Subpart A of part IV of subchapter A of 
     chapter 1 (relating to nonrefundable personal credits) is 
     amended by inserting after section 25B the following new 
     section:

     ``SEC. 25C. INTEREST ON HIGHER EDUCATION LOANS.

       ``(a) Allowance of Credit.--In the case of an individual, 
     there shall be allowed as a credit against the tax imposed by 
     this chapter for the taxable year an amount equal to the 
     interest paid by the taxpayer during the taxable year on any 
     qualified education loan.
       ``(b) Maximum Credit.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     credit allowed by subsection (a) for the taxable year shall 
     not exceed $1,500.
       ``(2) Limitation based on modified adjusted gross income.--
       ``(A) In general.--If the modified adjusted gross income of 
     the taxpayer for the taxable year exceeds $50,000 ($100,000 
     in the case of a joint return), the amount which would (but 
     for this paragraph) be allowable as a credit under this 
     section shall be reduced (but not below zero) by the amount 
     which bears the same ratio to the amount which would be so 
     allowable as such excess bears to $20,000 ($40,000 in the 
     case of a joint return).
       ``(B) Modified adjusted gross income.--The term `modified 
     adjusted gross income' means adjusted gross income determined 
     without regard to sections 911, 931, and 933.
       ``(C) Inflation adjustment.--In the case of any taxable 
     year beginning after 2003, the $50,000 and $100,000 amounts 
     referred to in subparagraph (A) shall be increased by an 
     amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section (1)(f)(3) for the calendar

[[Page 11600]]

     year in which the taxable year begins, by substituting `2002' 
     for `1992'.
       ``(D) Rounding.--If any amount as adjusted under 
     subparagraph (C) is not a multiple of $50, such amount shall 
     be rounded to the nearest multiple of $50.
       ``(c) Dependents Not Eligible for Credit.--No credit shall 
     be allowed by this section to an individual for the taxable 
     year if a deduction under section 151 with respect to such 
     individual is allowed to another taxpayer for the taxable 
     year beginning in the calendar year in which such 
     individual's taxable year begins.
       ``(d) Limit on Period Credit Allowed.--A credit shall be 
     allowed under this section only with respect to interest paid 
     on any qualified education loan during the first 60 months 
     (whether or not consecutive) in which interest payments are 
     required. For purposes of this paragraph, any loan and all 
     refinancings of such loan shall be treated as 1 loan.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Qualified education loan.--The term `qualified 
     education loan' has the meaning given such term by section 
     221(e)(1).
       ``(2) Dependent.--The term `dependent' has the meaning 
     given such term by section 152.
       ``(f) Special Rules.--
       ``(1) Denial of double benefit.--No credit shall be allowed 
     under this section for any amount taken into account for any 
     deduction under any other provision of this chapter.
       ``(2) Married couples must file joint return.--If the 
     taxpayer is married at the close of the taxable year, the 
     credit shall be allowed under subsection (a) only if the 
     taxpayer and the taxpayer's spouse file a joint return for 
     the taxable year.
       ``(3) Marital status.--Marital status shall be determined 
     in accordance with section 7703.''.
       (2) Conforming amendment.--The table of sections for 
     subpart A of part IV of subchapter A of chapter 1 is amended 
     by inserting after the item relating to section 25B the 
     following new item:

``Sec. 25C. Interest on higher education loans.''.

       (3) Effective date.--The amendments made by this subsection 
     shall apply to any qualified education loan (as defined in 
     section 25C(e)(1) of the Internal Revenue Code of 1986, as 
     added by this section) incurred on, before, or after the date 
     of the enactment of this Act, but only with respect to any 
     loan interest payment due after December 31, 2002 and before 
     January 1, 2009.
       (c) Elimination of 20 Percent Dividend Exclusion.--
       (1) In general.--Subparagraph (B) of section 116(a)(2) 
     (relating to partial exclusion of received by individuals), 
     as added by section 201 of this Act, is amended by striking 
     ``(20 percent in the case of taxable years beginning after 
     2007)''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 559. Mr. BURNS (for himself and Mr. Rockefeller) submitted an 
amendment intended to be proposed by him to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; which was ordered to lie 
on the table; as follows:

       At the end of subtitle C of title V, add the following:

     SEC. __. EXPENSING OF BROADBAND INTERNET ACCESS EXPENDITURES.

       (a) In General.--Part VI of subchapter B of chapter 1 
     (relating to itemized deductions for individuals and 
     corporations) is amended by inserting after section 190 the 
     following new section:

     ``SEC. 191. BROADBAND EXPENDITURES.

       ``(a) Treatment of Expenditures.--
       ``(1) In general.--A taxpayer may elect to treat any 
     qualified broadband expenditure which is paid or incurred by 
     the taxpayer as an expense which is not chargeable to capital 
     account. Any expenditure which is so treated shall be allowed 
     as a deduction.
       ``(2) Election.--An election under paragraph (1) shall be 
     made at such time and in such manner as the Secretary may 
     prescribe by regulation.
       ``(b) Qualified Broadband Expenditures.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified broadband 
     expenditure' means, with respect to any taxable year, any 
     direct or indirect costs incurred and properly taken into 
     account with respect to the purchase or installation of 
     qualified equipment (including any upgrades thereto), 
     together with any direct or indirect costs incurred and 
     properly taken into account with respect to the connection of 
     such qualified equipment to any qualified subscriber, but 
     only if such costs are incurred after December 31, 2003, and 
     before January 1, 2005.
       ``(2) Certain satellite expenditures excluded.--Such term 
     shall not include any costs incurred with respect to the 
     launching of any satellite equipment.
       ``(3) Leased equipment.--Such term shall include so much of 
     the purchase price paid by the lessor of equipment subject to 
     a lease described in subsection (c)(2)(B) as is attributable 
     to expenditures incurred by the lessee which would otherwise 
     be described in paragraph (1).
       ``(4) Limitation with regard to current generation 
     broadband services.--Only 50 percent of the amounts taken 
     into account under paragraph (1) with respect to qualified 
     equipment through which current generation broadband services 
     are provided shall be treated as qualified broadband 
     expenditures.
       ``(c) When Expenditures Taken Into Account.--For purposes 
     of this section--
       ``(1) In general.--Qualified broadband expenditures with 
     respect to qualified equipment shall be taken into account 
     with respect to the first taxable year in which--
       ``(A) current generation broadband services are provided 
     through such equipment to qualified subscribers, or
       ``(B) next generation broadband services are provided 
     through such equipment to qualified subscribers.
       ``(2) Limitation.--
       ``(A) In general.--Qualified expenditures shall be taken 
     into account under paragraph (1) only with respect to 
     qualified equipment--
       ``(i) the original use of which commences with the 
     taxpayer, and
       ``(ii) which is placed in service,
     after December 31, 2003.
       ``(B) Sale-leasebacks.--For purposes of subparagraph (A), 
     if property--
       ``(i) is originally placed in service after December 31, 
     2003, by any person, and
       ``(ii) sold and leased back by such person within 3 months 
     after the date such property was originally placed in 
     service,

     such property shall be treated as originally placed in 
     service not earlier than the date on which such property is 
     used under the leaseback referred to in clause (ii).
       ``(d) Special Allocation Rules.--
       ``(1) Current generation broadband services.--For purposes 
     of determining the amount of qualified broadband expenditures 
     under subsection (a)(1) with respect to qualified equipment 
     through which current generation broadband services are 
     provided, if the qualified equipment is capable of serving 
     both qualified subscribers and other subscribers, the 
     qualified broadband expenditures shall be multiplied by a 
     fraction--
       ``(A) the numerator of which is the sum of the number of 
     potential qualified subscribers within the rural areas and 
     the underserved areas which the equipment is capable of 
     serving with current generation broadband services, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving with current generation broadband 
     services.
       ``(2) Next generation broadband services.--For purposes of 
     determining the amount of qualified broadband expenditures 
     under subsection (a)(1) with respect to qualified equipment 
     through which next generation broadband services are 
     provided, if the qualified equipment is capable of serving 
     both qualified subscribers and other subscribers, the 
     qualified expenditures shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of--
       ``(i) the number of potential qualified subscribers within 
     the rural areas and underserved areas, plus
       ``(ii) the number of potential qualified subscribers within 
     the area consisting only of residential subscribers not 
     described in clause (i),

     which the equipment is capable of serving with next 
     generation broadband services, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving with next generation broadband services.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Antenna.--The term `antenna' means any device used to 
     transmit or receive signals through the electromagnetic 
     spectrum, including satellite equipment.
       ``(2) Cable operator.--The term `cable operator' has the 
     meaning given such term by section 602(5) of the 
     Communications Act of 1934 (47 U.S.C. 522(5)).
       ``(3) Commercial mobile service carrier.--The term 
     `commercial mobile service carrier' means any person 
     authorized to provide commercial mobile radio service as 
     defined in section 20.3 of title 47, Code of Federal 
     Regulations.
       ``(4) Current generation broadband service.--The term 
     `current generation broadband service' means the transmission 
     of signals at a rate of at least 1,000,000 bits per second to 
     the subscriber and at least 128,000 bits per second from the 
     subscriber.
       ``(5) Multiplexing or demultiplexing.--The term 
     `multiplexing' means the transmission of 2 or more signals 
     over a single channel, and the term `demultiplexing' means 
     the separation of 2 or more signals previously combined by 
     compatible multiplexing equipment.
       ``(6) Next generation broadband service.--The term `next 
     generation broadband service' means the transmission of 
     signals at a rate of at least 22,000,000 bits per second to 
     the subscriber and at least 5,000,000 bits per second from 
     the subscriber.
       ``(7) Nonresidential subscriber.--The term `nonresidential 
     subscriber' means any person who purchases broadband services

[[Page 11601]]

     which are delivered to the permanent place of business of 
     such person.
       ``(8) Open video system operator.--The term `open video 
     system operator' means any person authorized to provide 
     service under section 653 of the Communications Act of 1934 
     (47 U.S.C. 573).
       ``(9) Other wireless carrier.--The term `other wireless 
     carrier' means any person (other than a telecommunications 
     carrier, commercial mobile service carrier, cable operator, 
     open video system operator, or satellite carrier) providing 
     current generation broadband services or next generation 
     broadband service to subscribers through the radio 
     transmission of energy.
       ``(10) Packet switching.--The term `packet switching' means 
     controlling or routing the path of any digitized transmission 
     signal which is assembled into packets or cells.
       ``(11) Provider.--The term `provider' means, with respect 
     to any qualified equipment--
       ``(A) a cable operator,
       ``(B) a commercial mobile service carrier,
       ``(C) an open video system operator,
       ``(D) a satellite carrier,
       ``(E) a telecommunications carrier, or
       ``(F) any other wireless carrier,

     providing current generation broadband services or next 
     generation broadband services to subscribers through such 
     qualified equipment.
       ``(12) Provision of services.--A provider shall be treated 
     as providing services to 1 or more subscribers if--
       ``(A) such a subscriber has been passed by the provider's 
     equipment and can be connected to such equipment for a 
     standard connection fee,
       ``(B) the provider is physically able to deliver current 
     generation broadband services or next generation broadband 
     services, as applicable, to such a subscriber without making 
     more than an insignificant investment with respect to such 
     subscriber,
       ``(C) the provider has made reasonable efforts to make such 
     subscribers aware of the availability of such services,
       ``(D) such services have been purchased by 1 or more such 
     subscribers, and
       ``(E) such services are made available to such subscribers 
     at average prices comparable to those at which the provider 
     makes available similar services in any areas in which the 
     provider makes available such services.
       ``(13) Qualified equipment.--
       ``(A) In general.--The term `qualified equipment' means 
     equipment which provides current generation broadband 
     services or next generation broadband services--
       ``(i) at least a majority of the time during periods of 
     maximum demand to each subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no deduction is allowed under 
     subsection (a)(1).
       ``(B) Only certain investment taken into account.--Except 
     as provided in subparagraph (C) or (D), equipment shall be 
     taken into account under subparagraph (A) only to the extent 
     it--
       ``(i) extends from the last point of switching to the 
     outside of the unit, building, dwelling, or office owned or 
     leased by a subscriber in the case of a telecommunications 
     carrier,
       ``(ii) extends from the customer side of the mobile 
     telephone switching office to a transmission/receive antenna 
     (including such antenna) owned or leased by a subscriber in 
     the case of a commercial mobile service carrier,
       ``(iii) extends from the customer side of the headend to 
     the outside of the unit, building, dwelling, or office owned 
     or leased by a subscriber in the case of a cable operator or 
     open video system operator, or
       ``(iv) extends from a transmission/receive antenna 
     (including such antenna) which transmits and receives signals 
     to or from multiple subscribers, to a transmission/receive 
     antenna (including such antenna) on the outside of the unit, 
     building, dwelling, or office owned or leased by a subscriber 
     in the case of a satellite carrier or other wireless carrier, 
     unless such other wireless carrier is also a 
     telecommunications carrier.
       ``(C) Packet switching equipment.--Packet switching 
     equipment, regardless of location, shall be taken into 
     account under subparagraph (A) only if it is deployed in 
     connection with equipment described in subparagraph (B) and 
     is uniquely designed to perform the function of packet 
     switching for current generation broadband services or next 
     generation broadband services, but only if such packet 
     switching is the last in a series of such functions performed 
     in the transmission of a signal to a subscriber or the first 
     in a series of such functions performed in the transmission 
     of a signal from a subscriber.
       ``(D) Multiplexing and demultiplexing equipment.--
     Multiplexing and demultiplex-
     ing equipment shall be taken into account under subparagraph 
     (A) only to the extent it is deployed in connection with 
     equipment described in subparagraph (B) and is uniquely 
     designed to perform the function of multiplexing and 
     demultiplexing packets or cells of data and making associated 
     application adaptions, but only if such multiplexing or 
     demultiplexing equipment is located between packet switching 
     equipment described in subparagraph (C) and the subscriber's 
     premises.
       ``(14) Qualified subscriber.--The term `qualified 
     subscriber' means--
       ``(A) with respect to the provision of current generation 
     broadband services--
       ``(i) any nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) any residential subscriber residing in a dwelling 
     located in a rural area or underserved area which is not a 
     saturated market, and
       ``(B) with respect to the provision of next generation 
     broadband services--
       ``(i) any nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) any residential subscriber.
       ``(15) Residential subscriber.--The term `residential 
     subscriber' means any individual who purchases broadband 
     services which are delivered to such individual's dwelling.
       ``(16) Rural area.--The term `rural area' means any census 
     tract which--
       ``(A) is not within 10 miles of any incorporated or census 
     designated place containing more than 25,000 people, and
       ``(B) is not within a county or county equivalent which has 
     an overall population density of more than 500 people per 
     square mile of land.
       ``(17) Rural subscriber.--The term `rural subscriber' means 
     any residential subscriber residing in a dwelling located in 
     a rural area or nonresidential subscriber maintaining a 
     permanent place of business located in a rural area.
       ``(18) Satellite carrier.--The term `satellite carrier' 
     means any person using the facilities of a satellite or 
     satellite service licensed by the Federal Communications 
     Commission and operating in the Fixed-Satellite Service under 
     part 25 of title 47 of the Code of Federal Regulations or the 
     Direct Broadcast Satellite Service under part 100 of title 47 
     of such Code to establish and operate a channel of 
     communications for distribution of signals, and owning or 
     leasing a capacity or service on a satellite in order to 
     provide such point-to-multipoint distribution.
       ``(19) Saturated market.--The term `saturated market' means 
     any census tract in which, as of the date of the enactment of 
     this section--
       ``(A) current generation broadband services have been 
     provided by a single provider to 85 percent or more of the 
     total number of potential residential subscribers residing in 
     dwellings located within such census tract, and
       ``(B) such services can be utilized--
       ``(i) at least a majority of the time during periods of 
     maximum demand by each such subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no deduction is allowed under 
     subsection (a)(1).
       ``(20) Subscriber.--The term `subscriber' means any person 
     who purchases current generation broadband services or next 
     generation broadband services.
       ``(21) Telecommunications carrier.--The term 
     `telecommunications carrier' has the meaning given such term 
     by section 3(44) of the Communications Act of 1934 (47 U.S.C. 
     153(44)), but--
       ``(A) includes all members of an affiliated group of which 
     a telecommunications carrier is a member, and
       ``(B) does not include a commercial mobile service carrier.
       ``(22) Total potential subscriber population.--The term 
     `total potential subscriber population' means, with respect 
     to any area and based on the most recent census data, the 
     total number of potential residential subscribers residing in 
     dwellings located in such area and potential nonresidential 
     subscribers maintaining permanent places of business located 
     in such area.
       ``(23) Underserved area.--The term `underserved area' means 
     any census tract which is located in--
       ``(A) an empowerment zone or enterprise community 
     designated under section 1391,
       ``(B) the District of Columbia Enterprise Zone established 
     under section 1400,
       ``(C) a renewal community designated under section 1400E, 
     or
       ``(D) a low-income community designated under section 45D.
       ``(24) Underserved subscriber.--The term `underserved 
     subscriber' means any residential subscriber residing in a 
     dwelling located in an underserved area or nonresidential 
     subscriber maintaining a permanent place of business located 
     in an underserved area.
       ``(f) Special Rules.--
       ``(1) Property used outside the united states, etc., not 
     qualified.--No expenditures shall be taken into account under 
     subsection (a)(1) with respect to the portion of the cost of 
     any property referred to in section 50(b) or with respect to 
     the portion of the cost of any property taken into account 
     under section 179.
       ``(2) Basis reduction.--
       ``(A) In general.--For purposes of this title, the basis of 
     any property shall be reduced by the portion of the cost of 
     such property taken into account under subsection (a)(1).

[[Page 11602]]

       ``(B) Ordinary income recapture.--For purposes of section 
     1245, the amount of the deduction allowable under subsection 
     (a)(1) with respect to any property which is of a character 
     subject to the allowance for depreciation shall be treated as 
     a deduction allowed for depreciation under section 167.
       ``(3) Coordination with section 38.--No credit shall be 
     allowed under section 38 with respect to any amount for which 
     a deduction is allowed under subsection (a)(1).''.
       (b) Special Rule for Mutual or Cooperative Telephone 
     Companies.--Section 501(c)(12)(B) (relating to list of exempt 
     organizations) is amended by striking ``or'' at the end of 
     clause (iii), by striking the period at the end of clause 
     (iv) and inserting ``, or'', and by adding at the end the 
     following:
       ``(v) from the sale of property subject to a lease 
     described in section 191(c)(2)(B), but only to the extent 
     such income does not in any year exceed an amount equal to 
     the qualified broadband expenditures which would be taken 
     into account under section 191 for such year if the mutual or 
     cooperative telephone company was not exempt from taxation 
     and was treated as the owner of the property subject to such 
     lease.''.
       (c) Conforming Amendments.--
       (1) Section 263(a)(1) (relating to capital expenditures) is 
     amended by striking ``or'' at the end of subparagraph (G), by 
     striking the period at the end of subparagraph (H) and 
     inserting ``, or'', and by adding at the end the following 
     new subparagraph:
       ``(I) expenditures for which a deduction is allowed under 
     section 191.''.
       (2) Section 1016(a) of such Code is amended by striking 
     ``and'' at the end of paragraph (27), by striking the period 
     at the end of paragraph (28) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(29) to the extent provided in section 191(f)(2).''.
       (3) The table of sections for part VI of subchapter A of 
     chapter 1 of such Code is amended by inserting after the item 
     relating to section 190 the following new item:

``Sec. 191. Broadband expenditures.''.

       (d) Designation of Census Tracts.--
       (1) In general.--The Secretary of the Treasury shall, not 
     later than 90 days after the date of the enactment of this 
     Act, designate and publish those census tracts meeting the 
     criteria described in paragraphs (16), (22), and (23) of 
     section 191(e) of the Internal Revenue Code of 1986 (as added 
     by this section). In making such designations, the Secretary 
     of the Treasury shall consult with such other departments and 
     agencies as the Secretary determines appropriate.
       (2) Saturated market.--
       (A) In general.--For purposes of designating and publishing 
     those census tracts meeting the criteria described in 
     subsection (e)(19) of such section 191--
       (i) the Secretary of the Treasury shall prescribe not later 
     than 30 days after the date of the enactment of this Act the 
     form upon which any provider which takes the position that it 
     meets such criteria with respect to any census tract shall 
     submit a list of such census tracts (and any other 
     information required by the Secretary) not later than 60 days 
     after the date of the publication of such form, and
       (ii) the Secretary of the Treasury shall publish an 
     aggregate list of such census tracts and the applicable 
     providers not later than 30 days after the last date such 
     submissions are allowed under clause (i).
       (B) No subsequent lists required.--The Secretary of the 
     Treasury shall not be required to publish any list of census 
     tracts meeting such criteria subsequent to the list described 
     in subparagraph (A)(ii).
       (C) Authority to disregard false submissions.--In addition 
     to imposing any other applicable penalties, the Secretary of 
     the Treasury shall have the discretion to disregard any form 
     described in subparagraph (A)(i) on which a provider 
     knowingly submitted false information.
       (e) Other Regulatory Matters.--
       (1) Prohibition.--No Federal or State agency or 
     instrumentality shall adopt regulations or ratemaking 
     procedures that would have the effect of confiscating any 
     deduction or portion thereof allowed under section 191 of the 
     Internal Revenue Code of 1986 (as added by this section) or 
     otherwise subverting the purpose of this section.
       (2) Treasury regulatory authority.--It is the intent of 
     Congress in providing the election to deduct qualified 
     broadband expenditures under section 191 of the Internal 
     Revenue Code of 1986 (as added by this section) to provide 
     incentives for the purchase, installation, and connection of 
     equipment and facilities offering expanded broadband access 
     to the Internet for users in certain low income and rural 
     areas of the United States, as well as to residential users 
     nationwide, in a manner that maintains competitive neutrality 
     among the various classes of providers of broadband services. 
     Accordingly, the Secretary of the Treasury shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of section 191 of such Code, including--
       (A) regulations to determine how and when a taxpayer that 
     incurs qualified broadband expenditures satisfies the 
     requirements of section 191 of such Code to provide broadband 
     services, and
       (B) regulations describing the information, records, and 
     data taxpayers are required to provide the Secretary to 
     substantiate compliance with the requirements of section 191 
     of such Code.
       (f) Effective Date.--The amendments made by this section 
     shall apply to expenditures incurred after December 31, 2003.
                                 ______
                                 
  SA 560. Mr. REID proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       At the appropriate place, insert the following:

     SEC. __. MECHANISM TO PROTECT SOCIAL SECURITY

       (a) Certification.--
       (1) In general.--Each year, beginning in 2003, when the 
     Final Monthly Treasury Statement for the most recently 
     completed fiscal year is issued, the Secretary of the 
     Treasury shall--
       (A) certify whether there was a on-budget balance or 
     surplus in that fiscal year; and
       (B) estimate whether there would be an on-budget deficit in 
     any of the succeeding 10 fiscal years if section 201 of this 
     Act takes effect January 1 of the following year.
       (2) Estimate.--The calculations for the estimate under 
     paragraph (1)(B) shall be consistent with the baseline rules 
     specified in section 257 of the Balanced Budget and Emergency 
     Deficit Control Act of 1995, except for the assumption that 
     these provisions take effect and remain in effect 
     permanently.
       (b) Delay in Dividend Tax Cut.--Notwithstanding any other 
     provision of law or this Act, section 201 of this Act shall 
     not take effect until January 1 of the year following--
       (1) a certification by the Secretary of the Treasury 
     pursuant to paragraph (a)(1)(A) that no on-budget deficit 
     existed in the preceding fiscal year; and
       (2) an estimate by the Secretary of the Treasury pursuant 
     to paragraph (a)(1)(B) that no on-budget deficits will occur 
     in any of the 10 succeeding fiscal years even if section 201 
     takes effect.
                                 ______
                                 
  SA 561. Mr. DASCHLE submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       Strike all after the enacting clause and insert the 
     following:

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

       (a) Short Title.--This Act may be cited as the ``Jobs, 
     Opportunity, and Prosperity Act of 2003''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--

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

             TITLE I--TAX CREDIT FOR EVERY WORKING AMERICAN

Sec. 101. Tax credit for every working American.

                       TITLE II--CHILD TAX CREDIT

Sec. 201. Acceleration of increase in, and refundability of, child tax 
              credit.

                   TITLE III--MARRIAGE PENALTY RELIEF

Sec. 301. Acceleration of marriage penalty relief for earned income 
              credit.
Sec. 302. Acceleration of increase in standard deduction for married 
              taxpayers filing joint returns.

                       TITLE IV--BUSINESS TAX CUT

Sec. 401. Small business tax credit for 50 percent of health premiums.
Sec. 402. Increased bonus depreciation.
Sec. 403. Modifications to expensing under section 179.
Sec. 404. Broadband Internet access tax credit.

                      TITLE V--STATE FISCAL RELIEF

Sec. 501. General revenue sharing with States and their local 
              governments.
Sec. 502. Temporary State FMAP relief.

                  TITLE VI--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

Sec. 601. Extension of the temporary extended unemployment compensation 
              act of 2002.
Sec. 602. Entitlement to additional weeks of temporary extended 
              unemployment compensation.

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

Sec. 611. Federal-state agreements.
Sec. 612. Payments to States having agreements under this title.
Sec. 613. Financing provisions.

[[Page 11603]]

Sec. 614. Definitions.
Sec. 615. Applicability.
Sec. 616. Coordination with the Temporary Extended Unemployment 
              Compensation Act of 2002.

                 TITLE VII--LONG-TERM FISCAL DISCIPLINE

        Subtitle A--Provisions Designed To Curtail Tax Shelters

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

           Subtitle B--Other Corporate Governance Provisions

Sec. 721. Affirmation of consolidated return regulation authority.
Sec. 722. Signing of corporate tax returns by chief executive officer.

      Subtitle C--Provisions to Discourage Corporate Expatriation

Sec. 731. Tax treatment of inverted corporate entities.
Sec. 732. Excise tax on stock compensation of insiders in inverted 
              corporations.
Sec. 733. Reinsurance of United States risks in foreign jurisdictions.

              Subtitle D--Imposition of Customs User Fees

Sec. 741. Customs user fees.

                   Subtitle E--Budget Points of Order

Sec. 751. Extension of pay-as-you-go enforcement in the Senate.
Sec. 752. Application of EGTRRA sunset to various titles.
Sec. 753. Sunset.

             TITLE I--TAX CREDIT FOR EVERY WORKING AMERICAN

     SEC. 101. TAX CREDIT FOR EVERY WORKING AMERICAN.

       (a) In General.--The Secretary of the Treasury shall pay, 
     out of any money in the Treasury not otherwise appropriated, 
     to each eligible taxpayer an amount equal to 10 percent of 
     the eligible portion of the taxpayer's adjusted gross income 
     (as defined in section 62 of the Internal Revenue Code of 
     1986) for a taxable year beginning in 2002.
       (b) Eligible Taxpayer.--For purposes of this section, the 
     term ``eligible taxpayer'' means any individual other than--
       (1) any estate or trust,
       (2) any nonresident alien, or
       (3) any individual with respect to whom a deduction under 
     section 151 of such Code is allowable to another taxpayer for 
     a taxable year beginning in 2003.
       (c) Eligible Portion.--For purposes of this section--
       (1) In general.--With respect to each eligible taxpayer, 
     the eligible portion shall be equal to the sum of--
       (A) $3,000 ($6,000 in the case of a taxpayer filing a joint 
     return under section 6013 of such Code), plus
       (B) $3,000 for each qualifying child of the taxpayer, not 
     to exceed $6,000.
       (2) Qualifying child.--The term ``qualifying child'' has 
     the meaning given such term by section 24(c) of such Code.
       (d) Remittance of Payment.--The Secretary of the Treasury 
     shall remit the payment described in subsection (a) to the 
     taxpayer as soon as practicable after the date of the 
     enactment of this section.

                       TITLE II--CHILD TAX CREDIT

     SEC. 201. ACCELERATION OF INCREASE IN, AND REFUNDABILITY OF, 
                   CHILD TAX CREDIT.

       (a) Acceleration of Increase in Credit.--The table 
     contained in section 24(a)(2) (relating to per child amount) 
     is amended to read as follows:

  The per child amount is--e year beginning in--
  2003........................................................$700 ....

  2004, 2005, 2006, 2007, 2008, or 2009......................  800 ....

  2010 or thereafter......................................1,000.''.....

       (b) Expansion of Credit Refundability.--Section 
     24(d)(1)(B)(i) (relating to portion of credit refundable) is 
     amended by striking ``(10 percent in the case of taxable 
     years beginning before January 1, 2005)''.
       (c) Advance Payment of Portion of Increased Credit in 
     2003.--
       (1) In general.--Subchapter B of chapter 65 (relating to 
     abatements, credits, and refunds) is amended by adding at the 
     end the following new section:

     ``SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD 
                   CREDIT FOR 2003.

       ``(a) In General.--Each taxpayer who claimed a credit under 
     section 24 on the return for the taxpayer's first taxable 
     year beginning in 2002 shall be treated as having made a 
     payment against the tax imposed by chapter 1 for such taxable 
     year in an amount equal to the child tax credit refund amount 
     (if any) for such taxable year.
       ``(b) Child Tax Credit Refund Amount.--For purposes of this 
     section, the child tax credit refund amount is the amount by 
     which the aggregate credits allowed under part IV of 
     subchapter A of chapter 1 for such first taxable year would 
     have been increased if--
       ``(1) the per child amount under section 24(a)(2) for such 
     year were $700,
       ``(2) only qualifying children (as defined in section 
     24(c)) of the taxpayer for such year who had not attained age 
     17 as of December 31, 2003, were taken into account, and
       ``(3) section 24(d)(1)(B)(ii) did not apply.
       ``(c) Timing of Payments.--In the case of any overpayment 
     attributable to this section, the Secretary shall, subject to 
     the provisions of this title, refund or credit such 
     overpayment as rapidly as possible and, to the extent 
     practicable, before October 1, 2003. No refund or credit 
     shall be made or allowed under this section after December 
     31, 2003.
       ``(d) Coordination with Child Tax Credit.--
       ``(1) In general.--The amount of credit which would (but 
     for this subsection and section 26) be allowed under section 
     24 for the taxpayer's first taxable year beginning in 2003 
     shall be reduced (but not below zero) by the payments made to 
     the taxpayer under this section. Any failure to so reduce the 
     credit shall be treated as arising out of a mathematical or 
     clerical error and assessed according to section 6213(b)(1).
       ``(2) Joint returns.--In the case of a payment under this 
     section with respect to a joint return, half of such payment 
     shall be treated as having been made to each individual 
     filing such return.
       ``(e) No Interest.--No interest shall be allowed on any 
     overpayment attributable to this section.''.
       (2) Clerical amendment.--The table of sections for 
     subchapter B of chapter 65 is amended by adding at the end 
     the following new item:

``Sec. 6429. Advance payment of portion of increased child credit for 
              2003.''.

       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2002.
       (2) Subsection (c).--The amendments made by subsection (c) 
     shall take effect on the date of the enactment of this Act.

                   TITLE III--MARRIAGE PENALTY RELIEF

     SEC. 301. ACCELERATION OF MARRIAGE PENALTY RELIEF FOR EARNED 
                   INCOME CREDIT.

       (a) In General.--Section 32(b)(2)(B) (relating to joint 
     returns) is amended by striking ```increased by--'' and all 
     that follows and inserting ``increased by $3,000.''.
       (b) Inflation Adjustment.--Clause (ii) of section 
     32(j)(1)(B) (relating to inflation adjustments) is amended to 
     read as follows:
       ``(ii) in the case of the $3,000 amount in subsection 
     (b)(2)(B), by substituting `calendar year 2003' for `calendar 
     year 1992' in subparagraph (B) of such section 1.''.
       (c) Conforming Amendment.--Section 303(i)(2) of the 
     Economic Growth and Tax Relief Reconciliation Act of 2001 is 
     amended by striking ``2004'' and inserting ``2003''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2002.
       (2) Conforming amendment.--The amendment made by subsection 
     (c) shall take effect on January 1, 2003.

     SEC. 302. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR 
                   MARRIED TAXPAYERS FILING JOINT RETURNS.

       (a) In General.--Paragraph (2) of section 63(c) (relating 
     to basic standard deduction) is amended to read as follows:
       ``(2) Basic standard deduction.--For purposes of paragraph 
     (1), the basic standard deduction is--

[[Page 11604]]

       ``(A) 200 percent of the dollar amount in effect under 
     subparagraph (C) for the taxable year in the case of--
       ``(i) a joint return, or
       ``(ii) a surviving spouse (as defined in section 2(a)),
       ``(B) $4,400 in the case of a head of household (as defined 
     in section 2(b)), or
       ``(C) $3,000 in any other case.''.
       (b) Conforming Amendments.--
       (1) Section 63(c)(4) is amended by striking ``(2)(D)'' each 
     place it occurs and inserting ``(2)(C)''.
       (2) Section 63(c) is amended by striking paragraph (7).
       (3) Section 301(d) of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is amended by striking ``2004'' 
     and inserting ``2002''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

                       TITLE IV--BUSINESS TAX CUT

     SEC. 401. SMALL BUSINESS TAX CREDIT FOR 50 PERCENT OF HEALTH 
                   PREMIUMS.

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

     ``SEC. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of a qualified small employer, the employee health 
     insurance expenses credit determined under this section is an 
     amount equal to the applicable percentage of the amount paid 
     by the taxpayer during the taxable year for qualified 
     employee health insurance expenses.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage is equal to--
       ``(1) 50 percent in the case of an employer with less than 
     26 qualified employees,
       ``(2) 40 percent in the case of an employer with more than 
     25 but less than 36 qualified employees, and
       ``(3) 30 percent in the case of an employer with more than 
     35 but less than 51 qualified employees.
       ``(c) Per Employee Dollar Limitation.--The amount of 
     qualified employee health insurance expenses taken into 
     account under subsection (a) with respect to any qualified 
     employee for any taxable year shall not exceed the maximum 
     employer contribution for self-only coverage or family 
     coverage (as applicable) determined under section 8906(a) of 
     title 5, United States Code, for the calendar year in which 
     such taxable year begins.
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified small employer.--
       ``(A) In general.--The term `qualified small employer' 
     means any small employer which provides eligibility for 
     health insurance coverage (after any waiting period (as 
     defined in section 9801(b)(4)) to all qualified employees of 
     the employer.
       ``(B) Small employer.--
       ``(i) In general.--For purposes of this paragraph, the term 
     `small employer' means, with respect to any calendar year, 
     any employer if such employer employed an average of not less 
     than 2 and not more than 50 qualified employees on business 
     days during either of the 2 preceding calendar years. For 
     purposes of the preceding sentence, a preceding calendar year 
     may be taken into account only if the employer was in 
     existence throughout such year.
       ``(ii) Employers not in existence in preceding year.--In 
     the case of an employer which was not in existence throughout 
     the 1st preceding calendar year, the determination under 
     clause (i) shall be based on the average number of qualified 
     employees that it is reasonably expected such employer will 
     employ on business days in the current calendar year.
       ``(2) Qualified employee health insurance expenses.--
       ``(A) In general.--The term `qualified employee health 
     insurance expenses' means any amount paid by an employer for 
     health insurance coverage to the extent such amount is 
     attributable to coverage provided to any employee while such 
     employee is a qualified employee.
       ``(B) Exception for amounts paid under salary reduction 
     arrangements.--No amount paid or incurred for health 
     insurance coverage pursuant to a salary reduction arrangement 
     shall be taken into account under subparagraph (A).
       ``(C) Health insurance coverage.--The term `health 
     insurance coverage' has the meaning given such term by 
     paragraph (1) of section 9832(b) (determined by disregarding 
     the last sentence of paragraph (2) of such section).
       ``(3) Qualified employee.--The term `qualified employee' 
     means an employee of an employer who, with respect to any 
     period, is not provided health insurance coverage under--
       ``(A) a health plan of the employee's spouse,
       ``(B) title XVIII, XIX, or XXI of the Social Security Act,
       ``(C) chapter 17 of title 38, United States Code,
       ``(D) chapter 55 of title 10, United States Code,
       ``(E) chapter 89 of title 5, United States Code, or
       ``(F) any other provision of law.
       ``(4) Employee--The term `employee'--
       ``(A) means any individual, with respect to any calendar 
     year, who is reasonably expected to receive at least $5,000 
     of compensation from the employer during such year,
       ``(B) does not include an employee within the meaning of 
     section 401(c)(1), and
       ``(C) includes a leased employee within the meaning of 
     section 414(n).
       ``(5) Compensation.--The term `compensation' means amounts 
     described in section 6051(a)(3).
       ``(e) Certain Rules Made Applicable.--For purposes of this 
     section, rules similar to the rules of section 52 shall 
     apply.
       ``(f) Denial of Double Benefit.--No deduction or credit 
     under any other provision of this chapter shall be allowed 
     with respect to qualified employee health insurance expenses 
     taken into account under subsection (a).
       ``(g) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 2003.''.
       (b) Credit To Be Part of General Business Credit.--Section 
     38(b) (relating to current year business credit) is amended 
     by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following:
       ``(16) the employee health insurance expenses credit 
     determined under section 45G.''.
       (c) Credit Allowed Against Minimum Tax.--
       (1) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Special rules for employee health insurance credit.--
       ``(A) In general.--In the case of the employee health 
     insurance credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) the amounts in subparagraphs (A) and (B) thereof 
     shall be treated as being zero, and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the employee 
     health insurance credit).

       ``(B) Employee health insurance credit.--For purposes of 
     this subsection, the term `employee health insurance credit' 
     means the credit allowable under subsection (a) by reason of 
     section 45G(a).''.
       (2) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) is amended by striking ``(other'' and all 
     that follows through ``credit)'' and inserting ``(other than 
     the empowerment zone employment credit or the employee health 
     insurance credit)''.
       (d) No Carrybacks.--Subsection (d) of section 39 (relating 
     to carryback and carryforward of unused credits) is amended 
     by adding at the end the following:
       ``(11) No carryback of section 45g credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the employee health 
     insurance expenses credit determined under section 45G may be 
     carried back to a taxable year ending before the date of the 
     enactment of section 45G.''.
       (e) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following:

``Sec. 45G. Employee health insurance expenses.''.

       (f) Employer Outreach.--The Internal Revenue Service shall, 
     in conjunction with the Small Business Administration, 
     develop materials and implement an educational program to 
     ensure that business personnel are aware of--
       (1) the eligibility criteria for the tax credit provided 
     under section 45G of the Internal Revenue Code of 1986 (as 
     added by this section),
       (2) the methods to be used in calculating such credit,
       (3) the documentation needed in order to claim such credit, 
     and
       (4) any available health plan purchasing alliances 
     established under title II,

     so that the maximum number of eligible businesses may claim 
     the tax credit.
       (g) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 2002.

     SEC. 402. INCREASED BONUS DEPRECIATION.

       (a) In General.--Subsection (k) of section 168 (relating to 
     accelerated cost recovery system) is amended--
       (1) by adding at the end of paragraph (1) the following new 
     flush sentence:
     ``In the case of any qualified property acquired by the 
     taxpayer pursuant to a written binding contract which was 
     entered into after December 31, 2002, subparagraph (A) shall 
     be applied by substituting `50 percent' for `30 percent'.'',
       (2) by striking ``September 11, 2004'' each place it 
     appears and inserting ``January 1, 2004'',
       (3) by striking ``September 11, 2004'' and inserting 
     ``January 1, 2004'', and

[[Page 11605]]

       (4) by striking ``pre-september 11, 2004'' and inserting 
     ``pre-january 1, 2004''.
       (b) Conforming Amendments.--
       (1) The heading for clause (i) of section 1400L(b)(2)(C) of 
     the Internal Revenue Code of 1986 is amended by striking ``30 
     percent additional'' and inserting ``Additional''.
       (2) Section 1400L(b)(2)(D) of such Code is amended by 
     inserting ``(as in effect on the day after the date of the 
     enactment of this section)'' after ``section 168(k)(2)(D)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to property acquired after December 31, 2002.

     SEC. 403. MODIFICATIONS TO EXPENSING UNDER SECTION 179.

       (a) Increase of Amount Which May Be Expensed.--
       (1) In general.--Paragraph (1) of section 179(b) (relating 
     to dollar limitation) is amended to read as follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed $25,000 ($75,000 in the case of any taxable 
     year beginning in 2003).''
       (2) Increase in phaseout threshold.--Paragraph (2) of 
     section 179(b) is amended by striking ``$200,000'' and 
     inserting ``$200,000 ($325,000 in the case of any taxable 
     year beginning in 2003)''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to property placed in service in taxable years 
     beginning after December 31, 2002.

     SEC. 404. BROADBAND INTERNET ACCESS TAX CREDIT.

       (a) In General.--Subpart E of part IV of chapter 1 
     (relating to rules for computing investment credit) is 
     amended by inserting after section 48 the following new 
     section:

     ``SEC. 48A. BROADBAND INTERNET ACCESS CREDIT.

       ``(a) General Rule.--For purposes of section 46, the 
     broadband credit for any taxable year is the sum of--
       ``(1) the current generation broadband credit, plus
       ``(2) the next generation broadband credit.
       ``(b) Current Generation Broadband Credit; Next Generation 
     Broadband Credit.--For purposes of this section--
       ``(1) Current generation broadband credit.--The current 
     generation broadband credit for any taxable year is equal to 
     10 percent of the qualified expenditures incurred with 
     respect to qualified equipment providing current generation 
     broadband services to qualified subscribers and taken into 
     account with respect to such taxable year.
       ``(2) Next generation broadband credit.--The next 
     generation broadband credit for any taxable year is equal to 
     20 percent of the qualified expenditures incurred with 
     respect to qualified equipment providing next generation 
     broadband services to qualified subscribers and taken into 
     account with respect to such taxable year.
       ``(c) When Expenditures Taken Into Account.--For purposes 
     of this section--
       ``(1) In general.--Qualified expenditures with respect to 
     qualified equipment shall be taken into account with respect 
     to the first taxable year in which--
       ``(A) current generation broadband services are provided 
     through such equipment to qualified subscribers, or
       ``(B) next generation broadband services are provided 
     through such equipment to qualified subscribers.
       ``(2) Limitation.--
       ``(A) In general.--Qualified expenditures shall be taken 
     into account under paragraph (1) only with respect to 
     qualified equipment--
       ``(i) the original use of which commences with the 
     taxpayer, and
       ``(ii) which is placed in service,

     after December 31, 2002.
       ``(B) Sale-leasebacks.--For purposes of subparagraph (A), 
     if property--
       ``(i) is originally placed in service after December 31, 
     2002, by a person, and
       ``(ii) sold and leased back by such person within 3 months 
     after the date such property was originally placed in 
     service,
     such property shall be treated as originally placed in 
     service not earlier than the date on which such property is 
     used under the leaseback referred to in clause (ii).
       ``(d) Special Allocation Rules.--
       ``(1) Current generation broadband services.--For purposes 
     of determining the current generation broadband credit under 
     subsection (a)(1) with respect to qualified equipment through 
     which current generation broadband services are provided, if 
     the qualified equipment is capable of serving both qualified 
     subscribers and other subscribers, the qualified expenditures 
     shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of the number of 
     potential qualified subscribers within the rural areas and 
     the underserved areas which the equipment is capable of 
     serving with current generation broadband services, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving with current generation broadband 
     services.
       ``(2) Next generation broadband services.--For purposes of 
     determining the next generation broadband credit under 
     subsection (a)(2) with respect to qualified equipment through 
     which next generation broadband services are provided, if the 
     qualified equipment is capable of serving both qualified 
     subscribers and other subscribers, the qualified expenditures 
     shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of--
       ``(i) the number of potential qualified subscribers within 
     the rural areas and underserved areas, plus
       ``(ii) the number of potential qualified subscribers within 
     the area consisting only of residential subscribers not 
     described in clause (i),

     which the equipment is capable of serving with next 
     generation broadband services, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving with next generation broadband services.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Antenna.--The term `antenna' means any device used to 
     transmit or receive signals through the electromagnetic 
     spectrum, including satellite equipment.
       ``(2) Cable operator.--The term `cable operator' has the 
     meaning given such term by section 602(5) of the 
     Communications Act of 1934 (47 U.S.C. 522(5)).
       ``(3) Commercial mobile service carrier.--The term 
     `commercial mobile service carrier' means any person 
     authorized to provide commercial mobile radio service as 
     defined in section 20.3 of title 47, Code of Federal 
     Regulations.
       ``(4) Current generation broadband service.--The term 
     `current generation broadband service' means the transmission 
     of signals at a rate of at least 1,000,000 bits per second to 
     the subscriber and at least 128,000 bits per second from the 
     subscriber.
       ``(5) Multiplexing or demultiplexing.--The term 
     `multiplexing' means the transmission of 2 or more signals 
     over a single channel, and the term `demultiplexing' means 
     the separation of 2 or more signals previously combined by 
     compatible multiplexing equipment.
       ``(6) Next generation broadband service.--The term `next 
     generation broadband service' means the transmission of 
     signals at a rate of at least 22,000,000 bits per second to 
     the subscriber and at least 5,000,000 bits per second from 
     the subscriber.
       ``(7) Nonresidential subscriber.--The term `nonresidential 
     subscriber' means a person who purchases broadband services 
     which are delivered to the permanent place of business of 
     such person.
       ``(8) Open video system operator.--The term `open video 
     system operator' means any person authorized to provide 
     service under section 653 of the Communications Act of 1934 
     (47 U.S.C. 573).
       ``(9) Other wireless carrier.--The term `other wireless 
     carrier' means any person (other than a telecommunications 
     carrier, commercial mobile service carrier, cable operator, 
     open video system operator, or satellite carrier) providing 
     current generation broadband services or next generation 
     broadband service to subscribers through the wireless 
     transmission of energy through radio or light waves.
       ``(10) Packet switching.--The term `packet switching' means 
     controlling or routing the path of a digitized transmission 
     signal which is assembled into packets or cells.
       ``(11) Provider.--The term `provider' means, with respect 
     to any qualified equipment--
       ``(A) a cable operator,
       ``(B) a commercial mobile service carrier,
       ``(C) an open video system operator,
       ``(D) a satellite carrier,
       ``(E) a telecommunications carrier, or
       ``(F) any other wireless carrier,

     providing current generation broadband services or next 
     generation broadband services to subscribers through such 
     qualified equipment.
       ``(12) Provision of services.--A provider shall be treated 
     as providing services to a subscriber if--
       ``(A) a subscriber has been passed by the provider's 
     equipment and can be connected to such equipment for a 
     standard connection fee,
       ``(B) the provider is physically able to deliver current 
     generation broadband services or next generation broadband 
     services, as applicable, to such subscribers without making 
     more than an insignificant investment with respect to any 
     such subscriber,
       ``(C) the provider has made reasonable efforts to make such 
     subscribers aware of the availability of such services,
       ``(D) such services have been purchased by one or more such 
     subscribers, and
       ``(E) such services are made available to such subscribers 
     at average prices comparable to those at which the provider 
     makes available similar services in any areas in which the 
     provider makes available such services.
       ``(13) Qualified equipment.--
       ``(A) In general.--The term `qualified equipment' means 
     equipment which provides current generation broadband 
     services or next generation broadband services--
       ``(i) at least a majority of the time during periods of 
     maximum demand to each subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to

[[Page 11606]]

     subscribers through equipment with respect to which no credit 
     is allowed under subsection (a)(1).
       ``(B) Only certain investment taken into account.--Except 
     as provided in subparagraph (C) or (D), equipment shall be 
     taken into account under subparagraph (A) only to the extent 
     it--
       ``(i) extends from the last point of switching to the 
     outside of the unit, building, dwelling, or office owned or 
     leased by a subscriber in the case of a telecommunications 
     carrier,
       ``(ii) extends from the customer side of the mobile 
     telephone switching office to a transmission/receive antenna 
     (including such antenna) owned or leased by a subscriber in 
     the case of a commercial mobile service carrier,
       ``(iii) extends from the customer side of the headend to 
     the outside of the unit, building, dwelling, or office owned 
     or leased by a subscriber in the case of a cable operator or 
     open video system operator, or
       ``(iv) extends from a transmission/receive antenna 
     (including such antenna) which transmits and receives signals 
     to or from multiple subscribers, to a transmission/receive 
     antenna (including such antenna) on the outside of the unit, 
     building, dwelling, or office owned or leased by a subscriber 
     in the case of a satellite carrier or other wireless carrier, 
     unless such other wireless carrier is also a 
     telecommunications carrier.
       ``(C) Packet switching equipment.--Packet switching 
     equipment, regardless of location, shall be taken into 
     account under subparagraph (A) only if it is deployed in 
     connection with equipment described in subparagraph (B) and 
     is uniquely designed to perform the function of packet 
     switching for current generation broadband services or next 
     generation broadband services, but only if such packet 
     switching is the last in a series of such functions performed 
     in the transmission of a signal to a subscriber or the first 
     in a series of such functions performed in the transmission 
     of a signal from a subscriber.
       ``(D) Multiplexing and demultiplexing equipment.--
     Multiplexing and demulti-
     plexing equipment shall be taken into account under 
     subparagraph (A) only to the extent it is deployed in 
     connection with equipment described in subparagraph (B) and 
     is uniquely designed to perform the function of multiplexing 
     and demultiplexing packets or cells of data and making 
     associated application adaptions, but only if such 
     multiplexing or demultiplexing equipment is located between 
     packet switching equipment described in subparagraph (C) and 
     the subscriber's premises.
       ``(14) Qualified expenditure.--
       ``(A) In general.--The term `qualified expenditure' means 
     any amount--
       ``(i) chargeable to capital account with respect to the 
     purchase and installation of qualified equipment (including 
     any upgrades thereto) for which depreciation is allowable 
     under section 168, and
       ``(ii) incurred after December 31, 2002, and before January 
     1, 2004.
       ``(B) Certain satellite expenditures excluded.--Such term 
     shall not include any expenditure with respect to the 
     launching of any satellite equipment.
       ``(15) Qualified subscriber.--The term `qualified 
     subscriber' means--
       ``(A) with respect to the provision of current generation 
     broadband services--
       ``(i) a nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) a residential subscriber residing in a dwelling 
     located in a rural area or underserved area which is not a 
     saturated market, and
       ``(B) with respect to the provision of next generation 
     broadband services--
       ``(i) a nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) a residential subscriber.
       ``(16) Residential subscriber.--The term `residential 
     subscriber' means an individual who purchases broadband 
     services which are delivered to such individual's dwelling.
       ``(17) Rural area.--The term `rural area' means any census 
     tract which--
       ``(A) is not within 10 miles of any incorporated or census 
     designated place containing more than 25,000 people, and
       ``(B) is not within a county or county equivalent which has 
     an overall population density of more than 500 people per 
     square mile of land.
       ``(18) Rural subscriber.--The term `rural subscriber' means 
     a residential subscriber residing in a dwelling located in a 
     rural area or nonresidential subscriber maintaining a 
     permanent place of business located in a rural area.
       ``(19) Satellite carrier.--The term `satellite carrier' 
     means any person using the facilities of a satellite or 
     satellite service licensed by the Federal Communications 
     Commission and operating in the Fixed-Satellite Service under 
     part 25 of title 47 of the Code of Federal Regulations or the 
     Direct Broadcast Satellite Service under part 100 of title 47 
     of such Code to establish and operate a channel of 
     communications for distribution of signals, and owning or 
     leasing a capacity or service on a satellite in order to 
     provide such distribution.
       ``(20) Saturated market.--The term `saturated market' means 
     any census tract in which, as of the date of the enactment of 
     this section--
       ``(A) current generation broadband services have been 
     provided by one or more providers to 85 percent or more of 
     the total number of potential residential subscribers 
     residing in dwellings located within such census tract, and
       ``(B) such services can be utilized--
       ``(i) at least a majority of the time during periods of 
     maximum demand by each such subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no credit is allowed under subsection 
     (a)(1).
       ``(21) Subscriber.--The term `subscriber' means a person 
     who purchases current generation broadband services or next 
     generation broadband services.
       ``(22) Telecommunications carrier.--The term 
     `telecommunications carrier' has the meaning given such term 
     by section 3(44) of the Communications Act of 1934 (47 U.S.C. 
     153(44)), but--
       ``(A) includes all members of an affiliated group of which 
     a telecommunications carrier is a member, and
       ``(B) does not include a commercial mobile service carrier.
       ``(23) Total potential subscriber population.--The term 
     `total potential subscriber population' means, with respect 
     to any area and based on the most recent census data, the 
     total number of potential residential subscribers residing in 
     dwellings located in such area and potential nonresidential 
     subscribers maintaining permanent places of business located 
     in such area.
       ``(24) Underserved area.--The term `underserved area' means 
     any census tract which is located in--
       ``(A) an empowerment zone or enterprise community 
     designated under section 1391,
       ``(B) the District of Columbia Enterprise Zone established 
     under section 1400,
       ``(C) a renewal community designated under section 1400E, 
     or
       ``(D) a low-income community designated under section 45D.
       ``(25) Underserved subscriber.--The term `underserved 
     subscriber' means a residential subscriber residing in a 
     dwelling located in an underserved area or nonresidential 
     subscriber maintaining a permanent place of business located 
     in an underserved area.''.
       (b) Credit To Be Part of Investment Credit.--Section 46 
     (relating to the amount of investment credit) is amended by 
     striking ``and'' at the end of paragraph (2), by striking the 
     period at the end of paragraph (3) and inserting ``, and'', 
     and by adding at the end the following:
       ``(4) the broadband Internet access credit.''
       (c) Special Rule for Mutual or Cooperative Telephone 
     Companies.--Section 501(c)(12)(B) (relating to list of exempt 
     organizations) is amended by striking ``or'' at the end of 
     clause (iii), by striking the period at the end of clause 
     (iv) and inserting ``, or'', and by adding at the end the 
     following new clause:
       ``(v) from the sale of property subject to a lease 
     described in section 48A(c)(2)(B), but only to the extent 
     such income does not in any year exceed an amount equal to 
     the credit for qualified expenditures which would be 
     determined under section 48A for such year if the mutual or 
     cooperative telephone company was not exempt from taxation 
     and was treated as the owner of the property subject to such 
     lease.''.
       (d) Conforming Amendment.--The table of sections for 
     subpart E of part IV of subchapter A of chapter 1 is amended 
     by inserting after the item relating to section 48 the 
     following:

``Sec. 48A. Broadband internet access credit.''.

       (e) Designation of Census Tracts.--
       (1) In general.--The Secretary of the Treasury shall, not 
     later than 90 days after the date of the enactment of this 
     Act, designate and publish those census tracts meeting the 
     criteria described in paragraphs (17) and (24) of section 
     48A(e) of the Internal Revenue Code of 1986 (as added by this 
     section). In making such designations, the Secretary of the 
     Treasury shall consult with such other departments and 
     agencies as the Secretary determines appropriate.
       (2) Saturated market.--
       (A) In general.--For purposes of designating and publishing 
     those census tracts meeting the criteria described in 
     subsection (e)(20) of such section 48A--
       (i) the Secretary of the Treasury shall prescribe not later 
     than 30 days after the date of the enactment of this Act the 
     form upon which any provider which takes the position that it 
     meets such criteria with respect to any census tract shall 
     submit a list of such census tracts (and any other 
     information required by the Secretary) not later than 60 days 
     after the date of the publication of such form, and
       (ii) the Secretary of the Treasury shall publish an 
     aggregate list of such census tracts submitted and the 
     applicable providers not later than 30 days after the last 
     date such submissions are allowed under clause (i).
       (B) No subsequent lists required.--The Secretary of the 
     Treasury shall not be required to publish any list of census 
     tracts meeting such criteria subsequent to the list described 
     in subparagraph (A)(ii).

[[Page 11607]]

       (C) Penalties for submission of false information.--The 
     Secretary of the Treasury shall designate appropriate 
     penalties for knowingly submitting false information on the 
     form described in subparagraph (A)(i).
       (f) Other Regulatory Matters.--
       (1) Prohibition.--No Federal or State agency or 
     instrumentality shall adopt regulations or ratemaking 
     procedures that would have the effect of confiscating any 
     credit or portion thereof allowed under section 48A of the 
     Internal Revenue Code of 1986 (as added by this section) or 
     otherwise subverting the purpose of this section.
       (2) Treasury regulatory authority.--It is the intent of 
     Congress in providing the broadband Internet access credit 
     under section 48A of the Internal Revenue Code of 1986 (as 
     added by this section) to provide incentives for the 
     purchase, installation, and connection of equipment and 
     facilities offering expanded broadband access to the Internet 
     for users in certain low income and rural areas of the United 
     States, as well as to residential users nationwide, in a 
     manner that maintains competitive neutrality among the 
     various classes of providers of broadband services. 
     Accordingly, the Secretary of the Treasury shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of section 48A of such Code, including--
       (A) regulations to determine how and when a taxpayer that 
     incurs qualified expenditures satisfies the requirements of 
     section 48A of such Code to provide broadband services, and
       (B) regulations describing the information, records, and 
     data taxpayers are required to provide the Secretary to 
     substantiate compliance with the requirements of section 48A 
     of such Code.
       (g) Effective Date.--The amendments made by this section 
     shall apply to expenditures incurred after December 31, 2002, 
     and before January 1, 2004.

                      TITLE V--STATE FISCAL RELIEF

     SEC. 501. GENERAL REVENUE SHARING WITH STATES AND THEIR LOCAL 
                   GOVERNMENTS.

       (a) Appropriation.--There is authorized to be appropriated 
     and is appropriated to carry out this section $20,000,000,000 
     for fiscal year 2003.
       (b) Allotments.--From the amount appropriated under 
     subsection (a) for fiscal year 2003, the Secretary of the 
     Treasury shall, as soon as practicable after the date of the 
     enactment of this Act, allot to each of the States as 
     follows, except that no State shall receive less than \1/2\ 
     of 1 percent of such amount:
       (1) State level.--$16,000,000,000 shall be allotted among 
     such States on the basis of the relative population of each 
     such State, as determined by the Secretary on the basis of 
     the most recent satisfactory data.
       (2) Local government level.--$4,000,000,000 shall be 
     allotted among such States as determined under paragraph (1) 
     for distribution to the various units of general local 
     government within such States on the basis of the relative 
     population of each such unit within each such State, as 
     determined by the Secretary on the basis of the most recent 
     satisfactory data.
       (c) Definitions.--For purposes of this section--
       (1) State.--The term ``State'' means any of the several 
     States, the District of Columbia, and the Commonwealth of 
     Puerto Rico.
       (2) Unit of general local government.--
       (A) In general.--The term ``unit of general local 
     government'' means--
       (i) a county, parish, township, city, or political 
     subdivision of a county, parish, township, or city, that is a 
     unit of general local government as determined by the 
     Secretary of Commerce for general statistical purposes; and
       (ii) the District of Columbia, the Commonwealth of Puerto 
     Rico, and the recognized governing body of an Indian tribe or 
     Alaskan native village that carries out substantial 
     governmental duties and powers.
       (B) Treatment of subsumed areas.--For purposes of 
     determining a unit of general local government under this 
     section, the rules under section 6720(c) of title 31, United 
     States Code, shall apply.

     SEC. 502. TEMPORARY STATE FMAP RELIEF.

       (a) Permitting Maintenance of Fiscal Year 2002 FMAP for 
     Last 2 Calendar Quarters of Fiscal Year 2003.--
     Notwithstanding any other provision of law, but subject to 
     subsection (e), if the FMAP determined without regard to this 
     subsection for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this section.
       (b) Permitting Maintenance of Fiscal Year 2003 FMAP for 
     Each Calendar Quarter of Fiscal Year 2004.--Notwithstanding 
     any other provision of law, but subject to subsection (e), if 
     the FMAP determined without regard to this subsection for a 
     State for fiscal year 2004 is less than the FMAP as so 
     determined for fiscal year 2003, the FMAP for the State for 
     fiscal year 2003 shall be substituted for the State's FMAP 
     for each calendar quarter of fiscal year 2004, before the 
     application of this section.
       (c) General 4.95 Percentage Points Increase for Last 2 
     Calendar Quarters of Fiscal Year 2003 and Each Calendar 
     Quarter of Fiscal Year 2004.--Notwithstanding any other 
     provision of law, but subject to subsections (e) and (f), for 
     each State for the third and fourth calendar quarters of 
     fiscal year 2003 and each calendar quarter of fiscal year 
     2004, the FMAP (taking into account the application of 
     subsections (a) and (b)) shall be increased by 4.95 
     percentage points.
       (d) Increase in Cap on Medicaid Payments To Territories.--
     Notwithstanding any other provision of law, but subject to 
     subsection (f), with respect to the third and fourth calendar 
     quarters of fiscal year 2003 and each calendar quarter of 
     fiscal year 2004, the amounts otherwise determined for Puerto 
     Rico, the Virgin Islands, Guam, the Northern Mariana Islands, 
     and American Samoa under subsections (f) and (g) of section 
     1108 of the Social Security Act (42 U.S.C. 1308) shall each 
     be increased by an amount equal to 9.90 percent of such 
     amounts.
       (e) Scope of Application.--The increases in the FMAP for a 
     State under this section shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (1) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4);
       (2) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.); or
       (3) the percentage described in the third sentence of 
     section 1905(b) of the Social Security Act (42 U.S.C. 
     1396d(b)) (relating to amounts expended as medical assistance 
     for services received through an Indian Health Service 
     facility whether operated by the Indian Health Service or by 
     an Indian tribe or tribal organization (as defined in section 
     4 of the Indian Health Care Improvement Act)).
       (f) State Eligibility.--
       (1) In general.--Subject to paragraph (2), a State is 
     eligible for an increase in its FMAP under subsection (c) or 
     an increase in a cap amount under subsection (d) only if the 
     eligibility under its State plan under title XIX of the 
     Social Security Act (including any waiver under such title or 
     under section 1115 of such Act (42 U.S.C. 1315)) is no more 
     restrictive than the eligibility under such plan (or waiver) 
     as in effect on July 1, 2003.
       (2) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after July 1, 2003, but prior to the date of enactment 
     of this Act is eligible for an increase in its FMAP under 
     subsection (c) or an increase in a cap amount under 
     subsection (d) in the first calendar quarter (and any 
     subsequent calendar quarters) in which the State has 
     reinstated eligibility that is no more restrictive than the 
     eligibility under such plan (or waiver) as in effect on July 
     1, 2003.
       (3) Rule of construction.--Nothing in paragraph (1) or (2) 
     shall be construed as affecting a State's flexibility with 
     respect to benefits offered under the State medicaid program 
     under title XIX of the Social Security Act (42 U.S.C. 1396 et 
     seq.) (including any waiver under such title or under section 
     1115 of such Act (42 U.S.C. 1315)).
       (g) Definitions.--In this section:
       (1) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (2) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (h) Repeal.--Effective as of October 1, 2004, this section 
     is repealed.

                  TITLE VI--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

     SEC. 601. EXTENSION OF THE TEMPORARY EXTENDED UNEMPLOYMENT 
                   COMPENSATION ACT OF 2002.

       (a) In General.--Section 208 of the Temporary Extended 
     Unemployment Compensation Act of 2002 (Public Law 107-147; 
     116 Stat. 30), as amended by Public Law 108-1 (117 Stat. 3), 
     is amended--
       (1) in subsection (a)(2), by striking ``before June 1'' and 
     inserting ``on or before November 30'';
       (2) in subsection (b)(1), by striking ``May 31, 2003'' and 
     inserting ``November 30, 2003'';
       (3) in subsection (b)(2)--
       (A) in the heading, by striking ``may 31, 2003'' and 
     inserting ``november 30, 2003''; and
       (B) by striking ``May 31, 2003'' and inserting ``November 
     30, 2003''; and
       (4) in subsection (b)(3), by striking ``August 30, 2003'' 
     and inserting ``February 28, 2004''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 21).

     SEC. 602. ENTITLEMENT TO ADDITIONAL WEEKS OF TEMPORARY 
                   EXTENDED UNEMPLOYMENT COMPENSATION.

       (a) Entitlement to Additional Weeks.--
       (1) In general.--Paragraph (1) of section 203(b) of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 28) is amended--
       (A) in subparagraph (A), by striking ``50 percent'' and 
     inserting ``100 percent''; and

[[Page 11608]]

       (B) in subparagraph (B), by striking ``13 times'' and 
     inserting ``26 times''.
       (2) Repeal of restriction on augmentation during 
     transitional period.--Section 208(b) of the Temporary 
     Extended Unemployment Compensation Act of 2002 (Public Law 
     107-147), as amended by Public Law 108-1 (117 Stat. 3) and 
     section 601(a), is amended--
       (A) in paragraph (1)--
       (i) by striking ``paragraphs (2) and (3)'' and inserting 
     ``paragraph (2)''; and
       (ii) by inserting before the period at the end the 
     following: ``, including such compensation payable by reason 
     of amounts deposited in such account after such date pursuant 
     to the application of subsection (c) of such section'';
       (B) by striking paragraph (2); and
       (C) by redesignating paragraph (3) as paragraph (2).
       (3) Extension of transition limitation.--Section 208(b)(2) 
     of the Temporary Extended Unemployment Compensation Act of 
     2002 (Public Law 107-147), as amended by Public Law 108-1 
     (117 Stat. 3) and section 601(a)(4) and as redesignated by 
     paragraph (2), is amended by striking ``February 28, 2004'' 
     and inserting ``May 29, 2004''.
       (4) Conforming amendment for augmented benefits.--Section 
     203(c)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended by 
     striking ``the amount originally established in such account 
     (as determined under subsection (b)(1))'' and inserting ``7 
     times the individual's average weekly benefit amount for the 
     benefit year''.
       (b) Effective Date and Application.--
       (1) In general.--The amendments made by subsection (a) 
     shall apply with respect to weeks of unemployment beginning 
     on or after the date of enactment this Act.
       (2) TEUC-X amounts deposited in account prior to date of 
     enactment deemed to be the additional teuc amounts provided 
     by this section.--In applying the amendments made by 
     subsection (a) under the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 26), 
     the Secretary of Labor shall deem any amounts deposited into 
     an individual's temporary extended unemployment compensation 
     account by reason of section 203(c) of such Act (commonly 
     known as ``TEUC-X amounts'') prior to the date of enactment 
     of this Act to be amounts deposited in such account by reason 
     of section 203(b) of such Act, as amended by subsection (a) 
     (commonly known as ``TEUC amounts'').
       (3) Application to exhaustees and current beneficiaries.--
       (A) Exhaustees.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) who exhausted such individual's rights to such 
     compensation (by reason of the payment of all amounts in such 
     individual's temporary extended unemployment compensation 
     account) before such date,

     such individual's eligibility for any additional weeks of 
     temporary extended unemployment compensation by reason of the 
     amendments made by subsection (a) shall apply with respect to 
     weeks of unemployment beginning on or after the date of 
     enactment of this Act.
       (B) Current beneficiaries.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) as to whom the condition described in subparagraph 
     (A)(ii) does not apply,

     such individual shall be eligible for temporary extended 
     unemployment compensation (in accordance with the provisions 
     of the Temporary Extended Unemployment Compensation Act of 
     2002, as amended by subsection (a)) with respect to weeks of 
     unemployment beginning on or after the date of enactment of 
     this Act.
       (4) Redetermination of eligibility for augmented amounts 
     for individuals for whom such a determination was made prior 
     to the date of enactment.--Any determination of whether the 
     individual's State is in an extended benefit period under 
     section 203(c) of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 28) 
     made prior to the date of enactment of this Act shall be 
     disregarded and the determination under such section shall be 
     made as follows:
       (A) Individuals who exhausted all teuc and teuc-x amounts 
     prior to the date of enactment.--In the case of an individual 
     whose temporary extended unemployment account has, prior to 
     the date of enactment of this Act, been both augmented under 
     such section 203(c) and exhausted of all amounts by which it 
     was so augmented, the determination shall be made as of such 
     date of enactment.
       (B) All other individuals.--In the case of an individual 
     who is not described in subparagraph (A), the determination 
     shall be made at the time that the individual's account 
     established under such section 203, as amended by subsection 
     (a), is exhausted.
       (5) No effect on provisions related to displaced airline 
     related workers.--The amendments made by this section and 
     section 601 shall have no effect on the provisions of section 
     4002 of the Emergency Wartime Supplemental Appropriations 
     Act, 2003 (Public Law 108-11).

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

     SEC. 611. FEDERAL-STATE AGREEMENTS.

       (a) In General.--Any State which desires to do so may enter 
     into and participate in an agreement under this title with 
     the Secretary of Labor (in this title referred to as the 
     ``Secretary''). Any State which is a party to an agreement 
     under this title may, upon providing 30 days' written notice 
     to the Secretary, terminate such agreement.
       (b) Provisions of Agreement.--
       (1) In general.--Subject to paragraph (3), any agreement 
     under subsection (a) shall provide that the State agency of 
     the State, in addition to any amounts of regular compensation 
     to which an individual may be entitled under the State law, 
     shall make payments of temporary enhanced regular 
     unemployment compensation to an individual in an amount and 
     to the extent that the individual would be entitled to 
     regular compensation if the State law were applied with the 
     modifications described in paragraph (2).
       (2) Modifications described.--The modifications described 
     in this paragraph are as follows:
       (A) In the case of an individual who is not eligible for 
     regular compensation under the State law because of the use 
     of a definition of base period that does not count wages 
     earned in the most recently completed calendar quarter, then 
     eligibility for compensation shall be determined by applying 
     a base period ending at the close of the most recently 
     completed calendar quarter.
       (B) In the case of an individual who is not eligible for 
     regular compensation under the State law because such 
     individual does not meet requirements relating to 
     availability for work, active search for work, or refusal to 
     accept work, because such individual is seeking, or is 
     available for, less than full-time work, then compensation 
     shall not be denied by such State to an otherwise eligible 
     individual who seeks less than full-time work or fails to 
     accept full-time work.
       (3) Reduction of amounts of regular compensation available 
     for individuals who sought part-time work or failed to accept 
     full-time work.--Any agreement under subsection (a) shall 
     provide that the State agency of the State shall reduce the 
     amount of regular compensation available to an individual who 
     has received temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in paragraph (2)(B) by the amount of 
     such temporary enhanced regular unemployment compensation.
       (c) Coordination Rule.--The modifications described in 
     subsection (b)(2) shall also apply in determining the amount 
     of benefits payable under any Federal law to the extent that 
     those benefits are determined by reference to regular 
     compensation payable under the State law of the State 
     involved.

     SEC. 612. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS 
                   TITLE.

       (a) General Rule.--There shall be paid to each State which 
     has entered into an agreement under this title an amount 
     equal to--
       (1) 100 percent of any temporary enhanced regular 
     unemployment compensation; and
       (2) 100 percent of any regular compensation which is paid 
     to individuals by such State by reason of the fact that its 
     State law contains provisions comparable to the modifications 
     described in subparagraphs (A) and (B) of section 611(b)(2), 
     but only to the extent that those amounts would, if such 
     amounts were instead payable by virtue of the State law's 
     being deemed to be so modified pursuant to section 611(b)(1), 
     have been reimbursable under paragraph (1).
       (b) Determination of Amount.--Sums under subsection (a) 
     payable to any State by reason of such State having an 
     agreement under this title shall be payable, either in 
     advance or by way of reimbursement (as may be determined by 
     the Secretary), in such amounts as the Secretary estimates 
     the State will be entitled to receive under this title for 
     each calendar month, reduced or increased, as the case may 
     be, by any amount by which the Secretary finds that the 
     Secretary's estimates for any prior calendar month were 
     greater or less than the amounts which should have been paid 
     to the State. Such estimates may be made on the basis of such 
     statistical, sampling, or other method as may be agreed upon 
     by the Secretary and the State agency of the State involved.

     SEC. 613. FINANCING PROVISIONS.

       (a) In General.--Funds in the extended unemployment 
     compensation account (as established by section 905(a) of the 
     Social Security Act (42 U.S.C. 1105(a))), and the Federal 
     unemployment account (as established by section 904(g) of 
     such Act (42 U.S.C. 1104(g))), of the Unemployment Trust Fund 
     (as established by section 904(a) of such Act (42 U.S.C. 
     1104(a))) shall be used for the making of payments to States 
     having agreements entered into under this title.
       (b) Certification.--The Secretary shall from time to time 
     certify to the Secretary of the Treasury for payment to each 
     State the sums which are payable to such State under this 
     title. The Secretary of the Treasury,

[[Page 11609]]

     prior to audit or settlement by the General Accounting 
     Office, shall make payments to the State in accordance with 
     such certification by transfers from the extended 
     unemployment compensation account (as so established), or, to 
     the extent that there are insufficient funds in that account, 
     from the Federal unemployment account, to the account of such 
     State in the Unemployment Trust Fund (as so established).
       (c) Assistance to States.--There are appropriated out of 
     the employment security administration account of the 
     Unemployment Trust Fund (as established by section 901(a) of 
     the Social Security Act (42 U.S.C. 1101(a))) $500,000,000 to 
     reimburse States for the costs of the administration of 
     agreements under this title (including any improvements in 
     technology in connection therewith) and to provide 
     reemployment services to unemployment compensation claimants 
     in States having agreements under this title. Each State's 
     share of the amount appropriated by the preceding sentence 
     shall be determined by the Secretary according to the factors 
     described in section 302(a) of the Social Security Act (42 
     U.S.C. 502(a)) and certified by the Secretary to the 
     Secretary of the Treasury.
       (d) Appropriations for Certain Payments.--There are 
     appropriated from the general fund of the Treasury, without 
     fiscal year limitation, to the extended unemployment 
     compensation account (as so established) of the Unemployment 
     Trust Fund (as so established) such sums as the Secretary 
     estimates to be necessary to make the payments under this 
     section in respect of--
       (1) compensation payable under chapter 85 of title 5, 
     United States Code; and
       (2) compensation payable on the basis of services to which 
     section 3309(a)(1) of the Internal Revenue Code of 1986 
     applies.

     Amounts appropriated pursuant to the preceding sentence shall 
     not be required to be repaid.

     SEC. 614. DEFINITIONS.

       For purposes of this title, the terms ``compensation'', 
     ``base period'', ``regular compensation'', ``State'', ``State 
     agency'', ``State law'', and ``week'' have the respective 
     meanings given such terms under section 205 of the Federal-
     State Extended Unemployment Compensation Act of 1970.

     SEC. 615. APPLICABILITY.

       (a) In General.--Except as provided in subsection (b), an 
     agreement entered into under this title shall apply to weeks 
     of unemployment--
       (1) beginning after the date on which such agreement is 
     entered into; and
       (2) ending before July 1, 2004.
       (b) Phase-Out of TERUC.--
       (1) In general.--Subject to paragraph (2), in the case of 
     an individual who has established eligibility for temporary 
     enhanced regular unemployment compensation, but who has not 
     exhausted all rights to such compensation, as of the last day 
     of the week ending before July 1, 2004, such compensation 
     shall continue to be payable to such individual for any week 
     beginning after such date for which the individual meets the 
     eligibility requirements of this title.
       (2) Limitation.--No compensation shall be payable by reason 
     of paragraph (1) for any week beginning after December 31, 
     2004.

     SEC. 616. COORDINATION WITH THE TEMPORARY EXTENDED 
                   UNEMPLOYMENT COMPENSATION ACT OF 2002.

       (a) In General.--The Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended--
       (1) in section 202(b)(1), by inserting ``, and who have 
     exhausted all rights to temporary enhanced regular 
     unemployment compensation'' before the semicolon at the end;
       (2) in section 202(b)(2), by inserting ``, temporary 
     enhanced regular unemployment compensation,'' after ``regular 
     compensation'';
       (3) in section 202(c), by inserting ``(or, as the case may 
     be, such individual's rights to temporary enhanced regular 
     unemployment compensation)'' after ``State law'' in the 
     matter preceding paragraph (1);
       (4) in section 202(c)(1), by inserting ``and no payments of 
     temporary enhanced regular unemployment compensation can be 
     made'' after ``under such law'';
       (5) in section 202(d)(1), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     (including dependents' allowances) payable to such individual 
     for such a week,'' after ``total unemployment'';
       (6) in section 202(d)(2)(A), by inserting ``, or, as the 
     case may be, to temporary enhanced regular unemployment 
     compensation,'' after ``State law'';
       (7) in section 203(b)(1)(A), by inserting ``plus the amount 
     of any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``under 
     such law''; and
       (8) in section 203(b)(2), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``total 
     unemployment''.
       (b) Amount of TEUC Offset by Amount of TERUC.--Section 
     203(b)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended--
       (1) in subparagraph (B), by striking the period at the end 
     and inserting a comma; and
       (2) by adding at the end the following:
     ``minus the number of weeks in which the individual was 
     entitled to temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in section 611(b)(2)(A) of the Jobs, 
     Opportunity, and Prosperity Act of 2003 (relating to the 
     alternative base period) multiplied by the individual's 
     average weekly benefit amount for the benefit year.''.
       (c) Temporary Enhanced Regular Unemployment Compensation 
     Defined.--Section 207 of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended to read as follows:

     ``SEC. 207. DEFINITIONS.

       ``In this title:
       ``(1) General definitions.--The terms `compensation', 
     `regular compensation', `extended compensation', `additional 
     compensation', `benefit year', `base period', `State', `State 
     agency', `State law', and `week' have the respective meanings 
     given such terms under section 205 of the Federal-State 
     Extended Unemployment Compensation Act of 1970 (26 U.S.C. 
     3304 note).
       ``(2) Temporary enhanced regular unemployment 
     compensation.--The term `temporary enhanced regular 
     unemployment compensation' means temporary enhanced regular 
     unemployment benefits payable under title II of the Jobs, 
     Opportunity, and Prosperity Act of 2003.''.

                  TITLE V--LONG-TERM FISCAL DISCIPLINE

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 701. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (n) as subsection (o) and by inserting after 
     subsection (m) the following new subsection:
       ``(n) Clarification of Economic Substance Doctrine; Etc.--
       ``(1) General rules.--
       ``(A) In general.--In 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) the taxpayer's economic position, 
     and
       ``(II) the taxpayer has a substantial nontax purpose for 
     entering into such transaction and the transaction is a 
     reasonable means of accomplishing such purpose.

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

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

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

[[Page 11610]]

       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or entity not subject to tax imposed 
     by subtitle A. A person shall be treated as a tax-indifferent 
     party with respect to a transaction if the items taken into 
     account with respect to the transaction have no substantial 
     impact on such person's liability under subtitle A.
       ``(C) Exception for personal transactions of individuals.--
     In the case of an individual, this subsection shall apply 
     only to transactions entered into in connection with a trade 
     or business or an activity engaged in for the production of 
     income.
       ``(D) Treatment of lessors.--A lessor of tangible property 
     subject to a lease shall be treated as satisfying the 
     requirements of paragraph (1)(B)(ii) with respect to the 
     leased property if such lease satisfies such requirements as 
     provided by the Secretary.
       ``(4) Other common law doctrines not affected.--Except as 
     specifically provided in this subsection, the provisions of 
     this subsection shall not be construed as altering or 
     supplanting any other rule of law, and the requirements of 
     this subsection shall be construed as being in addition to 
     any such other rule of law.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection. Such regulations may include 
     exemptions from the application of this subsection.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after the date of 
     the enactment of this Act.

     SEC. 702. PENALTY FOR FAILING TO DISCLOSE REPORTABLE 
                   TRANSACTION.

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

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

       ``(a) Imposition of Penalty.--Any person who fails to 
     include on any return or statement any information with 
     respect to a reportable transaction which is required under 
     section 6011 to be included with such return or statement 
     shall pay a penalty in the amount determined under subsection 
     (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraphs (2) and 
     (3), the amount of the penalty under subsection (a) shall be 
     $50,000.
       ``(2) Listed transaction.--The amount of the penalty under 
     subsection (a) with respect to a listed transaction shall be 
     $100,000.
       ``(3) Increase in penalty for large entities and high net 
     worth individuals.--
       ``(A) In general.--In the case of a failure under 
     subsection (a) by--
       ``(i) a large entity, or
       ``(ii) a high net worth individual,
     the penalty under paragraph (1) or (2) shall be twice the 
     amount determined without regard to this paragraph.
       ``(B) Large entity.--For purposes of subparagraph (A), the 
     term `large entity' means, with respect to any taxable year, 
     a person (other than a natural person) with gross receipts in 
     excess of $10,000,000 for the taxable year in which the 
     reportable transaction occurs or the preceding taxable year. 
     Rules similar to the rules of paragraph (2) and subparagraphs 
     (B), (C), and (D) of paragraph (3) of section 448(c) shall 
     apply for purposes of this subparagraph.
       ``(C) High net worth individual.--For purposes of 
     subparagraph (A), the term `high net worth individual' means, 
     with respect to a reportable transaction, a natural person 
     whose net worth exceeds $2,000,000 immediately before the 
     transaction.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Reportable transaction.--The term `reportable 
     transaction' means any transaction with respect to which 
     information is required to be included with a return or 
     statement because, as determined under regulations prescribed 
     under section 6011, such transaction is of a type which the 
     Secretary determines as having a potential for tax avoidance 
     or evasion.
       ``(2) Listed transaction.--Except as provided in 
     regulations, the term `listed transaction' means a reportable 
     transaction which is the same as, or substantially similar 
     to, a transaction specifically identified by the Secretary as 
     a tax avoidance transaction for purposes of section 6011.
       ``(d) Authority To Rescind Penalty.--
       ``(1) In general.--The Commissioner of Internal Revenue may 
     rescind all or any portion of any penalty imposed by this 
     section with respect to any violation if--
       ``(A) the violation is with respect to a reportable 
     transaction other than a listed transaction,
       ``(B) the person on whom the penalty is imposed has a 
     history of complying with the requirements of this title,
       ``(C) it is shown that the violation is due to an 
     unintentional mistake of fact;
       ``(D) imposing the penalty would be against equity and good 
     conscience, and
       ``(E) rescinding the penalty would promote compliance with 
     the requirements of this title and effective tax 
     administration.
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may be delegated only to the head of the 
     Office of Tax Shelter Analysis. The Commissioner, in the 
     Commissioner's sole discretion, may establish a procedure to 
     determine if a penalty should be referred to the Commissioner 
     or the head of such Office for a determination under 
     paragraph (1).
       ``(3) No appeal.--Notwithstanding any other provision of 
     law, any determination under this subsection may not be 
     reviewed in any administrative or judicial proceeding.
       ``(4) Records.--If a penalty is rescinded under paragraph 
     (1), the Commissioner shall place in the file in the Office 
     of the Commissioner the opinion of the Commissioner or the 
     head of the Office of Tax Shelter Analysis with respect to 
     the determination, including--
       ``(A) the facts and circumstances of the transaction,
       ``(B) the reasons for the rescission, and
       ``(C) the amount of the penalty rescinded.
       ``(5) Report.--The Commissioner shall each year report to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate--
       ``(A) a summary of the total number and aggregate amount of 
     penalties imposed, and rescinded, under this section, and
       ``(B) a description of each penalty rescinded under this 
     subsection and the reasons therefor.
       ``(e) Penalty Reported to SEC.--In the case of a person--
       ``(1) which is required to file periodic reports under 
     section 13 or 15(d) of the Securities Exchange Act of 1934 or 
     is required to be consolidated with another person for 
     purposes of such reports, and
       ``(2) which--
       ``(A) is required to pay a penalty under this section with 
     respect to a listed transaction,
       ``(B) is required to pay a penalty under section 6662A with 
     respect to any reportable transaction at a rate prescribed 
     under section 6662A(c), or
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction,

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

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

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

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

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

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

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

     For purposes of subparagraph (A), any reduction of the excess 
     of deductions allowed for the taxable year over gross income 
     for such year, and any reduction in the amount of

[[Page 11611]]

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

  ``For reporting of section 6662A(c) penalty to the Securities and 
Exchange Commission, see section 6707A(e).''.

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

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

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

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

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

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

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

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

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

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

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

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

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

     SEC. 704. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

[[Page 11612]]



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

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

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

       (b) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

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

     SEC. 705. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY 
                   FOR NONREPORTABLE TRANSACTIONS.

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

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

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

     SEC. 707. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

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

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

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

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

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

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

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

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

[[Page 11613]]



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

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

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

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

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

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

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

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

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

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

     SEC. 709. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN 
                   LISTS OF INVESTORS.

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

     SEC. 710. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT 
                   RELATED TO TAX SHELTERS AND REPORTABLE 
                   TRANSACTIONS.

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

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

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

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

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

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

     SEC. 711. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

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

     SEC. 712. PENALTY ON FAILURE TO REPORT INTERESTS IN FOREIGN 
                   FINANCIAL ACCOUNTS.

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

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

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

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

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

     SEC. 713. FRIVOLOUS TAX SUBMISSIONS.

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

     ``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

       ``(a) Civil Penalty for Frivolous Tax Returns.--A person 
     shall pay a penalty of $5,000 if--
       ``(1) such person files what purports to be a return of a 
     tax imposed by this title but which--
       ``(A) does not contain information on which the substantial 
     correctness of the self-assessment may be judged, or
       ``(B) contains information that on its face indicates that 
     the self-assessment is substantially incorrect; and
       ``(2) the conduct referred to in paragraph (1)--
       ``(A) is based on a position which the Secretary has 
     identified as frivolous under subsection (c), or

[[Page 11614]]

       ``(B) reflects a desire to delay or impede the 
     administration of Federal tax laws.
       ``(b) Civil Penalty for Specified Frivolous Submissions.--
       ``(1) Imposition of penalty.--Except as provided in 
     paragraph (3), any person who submits a specified frivolous 
     submission shall pay a penalty of $5,000.
       ``(2) Specified frivolous submission.--For purposes of this 
     section--
       ``(A) Specified frivolous submission.--The term `specified 
     frivolous submission' means a specified submission if any 
     portion of such submission--
       ``(i) is based on a position which the Secretary has 
     identified as frivolous under subsection (c), or
       ``(ii) reflects a desire to delay or impede the 
     administration of Federal tax laws.
       ``(B) Specified submission.--The term `specified 
     submission' means--
       ``(i) a request for a hearing under--

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

       ``(ii) an application under--

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

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

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

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

     SEC. 714. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE 
                   DEPARTMENT OF TREASURY.

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

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

     SEC. 715. PENALTY ON PROMOTERS OF TAX SHELTERS.

       (a) Penalty on Promoting Abusive Tax Shelters.--Section 
     6700(a) is amended by adding at the end the following new 
     sentence: ``Notwithstanding the first sentence, if an 
     activity with respect to which a penalty imposed under this 
     subsection involves a statement described in paragraph 
     (2)(A), the amount of the penalty shall be equal to 50 
     percent of the gross income derived (or to be derived) from 
     such activity by the person on which the penalty is 
     imposed.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

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

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

     SEC. 717. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND 
                   NONECONOMIC SUBSTANCE TRANSACTIONS.

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

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

       There is authorized to be appropriated $300,000,000 for 
     each fiscal year beginning after September 30, 2002, for the 
     purpose of carrying out tax law enforcement to combat tax 
     avoidance transactions and other tax shelters, including the 
     use of offshore financial accounts to conceal taxable income.

[[Page 11615]]



           Subtitle B--Other Corporate Governance Provisions

     SEC. 721. AFFIRMATION OF CONSOLIDATED RETURN REGULATION 
                   AUTHORITY.

       (a) In General.--Section 1502 (relating to consolidated 
     return regulations) is amended by adding at the end the 
     following new sentence: ``In prescribing such regulations, 
     the Secretary may prescribe rules applicable to corporations 
     filing consolidated returns under section 1501 that are 
     different from other provisions of this title that would 
     apply if such corporations filed separate returns.''.
       (b) Result Not Overturned.--Notwithstanding subsection (a), 
     the Internal Revenue Code of 1986 shall be construed by 
     treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in 
     effect on January 1, 2001) as being inapplicable to the type 
     of factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
       (c) Effective Date.--The provisions of this section shall 
     apply to taxable years beginning before, on, or after the 
     date of the enactment of this Act.

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

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

      Subtitle C--Provisions to Discourage Corporate Expatriation

     SEC. 731. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

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

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

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section 7701(a)(4), such entity shall be 
     treated for purposes of this title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,
       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former partners of the domestic 
     partnership by reason of holding a capital or profits 
     interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.

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

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

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

     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding the provisions of any other law or rule of 
     law which would otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.

[[Page 11616]]

       ``(d) Special Rules Applicable to Related Party 
     Transactions.--
       ``(1) Annual application for agreements on return 
     positions.--
       ``(A) In general.--Each acquired entity to which subsection 
     (b) applies shall file with the Secretary an application for 
     an approval agreement under subparagraph (D) for each taxable 
     year which includes a portion of the applicable period. Such 
     application shall be filed at such time and manner, and shall 
     contain such information, as the Secretary may prescribe.
       ``(B) Secretarial action.--Within 90 days of receipt of an 
     application under subparagraph (A) (or such longer period as 
     the Secretary and entity may agree upon), the Secretary 
     shall--
       ``(i) enter into an agreement described in subparagraph (D) 
     for the taxable year covered by the application,
       ``(ii) notify the entity that the Secretary has determined 
     that the application was filed in good faith and 
     substantially complies with the requirements for the 
     application under subparagraph (A), or
       ``(iii) notify the entity that the Secretary has determined 
     that the application was not filed in good faith or does not 
     substantially comply with such requirements.

     If the Secretary fails to act within the time prescribed 
     under the preceding sentence, the entity shall be treated for 
     purposes of this paragraph as having received notice under 
     clause (ii).
       ``(C) Failures to comply.--If an acquired entity fails to 
     file an application under subparagraph (A), or the acquired 
     entity receives a notice under subparagraph (B)(iii), for any 
     taxable year, then for such taxable year--
       ``(i) there shall not be allowed any deduction, or addition 
     to basis or cost of goods sold, for amounts paid or incurred, 
     or losses incurred, by reason of a transaction between the 
     acquired entity and a foreign related person,
       ``(ii) any transfer or license of intangible property (as 
     defined in section 936(h)(3)(B)) between the acquired entity 
     and a foreign related person shall be disregarded, and
       ``(iii) any cost-sharing arrangement between the acquired 
     entity and a foreign related person shall be disregarded.
       ``(D) Approval agreement.--For purposes of subparagraph 
     (A), the term `approval agreement' means a prefiling, advance 
     pricing, or other agreement specified by the Secretary which 
     contains such provisions as the Secretary determines 
     necessary to ensure that the requirements of sections 163(j), 
     267(a)(3), 482, and 845, and any other provision of this 
     title applicable to transactions between related persons and 
     specified by the Secretary, are met.
       ``(E) Tax court review.--
       ``(i) In general.--The Tax Court shall have jurisdiction 
     over any action brought by an acquired entity receiving a 
     notice under subparagraph (B)(iii) to determine whether the 
     issuance of the notice was an abuse of discretion, but only 
     if the action is brought within 30 days after the date of the 
     mailing (determined under rules similar to section 6213) of 
     the notice.
       ``(ii) Court action.--The Tax Court shall issue its 
     decision within 30 days after the filing of the action under 
     clause (i) and may order the Secretary to issue a notice 
     described in subparagraph (B)(ii).
       ``(iii) Review.--An order of the Tax Court under this 
     subparagraph shall be reviewable in the same manner as any 
     other decision of the Tax Court.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated as 
     pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.
       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1) would be, treated as a foreign corporation 
     for purposes of this title.
       ``(4) Foreign related person.--The term `foreign related 
     person' means, with respect to any acquired entity, a foreign 
     person which--
       ``(A) bears a relationship to such entity described in 
     section 267(b) or 707(b), or
       ``(B) is under the same common control (within the meaning 
     of section 482) as such entity.
       ``(5) Subsequent acquisitions by unrelated domestic 
     corporations.--
       ``(A) In general.--Subject to such conditions, limitations, 
     and exceptions as the Secretary may prescribe, if, after an 
     acquisition described in subsection (a)(2)(A) to which 
     subsection (b) applies, a domestic corporation stock of which 
     is traded on an established securities market acquires 
     directly or indirectly any properties of one or more acquired 
     entities in a transaction with respect to which the 
     requirements of subparagraph (B) are met, this section shall 
     cease to apply to any such acquired entity with respect to 
     which such requirements are met.
       ``(B) Requirements.--The requirements of the subparagraph 
     are met with respect to a transaction involving any 
     acquisition described in subparagraph (A) if--
       ``(i) before such transaction the domestic corporation did 
     not have a relationship described in section 267(b) or 
     707(b), and was not under common control (within the meaning 
     of section 482), with the acquired entity, or any member of 
     an expanded affiliated group including such entity, and
       ``(ii) after such transaction, such acquired entity--

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

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-through or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Treatment of Agreements.--
       (1) Confidentiality.--
       (A) Treatment as return information.--Section 6103(b)(2) 
     (relating to return information) is amended by striking 
     ``and'' at the end of subparagraph (C), by inserting ``and'' 
     at the end of subparagraph (D), and by inserting after 
     subparagraph (D) the following new subparagraph:
       ``(E) any approval agreement under section 7874(d)(1) to 
     which any preceding subparagraph does not apply and any 
     background information related to the agreement or any 
     application for the agreement,''.
       (B) Exception from public inspection as written 
     determination.--Section 6110(b)(1)(B) is amended by striking 
     ``or (D)'' and inserting ``, (D), or (E)''.
       (2) Reporting.--The Secretary of the Treasury shall include 
     with any report on advance pricing agreements required to be 
     submitted after the date of the enactment of this Act under 
     section 521(b) of the Ticket to Work and Work Incentives 
     Improvement Act of 1999 (Public Law 106-170) a report 
     regarding approval agreements under section 7874(d)(1) of the 
     Internal Revenue Code of 1986. Such report shall include 
     information similar to the information required with respect 
     to advance pricing agreements and shall be treated for 
     confidentiality purposes in the same manner as the reports on 
     advance pricing agreements are treated under section 
     521(b)(3) of such Act.
       (c) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved

[[Page 11617]]

     in transactions to which section 7874 of such Code (as added 
     by subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (d) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.

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

     SEC. 732. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

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

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

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

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

       ``(a) Imposition of Tax.--In the case of an individual who 
     is a disqualified individual with respect to any inverted 
     corporation, there is hereby imposed on such person a tax 
     equal to 20 percent of the value (determined under subsection 
     (b)) of the specified stock compensation held (directly or 
     indirectly) by or for the benefit of such individual or a 
     member of such individual's family (as defined in section 
     267) at any time during the 12-month period beginning on the 
     date which is 6 months before the inversion date.
       ``(b) Value.--For purposes of subsection (a)--
       ``(1) In general.--The value of specified stock 
     compensation shall be--
       ``(A) in the case of a stock option (or other similar 
     right) or any stock appreciation right, the fair value of 
     such option or right, and
       ``(B) in any other case, the fair market value of such 
     compensation.
       ``(2) Date for determining value.--The determination of 
     value shall be made--
       ``(A) in the case of specified stock compensation held on 
     the inversion date, on such date,
       ``(B) in the case of such compensation which is canceled 
     during the 6 months before the inversion date, on the day 
     before such cancellation, and
       ``(C) in the case of such compensation which is granted 
     after the inversion date, on the date such compensation is 
     granted.
       ``(c) Tax To Apply Only If Shareholder Gain Recognized.--
     Subsection (a) shall apply to any disqualified individual 
     with respect to an inverted corporation only if gain (if any) 
     on any stock in such corporation is recognized in whole or 
     part by any shareholder by reason of the acquisition referred 
     to in section 7874(a)(2)(A) (determined by substituting `July 
     10, 2002' for `March 20, 2002') with respect to such 
     corporation.
       ``(d) Exception Where Gain Recognized on Compensation.--
     Subsection (a) shall not apply to--
       ``(1) any stock option which is exercised on the inversion 
     date or during the 6-month period before such date and to the 
     stock acquired in such exercise, and
       ``(2) any specified stock compensation which is sold, 
     exchanged, or distributed during such period in a transaction 
     in which gain or loss is recognized in full.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Disqualified individual.--The term `disqualified 
     individual' means, with respect to a corporation, any 
     individual who, at any time during the 12-month period 
     beginning on the date which is 6 months before the inversion 
     date--
       ``(A) is subject to the requirements of section 16(a) of 
     the Securities Exchange Act of 1934 with respect to such 
     corporation or any member of the expanded affiliated group 
     which includes such corporation, or
       ``(B) would be subject to such requirements if such 
     corporation or member were an issuer of equity securities 
     referred to in such section.
       ``(2) Inverted corporation; inversion date.--
       ``(A) Inverted corporation.--The term `inverted 
     corporation' means any corporation to which subsection (a) or 
     (b) of section 7874 applies determined--
       ``(i) by substituting `July 10, 2002' for `March 20, 2002' 
     in section 7874(a)(2)(A), and
       ``(ii) without regard to subsection (b)(1)(A).

     Such term includes any predecessor or successor of such a 
     corporation.
       ``(B) Inversion date.--The term `inversion date' means, 
     with respect to a corporation, the date on which the 
     corporation first becomes an inverted corporation.
       ``(3) Specified stock compensation.--
       ``(A) In general.--The term `specified stock compensation' 
     means payment (or right to payment) granted by the inverted 
     corporation (or by any member of the expanded affiliated 
     group which includes such corporation) to any person in 
     connection with the performance of services by a disqualified 
     individual for such corporation or member if the value of 
     such payment or right is based on (or determined by reference 
     to) the value (or change in value) of stock in such 
     corporation (or any such member).
       ``(B) Exceptions.--Such term shall not include--
       ``(i) any option to which part II of subchapter D of 
     chapter 1 applies, or
       ``(ii) any payment or right to payment from a plan referred 
     to in section 280G(b)(6).
       ``(4) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)(3)); except 
     that section 1504(a) shall be applied by substituting `more 
     than 50 percent' for `at least 80 percent' each place it 
     appears.
       ``(f) Special Rules.--For purposes of this section--
       ``(1) Cancellation of restriction.--The cancellation of a 
     restriction which by its terms will never lapse shall be 
     treated as a grant.
       ``(2) Payment or reimbursement of tax by corporation 
     treated as specified stock compensation.--Any payment of the 
     tax imposed by this section directly or indirectly by the 
     inverted corporation or by any member of the expanded 
     affiliated group which includes such corporation--
       ``(A) shall be treated as specified stock compensation, and
       ``(B) shall not be allowed as a deduction under any 
     provision of chapter 1.
       ``(3) Certain restrictions ignored.--Whether there is 
     specified stock compensation, and the value thereof, shall be 
     determined without regard to any restriction other than a 
     restriction which by its terms will never lapse.
       ``(4) Property transfers.--Any transfer of property shall 
     be treated as a payment and any right to a transfer of 
     property shall be treated as a right to a payment.
       ``(5) Other administrative provisions.--For purposes of 
     subtitle F, any tax imposed by this section shall be treated 
     as a tax imposed by subtitle A.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Denial of Deduction.--
       (1) In general.--Paragraph (6) of section 275(a) is amended 
     by inserting ``48,'' after ``46,''.
       (2) $1,000,000 limit on deductible compensation reduced by 
     payment of excise tax on specified stock compensation.--
     Paragraph (4) of section 162(m) is amended by adding at the 
     end the following new subparagraph:
       ``(G) Coordination with excise tax on specified stock 
     compensation.--The dollar limitation contained in paragraph 
     (1) with respect to any covered employee shall be reduced 
     (but not below zero) by the amount of any payment (with 
     respect to such employee) of the tax imposed by section 5000A 
     directly or indirectly by the inverted corporation (as 
     defined in such section) or by any member of the expanded 
     affiliated group (as defined in such section) which includes 
     such corporation.''.
       (c) Conforming Amendments.--
       (1) The last sentence of section 3121(v)(2)(A) is amended 
     by inserting before the period ``or to any specified stock 
     compensation (as defined in section 5000A) on which tax is 
     imposed by section 5000A''.
       (2) The table of chapters for subtitle D is amended by 
     adding at the end the following new item:

``Chapter 48. Stock compensation of insiders in inverted 
              corporations.''.

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

     SEC. 733. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

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

              Subtitle D--Imposition of Customs User Fees

     SEC. 741. 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''.

                   Subtitle E--Budget Points of Order

     SEC. 751. EXTENSION OF PAY-AS-YOU-GO ENFORCEMENT IN THE 
                   SENATE.

       Section 2 of Senate Resolution 304 (107th Congress) is 
     amended--

[[Page 11618]]

       (1) in subsection (a)(1), by striking ``April 15, 2003'' 
     and inserting ``the end of the 108th Congress''; and
       (2) in subsection (b)(1)(B), by striking ``April 15, 2003'' 
     and inserting ``at the end of the 108th Congress''.

     SEC. 752. APPLICATION OF EGTRRA SUNSET TO VARIOUS TITLES.

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

     SEC. 753. SUNSET.

       (a) In General.--Except as otherwise provided, the 
     provisions of, and amendments made, by this Act shall not 
     apply to taxable years beginning after December 31, 2012, and 
     the Internal Revenue Code of 1986 shall be applied and 
     administered to such years as if such amendments had never 
     been enacted.
       (b) Exceptions.--Subsection (a) shall not apply to this 
     title and titles II and III.
                                 ______
                                 
  SA 562. Mr. DASCHLE submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V add the following:

     SEC. __. SMALL BUSINESS TAX CREDIT FOR 50 PERCENT OF HEALTH 
                   PREMIUMS.

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

     ``SEC. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of a qualified small employer, the employee health 
     insurance expenses credit determined under this section is an 
     amount equal to the applicable percentage of the amount paid 
     by the taxpayer during the taxable year for qualified 
     employee health insurance expenses.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage is equal to--
       ``(1) 50 percent in the case of an employer with less than 
     26 qualified employees,
       ``(2) 40 percent in the case of an employer with more than 
     25 but less than 36 qualified employees, and
       ``(3) 30 percent in the case of an employer with more than 
     35 but less than 51 qualified employees.
       ``(c) Per Employee Dollar Limitation.--The amount of 
     qualified employee health insurance expenses taken into 
     account under subsection (a) with respect to any qualified 
     employee for any taxable year shall not exceed the maximum 
     employer contribution for self-only coverage or family 
     coverage (as applicable) determined under section 8906(a) of 
     title 5, United States Code, for the calendar year in which 
     such taxable year begins.
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified small employer.--
       ``(A) In general.--The term `qualified small employer' 
     means any small employer which provides eligibility for 
     health insurance coverage (after any waiting period (as 
     defined in section 9801(b)(4)) to all qualified employees of 
     the employer.
       ``(B) Small employer.--
       ``(i) In general.--For purposes of this paragraph, the term 
     `small employer' means, with respect to any calendar year, 
     any employer if such employer employed an average of not less 
     than 2 and not more than 50 qualified employees on business 
     days during either of the 2 preceding calendar years. For 
     purposes of the preceding sentence, a preceding calendar year 
     may be taken into account only if the employer was in 
     existence throughout such year.
       ``(ii) Employers not in existence in preceding year.--In 
     the case of an employer which was not in existence throughout 
     the 1st preceding calendar year, the determination under 
     clause (i) shall be based on the average number of qualified 
     employees that it is reasonably expected such employer will 
     employ on business days in the current calendar year.
       ``(2) Qualified employee health insurance expenses.--
       ``(A) In general.--The term `qualified employee health 
     insurance expenses' means any amount paid by an employer for 
     health insurance coverage to the extent such amount is 
     attributable to coverage provided to any employee while such 
     employee is a qualified employee.
       ``(B) Exception for amounts paid under salary reduction 
     arrangements.--No amount paid or incurred for health 
     insurance coverage pursuant to a salary reduction arrangement 
     shall be taken into account under subparagraph (A).
       ``(C) Health insurance coverage.--The term `health 
     insurance coverage' has the meaning given such term by 
     paragraph (1) of section 9832(b) (determined by disregarding 
     the last sentence of paragraph (2) of such section).
       ``(3) Qualified employee.--The term `qualified employee' 
     means an employee of an employer who, with respect to any 
     period, is not provided health insurance coverage under--
       ``(A) a health plan of the employee's spouse,
       ``(B) title XVIII, XIX, or XXI of the Social Security Act,
       ``(C) chapter 17 of title 38, United States Code,
       ``(D) chapter 55 of title 10, United States Code,
       ``(E) chapter 89 of title 5, United States Code, or
       ``(F) any other provision of law.
       ``(4) Employee--The term `employee'--
       ``(A) means any individual, with respect to any calendar 
     year, who is reasonably expected to receive at least $5,000 
     of compensation from the employer during such year,
       ``(B) does not include an employee within the meaning of 
     section 401(c)(1), and
       ``(C) includes a leased employee within the meaning of 
     section 414(n).
       ``(5) Compensation.--The term `compensation' means amounts 
     described in section 6051(a)(3).
       ``(e) Certain Rules Made Applicable.--For purposes of this 
     section, rules similar to the rules of section 52 shall 
     apply.
       ``(f) Denial of Double Benefit.--No deduction or credit 
     under any other provision of this chapter shall be allowed 
     with respect to qualified employee health insurance expenses 
     taken into account under subsection (a).
       ``(g) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 2003.''.
       (b) Credit To Be Part of General Business Credit.--Section 
     38(b) (relating to current year business credit) is amended 
     by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following:
       ``(16) the employee health insurance expenses credit 
     determined under section 45G.''.
       (c) Credit Allowed Against Minimum Tax.--
       (1) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Special rules for employee health insurance credit.--
       ``(A) In general.--In the case of the employee health 
     insurance credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) the amounts in subparagraphs (A) and (B) thereof 
     shall be treated as being zero, and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the employee 
     health insurance credit).

       ``(B) Employee health insurance credit.--For purposes of 
     this subsection, the term `employee health insurance credit' 
     means the credit allowable under subsection (a) by reason of 
     section 45G(a).''.
       (2) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) is amended by striking ``(other'' and all 
     that follows through ``credit)'' and inserting ``(other than 
     the empowerment zone employment credit or the employee health 
     insurance credit)''.
       (d) No Carrybacks.--Subsection (d) of section 39 (relating 
     to carryback and carryforward of unused credits) is amended 
     by adding at the end the following:
       ``(11) No carryback of section 45g credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the employee health 
     insurance expenses credit determined under section 45G may be 
     carried back to a taxable year ending before the date of the 
     enactment of section 45G.''.
       (e) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following:

``Sec. 45G. Employee health insurance expenses.''.
       (f) Employer Outreach.--The Internal Revenue Service shall, 
     in conjunction with the Small Business Administration, 
     develop materials and implement an educational program to 
     ensure that business personnel are aware of--
       (1) the eligibility criteria for the tax credit provided 
     under section 45G of the Internal Revenue Code of 1986 (as 
     added by this section),
       (2) the methods to be used in calculating such credit,
       (3) the documentation needed in order to claim such credit, 
     and
       (4) any available health plan purchasing alliances 
     established under title II,
     so that the maximum number of eligible businesses may claim 
     the tax credit.
       (g) Revision of Partial Exclusion of Dividends Received By 
     Individuals.--Section 116(a)(2)(B), as added by section 201 
     of this Act, is amended by striking ``2007'' and inserting 
     ``2009''.
       (h) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this

[[Page 11619]]

     section shall apply to amounts paid or incurred in taxable 
     years beginning after December 31, 2002.
       (2) Revision.--The amendment made by subsection (d) shall 
     apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 563. Mr. DASCHLE submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V add the following:

     SEC. __. REFUNDABLE TAX CREDIT FOR INITIAL HIRES OF SMALL 
                   BUSINESSES.

       (a) In General.--Subpart C of part IV of subchapter A of 
     chapter 1 (relating to refundable credits) is amended by 
     redesignating section 36 as section 37 and inserting after 
     section 35 the following new section:

     ``SEC. 36. INITIAL HIRES BY SMALL BUSINESSES.

       ``(a) Determination of Amount.--There shall be allowed as a 
     credit against the tax imposed by this subtitle for the 
     taxable year an amount equal to 10 percent of the qualified 
     first-year wages for such year.
       ``(b) Qualified Wages Defined.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified wages' means the 
     wages paid or incurred by a qualified small business during 
     the taxable year to an individual who is a qualified small 
     business employee.
       ``(2) Qualified first-year wages.--The term `qualified 
     first-year wages' means, with respect to a qualified small 
     business employee, qualified wages attributable to service 
     rendered during the 1-year period beginning with the day the 
     individual begins work for the employer.
       ``(3) Only first $20,000 of wages taken into account.--The 
     amount of the qualified first-year wages which may be taken 
     into account with respect to any individual shall not exceed 
     $20,000.
       ``(4) Wages.--
       ``(A) In general.--The term `wages' has the meaning given 
     such term by section 51(c).
       ``(B) Special rules for agricultural and railway labor.--If 
     such individual is an employee to whom subparagraph (A) or 
     (B) of section 51(h)(1) applies, rules similar to the rules 
     of such subparagraphs shall apply except that--
       ``(i) such subparagraph (A) shall be applied by 
     substituting `$20,000' for `$6,000', and
       ``(ii) such subparagraph (B) shall be applied by 
     substituting `$1,666.66' for `$500'.
       ``(c) Qualified Small Business Employee.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified small business 
     employee' means the first individual hired by a qualified 
     small business who is not an employee within the meaning of 
     section 401(c)(1).
       ``(2) Qualified small business.--The term `qualified small 
     business' has the meaning given the term `small employer' by 
     section 4980D(d)(2), determined without regard to any minimum 
     number of employees.
       ``(d) Certain Rules To Apply.--Rules similar to the rules 
     of section 52, and subsections (d)(10), (f), (g), (i) (other 
     than paragraph (3)(A) thereof), (j), and (k) of section 51, 
     shall apply for purposes of this section.
       ``(e) Termination.--This section shall not apply to 
     individuals who begin work for the employer after the date 
     which is 1 year after the date of the enactment of the 
     Entrepreneurship Promotion Act of 2003.''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 1324(b) of title 31, United 
     States Code, is amended by inserting before the period ``, or 
     from section 36 of such Code''.
       (2) The table of sections for subpart C of part IV of 
     subchapter A of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 36. Initial hires by small businesses.
``Sec. 37. Overpayments of tax.''.
       (c) Revision of Partial Exclusion of Dividends Received By 
     Individuals.--Section 116(a)(2)(B), as added by section 201 
     of this Act, is amended by striking ``2007'' and inserting 
     ``2008''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to individuals 
     who begin work for the employer after the date of the 
     enactment of this Act.
       (2) Revision.--The amendment made by subsection (c) shall 
     apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 564. Mrs. MURRAY (for herself, Mr. Daschle, Mr. Baucus, Mr. 
Rockefeller, Mr. Wyden, Mr. Schumer, and Mr. Corzine) submitted an 
amendment intended to be proposed by her to the bill S. 1054; to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       Strike section 371 and insert the following:

     SEC. 371. GENERAL REVENUE SHARING WITH STATES AND THEIR LOCAL 
                   GOVERNMENTS.

       (a) Appropriation.--There is authorized to be appropriated 
     and is appropriated to carry out this section $20,000,000,000 
     for fiscal year 2003.
       (b) Allotments.--From the amount appropriated under 
     subsection (a) for fiscal year 2003, the Secretary of the 
     Treasury shall, as soon as practicable after the date of the 
     enactment of this Act, allot to each of the States as 
     follows, except that no State shall receive less than \1/2\ 
     of 1 percent of such amount:
       (1) State level.--$16,000,000,000 shall be allotted among 
     such States on the basis of the relative population of each 
     such State, as determined by the Secretary on the basis of 
     the most recent satisfactory data.
       (2) Local government level.--$4,000,000,000 shall be 
     allotted among such States as determined under paragraph (1) 
     for distribution to the various units of general local 
     government within such States on the basis of the relative 
     population of each such unit within each such State, as 
     determined by the Secretary on the basis of the most recent 
     satisfactory data.
       (c) Definitions.--For purposes of this section--
       (1) State.--The term ``State'' means any of the several 
     States, the District of Columbia, and the Commonwealth of 
     Puerto Rico.
       (2) Unit of general local government.--
       (A) In general.--The term ``unit of general local 
     government'' means--
       (i) a county, parish, township, city, or political 
     subdivision of a county, parish, township, or city, that is a 
     unit of general local government as determined by the 
     Secretary of Commerce for general statistical purposes; and
       (ii) the District of Columbia, the Commonwealth of Puerto 
     Rico, and the recognized governing body of an Indian tribe or 
     Alaskan native village that carries out substantial 
     governmental duties and powers.
       (B) Treatment of subsumed areas.--For purposes of 
     determining a unit of general local government under this 
     section, the rules under section 6720(c) of title 31, United 
     States Code, shall apply.

     SEC. 371A. TEMPORARY STATE FMAP RELIEF.

       (a) Permitting Maintenance of Fiscal Year 2002 FMAP for 
     Last 2 Calendar Quarters of Fiscal Year 2003.--
     Notwithstanding any other provision of law, but subject to 
     subsection (e), if the FMAP determined without regard to this 
     subsection for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this section.
       (b) Permitting Maintenance of Fiscal Year 2003 FMAP for 
     Each Calendar Quarter of Fiscal Year 2004.--Notwithstanding 
     any other provision of law, but subject to subsection (e), if 
     the FMAP determined without regard to this subsection for a 
     State for fiscal year 2004 is less than the FMAP as so 
     determined for fiscal year 2003, the FMAP for the State for 
     fiscal year 2003 shall be substituted for the State's FMAP 
     for each calendar quarter of fiscal year 2004, before the 
     application of this section.
       (c) General 4.95 Percentage Points Increase for Last 2 
     Calendar Quarters of Fiscal Year 2003 and Each Calendar 
     Quarter of Fiscal Year 2004.--Notwithstanding any other 
     provision of law, but subject to subsections (e) and (f), for 
     each State for the third and fourth calendar quarters of 
     fiscal year 2003 and each calendar quarter of fiscal year 
     2004, the FMAP (taking into account the application of 
     subsections (a) and (b)) shall be increased by 4.95 
     percentage points.
       (d) Increase in Cap on Medicaid Payments To Territories.--
     Notwithstanding any other provision of law, but subject to 
     subsection (f), with respect to the third and fourth calendar 
     quarters of fiscal year 2003 and each calendar quarter of 
     fiscal year 2004, the amounts otherwise determined for Puerto 
     Rico, the Virgin Islands, Guam, the Northern Mariana Islands, 
     and American Samoa under subsections (f) and (g) of section 
     1108 of the Social Security Act (42 U.S.C. 1308) shall each 
     be increased by an amount equal to 9.90 percent of such 
     amounts.
       (e) Scope of Application.--The increases in the FMAP for a 
     State under this section shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (1) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4);
       (2) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.); or
       (3) the percentage described in the third sentence of 
     section 1905(b) of the Social Security Act (42 U.S.C. 
     1396d(b)) (relating to amounts expended as medical assistance 
     for services received through an Indian Health Service 
     facility whether operated by the Indian Health Service or by 
     an Indian tribe or tribal organization (as defined in section 
     4 of the Indian Health Care Improvement Act)).
       (f) State Eligibility.--
       (1) In general.--Subject to paragraph (2), a State is 
     eligible for an increase in its FMAP

[[Page 11620]]

     under subsection (c) or an increase in a cap amount under 
     subsection (d) only if the eligibility under its State plan 
     under title XIX of the Social Security Act (including any 
     waiver under such title or under section 1115 of such Act (42 
     U.S.C. 1315)) is no more restrictive than the eligibility 
     under such plan (or waiver) as in effect on July 1, 2003.
       (2) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after July 1, 2003, but prior to the date of enactment 
     of this Act is eligible for an increase in its FMAP under 
     subsection (c) or an increase in a cap amount under 
     subsection (d) in the first calendar quarter (and any 
     subsequent calendar quarters) in which the State has 
     reinstated eligibility that is no more restrictive than the 
     eligibility under such plan (or waiver) as in effect on July 
     1, 2003.
       (3) Rule of construction.--Nothing in paragraph (1) or (2) 
     shall be construed as affecting a State's flexibility with 
     respect to benefits offered under the State medicaid program 
     under title XIX of the Social Security Act (42 U.S.C. 1396 et 
     seq.) (including any waiver under such title or under section 
     1115 of such Act (42 U.S.C. 1315)).
       (g) Definitions.--In this section:
       (1) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (2) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (h) Repeal.--Effective as of October 1, 2004, this section 
     is repealed.

     SEC. 371B. ELIMINATION OF 20 PERCENT PARTIAL EXCLUSION OF 
                   DIVIDENDS RECEIVED BY INDIVIDUALS.

       Section 116(a)(2)(B), as added by section 201 of this Act, 
     is amended by striking ``(20 percent in the case of taxable 
     years beginning after 2007)''.
                                 ______
                                 
  SA 565. Mr. SPECTER submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V add the following:

     SEC.   . FLAT TAX.

       (a) Findings.--The Senate finds the following:
       (1) The current Internal Revenue Code, with it myriad 
     deductions, credits and schedules, and over 17,000 pages of 
     rules and regulations, is long overdue for an overhaul.
       (2) The current Internal Revenue Code has over 
     6,900,000,000 words compared to the bible at 1,773,000 words 
     the Declaration of Independence at 1,300 words, The 
     Gettysburg Address at 267 words, and the Pledge of Allegiance 
     at only 31 words.
       (3) It is an unacceptable waste of our nation's precious 
     resources when Americans spend more than 5,800,000,000 hours 
     every year compiling information and filling out Internal 
     Revenue Code tax forms. In addition, taxpayers spend 
     $194,000,000,000 each year in tax code compliance. America's 
     resources could be dedicated to far more productive pursuits.
       (4) The primary goal of any tax reform is to promote growth 
     and remove the inefficiencies of the current tax code. The 
     flat tax will expand the economy by an estimated $2 trillion 
     over seven years.
       (5) Another important goal of the flat tax is to achieve 
     fairness, with a single low flat tax rate for all individuals 
     and businesses.
       (6) Simplicity is another critically important goal of the 
     flat tax, and it is in the public interest to have a ten-
     lined tax form that fits on a postcard and takes 10 minutes 
     to fill out.
       (7) A comprehensive analysis of our tax structure has 
     concluded that a flat tax of 19 percent could be imposed upon 
     individuals and be revenue neutral.
       (8) If the decision is made to include deductibility on 
     items such as interest on home mortgages and charitable 
     contributions, the flat tax would be raised from a 19 percent 
     to a 20 percent rate to accommodate the deductions and remain 
     revenue neutral.
       (9) The flat tax would tax business at a 20 percent rate on 
     net profits and be revenue neutral and lead to investment 
     decisions being made on the basis of productivity rather than 
     for tax avoidance.
       (10) The flat tax would lead to the elimination of the 
     capital gains tax. This would become a powerful incentive for 
     savings and investment--which translates into economic growth 
     and expansion, more and better jobs, and raising the standard 
     of living for all Americans.
       (11) The flat tax would lower the cost of capital by 
     allowing businesses to write off the cost of capital purchase 
     in the same year the purchase was made as opposed to 
     complying with complicated depreciation schedules.
       (12) By eliminating the double tax on dividends, the flat 
     tax eliminates the distortions in the tax code favoring debt 
     over equity financing by businesses.
       (13) The flat tax would eliminate the estate and gift tax. 
     With the elimination of the estate and gift tax, family-held 
     businesses will be much more stable under the flat tax 
     system.
       (14) As tax loopholes are eliminated and the tax code is 
     simplified, there will be far less opportunity for tax 
     avoidance and fraud, which now amounts to over $120 billion 
     in uncollected revenue annually.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that--
       (1) the Senate Finance Committee and the Joint Economic 
     Committee should undertake a comprehensive analysis of flat 
     tax proposals, including appropriate hearings and consider 
     legislation providing for a flat tax.
                                 ______
                                 
  SA 566. Mr. BREAUX submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       On page 19, between lines 12 and 13, strike ``10 percent 
     (20 percent in the case of taxable years beginning after 
     2007)'' and insert ``5 percent''.
       On page 26, strike lines 17 through 22, and insert:
       (4) Section 531(a) is amended by inserting ``95 percent 
     of'' after ``equal to''.
       (5) Section 541(a) is amended by inserting ``95 percent 
     of'' after ``equal to''.

       Strike section 350.
                                 ______
                                 
  SA 567. Mr. BIDEN submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of end of subtitle C of title V, add the 
     following:

     SEC. __. CONFORMING THE INTERNAL REVENUE CODE OF 1986 TO 
                   REQUIREMENTS IMPOSED BY THE WOMEN'S HEALTH AND 
                   CANCER RIGHTS ACT OF 1998.

       (a) In General.--Subchapter B of chapter 100 (relating to 
     other requirements) is amended by inserting after section 
     9812 the following new section:

     ``SEC. 9813. REQUIRED COVERAGE FOR RECONSTRUCTIVE SURGERY 
                   FOLLOWING MASTECTOMIES.

       ``(a) In General.--A group health plan that provides 
     medical and surgical benefits with respect to a mastectomy 
     shall provide, in a case of a participant or beneficiary who 
     is receiving benefits in connection with a mastectomy and who 
     elects breast reconstruction in connection with such 
     mastectomy, coverage for--
       ``(1) all stages of reconstruction of the breast on which 
     the mastectomy has been performed,
       ``(2) surgery and reconstruction of the other breast to 
     produce a symmetrical appearance, and
       ``(3) prostheses and physical complications of mastectomy, 
     including lymphedemas,]

     in a manner determined in consultation with the attending 
     physician and the patient. Such coverage may be subject to 
     annual deductibles and coinsurance provisions as may be 
     deemed appropriate and as are consistent with those 
     established for other benefits under the plan. Written notice 
     of the availability of such coverage shall be delivered to 
     the participant upon enrollment and annually thereafter.
       ``(b) Prohibitions.--A group health plan may not--
       ``(1) deny to a patient eligibility, or continued 
     eligibility, to enroll or to renew coverage under the terms 
     of the plan, solely for the purpose of avoiding the 
     requirements of this section, and
       ``(2) penalize or otherwise reduce or limit the 
     reimbursement of an attending provider, or provide incentives 
     (monetary or otherwise) to an attending provider, to induce 
     such provider to provide care to an individual participant or 
     beneficiary in a manner inconsistent with this section.
       ``(c) Rule of Construction.--Nothing in this section shall 
     be construed to prevent a group health plan from negotiating 
     the level and type of reimbursement with a provider for care 
     provided in accordance with this section.''
       (b) Clerical Amendment.--The table of sections for chapter 
     100 of such Code is amended inserting after the item relating 
     to section 9812 the following new item:

``Sec. 9813. Required coverage for reconstructive surgery following 
              mastectomies.''
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply with respect to plan years beginning on or after the 
     date of enactment of this Act.
       (2) Special rule for collective bargaining agreements.--In 
     the case of a group health plan maintained pursuant to 1 or 
     more collective bargaining agreements between employee 
     representatives and 1 or more employers, any plan amendment 
     made

[[Page 11621]]

     pursuant to a collective bargaining agreement relating to the 
     plan which amends the plan solely to conform to any 
     requirement added by this section shall not be treated as a 
     termination of such collective bargaining agreement.
                                 ______
                                 
  SA 568. Mr. SCHUMER submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       Strike section 371 and insert the following:

     SEC. 371. TEMPORARY STATE FISCAL RELIEF FUND.

       (a) Authority To Make Payments To States.--
       (1) In general.--Not later than 45 days after the date of 
     enactment of this Act, the Secretary of the Treasury (in this 
     section referred to as the ``Secretary'') shall establish a 
     program under which the Secretary shall make a payment to 
     each State in which the chief executive officer of the State, 
     or the chief executive officer's designee, in consultation 
     and coordination with other State and local officials, 
     notifies the Secretary not later than 6 months after the date 
     of enactment of this Act that the State intends to use the 
     payment in accordance with this section.
       (2) Requirement.--In making payments to States under this 
     section, the Secretary shall ensure that not more than 50 
     percent of the aggregate amount made available for payments 
     under this section (after the application of subsection (f)) 
     is paid to States in fiscal year 2003.
       (b) Use of Payment.--
       (1) In general.--Subject to paragraph (2), a State shall 
     use the funds provided under a payment made under this 
     section to carry out 1 or more of the following activities:
       (A) Improving education or job training.
       (B) Improving health care services.
       (C) Improving transportation or other infrastructure.
       (D) Improving law enforcement or public safety.
       (E) Maintaining essential government services.
       (2) Limitation.--A State may only use funds provided under 
     a payment made under this section for types of expenditures 
     permitted under the most recently approved budget for the 
     State.
       (c) Certifications.--In order to receive a payment under 
     this section, the State shall provide the Secretary with 
     certifications that--
       (1) the State's proposed uses of the funds are consistent 
     with subsection (b); and
       (2) the State will allocate 50 percent of the funds 
     directly to units of general local government based on the 
     relative local population proportion for the State (as 
     defined in subsection (d)(5)) and not use the funds to 
     supplant State funding or revenue that the State otherwise 
     provides to units of general local government.
       (d) Amount of Payment.--
       (1) In general.--The amount of payment made to a State 
     under this section shall be the minimum payment amount 
     described in paragraph (2) plus the relative population 
     proportion amount described in paragraph (3).
       (2) Minimum payment amount.--The minimum payment amount 
     described in this paragraph is--
       (A) in the case of any of the several States, the District 
     of Columbia, or the Commonwealth of Puerto Rico, one-half of 
     1 percent of the aggregate amount made available for payments 
     under this section (after the application of subsection (f)); 
     and
       (B) in the case of the United States Virgin Islands, Guam, 
     the Commonwealth of the Northern Mariana Islands, or American 
     Samoa, one-tenth of 1 percent of such aggregate amount (after 
     the application of subsection (f)).
       (3) Relative population proportion amount.--The relative 
     population proportion amount described in this paragraph is 
     the product of--
       (A) the aggregate amount made available for payments under 
     this section (after the application of subsection (f)) minus 
     the total of all of the minimum payment amounts determined 
     under paragraph (2); and
       (B) the relative State population proportion (as defined in 
     paragraph (4)).
       (4) Relative state population proportion defined.--In this 
     section, the term ``relative State population proportion'' 
     means, with respect to a State, the amount equal to the 
     quotient of--
       (A) the population of the State (as reported in the most 
     recent decennial census); and
       (B) the total population of all States (as reported in the 
     most recent decennial census).
       (5) Relative local population proportion defined.--In this 
     section, the term ``relative local population proportion'' 
     means, with respect to a unit of general local government 
     within a State, the amount equal to the quotient of--
       (A) the population of such unit of general local government 
     (as reported in the most recent decennial census); and
       (B) the total population of the State (as reported in the 
     most recent decennial census).
       (e) Appropriation.--There is authorized to be appropriated 
     and is appropriated for making payments under this section, 
     $30,000,000,000 for fiscal year 2003. Amounts appropriated 
     under this subsection shall remain available for expenditure 
     through December 31, 2004.
       (f) Temporary Increase of Medicaid FMAP.--
       (1) Permitting maintenance of fiscal year 2002 fmap for 
     last 2 calendar quarters of fiscal year 2003.--Subject to 
     paragraph (5), if the FMAP determined without regard to this 
     subsection for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this subsection.
       (2) Permitting maintenance of fiscal year 2003 fmap for 
     first 3 quarters of fiscal year 2004.--Subject to paragraph 
     (5), if the FMAP determined without regard to this subsection 
     for a State for fiscal year 2004 is less than the FMAP as so 
     determined for fiscal year 2003, the FMAP for the State for 
     fiscal year 2003 shall be substituted for the State's FMAP 
     for the first, second, and third calendar quarters of fiscal 
     year 2004, before the application of this subsection.
       (3) General 2.95 percentage points increase for last 2 
     calendar quarters of fiscal year 2003 and first 3 calendar 
     quarters of fiscal year 2004.--Subject to paragraphs (5) and 
     (6), for each State for the third and fourth calendar 
     quarters of fiscal year 2003 and for the first, second, and 
     third calendar quarters of fiscal year 2004, the FMAP (taking 
     into account the application of paragraphs (1) and (2)) shall 
     be increased by 2.95 percentage points.
       (4) Increase in cap on medicaid payments to territories.--
     Subject to paragraph (6), with respect to the third and 
     fourth calendar quarters of fiscal year 2003 and the first, 
     second, and third calendar quarters of fiscal year 2004, the 
     amounts otherwise determined for Puerto Rico, the Virgin 
     Islands, Guam, the Northern Mariana Islands, and American 
     Samoa under subsections (f) and (g) of section 1108 of the 
     Social Security Act (42 U.S.C. 1308) shall each be increased 
     by an amount equal to 5.90 percent of such amounts.
       (5) Scope of application.--The increases in the FMAP for a 
     State under this subsection shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (A) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4); or
       (B) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.).
       (6) State eligibility.--
       (A) In general.--Subject to subparagraph (B), a State is 
     eligible for an increase in its FMAP under paragraph (3) or 
     an increase in a cap amount under paragraph (4) only if the 
     eligibility under its State plan under title XIX of the 
     Social Security Act (including any waiver under such title or 
     under section 1115 of such Act (42 U.S.C. 1315)) is no more 
     restrictive than the eligibility under such plan (or waiver) 
     as in effect on September 2, 2003.
       (B) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after September 2, 2003, but prior to the date of 
     enactment of this Act is eligible for an increase in its FMAP 
     under paragraph (3) or an increase in a cap amount under 
     paragraph (4) in the first calendar quarter (and subsequent 
     calendar quarters) in which the State has reinstated 
     eligibility that is no more restrictive than the eligibility 
     under such plan (or waiver) as in effect on September 2, 
     2003.
       (C) Rule of construction.--Nothing in subparagraph (A) or 
     (B) shall be construed as affecting a State's flexibility 
     with respect to benefits offered under the State medicaid 
     program under title XIX of the Social Security Act (42 U.S.C. 
     1396 et seq.) (including any waiver under such title or under 
     section 1115 of such Act (42 U.S.C. 1315)).
       (7) Funding.--Notwithstanding subsection (e), from the 
     amounts appropriated in such section for fiscal year 2003, 
     $10,000,000,000 of such amount is hereby transferred and made 
     available for the purpose of increasing the FMAP for States 
     in accordance with this subsection. Amounts transferred under 
     this paragraph shall remain available for expenditure through 
     September 30, 2004.
       (8) Definitions.--In this subsection:
       (A) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (B) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (9) Repeal of fmap increase.--Effective as of October 1, 
     2004, this subsection is repealed.
       (g) Repeal of other provisions.--Effective as of January 1, 
     2005, subsections (a) through (e) of this section are 
     repealed.
       (h) Revision of Partial Exclusion of Dividends Received By 
     Individuals.--

[[Page 11622]]

       (1) In general.--Section 116(a)(2)(B), as added by section 
     201 of this Act, is amended by striking ``2007'' and 
     inserting ``2010''.
       (2) Conforming amendments.--Sections 531(a) and 541(a), as 
     amended by section 201 of this Act, are each amended by 
     striking ``2007'' and inserting ``2010''.
       (3) Application of sunset.--Section 601(a) of this Act 
     shall apply to the amendments made by paragraphs (1) and (2).
                                 ______
                                 
  SA 569. Mr. SPECTER (for himself, Mr. Grassley, Mr. Bennett, and Mr. 
Thomas) proposed an amendment to the bill S. 1054, to provide for 
reconciliation pursuant to section 201 of the concurrent resolution on 
the budget for fiscal year 2004; as follows:

       At the end of subtitle C of title V add the following:

     SEC.   . FLAT TAX.

       (a) Findings.--The Senate finds the following:
       (1) The current Internal Revenue Code, with its myriad 
     deductions, credits and schedules, and over 17,000 pages of 
     rules and regulations, is long overdue for an overhaul.
       (2) The current Internal Revenue Code has over 6,900,000 
     words compared to the Bible at 1,773,000 words, the 
     Declaration of Independence at 1,300 words, the Gettysburg 
     Address at 267 words, and the Pledge of Allegiance at only 31 
     words.
       (3) It is an unacceptable waste of our nation's precious 
     resources when Americans spend more than 5,800,000,000 hours 
     every year compiling information and filling out Internal 
     Revenue Code tax forms. In addition, taxpayers spend 
     $194,000,000,000 each year in tax code compliance. America's 
     resources could be dedicated to far more productive pursuits.
       (4) The primary goal of any tax reform is to promote growth 
     and remove the inefficiencies of the current tax code. The 
     flat tax will expand the economy by an estimated $2 trillion 
     over seven years.
       (5) Another important goal of the flat tax is to achieve 
     fairness, with a single low flat tax rate for all individuals 
     and businesses.
       (6) Simplicity is another critically important goal of the 
     flat tax, and it is in the public interest to have a ten-line 
     tax form that fits on a postcard and takes 10 minutes to fill 
     out.
       (7) A comprehensive analyses of our tax structure has 
     concluded that a flat tax of 19% could be imposed upon 
     individuals and be revenue neutral.
       (8) If the decision is made to include deductibility on 
     items such as interest on home mortgages and charitable 
     contributions, the flat tax would be raised from a 19% to a 
     20% rate to accommodate the deductions and remain revenue 
     neutral.
       (9) The flat tax would tax business at a 20% rate on net 
     profits and be revenue neutral and lead to investment 
     decisions being made on the basis of productivity rather than 
     for tax avoidance.
       (10) The flat tax would lead to the elimination of the 
     capital gains tax. This would become a powerful incentive for 
     savings and investment--which translates into economic growth 
     and expansion, more and better jobs, and raising the standard 
     of living for all Americans.
       (11) The flat tax would lower the cost of capital by 
     allowing businesses to write off the cost of capital purchase 
     in the same year the purchase was made as opposed to 
     complying with complicated depreciation schedules.
       (12) By eliminating the double tax on dividends, the flat 
     tax eliminates the distortions in the tax code favoring debt 
     over equity financing by businesses.
       (13) The flat tax would eliminate the estate and gift tax. 
     With the elimination of the estate and gift tax, family-held 
     businesses will be much more stable under the flat tax 
     system.
       (14) As tax loopholes are eliminated and the tax code is 
     simplified, there will be far less opportunity for tax 
     avoidance and fraud, which now amounts to over $120 billion 
     in uncollected revenue annually.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that--
       (1) The Senate Finance Committee and the Joint Economic 
     Committee should undertake a comprehensive analysis of 
     simplification including flat tax proposals, including 
     appropriate hearings and consider legislation providing for a 
     flat tax.
                                 ______
                                 
  SA 570. Mr. BAUCUS proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       On page 19, lines 12 and 13, strike ``(20 percent in the 
     case of taxable years beginning after 2007)''.
       On page 26, lines 18 and 19, strike ``(80 percent in the 
     case of taxable years beginning after 2007)''.
       On page 26, lines 21 and 22, strike ``(80 percent in the 
     case of taxable years beginning after 2007)''.
       On page 27, line 19, strike ``2003'' and insert ``2002''.
       At the end of subtitle C of title V, insert:

     SEC. __. GUARANTY OF ADDITIONAL $400 CHILD CREDIT FOR 2003 
                   AND MODIFICATIONS OF DIVIDEND EXCLUSION.

       (a) In General.--Section 24(d) (relating to portion of 
     credit refundable) is amended by adding at the end the 
     following new paragraph:
       ``(4) Special rule for 2003.--
       ``(A) In general.--In applying this subsection--
       ``(i) in the case of any taxable year beginning in 2003, or
       ``(ii) for purposes of determining the amount of the credit 
     allowed under this section for the taxpayer's first taxable 
     year beginning in 2002 in computing the child tax credit 
     refund amount under section 6429,
     the increase under paragraph (1) for such taxable year shall 
     be determined under subparagraph (B).
       ``(B) Additional increase.--For purposes of subparagraph 
     (A), the amount of the increase under paragraph (1) for a 
     taxable year shall be equal to the sum of--
       ``(i) the amount of such increase determined without regard 
     to this paragraph, plus
       ``(ii) the lesser of--

       ``(I) $400, multiplied by the number of qualifying children 
     of the taxpayer for the taxable year, or
       ``(II) the amount determined under paragraph (1)(A) for the 
     taxable year, reduced by the amount of the credit allowed 
     after the application of section 26 and this subsection 
     (without regard to this paragraph).

     For purposes of applying subclause (II) to the taxable year 
     described in subparagraph (A)(ii), the amount determined 
     under paragraph (1)(A) shall be computed by taking into 
     account the adjustments described in section 6429(b).''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect as if included in the provisions of section 
     106 of this Act and section 108 of this Act shall apply to 
     such amendment as if it had been so included.
                                 ______
                                 
  SA 571. Mr. ALLEN submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       On page 281, between lines 2 and 3, insert the following:

     SEC. __. EXPANSION OF INCOME TAX EXCLUSION FOR COMBAT ZONE 
                   SERVICE.

       (a) Combat Zone Service To Include Transit to Zone.--
     Section 112(c)(3) of the Internal Revenue Code of 1986 
     (relating to definitions) is amended by adding at the end the 
     following new sentence: ``Such service shall include any 
     period (not to exceed 14 days) of direct transit to the 
     combat zone.''.
       (b) Removal of Limitation on Exclusion for Commissioned 
     Officers.--
       (1) In general.--Subsection (b) of section 112 of the 
     Internal Revenue Code of 1986 (relating to certain combat 
     zone compensation of members of the Armed Forces) is 
     repealed.
       (2) Conforming amendments.--
       (A) Section 112(a) of such Code is amended--
       (i) by striking ``below the grade of commissioned 
     officer'', and
       (ii) by striking ``Enlisted Personnel'' in the heading and 
     inserting ``In General''.
       (B) Section 112(c) of such Code is amended by striking 
     paragraphs (1) and (5) and by redesignating paragraphs (2), 
     (3), and (4) as paragraphs (1), (2), and (3), respectively.
       (c) Effective Date.--The amendments made by this section 
     shall apply to months beginning after December 31, 2002.

     SEC. __. AVAILABILITY OF CERTAIN TAX BENEFITS FOR MEMBERS OF 
                   THE ARMED FORCES PERFORMING SERVICES AT 
                   GUANTANAMO BAY NAVAL STATION, CUBA, AND ON THE 
                   ISLAND OF DIEGO GARCIA.

       (a) General Rule.--In the case of a member of the Armed 
     Forces of the United States who is entitled to special pay 
     under section 305 of title 37, United States Code (relating 
     to special pay: hardship duty pay), for services performed as 
     a member of the Joint Task Force Guantanamo at Guantanamo Bay 
     Naval Station, Cuba, or for services performed on the Island 
     of Diego Garcia as part of Operation Iraqi Freedom, such 
     member shall be treated in the same manner as if such 
     services were in a combat zone (as determined under section 
     112 of the Internal Revenue Code of 1986) for purposes of the 
     following provisions of such Code:
       (1) Section 2(a)(3) (relating to special rule where 
     deceased spouse was in missing status).
       (2) Section 112 (relating to the exclusion of certain 
     combat pay of members of the Armed Forces).
       (3) Section 692 (relating to income taxes of members of 
     Armed Forces on death).
       (4) Section 2201 (relating to members of the Armed Forces 
     dying in combat zone or by reason of combat-zone-incurred 
     wounds, etc.).
       (5) Section 3401(a)(1) (defining wages relating to combat 
     pay for members of the Armed Forces).
       (6) Section 4253(d) (relating to the taxation of phone 
     service originating from a combat zone from members of the 
     Armed Forces).
       (7) Section 6013(f)(1) (relating to joint return where 
     individual is in missing status).

[[Page 11623]]

       (8) Section 7508 (relating to time for performing certain 
     acts postponed by reason of service in combat zone).
       (b) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), this 
     section shall take effect on January 1, 2003.
       (2) Withholding.--Subsection (a)(5) shall apply to 
     remuneration paid after December 31, 2002.
                                 ______
                                 
  SA 572. Mr. DODD (for himself, Mr. Kennedy, Mr. Bingaman, and Mr. 
Biden) submitted an amendment intended to be proposed by him to the 
bill S. 1054, to provide for reconciliation pursuant to section 201 of 
the concurrent resolution on the budget for fiscal year 2004; which was 
ordered to lie on the table; as follows:

       On page 19, line 9, strike ``the sum of'' and all that 
     follows through line 15 and insert ``$500 ($250 in the case 
     of a married individual filing a separate return).''.
       On page 18, after line 17, insert the following:

     SEC. 109. ELIMINATION OF ACCELERATION OF TOP RATE REDUCTION 
                   IN INDIVIDUAL INCOME TAX.

       Notwithstanding the amendment made by section 102(a) of 
     this Act, in lieu of the percent specified in the last column 
     of the table in paragraph (2) of section 1(i) of the Internal 
     Revenue Code of 1986, as amended by such section 102(a), for 
     taxable years beginning during calendar years 2003, 2004, and 
     2005, the following percentages shall be substituted for such 
     years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
                                 ______
                                 
  SA 573. Mr KYL (for himself, Mr. Cornyn, and Mr. Alexander) submitted 
an amendment intended to be proposed by him to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; which was ordered to lie 
on the table; as follows:

       Strike page 96, line 1, through page 97, line 18, and 
     insert the following:

     SEC. 333. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (3) in relation 
     to the violation of any law or the investigation or inquiry 
     into the potential violation of any law.
       ``(2) Exception for amounts constituting restitution.--
     Paragraph (1) shall not apply to any amount which the 
     taxpayer establishes constitutes restitution for damage or 
     harm caused by the violation of any law or the potential 
     violation of any law. This paragraph shall not apply to any 
     amount paid or incurred as reimbursement to the government or 
     entity for the costs of any investigation or litigation.
       ``(3) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(4) Imposition of tax on excess fee transactions.--
       ``(A) In general.--There is hereby imposed on the 
     collecting attorney in each excess fee transaction a tax 
     equal to 5 percent of the excess fee.
       ``(B) Payment.--The tax imposed by subparagraph (A) shall 
     be paid by any collecting attorney referred to in paragraph 
     (10)(A) with respect to such transaction.
       ``(5) Penalty.--
       ``(A) In general.--In any case in which a tax is imposed by 
     paragraph (4) on an excess fee transaction and the excess fee 
     involved in such transaction is not corrected within the 
     taxable period, there is hereby imposed a penalty equal to 
     200 percent of the excess fee involved. The penalty imposed 
     by this paragraph shall be paid by any collecting attorney 
     referred to in paragraph (10)(A) with respect to such 
     transaction. The penalty imposed by this subsection shall be 
     treated in the same manner as a penalty imposed under 
     subchapter B of chapter 68.
       ``(B) Payment.--The penalty imposed under subparagraph (A) 
     shall be paid by any collecting attorney referred to in 
     paragraph (10)(A) with respect to such transaction.
       ``(6) Excess fee transaction.--For purposes of this 
     section--
       ``(A) In general.--The term `excess fee transaction' means 
     any transaction in which a fee is provided by an applicable 
     plaintiff (including payments resulting from litigation on 
     behalf of an applicable plaintiff determined on an hourly or 
     percentage basis, whether such fee is paid from the 
     applicable plaintiff's recovery, pursuant to a separately 
     negotiated agreement, or in any other manner), directly or 
     indirectly, to or for the use of any collecting attorney with 
     respect to such applicable plaintiff if the amount of the fee 
     provided exceeds the value of the services received in 
     exchange therefor or paragraph (11)(A) applies.
       ``(B) Determination of value.--For purposes of subparagraph 
     (A), in determining whether the amount of the fee provided 
     exceeds the value of the services received in exchange 
     therefor, the value of the services shall be the sum of--
       ``(i) the reasonable expenses incurred by the collecting 
     attorney in the course of the representation of the 
     applicable plaintiff, and
       ``(ii) a reasonable fee based on--

       ``(I) the number of hours of non-duplicative, professional 
     quality legal work provided by the collecting attorney of 
     material value to the outcome of the representation of the 
     applicable plaintiff, taking into account the factors 
     described in clauses (ii) and (iv) of paragraph (12)(B),
       ``(II) reasonable hourly rates for the individuals 
     performing such work based on hourly rates charged by other 
     attorneys for the rendition of comparable services, including 
     rates charged by adversary defense counsel in the 
     representation, taking into account the factors described in 
     clauses (i), (iii), (v), and (vii) of paragraph (12)(B), and
       ``(III) to the extent such items are not taken into account 
     in establishing the reasonable hourly rates under subclause 
     (II), an appropriate adjustment rate determined in accordance 
     with subparagraph (C) to compensate the collecting attorney 
     for periods of substantial risk of non-payment of fees and 
     for skillful or innovative services which increase the amount 
     of the applicable plaintiff's recovery.

       ``(iii) Fees in certain settlements.--For purposes of this 
     subparagraph, the value of services for any collecting 
     attorney receiving fees under the Master Settlement Agreement 
     shall be deemed to include a reasonable fee that is based on 
     a reasonable hourly rate (including appropriate adjustment 
     rates) of not less than $__ per hour
       ``(C) Adjustment rate.--
       ``(i) In general.--For purposes of this paragraph, an 
     appropriate adjustment rate is a percentage of the reasonable 
     hourly rate under subparagraph (B)(ii)(II) which is added to 
     the amount of such rate and which is not more than the sum of 
     one risk percentage and one skill percentage described in 
     clauses (ii) and (iii), respectively.
       ``(ii) Risk percentage.--For purposes of this subparagraph, 
     the term `risk percentage' means a percentage rate that is 
     proportional to the collecting attorney's risk of nonrecovery 
     of fees and which is--

       ``(I) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees, not more than 100 
     percent,
       ``(II) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees and devoted more than 
     8,000 hours of legal work (as described in subparagraph 
     (B)(ii)(I)) and more than 2 years to the case before 
     resolution of all claims, not more than 200 percent, or
       ``(III) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees and devoted more than 
     15,000 hours of legal work (as described in subparagraph 
     (B)(ii)(I)) and more than 4 years to the case before 
     resolution of all claims, not more than 300 percent.

       ``(iii) Skill percentage.--For purposes of this 
     subparagraph, the term `skill percentage' means, in the case 
     of a collecting attorney who has demonstrated exceptionally 
     skillful or innovative legal service which generated a 
     recovery for the applicable plaintiff substantially greater 
     than the typical recovery in similar cases, a percentage rate 
     that is proportional to the increase in the applicable 
     plaintiff's recovery and that is not more than 100 percent.
       ``(iv) Limitation.--An appropriate adjustment rate shall 
     not increase the collecting attorney's fee above an amount 
     that is proportional to the applicable plaintiff's recovery.
       ``(D) Court approval of fees.--Fee payments approved by any 
     court shall be presumed to not be in excess of the value of 
     the services received in exchange therefor if the court 
     approving the fee--
       ``(i) did not approve an adjustment rate greater than that 
     determined to be appropriate under subparagraph (C) in a case 
     where such fee included an adjustment rate, and
       ``(ii) obtained and relied upon a report of a legal 
     auditing firm with respect to such fee in accordance with the 
     procedures in paragraph (12).
       ``(7) Excess fee.--For purposes of this section, the term 
     `excess fee' means the excess referred to in paragraph 
     (6)(A).
       ``(8) Joint and several liability.--For purposes of this 
     section, if more than 1 person is liable for any tax or 
     penalty imposed by paragraph (4), all such persons shall be 
     jointly and severally liable for such tax or penalty.

[[Page 11624]]

       ``(9) Applicable plaintiff.--For purposes of this section, 
     the term `applicable plaintiff' means any person represented 
     by a collecting attorney with respect to a claim described in 
     paragraph (10)(A).
       ``(10) Other definitions and rules.--For purposes of this 
     section--
       ``(A) Collecting attorney.--The term `collecting attorney' 
     means any person engaged in the practice of law who 
     represents--
       ``(i) any governmental entity, including any State, 
     municipality, or political subdivision of a State, or any 
     person acting on such entity's behalf, including pursuant to 
     Federal or State Qui Tam statutes, in a claim for recoupment 
     of payments made or to be made by such entity to or on behalf 
     of any natural person by reason, directly or indirectly, of a 
     breach of duty that causes damage to such natural person,
       ``(ii) any organization described in paragraph (3) or (4) 
     of section 501(c) and exempt from tax under section 501(a), 
     in a claim for damages based on a breach of duty, whether 
     civil or criminal, causing damage to such organization,
       ``(iii) any natural person seeking to recover damages in a 
     claim based on breaches of duty, whether civil or criminal, 
     causing damage to such natural person, or
       ``(iv) any assignee or other holder of claims described in 
     clause (i), (ii), or (iii),

     when 1 or more of such claims, whether or not joined in 1 
     action, involve the same or a coordinated group of 
     plaintiff's attorneys or similarly situated defendants, arise 
     out of the same transaction or set of facts or involve 
     substantially similar liability issues, and result in 
     settlements or judgments aggregating at least $100,000,000.
       ``(B) Taxable period.--The term `taxable period' means, 
     with respect to any excess fee transaction, the period 
     beginning with the date on which the transaction occurs and 
     ending 90 days after the earliest of--
       ``(i) the date of the mailing of a notice of deficiency 
     under section 6212 with respect to the tax imposed by 
     paragraph (4), or
       ``(ii) the date on which the tax imposed by paragraph (4) 
     is assessed.
       ``(C) Master settlement agreement.--The term `Master 
     Settlement Agreement' means that certain Master Settlement 
     Agreement of November 23, 1998, and other, concluded 
     Settlement Agreements based on State health care expenditures 
     pursuant to title XIX of the Social Security Act (42 U.S.C. 
     1396 et seq.), including lawsuits involving the States of 
     Florida, Minnesota, Mississippi, and Texas.
       ``(D) Correction.--
       ``(i) General rule.--Any excess fee transaction is 
     corrected by undoing the excess fee to the extent possible 
     and taking any additional measures necessary to place the 
     applicable plaintiff in a financial position not worse than 
     that in which such plaintiff would be if the collecting 
     attorney were dealing under the highest fiduciary standards.
       ``(ii) Payment of excess fees.--

       ``(I) In general.--Except as provided in subclause (II), a 
     collecting attorney corrects an excess fee transaction by 
     paying any excess fees plus interest to the applicable 
     plaintiff.
       ``(II) Certain settlements.--In the case of excess fees 
     arising from or related to the Master Settlement Agreement, 
     the collecting attorney corrects an excess fee transaction by 
     paying any excess fees plus interest to the Secretary of the 
     Treasury as trustee for the Master Settlement Agreement 
     Attorney Excess Fee Trust Fund. The Secretary shall 
     distribute 60 percent of any money paid into the Master 
     Settlement Agreement Attorney Excess Fee Trust Fund to the 50 
     States by regulations in proportion to each State's share of 
     the United States population.

       ``(iii) No waiver of fee.--No collecting attorney may avoid 
     imposition of any tax imposed under paragraph (4) by 
     transferring any portion of the excess fee or refusing to 
     accept any portion of the excess fee.
       ``(E) Limited reasonable cause.--For purposes of section 
     4962(a), an excess fee transaction shall not be treated as an 
     event which was due to reasonable cause if the amount of the 
     fee provided would exceed the value of the services received 
     in exchange therefor determined with the maximum adjustment 
     rate allowed under paragraph (6)(C).
       ``(11) Disclosure requirements.--
       ``(A) Treatment as excess fee.--Any fee provided after the 
     date of the enactment of this subsection by an applicable 
     plaintiff (including payments resulting from litigation on 
     behalf of an applicable plaintiff determined on an hourly or 
     percentage basis, whether such fee is paid from the 
     applicable plaintiff's recovery, pursuant to a separately 
     negotiated agreement, or in any other manner), directly or 
     indirectly, to or for the use of any collecting attorney with 
     respect to such applicable plaintiff shall be deemed to be an 
     excess fee provided in an excess fee transaction unless the 
     disclosure requirements described in subparagraph (B) are 
     met.
       ``(B) Contents of statement.--The disclosure requirements 
     of this paragraph are met for any taxable year in which a 
     collecting attorney receives any fees with respect to a claim 
     described in paragraph (10)(A), if such collecting attorney--
       ``(i) includes in the return of tax for such taxable year a 
     statement including the information described in paragraph 
     (6) with respect to such claim, and
       ``(ii) provides a statement including the information 
     described in paragraph (6) to the applicable plaintiff prior 
     to the deadline (including extensions) for filing such 
     return.
       ``(12) Legal auditing firm.--
       ``(A) In general.--In any case before a Federal district 
     court or a State court in which the court approves fees paid 
     to a collecting attorney, the court shall seek bids from 
     legal auditing firms with a specialty in reviewing attorney 
     billings and select 1 such legal auditing firm to review the 
     billing records submitted by the collecting attorney, under 
     the same standards the firm would use if it were hired by a 
     private party to review legal bills submitted to the party, 
     for the reasonableness of such attorney's billing patterns 
     and practices. The court shall require the collecting 
     attorney to submit billing records, cost records, and any 
     other information sought by such firm in its review.
       ``(B) Review by legal auditing firm.--In reviewing the 
     billing records and work performed by the collecting 
     attorney, the legal auditing firm shall address all relevant 
     matters, including--
       ``(i) the hourly rates of the collecting attorney compared 
     with the prevailing market rates for the services rendered by 
     the collecting attorney,
       ``(ii) the number of hours worked by the collecting 
     attorney on the case compared with other cases that the 
     collecting attorney worked on during the same period,
       ``(iii) whether the collecting attorney performed tasks 
     that could have been performed by attorneys with lower 
     billing rates,
       ``(iv) whether the collecting attorney used appropriate 
     billing methodology, including keeping contemporaneous time 
     records and using appropriate billing time increments,
       ``(v) whether particular tasks were staffed appropriately,
       ``(vi) whether the costs and expenses submitted by the 
     collecting attorney were reasonable,
       ``(vii) whether the collecting attorney exercised billing 
     judgment, and
       ``(viii) any other matters normally addressed by the legal 
     auditing firm when reviewing attorney billings for private 
     clients.
       ``(C) Filing of report; response; burden of proof.--The 
     court shall set a date for the filing of the report of the 
     legal auditing firm, and allow the collecting attorney or any 
     applicable plaintiff to respond to the report within a 
     reasonable time period. The report shall be presumed correct 
     unless rebutted by the collecting attorney or any applicable 
     plaintiff by clear and convincing evidence.
       ``(D) Fee for legal auditing firm.--The fee for the report 
     of the legal auditing firm shall be paid from the collecting 
     attorney's fee award, the applicable plaintiff's recovery, or 
     both in a manner determined by the court.
       ``(13) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     this section, including regulations to prevent avoidance of 
     the purposes of this section and regulations requiring 
     recordkeeping and information reporting.''.
       ``(14) Declaratory judgments relating to tax on excess fee 
     transactions.--
       ``(A) In general.--In a case of actual controversy 
     involving--
       ``(i) a determination by the Secretary or the collecting 
     attorney with respect to the imposition of the excise tax on 
     excess fee transactions on such collecting attorney under 
     paragraph (4), or
       ``(ii) a failure by the Secretary or the collecting 
     attorney to make such a determination,

     upon the filing of an appropriate pleading by an applicable 
     plaintiff, the Tax Court may make a declaration with respect 
     to such determination or failure. Any such declaration shall 
     have the force and effect of a decision of the Tax Court and 
     shall be reviewable as such.
       ``(B) Deferential review.--If a collecting attorney's fee 
     has been approved by a court in accordance with paragraph 
     (6)(D) or by the Secretary pursuant to this section, the Tax 
     Court shall review the fee only for an abuse of discretion.
       ``(C) Legal auditing firm.--In any petition for a 
     declaration referred to in subparagraph (A):
       ``(i) No previous report.--If a report by a legal auditing 
     firm that meets the requirements of paragraph (10) has not 
     been previously produced and relied on by another court, the 
     Tax Court shall hire such a legal auditing firm and rely on 
     its report pursuant to the procedures in paragraph (10).
       ``(ii) Second report.--

       ``(I) In general.--If a report by a legal auditing firm has 
     been approved by a court in accordance with this section, the 
     Tax Court shall hire a second legal auditing firm upon the 
     request of the petitioner.
       ``(II) Fee for report.--The Tax Court may direct the 
     petitioner to pay the fee for any report of a legal auditing 
     firm provided pursuant to subclause (I).

       ``(D) Time for bringing action.--No proceeding may be 
     initiated under this paragraph by any person until 90 days 
     after such

[[Page 11625]]

     person first notifies the Secretary of the excess fee 
     transaction with respect to which the proceeding relates.''.
       (b) Conforming Amendments.--
       (A) Subsections (a), (b), and (c) of section 4963 are each 
     amended by inserting ``, or paragraph (4) of section 162(f)'' 
     before the period.
       (B) Subsection (e) of section 6213 is amended by inserting 
     ``, or paragraph (4) of section 162(f) (relating to excess 
     fee transactions),'' before the period.
       (C) Paragraphs (2) and (3) of section 7422(g) are each 
     amended by inserting ``162(f)(4),'' before ``4941''.
       (c) Effective Date.--
       (A) In general.-- Except as provided in subparagraph (B), 
     the amendments made by this section shall apply to amounts 
     paid or incurred after April 27, 2003, except that such 
     amendment shall not apply to amounts paid or incurred under 
     any binding order or agreement entered into on or before 
     April 27, 2003. Such exception shall not apply to an order or 
     agreement requiring court approval unless the approval was 
     obtained on or before April 27, 2003.
       (B) Excess fees.--
       (i) In general.--The amendments made by this section 
     relating to taxes and penalties on excess attorney fees shall 
     apply to excess fees paid after the date of enactment of this 
     Act.
                                 ______
                                 
  SA 574. Mr KYL (for himself, Mr. Cornyn, and Mr. Alexander) submitted 
an amendment intended to be proposed by him to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; which was ordered to lie 
on the table; as follows:

       Strike page 96, line 1, through page 97, line 18, and 
     insert the following:

     SEC. 333. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (3) in relation 
     to the violation of any law or the investigation or inquiry 
     into the potential violation of any law.
       ``(2) Exception for amounts constituting restitution.--
     Paragraph (1) shall not apply to any amount which the 
     taxpayer establishes constitutes restitution for damage or 
     harm caused by the violation of any law or the potential 
     violation of any law. This paragraph shall not apply to any 
     amount paid or incurred as reimbursement to the government or 
     entity for the costs of any investigation or litigation.
       ``(3) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(4) Imposition of tax on excess fee transactions.--
       ``(A) In general.--There is hereby imposed on the 
     collecting attorney in each excess fee transaction a tax 
     equal to 5 percent of the excess fee.
       ``(B) Payment.--The tax imposed by subparagraph (A) shall 
     be paid by any collecting attorney referred to in paragraph 
     (10)(A) with respect to such transaction.
       ``(5) Penalty.--
       ``(A) In general.--In any case in which a tax is imposed by 
     paragraph (4) on an excess fee transaction and the excess fee 
     involved in such transaction is not corrected within the 
     taxable period, there is hereby imposed a penalty equal to 
     200 percent of the excess fee involved. The penalty imposed 
     by this paragraph shall be paid by any collecting attorney 
     referred to in paragraph (10)(A) with respect to such 
     transaction. The penalty imposed by this subsection shall be 
     treated in the same manner as a penalty imposed under 
     subchapter B of chapter 68.
       ``(B) Payment.--The penalty imposed under subparagraph (A) 
     shall be paid by any collecting attorney referred to in 
     paragraph (10)(A) with respect to such transaction.
       ``(6) Excess fee transaction.--For purposes of this 
     section--
       ``(A) In general.--The term `excess fee transaction' means 
     any transaction in which a fee is provided by an applicable 
     plaintiff (including payments resulting from litigation on 
     behalf of an applicable plaintiff determined on an hourly or 
     percentage basis, whether such fee is paid from the 
     applicable plaintiff's recovery, pursuant to a separately 
     negotiated agreement, or in any other manner), directly or 
     indirectly, to or for the use of any collecting attorney with 
     respect to such applicable plaintiff if the amount of the fee 
     provided exceeds the value of the services received in 
     exchange therefor or paragraph (11)(A) applies.
       ``(B) Determination of value.--For purposes of subparagraph 
     (A), in determining whether the amount of the fee provided 
     exceeds the value of the services received in exchange 
     therefor, the value of the services shall be the sum of--
       ``(i) the reasonable expenses incurred by the collecting 
     attorney in the course of the representation of the 
     applicable plaintiff, and
       ``(ii) a reasonable fee based on--

       ``(I) the number of hours of non-duplicative, professional 
     quality legal work provided by the collecting attorney of 
     material value to the outcome of the representation of the 
     applicable plaintiff, taking into account the factors 
     described in clauses (ii) and (iv) of paragraph (12)(B),
       ``(II) reasonable hourly rates for the individuals 
     performing such work based on hourly rates charged by other 
     attorneys for the rendition of comparable services, including 
     rates charged by adversary defense counsel in the 
     representation, taking into account the factors described in 
     clauses (i), (iii), (v), and (vii) of paragraph (12)(B), and
       ``(III) to the extent such items are not taken into account 
     in establishing the reasonable hourly rates under subclause 
     (II), an appropriate adjustment rate determined in accordance 
     with subparagraph (C) to compensate the collecting attorney 
     for periods of substantial risk of non-payment of fees and 
     for skillful or innovative services which increase the amount 
     of the applicable plaintiff's recovery.

       ``(iii) Fees in certain settlements.--For purposes of this 
     subparagraph, the value of services for any collecting 
     attorney receiving fees under the Master Settlement Agreement 
     shall be deemed to include a reasonable fee that is based on 
     a reasonable hourly rate (including appropriate adjustment 
     rates) of not less than $2,000 per hour
       ``(C) Adjustment rate.--
       ``(i) In general.--For purposes of this paragraph, an 
     appropriate adjustment rate is a percentage of the reasonable 
     hourly rate under subparagraph (B)(ii)(II) which is added to 
     the amount of such rate and which is not more than the sum of 
     one risk percentage and one skill percentage described in 
     clauses (ii) and (iii), respectively.
       ``(ii) Risk percentage.--For purposes of this subparagraph, 
     the term `risk percentage' means a percentage rate that is 
     proportional to the collecting attorney's risk of nonrecovery 
     of fees and which is--

       ``(I) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees, not more than 100 
     percent,
       ``(II) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees and devoted more than 
     8,000 hours of legal work (as described in subparagraph 
     (B)(ii)(I)) and more than 2 years to the case before 
     resolution of all claims, not more than 200 percent, or
       ``(III) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees and devoted more than 
     15,000 hours of legal work (as described in subparagraph 
     (B)(ii)(I)) and more than 4 years to the case before 
     resolution of all claims, not more than 300 percent.

       ``(iii) Skill percentage.--For purposes of this 
     subparagraph, the term `skill percentage' means, in the case 
     of a collecting attorney who has demonstrated exceptionally 
     skillful or innovative legal service which generated a 
     recovery for the applicable plaintiff substantially greater 
     than the typical recovery in similar cases, a percentage rate 
     that is proportional to the increase in the applicable 
     plaintiff's recovery and that is not more than 100 percent.
       ``(iv) Limitation.--An appropriate adjustment rate shall 
     not increase the collecting attorney's fee above an amount 
     that is proportional to the applicable plaintiff's recovery.
       ``(D) Court approval of fees.--Fee payments approved by any 
     court shall be presumed to not be in excess of the value of 
     the services received in exchange therefor if the court 
     approving the fee--
       ``(i) did not approve an adjustment rate greater than that 
     determined to be appropriate under subparagraph (C) in a case 
     where such fee included an adjustment rate, and
       ``(ii) obtained and relied upon a report of a legal 
     auditing firm with respect to such fee in accordance with the 
     procedures in paragraph (12).
       ``(7) Excess fee.--For purposes of this section, the term 
     `excess fee' means the excess referred to in paragraph 
     (6)(A).
       ``(8) Joint and several liability.--For purposes of this 
     section, if more than 1 person is liable for any tax or 
     penalty imposed by paragraph (4), all such persons shall be 
     jointly and severally liable for such tax or penalty.
       ``(9) Applicable plaintiff.--For purposes of this section, 
     the term `applicable plaintiff' means any person represented 
     by a collecting attorney with respect to a claim described in 
     paragraph (10)(A).
       ``(10) Other definitions and rules.--For purposes of this 
     section--

[[Page 11626]]

       ``(A) Collecting attorney.--The term `collecting attorney' 
     means any person engaged in the practice of law who 
     represents--
       ``(i) any governmental entity, including any State, 
     municipality, or political subdivision of a State, or any 
     person acting on such entity's behalf, including pursuant to 
     Federal or State Qui Tam statutes, in a claim for recoupment 
     of payments made or to be made by such entity to or on behalf 
     of any natural person by reason, directly or indirectly, of a 
     breach of duty that causes damage to such natural person,
       ``(ii) any organization described in paragraph (3) or (4) 
     of section 501(c) and exempt from tax under section 501(a), 
     in a claim for damages based on a breach of duty, whether 
     civil or criminal, causing damage to such organization,
       ``(iii) any natural person seeking to recover damages in a 
     claim based on breaches of duty, whether civil or criminal, 
     causing damage to such natural person, or
       ``(iv) any assignee or other holder of claims described in 
     clause (i), (ii), or (iii),

     when 1 or more of such claims, whether or not joined in 1 
     action, involve the same or a coordinated group of 
     plaintiff's attorneys or similarly situated defendants, arise 
     out of the same transaction or set of facts or involve 
     substantially similar liability issues, and result in 
     settlements or judgments aggregating at least $100,000,000.
       ``(B) Taxable period.--The term `taxable period' means, 
     with respect to any excess fee transaction, the period 
     beginning with the date on which the transaction occurs and 
     ending 90 days after the earliest of--
       ``(i) the date of the mailing of a notice of deficiency 
     under section 6212 with respect to the tax imposed by 
     paragraph (4), or
       ``(ii) the date on which the tax imposed by paragraph (4) 
     is assessed.
       ``(C) Master settlement agreement.--The term `Master 
     Settlement Agreement' means that certain Master Settlement 
     Agreement of November 23, 1998, and other, concluded 
     Settlement Agreements based on State health care expenditures 
     pursuant to title XIX of the Social Security Act (42 U.S.C. 
     1396 et seq.), including lawsuits involving the States of 
     Florida, Minnesota, Mississippi, and Texas.
       ``(D) Correction.--
       ``(i) General rule.--Any excess fee transaction is 
     corrected by undoing the excess fee to the extent possible 
     and taking any additional measures necessary to place the 
     applicable plaintiff in a financial position not worse than 
     that in which such plaintiff would be if the collecting 
     attorney were dealing under the highest fiduciary standards.
       ``(ii) Payment of excess fees.--

       ``(I) In general.--Except as provided in subclause (II), a 
     collecting attorney corrects an excess fee transaction by 
     paying any excess fees plus interest to the applicable 
     plaintiff.
       ``(II) Certain settlements.--In the case of excess fees 
     arising from or related to the Master Settlement Agreement, 
     the collecting attorney corrects an excess fee transaction by 
     paying any excess fees plus interest to the Secretary of the 
     Treasury as trustee for the Master Settlement Agreement 
     Attorney Excess Fee Trust Fund. The Secretary shall 
     distribute 60 percent of any money paid into the Master 
     Settlement Agreement Attorney Excess Fee Trust Fund to the 50 
     States by regulations in proportion to each State's share of 
     the United States population.

       ``(iii) No waiver of fee.--No collecting attorney may avoid 
     imposition of any tax imposed under paragraph (4) by 
     transferring any portion of the excess fee or refusing to 
     accept any portion of the excess fee.
       ``(E) Limited reasonable cause.--For purposes of section 
     4962(a), an excess fee transaction shall not be treated as an 
     event which was due to reasonable cause if the amount of the 
     fee provided would exceed the value of the services received 
     in exchange therefor determined with the maximum adjustment 
     rate allowed under paragraph (6)(C).
       ``(11) Disclosure requirements.--
       ``(A) Treatment as excess fee.--Any fee provided after the 
     date of the enactment of this subsection by an applicable 
     plaintiff (including payments resulting from litigation on 
     behalf of an applicable plaintiff determined on an hourly or 
     percentage basis, whether such fee is paid from the 
     applicable plaintiff's recovery, pursuant to a separately 
     negotiated agreement, or in any other manner), directly or 
     indirectly, to or for the use of any collecting attorney with 
     respect to such applicable plaintiff shall be deemed to be an 
     excess fee provided in an excess fee transaction unless the 
     disclosure requirements described in subparagraph (B) are 
     met.
       ``(B) Contents of statement.--The disclosure requirements 
     of this paragraph are met for any taxable year in which a 
     collecting attorney receives any fees with respect to a claim 
     described in paragraph (10)(A), if such collecting attorney--
       ``(i) includes in the return of tax for such taxable year a 
     statement including the information described in paragraph 
     (6) with respect to such claim, and
       ``(ii) provides a statement including the information 
     described in paragraph (6) to the applicable plaintiff prior 
     to the deadline (including extensions) for filing such 
     return.
       ``(12) Legal auditing firm.--
       ``(A) In general.--In any case before a Federal district 
     court or a State court in which the court approves fees paid 
     to a collecting attorney, the court shall seek bids from 
     legal auditing firms with a specialty in reviewing attorney 
     billings and select 1 such legal auditing firm to review the 
     billing records submitted by the collecting attorney, under 
     the same standards the firm would use if it were hired by a 
     private party to review legal bills submitted to the party, 
     for the reasonableness of such attorney's billing patterns 
     and practices. The court shall require the collecting 
     attorney to submit billing records, cost records, and any 
     other information sought by such firm in its review.
       ``(B) Review by legal auditing firm.--In reviewing the 
     billing records and work performed by the collecting 
     attorney, the legal auditing firm shall address all relevant 
     matters, including--
       ``(i) the hourly rates of the collecting attorney compared 
     with the prevailing market rates for the services rendered by 
     the collecting attorney,
       ``(ii) the number of hours worked by the collecting 
     attorney on the case compared with other cases that the 
     collecting attorney worked on during the same period,
       ``(iii) whether the collecting attorney performed tasks 
     that could have been performed by attorneys with lower 
     billing rates,
       ``(iv) whether the collecting attorney used appropriate 
     billing methodology, including keeping contemporaneous time 
     records and using appropriate billing time increments,
       ``(v) whether particular tasks were staffed appropriately,
       ``(vi) whether the costs and expenses submitted by the 
     collecting attorney were reasonable,
       ``(vii) whether the collecting attorney exercised billing 
     judgment, and
       ``(viii) any other matters normally addressed by the legal 
     auditing firm when reviewing attorney billings for private 
     clients.
       ``(C) Filing of report; response; burden of proof.--The 
     court shall set a date for the filing of the report of the 
     legal auditing firm, and allow the collecting attorney or any 
     applicable plaintiff to respond to the report within a 
     reasonable time period. The report shall be presumed correct 
     unless rebutted by the collecting attorney or any applicable 
     plaintiff by clear and convincing evidence.
       ``(D) Fee for legal auditing firm.--The fee for the report 
     of the legal auditing firm shall be paid from the collecting 
     attorney's fee award, the applicable plaintiff's recovery, or 
     both in a manner determined by the court.
       ``(13) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     this section, including regulations to prevent avoidance of 
     the purposes of this section and regulations requiring 
     recordkeeping and information reporting.''.
       ``(14) Declaratory judgments relating to tax on excess fee 
     transactions.--
       ``(A) In general.--In a case of actual controversy 
     involving--
       ``(i) a determination by the Secretary or the collecting 
     attorney with respect to the imposition of the excise tax on 
     excess fee transactions on such collecting attorney under 
     paragraph (4), or
       ``(ii) a failure by the Secretary or the collecting 
     attorney to make such a determination,

     upon the filing of an appropriate pleading by an applicable 
     plaintiff, the Tax Court may make a declaration with respect 
     to such determination or failure. Any such declaration shall 
     have the force and effect of a decision of the Tax Court and 
     shall be reviewable as such.
       ``(B) Deferential review.--If a collecting attorney's fee 
     has been approved by a court in accordance with paragraph 
     (6)(D) or by the Secretary pursuant to this section, the Tax 
     Court shall review the fee only for an abuse of discretion.
       ``(C) Legal auditing firm.--In any petition for a 
     declaration referred to in subparagraph (A):
       ``(i) No previous report.--If a report by a legal auditing 
     firm that meets the requirements of paragraph (10) has not 
     been previously produced and relied on by another court, the 
     Tax Court shall hire such a legal auditing firm and rely on 
     its report pursuant to the procedures in paragraph (10).
       ``(ii) Second report.--

       ``(I) In general.--If a report by a legal auditing firm has 
     been approved by a court in accordance with this section, the 
     Tax Court shall hire a second legal auditing firm upon the 
     request of the petitioner.
       ``(II) Fee for report.--The Tax Court may direct the 
     petitioner to pay the fee for any report of a legal auditing 
     firm provided pursuant to subclause (I).

       ``(D) Time for bringing action.--No proceeding may be 
     initiated under this paragraph by any person until 90 days 
     after such person first notifies the Secretary of the excess 
     fee transaction with respect to which the proceeding 
     relates.''.
       (b) Conforming Amendments.--
       (A) Subsections (a), (b), and (c) of section 4963 are each 
     amended by inserting ``, or

[[Page 11627]]

     paragraph (4) of section 162(f)'' before the period.
       (B) Subsection (e) of section 6213 is amended by inserting 
     ``, or paragraph (4) of section 162(f) (relating to excess 
     fee transactions),'' before the period.
       (C) Paragraphs (2) and (3) of section 7422(g) are each 
     amended by inserting ``162(f)(4),'' before ``4941''.
       (c) Effective Date.--
       (A) In general.-- Except as provided in subparagraph (B), 
     the amendments made by this section shall apply to amounts 
     paid or incurred after April 27, 2003, except that such 
     amendment shall not apply to amounts paid or incurred under 
     any binding order or agreement entered into on or before 
     April 27, 2003. Such exception shall not apply to an order or 
     agreement requiring court approval unless the approval was 
     obtained on or before April 27, 2003.
       (B) Excess fees.--
       (i) In general.--The amendments made by this section 
     relating to taxes and penalties on excess attorney fees shall 
     apply to excess fees paid after the date of enactment of this 
     Act.
                                 ______
                                 
  SA 575. Mr KYL (for himself, Mr. Cornyn, Mr. Alexander, and Mr. 
Ensign) submitted an amendment intended to be proposed by him to the 
bill S. 1054, to provide for reconciliation pursuant to section 201 of 
the concurrent resolution on the budget for fiscal year 2004; which was 
ordered to lie on the table; as follows:

       Strike page 96, line 1, through page 97, line 18, and 
     insert the following:

     SEC. 333. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (3) in relation 
     to the violation of any law or the investigation or inquiry 
     into the potential violation of any law.
       ``(2) Exception for amounts constituting restitution.--
     Paragraph (1) shall not apply to any amount which the 
     taxpayer establishes constitutes restitution for damage or 
     harm caused by the violation of any law or the potential 
     violation of any law. This paragraph shall not apply to any 
     amount paid or incurred as reimbursement to the government or 
     entity for the costs of any investigation or litigation.
       ``(3) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(4) Imposition of tax on excess fee transactions.--
       ``(A) In general.--There is hereby imposed on the 
     collecting attorney in each excess fee transaction a tax 
     equal to 5 percent of the excess fee.
       ``(B) Payment.--The tax imposed by subparagraph (A) shall 
     be paid by any collecting attorney referred to in paragraph 
     (10)(A) with respect to such transaction.
       ``(5) Penalty.--
       ``(A) In general.--In any case in which a tax is imposed by 
     paragraph (4) on an excess fee transaction and the excess fee 
     involved in such transaction is not corrected within the 
     taxable period, there is hereby imposed a penalty equal to 
     200 percent of the excess fee involved. The penalty imposed 
     by this paragraph shall be paid by any collecting attorney 
     referred to in paragraph (10)(A) with respect to such 
     transaction. The penalty imposed by this subsection shall be 
     treated in the same manner as a penalty imposed under 
     subchapter B of chapter 68.
       ``(B) Payment.--The penalty imposed under subparagraph (A) 
     shall be paid by any collecting attorney referred to in 
     paragraph (10)(A) with respect to such transaction.
       ``(6) Excess fee transaction.--For purposes of this 
     section--
       ``(A) In general.--The term `excess fee transaction' means 
     any transaction in which a fee is provided by an applicable 
     plaintiff (including payments resulting from litigation on 
     behalf of an applicable plaintiff determined on an hourly or 
     percentage basis, whether such fee is paid from the 
     applicable plaintiff's recovery, pursuant to a separately 
     negotiated agreement, or in any other manner), directly or 
     indirectly, to or for the use of any collecting attorney with 
     respect to such applicable plaintiff if the amount of the fee 
     provided exceeds the value of the services received in 
     exchange therefor or paragraph (11)(A) applies.
       ``(B) Determination of value.--For purposes of subparagraph 
     (A), in determining whether the amount of the fee provided 
     exceeds the value of the services received in exchange 
     therefor, the value of the services shall be the sum of--
       ``(i) the reasonable expenses incurred by the collecting 
     attorney in the course of the representation of the 
     applicable plaintiff, and
       ``(ii) a reasonable fee based on--

       ``(I) the number of hours of non-duplicative, professional 
     quality legal work provided by the collecting attorney of 
     material value to the outcome of the representation of the 
     applicable plaintiff, taking into account the factors 
     described in clauses (ii) and (iv) of paragraph (12)(B),
       ``(II) reasonable hourly rates for the individuals 
     performing such work based on hourly rates charged by other 
     attorneys for the rendition of comparable services, including 
     rates charged by adversary defense counsel in the 
     representation, taking into account the factors described in 
     clauses (i), (iii), (v), and (vii) of paragraph (12)(B), and
       ``(III) to the extent such items are not taken into account 
     in establishing the reasonable hourly rates under subclause 
     (II), an appropriate adjustment rate determined in accordance 
     with subparagraph (C) to compensate the collecting attorney 
     for periods of substantial risk of non-payment of fees and 
     for skillful or innovative services which increase the amount 
     of the applicable plaintiff's recovery.

       ``(iii) Fees in certain settlements.--For purposes of this 
     subparagraph, the value of services for any collecting 
     attorney receiving fees under the Master Settlement Agreement 
     shall be deemed to include a reasonable fee that is based on 
     a reasonable hourly rate (including appropriate adjustment 
     rates) of not less than $20,000 per hour
       ``(C) Adjustment rate.--
       ``(i) In general.--For purposes of this paragraph, an 
     appropriate adjustment rate is a percentage of the reasonable 
     hourly rate under subparagraph (B)(ii)(II) which is added to 
     the amount of such rate and which is not more than the sum of 
     one risk percentage and one skill percentage described in 
     clauses (ii) and (iii), respectively.
       ``(ii) Risk percentage.--For purposes of this subparagraph, 
     the term `risk percentage' means a percentage rate that is 
     proportional to the collecting attorney's risk of nonrecovery 
     of fees and which is--

       ``(I) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees, not more than 100 
     percent,
       ``(II) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees and devoted more than 
     8,000 hours of legal work (as described in subparagraph 
     (B)(ii)(I)) and more than 2 years to the case before 
     resolution of all claims, not more than 200 percent, or
       ``(III) in the case of a collecting attorney who assumed a 
     substantial risk of nonpayment of fees and devoted more than 
     15,000 hours of legal work (as described in subparagraph 
     (B)(ii)(I)) and more than 4 years to the case before 
     resolution of all claims, not more than 300 percent.

       ``(iii) Skill percentage.--For purposes of this 
     subparagraph, the term `skill percentage' means, in the case 
     of a collecting attorney who has demonstrated exceptionally 
     skillful or innovative legal service which generated a 
     recovery for the applicable plaintiff substantially greater 
     than the typical recovery in similar cases, a percentage rate 
     that is proportional to the increase in the applicable 
     plaintiff's recovery and that is not more than 100 percent.
       ``(iv) Limitation.--An appropriate adjustment rate shall 
     not increase the collecting attorney's fee above an amount 
     that is proportional to the applicable plaintiff's recovery.
       ``(D) Court approval of fees.--Fee payments approved by any 
     court shall be presumed to not be in excess of the value of 
     the services received in exchange therefor if the court 
     approving the fee--
       ``(i) did not approve an adjustment rate greater than that 
     determined to be appropriate under subparagraph (C) in a case 
     where such fee included an adjustment rate, and
       ``(ii) obtained and relied upon a report of a legal 
     auditing firm with respect to such fee in accordance with the 
     procedures in paragraph (12).
       ``(7) Excess fee.--For purposes of this section, the term 
     `excess fee' means the excess referred to in paragraph 
     (6)(A).
       ``(8) Joint and several liability.--For purposes of this 
     section, if more than 1 person is liable for any tax or 
     penalty imposed by paragraph (4), all such persons shall be 
     jointly and severally liable for such tax or penalty.
       ``(9) Applicable plaintiff.--For purposes of this section, 
     the term `applicable plaintiff' means any person represented 
     by a collecting attorney with respect to a claim described in 
     paragraph (10)(A).
       ``(10) Other definitions and rules.--For purposes of this 
     section--
       ``(A) Collecting attorney.--The term `collecting attorney' 
     means any person engaged in the practice of law who 
     represents--
       ``(i) any governmental entity, including any State, 
     municipality, or political subdivision of a State, or any 
     person acting on such entity's behalf, including pursuant to 
     Federal or State Qui Tam statutes, in a claim

[[Page 11628]]

     for recoupment of payments made or to be made by such entity 
     to or on behalf of any natural person by reason, directly or 
     indirectly, of a breach of duty that causes damage to such 
     natural person,
       ``(ii) any organization described in paragraph (3) or (4) 
     of section 501(c) and exempt from tax under section 501(a), 
     in a claim for damages based on a breach of duty, whether 
     civil or criminal, causing damage to such organization,
       ``(iii) any natural person seeking to recover damages in a 
     claim based on breaches of duty, whether civil or criminal, 
     causing damage to such natural person, or
       ``(iv) any assignee or other holder of claims described in 
     clause (i), (ii), or (iii),

     when 1 or more of such claims, whether or not joined in 1 
     action, involve the same or a coordinated group of 
     plaintiff's attorneys or similarly situated defendants, arise 
     out of the same transaction or set of facts or involve 
     substantially similar liability issues, and result in 
     settlements or judgments aggregating at least $100,000,000.
       ``(B) Taxable period.--The term `taxable period' means, 
     with respect to any excess fee transaction, the period 
     beginning with the date on which the transaction occurs and 
     ending 90 days after the earliest of--
       ``(i) the date of the mailing of a notice of deficiency 
     under section 6212 with respect to the tax imposed by 
     paragraph (4), or
       ``(ii) the date on which the tax imposed by paragraph (4) 
     is assessed.
       ``(C) Master settlement agreement.--The term `Master 
     Settlement Agreement' means that certain Master Settlement 
     Agreement of November 23, 1998, and other, concluded 
     Settlement Agreements based on State health care expenditures 
     pursuant to title XIX of the Social Security Act (42 U.S.C. 
     1396 et seq.), including lawsuits involving the States of 
     Florida, Minnesota, Mississippi, and Texas.
       ``(D) Correction.--
       ``(i) General rule.--Any excess fee transaction is 
     corrected by undoing the excess fee to the extent possible 
     and taking any additional measures necessary to place the 
     applicable plaintiff in a financial position not worse than 
     that in which such plaintiff would be if the collecting 
     attorney were dealing under the highest fiduciary standards.
       ``(ii) Payment of excess fees.--

       ``(I) In general.--Except as provided in subclause (II), a 
     collecting attorney corrects an excess fee transaction by 
     paying any excess fees plus interest to the applicable 
     plaintiff.
       ``(II) Certain settlements.--In the case of excess fees 
     arising from or related to the Master Settlement Agreement, 
     the collecting attorney corrects an excess fee transaction by 
     paying any excess fees plus interest to the Secretary of the 
     Treasury as trustee for the Master Settlement Agreement 
     Attorney Excess Fee Trust Fund. The Secretary shall 
     distribute 60 percent of any money paid into the Master 
     Settlement Agreement Attorney Excess Fee Trust Fund to the 50 
     States by regulations in proportion to each State's share of 
     the United States population.

       ``(iii) No waiver of fee.--No collecting attorney may avoid 
     imposition of any tax imposed under paragraph (4) by 
     transferring any portion of the excess fee or refusing to 
     accept any portion of the excess fee.
       ``(E) Limited reasonable cause.--For purposes of section 
     4962(a), an excess fee transaction shall not be treated as an 
     event which was due to reasonable cause if the amount of the 
     fee provided would exceed the value of the services received 
     in exchange therefor determined with the maximum adjustment 
     rate allowed under paragraph (6)(C).
       ``(11) Disclosure requirements.--
       ``(A) Treatment as excess fee.--Any fee provided after the 
     date of the enactment of this subsection by an applicable 
     plaintiff (including payments resulting from litigation on 
     behalf of an applicable plaintiff determined on an hourly or 
     percentage basis, whether such fee is paid from the 
     applicable plaintiff's recovery, pursuant to a separately 
     negotiated agreement, or in any other manner), directly or 
     indirectly, to or for the use of any collecting attorney with 
     respect to such applicable plaintiff shall be deemed to be an 
     excess fee provided in an excess fee transaction unless the 
     disclosure requirements described in subparagraph (B) are 
     met.
       ``(B) Contents of statement.--The disclosure requirements 
     of this paragraph are met for any taxable year in which a 
     collecting attorney receives any fees with respect to a claim 
     described in paragraph (10)(A), if such collecting attorney--
       ``(i) includes in the return of tax for such taxable year a 
     statement including the information described in paragraph 
     (6) with respect to such claim, and
       ``(ii) provides a statement including the information 
     described in paragraph (6) to the applicable plaintiff prior 
     to the deadline (including extensions) for filing such 
     return.
       ``(12) Legal auditing firm.--
       ``(A) In general.--In any case before a Federal district 
     court or a State court in which the court approves fees paid 
     to a collecting attorney, the court shall seek bids from 
     legal auditing firms with a specialty in reviewing attorney 
     billings and select 1 such legal auditing firm to review the 
     billing records submitted by the collecting attorney, under 
     the same standards the firm would use if it were hired by a 
     private party to review legal bills submitted to the party, 
     for the reasonableness of such attorney's billing patterns 
     and practices. The court shall require the collecting 
     attorney to submit billing records, cost records, and any 
     other information sought by such firm in its review.
       ``(B) Review by legal auditing firm.--In reviewing the 
     billing records and work performed by the collecting 
     attorney, the legal auditing firm shall address all relevant 
     matters, including--
       ``(i) the hourly rates of the collecting attorney compared 
     with the prevailing market rates for the services rendered by 
     the collecting attorney,
       ``(ii) the number of hours worked by the collecting 
     attorney on the case compared with other cases that the 
     collecting attorney worked on during the same period,
       ``(iii) whether the collecting attorney performed tasks 
     that could have been performed by attorneys with lower 
     billing rates,
       ``(iv) whether the collecting attorney used appropriate 
     billing methodology, including keeping contemporaneous time 
     records and using appropriate billing time increments,
       ``(v) whether particular tasks were staffed appropriately,
       ``(vi) whether the costs and expenses submitted by the 
     collecting attorney were reasonable,
       ``(vii) whether the collecting attorney exercised billing 
     judgment, and
       ``(viii) any other matters normally addressed by the legal 
     auditing firm when reviewing attorney billings for private 
     clients.
       ``(C) Filing of report; response; burden of proof.--The 
     court shall set a date for the filing of the report of the 
     legal auditing firm, and allow the collecting attorney or any 
     applicable plaintiff to respond to the report within a 
     reasonable time period. The report shall be presumed correct 
     unless rebutted by the collecting attorney or any applicable 
     plaintiff by clear and convincing evidence.
       ``(D) Fee for legal auditing firm.--The fee for the report 
     of the legal auditing firm shall be paid from the collecting 
     attorney's fee award, the applicable plaintiff's recovery, or 
     both in a manner determined by the court.
       ``(13) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     this section, including regulations to prevent avoidance of 
     the purposes of this section and regulations requiring 
     recordkeeping and information reporting.''.
       ``(14) Declaratory judgments relating to tax on excess fee 
     transactions.--
       ``(A) In general.--In a case of actual controversy 
     involving--
       ``(i) a determination by the Secretary or the collecting 
     attorney with respect to the imposition of the excise tax on 
     excess fee transactions on such collecting attorney under 
     paragraph (4), or
       ``(ii) a failure by the Secretary or the collecting 
     attorney to make such a determination,

     upon the filing of an appropriate pleading by an applicable 
     plaintiff, the Tax Court may make a declaration with respect 
     to such determination or failure. Any such declaration shall 
     have the force and effect of a decision of the Tax Court and 
     shall be reviewable as such.
       ``(B) Deferential review.--If a collecting attorney's fee 
     has been approved by a court in accordance with paragraph 
     (6)(D) or by the Secretary pursuant to this section, the Tax 
     Court shall review the fee only for an abuse of discretion.
       ``(C) Legal auditing firm.--In any petition for a 
     declaration referred to in subparagraph (A):
       ``(i) No previous report.--If a report by a legal auditing 
     firm that meets the requirements of paragraph (10) has not 
     been previously produced and relied on by another court, the 
     Tax Court shall hire such a legal auditing firm and rely on 
     its report pursuant to the procedures in paragraph (10).
       ``(ii) Second report.--

       ``(I) In general.--If a report by a legal auditing firm has 
     been approved by a court in accordance with this section, the 
     Tax Court shall hire a second legal auditing firm upon the 
     request of the petitioner.
       ``(II) Fee for report.--The Tax Court may direct the 
     petitioner to pay the fee for any report of a legal auditing 
     firm provided pursuant to subclause (I).

       ``(D) Time for bringing action.--No proceeding may be 
     initiated under this paragraph by any person until 90 days 
     after such person first notifies the Secretary of the excess 
     fee transaction with respect to which the proceeding 
     relates.''.
       (b) Conforming Amendments.--
       (A) Subsections (a), (b), and (c) of section 4963 are each 
     amended by inserting ``, or paragraph (4) of section 162(f)'' 
     before the period.
       (B) Subsection (e) of section 6213 is amended by inserting 
     ``, or paragraph (4) of section 162(f) (relating to excess 
     fee transactions),'' before the period.
       (C) Paragraphs (2) and (3) of section 7422(g) are each 
     amended by inserting ``162(f)(4),'' before ``4941''.
       (c) Effective Date.--

[[Page 11629]]

       (A) In general.-- Except as provided in subparagraph (B), 
     the amendments made by this section shall apply to amounts 
     paid or incurred after April 27, 2003, except that such 
     amendment shall not apply to amounts paid or incurred under 
     any binding order or agreement entered into on or before 
     April 27, 2003. Such exception shall not apply to an order or 
     agreement requiring court approval unless the approval was 
     obtained on or before April 27, 2003.
       (B) Excess fees.--
       (i) In general.--The amendments made by this section 
     relating to taxes and penalties on excess attorney fees shall 
     apply to excess fees paid after the date of enactment of this 
     Act.
                                 ______
                                 
  SA 576. Mr. DASCHLE submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V add the following:

     SEC. __. HEALTH CARE RESERVE FUND.

       (a) Reserve Fund.--There is hereby established in the 
     Treasury of the United States a reserve fund to address the 
     high costs of health care and the uninsured to which is 
     appropriated the revenues resulting from the application of 
     subsections (b) and (c).
       (b) Repeal of Partial Exclusion of Dividends.--Section 201 
     of this Act, and the amendments made by such section, are 
     repealed.
       (c) Elimination of Acceleration of Top Rate Reduction In 
     Individual Income Tax Rates.--Notwithstanding the amendment 
     made by section 102(a) of this Act, in lieu of the percent 
     specified in the last column of the table in paragraph (2) of 
     section 1(i) of the Internal Revenue Code of 1986, as amended 
     by such section 102(a), for taxable years beginning during 
     calendar years 2003, 2004, and 2005, the following 
     percentages shall be substituted for such years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
       (d) Effective Date.--The provisions of, and amendments made 
     by, this section shall apply to taxable years beginning after 
     December 31, 2002.
                                 ______
                                 
  SA 577. Ms. CANTWELL (for herself, Mr. Nelson, of Florida, Mr. 
Baucus, and Mrs. Boxer) submitted an amendment intended to be proposed 
by her to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; as follows:

       Strike title II and insert the following:

                       TITLE II--RESEARCH CREDIT

     SEC. 201. PERMANENT EXTENSION OF RESEARCH CREDIT.

       (a) In General.--Section 41 (relating to credit for 
     increasing research activities) is amended by striking 
     subsection (h).
       (b) Conforming Amendment.--Paragraph (1) of section 45C(b) 
     is amended by striking subparagraph (D).
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.

     SEC. 202. INCREASE IN RATES OF ALTERNATIVE INCREMENTAL 
                   CREDIT.

       (a) In General.--Subparagraph (A) of section 41(c)(4) 
     (relating to election of alternative incremental credit) is 
     amended--
       (1) by striking ``2.65 percent'' and inserting ``3 
     percent'',
       (2) by striking ``3.2 percent'' and inserting ``4 
     percent'', and
       (3) by striking ``3.75 percent'' and inserting ``5 
     percent''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 203. ALTERNATIVE SIMPLIFIED CREDIT FOR QUALIFIED 
                   RESEARCH EXPENSES.

       (a) In General.--Subsection (c) of section 41 (relating to 
     base amount) is amended by redesignating paragraphs (5) and 
     (6) as paragraphs (6) and (7), respectively, and by inserting 
     after paragraph (4) the following new paragraph:
       ``(5) Election of alternative simplified credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     12 percent of so much of the qualified research expenses for 
     the taxable year as exceeds 50 percent of the average 
     qualified research expenses for the 3 taxable years preceding 
     the taxable year for which the credit is being determined.
       ``(B) Special rule in case of no qualified research 
     expenses in any of 3 preceding taxable years.--
       ``(i) Taxpayers to which subparagraph applies.--The credit 
     under this paragraph shall be determined under this 
     subparagraph if the taxpayer has no qualified research 
     expenses in any 1 of the 3 taxable years preceding the 
     taxable year for which the credit is being determined.
       ``(ii) Credit rate.--The credit determined under this 
     subparagraph shall be equal to 6 percent of the qualified 
     research expenses for the taxable year.
       ``(C) Election.--An election under this paragraph shall 
     apply to the taxable year for which made and all succeeding 
     taxable years unless revoked with the consent of the 
     Secretary. An election under this paragraph may not be made 
     for any taxable year to which an election under paragraph (4) 
     applies.''.
       (b) Coordination With Election of Alternative Incremental 
     Credit.--
       (1) In general.--Section 41(c)(4)(B) (relating to election) 
     is amended by adding at the end the following: ``An election 
     under this paragraph may not be made for any taxable year to 
     which an election under paragraph (5) applies.''.
       (2) Transition rule.--In the case of an election under 
     section 41(c)(4) of the Internal Revenue Code of 1986 which 
     applies to the taxable year which includes the date of the 
     enactment of this Act, such election shall be treated as 
     revoked with the consent of the Secretary of the Treasury if 
     the taxpayer makes an election under section 41(c)(5) of such 
     Code (as added by subsection (a)) for such year.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 578. Mrs. LINCOLN (for herself, Mr. Rockefeller, Mr. Bingaman, Mr. 
Breaux, Mr. Daschle, Mr. Levin, Ms. Cantwell, Mr. Pryor, Mr. Kerry, Mr. 
Kennedy, and Mr. Dodd) proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       At the end of subtitle C of title V, insert the following:

     SEC. __. FURTHER EXPANSION OF CHILD TAX CREDIT REFUNDABILITY.

       (a) Expansion of Child Tax Credits.--
       (1) In general.--Clause (i) of section 24(d)(1)(B) 
     (relating to portion of credit refundable), as amended by 
     section 106(b) of this Act, is amended to read as follows:
       ``(i) the sum of--

       ``(I) 5 percent of so much of the taxpayer's earned income 
     (within the meaning of section 32) as is taken into account 
     in computing taxable income for the taxable year which 
     exceeds $5,000 and is less than $13,250, and
       ``(II) 15 percent of so much of the taxpayer's earned 
     income (within the meaning of section 32) as is taken into 
     account in computing taxable income for the taxable year 
     which is more than $13,250, or''.

       (2) Effective date.--The amendment made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2002.
       (3) Application of EGTRRA.--The amendment made by this 
     subsection shall be subject to title IX of the Economic 
     Growth and Tax Relief Reconciliation Act of 2001 to the same 
     extent and in the same manner as the provision of such Act to 
     which such amendment relates.
       (b) Delay of Dividend Exclusion.--Subparagraph (B) of 
     section 116(a)(2) (relating to partial exclusion of dividends 
     by individuals), as amended by section 201 of this Act, is 
     amended by striking ``2007'' and inserting ``2010''.
                                 ______
                                 
       SA 579. Ms. LANDRIEU (for herself, Mr. Corzine, and Mr. 
     Schumer) submitted an amendment intended to be proposed by 
     her to the bill S. 1054, to provide for reconciliation 
     pursuant to section 201 of the concurrent resolution on the 
     budget for fiscal year 2004; which was ordered to lie on the 
     table; as follows:

       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Jobs and 
     Growth Reconciliation Tax Relief Act of 2003''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; references; table of contents.

                        TITLE I--WAGE TAX RELIEF

Sec. 101. Refund of employee payroll taxes.
Sec. 102. Refund of employer payroll taxes on first $10,000 of wages 
              per employee.

                     TITLE II--ASSISTANCE TO STATES

Sec. 201. Temporary increase of medicaid FMAP.
Sec. 202. One-time revenue grant to States and local governments.
Sec. 203. Additional advance refundings of certain governmental bonds.

                   TITLE III--TAX RELIEF FOR FAMILIES

Sec. 301. Acceleration of increase in standard deduction for married 
              taxpayers filing joint returns.

[[Page 11630]]

Sec. 302. Acceleration of 15-percent individual income tax rate bracket 
              expansion for married taxpayers filing joint returns.
Sec. 303. Acceleration of increase in child tax credit
Sec. 304. Application of EGTRRA sunset to this title.

                   TITLE IV--TAX RELIEF FOR BUSINESS

Sec. 401. Increased expensing for small business.
Sec. 402. Small business tax credit for 50 percent of health premiums.
Sec. 403. Ready Reserve-National Guard employee credit added to general 
              business credit.
Sec. 404. Renewal community employers may qualify for employment credit 
              by employing residents of certain other renewal 
              communities.

                   TITLE V--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

Sec. 501. Extension of the Temporary Extended Unemployment Compensation 
              Act of 2002.
Sec. 502. Entitlement to additional weeks of temporary extended 
              unemployment compensation.

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

Sec. 511. Federal-State agreements.
Sec. 512. Payments to States having agreements under this title.
Sec. 513. Financing provisions.
Sec. 514. Definitions.
Sec. 515. Applicability.
Sec. 516. Coordination with the Temporary Extended Unemployment 
              Compensation Act of 2002.

              Subtitle C--Railroad Unemployment Insurance

Sec. 517. Temporary increase in extended unemployment benefits under 
              the Railroad Unemployment Insurance Act.

                       TITLE VI--OTHER PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 601. Clarification of economic substance doctrine.
Sec. 602. Penalty for failing to disclose reportable transaction.
Sec. 603. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 604. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 605. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 606. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 607. Disclosure of reportable transactions.
Sec. 608. Modifications to penalty for failure to register tax 
              shelters.
Sec. 609. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 610. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 611. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 612. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 613. Frivolous tax submissions.
Sec. 614. Penalty on promoters of tax shelters.
Sec. 615. Statute of limitations for taxable years for which listed 
              transactions not reported.
Sec. 616. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.

            Subtitle B--Enron-Related Tax Shelter Provisions

Sec. 621. Limitation on transfer or importation of built-in losses.
Sec. 622. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.
Sec. 623. Repeal of special rules for FASITS.
Sec. 624. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 625. Expanded authority to disallow tax benefits under section 
              269.
Sec. 626. Modifications of certain rules relating to controlled foreign 
              corporations.

      Subtitle C--Provisions to Discourage Corporate Expatriation

Sec. 631. Tax treatment of inverted corporate entities.
Sec. 632. Excise tax on stock compensation of insiders in inverted 
              corporations.
Sec. 633. Reinsurance of United States risks in foreign jurisdictions.

              Subtitle D--Imposition of Customs User Fees

Sec. 641. Customs user fees.

                           TITLE VII--SUNSET

Sec. 701. Sunset.

                        TITLE I--WAGE TAX RELIEF

     SEC. 101. REFUND OF EMPLOYEE PAYROLL TAXES.

       (a) Payment of Refunds.--
       (1) In general.--The Secretary of the Treasury shall pay, 
     out of any money in the Treasury not otherwise appropriated, 
     to each individual an amount equal to the lesser of--
       (A) $765, or
       (B) the amount of the individual's social security taxes 
     for 2001.
       (2) Payment in installments.--The Secretary of the Treasury 
     shall make the payment under paragraph (1) in two equal 
     installments--
       (A) the first of which shall be paid on the date which is 2 
     months after the date of the enactment of this Act, and
       (B) the second of which shall be paid on December 1, 2003.
     The Secretary may, after notice to the Senate and House of 
     Representatives, make adjustments in the timing of each 
     installment to the extent the adjustments are 
     administratively necessary.
       (3) No interest.--No interest shall be allowed on any 
     payment required by this subsection.
       (4) Certain individuals not eligible.--No payment shall be 
     made under this subsection to--
       (A) any estate or trust,
       (B) any nonresident alien, or
       (C) any individual with respect to whom a deduction under 
     section 151 of such Code is allowable to another taxpayer for 
     a taxable year beginning in 2001.
       (5) Social security taxes.--For purposes of this 
     subsection--
       (A) In general.--The term ``social security taxes'' has the 
     meaning given such term by section 24(d)(2) of the Internal 
     Revenue Code of 1986.
       (B) State and local employees not covered by social 
     security system.--In the case of any individual--
       (i) whose service is not treated as employment by reason of 
     section 3121(b)(7) of such Code (relating to exemption for 
     State and local employees), and
       (ii) who, without regard to this subparagraph, has no 
     social security taxes for 2001,
     the term ``social security taxes'' shall include the 
     individual's employee contributions to a governmental pension 
     plan by reason of the service described in clause (i).
       (b) 2002 Refund for Individuals Not Receiving Full 2001 
     Refund.--Subchapter B of chapter 65 (relating to abatements, 
     credits, and refunds) is amended by adding at the end the 
     following new section:

     ``SEC. 6429. REFUND OF CERTAIN 2002 PAYROLL TAXES.

       ``(a) In General.--Each eligible individual shall be 
     treated as having made a payment against the tax imposed by 
     chapter 1 for such individual's first taxable year beginning 
     in 2002 in an amount equal to the payroll tax refund amount 
     for such taxable year.
       ``(b) Payroll Tax Refund Amount.--For purposes of 
     subsection (a), the payroll tax refund amount is the excess 
     (if any) of--
       ``(1) the lesser of--
       ``(A) $765, or
       ``(B) the amount of the individual's social security taxes 
     for 2002, over
       ``(2) the amount of the payment to the individual under 
     section 101(a) of the Jobs and Growth Reconciliation Tax 
     Relief Act of 2003.
       ``(c) Eligible Individual.--For purposes of this section, 
     the term `eligible individual' means any individual other 
     than--
       ``(1) any estate or trust,
       ``(2) any nonresident alien, or
       ``(3) any individual with respect to whom a deduction under 
     section 151 is allowable to another taxpayer for a taxable 
     year beginning in 2002.
       ``(d) Timing of Payments.--In the case of any overpayment 
     attributable to this section, the Secretary shall, subject to 
     the provisions of this title, refund or credit such 
     overpayment as rapidly as possible and, to the extent 
     practicable, before December 31, 2003.
       ``(e) No Interest.--No interest shall be allowed on any 
     overpayment attributable to this section.
       ``(f) Social Security Taxes.--For purposes of this section, 
     the term `social security taxes' has the meaning given such 
     term by section 101(a)(5) of the Jobs and Growth 
     Reconciliation Tax Relief Act of 2003.''
       (c) Clerical Amendment.--The table of sections for 
     subchapter B of chapter 65 of such Code is amended by adding 
     at the end the following new item:

``Sec. 6429. Refund of certain 2002 payroll taxes.''

     SEC. 102. REFUND OF EMPLOYER PAYROLL TAXES ON FIRST $10,000 
                   OF WAGES PER EMPLOYEE.

       (a) In General.--Subchapter B of chapter 65 (relating to 
     abatements, credits, and refunds), as amended by section 101, 
     is amended by adding at the end the following:

     ``SEC. 6430. REFUND OF EMPLOYER PAYROLL TAXES ON FIRST 
                   $10,000 OF WAGES OF AN EMPLOYEE.

       ``(a) General Rule.--Each employer subject to tax under 
     section 3111 or 3221(a) with respect to employment during the 
     payroll

[[Page 11631]]

     tax holiday period shall be treated as having made a payment 
     against the tax imposed by chapter 1 for each taxable year 
     which includes any portion of such period in an amount equal 
     to the sum of the payroll tax refund amounts determined for 
     all employees of the employer for such taxable year.
       ``(b) Payroll Tax Refund Amount.--For purposes of this 
     section, the term `payroll tax refund amount' means, with 
     respect to any employee for any taxable year of an employer, 
     the excess (if any) of--
       ``(1) the lesser of--
       ``(A) $765, or
       ``(B) the amount of the employer's social security taxes 
     paid or incurred with respect to employment of the employee 
     during any portion of the payroll tax holiday period within 
     the taxable year, over
       ``(2) the amount treated as paid by the employer under this 
     section with respect to the employee for any preceding 
     taxable year.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Payroll tax holiday period.--The term `payroll tax 
     holiday period' means the 12-month period beginning with the 
     first month following the date of the enactment of this 
     section. The Secretary may, after notice to the Senate and 
     House of Representatives, delay the beginning of such period 
     if the Secretary determines such delay is administratively 
     necessary to provide adequate notice of the provisions of 
     this section to employers and employees.
       ``(2) Employer payroll taxes.--
       ``(A) In general.--The term `employer payroll taxes' means 
     the taxes imposed by sections 3111 and 3221(a).
       ``(B) Special rule.--A rule similar to the rule of section 
     24(d)(2)(C) shall apply for purposes of subparagraph (A).
       ``(3) Employment.--The term `employment' includes services 
     subject to tax under chapter 22 (relating to railroad 
     retirement taxes).
       ``(d) Special Rules.--For purposes of this section--
       ``(1) Common control.--All employers treated as a single 
     employer under subsection (a) or (b) of section 52 shall be 
     treated as a single employer for purposes of this section.
       ``(2) Trade or business requirement.--This section shall 
     not apply to employer payroll taxes paid with respect to an 
     employee unless more than one-half of the employee's 
     remuneration is for services performed in a trade or business 
     of the employer. Any determination under this subparagraph 
     shall be made without regard to subsections (a) and (b) of 
     section 52.''
       (b) Conforming Amendment.--The table of sections for 
     subchapter B of chapter 65 is amended by adding at the end 
     the following new item:

``Sec. 6430. Refund of employer payroll taxes on first $10,000 of wages 
              of an employee.''

                     TITLE II--ASSISTANCE TO STATES

     SEC. 201. TEMPORARY INCREASE OF MEDICAID FMAP.

       (a) Permitting Maintenance of Fiscal Year 2002 FMAP for 
     Last 2 Calendar Quarters of Fiscal Year 2003.--
     Notwithstanding any other provision of law, but subject to 
     subsection (e), if the FMAP determined without regard to this 
     section for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this section.
       (b) Permitting Maintenance of Fiscal Year 2003 FMAP for 
     Fiscal Year 2004.--Notwithstanding any other provision of 
     law, but subject to subsection (e), if the FMAP determined 
     without regard to this section for a State for fiscal year 
     2004 is less than the FMAP as so determined for fiscal year 
     2003, the FMAP for the State for fiscal year 2003 shall be 
     substituted for the State's FMAP for each calendar quarter of 
     fiscal year 2004, before the application of this section.
       (c) General 2.45 Percentage Points Increase for Last 2 
     Calendar Quarters of Fiscal Year 2003 and Fiscal Year 2004.--
     Notwithstanding any other provision of law, but subject to 
     subsections (e) and (f), for each State for the third and 
     fourth calendar quarters of fiscal year 2003 and each 
     calendar quarter of fiscal year 2004, the FMAP (taking into 
     account the application of subsections (a) and (b)) shall be 
     increased by 2.45 percentage points.
       (d) Increase in Cap on Medicaid Payments To Territories.--
     Notwithstanding any other provision of law, but subject to 
     subsection (f), with respect to the third and fourth calendar 
     quarters of fiscal year 2003 and each calendar quarter of 
     fiscal year 2004, the amounts otherwise determined for Puerto 
     Rico, the Virgin Islands, Guam, the Northern Mariana Islands, 
     and American Samoa under subsections (f) and (g) of section 
     1108 of the Social Security Act (42 U.S.C. 1308) shall each 
     be increased by an amount equal to 4.90 percent of such 
     amounts.
       (e) Scope of Application.--The increases in the FMAP for a 
     State under this section shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (1) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4); or
       (2) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.).
       (f) State Eligibility.--
       (1) In general.--Subject to paragraph (2), a State is 
     eligible for an increase in its FMAP under subsection (c) or 
     an increase in a cap amount under subsection (d) only if the 
     eligibility under its State plan under title XIX of the 
     Social Security Act (including any waiver under such title or 
     under section 1115 of such Act (42 U.S.C. 1315)) is no more 
     restrictive than the eligibility under such plan (or waiver) 
     as in effect on September 2, 2003.
       (2) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after September 2, 2003, but prior to the date of 
     enactment of this Act is eligible for an increase in its FMAP 
     under subsection (c) or an increase in a cap amount under 
     subsection (d) in the first calendar quarter (and subsequent 
     calendar quarters) in which the State has reinstated 
     eligibility that is no more restrictive than the eligibility 
     under such plan (or waiver) as in effect on September 2, 
     2003.
       (3) Rule of construction.--Nothing in paragraph (1) or (2) 
     shall be construed as affecting a State's flexibility with 
     respect to benefits offered under the State medicaid program 
     under title XIX of the Social Security Act (42 U.S.C. 1396 et 
     seq.) (including any waiver under such title or under section 
     1115 of such Act (42 U.S.C. 1315)).
       (g) Definitions.--In this section:
       (1) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (2) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (h) Repeal.--Effective as of October 1, 2004, this section 
     is repealed.

     SEC. 202. ONE-TIME REVENUE GRANT TO STATES AND LOCAL 
                   GOVERNMENTS.

       (a) Appropriation.--There is authorized to be appropriated 
     and is appropriated to carry out this section $30,000,000,000 
     for fiscal year 2003.
       (b) Payments to States.--
       (1) In general.--From the amount appropriated under 
     subsection (a) for fiscal year 2003, the Secretary of the 
     Treasury shall, as soon as practicable after the date of the 
     enactment of this Act, pay with respect to a State, the sum 
     of the amounts determined for the State under paragraphs (2), 
     (3), and (4).
       (2) Funding to meet the requirements of the no child left 
     behind act.--$7,500,000,000 shall be paid to States in the 
     same manner as allocations are made with respect to States 
     under section 1122 of the Elementary and Secondary Education 
     Act of 1965 (20 U.S.C. 6332).
       (3) Funding for child care for low-income families.--
     $3,000,000,000 shall be paid to States in the same manner as 
     allocations are made with respect to States under section 
     658O of the Child Care and Development Block Grant Act of 
     1990 (42 U.S.C. 9858m).
       (4) Funding for other state priorities.--
       (A) 50 percent based on population.--$4,875,000,000 shall 
     be allotted among such States on the basis of the relative 
     population of each such State, as determined by the Secretary 
     on the basis of the most recent satisfactory data.
       (B) 50 percent based on change in unemployment rate.--
       (i) Tier 1.--$1,220,000,000 shall be allotted among such 
     States which have experienced a tier 1 unemployment rate on 
     the basis of the relative number of unemployed individuals 
     for calendar year 2002 in each such State, as determined by 
     the Secretary on the basis of the most recent satisfactory 
     data.
       (ii) Tier 2.--$3,655,000,000 shall be allotted among such 
     States which have experienced a tier 2 unemployment rate on 
     the basis of the relative number of unemployed individuals 
     for calendar year 2002 in each such State, as determined by 
     the Secretary on the basis of the most recent satisfactory 
     data.
       (C) Guidelines for Use of Funds.--It is the sense of 
     Congress that States should use funds paid under this 
     paragraph for homeland security, public health, highway 
     construction, and the prevention of additional property and 
     other tax increases.
       (c) Payments to Units of General Local Government.--
       (1) In general.--From the amount appropriated under 
     subsection (a) for fiscal year 2003, the Secretary of the 
     Treasury shall, as soon as practicable after the date of the 
     enactment of this Act, pay with respect to a unit of general 
     local government, the sum of the amounts determined for the 
     unit of general local government under paragraphs (2) and 
     (3).
       (2) Percent based on population.--$4,875,000,000 shall be 
     allotted among such States as determined under subsection 
     (b)(4)(A) for distribution to the various units of general 
     local government within such States on the basis of the 
     relative population of each such unit within each such State, 
     as determined by the Secretary on the basis of the most 
     recent satisfactory data.

[[Page 11632]]

       (3) 50 percent based on change in unemployment rate.--
       (i) Tier 1.--$1,220,000,000 shall be allotted among such 
     States which have experienced a tier 1 unemployment rate as 
     determined under subsection (b)(4)(B)(i) for distribution to 
     the various units of general local government within such 
     States on the basis of the relative number of unemployed 
     individuals for calendar year 2002 in each such unit within 
     each such State, as determined by the Secretary on the basis 
     of the most recent satisfactory data.
       (ii) Tier 2.--$3,655,000,000 shall be allotted among such 
     States which have experienced a tier 2 unemployment rate as 
     determined under subsection (b)(4)(B)(ii) for distribution to 
     the various units of general local government within such 
     States on the basis of the relative number of unemployed 
     individuals for calendar year 2002 in each such unit within 
     each such State, as determined by the Secretary on the basis 
     of the most recent satisfactory data.
       (4) Guidelines for Use of Funds.--It is the sense of 
     Congress that units of general local government should use 
     funds paid in accordance with this subsection for homeland 
     security, public health, highway construction, and the 
     prevention of additional property and other tax increases.
       (d) Definitions.--For purposes of this section--
       (1) State.--The term ``State'' means any of the several 
     States, the District of Columbia, and the Commonwealth of 
     Puerto Rico.
       (2) Unit of general local government.--
       (A) In general.--The term ``unit of general local 
     government'' means--
       (i) a county, parish, township, city, or political 
     subdivision of a county, parish, township, or city, that is a 
     unit of general local government as determined by the 
     Secretary of Commerce for general statistical purposes; and
       (ii) the District of Columbia, the Commonwealth of Puerto 
     Rico, and the recognized governing body of an Indian tribe or 
     Alaskan native village that carries out substantial 
     governmental duties and powers.
       (B) Treatment of subsumed areas.--For purposes of 
     determining a unit of general local government under this 
     section, the rules under section 6720(c) of title 31, United 
     States Code, shall apply.
       (3) Unemployment.--With respect to any State or unit of 
     general local government--
       (A) Tier 1 unemployment rate.--The term ``tier 1 
     unemployment rate'' means an unemployment rate for calendar 
     year 2002 which was at least .4 but not more than 1.0 
     percentage point greater than such rate for calendar year 
     2000.
       (B) Tier 2 unemployment rate.--The term ``tier 2 
     unemployment rate'' means an unemployment rate for calendar 
     year 2002 which was more than 1.0 percentage point greater 
     than such rate for calendar year 2000.

     SEC. 203. ADDITIONAL ADVANCE REFUNDINGS OF CERTAIN 
                   GOVERNMENTAL BONDS.

       (a) In General.--Section 149(d)(3)(A)(i) (relating to 
     advance refundings of other bonds) is amended--
       (1) by striking ``or'' at the end of subclause (I),
       (2) by adding ``or'' at the end of subclause (II), and
       (3) by inserting after subclause (II) the following:

       ``(III) the 2nd advance refunding of the original bond if 
     the original bond was issued after 1985 or the 3rd advance 
     refunding of the original bond if the original bond was 
     issued before 1986, if, in either case, the refunding bond is 
     issued before the date which is 2 years after the date of the 
     enactment of this subclause and the original bond was issued 
     as part of an issue 90 percent or more of the net proceeds of 
     which were used to finance governmental facilities used for 1 
     or more essential governmental functions (within the meaning 
     of section 141(c)(2)),''.

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

                   TITLE III--TAX RELIEF FOR FAMILIES

     SEC. 301. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR 
                   MARRIED TAXPAYERS FILING JOINT RETURNS.

       (a) In General.--Paragraph (2) of section 63(c) (relating 
     to basic standard deduction) is amended to read as follows:
       ``(2) Basic standard deduction.--For purposes of paragraph 
     (1), the basic standard deduction is--
       ``(A) 200 percent of the dollar amount in effect under 
     subparagraph (C) for the taxable year in the case of--
       ``(i) a joint return, or
       ``(ii) a surviving spouse (as defined in section 2(a)),
       ``(B) $4,400 in the case of a head of household (as defined 
     in section 2(b)), or
       ``(C) $3,000 in any other case.''.
       (b) Conforming Amendments.--
       (1) Section 63(c)(4) is amended by striking ``(2)(D)'' each 
     place it occurs and inserting ``(2)(C)''.
       (2) Section 63(c) is amended by striking paragraph (7).
       (3) Section 301(d) of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is amended by striking ``2004'' 
     and inserting ``2002''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 302. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX 
                   RATE BRACKET EXPANSION FOR MARRIED TAXPAYERS 
                   FILING JOINT RETURNS.

       (a) In General.--Paragraph (8) of section 1(f) (relating to 
     phaseout of marriage penalty in 15-percent bracket) is 
     amended to read as follows:
       ``(8) Elimination of marriage penalty in 15-percent 
     bracket.--With respect to taxable years beginning after 
     December 31, 2002, in prescribing the tables under paragraph 
     (1)--
       ``(A) the maximum taxable income in the 15 percent rate 
     bracket in the table contained in subsection (a) (and the 
     minimum taxable income in the next higher taxable income 
     bracket in such table) shall be 200 percent of the maximum 
     taxable income in the 15-percent rate bracket in the table 
     contained in subsection (c) (after any other adjustment under 
     this subsection), and
       ``(B) the comparable taxable income amounts in the table 
     contained in subsection (d) shall be \1/2\ of the amounts 
     determined under subparagraph (A).''.
       (b) Conforming Amendments.--
       (1) The heading for subsection (f) of section 1 is amended 
     by striking ``Phaseout'' and inserting ``Elimination''.
       (2) Section 302(c) of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is amended by striking ``2004'' 
     and inserting ``2002''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 303. ACCELERATION OF INCREASE IN CHILD TAX CREDIT

       (a) In General.--The table contained in section 24(a)(2) 
     (relating to per child amount) is amended to read as follows:

  The per child amount is--e year beginning in--
  2003, 2004, or 2005........................................  800 ....

  2006 or thereafter......................................1,000.''.....

       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 304. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.

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

                   TITLE IV--TAX RELIEF FOR BUSINESS

     SEC. 401. INCREASED EXPENSING FOR SMALL BUSINESS.

       (a) In General.--Paragraph (1) of section 179(b) (relating 
     to dollar limitation) is amended to read as follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed $25,000 ($100,000 in the case of taxable 
     years beginning after 2002 and before 2008).''.
       (b) Increase in Qualifying Investment at Which Phaseout 
     Begins.--Paragraph (2) of section 179(b) (relating to 
     reduction in limitation) is amended by inserting ``($400,000 
     in the case of taxable years beginning after 2002 and before 
     2008)'' after ``$200,000''.
       (c) Off-the-Shelf Computer Software.--Paragraph (1) of 
     section 179(d) (defining section 179 property) is amended to 
     read as follows:
       ``(1) Section 179 property.--For purposes of this section, 
     the term `section 179 property' means property--
       ``(A) which is--
       ``(i) tangible property (to which section 168 applies), or
       ``(ii) computer software (as defined in section 
     197(e)(3)(B)) which is described in section 197(e)(3)(A)(i), 
     to which section 167 applies, and which is placed in service 
     in a taxable year beginning after 2002 and before 2008,
       ``(B) which is section 1245 property (as defined in section 
     1245(a)(3)), and
       ``(C) which is acquired by purchase for use in the active 
     conduct of a trade or business.
     Such term shall not include any property described in section 
     50(b) and shall not include air conditioning or heating 
     units.''.
       (d) Adjustment of Dollar Limit and Phaseout Threshold for 
     Inflation.--Subsection (b) of section 179 (relating to 
     limitations) is amended by adding at the end the following 
     new paragraph:
       ``(5) Inflation adjustments.--
       ``(A) In general.--In the case of any taxable year 
     beginning in a calendar year after 2003 and before 2008, the 
     $100,000 and $400,000 amounts in paragraphs (1) and (2) shall 
     each be increased by an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, by substituting `calendar year 2002' for 
     `calendar year 1992' in subparagraph (B) thereof.
       ``(B) Rounding.--
       ``(i) Dollar limitation.--If the amount in paragraph (1) as 
     increased under subparagraph (A) is not a multiple of $1,000, 
     such amount shall be rounded to the nearest multiple of 
     $1,000.

[[Page 11633]]

       ``(ii) Phaseout amount.--If the amount in paragraph (2) as 
     increased under subparagraph (A) is not a multiple of 
     $10,000, such amount shall be rounded to the nearest multiple 
     of $10,000.''.
       (e) Revocation of Election.--Paragraph (2) of section 
     179(c) (relating to election irrevocable) is amended to read 
     as follows:
       ``(2) Revocation of election.--An election under paragraph 
     (1) with respect to any taxable year beginning after 2002 and 
     before 2008, and any specification contained in any such 
     election, may be revoked by the taxpayer with respect to any 
     property. Such revocation, once made, shall be 
     irrevocable.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 402. SMALL BUSINESS TAX CREDIT FOR 50 PERCENT OF HEALTH 
                   PREMIUMS.

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

     ``SEC. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of a qualified small employer, the employee health 
     insurance expenses credit determined under this section is an 
     amount equal to the applicable percentage of the amount paid 
     by the taxpayer during the taxable year for qualified 
     employee health insurance expenses.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage is equal to--
       ``(1) 50 percent in the case of an employer with less than 
     26 qualified employees,
       ``(2) 40 percent in the case of an employer with more than 
     25 but less than 36 qualified employees, and
       ``(3) 30 percent in the case of an employer with more than 
     35 but less than 51 qualified employees.
       ``(c) Per Employee Dollar Limitation.--The amount of 
     qualified employee health insurance expenses taken into 
     account under subsection (a) with respect to any qualified 
     employee for any taxable year shall not exceed the maximum 
     employer contribution for self-only coverage or family 
     coverage (as applicable) determined under section 8906(a) of 
     title 5, United States Code, for the calendar year in which 
     such taxable year begins.
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified small employer.--
       ``(A) In general.--The term `qualified small employer' 
     means any small employer which provides eligibility for 
     health insurance coverage (after any waiting period (as 
     defined in section 9801(b)(4)) to all qualified employees of 
     the employer.
       ``(B) Small employer.--
       ``(i) In general.--For purposes of this paragraph, the term 
     `small employer' means, with respect to any calendar year, 
     any employer if such employer employed an average of not less 
     than 2 and not more than 50 qualified employees on business 
     days during either of the 2 preceding calendar years. For 
     purposes of the preceding sentence, a preceding calendar year 
     may be taken into account only if the employer was in 
     existence throughout such year.
       ``(ii) Employers not in existence in preceding year.--In 
     the case of an employer which was not in existence throughout 
     the 1st preceding calendar year, the determination under 
     clause (i) shall be based on the average number of qualified 
     employees that it is reasonably expected such employer will 
     employ on business days in the current calendar year.
       ``(2) Qualified employee health insurance expenses.--
       ``(A) In general.--The term `qualified employee health 
     insurance expenses' means any amount paid by an employer for 
     health insurance coverage to the extent such amount is 
     attributable to coverage provided to any employee while such 
     employee is a qualified employee.
       ``(B) Exception for amounts paid under salary reduction 
     arrangements.--No amount paid or incurred for health 
     insurance coverage pursuant to a salary reduction arrangement 
     shall be taken into account under subparagraph (A).
       ``(C) Health insurance coverage.--The term `health 
     insurance coverage' has the meaning given such term by 
     paragraph (1) of section 9832(b) (determined by disregarding 
     the last sentence of paragraph (2) of such section).
       ``(3) Qualified employee.--The term `qualified employee' 
     means an employee of an employer who, with respect to any 
     period, is not provided health insurance coverage under--
       ``(A) a health plan of the employee's spouse,
       ``(B) title XVIII, XIX, or XXI of the Social Security Act,
       ``(C) chapter 17 of title 38, United States Code,
       ``(D) chapter 55 of title 10, United States Code,
       ``(E) chapter 89 of title 5, United States Code, or
       ``(F) any other provision of law.
       ``(4) Employee--The term `employee'--
       ``(A) means any individual, with respect to any calendar 
     year, who is reasonably expected to receive at least $5,000 
     of compensation from the employer during such year,
       ``(B) does not include an employee within the meaning of 
     section 401(c)(1), and
       ``(C) includes a leased employee within the meaning of 
     section 414(n).
       ``(5) Compensation.--The term `compensation' means amounts 
     described in section 6051(a)(3).
       ``(e) Certain Rules Made Applicable.--For purposes of this 
     section, rules similar to the rules of section 52 shall 
     apply.
       ``(f) Denial of Double Benefit.--No deduction or credit 
     under any other provision of this chapter shall be allowed 
     with respect to qualified employee health insurance expenses 
     taken into account under subsection (a).
       ``(g) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 2003.''.
       (b) Credit To Be Part of General Business Credit.--Section 
     38(b) (relating to current year business credit) is amended 
     by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following:
       ``(16) the employee health insurance expenses credit 
     determined under section 45G.''.
       (c) Credit Allowed Against Minimum Tax.--
       (1) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Special rules for employee health insurance credit.--
       ``(A) In general.--In the case of the employee health 
     insurance credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) the amounts in subparagraphs (A) and (B) thereof 
     shall be treated as being zero, and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the employee 
     health insurance credit).

       ``(B) Employee health insurance credit.--For purposes of 
     this subsection, the term `employee health insurance credit' 
     means the credit allowable under subsection (a) by reason of 
     section 45G(a).''.
       (2) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) is amended by striking ``(other'' and all 
     that follows through ``credit)'' and inserting ``(other than 
     the empowerment zone employment credit or the employee health 
     insurance credit)''.
       (d) No Carrybacks.--Subsection (d) of section 39 (relating 
     to carryback and carryforward of unused credits) is amended 
     by adding at the end the following:
       ``(11) No carryback of section 45g credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the employee health 
     insurance expenses credit determined under section 45G may be 
     carried back to a taxable year ending before the date of the 
     enactment of section 45G.''.
       (e) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following:

``Sec. 45G. Employee health insurance expenses.''.
       (f) Employer Outreach.--The Internal Revenue Service shall, 
     in conjunction with the Small Business Administration, 
     develop materials and implement an educational program to 
     ensure that business personnel are aware of--
       (1) the eligibility criteria for the tax credit provided 
     under section 45G of the Internal Revenue Code of 1986 (as 
     added by this section),
       (2) the methods to be used in calculating such credit,
       (3) the documentation needed in order to claim such credit, 
     and
       (4) any available health plan purchasing alliances 
     established under title II,
     so that the maximum number of eligible businesses may claim 
     the tax credit.
       (g) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 2002.

     SEC. 403. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT ADDED 
                   TO GENERAL BUSINESS CREDIT.

       (a) Ready Reserve-National Guard Credit.--Subpart D of part 
     IV of subchapter A of chapter 1 (relating to business-related 
     credits), as amended by section 402, is amended by adding at 
     the end the following:

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

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year is an amount equal to 50 percent 
     of the actual compensation amount for such taxable year.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day

[[Page 11634]]

     during a taxable year when the employee was absent from 
     employment for the purpose of performing qualified active 
     duty.
       ``(c) Limitations.--
       ``(1) Maximum period for credit per employee.--The maximum 
     period with respect to which the credit may be allowed with 
     respect to any Ready Reserve-National Guard employee shall 
     not exceed the 12-month period beginning on the first day 
     such credit is so allowed with respect to such employee.
       ``(2) Days other than work days.--No credit shall be 
     allowed with respect to a Ready Reserve-National Guard 
     employee who performs qualified active duty on any day on 
     which the employee was not scheduled to work (for reason 
     other than to participate in qualified active duty).
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave of absence from 
     employment under chapter 43 of title 38, United States Code, 
     and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve or of the National Guard.
       ``(4) National guard.--The term `National Guard' has the 
     meaning given such term by section 101(c)(1) of title 10, 
     United States Code.
       ``(5) Ready reserve.--The term `Ready Reserve' has the 
     meaning given such term by section 10142 of title 10, United 
     States Code.''.
       (b) Credit To Be Part of General Business Credit.--
     Subsection (b) of section 38 (relating to general business 
     credit), as amended by section 403, is amended by striking 
     ``plus'' at the end of paragraph (15), by striking the period 
     at the end of paragraph (16) and inserting ``, plus'', and by 
     adding at the end the following:
       ``(17) the Ready Reserve-National Guard employee credit 
     determined under section 45H(a).''.
       (c) Conforming Amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1, as amended 
     by section 403, is amended by adding at the end the 
     following:

``Sec. 45H. Ready Reserve-National Guard employee credit.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 404. RENEWAL COMMUNITY EMPLOYERS MAY QUALIFY FOR 
                   EMPLOYMENT CREDIT BY EMPLOYING RESIDENTS OF 
                   CERTAIN OTHER RENEWAL COMMUNITIES.

       (a) In General.--Section 1400H(b)(2) (relating to 
     modification) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) subsection (d)(1)(B) thereof shall be applied by 
     substituting `such renewal community, an adjacent renewal 
     community within the same State as such renewal community, or 
     a renewal community within such State which is within 5 miles 
     of any border of such renewal community' for `such 
     empowerment zone'.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the amendment made by 
     section 101(a) of the Community Renewal Tax Relief Act of 
     2000.

                   TITLE V--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

     SEC. 501. EXTENSION OF THE TEMPORARY EXTENDED UNEMPLOYMENT 
                   COMPENSATION ACT OF 2002.

       (a) In General.--Section 208 of the Temporary Extended 
     Unemployment Compensation Act of 2002 (Public Law 107-147; 
     116 Stat. 30), as amended by Public Law 108-1 (117 Stat. 3), 
     is amended--
       (1) in subsection (a)(2), by striking ``before June 1'' and 
     inserting ``on or before November 30'';
       (2) in subsection (b)(1), by striking ``May 31, 2003'' and 
     inserting ``November 30, 2003'';
       (3) in subsection (b)(2)--
       (A) in the heading, by striking ``may 31, 2003'' and 
     inserting ``november 30, 2003''; and
       (B) by striking ``May 31, 2003'' and inserting ``November 
     30, 2003''; and
       (4) in subsection (b)(3), by striking ``August 30, 2003'' 
     and inserting ``February 28, 2004''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 21).

     SEC. 502. ENTITLEMENT TO ADDITIONAL WEEKS OF TEMPORARY 
                   EXTENDED UNEMPLOYMENT COMPENSATION.

       (a) Entitlement to Additional Weeks.--
       (1) In general.--Paragraph (1) of section 203(b) of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 28) is amended--
       (A) in subparagraph (A), by striking ``50 percent'' and 
     inserting ``100 percent''; and
       (B) in subparagraph (B), by striking ``13 times'' and 
     inserting ``26 times''.
       (2) Repeal of restriction on augmentation during 
     transitional period.--Section 208(b) of the Temporary 
     Extended Unemployment Compensation Act of 2002 (Public Law 
     107-147), as amended by Public Law 108-1 (117 Stat. 3) and 
     section 301(a), is amended--
       (A) in paragraph (1)--
       (i) by striking ``paragraphs (2) and (3)'' and inserting 
     ``paragraph (2)''; and
       (ii) by inserting before the period at the end the 
     following: ``, including such compensation payable by reason 
     of amounts deposited in such account after such date pursuant 
     to the application of subsection (c) of such section'';
       (B) by striking paragraph (2); and
       (C) by redesignating paragraph (3) as paragraph (2).
       (3) Extension of transition limitation.--Section 208(b)(2) 
     of the Temporary Extended Unemployment Compensation Act of 
     2002 (Public Law 107-147), as amended by Public Law 108-1 
     (117 Stat. 3) and section 301(a)(4) and as redesignated by 
     paragraph (2), is amended by striking ``February 28, 2004'' 
     and inserting ``May 29, 2004''.
       (4) Conforming amendment for augmented benefits.--Section 
     203(c)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended by 
     striking ``the amount originally established in such account 
     (as determined under subsection (b)(1))'' and inserting ``7 
     times the individual's average weekly benefit amount for the 
     benefit year''.
       (b) Effective Date and Application.--
       (1) In general.--The amendments made by subsection (a) 
     shall apply with respect to weeks of unemployment beginning 
     on or after the date of enactment this Act.
       (2) TEUC-X amounts deposited in account prior to date of 
     enactment deemed to be the additional teuc amounts provided 
     by this section.--In applying the amendments made by 
     subsection (a) under the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 26), 
     the Secretary of Labor shall deem any amounts deposited into 
     an individual's temporary extended unemployment compensation 
     account by reason of section 203(c) of such Act (commonly 
     known as ``TEUC-X amounts'') prior to the date of enactment 
     of this Act to be amounts deposited in such account by reason 
     of section 203(b) of such Act, as amended by subsection (a) 
     (commonly known as ``TEUC amounts'').
       (3) Application to exhaustees and current beneficiaries.--
       (A) Exhaustees.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) who exhausted such individual's rights to such 
     compensation (by reason of the payment of all amounts in such 
     individual's temporary extended unemployment compensation 
     account) before such date,

     such individual's eligibility for any additional weeks of 
     temporary extended unemployment compensation by reason of the 
     amendments made by subsection (a) shall apply with respect to 
     weeks of unemployment beginning on or after the date of 
     enactment of this Act.
       (B) Current beneficiaries.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) as to whom the condition described in subparagraph 
     (A)(ii) does not apply,
     such individual shall be eligible for temporary extended 
     unemployment compensation (in accordance with the provisions 
     of the Temporary Extended Unemployment Compensation Act of 
     2002, as amended by subsection (a)) with respect to weeks of 
     unemployment beginning on or after the date of enactment of 
     this Act.
       (4) Redetermination of eligibility for augmented amounts 
     for individuals for whom such a determination was made prior 
     to the date of enactment.--Any determination of whether the 
     individual's State is in an extended benefit period under 
     section 203(c) of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 28) 
     made prior to the date of enactment of this Act shall be 
     disregarded and the determination under such section shall be 
     made as follows:
       (A) Individuals who exhausted all teuc and teuc-x amounts 
     prior to the date of enactment.--In the case of an individual 
     whose temporary extended unemployment account has, prior to 
     the date of enactment of this Act, been both augmented under 
     such section 203(c) and exhausted of all amounts

[[Page 11635]]

     by which it was so augmented, the determination shall be made 
     as of such date of enactment.
       (B) All other individuals.--In the case of an individual 
     who is not described in subparagraph (A), the determination 
     shall be made at the time that the individual's account 
     established under such section 203, as amended by subsection 
     (a), is exhausted.
       (5) No effect on provisions related to displaced airline 
     related workers.--The amendments made by this section and 
     section 301 shall have no effect on the provisions of section 
     4002 of the Emergency Wartime Supplemental Appropriations 
     Act, 2003 (Public Law 108-11).

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

     SEC. 511. FEDERAL-STATE AGREEMENTS.

       (a) In General.--Any State which desires to do so may enter 
     into and participate in an agreement under this title with 
     the Secretary of Labor (in this title referred to as the 
     ``Secretary''). Any State which is a party to an agreement 
     under this title may, upon providing 30 days' written notice 
     to the Secretary, terminate such agreement.
       (b) Provisions of Agreement.--
       (1) In general.--Subject to paragraph (3), any agreement 
     under subsection (a) shall provide that the State agency of 
     the State, in addition to any amounts of regular compensation 
     to which an individual may be entitled under the State law, 
     shall make payments of temporary enhanced regular 
     unemployment compensation to an individual in an amount and 
     to the extent that the individual would be entitled to 
     regular compensation if the State law were applied with the 
     modifications described in paragraph (2).
       (2) Modifications described.--The modifications described 
     in this paragraph are as follows:
       (A) In the case of an individual who is not eligible for 
     regular compensation under the State law because of the use 
     of a definition of base period that does not count wages 
     earned in the most recently completed calendar quarter, then 
     eligibility for compensation shall be determined by applying 
     a base period ending at the close of the most recently 
     completed calendar quarter.
       (B) In the case of an individual who is not eligible for 
     regular compensation under the State law because such 
     individual does not meet requirements relating to 
     availability for work, active search for work, or refusal to 
     accept work, because such individual is seeking, or is 
     available for, less than full-time work, then compensation 
     shall not be denied by such State to an otherwise eligible 
     individual who seeks less than full-time work or fails to 
     accept full-time work.
       (3) Reduction of amounts of regular compensation available 
     for individuals who sought part-time work or failed to accept 
     full-time work.--Any agreement under subsection (a) shall 
     provide that the State agency of the State shall reduce the 
     amount of regular compensation available to an individual who 
     has received temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in paragraph (2)(B) by the amount of 
     such temporary enhanced regular unemployment compensation.
       (c) Coordination Rule.--The modifications described in 
     subsection (b)(2) shall also apply in determining the amount 
     of benefits payable under any Federal law to the extent that 
     those benefits are determined by reference to regular 
     compensation payable under the State law of the State 
     involved.

     SEC. 512. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS 
                   TITLE.

       (a) General Rule.--There shall be paid to each State which 
     has entered into an agreement under this title an amount 
     equal to--
       (1) 100 percent of any temporary enhanced regular 
     unemployment compensation; and
       (2) 100 percent of any regular compensation which is paid 
     to individuals by such State by reason of the fact that its 
     State law contains provisions comparable to the modifications 
     described in subparagraphs (A) and (B) of section 311(b)(2), 
     but only to the extent that those amounts would, if such 
     amounts were instead payable by virtue of the State law's 
     being deemed to be so modified pursuant to section 311(b)(1), 
     have been reimbursable under paragraph (1).
       (b) Determination of Amount.--Sums under subsection (a) 
     payable to any State by reason of such State having an 
     agreement under this title shall be payable, either in 
     advance or by way of reimbursement (as may be determined by 
     the Secretary), in such amounts as the Secretary estimates 
     the State will be entitled to receive under this title for 
     each calendar month, reduced or increased, as the case may 
     be, by any amount by which the Secretary finds that the 
     Secretary's estimates for any prior calendar month were 
     greater or less than the amounts which should have been paid 
     to the State. Such estimates may be made on the basis of such 
     statistical sampling, or other method as may be agreed upon 
     by the Secretary and the State agency of the State involved.

     SEC. 513. FINANCING PROVISIONS.

       (a) In General.--Funds in the extended unemployment 
     compensation account (as established by section 905(a) of the 
     Social Security Act (42 U.S.C. 1105(a))), and the Federal 
     unemployment account (as established by section 904(g) of 
     such Act (42 U.S.C. 1104(g))), of the Unemployment Trust Fund 
     (as established by section 904(a) of such Act (42 U.S.C. 
     1104(a))) shall be used for the making of payments to States 
     having agreements entered into under this title.
       (b) Certification.--The Secretary shall from time to time 
     certify to the Secretary of the Treasury for payment to each 
     State the sums which are payable to such State under this 
     title. The Secretary of the Treasury, prior to audit or 
     settlement by the General Accounting Office, shall make 
     payments to the State in accordance with such certification 
     by transfers from the extended unemployment compensation 
     account (as so established), or, to the extent that there are 
     insufficient funds in that account, from the Federal 
     unemployment account, to the account of such State in the 
     Unemployment Trust Fund (as so established).
       (c) Assistance to States.--There are appropriated out of 
     the employment security administration account of the 
     Unemployment Trust Fund (as established by section 901(a) of 
     the Social Security Act (42 U.S.C. 1101(a))) $500,000,000 to 
     reimburse States for the costs of the administration of 
     agreements under this title (including any improvements in 
     technology in connection therewith) and to provide 
     reemployment services to unemployment compensation claimants 
     in States having agreements under this title. Each State's 
     share of the amount appropriated by the preceding sentence 
     shall be determined by the Secretary according to the factors 
     described in section 302(a) of the Social Security Act (42 
     U.S.C. 502(a)) and certified by the Secretary to the 
     Secretary of the Treasury.
       (d) Appropriations for Certain Payments.--There are 
     appropriated from the general fund of the Treasury, without 
     fiscal year limitation, to the extended unemployment 
     compensation account (as so established) of the Unemployment 
     Trust Fund (as so established) such sums as the Secretary 
     estimates to be necessary to make the payments under this 
     section in respect of--
       (1) compensation payable under chapter 85 of title 5, 
     United States Code; and
       (2) compensation payable on the basis of services to which 
     section 3309(a)(1) of the Internal Revenue Code of 1986 
     applies.
     Amounts appropriated pursuant to the preceding sentence shall 
     not be required to be repaid.

     SEC. 514. DEFINITIONS.

       For purposes of this title, the terms ``compensation'', 
     ``base period'', ``regular compensation'', ``State'', ``State 
     agency'', ``State law'', and ``week'' have the respective 
     meanings given such terms under section 205 of the Federal-
     State Extended Unemployment Compensation Act of 1970.

     SEC. 515. APPLICABILITY.

       (a) In General.--Except as provided in subsection (b), an 
     agreement entered into under this title shall apply to weeks 
     of unemployment--
       (1) beginning after the date on which such agreement is 
     entered into; and
       (2) ending before July 1, 2004.
       (b) Phase-Out of TERUC.--
       (1) In general.--Subject to paragraph (2), in the case of 
     an individual who has established eligibility for temporary 
     enhanced regular unemployment compensation, but who has not 
     exhausted all rights to such compensation, as of the last day 
     of the week ending before July 1, 2004, such compensation 
     shall continue to be payable to such individual for any week 
     beginning after such date for which the individual meets the 
     eligibility requirements of this title.
       (2) Limitation.--No compensation shall be payable by reason 
     of paragraph (1) for any week beginning after December 31, 
     2004.

     SEC. 516. COORDINATION WITH THE TEMPORARY EXTENDED 
                   UNEMPLOYMENT COMPENSATION ACT OF 2002.

       (a) In General.--The Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended--
       (1) in section 202(b)(1), by inserting ``, and who have 
     exhausted all rights to temporary enhanced regular 
     unemployment compensation'' before the semicolon at the end;
       (2) in section 202(b)(2), by inserting ``, temporary 
     enhanced regular unemployment compensation,'' after ``regular 
     compensation'';
       (3) in section 202(c), by inserting ``(or, as the case may 
     be, such individual's rights to temporary enhanced regular 
     unemployment compensation)'' after ``State law'' in the 
     matter preceding paragraph (1);
       (4) in section 202(c)(1), by inserting ``and no payments of 
     temporary enhanced regular unemployment compensation can be 
     made'' after ``under such law'';
       (5) in section 202(d)(1), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     (including dependents' allowances) payable to such individual 
     for such a week,'' after ``total unemployment'';
       (6) in section 202(d)(2)(A), by inserting ``, or, as the 
     case may be, to temporary enhanced regular unemployment 
     compensation,'' after ``State law'';
       (7) in section 203(b)(1)(A), by inserting ``plus the amount 
     of any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``under 
     such law''; and

[[Page 11636]]

       (8) in section 203(b)(2), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``total 
     unemployment''.
       (b) Amount of TEUC Offset by Amount of TERUC.--Section 
     203(b)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended--
       (1) in subparagraph (B), by striking the period at the end 
     and inserting a comma; and
       (2) by adding at the end the following:
     ``minus the number of weeks in which the individual was 
     entitled to temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in section 511(b)(2)(A) of the Jobs 
     and Growth Reconciliation Tax Relief Act of 2003 (relating to 
     the alternative base period) multiplied by the individual's 
     average weekly benefit amount for the benefit year.''.
       (c) Temporary Enhanced Regular Unemployment Compensation 
     Defined.--Section 207 of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended to read as follows:

     ``SEC. 207. DEFINITIONS.

       ``In this title:
       ``(1) General definitions.--The terms `compensation', 
     `regular compensation', `extended compensation', `additional 
     compensation', `benefit year', `base period', `State', `State 
     agency', `State law', and `week' have the respective meanings 
     given such terms under section 205 of the Federal-State 
     Extended Unemployment Compensation Act of 1970 (26 U.S.C. 
     3304 note).
       ``(2) Temporary enhanced regular unemployment 
     compensation.--The term `temporary enhanced regular 
     unemployment compensation' means temporary enhanced regular 
     unemployment benefits payable under title V of the Jobs and 
     Growth Reconciliation Tax Relief Act of 2003.''.

              Subtitle C--Railroad Unemployment Insurance

     SEC. 517. TEMPORARY INCREASE IN EXTENDED UNEMPLOYMENT 
                   BENEFITS UNDER THE RAILROAD UNEMPLOYMENT 
                   INSURANCE ACT.

       Section 2(c)(2) of the Railroad Unemployment Insurance Act 
     (45 U.S.C. 352(c)(2)) is amended by adding at the end the 
     following:
       ``(D) Temporary increase in extended unemployment 
     benefits.--
       ``(i) Employees with 10 or more years of service.--Subject 
     to clause (iii), in the case of an employee who has 10 or 
     more years of service (as so defined), with respect to 
     extended unemployment benefits--

       ``(I) subparagraph (A) shall be applied by substituting 
     ``130 days of unemployment'' for ``65 days of unemployment''; 
     and
       ``(II) subparagraph (B) shall be applied by inserting 
     ``(or, in the case of unemployment benefits, 13 consecutive 
     14-day periods'' after ``7 consecutive 14-day periods''.

       ``(ii) Employees with less than 10 years of service.--
     Subject to clause (iii), in the case of an employee who has 
     less than 10 years of service (as so defined), with respect 
     to extended unemployment benefits, this paragraph shall apply 
     to such an employee in the same manner as this paragraph 
     would apply to an employee described in clause (i) if such 
     clause had not been enacted.
       ``(iii) Application.--The provisions of clauses (i) and 
     (ii) shall apply to--

       ``(I) an employee who received normal benefits for days of 
     unemployment under this Act during the period beginning on 
     July 1, 2002, and ending on November 30, 2003; and
       ``(II) days of unemployment beginning on or after the date 
     of enactment of Jobs and Growth Reconciliation Tax Relief Act 
     of 2003.''.

                       TITLE VI--OTHER PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 601. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (n) as subsection (o) and by inserting after 
     subsection (m) the following new subsection:
       ``(n) Clarification of Economic Substance Doctrine; Etc.--
       ``(1) General rules.--
       ``(A) In general.--In 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) the taxpayer's economic position, 
     and
       ``(II) the taxpayer has a substantial nontax purpose for 
     entering into such transaction and the transaction is a 
     reasonable means of accomplishing such purpose.

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

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

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).
       ``(2) Special rules for transactions with tax-indifferent 
     parties.--
       ``(A) Special rules for financing transactions.--The form 
     of a transaction which is in substance the borrowing of money 
     or the acquisition of financial capital directly or 
     indirectly from a tax-indifferent party shall not be 
     respected if the present value of the deductions to be 
     claimed with respect to the transaction is substantially in 
     excess of the present value of the anticipated economic 
     returns of the person lending the money or providing the 
     financial capital. A public offering shall be treated as a 
     borrowing, or an acquisition of financial capital, from a 
     tax-indifferent party if it is reasonably expected that at 
     least 50 percent of the offering will be placed with tax-
     indifferent parties.
       ``(B) Artificial income shifting and basis adjustments.--
     The form of a transaction with a tax-indifferent party shall 
     not be respected if--
       ``(i) it results in an allocation of income or gain to the 
     tax-indifferent party in excess of such party's economic 
     income or gain, or
       ``(ii) it results in a basis adjustment or shifting of 
     basis on account of overstating the income or gain of the 
     tax-indifferent party.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or entity not subject to tax imposed 
     by subtitle A. A person shall be treated as a tax-indifferent 
     party with respect to a transaction if the items taken into 
     account with respect to the transaction have no substantial 
     impact on such person's liability under subtitle A.
       ``(C) Exception for personal transactions of individuals.--
     In the case of an individual, this subsection shall apply 
     only to transactions entered into in connection with a trade 
     or business or an activity engaged in for the production of 
     income.
       ``(D) Treatment of lessors.--A lessor of tangible property 
     subject to a lease shall be treated as satisfying the 
     requirements of paragraph (1)(B)(ii) with respect to the 
     leased property if such lease satisfies such requirements as 
     provided by the Secretary.
       ``(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 on or after May 8, 
     2003.

     SEC. 602. 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,

[[Page 11637]]

     with respect to any taxable year, a person (other than a 
     natural person) with gross receipts in excess of $10,000,000 
     for the taxable year in which the reportable transaction 
     occurs or the preceding taxable year. Rules similar to the 
     rules of paragraph (2) and subparagraphs (B), (C), and (D) of 
     paragraph (3) of section 448(c) shall apply for purposes of 
     this subparagraph.
       ``(C) High net worth individual.--For purposes of 
     subparagraph (A), the term `high net worth individual' means, 
     with respect to a reportable transaction, a natural person 
     whose net worth exceeds $2,000,000 immediately before the 
     transaction.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Reportable transaction.--The term `reportable 
     transaction' means any transaction with respect to which 
     information is required to be included with a return or 
     statement because, as determined under regulations prescribed 
     under section 6011, such transaction is of a type which the 
     Secretary determines as having a potential for tax avoidance 
     or evasion.
       ``(2) Listed transaction.--Except as provided in 
     regulations, the term `listed transaction' means a reportable 
     transaction which is the same as, or substantially similar 
     to, a transaction specifically identified by the Secretary as 
     a tax avoidance transaction for purposes of section 6011.
       ``(d) Authority To Rescind Penalty.--
       ``(1) In general.--The Commissioner of Internal Revenue may 
     rescind all or any portion of any penalty imposed by this 
     section with respect to any violation if--
       ``(A) the violation is with respect to a reportable 
     transaction other than a listed transaction,
       ``(B) the person on whom the penalty is imposed has a 
     history of complying with the requirements of this title,
       ``(C) it is shown that the violation is due to an 
     unintentional mistake of fact;
       ``(D) imposing the penalty would be against equity and good 
     conscience, and
       ``(E) rescinding the penalty would promote compliance with 
     the requirements of this title and effective tax 
     administration.
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may be delegated only to the head of the 
     Office of Tax Shelter Analysis. The Commissioner, in the 
     Commissioner's sole discretion, may establish a procedure to 
     determine if a penalty should be referred to the Commissioner 
     or the head of such Office for a determination under 
     paragraph (1).
       ``(3) No appeal.--Notwithstanding any other provision of 
     law, any determination under this subsection may not be 
     reviewed in any administrative or judicial proceeding.
       ``(4) Records.--If a penalty is rescinded under paragraph 
     (1), the Commissioner shall place in the file in the Office 
     of the Commissioner the opinion of the Commissioner or the 
     head of the Office of Tax Shelter Analysis with respect to 
     the determination, including--
       ``(A) the facts and circumstances of the transaction,
       ``(B) the reasons for the rescission, and
       ``(C) the amount of the penalty rescinded.
       ``(5) Report.--The Commissioner shall each year report to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate--
       ``(A) a summary of the total number and aggregate amount of 
     penalties imposed, and rescinded, under this section, and
       ``(B) a description of each penalty rescinded under this 
     subsection and the reasons therefor.
       ``(e) Penalty Reported to SEC.--In the case of a person--
       ``(1) which is required to file periodic reports under 
     section 13 or 15(d) of the Securities Exchange Act of 1934 or 
     is required to be consolidated with another person for 
     purposes of such reports, and
       ``(2) which--
       ``(A) is required to pay a penalty under this section with 
     respect to a listed transaction,
       ``(B) is required to pay a penalty under section 6662A with 
     respect to any reportable transaction at a rate prescribed 
     under section 6662A(c), or
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction,
     the requirement to pay such penalty shall be disclosed in 
     such reports filed by such person for such periods as the 
     Secretary shall specify. Failure to make a disclosure in 
     accordance with the preceding sentence shall be treated as a 
     failure to which the penalty under subsection (b)(2) applies.
       ``(f) Coordination With Other Penalties.--The penalty 
     imposed by this section is in addition to any penalty imposed 
     under this title.''.
       (b) Conforming Amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by inserting after 
     the item relating to section 6707 the following:

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

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

     SEC. 603. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS 
                   AND OTHER REPORTABLE TRANSACTIONS HAVING A 
                   SIGNIFICANT TAX AVOIDANCE PURPOSE.

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

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

       ``(a) Imposition of Penalty.--If a taxpayer has a 
     reportable transaction understatement for any taxable year, 
     there shall be added to the tax an amount equal to 20 percent 
     of the amount of such understatement.
       ``(b) Reportable Transaction Understatement.--For purposes 
     of this section--
       ``(1) In general.--The term `reportable transaction 
     understatement' means the sum of--
       ``(A) the product of--
       ``(i) the amount of the increase (if any) in taxable income 
     which results from a difference between the proper tax 
     treatment of an item to which this section applies and the 
     taxpayer's treatment of such item (as shown on the taxpayer's 
     return of tax), and
       ``(ii) the highest rate of tax imposed by section 1 
     (section 11 in the case of a taxpayer which is a 
     corporation), and
       ``(B) the amount of the decrease (if any) in the aggregate 
     amount of credits determined under subtitle A which results 
     from a difference between the taxpayer's treatment of an item 
     to which this section applies (as shown on the taxpayer's 
     return of tax) and the proper tax treatment of such item.
     For purposes of subparagraph (A), any reduction of the excess 
     of deductions allowed for the taxable year over gross income 
     for such year, and any reduction in the amount of capital 
     losses which would (without regard to section 1211) be 
     allowed for such year, shall be treated as an increase in 
     taxable income.
       ``(2) Items to which section applies.--This section shall 
     apply to any item which is attributable to--
       ``(A) any listed transaction, and
       ``(B) any reportable transaction (other than a listed 
     transaction) if a significant purpose of such transaction is 
     the avoidance or evasion of Federal income tax.
       ``(c) Higher Penalty for Nondisclosed Listed and Other 
     Avoidance Transactions.--
       ``(1) In general.--Subsection (a) shall be applied by 
     substituting `30 percent' for `20 percent' with respect to 
     the portion of any reportable transaction understatement with 
     respect to which the requirement of section 6664(d)(2)(A) is 
     not met.
       ``(2) Rules applicable to compromise of penalty.--
       ``(A) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which paragraph (1) 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(B) Applicable rules.--The rules of paragraphs (2), (3), 
     (4), and (5) of section 6707A(d) shall apply for purposes of 
     subparagraph (A).
       ``(d) Definitions of Reportable and Listed Transactions.--
     For purposes of this section, the terms `reportable 
     transaction' and `listed transaction' have the respective 
     meanings given to such terms by section 6707A(c).
       ``(e) Special Rules.--
       ``(1) Coordination with penalties, etc., on other 
     understatements.--In the case of an understatement (as 
     defined in section 6662(d)(2))--
       ``(A) the amount of such understatement (determined without 
     regard to this paragraph) shall be increased by the aggregate 
     amount of reportable transaction understatements and 
     noneconomic substance transaction understatements for 
     purposes of determining whether such understatement is a 
     substantial understatement under section 6662(d)(1), and
       ``(B) the addition to tax under section 6662(a) shall apply 
     only to the excess of the amount of the substantial 
     understatement (if any) after the application of subparagraph 
     (A) over the aggregate amount of reportable transaction 
     understatements and noneconomic substance transaction 
     understatements.
       ``(2) Coordination with other penalties.--
       ``(A) Application of fraud penalty.--References to an 
     underpayment in section 6663 shall be treated as including 
     references to a reportable transaction understatement and a 
     noneconomic substance transaction understatement.
       ``(B) No double penalty.--This section shall not apply to 
     any portion of an understatement on which a penalty is 
     imposed under section 6662B or 6663.
       ``(3) Special rule for amended returns.--Except as provided 
     in regulations, in no event shall any tax treatment included 
     with an amendment or supplement to a return of tax be taken 
     into account in determining the amount of any reportable 
     transaction understatement or noneconomic substance 
     transaction understatement if the amendment or supplement is 
     filed after the earlier of the

[[Page 11638]]

     date the taxpayer is first contacted by the Secretary 
     regarding the examination of the return or such other date as 
     is specified by the Secretary.
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).
       ``(5) Cross reference.--

  ``For reporting of section 6662A(c) penalty to the Securities and 
Exchange Commission, see section 6707A(e).''.

       (b) Determination of Other Understatements.--Subparagraph 
     (A) of section 6662(d)(2) is amended by adding at the end the 
     following flush sentence:
     ``The excess under the preceding sentence shall be determined 
     without regard to items to which section 6662A applies and 
     without regard to items with respect to which a penalty is 
     imposed by section 6662B.''.
       (c) Reasonable Cause Exception.--
       (1) In general.--Section 6664 is amended by adding at the 
     end the following new subsection:
       ``(d) Reasonable Cause Exception for Reportable Transaction 
     Understatements.--
       ``(1) In general.--No penalty shall be imposed under 
     section 6662A with respect to any portion of a reportable 
     transaction understatement if it is shown that there was a 
     reasonable cause for such portion and that the taxpayer acted 
     in good faith with respect to such portion.
       ``(2) Special rules.--Paragraph (1) shall not apply to any 
     reportable transaction understatement unless--
       ``(A) the relevant facts affecting the tax treatment of the 
     item are adequately disclosed in accordance with the 
     regulations prescribed under section 6011,
       ``(B) there is or was substantial authority for such 
     treatment, and
       ``(C) the taxpayer reasonably believed that such treatment 
     was more likely than not the proper treatment.
     A taxpayer failing to adequately disclose in accordance with 
     section 6011 shall be treated as meeting the requirements of 
     subparagraph (A) if the penalty for such failure was 
     rescinded under section 6707A(d).
       ``(3) Rules relating to reasonable belief.--For purposes of 
     paragraph (2)(C)--
       ``(A) In general.--A taxpayer shall be treated as having a 
     reasonable belief with respect to the tax treatment of an 
     item only if such belief--
       ``(i) is based on the facts and law that exist at the time 
     the return of tax which includes such tax treatment is filed, 
     and
       ``(ii) relates solely to the taxpayer's chances of success 
     on the merits of such treatment and does not take into 
     account the possibility that a return will not be audited, 
     such treatment will not be raised on audit, or such treatment 
     will be resolved through settlement if it is raised.
       ``(B) Certain opinions may not be relied upon.--
       ``(i) In general.--An opinion of a tax advisor may not be 
     relied upon to establish the reasonable belief of a taxpayer 
     if--

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

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

       ``(I) is a material advisor (within the meaning of section 
     6111(b)(1)) who participates in the organization, management, 
     promotion, or sale of the transaction or who is related 
     (within the meaning of section 267(b) or 707(b)(1)) to any 
     person who so participates,
       ``(II) is compensated directly or indirectly by a material 
     advisor with respect to the transaction,
       ``(III) has a fee arrangement with respect to the 
     transaction which is contingent on all or part of the 
     intended tax benefits from the transaction being sustained, 
     or
       ``(IV) as determined under regulations prescribed by the 
     Secretary, has a 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. 604. 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 a 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A would apply without regard to this paragraph.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--
       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(n)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(n)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable To Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2), (3), 
     (4), and (5) of section 6707A(d) shall apply for purposes of 
     paragraph (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

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

       (b) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into on or after May 8, 
     2003.

     SEC. 605. 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:

[[Page 11639]]

       ``(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. 606. 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. 607. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

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

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

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

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

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

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

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

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

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

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

     SEC. 608. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER 
                   TAX SHELTERS.

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

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

       ``(a) In General.--If a person who is required to file a 
     return under section 6111(a) with respect to any reportable 
     transaction--
       ``(1) fails to file such return on or before the date 
     prescribed therefor, or
       ``(2) files false or incomplete information with the 
     Secretary with respect to such transaction,
     such person shall pay a penalty with respect to such return 
     in the amount determined under subsection (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     penalty imposed under subsection (a) with respect to any 
     failure shall be $50,000.
       ``(2) Listed transactions.--The penalty imposed under 
     subsection (a) with respect to any listed transaction shall 
     be an amount equal to the greater of--
       ``(A) $200,000, or
       ``(B) 50 percent of the gross income derived by such person 
     with respect to aid, assistance, or advice which is provided 
     with respect to the listed transaction before the date the 
     return including the transaction is filed under section 6111.
     Subparagraph (B) shall be applied by substituting `75 
     percent' for `50 percent' in the case of an intentional 
     failure or act described in subsection (a).
       ``(c) 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. 609. 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

[[Page 11640]]

     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. 610. 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. 611. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

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

     SEC. 612. 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. 613. 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

[[Page 11641]]

       (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. 614. PENALTY ON PROMOTERS OF TAX SHELTERS.

       (a) Penalty on Promoting Abusive Tax Shelters.--Section 
     6700(a) is amended by adding at the end the following new 
     sentence: ``Notwithstanding the first sentence, if an 
     activity with respect to which a penalty imposed under this 
     subsection involves a statement described in paragraph 
     (2)(A), the amount of the penalty shall be equal to 50 
     percent of the gross income derived (or to be derived) from 
     such activity by the person on which the penalty is 
     imposed.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

     SEC. 615. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   LISTED TRANSACTIONS NOT REPORTED.

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

     SEC. 616. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND 
                   NONECONOMIC SUBSTANCE TRANSACTIONS.

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

            Subtitle B--Enron-Related Tax Shelter Provisions

     SEC. 621. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN 
                   LOSSES.

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

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

     then, notwithstanding subsection (a), the transferee's 
     aggregate adjusted bases of the property so transferred shall 
     not exceed the fair market value of such property immediately 
     after such transaction.
       ``(B) Allocation of basis reduction.--The aggregate 
     reduction in basis by reason of subparagraph (A) shall be 
     allocated among the property so transferred in proportion to 
     their respective built-in losses immediately before the 
     transaction.
       ``(C) Exception for transfers within affiliated group.--
     Subparagraph (A) shall not apply to any transaction if the 
     transferor owns stock in the transferee meeting the 
     requirements of section 1504(a)(2). In the case of property 
     to which subparagraph (A) does not apply by reason of the 
     preceding sentence, the transferor's basis in the stock 
     received for such property shall not exceed its fair market 
     value immediately after the transfer.''.
       (b) Comparable Treatment Where Liquidation.--Paragraph (1) 
     of section 334(b) (relating to liquidation of subsidiary) is 
     amended to read as follows:
       ``(1) In general.--If property is received by a corporate 
     distributee in a distribution in a complete liquidation to 
     which section 332 applies (or in a transfer described in 
     section 337(b)(1)), the basis of such property in the hands 
     of such distributee shall be the same as it would be in the 
     hands of the transferor; except that the basis of such 
     property in the hands of such distributee shall be the fair 
     market value of the property at the time of the 
     distribution--
       ``(A) in any case in which gain or loss is recognized by 
     the liquidating corporation with respect to such property, or
       ``(B) in any case in which the liquidating corporation is a 
     foreign corporation, the corporate distributee is a domestic 
     corporation, and the corporate distributee's aggregate 
     adjusted bases of property described in section 362(e)(1)(B) 
     which is distributed in such liquidation would (but for this 
     subparagraph) exceed the fair market value of such property 
     immediately after such liquidation.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions after February 13, 2003.

     SEC. 622. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK 
                   HELD BY PARTNERSHIP IN CORPORATE PARTNER.

       (a) In General.--Section 755 is amended by adding at the 
     end the following new subsection:
       ``(c) No Allocation of Basis Decrease to Stock of Corporate 
     Partner.--In making an allocation under subsection (a) of any 
     decrease in the adjusted basis of partnership property under 
     section 734(b)--
       ``(1) no allocation may be made to stock in a corporation 
     (or any person which is related (within the meaning of 
     section 267(b) or 707(b)(1)) to such corporation) which is a 
     partner in the partnership, and
       ``(2) any amount not allocable to stock by reason of 
     paragraph (1) shall be allocated under subsection (a) to 
     other partnership property.

     Gain shall be recognized to the partnership to the extent 
     that the amount required to be

[[Page 11642]]

     allocated under paragraph (2) to other partnership property 
     exceeds the aggregate adjusted basis of such other property 
     immediately before the allocation required by paragraph 
     (2).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions after February 13, 2003.

     SEC. 623. 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 take effect on February 
     14, 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 to the 
     extent that regular interests issued by the FASIT before such 
     date continue to remain outstanding in accordance with the 
     original terms of issuance.
       (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. 624. 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) Exception for Certain Instruments Issued By Dealers In 
     Securities.--Section 163(l) is amended by redesignating 
     paragraphs (4) and (5) as paragraphs (5) and (6) and by 
     inserting after paragraph (3) the following new paragraph:
       ``(4) Exception for certain instruments issued by dealers 
     in securities.--For purposes of this subsection, the term 
     `disqualified debt instrument' does not include indebtedness 
     issued by a dealer in securities (or a related party) which 
     is payable in, or by reference to, equity (other than equity 
     of the issuer or a related party) held by such dealer in its 
     capacity as a dealer in securities. For purposes of this 
     paragraph, the term `dealer in securities' has the meaning 
     given such term by section 475.''.
       (c) Conforming 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''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after February 13, 
     2003.

     SEC. 625. 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. 626. 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) Effective Date.--The amendment made by this section 
     shall apply to taxable years on 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.

      Subtitle C--Provisions to Discourage Corporate Expatriation

     SEC. 631. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

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

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

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section 7701(a)(4), such entity shall be 
     treated for purposes of this title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,
       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former partners of the domestic 
     partnership by reason of holding a capital or profits 
     interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.
     Except as provided in regulations, an acquisition of 
     properties of a domestic corporation shall not be treated as 
     described in subparagraph (A) if none of the corporation's 
     stock was readily tradeable on an established securities 
     market at any time during the 4-year period ending on the 
     date of the acquisition.
       ``(b) Preservation of Domestic Tax Base In Certain 
     Inversion Transactions To Which Subsection (a) Does Not 
     Apply.--
       ``(1) In general.--If a foreign incorporated entity would 
     be treated as an inverted domestic corporation with respect 
     to an acquired entity if either--
       ``(A) subsection (a)(2)(A) were applied by substituting 
     `after December 31, 1996, and on or before March 20, 2002' 
     for `after March 20, 2002' and subsection (a)(2)(B) were 
     applied by substituting `more than 50 percent' for `at least 
     80 percent', or
       ``(B) subsection (a)(2)(B) were applied by substituting 
     `more than 50 percent' for `at least 80 percent',

     then the rules of subsection (c) shall apply to any inversion 
     gain of the acquired entity during the applicable period and 
     the rules of subsection (d) shall apply to any related party 
     transaction of the acquired entity during the applicable 
     period. This subsection shall not apply for any taxable year 
     if subsection (a) applies to such foreign incorporated entity 
     for such taxable year.
       ``(2) Acquired entity.--For purposes of this section--
       ``(A) In general.--The term `acquired entity' means the 
     domestic corporation or partnership substantially all of the 
     properties of which are directly or indirectly acquired in an 
     acquisition described in subsection (a)(2)(A) to which this 
     subsection applies.
       ``(B) Aggregation rules.--Any domestic person bearing a 
     relationship described in section 267(b) or 707(b) to an 
     acquired entity shall be treated as an acquired entity with 
     respect to the acquisition described in subparagraph (A).
       ``(3) Applicable period.--For purposes of this section--
       ``(A) In general.--The term `applicable period' means the 
     period--
       ``(i) beginning on the first date properties are acquired 
     as part of the acquisition described in subsection (a)(2)(A) 
     to which this subsection applies, and

[[Page 11643]]

       ``(ii) ending on the date which is 10 years after the last 
     date properties are acquired as part of such acquisition.
       ``(B) Special rule for inversions occurring before march 
     21, 2002.--In the case of any acquired entity to which 
     paragraph (1)(A) applies, the applicable period shall be the 
     10-year period beginning on January 1, 2003.
       ``(c) Tax on Inversion Gains May Not Be Offset.--If 
     subsection (b) applies--
       ``(1) In general.--The taxable income of an acquired entity 
     (or any expanded affiliated group which includes such entity) 
     for any taxable year which includes any portion of the 
     applicable period shall in no event be less than the 
     inversion gain of the entity for the taxable year.
       ``(2) Credits not allowed against tax on inversion gain.--
     Credits shall be allowed against the tax imposed by this 
     chapter on an acquired entity for any taxable year described 
     in paragraph (1) only to the extent such tax exceeds the 
     product of--
       ``(A) the amount of the inversion gain for the taxable 
     year, and
       ``(B) the highest rate of tax specified in section 
     11(b)(1).

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

     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding the provisions of any other law or rule of 
     law which would otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.
       ``(d) Special Rules Applicable to Related Party 
     Transactions.--
       ``(1) Annual application for agreements on return 
     positions.--
       ``(A) In general.--Each acquired entity to which subsection 
     (b) applies shall file with the Secretary an application for 
     an approval agreement under subparagraph (D) for each taxable 
     year which includes a portion of the applicable period. Such 
     application shall be filed at such time and manner, and shall 
     contain such information, as the Secretary may prescribe.
       ``(B) Secretarial action.--Within 90 days of receipt of an 
     application under subparagraph (A) (or such longer period as 
     the Secretary and entity may agree upon), the Secretary 
     shall--
       ``(i) enter into an agreement described in subparagraph (D) 
     for the taxable year covered by the application,
       ``(ii) notify the entity that the Secretary has determined 
     that the application was filed in good faith and 
     substantially complies with the requirements for the 
     application under subparagraph (A), or
       ``(iii) notify the entity that the Secretary has determined 
     that the application was not filed in good faith or does not 
     substantially comply with such requirements.

     If the Secretary fails to act within the time prescribed 
     under the preceding sentence, the entity shall be treated for 
     purposes of this paragraph as having received notice under 
     clause (ii).
       ``(C) Failures to comply.--If an acquired entity fails to 
     file an application under subparagraph (A), or the acquired 
     entity receives a notice under subparagraph (B)(iii), for any 
     taxable year, then for such taxable year--
       ``(i) there shall not be allowed any deduction, or addition 
     to basis or cost of goods sold, for amounts paid or incurred, 
     or losses incurred, by reason of a transaction between the 
     acquired entity and a foreign related person,
       ``(ii) any transfer or license of intangible property (as 
     defined in section 936(h)(3)(B)) between the acquired entity 
     and a foreign related person shall be disregarded, and
       ``(iii) any cost-sharing arrangement between the acquired 
     entity and a foreign related person shall be disregarded.
       ``(D) Approval agreement.--For purposes of subparagraph 
     (A), the term `approval agreement' means a prefiling, advance 
     pricing, or other agreement specified by the Secretary which 
     contains such provisions as the Secretary determines 
     necessary to ensure that the requirements of sections 163(j), 
     267(a)(3), 482, and 845, and any other provision of this 
     title applicable to transactions between related persons and 
     specified by the Secretary, are met.
       ``(E) Tax court review.--
       ``(i) In general.--The Tax Court shall have jurisdiction 
     over any action brought by an acquired entity receiving a 
     notice under subparagraph (B)(iii) to determine whether the 
     issuance of the notice was an abuse of discretion, but only 
     if the action is brought within 30 days after the date of the 
     mailing (determined under rules similar to section 6213) of 
     the notice.
       ``(ii) Court action.--The Tax Court shall issue its 
     decision within 30 days after the filing of the action under 
     clause (i) and may order the Secretary to issue a notice 
     described in subparagraph (B)(ii).
       ``(iii) Review.--An order of the Tax Court under this 
     subparagraph shall be reviewable in the same manner as any 
     other decision of the Tax Court.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated as 
     pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.

[[Page 11644]]

       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1) would be, treated as a foreign corporation 
     for purposes of this title.
       ``(4) Foreign related person.--The term `foreign related 
     person' means, with respect to any acquired entity, a foreign 
     person which--
       ``(A) bears a relationship to such entity described in 
     section 267(b) or 707(b), or
       ``(B) is under the same common control (within the meaning 
     of section 482) as such entity.
       ``(5) Subsequent acquisitions by unrelated domestic 
     corporations.--
       ``(A) In general.--Subject to such conditions, limitations, 
     and exceptions as the Secretary may prescribe, if, after an 
     acquisition described in subsection (a)(2)(A) to which 
     subsection (b) applies, a domestic corporation stock of which 
     is traded on an established securities market acquires 
     directly or indirectly any properties of one or more acquired 
     entities in a transaction with respect to which the 
     requirements of subparagraph (B) are met, this section shall 
     cease to apply to any such acquired entity with respect to 
     which such requirements are met.
       ``(B) Requirements.--The requirements of the subparagraph 
     are met with respect to a transaction involving any 
     acquisition described in subparagraph (A) if--
       ``(i) before such transaction the domestic corporation did 
     not have a relationship described in section 267(b) or 
     707(b), and was not under common control (within the meaning 
     of section 482), with the acquired entity, or any member of 
     an expanded affiliated group including such entity, and
       ``(ii) after such transaction, such acquired entity--

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

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-through or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Treatment of Agreements.--
       (1) Confidentiality.--
       (A) Treatment as return information.--Section 6103(b)(2) 
     (relating to return information) is amended by striking 
     ``and'' at the end of subparagraph (C), by inserting ``and'' 
     at the end of subparagraph (D), and by inserting after 
     subparagraph (D) the following new subparagraph:
       ``(E) any approval agreement under section 7874(d)(1) to 
     which any preceding subparagraph does not apply and any 
     background information related to the agreement or any 
     application for the agreement,''.
       (B) Exception from public inspection as written 
     determination.--Section 6110(b)(1)(B) is amended by striking 
     ``or (D)'' and inserting ``, (D), or (E)''.
       (2) Reporting.--The Secretary of the Treasury shall include 
     with any report on advance pricing agreements required to be 
     submitted after the date of the enactment of this Act under 
     section 521(b) of the Ticket to Work and Work Incentives 
     Improvement Act of 1999 (Public Law 106-170) a report 
     regarding approval agreements under section 7874(d)(1) of the 
     Internal Revenue Code of 1986. Such report shall include 
     information similar to the information required with respect 
     to advance pricing agreements and shall be treated for 
     confidentiality purposes in the same manner as the reports on 
     advance pricing agreements are treated under section 
     521(b)(3) of such Act.
       (c) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved in 
     transactions to which section 7874 of such Code (as added by 
     subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (d) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.

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

     SEC. 632. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

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

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

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

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

       ``(a) Imposition of Tax.--In the case of an individual who 
     is a disqualified individual with respect to any inverted 
     corporation, there is hereby imposed on such person a tax 
     equal to 20 percent of the value (determined under subsection 
     (b)) of the specified stock compensation held (directly or 
     indirectly) by or for the benefit of such individual or a 
     member of such individual's family (as defined in section 
     267) at any time during the 12-month period beginning on the 
     date which is 6 months before the inversion date.
       ``(b) Value.--For purposes of subsection (a)--
       ``(1) In general.--The value of specified stock 
     compensation shall be--
       ``(A) in the case of a stock option (or other similar 
     right) or any stock appreciation right, the fair value of 
     such option or right, and
       ``(B) in any other case, the fair market value of such 
     compensation.
       ``(2) Date for determining value.--The determination of 
     value shall be made--
       ``(A) in the case of specified stock compensation held on 
     the inversion date, on such date,
       ``(B) in the case of such compensation which is canceled 
     during the 6 months before the inversion date, on the day 
     before such cancellation, and
       ``(C) in the case of such compensation which is granted 
     after the inversion date, on the date such compensation is 
     granted.
       ``(c) Tax To Apply Only If Shareholder Gain Recognized.--
     Subsection (a) shall apply to any disqualified individual 
     with respect to an inverted corporation only if gain (if any) 
     on any stock in such corporation is recognized in whole or 
     part by any shareholder by reason of the acquisition referred 
     to in section 7874(a)(2)(A) (determined by substituting `July 
     10, 2002' for `March 20, 2002') with respect to such 
     corporation.
       ``(d) Exception Where Gain Recognized on Compensation.--
     Subsection (a) shall not apply to--
       ``(1) any stock option which is exercised on the inversion 
     date or during the 6-month period before such date and to the 
     stock acquired in such exercise, and
       ``(2) any specified stock compensation which is sold, 
     exchanged, or distributed during such period in a transaction 
     in which gain or loss is recognized in full.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Disqualified individual.--The term `disqualified 
     individual' means, with respect to a corporation, any 
     individual who, at any time during the 12-month period 
     beginning on the date which is 6 months before the inversion 
     date--
       ``(A) is subject to the requirements of section 16(a) of 
     the Securities Exchange Act of 1934 with respect to such 
     corporation or any member of the expanded affiliated group 
     which includes such corporation, or
       ``(B) would be subject to such requirements if such 
     corporation or member were an issuer of equity securities 
     referred to in such section.
       ``(2) Inverted corporation; inversion date.--
       ``(A) Inverted corporation.--The term `inverted 
     corporation' means any corporation to which subsection (a) or 
     (b) of section 7874 applies determined--
       ``(i) by substituting `July 10, 2002' for `March 20, 2002' 
     in section 7874(a)(2)(A), and
       ``(ii) without regard to subsection (b)(1)(A).

     Such term includes any predecessor or successor of such a 
     corporation.
       ``(B) Inversion date.--The term `inversion date' means, 
     with respect to a corporation, the date on which the 
     corporation first becomes an inverted corporation.
       ``(3) Specified stock compensation.--
       ``(A) In general.--The term `specified stock compensation' 
     means payment (or right to payment) granted by the inverted 
     corporation (or by any member of the expanded affiliated 
     group which includes such corporation) to any person in 
     connection with the performance of services by a disqualified 
     individual for such corporation or member if the value of 
     such payment or right is based on (or determined by reference 
     to) the value (or change in value) of stock in such 
     corporation (or any such member).
       ``(B) Exceptions.--Such term shall not include--
       ``(i) any option to which part II of subchapter D of 
     chapter 1 applies, or
       ``(ii) any payment or right to payment from a plan referred 
     to in section 280G(b)(6).

[[Page 11645]]

       ``(4) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)(3)); except 
     that section 1504(a) shall be applied by substituting `more 
     than 50 percent' for `at least 80 percent' each place it 
     appears.
       ``(f) Special Rules.--For purposes of this section--
       ``(1) Cancellation of restriction.--The cancellation of a 
     restriction which by its terms will never lapse shall be 
     treated as a grant.
       ``(2) Payment or reimbursement of tax by corporation 
     treated as specified stock compensation.--Any payment of the 
     tax imposed by this section directly or indirectly by the 
     inverted corporation or by any member of the expanded 
     affiliated group which includes such corporation--
       ``(A) shall be treated as specified stock compensation, and
       ``(B) shall not be allowed as a deduction under any 
     provision of chapter 1.
       ``(3) Certain restrictions ignored.--Whether there is 
     specified stock compensation, and the value thereof, shall be 
     determined without regard to any restriction other than a 
     restriction which by its terms will never lapse.
       ``(4) Property transfers.--Any transfer of property shall 
     be treated as a payment and any right to a transfer of 
     property shall be treated as a right to a payment.
       ``(5) Other administrative provisions.--For purposes of 
     subtitle F, any tax imposed by this section shall be treated 
     as a tax imposed by subtitle A.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Denial of Deduction.--
       (1) In general.--Paragraph (6) of section 275(a) is amended 
     by inserting ``48,'' after ``46,''.
       (2) $1,000,000 limit on deductible compensation reduced by 
     payment of excise tax on specified stock compensation.--
     Paragraph (4) of section 162(m) is amended by adding at the 
     end the following new subparagraph:
       ``(G) Coordination with excise tax on specified stock 
     compensation.--The dollar limitation contained in paragraph 
     (1) with respect to any covered employee shall be reduced 
     (but not below zero) by the amount of any payment (with 
     respect to such employee) of the tax imposed by section 5000A 
     directly or indirectly by the inverted corporation (as 
     defined in such section) or by any member of the expanded 
     affiliated group (as defined in such section) which includes 
     such corporation.''.
       (c) Conforming Amendments.--
       (1) The last sentence of section 3121(v)(2)(A) is amended 
     by inserting before the period ``or to any specified stock 
     compensation (as defined in section 5000A) on which tax is 
     imposed by section 5000A''.
       (2) The table of chapters for subtitle D is amended by 
     adding at the end the following new item:

``Chapter 48. Stock compensation of insiders in inverted 
              corporations.''.

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

     SEC. 633. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

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

              Subtitle D--Imposition of Customs User Fees

     SEC. 641. 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''.

                           TITLE VII--SUNSET

     SEC. 701. SUNSET.

       (a) In General.--Except as otherwise provided, the 
     provisions of, and amendments made, by this Act shall not 
     apply to taxable years beginning after December 31, 2012, and 
     the Internal Revenue Code of 1986 shall be applied and 
     administered to such years as if such amendments had never 
     been enacted.
       (b) Exceptions.--Subsection (a) shall not apply to the 
     following provisions of, and amendments made, by this Act:
       (1) Title III.
       (2) Title VI.
                                 ______
                                 
  SA 580. Ms. LANDRIEU submitted an amendment intended to be proposed 
by her to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V add the following:

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

       (a) In General.--Section 1400H(b)(2) (relating to 
     modification) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) subsection (d)(1)(B) thereof shall be applied by 
     substituting `such renewal community, an adjacent renewal 
     community within the same State as such renewal community, or 
     a renewal community within such State which is within 5 miles 
     of any border of such renewal community' for `such 
     empowerment zone'.''.
       (b) Reduction of Acceleration of Top Rate Reduction In 
     Individual Income Tax Rates.--Notwithstanding the amendment 
     made by section 102(a) of this Act, in lieu of the percent 
     specified in the last column of the table in paragraph (2) of 
     section 1(i) of the Internal Revenue Code of 1986, as amended 
     by such section 102(a), for taxable years beginning during 
     calendar year 2003, 35.1% shall be substituted for such year.
       (c) Effective Dates.--
       (1) The amendments made by subsection (a) shall take effect 
     as if included in the amendment made by section 101(a) of the 
     Community Renewal Tax Relief Act of 2000.
       (2) Subsection (b) shall take effect on the date of 
     enactment of this Act.
                                 ______
                                 
  SA 581. Ms. LANDRIEU submitted an amendment intended to be proposed 
by her to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V add the following:

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

       (a) Ready Reserve-National Guard Credit.--Subpart D of part 
     IV of subchapter A of chapter 1 (relating to business-related 
     credits) is amended by adding at the end the following:

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

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year is an amount equal to 50 percent 
     of the actual compensation amount for such taxable year.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day during a taxable year when the employee 
     was absent from employment for the purpose of performing 
     qualified active duty.
       ``(c) Limitations.--
       ``(1) Maximum period for credit per employee.--The maximum 
     period with respect to which the credit may be allowed with 
     respect to any Ready Reserve-National Guard employee shall 
     not exceed the 12-month period beginning on the first day 
     such credit is so allowed with respect to such employee.
       ``(2) Days other than work days.--No credit shall be 
     allowed with respect to a Ready Reserve-National Guard 
     employee who performs qualified active duty on any day on 
     which the employee was not scheduled to work (for reason 
     other than to participate in qualified active duty).
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave of absence from 
     employment under chapter 43 of title 38, United States Code, 
     and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve or of the National Guard.
       ``(4) National guard.--The term `National Guard' has the 
     meaning given such term by section 101(c)(1) of title 10, 
     United States Code.
       ``(5) Ready reserve.--The term `Ready Reserve' has the 
     meaning given such term by section 10142 of title 10, United 
     States Code.''.
       (b) Credit To Be Part of General Business Credit.--
     Subsection (b) of section 38 (relating to general business 
     credit) is

[[Page 11646]]

     amended by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following:
       ``(16) the Ready Reserve-National Guard employee credit 
     determined under section 45G(a).''.
       (c) Conforming Amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1 is amended 
     by inserting after the item relating to section 45F the 
     following:

``Sec. 45G. Ready Reserve-National Guard employee credit.''.

       (d) Revision of Partial Exclusion of Dividends Received By 
     Individuals.--Section 116(a)(2)(B) of the Internal Revenue 
     Code of 1986, as added by section 201, is amended by striking 
     ``2007'' and inserting ``2008''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 582. Ms. LANDRIEU submitted an amendment intended to be proposed 
by her to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       Strike section 371 and insert the following:

     SEC. 371. TEMPORARY INCREASE OF MEDICAID FMAP.

       (a) Permitting Maintenance of Fiscal Year 2002 FMAP for 
     Last 2 Calendar Quarters of Fiscal Year 2003.--
     Notwithstanding any other provision of law, but subject to 
     subsection (e), if the FMAP determined without regard to this 
     section for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this section.
       (b) Permitting Maintenance of Fiscal Year 2003 FMAP for 
     Fiscal Year 2004.--Notwithstanding any other provision of 
     law, but subject to subsection (e), if the FMAP determined 
     without regard to this section for a State for fiscal year 
     2004 is less than the FMAP as so determined for fiscal year 
     2003, the FMAP for the State for fiscal year 2003 shall be 
     substituted for the State's FMAP for each calendar quarter of 
     fiscal year 2004, before the application of this section.
       (c) General 2.45 Percentage Points Increase for Last 2 
     Calendar Quarters of Fiscal Year 2003 and Fiscal Year 2004.--
     Notwithstanding any other provision of law, but subject to 
     subsections (e) and (f), for each State for the third and 
     fourth calendar quarters of fiscal year 2003 and each 
     calendar quarter of fiscal year 2004, the FMAP (taking into 
     account the application of subsections (a) and (b)) shall be 
     increased by 2.45 percentage points.
       (d) Increase in Cap on Medicaid Payments To Territories.--
     Notwithstanding any other provision of law, but subject to 
     subsection (f), with respect to the third and fourth calendar 
     quarters of fiscal year 2003 and each calendar quarter of 
     fiscal year 2004, the amounts otherwise determined for Puerto 
     Rico, the Virgin Islands, Guam, the Northern Mariana Islands, 
     and American Samoa under subsections (f) and (g) of section 
     1108 of the Social Security Act (42 U.S.C. 1308) shall each 
     be increased by an amount equal to 4.90 percent of such 
     amounts.
       (e) Scope of Application.--The increases in the FMAP for a 
     State under this section shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (1) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4); or
       (2) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.).
       (f) State Eligibility.--
       (1) In general.--Subject to paragraph (2), a State is 
     eligible for an increase in its FMAP under subsection (c) or 
     an increase in a cap amount under subsection (d) only if the 
     eligibility under its State plan under title XIX of the 
     Social Security Act (including any waiver under such title or 
     under section 1115 of such Act (42 U.S.C. 1315)) is no more 
     restrictive than the eligibility under such plan (or waiver) 
     as in effect on September 2, 2003.
       (2) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after September 2, 2003, but prior to the date of 
     enactment of this Act is eligible for an increase in its FMAP 
     under subsection (c) or an increase in a cap amount under 
     subsection (d) in the first calendar quarter (and subsequent 
     calendar quarters) in which the State has reinstated 
     eligibility that is no more restrictive than the eligibility 
     under such plan (or waiver) as in effect on September 2, 
     2003.
       (3) Rule of construction.--Nothing in paragraph (1) or (2) 
     shall be construed as affecting a State's flexibility with 
     respect to benefits offered under the State medicaid program 
     under title XIX of the Social Security Act (42 U.S.C. 1396 et 
     seq.) (including any waiver under such title or under section 
     1115 of such Act (42 U.S.C. 1315)).
       (g) Definitions.--In this section:
       (1) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (2) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (h) Repeal.--Effective as of October 1, 2004, this section 
     is repealed.

     SEC. 371A. ONE-TIME REVENUE GRANT TO STATES AND LOCAL 
                   GOVERNMENTS.

       (a) Appropriation.--There is authorized to be appropriated 
     and is appropriated to carry out this section $30,000,000,000 
     for fiscal year 2003.
       (b) Payments to States.--
       (1) In general.--From the amount appropriated under 
     subsection (a) for fiscal year 2003, the Secretary of the 
     Treasury shall, as soon as practicable after the date of the 
     enactment of this Act, pay with respect to a State, the sum 
     of the amounts determined for the State under paragraphs (2), 
     (3), and (4).
       (2) Funding to meet the requirements of the no child left 
     behind act.--$7,500,000,000 shall be paid to States in the 
     same manner as allocations are made with respect to States 
     under section 1122 of the Elementary and Secondary Education 
     Act of 1965 (20 U.S.C. 6332).
       (3) Funding for child care for low-income families.--
     $3,000,000,000 shall be paid to States in the same manner as 
     allocations are made with respect to States under section 
     658O of the Child Care and Development Block Grant Act of 
     1990 (42 U.S.C. 9858m).
       (4) Funding for other state priorities.--
       (A) 50 percent based on population.--$4,875,000,000 shall 
     be allotted among such States on the basis of the relative 
     population of each such State, as determined by the Secretary 
     on the basis of the most recent satisfactory data.
       (B) 50 percent based on change in unemployment rate.--
       (i) Tier 1.--$1,220,000,000 shall be allotted among such 
     States which have experienced a tier 1 unemployment rate on 
     the basis of the relative number of unemployed individuals 
     for calendar year 2002 in each such State, as determined by 
     the Secretary on the basis of the most recent satisfactory 
     data.
       (ii) Tier 2.--$3,655,000,000 shall be allotted among such 
     States which have experienced a tier 2 unemployment rate on 
     the basis of the relative number of unemployed individuals 
     for calendar year 2002 in each such State, as determined by 
     the Secretary on the basis of the most recent satisfactory 
     data.
       (C) Guidelines for Use of Funds.--It is the sense of 
     Congress that States should use funds paid under this 
     paragraph for homeland security, public health, highway 
     construction, and the prevention of additional property and 
     other tax increases.
       (c) Payments to Units of General Local Government.--
       (1) In general.--From the amount appropriated under 
     subsection (a) for fiscal year 2003, the Secretary of the 
     Treasury shall, as soon as practicable after the date of the 
     enactment of this Act, pay with respect to a unit of general 
     local government, the sum of the amounts determined for the 
     unit of general local government under paragraphs (2) and 
     (3).
       (2)  percent based on population.--$4,875,000,000 shall be 
     allotted among such States as determined under subsection 
     (b)(4)(A) for distribution to the various units of general 
     local government within such States on the basis of the 
     relative population of each such unit within each such State, 
     as determined by the Secretary on the basis of the most 
     recent satisfactory data.
       (3) 50 percent based on change in unemployment rate.--
       (A) Tier 1.--$1,220,000,000 shall be allotted among such 
     States which have experienced a tier 1 unemployment rate as 
     determined under subsection (b)(4)(B)(i) for distribution to 
     the various units of general local government within such 
     States on the basis of the relative number of unemployed 
     individuals for calendar year 2002 in each such unit within 
     each such State, as determined by the Secretary on the basis 
     of the most recent satisfactory data.
       (B) Tier 2.--$3,655,000,000 shall be allotted among such 
     States which have experienced a tier 2 unemployment rate as 
     determined under subsection (b)(4)(B)(ii) for distribution to 
     the various units of general local government within such 
     States on the basis of the relative number of unemployed 
     individuals for calendar year 2002 in each such unit within 
     each such State, as determined by the Secretary on the basis 
     of the most recent satisfactory data.
       (4) Guidelines for Use of Funds.--It is the sense of 
     Congress that units of general local government should use 
     funds paid in accordance with this subsection for homeland 
     security, public health, highway construction, and the 
     prevention of additional property and other tax increases.
       (d) Definitions.--For purposes of this section--
       (1) State.--The term ``State'' means any of the several 
     States, the District of Columbia, and the Commonwealth of 
     Puerto Rico.

[[Page 11647]]

       (2) Unit of general local government.--
       (A) In general.--The term ``unit of general local 
     government'' means--
       (i) a county, parish, township, city, or political 
     subdivision of a county, parish, township, or city, that is a 
     unit of general local government as determined by the 
     Secretary of Commerce for general statistical purposes; and
       (ii) the District of Columbia, the Commonwealth of Puerto 
     Rico, and the recognized governing body of an Indian tribe or 
     Alaskan native village that carries out substantial 
     governmental duties and powers.
       (B) Treatment of subsumed areas.--For purposes of 
     determining a unit of general local government under this 
     section, the rules under section 6720(c) of title 31, United 
     States Code, shall apply.
       (3) Unemployment.--With respect to any State or unit of 
     general local government--
       (A) Tier 1 unemployment rate.--The term ``tier 1 
     unemployment rate'' means an unemployment rate for calendar 
     year 2002 which was at least .4 but not more than 1.0 
     percentage point greater than such rate for calendar year 
     2000.
       (B) Tier 2 unemployment rate.--The term ``tier 2 
     unemployment rate'' means an unemployment rate for calendar 
     year 2002 which was more than 1.0 percentage point greater 
     than such rate for calendar year 2000.

     SEC. 371B. ELIMINATION OF 20 PERCENT PARTIAL EXCLUSION OF 
                   DIVIDENDS RECEIVED BY INDIVIDUALS.

       (a) In General.--Section 116(a)(2)(B), as added by section 
     201 of this Act, is amended by striking ``(20 percent in the 
     case of taxable years beginning after 2007)''.
       (b) Conforming Amendments.--Sections 531(a) and 541(a), as 
     amended by section 201 of this Act, are each amended by 
     striking ``(80 percent in the case of taxable years beginning 
     after 2007)''.
                                 ______
                                 
  SA 583. Mr. BINGAMAN submitted an amendment intended to be proposed 
by him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       On page 281, between lines 2 and 3, insert the following:

     SEC. __. INFLATION ADJUSTMENT FOR ELDERLY AND DISABLED CREDIT 
                   DOLLAR AMOUNTS.

       (a) In General.--Section 22 (relating to credit for the 
     elderly and the permanently disabled) is amended by adding at 
     the end the following new subsection:
       ``(g) Inflation Adjustment.--
       ``(1) In general.--In the case of any taxable year 
     beginning after 2002, each of the dollar amounts contained in 
     subsections (c) and (d) shall be increased by an amount equal 
     to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, by substituting 
     `1983' for `1992' in subparagraph (B) thereof.
       ``(B) Rounding.--If any increase determined under 
     subparagraph (A) is not a multiple of $50, such increase 
     shall be rounded to the nearest multiple of $50.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
       On page 19, line 12, strike ``in the case of taxable years 
     beginning after 2007'' and insert ``in the case of qualified 
     dividend income received after June 30, 2008''.
                                 ______
                                 
  SA 584. Mr. BINGAMAN (for himself and Mrs. Lincoln) submitted an 
amendment intended to be proposed by him to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; which was ordered to lie 
on the table; as follows:

       On page __, between lines __ and __, insert the following:

     SEC. __. MEDICAID DSH ALLOTMENTS.

       (a) Temporary Increase in Floor for Treatment as an 
     Extremely Low DSH State under the Medicaid Program.--
       (1) In general.--Section 1923(f)(5) of the Social Security 
     Act (42 U.S.C. 1396r-4(f)(5)) is amended--
       (A) by striking ``In the case of'' and inserting the 
     following:
       ``(A) In general.--In the case of''; and
       (B) by adding at the end the following:
       ``(B) Temporary increase in floor for fiscal year 2004.--
     During the period that begins on October 1, 2003, and ends on 
     September 30, 2004, subparagraph (A) shall be applied--
       ``(i) by substituting `fiscal year 2002' for `fiscal year 
     1999';
       ``(iii) by substituting `Centers for Medicare & Medicaid 
     Services' for `Health Care Financing Administration';
       ``(ii) by substituting `August 31, 2003' for `August 31, 
     2000';
       ``(iv) by substituting `3 percent' for `1 percent' each 
     place it appears;
       ``(v) by substituting `fiscal year 2004' for `fiscal year 
     2001'; and
       ``(vi) without regard to the second sentence.''.
       (2) Effective date.--The amendments made by paragraph (1) 
     take effect on October 1, 2003, and apply to DSH allotments 
     under title XIX of the Social Security Act only with respect 
     to fiscal year 2004.
       (b) Continuation of BIPA Rule for Determination of 
     Allotments for Fiscal Year 2003.--
       (1) In general.--Section 1923(f)(4) of the Social Security 
     Act (42 U.S.C. 1396r-4(f)(4)) is amended--
       (A) in the paragraph heading, by striking ``and 2002'' and 
     inserting ``through 2003'';
       (B) in subparagraph (A)--
       (i) in clause (i), by striking ``and'' at the end;
       (ii) in clause (ii), by striking the period and inserting a 
     semicolon; and
       (iii) by adding at the end the following:
       ``(iii) fiscal year 2003, shall be the DSH allotment 
     determined under clause (ii) increased, subject to 
     subparagraph (B) and paragraph (5), by the percentage change 
     in the Consumer Price Index for all urban consumers (all 
     items; U.S. city average) for fiscal year 2002.''; and
       (C) in subparagraph (C)--
       (i) in the subparagraph heading, by striking ``2002'' and 
     inserting ``2003''; and
       (ii) by striking ``2003'' and inserting ``2004''.
       (3) Conforming amendments.--Section 1923(f)(3) of such Act 
     (42 U.S.C. 1396r-4(f)(3)) is amended--
       (A) in the paragraph heading, by striking ``2003'' and 
     inserting ``2004''; and
       (B) by striking subparagraph (A) and inserting the 
     following:
       ``(A) In general.--The DSH allotment for any State--
       ``(i) for fiscal year 2004, is equal to the DSH allotment 
     determined for the State for fiscal year 2002 under the table 
     set forth in paragraph (2), increased, subject to 
     subparagraph (B) and paragraph (5), by the percentage change 
     in the Consumer Price Index for all urban consumers (all 
     items; U.S. city average), for each of fiscal years 2002 and 
     2003; and
       ``(ii) for fiscal year 2005 and each succeeding fiscal 
     year, is equal to the DSH allotment determined for the State 
     for the preceding fiscal year under this paragraph, 
     increased, subject to subparagraph (B) and paragraph (5), by 
     the percentage change in the Consumer Price Index for all 
     urban consumers (all items; U.S. city average), for the 
     previous fiscal year.''.
       (4) Effective date.--The amendments made by this subsection 
     shall take effect as if included in the enactment of section 
     701 of the Medicare, Medicaid, and SCHIP Benefits Improvement 
     and Protection Act of 2000, as enacted into law by section 
     1(a)(6) of Public Law 106-554 (114 Stat. 2763A-569).
       (c) Allotment Adjustment for Certain States.--
       (1) In general.--Section 1923(f) of the Social Security Act 
     (42 U.S.C. 1396r-4(f)) is amended--
       (A) by redesignating paragraph (6) as paragraph (7); and
       (B) by inserting after paragraph (5) the following:
       ``(6) Allotment adjustment for certain states.--
       ``(A) Tennessee.--If the State-wide waiver approved under 
     section 1115 for the State of Tennessee with respect to the 
     requirements of this title (as in effect on the date of 
     enactment of this subsection) is revoked or terminated, the 
     Secretary shall--
       ``(i) permit the State of Tennessee to submit an amendment 
     to its State plan that would describe the methodology to be 
     used by the State (after the effective date of such 
     revocation or termination) to identify and make payments to 
     disproportionate share hospitals, including children's 
     hospitals and institutions for mental diseases or other 
     mental health facilities (other than State-owned institutions 
     or facilities), on the basis of the proportion of patients 
     served by such hospitals that are low-income patients with 
     special needs; and
       ``(ii) provide for purposes of this subsection for 
     computation of an appropriate DSH allotment for the State 
     that provides for the maximum amount (permitted consistent 
     with paragraph (3)(B)(ii)) that does not result in greater 
     expenditures under this title than would have been made if 
     such waiver had not been revoked or terminated.
       ``(B) Hawaii.--Effective for DSH allotments beginning with 
     fiscal year 2003, the Secretary shall compute a DSH allotment 
     for the State of Hawaii in the same manner as DSH allotments 
     are determined with respect to those States to which 
     paragraph (5) applies (but without regard to the requirement 
     under such paragraph that total expenditures under the State 
     plan for disproportionate share hospital adjustments for any 
     fiscal year exceeds 0).''.
       (2) Treatment of institutions for mental diseases.--Section 
     1923(h)(1) of the Social Security Act (42 U.S.C. 1396r-
     4(h)(1)) is amended--
       (A) in paragraph (1), in the matter preceding subparagraph 
     (A), by inserting ``(subject to paragraph (3))'' after ``the 
     lesser of the following''; and
       (B) by adding at the end the following new paragraph:
       ``(3) Special rule.--The limitation of paragraph (1) shall 
     not apply in the case of Tennessee in the case of a 
     revocation or termination of its statewide waiver described 
     in subsection (f)(6)(A).''.

[[Page 11648]]

       (3) Effective date.--The amendment made by this subsection 
     shall take effect as if enacted on October 1, 2002.
       (d) Funding.--Of the amount appropriated in section 371(e) 
     for fiscal year 2003 (after the application of section 
     1903(x) of the Social Security Act), an amount equal to the 
     amount required to carry out the amendments made by this 
     section for each of fiscal years 2003 through 2013 shall be 
     transferred and made available from the amount so 
     appropriated in section 371(e) (after such application) to 
     the Secretary of Health and Human Services to carry out the 
     amendments made by this section.
                                 ______
                                 
  SA 585. Mr. NELSON of Florida submitted an amendment intended to be 
proposed by him to the bill S. 1054, to provide for reconciliation 
pursuant to section 201 of the concurrent resolution on the budget for 
fiscal year 2004; which was ordered to lie on the table; as follows:

       On page 19, line 13, strike ``2007'' and insert ``2011''.
       On page 26, line 19, strike ``2007'' and insert ``2011''.
       On page 26, line 22, strike ``2007'' and insert ``2011''.
       On page 281, strike lines 3 and 4 and insert the following:

                        TITLE VI--MISCELLANEOUS

     SEC. 601. REPEAL OF REQUIREMENT OF REDUCTION OF SBP SURVIVOR 
                   ANNUITIES BY DEPENDENCY AND INDEMNITY 
                   COMPENSATION.

       (a) Repeal.--Section 1451(c) of title 10, United States 
     Code, is amended by striking paragraph (2).
       (b) Prohibition on Retroactive Benefits.--No benefits may 
     be paid to any person for any period before the effective 
     date specified in subsection (c) by reason of the amendment 
     made by subsection (a).
       (c) Effective Date.--The amendment made by subsection (a) 
     shall take effect on--
       (1) the first day of the first month that begins after the 
     date of the enactment of this Act; or
       (2) the first day of the fiscal year that begins in the 
     calendar year in which this Act is enacted, if later than the 
     date specified in paragraph (1).

     SEC. 602. COMPUTATION OF BENEFITS UNDER SURVIVOR BENEFIT PLAN 
                   FOR SURVIVING SPOUSES OVER AGE 62.

       (a) Phased Increase in Basic Annuity.--
       (1) Standard annuity.--
       (A) Increase to 55 percent.--Clause (i) of subsection 
     (a)(1)(B) of section 1451 of title 10, United States Code, is 
     amended by striking ``35 percent of the base amount.'' and 
     inserting ``the product of the base amount and the percent 
     applicable to the month, as follows:

       ``(I) For a month before October 2004, the applicable 
     percent is 35 percent.
       ``(II) For a month during fiscal year 2005, the applicable 
     percent is 40 percent.
       ``(III) For a month during fiscal year 2006, the applicable 
     percent is 45 percent.
       ``(IV) For a month during fiscal year 2007, the applicable 
     percent is 50 percent.
       ``(V) For a month during a fiscal year after fiscal year 
     2007, the applicable percent is 55 percent.''.

       (B) Coordination with savings provision under prior law.--
     Clause (ii) of such subsection is amended by striking ``, at 
     the time the beneficiary becomes entitled to the annuity,''.
       (2) Reserve-component annuity.--Subsection (a)(2)(B)(i)(I) 
     of such section is amended by striking ``35 percent'' and 
     inserting ``the percent specified under subsection 
     (a)(1)(B)(i) as being applicable for the month''.
       (3) Survivors of eligible persons dying on active duty, 
     etc.--
       (A) Increase to 55 percent.--Clause (i) of subsection 
     (c)(1)(B) of such section is amended--
       (i) by striking ``35 percent'' and inserting ``the 
     applicable percent''; and
       (ii) by adding at the end the following: ``The percent 
     applicable for a month under the preceding sentence is the 
     percent specified under subsection (a)(1)(B)(i) as being 
     applicable for that month.''.
       (B) Coordination with savings provision under prior law.--
     Clause (ii) of such subsection is amended by striking ``, at 
     the time the beneficiary becomes entitled to the annuity,''.
       (4) Clerical amendment.--The heading for subsection 
     (d)(2)(A) of such section is amended to read as follows: 
     ``Computation of annuity.--''.
       (b) Corresponding Phased Elimination of Supplemental 
     Annuity.--
       (1) Phased reduction of supplemental annuity.--Section 
     1457(b) of title 10, United States Code, is amended--
       (A) by striking ``5, 10, 15, or 20 percent'' and inserting 
     ``the applicable percent''; and
       (B) by inserting after the first sentence the following: 
     ``The percent used for the computation shall be an even 
     multiple of 5 percent and, whatever the percent specified in 
     the election, may not exceed 20 percent for months before 
     October 2004, 15 percent for months during fiscal year 2005, 
     10 percent for months during fiscal year 2006, and 5 percent 
     for months after September 2006.''.
       (2) Repeal upon implementation of 55 percent sbp annuity.--
     Effective on October 1, 2007, chapter 73 of such title is 
     amended--
       (A) by striking subchapter III; and
       (B) by striking the item relating to subchapter III in the 
     table of subchapters at the beginning of that chapter.
       (c) Recomputation of Annuities.--
       (1) Periodic recomputation required.--Effective on the 
     first day of each month specified in paragraph (2)--
       (A) each annuity under section 1450 of title 10, United 
     States Code, that commenced before that month, is computed 
     under a provision of section 1451 of that title amended by 
     subsection (a), and is payable for that month shall be 
     recomputed so as to be equal to the amount that would be in 
     effect if the percent applicable for that month under that 
     provision, as so amended, had been used for the initial 
     computation of the annuity; and
       (B) each supplemental survivor annuity under section 1457 
     of such title that commenced before that month and is payable 
     for that month shall be recomputed so as to be equal to the 
     amount that would be in effect if the percent applicable for 
     that month under that section, as amended by this section, 
     had been used for the initial computation of the supplemental 
     survivor annuity.
       (2) Time for recomputation.--The requirement under 
     paragraph (1) for recomputation of certain annuities applies 
     with respect to the following months:
       (A) October 2004.
       (B) October 2005.
       (C) October 2006.
       (D) October 2007.
       (d) Recomputation of Retired Pay Reductions for 
     Supplemental Survivor Annuities.--The Secretary of Defense 
     shall take such actions as are necessitated by the amendments 
     made by subsection (b) and the requirements of subsection 
     (c)(1)(B) to ensure that the reductions in retired pay under 
     section 1460 of title 10, United States Code, are adjusted to 
     achieve the objectives set forth in subsection (b) of that 
     section.

     SEC. 603. OPEN ENROLLMENT PERIOD FOR SURVIVOR BENEFIT PLAN 
                   COMMENCING OCTOBER 1, 2004.

       (a) Persons Not Currently Participating in Survivor Benefit 
     Plan.--
       (1) Election of sbp coverage.--An eligible retired or 
     former member may elect to participate in the Survivor 
     Benefit Plan under subchapter II of chapter 73 of title 10, 
     United States Code, during the open enrollment period 
     specified in subsection (f).
       (2) Election of supplemental annuity coverage.--An eligible 
     retired or former member who elects under paragraph (1) to 
     participate in the Survivor Benefit Plan at the maximum level 
     may also elect during the open enrollment period to 
     participate in the Supplemental Survivor Benefit Plan 
     established under subchapter III of chapter 73 of title 10, 
     United States Code.
       (3) Eligible retired or former member.--For purposes of 
     paragraphs (1) and (2), an eligible retired or former member 
     is a member or former member of the uniformed services who on 
     the day before the first day of the open enrollment period is 
     not a participant in the Survivor Benefit Plan and--
       (A) is entitled to retired pay; or
       (B) would be entitled to retired pay under chapter 1223 of 
     title 10, United States Code, but for the fact that such 
     member or former member is under 60 years of age.
       (4) Status under sbp of persons making elections.--
       (A) Standard annuity.--A person making an election under 
     paragraph (1) by reason of eligibility under paragraph (3)(A) 
     shall be treated for all purposes as providing a standard 
     annuity under the Survivor Benefit Plan.
       (B) Reserve-component annuity.--A person making an election 
     under paragraph (1) by reason of eligibility under paragraph 
     (3)(B) shall be treated for all purposes as providing a 
     reserve-component annuity under the Survivor Benefit Plan.
       (b) Election To Increase Coverage Under SBP.--A person who 
     on the day before the first day of the open enrollment period 
     is a participant in the Survivor Benefit Plan but is not 
     participating at the maximum base amount or is providing 
     coverage under the Plan for a dependent child and not for the 
     person's spouse or former spouse may, during the open 
     enrollment period, elect to--
       (1) participate in the Plan at a higher base amount (not in 
     excess of the participant's retired pay); or
       (2) provide annuity coverage under the Plan for the 
     person's spouse or former spouse at a base amount not less 
     than the base amount provided for the dependent child.
       (c) Election for Current SBP Participants To Participate in 
     Supplemental SBP.--
       (1) Election.--A person who is eligible to make an election 
     under this paragraph may elect during the open enrollment 
     period to participate in the Supplemental Survivor Benefit 
     Plan established under subchapter III of chapter 73 of title 
     10, United States Code, as added by section 1404.
       (2) Persons eligible.--Except as provided in paragraph (3), 
     a person is eligible to make an election under paragraph (1) 
     if on the day before the first day of the open enrollment 
     period the person is a participant in the Survivor Benefit 
     Plan at the maximum level, or during the open enrollment 
     period the person increases the level of such participation 
     to

[[Page 11649]]

     the maximum level under subsection (b) of this section, and 
     under that Plan is providing annuity coverage for the 
     person's spouse or a former spouse.
       (3) Limitation on eligibility for certain sbp participants 
     not affected by two-tier annuity computation.--A person is 
     not eligible to make an election under paragraph (1) if (as 
     determined by the Secretary concerned) the annuity of a 
     spouse or former spouse beneficiary of that person under the 
     Survivor Benefit Plan will be computed under section 1451(e) 
     of title 10, United States Code. However, such a person may 
     during the open enrollment period waive the right to have 
     that annuity computed under such section. Any such election 
     is irrevocable. A person making such a waiver may make an 
     election under paragraph (1) as in the case of any other 
     participant in the Survivor Benefit Plan.
       (d) Manner of Making Elections.--An election under this 
     section must be made in writing, signed by the person making 
     the election, and received by the Secretary concerned before 
     the end of the open enrollment period. Any such election 
     shall be made subject to the same conditions, and with the 
     same opportunities for designation of beneficiaries and 
     specification of base amount, that apply under the Survivor 
     Benefit Plan or the Supplemental Survivor Benefit Plan, as 
     the case may be. A person making an election under subsection 
     (a) to provide a reserve-component annuity shall make a 
     designation described in section 1448(e) of title 10, United 
     States Code.
       (e) Effective Date for Elections.--Any such election shall 
     be effective as of the first day of the first calendar month 
     following the month in which the election is received by the 
     Secretary concerned.
       (f) Open Enrollment Period Defined.--The open enrollment 
     period is the one-year period beginning on October 1, 2004.
       (g) Effect of Death of Person Making Election Within Two 
     Years of Making Election.--If a person making an election 
     under this section dies before the end of the two-year period 
     beginning on the effective date of the election, the election 
     is void and the amount of any reduction in retired pay of the 
     person that is attributable to the election shall be paid in 
     a lump sum to the person who would have been the deceased 
     person's beneficiary under the voided election if the 
     deceased person had died after the end of such two-year 
     period.
       (h) Applicability of Certain Provisions of Law.--The 
     provisions of sections 1449, 1453, and 1454 of title 10, 
     United States Code, are applicable to a person making an 
     election, and to an election, under this section in the same 
     manner as if the election were made under the Survivor 
     Benefit Plan or the Supplemental Survivor Benefit Plan, as 
     the case may be.
       (i) Additional Premium.--The Secretary of Defense may 
     require that the premium for a person making an election 
     under subsection (a)(1) or (b) include, in addition to the 
     amount required under section 1452(a) of title 10, United 
     States Code, an amount determined under regulations 
     prescribed by the Secretary of Defense for the purposes of 
     this subsection. Any such amount shall be stated as a 
     percentage of the base amount of the person making the 
     election and shall reflect the number of years that have 
     elapsed since the person retired, but may not exceed 4.5 
     percent of that person's base amount.
       (j) Report Concerning Open Season.--Not later than July 1, 
     2004, the Secretary of Defense shall submit to the Committees 
     on Armed Services of the Senate and House of Representatives 
     a report on the open season authorized by this section for 
     the Survivor Benefit Plan. The report shall include the 
     following:
       (1) A description of the Secretary's plans for 
     implementation of the open season.
       (2) The Secretary's estimates of the costs associated with 
     the open season, including any anticipated effect of the open 
     season on the actuarial status of the Department of Defense 
     Military Retirement Fund.
       (3) Any recommendation by the Secretary for further 
     legislative action.

                           TITLE VII--SUNSET

     SEC. 701. SUNSET.

       On page 281, after line 15, add the following:
       (3) Title VI.
                                 ______
                                 
  SA 586. Mr. BROWNBACK submitted an amendment intended to be proposed 
by him to the bill S. 1054, to provide for reconciliation to section 
201 of the concurrent resolution on the budget for fiscal year 2004; 
which was ordered to lie on the table; as follows:

       Strike section 107 and insert the following:

     SEC. 107. INCREASE AND EXTENSION OF BONUS DEPRECIATION.

       (a) In General.--Section 168(k) (relating to special 
     allowance for certain property acquired after September 10, 
     2001, and before September 11, 2004) is amended by adding at 
     the end the following new paragraph:
       ``(4) 50-percent bonus depreciation for certain property.--
       ``(A) In general.--In the case of 50-percent bonus 
     depreciation property--
       ``(i) paragraph (1)(A) shall be applied by substituting `50 
     percent' for `30 percent', and
       ``(ii) except as provided in paragraph (2)(C), such 
     property shall be treated as qualified property for purposes 
     of this subsection.
       ``(B) 50-percent bonus depreciation property.--For purposes 
     of this subsection, the term `50-percent bonus depreciation 
     property' means property described in paragraph (2)(A)(i)--
       ``(i) the original use of which commences with the taxpayer 
     after May 5, 2003,
       ``(ii) which is acquired by the taxpayer after May 5, 2003, 
     and before January 1, 2006, but only if no written binding 
     contract for the acquisition was in effect before May 6, 
     2003, and
       ``(iii) which is placed in service by the taxpayer before 
     January 1, 2006, or, in the case of property described in 
     paragraph (2)(B) (as modified by subparagraph (C) of this 
     paragraph), before January 1, 2007.
       ``(C) Special rules.--Rules similar to the rules of 
     subparagraphs (B) and (D) of paragraph (2) shall apply for 
     purposes of this paragraph; except that--
       ``(i) references to September 10, 2001, shall be treated as 
     references to May 5, 2003, and
       ``(ii) references to September 11, 2001, shall be treated 
     as references to May 6, 2003.
       ``(D) Automobiles.--Paragraph (2)(E) shall be applied by 
     substituting `$9,200' for `$4,600' in the case of 50-percent 
     bonus depreciation property.
       ``(E) Election of 30 percent bonus.--If a taxpayer makes an 
     election under this subparagraph with respect to any class of 
     property for any taxable year, subparagraph (A)(i) shall not 
     apply to all property in such class placed in service during 
     such taxable year.''
        (b) Extension of Placed in Service Dates, Etc. for 30-
     Percent Bonus Depreciation Property.--
       (1) In general.--Clause (iv) of section 168(k)(2)(A) is 
     amended--
       (A) by striking ``January 1, 2005'' and inserting ``January 
     1, 2006'', and
       (B) by striking ``January 1, 2006'' (as in effect before 
     the amendment made by subparagraph (A)) and inserting 
     ``January 1, 2007''.
       (2) Portion of basis taken into account.--Subparagraphs 
     (B)(ii) and (D)(i) of section 168(k)(2) are each amended by 
     striking ``September 11, 2004'' each place it appears and 
     inserting ``January 1, 2006''.
       (3) Election.--Clause (iii) of section 168(k)(2)(C) is 
     amended by adding at the end the following: ``The preceding 
     sentence shall be applied separately with respect to property 
     treated as qualified property by paragraph (4) and other 
     qualified property.''
       (c) Conforming Amendments.--
       (1) The subsection heading for section 168(k) is amended by 
     striking ``September 11, 2004'' and inserting ``January 1, 
     2006''.
       (2) The heading for clause (i) of section 1400L(b)(2)(C) is 
     amended by striking ``30-percent additional allowable 
     property'' and inserting ``Bonus depreciation property under 
     section 168(k)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 107A. INCREASED EXPENSING FOR SMALL BUSINESS.

       (a) In General.--Paragraph (1) of section 179(b) (relating 
     to dollar limitation) is amended to read as follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed $25,000 ($100,000 in the case of taxable 
     years beginning after 2002 and before 2008).''.
       (b) Increase in Qualifying Investment at Which Phaseout 
     Begins.--Paragraph (2) of section 179(b) (relating to 
     reduction in limitation) is amended by inserting ``($400,000 
     in the case of taxable years beginning after 2002 and before 
     2008)'' after ``$200,000''.
       (c) Off-the-Shelf Computer Software.--Paragraph (1) of 
     section 179(d) (defining section 179 property) is amended to 
     read as follows:
       ``(1) Section 179 property.--For purposes of this section, 
     the term `section 179 property' means property--
       ``(A) which is--
       ``(i) tangible property (to which section 168 applies), or
       ``(ii) computer software (as defined in section 
     197(e)(3)(B)) which is described in section 197(e)(3)(A)(i), 
     to which section 167 applies, and which is placed in service 
     in a taxable year beginning after 2002 and before 2008,
       ``(B) which is section 1245 property (as defined in section 
     1245(a)(3)), and
       ``(C) which is acquired by purchase for use in the active 
     conduct of a trade or business.
     Such term shall not include any property described in section 
     50(b) and shall not include air conditioning or heating 
     units.''.
       (d) Adjustment of Dollar Limit and Phaseout Threshold for 
     Inflation.--Subsection (b) of section 179 (relating to 
     limitations) is amended by adding at the end the following 
     new paragraph:
       ``(5) Inflation adjustments.--
       ``(A) In general.--In the case of any taxable year 
     beginning in a calendar year after 2003 and before 2008, the 
     $100,000 and $400,000 amounts in paragraphs (1) and (2) shall 
     each be increased by an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar

[[Page 11650]]

     year in which the taxable year begins, by substituting 
     `calendar year 2002' for `calendar year 1992' in subparagraph 
     (B) thereof.
       ``(B) Rounding.--
       ``(i) Dollar limitation.--If the amount in paragraph (1) as 
     increased under subparagraph (A) is not a multiple of $1,000, 
     such amount shall be rounded to the nearest multiple of 
     $1,000.
       ``(ii) Phaseout amount.--If the amount in paragraph (2) as 
     increased under subparagraph (A) is not a multiple of 
     $10,000, such amount shall be rounded to the nearest multiple 
     of $10,000.''.
       (e) Revocation of Election.--Paragraph (2) of section 
     179(c) (relating to election irrevocable) is amended to read 
     as follows:
       ``(2) Revocation of election.--An election under paragraph 
     (1) with respect to any taxable year beginning after 2002 and 
     before 2008, and any specification contained in any such 
     election, may be revoked by the taxpayer with respect to any 
     property. Such revocation, once made, shall be 
     irrevocable.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
                                 ______
                                 
  SA 587. Mr. JEFFORDS proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       After section 107, insert the following:

     SEC. 107A. ACCELERATION OF MARRIAGE PENALTY RELIEF FOR EARNED 
                   INCOME CREDIT.

       (a) In General.--Section 32(b)(2)(B) (relating to joint 
     returns) is amended by striking ```increased by--'' and all 
     that follows and inserting ``increased by $3,000.''.
       (b) Inflation Adjustment.--Clause (ii) of section 
     32(j)(1)(B) (relating to inflation adjustments) is amended to 
     read as follows:
       ``(ii) in the case of the $3,000 amount in subsection 
     (b)(2)(B), by substituting `calendar year 2003' for `calendar 
     year 1992' in subparagraph (B) of such section 1.''.
       (c) Conforming Amendment.--Section 303(i)(2) of the 
     Economic Growth and Tax Relief Reconciliation Act of 2001 is 
     amended by striking ``2004'' and inserting ``2003''.
       (d) Adjustment of Highest Individual Income Tax Rate.--In 
     lieu of the rate specified for taxable years beginning during 
     calendar year 2003 and thereafter in the last column of the 
     table contained in section 1(i)(2) of the Internal Revenue 
     Code of 1986, as amended by section 102(a), the Secretary of 
     the Treasury shall adjust such rate for 1 or more of such 
     taxable years to provide such revenues as are necessary to 
     equal the loss in revenues which would result in the 
     enactment of the amendments made by subsections (a), (b), and 
     (c) of this section.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2002.
       (2) Conforming amendment.--The amendment made by subsection 
     (c) shall take effect on January 1, 2003.
                                 ______
                                 
  SA 588. Mr. BAYH submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V, insert the following:

     SEC. __. CERTAIN POSTSECONDARY EDUCATIONAL BENEFITS PROVIDED 
                   BY AN EMPLOYER TO CHILDREN OF EMPLOYEES 
                   EXCLUDABLE FROM GROSS INCOME UNDER EDUCATIONAL 
                   ASSISTANCE PROGRAMS.

       (a) In General.--Section 127 (relating to educational 
     assistance programs) is amended by redesignating subsection 
     (d) as subsection (e), and inserting after subsection (c) the 
     following:
       ``(d) Post Secondary Educational Benefits Provided to 
     Children of Employees.--
       ``(1) In general.--For purposes of this section, 
     educational assistance provided by the employer to a child 
     (as defined in section 151(c)(3)) of an employee of such 
     employer pursuant to an educational assistance program shall 
     be treated as educational assistance provided for the 
     exclusive benefit of the employee.
       ``(2) Dollar limitations.--The amount excluded from the 
     gross income of the employee by reason of paragraph (1) for a 
     taxable year with respect to amounts provided to each child 
     of such employee shall not exceed $2,000.
       ``(3) Limitation on educational assistance.--Paragraph (1) 
     shall only apply to expenses paid or incurred in connection 
     with the enrollment or attendance of a child of an employee 
     at an educational institution described in section 
     529(e)(5).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of 
     enactment of this Act.
                                 ______
                                 
  SA 589. Mr. BUNNING (for himself and Mr. McConnell) proposed an 
amendment to the bill S. 1054, to provide for reconciliation pursuant 
to section 201 of the concurrent resolution on the budget for fiscal 
year 2004; as follows:

       At the appropriate place, insert the following:

     SECTION   . SENSE OF THE SENATE ON REPEALING THE 1993 TAX 
                   HIKE ON SOCIAL SECURITY BENEFITS SECTION  .

       (a) Findings.--
       The 1993 tax on Social Security benefits was imposed as 
     part of the President Clinton's agenda to raise taxes;
       The original 1993 tax hike on Social Security benefits was 
     to raise income taxes on Social Security retirees with as 
     little as $25,000 of income;
       Repeated efforts to repeal the 1993 tax hike on Social 
     Security benefits have failed; and
       Seniors rely on Social Security benefits as well as 
     dividend income to fund their retirement and they should have 
     taxes reduced on both sources of income:
       (b) Sense of the Senate.--It is the Sense of the Senate 
     that the Senate Finance Committee should report out the 
     Social Security Benefits Tax Relief Act of 2003, S. 514, to 
     repeal the tax on seniors not later than July 31, 2003, and 
     the Senate shall consider such bill not later than September 
     30, 2003 in a manner consistent with the preservation of the 
     Medicare Trust Fund.
                                 ______
                                 
  SA 590. Mr. GREGG submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V, insert the following:

     SEC. __. INTEREST RATES USED FOR PENSION PLANS; COMMISSION ON 
                   DEFINED BENEFIT PLANS.

       (a) Replacement of Interest Rate on 30-year Treasury 
     Securities with Interest Rate on Conservatively-Invested 
     Long-Term Corporate Bonds.--
       (1) Internal Revenue Code of 1986.--
       (A) In general.--Section 412(b)(5)(B)(ii)(I) of the 
     Internal Revenue Code of 1986 is amended--
       (i) by striking ``not more than 10 percent above and, not 
     more than 10 percent below,'' and inserting ``not more than 
     10 percent below''; and
       (ii) by striking ``the rates of interest on 30-year 
     Treasury securities'' and inserting ``conservative long-term 
     corporate bond rates''.
       (B) Conservative long-term corporate bond rates.--Section 
     412(b)(5) of such Code is amended by adding at the end the 
     following new subparagraph:
       ``(C) Conservative long-term corporate bond rates.--The 
     Secretary shall, by regulation, prescribe a method for 
     periodically determining the conservative long-term corporate 
     bond rates for purposes of this paragraph. Such rates shall 
     reflect rates of interest on amounts conservatively invested 
     in long-term corporate bonds and shall be based on the use of 
     1 or more indices.''
       (C) Amendment reflecting the change in the interest rate 
     calculation.--Section 412(b)(5)(B)(iii)(II) of such Code is 
     amended to read as follows:

       ``(II) consistent with the annual rate of return with 
     respect to amounts conservatively invested in long-term 
     corporate bonds.''

       (D) Elimination of corridor.--Section 412(l)(7)(C) of such 
     code is amended by striking clause (i) and inserting the 
     following:
       ``(i) Interest rate.--The rate of interest used to 
     determine current liability under this subsection shall be 
     the rate of interest used under subsection (b)(5).''
       (E) Determination of present value.--
       (i) In general.--Section 417(e)(3)(A)(ii)(II) of such Code 
     is amended to read as follows:

       ``(II) Applicable interest rate.--The term `applicable 
     interest rate' means an annual rate of interest equal to the 
     conservative long-term corporate bond rate (as determined 
     under section 412(b)(5)(C)) for the month before the date of 
     distribution or such other time as the Secretary may by 
     regulations prescribe.''

       (ii) Limitation on certain assumptions.--Section 
     415(b)(2)(E)(ii) of such Code is amended by striking ``the 
     applicable interest rate (as defined in section 417(e)(3))'' 
     and inserting ``5.5 percent''.
       (iii) Phase in of interest rate on long-term corporate 
     bonds.--Section 417(e)(3) of such Code is amended by adding 
     at the end the following:
       ``(C) Rules for phase in of interest rate on long-term 
     corporate bonds.--
       ``(i) In general.--In the case of a plan year specified in 
     the table in clause (ii), the applicable interest rate under 
     subparagraph (A)(ii)(II) shall be the lower of--

       ``(I) such applicable interest rate (without regard to this 
     subparagraph); or
       ``(II) the 30-year Treasury securities rate plus the 
     applicable percentage of the excess of such applicable 
     interest rate (without regard to this subparagraph) over the 
     30-year Treasury securities rate.

       ``(ii) Applicable percentage.--For purposes of clause (i), 
     the applicable percentage shall be determined in accordance 
     with the following table:


[[Page 11651]]


``Plan year beginning in calendar year:                      Applicable
                                                            percentage:
      2004.......................................................0 .

      2005.......................................................0 .

      2006......................................................20 .

      2007......................................................40 .

      2008......................................................60 .

      2009......................................................80..

       ``(iii) Special rule for collectively bargained plans.--In 
     the case of a plan maintained pursuant to 1 or more 
     collective bargaining agreements between employee 
     representatives and 1 or more employers ratified by the date 
     of enactment of this subparagraph, in lieu of the 6 calendar 
     years specified in clause (ii), the years corresponding to 
     the applicable percentages in clause (ii) shall be the first 
     6 years in which clause (i) applies to employees covered by 
     any such agreement. This clause shall only apply to such 
     employees.''
       (2) Employee Retirement Income Security Act of 1974.--
       (A) In general.--Section 302(b)(5)(B)(ii)(I) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1082(b)(5)(B)(ii)(I)) is amended--
       (i) by striking ``not more than 10 percent above and, not 
     more than 10 percent below,'' and inserting ``not more than 
     10 percent below''; and
       (ii) by striking ``the rates of interest on 30-year 
     Treasury securities'' and inserting ``conservative long-term 
     corporate bond rates''.
       (B) Conservative long-term corporate bond rates.--Section 
     302(b)(5) of such Act (29 U.S.C. 1082(b)(5)) is amended by 
     adding at the end the following new subparagraph:
       ``(C) Conservative long-term corporate bond rate.--The 
     Secretary of the Treasury shall, by regulation, prescribe a 
     method for periodically determining conservative long-term 
     corporate bond rates for purposes of this paragraph. Such 
     rates shall reflect rates of interest on amounts 
     conservatively invested in long-term corporate bonds and 
     shall be based on the use of 1 or more indices.''
       (C) Amendment reflecting the change in the interest rate 
     calculation.--Section 302(b)(5)(B)(iii)(II) of such Act (29 
     U.S.C. 1082(b)(5)(B)(iii)(II)) is amended to read as follows:

       ``(II) consistent with the annual rate of return with 
     respect to amounts conservatively invested in long-term 
     corporate bonds.''

       (D) Elimination of corridor.--Section 302(d)(7)(C) of such 
     Act is amended by striking clause (i) and inserting the 
     following:
       ``(i) Interest rate.--The rate of interest used to 
     determine current liability under this subsection shall be 
     the rate of interest used under subsection (b)(5).''
       (E) Determination of present value.--
       (i) In general.--Section 205(g)(3)(A)(ii)(II) of such Act 
     (29 U.S.C. 1055(g)(3)(A)(ii)(II)) is amended to read as 
     follows:

       ``(II) Applicable interest rate.--The term `applicable 
     interest rate' means an annual rate of interest equal to the 
     conservative long-term corporate bond rate (as determined 
     under section 302(b)(5)(C)) for the month before the date of 
     distribution or such other time as the Secretary may by 
     regulations prescribe.''

       (ii) Phase in of interest rate on long-term corporate 
     bonds.--Section 205(g)(3) of such Act (29 U.S.C. 1055(g)(3)) 
     is amended by adding at the end the following:
       ``(C) Rules for phase in of interest rate on long-term 
     corporate bonds.--
       ``(i) In general.--In the case of a plan year specified in 
     the table in clause (ii), the applicable interest rate under 
     subparagraph (A)(ii)(II) shall be the lower of--

       ``(I) such applicable interest rate (without regard to this 
     subparagraph); or
       ``(II) the 30-year Treasury securities rate plus the 
     applicable percentage of the excess of such applicable 
     interest rate (without regard to this subparagraph) over the 
     30-year Treasury securities rate.

       ``(ii) Applicable percentage.--For purposes of clause (i), 
     the applicable percentage shall be determined in accordance 
     with the following table:

``Plan year beginning in calendar year:                      Applicable
                                                            percentage:
      2004.......................................................0 .

      2005.......................................................0 .

      2006......................................................20 .

      2007......................................................40 .

      2008......................................................60 .

      2009......................................................80..

       ``(iii) Special rule for collectively bargained plans.--In 
     the case of a plan maintained pursuant to 1 or more 
     collective bargaining agreements between employee 
     representatives and 1 or more employers ratified by the date 
     of enactment of this subparagraph, in lieu of the 6 calendar 
     years specified in clause (ii), the years corresponding to 
     the applicable percentages in clause (ii) shall be the first 
     6 years in which clause (i) applies to employees covered by 
     any such agreement. This clause shall only apply to such 
     employees.''
       (C) PBGC premium rates.--The first sentence of section 
     4006(a)(3)(E)(iii)(II) of such Act (29 U.S.C. 
     1306(a)(3)(E)(iii)(II)) is amended by striking ``the annual 
     yield on 30-year Treasury securities'' and inserting ``the 
     annual rate of interest equal to the long-term corporate bond 
     rate (as determined under section 302(b)(5)(C)''.
       (b) Commission.--
       (1) Establishment of the commission.--
       (A) Establishment.--There is established the Commission on 
     Defined Benefit Pension Plans (in this Act referred to as the 
     ``Commission'').
       (B) Membership.--
       (i) Composition.--The Commission shall be composed of 13 
     members of whom--

       (I) 1 shall be the Secretary of Labor or their designee;
       (II) 1 shall be the Secretary of the Treasury or their 
     designee;
       (III) 1 shall be the Executive Director of the Pension 
     Benefit Guaranty Corporation;
       (IV) 2 shall be appointed by the President from among 
     members of the general public;
       (V) 1 shall be appointed by the chairman of the Committee 
     on Health, Education, Labor, and Pensions of the Senate;
       (VI) 1 shall be appointed by the ranking minority member of 
     the Committee on Health, Education, Labor, and Pensions of 
     the Senate;
       (VII) 1 shall be appointed by the chairman of the Committee 
     on Finance of the Senate;
       (VIII) 1 shall be appointed by the ranking minority member 
     of the Committee on Finance of the Senate;
       (IX) 1 shall be appointed by the chairman of the Committee 
     on Education and the Workforce of the House of 
     Representatives;
       (X) 1 shall be appointed by the ranking minority member of 
     the Committee on Education and the Workforce of the House of 
     Representatives;
       (XI) 1 shall be appointed by the chairman of the Committee 
     on Ways and Means of the House of Representatives; and
       (XII) 1 shall be appointed by the ranking minority member 
     of the Committee on Ways and Means of the House of 
     Representatives.

       (C) Period of appointment; vacancies.--Members shall be 
     appointed for the life of the Commission. Any vacancy in the 
     Commission shall not affect its powers, but shall be filled 
     in the same manner as the original appointment.
       (D) Quorum.--A majority of the members of the Commission 
     shall constitute a quorum, but a lesser number of members may 
     hold hearings.
       (E) Chairperson and vice chairperson.--The Commission shall 
     select a Chairperson and Vice Chairperson from among its 
     members.
       (2) Duties of the commission.--
       (A) Study and recommendations.--The Commission shall 
     conduct a thorough study of, and shall develop 
     recommendations on the following issues relating to defined 
     benefit pension plans:
       (i) The most appropriate interest rate for funding 
     standards.
       (ii) Methods for valuating liabilities, including the 
     private yield curve approach.
       (iii) Funding rules.
       (iv) Mandatory actuarial assumptions, including mortality 
     tables.
       (v) Appropriate transition rules.
       (vi) Other reforms to remove impediments or to create 
     incentives for the creation and expansion of defined benefit 
     plans.
       (B) Report.--Not later than 6 months after the date of the 
     appointment of the last member of the Commission, the 
     Commission shall submit a report to the appropriate 
     committees of Congress containing a detailed statement of the 
     findings and conclusions of the Commission, together with its 
     recommendations for such legislation as it considers 
     appropriate.
       (3) Powers of the commission.--
       (A) Hearings.--The Commission may hold such hearings, sit 
     and act at such times and places, take such testimony, and 
     receive such evidence as the Commission considers advisable 
     to carry out this Act. The Commission shall, to the maximum 
     extent possible, use existing data and research prior to 
     holding such hearings.
       (B) Information from federal agencies.--The Commission may 
     secure directly from any Federal department or agency such 
     information as the Commission considers necessary to carry 
     out this Act. Upon request of the Chairperson of the 
     Commission, the head of such department or agency shall 
     furnish such information to the Commission.
       (C) Postal services.--The Commission may use the United 
     States mails in the same manner and under the same conditions 
     as other departments and agencies of the Federal Government.
       (4) Commission personnel matters.--
       (A) Compensation; travel expenses.--Each member of the 
     Commission shall serve without compensation but shall be 
     allowed travel expenses, including per diem in lieu of 
     subsistence, at rates authorized for employees of agencies 
     under subchapter I of chapter 57 of title 5, United States 
     Code, while away from their homes or regular places of 
     business in the performance of services for the Commission.
       (B) Staff and equipment.--The Department of the Treasury 
     shall provide all financial, administrative, and staffing 
     requirements for the Commission including--
       (i) office space;
       (ii) furnishings; and
       (iii) equipment.
       (5) Termination of the commission.--The Commission shall 
     terminate 90 days after the date on which the Commission 
     submits its report under paragraph (2)(B).

[[Page 11652]]

       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraphs (2), (3), 
     (4), and (5), the amendments made by this section shall apply 
     to years beginning after December 31, 2003.
       (2) Survivor annuities.--Except as provided in paragraphs 
     (3) and (4), in the case of amendments made by this section 
     to section 417(e)(3) of the Internal Revenue Code of 1986 and 
     to section 205(g)(3) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1055(g)(3)), and for purposes 
     of section 411(a)(11)(B) of the Internal Revenue Code of 1986 
     and section 203(e)(2) of the Employee Retirement Income 
     Security Act of 1974 (29 (U.S.C. 1053(e)(2)), such amendments 
     shall apply to years beginning after December 31, 2005.
       (3) Lookback rules.--For purposes of applying all 
     applicable lookback rules in years beginning on or after the 
     otherwise applicable effective date determined under 
     paragraph (1), (2), or (4), the amendments made by this 
     section may be applied as if such amendments had been in 
     effect for all years beginning before such effective date. 
     For purposes of this paragraph, a lookback rule is a rule 
     that uses data from a prior year in determining requirements 
     applicable to the current year.
       (4) Collective bargaining agreements.--Except as provided 
     in paragraph (3), in the case of a plan maintained pursuant 
     to 1 or more collective bargaining agreements between 
     employee representatives and 1 or more employers ratified by 
     the date of the enactment of this Act, the amendments 
     described in paragraph (2) shall not apply to employees 
     covered by any such agreement for plan years beginning before 
     the earlier of--
       (A) the later of--
       (i) the date on which the last of such collective 
     bargaining agreements terminates (determined without regard 
     to any extension thereof on or after such date of enactment); 
     or
       (ii) January 1, 2006; or
       (B) January 1, 2008.
       (5) No reduction required.--In the case of any participant 
     or beneficiary, the amount payable under any form of benefit 
     subject to section 417(e)(3) of the Internal Revenue Code of 
     1986 shall not be required to be reduced below the amount 
     determined as of the last day of the last plan year beginning 
     before January 1, 2004, merely because of the amendments made 
     by subsection (a)(2)(A).
       (d) Termination Date.--None of the amendments made by this 
     section shall apply to plan years beginning after December 
     31, 2008.
                                 ______
                                 
  SA 591. Mr. KERRY (for himself and Mrs. Lincoln) submitted an 
amendment intended to be proposed by him to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; which was ordered to lie 
on the table; as follows:

       On page __, between lines __ and __, insert the following:

     SEC. __. MEDICAID DSH ALLOTMENTS.

       (a) Temporary Increase in Floor for Treatment as an 
     Extremely Low DSH State under the Medicaid Program.--
       (1) In general.--Section 1923(f)(5) of the Social Security 
     Act (42 U.S.C. 1396r-4(f)(5)) is amended--
       (A) by striking ``In the case of'' and inserting the 
     following:
       ``(A) In general.--In the case of''; and
       (B) by adding at the end the following:
       ``(B) Temporary increase in floor for fiscal year 2004.--
     During the period that begins on October 1, 2003, and ends on 
     September 30, 2004, subparagraph (A) shall be applied--
       ``(i) by substituting `fiscal year 2002' for `fiscal year 
     1999';
       ``(iii) by substituting `Centers for Medicare & Medicaid 
     Services' for `Health Care Financing Administration';
       ``(ii) by substituting `August 31, 2003' for `August 31, 
     2000';
       ``(iv) by substituting `3 percent' for `1 percent' each 
     place it appears;
       ``(v) by substituting `fiscal year 2004' for `fiscal year 
     2001'; and
       ``(vi) without regard to the second sentence.''.
       (2) Effective date.--The amendments made by paragraph (1) 
     take effect on October 1, 2003, and apply to DSH allotments 
     under title XIX of the Social Security Act only with respect 
     to fiscal year 2004.
       (b) Continuation of BIPA Rule for Determination of 
     Allotments for Fiscal Year 2003.--
       (1) In general.--Section 1923(f)(4) of the Social Security 
     Act (42 U.S.C. 1396r-4(f)(4)) is amended--
       (A) in the paragraph heading, by striking ``and 2002'' and 
     inserting ``through 2003'';
       (B) in subparagraph (A)--
       (i) in clause (i), by striking ``and'' at the end;
       (ii) in clause (ii), by striking the period and inserting a 
     semicolon; and
       (iii) by adding at the end the following:
       ``(iii) fiscal year 2003, shall be the DSH allotment 
     determined under clause (ii) increased, subject to 
     subparagraph (B) and paragraph (5), by the percentage change 
     in the Consumer Price Index for all urban consumers (all 
     items; U.S. city average) for fiscal year 2002.''; and
       (C) in subparagraph (C)--
       (i) in the subparagraph heading, by striking ``2002'' and 
     inserting ``2003''; and
       (ii) by striking ``2003'' and inserting ``2004''.
       (3) Conforming amendments.--Section 1923(f)(3) of such Act 
     (42 U.S.C. 1396r-4(f)(3)) is amended--
       (A) in the paragraph heading, by striking ``2003'' and 
     inserting ``2004''; and
       (B) by striking subparagraph (A) and inserting the 
     following:
       ``(A) In general.--The DSH allotment for any State--
       ``(i) for fiscal year 2004, is equal to the DSH allotment 
     determined for the State for fiscal year 2002 under the table 
     set forth in paragraph (2), increased, subject to 
     subparagraph (B) and paragraph (5), by the percentage change 
     in the Consumer Price Index for all urban consumers (all 
     items; U.S. city average), for each of fiscal years 2002 and 
     2003; and
       ``(ii) for fiscal year 2005 and each succeeding fiscal 
     year, is equal to the DSH allotment determined for the State 
     for the preceding fiscal year under this paragraph, 
     increased, subject to subparagraph (B) and paragraph (5), by 
     the percentage change in the Consumer Price Index for all 
     urban consumers (all items; U.S. city average), for the 
     previous fiscal year.''.
       (4) Effective date.--The amendments made by this subsection 
     shall take effect as if included in the enactment of section 
     701 of the Medicare, Medicaid, and SCHIP Benefits Improvement 
     and Protection Act of 2000, as enacted into law by section 
     1(a)(6) of Public Law 106-554 (114 Stat. 2763A-569).
       (c) Allotment Adjustment for Certain States.--
       (1) In general.--Section 1923(f) of the Social Security Act 
     (42 U.S.C. 1396r-4(f)) is amended--
       (A) by redesignating paragraph (6) as paragraph (7); and
       (B) by inserting after paragraph (5) the following:
       ``(6) Allotment adjustment for certain states.--
       ``(A) Tennessee.--If the State-wide waiver approved under 
     section 1115 for the State of Tennessee with respect to the 
     requirements of this title (as in effect on the date of 
     enactment of this subsection) is revoked or terminated, the 
     Secretary shall--
       ``(i) permit the State of Tennessee to submit an amendment 
     to its State plan that would describe the methodology to be 
     used by the State (after the effective date of such 
     revocation or termination) to identify and make payments to 
     disproportionate share hospitals, including children's 
     hospitals and institutions for mental diseases or other 
     mental health facilities (other than State-owned institutions 
     or facilities), on the basis of the proportion of patients 
     served by such hospitals that are low-income patients with 
     special needs; and
       ``(ii) provide for purposes of this subsection for 
     computation of an appropriate DSH allotment for the State 
     that provides for the maximum amount (permitted consistent 
     with paragraph (3)(B)(ii)) that does not result in greater 
     expenditures under this title than would have been made if 
     such waiver had not been revoked or terminated.
       ``(B) Hawaii.--Effective for DSH allotments beginning with 
     fiscal year 2003, the Secretary shall compute a DSH allotment 
     for the State of Hawaii in the same manner as DSH allotments 
     are determined with respect to those States to which 
     paragraph (5) applies (but without regard to the requirement 
     under such paragraph that total expenditures under the State 
     plan for disproportionate share hospital adjustments for any 
     fiscal year exceeds 0).''.
       (2) Treatment of institutions for mental diseases.--Section 
     1923(h)(1) of the Social Security Act (42 U.S.C. 1396r-
     4(h)(1)) is amended--
       (A) in paragraph (1), in the matter preceding subparagraph 
     (A), by inserting ``(subject to paragraph (3))'' after ``the 
     lesser of the following''; and
       (B) by adding at the end the following new paragraph:
       ``(3) Special rule.--The limitation of paragraph (1) shall 
     not apply in the case of Tennessee in the case of a 
     revocation or termination of its statewide waiver described 
     in subsection (f)(6)(A).''.
       (3) Effective date.--The amendment made by this subsection 
     shall take effect as if enacted on October 1, 2002.
       (d) Funding.--Of the amount appropriated in section 371(e) 
     for fiscal year 2003 (after the application of section 
     1903(x) of the Social Security Act), an amount equal to the 
     amount required to carry out the amendments made by this 
     section for each of fiscal years 2003 through 2013 shall be 
     transferred and made available from the amount so 
     appropriated in section 371(e) (after such application) to 
     the Secretary of Health and Human Services to carry out the 
     amendments made by this section.
                                 ______
                                 
  SA 592. Mr. VOINOVICH submitted an amendment intended to be proposed 
by him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; as follows:


[[Page 11653]]

       At the appropriate place insert the following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fundamental Tax Reform 
     Commission Act of 2003''.

     SEC. 2. ESTABLISHMENT OF COMMISSION.

       (1) Establishment.--There is established the ``Blue Ribbon 
     Commission on Comprehensive Tax Reform'' (in this Act 
     referred to as the ``Commission'').
       (b) Membership.--
       (1) Composition.--The Commission shall be composed of 12 
     members of whom--
       (A) 1 shall be the Chairman of the Board of Governors of 
     the Federal Reserve System;
       (B) 1 shall be the Vice chairman of the Board of Governors 
     of the Federal Reserve System;
       (C) 1 shall be the Commissioner of Internal Revenue;
       (D) 2 shall be appointed by the majority leader of the 
     Senate;
       (E) 1 shall be appointed by the minority leader of the 
     Senate;
       (F) 2 shall be appointed by the Speaker of the House of 
     Representatives;
       (G) 1 shall be appointed by the minority leader of the 
     House of Representatives; and
       (H) 3 shall be appointed by the President, of which--
       (i) no more than 2 shall be of the same party as the 
     President; and
       (ii) 1 may be the Secretary of the Treasury.
       (2) Federal employees.--The members of the Commission may 
     be employees or former employees of the Federal Government.
       (3) Date.--The appointments of the members of the 
     Commission shall be made not later than July 30, 2003.
       (c) Period of Appointment; Vacancies.--Members shall be 
     appointed for the life of the Commission. Any vacancy in the 
     Commission shall not affect its powers, but shall be filled 
     in the same manner as the original appointment.
       (d) Initial Meeting.--Not later than 30 days after the date 
     on which all members of the commission have been appointed, 
     the Commission shall hold its first meeting.
       (e) Meetings.--The Commission shall meet at the call of the 
     Chairman.
       (f) Quorum.--A majority of the members of the Commission 
     shall constitute a quorum, but a lesser number of members may 
     hold hearings.
       (g) Chairman and Vice Chairman.--The President shall select 
     a Chairman and Vice Chairman from among its members.

     SEC. 3. DUTIES OF THE COMMISSION.

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

     SEC. 4. POWERS OF THE COMMISSION.

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

     SEC. 5. COMMISSION PERSONNEL MATTERS.

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

     SEC. 6. TERMINATION OF THE COMMISSION.

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

     SEC. 7. AUTHORIZATION OF APPROPRIATIONS.

       There are authorized to be appropriated such sums as are 
     necessary to the commission to carry out this Act.
                                 ______
                                 
  SA 593. Mr. BURNS (for himself, Mr. Rockefeller, Mr. Baucus, Mrs. 
Clinton, Mr. Johnson, and Mr. Kennedy) proposed an amendment to the 
bill S. 1054, to provide for reconciliation pursuant to section 201 of 
the concurrent resolution on the budget for fiscal year 2004; as 
follows:

       At the end of subtitle C of title V, add the following:

     SEC. __. EXPENSING OF BROADBAND INTERNET ACCESS EXPENDITURES.

       (a) In General.--Part VI of subchapter B of chapter 1 
     (relating to itemized deductions for individuals and 
     corporations) is amended by inserting after section 190 the 
     following new section:

     ``SEC. 191. BROADBAND EXPENDITURES.

       ``(a) Treatment of Expenditures.--
       ``(1) In general.--A taxpayer may elect to treat any 
     qualified broadband expenditure which is paid or incurred by 
     the taxpayer as an expense which is not chargeable to capital 
     account. Any expenditure which is so treated shall be allowed 
     as a deduction.
       ``(2) Election.--An election under paragraph (1) shall be 
     made at such time and in such manner as the Secretary may 
     prescribe by regulation.
       ``(b) Qualified Broadband Expenditures.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified broadband 
     expenditure' means, with respect to any taxable year, any 
     direct or indirect costs incurred and properly taken into 
     account with respect to the purchase or installation of 
     qualified equipment (including any upgrades thereto), 
     together with any direct or indirect costs incurred and 
     properly taken into account with respect to the connection of 
     such qualified equipment to any qualified subscriber, but 
     only if such costs are incurred after December 31, 2003, and 
     before January 1, 2005.
       ``(2) Certain satellite expenditures excluded.--Such term 
     shall not include any costs incurred with respect to the 
     launching of any satellite equipment.
       ``(3) Leased equipment.--Such term shall include so much of 
     the purchase price paid by the lessor of equipment subject to 
     a lease described in subsection (c)(2)(B) as is attributable 
     to expenditures incurred by the lessee which would otherwise 
     be described in paragraph (1).
       ``(4) Limitation with regard to current generation 
     broadband services.--Only 50 percent of the amounts taken 
     into account under paragraph (1) with respect to qualified 
     equipment through which current generation broadband services 
     are provided shall be treated as qualified broadband 
     expenditures.
       ``(c) When Expenditures Taken Into Account.--For purposes 
     of this section--
       ``(1) In general.--Qualified broadband expenditures with 
     respect to qualified equipment shall be taken into account 
     with respect to the first taxable year in which--
       ``(A) current generation broadband services are provided 
     through such equipment to qualified subscribers, or
       ``(B) next generation broadband services are provided 
     through such equipment to qualified subscribers.
       ``(2) Limitation.--
       ``(A) In general.--Qualified expenditures shall be taken 
     into account under paragraph (1) only with respect to 
     qualified equipment--

[[Page 11654]]

       ``(i) the original use of which commences with the 
     taxpayer, and
       ``(ii) which is placed in service,
     after December 31, 2003.
       ``(B) Sale-leasebacks.--For purposes of subparagraph (A), 
     if property--
       ``(i) is originally placed in service after December 31, 
     2003, by any person, and
       ``(ii) sold and leased back by such person within 3 months 
     after the date such property was originally placed in 
     service,
     such property shall be treated as originally placed in 
     service not earlier than the date on which such property is 
     used under the leaseback referred to in clause (ii).
       ``(d) Special Allocation Rules.--
       ``(1) Current generation broadband services.--For purposes 
     of determining the amount of qualified broadband expenditures 
     under subsection (a)(1) with respect to qualified equipment 
     through which current generation broadband services are 
     provided, if the qualified equipment is capable of serving 
     both qualified subscribers and other subscribers, the 
     qualified broadband expenditures shall be multiplied by a 
     fraction--
       ``(A) the numerator of which is the sum of the number of 
     potential qualified subscribers within the rural areas and 
     the underserved areas which the equipment is capable of 
     serving with current generation broadband services, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving with current generation broadband 
     services.
       ``(2) Next generation broadband services.--For purposes of 
     determining the amount of qualified broadband expenditures 
     under subsection (a)(1) with respect to qualified equipment 
     through which next generation broadband services are 
     provided, if the qualified equipment is capable of serving 
     both qualified subscribers and other subscribers, the 
     qualified expenditures shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of--
       ``(i) the number of potential qualified subscribers within 
     the rural areas and underserved areas, plus
       ``(ii) the number of potential qualified subscribers within 
     the area consisting only of residential subscribers not 
     described in clause (i),

     which the equipment is capable of serving with next 
     generation broadband services, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving with next generation broadband services.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Antenna.--The term `antenna' means any device used to 
     transmit or receive signals through the electromagnetic 
     spectrum, including satellite equipment.
       ``(2) Cable operator.--The term `cable operator' has the 
     meaning given such term by section 602(5) of the 
     Communications Act of 1934 (47 U.S.C. 522(5)).
       ``(3) Commercial mobile service carrier.--The term 
     `commercial mobile service carrier' means any person 
     authorized to provide commercial mobile radio service as 
     defined in section 20.3 of title 47, Code of Federal 
     Regulations.
       ``(4) Current generation broadband service.--The term 
     `current generation broadband service' means the transmission 
     of signals at a rate of at least 1,000,000 bits per second to 
     the subscriber and at least 128,000 bits per second from the 
     subscriber.
       ``(5) Multiplexing or demultiplexing.--The term 
     `multiplexing' means the transmission of 2 or more signals 
     over a single channel, and the term `demultiplexing' means 
     the separation of 2 or more signals previously combined by 
     compatible multiplexing equipment.
       ``(6) Next generation broadband service.--The term `next 
     generation broadband service' means the transmission of 
     signals at a rate of at least 22,000,000 bits per second to 
     the subscriber and at least 5,000,000 bits per second from 
     the subscriber.
       ``(7) Nonresidential subscriber.--The term `nonresidential 
     subscriber' means any person who purchases broadband services 
     which are delivered to the permanent place of business of 
     such person.
       ``(8) Open video system operator.--The term `open video 
     system operator' means any person authorized to provide 
     service under section 653 of the Communications Act of 1934 
     (47 U.S.C. 573).
       ``(9) Other wireless carrier.--The term `other wireless 
     carrier' means any person (other than a telecommunications 
     carrier, commercial mobile service carrier, cable operator, 
     open video system operator, or satellite carrier) providing 
     current generation broadband services or next generation 
     broadband service to subscribers through the radio 
     transmission of energy.
       ``(10) Packet switching.--The term `packet switching' means 
     controlling or routing the path of any digitized transmission 
     signal which is assembled into packets or cells.
       ``(11) Provider.--The term `provider' means, with respect 
     to any qualified equipment--
       ``(A) a cable operator,
       ``(B) a commercial mobile service carrier,
       ``(C) an open video system operator,
       ``(D) a satellite carrier,
       ``(E) a telecommunications carrier, or
       ``(F) any other wireless carrier,
     providing current generation broadband services or next 
     generation broadband services to subscribers through such 
     qualified equipment.
       ``(12) Provision of services.--A provider shall be treated 
     as providing services to 1 or more subscribers if--
       ``(A) such a subscriber has been passed by the provider's 
     equipment and can be connected to such equipment for a 
     standard connection fee,
       ``(B) the provider is physically able to deliver current 
     generation broadband services or next generation broadband 
     services, as applicable, to such a subscriber without making 
     more than an insignificant investment with respect to such 
     subscriber,
       ``(C) the provider has made reasonable efforts to make such 
     subscribers aware of the availability of such services,
       ``(D) such services have been purchased by 1 or more such 
     subscribers, and
       ``(E) such services are made available to such subscribers 
     at average prices comparable to those at which the provider 
     makes available similar services in any areas in which the 
     provider makes available such services.
       ``(13) Qualified equipment.--
       ``(A) In general.--The term `qualified equipment' means 
     equipment which provides current generation broadband 
     services or next generation broadband services--
       ``(i) at least a majority of the time during periods of 
     maximum demand to each subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no deduction is allowed under 
     subsection (a)(1).
       ``(B) Only certain investment taken into account.--Except 
     as provided in subparagraph (C) or (D), equipment shall be 
     taken into account under subparagraph (A) only to the extent 
     it--
       ``(i) extends from the last point of switching to the 
     outside of the unit, building, dwelling, or office owned or 
     leased by a subscriber in the case of a telecommunications 
     carrier,
       ``(ii) extends from the customer side of the mobile 
     telephone switching office to a transmission/receive antenna 
     (including such antenna) owned or leased by a subscriber in 
     the case of a commercial mobile service carrier,
       ``(iii) extends from the customer side of the headend to 
     the outside of the unit, building, dwelling, or office owned 
     or leased by a subscriber in the case of a cable operator or 
     open video system operator, or
       ``(iv) extends from a transmission/receive antenna 
     (including such antenna) which transmits and receives signals 
     to or from multiple subscribers, to a transmission/receive 
     antenna (including such antenna) on the outside of the unit, 
     building, dwelling, or office owned or leased by a subscriber 
     in the case of a satellite carrier or other wireless carrier, 
     unless such other wireless carrier is also a 
     telecommunications carrier.
       ``(C) Packet switching equipment.--Packet switching 
     equipment, regardless of location, shall be taken into 
     account under subparagraph (A) only if it is deployed in 
     connection with equipment described in subparagraph (B) and 
     is uniquely designed to perform the function of packet 
     switching for current generation broadband services or next 
     generation broadband services, but only if such packet 
     switching is the last in a series of such functions performed 
     in the transmission of a signal to a subscriber or the first 
     in a series of such functions performed in the transmission 
     of a signal from a subscriber.
       ``(D) Multiplexing and demultiplexing equipment.--
     Multiplexing and demultiplexing equipment shall be taken into 
     account under subparagraph (A) only to the extent it is 
     deployed in connection with equipment described in 
     subparagraph (B) and is uniquely designed to perform the 
     function of multiplexing and demultiplexing packets or cells 
     of data and making associated application adaptions, but only 
     if such multiplexing or demultiplexing equipment is located 
     between packet switching equipment described in subparagraph 
     (C) and the subscriber's premises.
       ``(14) Qualified subscriber.--The term `qualified 
     subscriber' means--
       ``(A) with respect to the provision of current generation 
     broadband services--
       ``(i) any nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) any residential subscriber residing in a dwelling 
     located in a rural area or underserved area which is not a 
     saturated market, and
       ``(B) with respect to the provision of next generation 
     broadband services--
       ``(i) any nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) any residential subscriber.
       ``(15) Residential subscriber.--The term `residential 
     subscriber' means any individual who purchases broadband 
     services which are delivered to such individual's dwelling.
       ``(16) Rural area.--The term `rural area' means any census 
     tract which--

[[Page 11655]]

       ``(A) is not within 10 miles of any incorporated or census 
     designated place containing more than 25,000 people, and
       ``(B) is not within a county or county equivalent which has 
     an overall population density of more than 500 people per 
     square mile of land.
       ``(17) Rural subscriber.--The term `rural subscriber' means 
     any residential subscriber residing in a dwelling located in 
     a rural area or nonresidential subscriber maintaining a 
     permanent place of business located in a rural area.
       ``(18) Satellite carrier.--The term `satellite carrier' 
     means any person using the facilities of a satellite or 
     satellite service licensed by the Federal Communications 
     Commission and operating in the Fixed-Satellite Service under 
     part 25 of title 47 of the Code of Federal Regulations or the 
     Direct Broadcast Satellite Service under part 100 of title 47 
     of such Code to establish and operate a channel of 
     communications for distribution of signals, and owning or 
     leasing a capacity or service on a satellite in order to 
     provide such point-to-multipoint distribution.
       ``(19) Saturated market.--The term `saturated market' means 
     any census tract in which, as of the date of the enactment of 
     this section--
       ``(A) current generation broadband services have been 
     provided by a single provider to 85 percent or more of the 
     total number of potential residential subscribers residing in 
     dwellings located within such census tract, and
       ``(B) such services can be utilized--
       ``(i) at least a majority of the time during periods of 
     maximum demand by each such subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no deduction is allowed under 
     subsection (a)(1).
       ``(20) Subscriber.--The term `subscriber' means any person 
     who purchases current generation broadband services or next 
     generation broadband services.
       ``(21) Telecommunications carrier.--The term 
     `telecommunications carrier' has the meaning given such term 
     by section 3(44) of the Communications Act of 1934 (47 U.S.C. 
     153(44)), but--
       ``(A) includes all members of an affiliated group of which 
     a telecommunications carrier is a member, and
       ``(B) does not include a commercial mobile service carrier.
       ``(22) Total potential subscriber population.--The term 
     `total potential subscriber population' means, with respect 
     to any area and based on the most recent census data, the 
     total number of potential residential subscribers residing in 
     dwellings located in such area and potential nonresidential 
     subscribers maintaining permanent places of business located 
     in such area.
       ``(23) Underserved area.--The term `underserved area' means 
     any census tract which is located in--
       ``(A) an empowerment zone or enterprise community 
     designated under section 1391,
       ``(B) the District of Columbia Enterprise Zone established 
     under section 1400,
       ``(C) a renewal community designated under section 1400E, 
     or
       ``(D) a low-income community designated under section 45D.
       ``(24) Underserved subscriber.--The term `underserved 
     subscriber' means any residential subscriber residing in a 
     dwelling located in an underserved area or nonresidential 
     subscriber maintaining a permanent place of business located 
     in an underserved area.
       ``(f) Special Rules.--
       ``(1) Property used outside the united states, etc., not 
     qualified.--No expenditures shall be taken into account under 
     subsection (a)(1) with respect to the portion of the cost of 
     any property referred to in section 50(b) or with respect to 
     the portion of the cost of any property taken into account 
     under section 179.
       ``(2) Basis reduction.--
       ``(A) In general.--For purposes of this title, the basis of 
     any property shall be reduced by the portion of the cost of 
     such property taken into account under subsection (a)(1).
       ``(B) Ordinary income recapture.--For purposes of section 
     1245, the amount of the deduction allowable under subsection 
     (a)(1) with respect to any property which is of a character 
     subject to the allowance for depreciation shall be treated as 
     a deduction allowed for depreciation under section 167.
       ``(3) Coordination with section 38.--No credit shall be 
     allowed under section 38 with respect to any amount for which 
     a deduction is allowed under subsection (a)(1).''.
       (b) Special Rule for Mutual or Cooperative Telephone 
     Companies.--Section 501(c)(12)(B) (relating to list of exempt 
     organizations) is amended by striking ``or'' at the end of 
     clause (iii), by striking the period at the end of clause 
     (iv) and inserting ``, or'', and by adding at the end the 
     following:
       ``(v) from the sale of property subject to a lease 
     described in section 191(c)(2)(B), but only to the extent 
     such income does not in any year exceed an amount equal to 
     the qualified broadband expenditures which would be taken 
     into account under section 191 for such year if the mutual or 
     cooperative telephone company was not exempt from taxation 
     and was treated as the owner of the property subject to such 
     lease.''.
       (c) Conforming Amendments.--
       (1) Section 263(a)(1) (relating to capital expenditures) is 
     amended by striking ``or'' at the end of subparagraph (G), by 
     striking the period at the end of subparagraph (H) and 
     inserting ``, or'', and by adding at the end the following 
     new subparagraph:
       ``(I) expenditures for which a deduction is allowed under 
     section 191.''.
       (2) Section 1016(a) of such Code is amended by striking 
     ``and'' at the end of paragraph (27), by striking the period 
     at the end of paragraph (28) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(29) to the extent provided in section 191(f)(2).''.
       (3) The table of sections for part VI of subchapter A of 
     chapter 1 of such Code is amended by inserting after the item 
     relating to section 190 the following new item:

``Sec. 191. Broadband expenditures.''.
       (d) Designation of Census Tracts.--
       (1) In general.--The Secretary of the Treasury shall, not 
     later than 90 days after the date of the enactment of this 
     Act, designate and publish those census tracts meeting the 
     criteria described in paragraphs (16), (22), and (23) of 
     section 191(e) of the Internal Revenue Code of 1986 (as added 
     by this section). In making such designations, the Secretary 
     of the Treasury shall consult with such other departments and 
     agencies as the Secretary determines appropriate.
       (2) Saturated market.--
       (A) In general.--For purposes of designating and publishing 
     those census tracts meeting the criteria described in 
     subsection (e)(19) of such section 191--
       (i) the Secretary of the Treasury shall prescribe not later 
     than 30 days after the date of the enactment of this Act the 
     form upon which any provider which takes the position that it 
     meets such criteria with respect to any census tract shall 
     submit a list of such census tracts (and any other 
     information required by the Secretary) not later than 60 days 
     after the date of the publication of such form, and
       (ii) the Secretary of the Treasury shall publish an 
     aggregate list of such census tracts and the applicable 
     providers not later than 30 days after the last date such 
     submissions are allowed under clause (i).
       (B) No subsequent lists required.--The Secretary of the 
     Treasury shall not be required to publish any list of census 
     tracts meeting such criteria subsequent to the list described 
     in subparagraph (A)(ii).
       (C) Authority to disregard false submissions.--In addition 
     to imposing any other applicable penalties, the Secretary of 
     the Treasury shall have the discretion to disregard any form 
     described in subparagraph (A)(i) on which a provider 
     knowingly submitted false information.
       (e) Other Regulatory Matters.--
       (1) Prohibition.--No Federal or State agency or 
     instrumentality shall adopt regulations or ratemaking 
     procedures that would have the effect of confiscating any 
     deduction or portion thereof allowed under section 191 of the 
     Internal Revenue Code of 1986 (as added by this section) or 
     otherwise subverting the purpose of this section.
       (2) Treasury regulatory authority.--It is the intent of 
     Congress in providing the election to deduct qualified 
     broadband expenditures under section 191 of the Internal 
     Revenue Code of 1986 (as added by this section) to provide 
     incentives for the purchase, installation, and connection of 
     equipment and facilities offering expanded broadband access 
     to the Internet for users in certain low income and rural 
     areas of the United States, as well as to residential users 
     nationwide, in a manner that maintains competitive neutrality 
     among the various classes of providers of broadband services. 
     Accordingly, the Secretary of the Treasury shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of section 191 of such Code, including--
       (A) regulations to determine how and when a taxpayer that 
     incurs qualified broadband expenditures satisfies the 
     requirements of section 191 of such Code to provide broadband 
     services, and
       (B) regulations describing the information, records, and 
     data taxpayers are required to provide the Secretary to 
     substantiate compliance with the requirements of section 191 
     of such Code.
       (f) Effective Date.--The amendments made by this section 
     shall apply to expenditures incurred after December 31, 2003.
                                 ______
                                 
  SA 594. Mr. GRASSLEY proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       At the end of subtitle C of title V, add the following:

                    Subtitle D--Medicare Provisions

     SEC. 531. EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT 
                   AMOUNTS UNDER THE MEDICARE INPATIENT HOSPITAL 
                   PROSPECTIVE PAYMENT SYSTEM.

       (a) In General.--Section 1886(d)(3)(A)(iv) of the Social 
     Security Act (42 U.S.C. 1395ww(d)(3)(A)(iv)) is amended--

[[Page 11656]]

       (1) by striking ``(iv) For discharges'' and inserting 
     ``(iv)(I) Subject to subclause (II), for discharges''; and
       (2) by adding at the end the following new subclause:
       ``(II) For discharges occurring in a fiscal year beginning 
     with fiscal year 2004, the Secretary shall compute a 
     standardized amount for hospitals located in any area within 
     the United States and within each region equal to the 
     standardized amount computed for the previous fiscal year 
     under this subparagraph for hospitals located in a large 
     urban area (or, beginning with fiscal year 2005, for 
     hospitals located in any area) increased by the applicable 
     percentage increase under subsection (b)(3)(B)(i) for the 
     fiscal year involved.''.
       (b) Conforming Amendments.--
       (1) Computing drg-specific rates.--Section 1886(d)(3)(D) of 
     the Social Security Act (42 U.S.C. 1395ww(d)(3)(D)) is 
     amended--
       (A) in the heading, by striking ``in different areas'';
       (B) in the matter preceding clause (i), by striking ``, 
     each of'';
       (C) in clause (i)--
       (i) in the matter preceding subclause (I), by inserting 
     ``for fiscal years before fiscal year 2004,'' before ``for 
     hospitals''; and
       (ii) in subclause (II), by striking ``and'' after the 
     semicolon at the end;
       (D) in clause (ii)--
       (i) in the matter preceding subclause (I), by inserting 
     ``for fiscal years before fiscal year 2004,'' before ``for 
     hospitals''; and
       (ii) in subclause (II), by striking the period at the end 
     and inserting ``; and''; and
       (E) by adding at the end the following new clause:
       ``(iii) for a fiscal year beginning after fiscal year 2003, 
     for hospitals located in all areas, to the product of--
       ``(I) the applicable standardized amount (computed under 
     subparagraph (A)), reduced under subparagraph (B), and 
     adjusted or reduced under subparagraph (C) for the fiscal 
     year; and
       ``(II) the weighting factor (determined under paragraph 
     (4)(B)) for that diagnosis-related group.''.
       (2) Technical conforming sunset.--Section 1886(d)(3) of the 
     Social Security Act (42 U.S.C. 1395ww(d)(3)) is amended--
       (A) in the matter preceding subparagraph (A), by inserting 
     ``, for fiscal years before fiscal year 1997,'' before ``a 
     regional adjusted DRG prospective payment rate''; and
       (B) in subparagraph (D), in the matter preceding clause 
     (i), by inserting ``, for fiscal years before fiscal year 
     1997,'' before ``a regional DRG prospective payment rate for 
     each region,''.

     SEC. 532. FAIRNESS IN THE MEDICARE DISPROPORTIONATE SHARE 
                   HOSPITAL (DSH) ADJUSTMENT FOR RURAL HOSPITALS.

       (a) Equalizing DSH Payment Amounts.--
       (1) In general.--Section 1886(d)(5)(F)(vii) of the Social 
     Security Act (42 U.S.C. 1395ww(d)(5)(F)(vii)) is amended by 
     inserting ``, and, after October 1, 2003, for any other 
     hospital described in clause (iv),'' after ``clause (iv)(I)'' 
     in the matter preceding subclause (I).
       (2) Conforming amendments.--Section 1886(d)(5)(F) of the 
     Social Security Act (42 U.S.C. 1395ww(d)(5)(F)) is amended--
       (A) in clause (iv)--
       (i) in subclause (II)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xiii)'';

       (ii) in subclause (III)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xii)'';

       (iii) in subclause (IV)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (x) or (xi)'';

       (iv) in subclause (V)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (xi)''; and

       (v) in subclause (VI)--

       (I) by inserting ``and before October 1, 2003,'' after 
     ``April 1, 2001,''; and
       (II) by inserting ``or, for discharges occurring on or 
     after October 1, 2003, is equal to the percent determined in 
     accordance with the applicable formula described in clause 
     (vii)'' after ``clause (x)'';

       (B) in clause (viii), by striking ``The formula'' and 
     inserting ``For discharges occurring before October 1, 2003, 
     the formula''; and
       (C) in each of clauses (x), (xi), (xii), and (xiii), by 
     striking ``For purposes'' and inserting ``With respect to 
     discharges occurring before October 1, 2003, for purposes''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to discharges occurring on or after 
     October 1, 2003.

     SEC. 533. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR 
                   LOW-VOLUME HOSPITALS.

       Section 1886(d) of the Social Security Act (42 U.S.C. 
     1395ww(d)) is amended by adding at the end the following new 
     paragraph:
       ``(12) Payment adjustment for low-volume hospitals.--
       ``(A) Payment adjustment.--
       ``(i) In general.--Notwithstanding any other provision of 
     this section, for each cost reporting period (beginning with 
     the cost reporting period that begins in fiscal year 2005), 
     the Secretary shall provide for an additional payment amount 
     to each low-volume hospital (as defined in clause (iii)) for 
     discharges occurring during that cost reporting period to 
     increase the amount paid to such hospital under this section 
     for such discharges by the applicable percentage increase 
     determined under clause (ii).
       ``(ii) Applicable percentage increase.--The Secretary shall 
     determine a percentage increase applicable under this 
     paragraph that ensures that--

       ``(I) no percentage increase in payments under this 
     paragraph exceeds 25 percent of the amount of payment that 
     would otherwise be made to a low-volume hospital under this 
     section for each discharge (but for this paragraph);

       ``(II) low-volume hospitals that have the lowest number of 
     discharges during a cost reporting period receive the highest 
     percentage increase in payments due to the application of 
     this paragraph; and
       ``(III) the percentage increase in payments due to the 
     application of this paragraph is reduced as the number of 
     discharges per cost reporting period increases.

       ``(iii) Low-volume hospital defined.--For purposes of this 
     paragraph, the term `low-volume hospital' means, for a cost 
     reporting period, a subsection (d) hospital (as defined in 
     paragraph (1)(B)) other than a critical access hospital (as 
     defined in section 1861(mm)(1)) that--

       ``(I) the Secretary determines had an average of less than 
     2,000 discharges (determined with respect to all patients and 
     not just individuals receiving benefits under this title) 
     during the 3 most recent cost reporting periods for which 
     data are available that precede the cost reporting period to 
     which this paragraph applies; and
       ``(II) is located at least 15 miles from a similar hospital 
     (or is deemed by the Secretary to be so located by reason of 
     such factors as the Secretary determines appropriate, 
     including the time required for an individual to travel to 
     the nearest alternative source of appropriate inpatient care 
     (taking into account the location of such alternative source 
     of inpatient care and any weather or travel conditions that 
     may affect such travel time)).

       ``(B) Prohibiting certain reductions.--Notwithstanding 
     subsection (e), the Secretary shall not reduce the payment 
     amounts under this section to offset the increase in payments 
     resulting from the application of subparagraph (A).''.

     SEC. 534. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PPS 
                   WAGE INDEX TO REVISE THE LABOR-RELATED SHARE OF 
                   SUCH INDEX.

       (a) In General.--Section 1886(d)(3)(E) of the Social 
     Security Act (42 U.S.C. 1395ww(d)(3)(E)) is amended--
       (1) by striking ``wage levels.--The Secretary'' and 
     inserting ``wage levels.--
       ``(i) In general.--Except as provided in clause (ii), the 
     Secretary''; and
       (2) by adding at the end the following new clause:
       ``(ii) Alternative proportion to be adjusted beginning in 
     fiscal year 2004.--
       ``(I) In general.--Except as provided in subclause (II), 
     for discharges occurring on or after October 1, 2003, the 
     Secretary shall substitute `62 percent' for the proportion 
     described in the first sentence of clause (i).
       ``(II) Hold harmless for certain hospitals.--If the 
     application of subclause (I) would result in lower payments 
     to a hospital than would otherwise be made, then this 
     subparagraph shall be applied as if this clause had not been 
     enacted.''.
       (b) Waiving Budget Neutrality.--Section 1886(d)(3)(E) of 
     the Social Security Act (42 U.S.C. 1395ww(d)(3)(E)), as 
     amended by subsection (a), is amended by adding at the end of 
     clause (i) the following new sentence: ``The Secretary shall 
     apply the previous sentence for any period as if the 
     amendments made by section 534(a) of the Jobs and Growth Tax 
     Relief Reconciliation Act of 2003 had not been enacted.''.

     SEC. 535. ONE-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR 
                   SMALL RURAL HOSPITALS AND TEMPORARY TREATMENT 
                   OF CERTAIN SOLE COMMUNITY HOSPITALS TO LIMIT 
                   DECLINE IN PAYMENT UNDER THE OPD PPS.

       (a) Hold Harmless Provisions.--Section 1833(t)(7)(D)(i) of 
     the Social Security Act (42 U.S.C. 1395l(t)(7)(D)(i)) is 
     amended--
       (1) in the heading, by striking ``small'' and inserting 
     ``certain'';
       (2) by inserting ``or a sole community hospital (as defined 
     in section 1886(d)(5)(D)(iii)) located in a rural area'' 
     after ``100 beds''; and
       (3) by striking ``2004'' and inserting ``2005''.

[[Page 11657]]

       (b) Effective Date.--The amendment made by subsection 
     (a)(2) shall apply with respect to payment for OPD services 
     furnished on and after January 1, 2004.

     SEC. 536. CRITICAL ACCESS HOSPITAL (CAH) IMPROVEMENTS.

       (a) Permitting Hospitals To Allocate Swing Beds and Acute 
     Care Inpatient Beds Subject to a Total Limit of 25 Beds.--
       (1) In general.--Section 1820(c)(2)(B)(iii) of the Social 
     Security Act (42 U.S.C. 1395i-4(c)(2)(B)(iii)) is amended to 
     read as follows:
       ``(iii) provides not more than a total of 25 extended care 
     service beds (pursuant to an agreement under subsection (f)) 
     or acute care inpatient beds (meeting such standards as the 
     Secretary may establish) for providing inpatient care for a 
     period that does not exceed, as determined on an annual, 
     average basis, 96 hours per patient;''.
       (2) Conforming amendment.--Section 1820(f) of the Social 
     Security Act (42 U.S.C. 1395i-4(f)) is amended by striking 
     ``and the number of beds used at any time for acute care 
     inpatient services does not exceed 15 beds''.
       (b) Elimination of the Isolation Test for Cost-Based CAH 
     Ambulance Services.--
       (1) In general.--Section 1834(l)(8) of the Social Security 
     Act (42 U.S.C. 1395m(l)(8)), as added by section 205(a) of 
     the Medicare, Medicaid, and SCHIP Benefits Improvement and 
     Protection Act of 2000 (114 Stat. 2763A-482), as enacted into 
     law by section 1(a)(6) of Public Law 106-554 (114 Stat. 
     2763), is amended by striking the comma at the end of 
     subparagraph (B) and all that follows and inserting a period.
       (2) Technical correction.--Section 1834(l) of the Social 
     Security Act (42 U.S.C. 1395m(l)) is amended by redesignating 
     paragraph (8), as added by section 221(a) of the Medicare, 
     Medicaid, and SCHIP Benefits Improvement and Protection Act 
     of 2000 (114 Stat. 2763A-486), as enacted into law by section 
     1(a)(6) of Public Law 106-554 (114 Stat. 2763), as paragraph 
     (9).
       (c) Coverage of Costs for Certain Emergency Room On-Call 
     Providers.--
       (1) In general.--Section 1834(g)(5) of the Social Security 
     Act (42 U.S.C. 1395m(g)(5)) is amended--
       (A) in the heading--
       (i) by inserting ``certain'' before ``emergency''; and
       (ii) by striking ``physicians'' and inserting 
     ``providers'';
       (B) by striking ``emergency room physicians who are on-call 
     (as defined by the Secretary)'' and inserting ``physicians, 
     physician assistants, nurse practitioners, and clinical nurse 
     specialists who are on-call (as defined by the Secretary) to 
     provide emergency services''; and
       (C) by striking ``physicians' services'' and inserting 
     ``services covered under this title''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply with respect to costs incurred for services 
     provided on or after January 1, 2004.
       (d) Authorization of Periodic Interim Payment (PIP).--
       (1) In general.--Section 1815(e)(2) of the Social Security 
     Act (42 U.S.C. 1395g(e)(2)) is amended--
       (A) in subparagraph (C), by striking ``and'' after the 
     semicolon at the end;
       (B) in subparagraph (D), by adding ``and'' after the 
     semicolon at the end; and
       (C) by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) inpatient critical access hospital services,''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply with respect to payments for inpatient critical 
     access hospital services furnished on or after January 1, 
     2004.
       (e) Exclusion of New CAHs From PPS Hospital Wage Index 
     Calculation.--Section 1886(d)(3)(E)(i) of the Social Security 
     Act (42 U.S.C. 1395ww(d)(3)(E)(i)), as amended by section 
     534, is amended by inserting after the first sentence the 
     following new sentence: ``In calculating the hospital wage 
     levels under the preceding sentence applicable with respect 
     to cost reporting periods beginning on or after January 1, 
     2004, the Secretary shall exclude the wage levels of any 
     hospital that became a critical access hospital prior to the 
     cost reporting period for which such hospital wage levels are 
     calculated.''.

     SEC. 537. TEMPORARY INCREASE FOR HOME HEALTH SERVICES 
                   FURNISHED IN A RURAL AREA.

       (a) In General.--In the case of home health services 
     furnished in a rural area (as defined in section 
     1886(d)(2)(D) of the Social Security Act (42 U.S.C. 
     1395ww(d)(2)(D))) on or after October 1, 2003, and before 
     October 1, 2005, the Secretary of Health and Human Services 
     shall increase the payment amount otherwise made under 
     section 1895 of such Act (42 U.S.C. 1395fff) for such 
     services by 10 percent.
       (b) Waiving Budget Neutrality.--The Secretary of Health and 
     Human Services shall not reduce the standard prospective 
     payment amount (or amounts) under section 1895 of the Social 
     Security Act (42 U.S.C. 1395fff) applicable to home health 
     services furnished during a period to offset the increase in 
     payments resulting from the application of subsection (a).
       (c) No Effect on Subsequent Periods.--The payment increase 
     provided under subsection (a) for a period under such 
     subsection, shall not apply to episodes and visits ending 
     after such period, and shall not be taken into account in 
     calculating the payment amounts applicable for episodes and 
     visits occurring after such period.

     SEC. 538. TEMPORARY INCREASE IN PAYMENTS FOR CERTAIN SERVICES 
                   FURNISHED BY SMALL RURAL HOSPITALS UNDER 
                   MEDICARE PROSPECTIVE PAYMENT SYSTEM FOR 
                   HOSPITAL OUTPATIENT DEPARTMENT SERVICES.

       (a) Increase.--
       (1) In general.--In the case of an applicable covered OPD 
     service (as defined in paragraph (2)) that is furnished by a 
     hospital described in paragraph (7)(D)(i) of section 1833(t) 
     of the Social Security Act (42 U.S.C. 1395l(t)) on or after 
     January 1, 2004, and before January 1, 2007, the Secretary of 
     Health and Human Services (in this section referred to as the 
     ``Secretary'') shall increase the medicare OPD fee schedule 
     amount (as determined under paragraph (4)(A) of such section) 
     that is applicable for such service in that year (determined 
     without regard to any increase under this section in a 
     previous year) by 5 percent.
       (2) Applicable covered opd services defined.--For purposes 
     of this section, the term ``applicable covered OPD service'' 
     means a covered clinic or emergency room visit that is 
     classified within the groups of covered OPD services (as 
     defined in paragraph (1)(B) of section 1833(t) of the Social 
     Security Act (42 U.S.C. 1395l(t))) established under 
     paragraph (2)(B) of such section.
       (b) No Effect on Copayment Amount.--The Secretary shall 
     compute the copayment amount for applicable covered OPD 
     services under section 1833(t)(8)(A) of the Social Security 
     Act (42 U.S.C. 1395l(t)(8)(A)) as if this section had not 
     been enacted.
       (c) No Effect on Increase Under Hold Harmless or Outlier 
     Provisions.--The Secretary shall apply the temporary hold 
     harmless provision under paragraph (7)(D)(i) of section 
     1833(t) of the Social Security Act (42 U.S.C. 1395l(t)) and 
     the outlier provision under paragraph (5) of such section as 
     if this section had not been enacted.
       (d) Waiving Budget Neutrality and No Revision or 
     Adjustments.--The Secretary shall not make any revision or 
     adjustment under subparagraph (A), (B), or (C) of section 
     1833(t)(9) of the Social Security Act (42 U.S.C. 1395l(t)(9)) 
     because of the application of subsection (a)(1).
       (e) No Effect on Payments After Increase Period Ends.--The 
     Secretary shall not take into account any payment increase 
     provided under subsection (a)(1) in determining payments for 
     covered OPD services (as defined in paragraph (1)(B) of 
     section 1833(t) of the Social Security Act (42 U.S.C. 
     1395l(t))) under such section that are furnished after 
     January 1, 2007.
       (f) Findings.--The Senate finds the following:
       (1) The medicare program has a responsibility to pay enough 
     for beneficial new technologies in order to ensure that 
     medicare beneficiaries have access to care; however, such 
     program must also be a prudent purchaser of health care items 
     and services.
       (2) The 2003 Medicare Hospital Outpatient Prospective 
     Payment System Regulation may have resulted in limiting 
     beneficiary access to care.
       (3) A methodology should be developed under the medicare 
     outpatient prospective payment system under section 1833(t) 
     of the Social Security Act (42 U.S.C. 1395l(t)) with 
     appropriate resources and such methodology should be 
     implemented January 1, 2004. This will ensure that all 
     hospitals are appropriately reimbursed for the drugs and 
     biologics that are used in the outpatient setting which in 
     turn will ensure patient access to new technologies.
       (g) Technical Amendment.--Section 1833(t)(2)(B) (42 U.S.C. 
     1395l(t)(2)(B)) is amended by inserting ``(and periodically 
     revise such groups pursuant to paragraph (9)(A))'' after 
     ``establish groups''.

     SEC. 539. TEMPORARY INCREASE FOR GROUND AMBULANCE SERVICES 
                   FURNISHED IN A RURAL AREA.

       Section 1834(l) of the Social Security Act (42 U.S.C. 
     1395m(l)), as amended by section 536(b)(2), is amended by 
     adding at the end the following new paragraph:
       ``(10) Temporary increase for ground ambulance services 
     furnished in a rural area.--
       ``(A) In general.--Notwithstanding any other provision of 
     this subsection, in the case of ground ambulance services 
     furnished on or after January 1, 2004, and before January 1, 
     2007, for which the transportation originates in a rural area 
     described in paragraph (9) or in a rural census tract 
     described in such paragraph, the fee schedule established 
     under this section shall provide that the rate for the 
     service otherwise established, after application of any 
     increase under such paragraph, shall be increased by 5 
     percent.
       ``(B) Application of increased payments after 2006.--The 
     increased payments under subparagraph (A) shall not be taken 
     into account in calculating payments for services furnished 
     on or after the period specified in such subparagraph.''.

[[Page 11658]]



     SEC. 540. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND 
                   FEDERALLY QUALIFIED HEALTH CENTER SERVICES FROM 
                   THE MEDICARE PPS FOR SKILLED NURSING 
                   FACILITIES.

       (a) In General.--Section 1888(e) of the Social Security Act 
     (42 U.S.C. 1395yy(e)) is amended--
       (1) in paragraph (2)(A)(i)(II), by striking ``clauses (ii) 
     and (iii)'' and inserting ``clauses (ii), (iii), and (iv)''; 
     and
       (2) by adding at the end of paragraph (2)(A) the following 
     new clause:
       ``(iv) Exclusion of certain rural health clinic and 
     federally qualified health center services.--Services 
     described in this clause are--

       ``(I) rural health clinic services (as defined in paragraph 
     (1) of section 1861(aa)); and
       ``(II) Federally qualified health center services (as 
     defined in paragraph (3) of such section);

     that would be described in clause (ii) if such services were 
     furnished by a physician or practitioner not affiliated with 
     a rural health clinic or a Federally qualified health 
     center.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to services furnished on or after January 1, 
     2004.

     SEC. 541. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS.

       (a) Procedures for Secretary, and Not Physicians, To 
     Determine When Bonus Payments Under Medicare Incentive 
     Payment Program Should Be Made.--Section 1833(m) of the 
     Social Security Act (42 U.S.C. 1395l(m)) is amended--
       (1) by inserting ``(1)'' after ``(m)''; and
       (2) by adding at the end the following new paragraph:
       ``(2) The Secretary shall establish procedures under which 
     the Secretary, and not the physician furnishing the service, 
     is responsible for determining when a payment is required to 
     be made under paragraph (1).''.
       (b) Educational Program Regarding the Medicare Incentive 
     Payment Program.--The Secretary shall establish and implement 
     an ongoing educational program to provide education to 
     physicians under the medicare program on the medicare 
     incentive payment program under section 1833(m) of the Social 
     Security Act (42 U.S.C. 1395l(m)).
       (c) Ongoing Study and Annual Report on the Medicare 
     Incentive Payment Program.--
       (1) Ongoing study.--The Secretary shall conduct an ongoing 
     study on the medicare incentive payment program under section 
     1833(m) of the Social Security Act (42 U.S.C. 1395l(m)). Such 
     study shall focus on whether such program increases the 
     access of medicare beneficiaries who reside in an area that 
     is designated (under section 332(a)(1)(A) of the Public 
     Health Service Act (42 U.S.C. 254e(a)(1)(A))) as a health 
     professional shortage area to physicians' services under the 
     medicare program.
       (2) Annual reports.--Not later than 1 year after the date 
     of enactment of this Act, and annually thereafter, the 
     Secretary shall submit to Congress a report on the study 
     conducted under paragraph (1), together with recommendations 
     for such legislation and administrative action as the 
     Secretary considers appropriate.

     SEC. 542. TWO-YEAR TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC 
                   LABORATORY TESTS FURNISHED BY A SOLE COMMUNITY 
                   HOSPITAL.

       Notwithstanding subsections (a)(1)(D) and (h) of section 
     1833 of the Social Security Act (42 U.S.C. 1395l) and section 
     1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in the case 
     of a clinical diagnostic laboratory test covered under part B 
     of title XVIII of such Act that is furnished in 2004 or 2005 
     by a sole community hospital (as defined in section 
     1886(d)(5)(D)(iii) of such Act (42 U.S.C. 
     1395ww(d)(5)(D)(iii))) as part of services provided to 
     patients of the hospital, the following rules shall apply:
       (1) Payment based on reasonable costs.--The amount of 
     payment for such test shall be 100 percent of the reasonable 
     costs of the hospital in furnishing such test.
       (2) No beneficiary cost-sharing.--No coinsurance, 
     deductible, copayment, or other cost-sharing otherwise 
     applicable under such part B shall apply with respect to such 
     test.

     SEC. 543. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC ADJUSTMENTS OF 
                   PAYMENTS FOR PHYSICIANS' SERVICES.

       Section 1848(e)(1) of the Social Security Act (42 U.S.C. 
     1395w-4(e)(1)) is amended--
       (1) in subparagraph (A), by striking ``subparagraphs (B) 
     and (C)'' and inserting ``subparagraphs (B), (C), and (E)''; 
     and
       (2) by adding at the end the following new subparagraph:
       ``(E) Floor for practice expense, malpractice, and work 
     geographic indices.--For purposes of payment for services 
     furnished on or after January 1, 2004, after calculating the 
     practice expense, malpractice, and work geographic indices in 
     clauses (i), (ii), and (iii) of subparagraph (A) and in 
     subparagraph (B), the Secretary shall increase any such index 
     to 1.00 for any locality for which such index is less than 
     1.00.''.

     SEC. 544. FREEZE IN PAYMENTS FOR ITEMS OF DURABLE MEDICAL 
                   EQUIPMENT AND ORTHOTICS AND PROSTHETICS.

       (a) DME.--Section 1834(a)(14) of the Social Security Act 
     (42 U.S.C. 1395m(a)(14)) is amended--
       (1) in subparagraph (E), by striking ``and'' at the end;
       (2) in subparagraph (F)--
       (A) by striking ``a subsequent year'' and inserting 
     ``2003''; and
       (B) by striking ``the previous year.'' and inserting 
     ``2002;''; and
       (3) by adding at the end the following new subparagraphs:
       ``(G) for each of the years 2004 through 2013, 0 percentage 
     points; and
       ``(H) for a subsequent year, the percentage increase in the 
     consumer price index for all urban consumers (U.S. urban 
     average) for the 12-month period ending with June of the 
     previous year.''.
       (b) Orthotics and Prosthetics.--Section 1834(h)(4)(A) of 
     the Social Security Act (42 U.S.C. 1395m(h)(4)(A)) is 
     amended--
       (1) in clause (vii), by striking ``and'' at the end;
       (2) in clause (viii)--
       (A) by striking ``a subsequent year'' and inserting 
     ``2003''; and
       (B) by striking ``the previous year'' and inserting 
     ``2002''; and
       (3) by adding at the end the following new clauses:
       ``(ix) for each of the years 2004 through 2013, 0 percent; 
     and
       ``(x) for a subsequent year, the percentage increase in the 
     consumer price index for all urban consumers (U.S. urban 
     average) for the 12-month period ending with June of the 
     previous year;''.

     SEC. 545. APPLICATION OF COINSURANCE AND DEDUCTIBLE FOR 
                   CLINICAL DIAGNOSTIC LABORATORY TESTS.

       (a) Coinsurance.--
       (1) In general.--Section 1833(a) of the Social Security Act 
     (42 U.S.C. 1395l(a)) is amended--
       (A) in paragraph (1)(D)--
       (i) in clause (i), by striking ``(or 100 percent, in the 
     case of such tests for which payment is made on an 
     assignment-related basis)''; and
       (ii) in clause (ii), by striking ``100 percent'' and 
     inserting ``80 percent''; and
       (B) in paragraph (2)(D)--
       (i) in clause (i), by striking ``(or 100 percent, in the 
     case of such tests for which payment is made on an 
     assignment-related basis or to a provider having an agreement 
     under section 1866)''; and
       (ii) in clause (ii), by striking ``100 percent'' and 
     inserting ``80 percent''.
       (2) Conforming amendment.--The third sentence of section 
     1866(a)(2)(A) of the Social Security Act (42 U.S.C. 
     1395cc(a)(2)(A) is amended by striking ``and with respect to 
     clinical diagnostic laboratory tests for which payment is 
     made under part B''.
       (b) Deductible.--Section 1833(b) of the Social Security Act 
     (42 U.S.C. 1395l(b)) is amended--
       (1) by striking paragraph (3); and
       (2) by redesignating paragraphs (4), (5), and (6) as 
     paragraphs (3), (4), and (5), respectively.
       (c) Effective Date.--The amendments made by this section 
     shall apply to tests furnished on or after January 1, 2004.

     SEC. 546. REVISION IN PAYMENTS FOR COVERED OUTPATIENT DRUGS.

       Section 1842(o)(1) of the Social Security Act (42 U.S.C. 
     1395u(o)(1)) is amended by striking ``equal to 95 percent of 
     the average wholesale price.'' and inserting ``equal to--
       ``(A) in the case of drugs furnished prior to January 1, 
     2004, 95 percent of the average wholesale price; and
       ``(B) in the case of drugs furnished on or after January 1, 
     2004, the lesser of--
       ``(i) 85 percent of the average wholesale price; or
       ``(ii) the amount payable for the drug or biological during 
     the last quarter of the previous year (as determined under 
     this subparagraph, or, in the case of 2004, under 
     subparagraph (A) using the second quarter of 2003) increased 
     by the percentage increase in the consumer price index for 
     all urban consumers (U.S. urban average) for the 12-month 
     period ending with June of the previous year.''.

     SEC. 547. INAPPLICABILITY OF SUNSET.

       The provisions of section 601(a) of this Act shall not 
     apply to the provisions of, and amendments made by, this 
     subtitle.
                                 ______
                                 
  SA 595. Mr. HARKIN proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       On page 281, between lines 2 and 3, insert the following:

     SEC. __. FAIR REIMBURSEMENT FOR RURAL HEALTH CARE PROVIDERS 
                   UNDER MEDICARE.

       (a) Reduction of Geographic Disparity Under Medicare.--
       (1) In general.--Subject to paragraph (3), the Secretary of 
     Health and Human Services shall promulgate the regulations 
     described in paragraph (2) by December 31, 2004 (unless 
     legislation has been enacted having the effect of such 
     regulations before the conclusion of the first session of the 
     108th Congress).
       (2) Regulations described.--The regulations described in 
     this paragraph are regulations that reduce the geographic 
     disparity in

[[Page 11659]]

     payments under the medicare program under title XVIII of the 
     Social Security Act (42 U.S.C. 1395 et seq.) to health care 
     providers by--
       (A) equalizing urban and rural standardized payment amounts 
     under the medicare inpatient hospital prospective payment 
     system under section 1886(d)(3) of such Act (42 U.S.C. 
     1395ww(d)(3));
       (B) improving the medicare incentive payment program under 
     section 1833(m) of such Act (42 U.S.C. 1395l(m)) to ensure 
     that bonus payments under such section are made on behalf of 
     all eligible physicians;
       (C) providing fairness in the medicare disproportionate 
     share hospitals adjustment for rural hospitals under section 
     1886(d)(5)(F) of such Act (42 U.S.C. 1395ww(d)(5)(F));
       (D) establishing a medicare inpatient hospital bonus 
     payment for low-volume hospitals under section 1886(d) of 
     such Act (42 U.S.C. 1395ww(d));
       (E) adjusting the medicare inpatient hospital prospective 
     payment system wage index to revise the labor-related share 
     of such index to account for 62 percent of such index under 
     section 1886(d)(3)(E) of such Act (42 U.S.C. 
     1395ww(d)(3)(E));
       (F) revising the physician fee schedule wage index under 
     section 1848(e)(1) of such Act (42 U.S.C. 1395w-4(e)(1)) to 
     establish a minimum geographic cost-of-practice index value 
     of not less than 1 for physicians' services furnished under 
     the medicare program;
       (G) extending the temporary increase under section 508(a) 
     of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
     Protection Act of 2000 (114 Stat. 2763A-533), as enacted into 
     law by section 1(a)(6) of Public Law 106-554, for home health 
     services furnished in a rural area; and
       (H) making any other change to a payment system under the 
     medicare program that the Secretary determines is 
     appropriate.
       (3) Hold-harmless.--The regulations promulgated under 
     paragraph (1) may not result in a lower level of 
     reimbursement for a health care provider under the medicare 
     program under title XVIII of the Social Security Act than 
     such provider would have received but for the enactment of 
     this section.
       (b) Funding.--
       (1) Appropriation.--There are appropriated, out of moneys 
     in the Treasury not otherwise appropriated, $50,000,000,000 
     for the purpose of implementing the regulations described in 
     subsection (a)(2).
       (2) Reversion of excess funds.--Any funds appropriated 
     under this subsection that are not used to implement such 
     regulations shall revert to the Treasury and shall be used to 
     reduce the Federal deficit.
       (c) Funding offset.--Paragraph (2) of section 116(a) 
     (relating to partial exclusion of dividends received by 
     individuals), as added by section 201(a), is amended to read 
     as follows:
       ``(2) Limitation.--Paragraph (1) shall apply to qualified 
     dividend income of a taxpayer only to the extent such income 
     does not exceed the sum of $500 ($250 in the case of a 
     married individual filing a separate return).''.
                                 ______
                                 
  SA 596. Ms. COLLINS (for herself, Mr. Rockefeller, Mr. Nelson of 
Nebraska, Mr. Smith, Mr. Schumer, Mr. Coleman, Mrs. Clinton, Mrs. 
Murray, and Mr. Wyden) proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       Strike section 371 and insert the following:

     SEC. 371. TEMPORARY STATE AND LOCAL FISCAL RELIEF.

       (a) $10,000,000,000 for a Temporary Increase of the 
     Medicaid FMAP.--
       (1) Permitting maintenance of fiscal year 2002 fmap for 
     last 2 calendar quarters of fiscal year 2003.--Subject to 
     paragraph (5), if the FMAP determined without regard to this 
     subsection for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this subsection.
       (2) Permitting maintenance of fiscal year 2003 fmap for 
     first 3 quarters of fiscal year 2004.--Subject to paragraph 
     (5), if the FMAP determined without regard to this subsection 
     for a State for fiscal year 2004 is less than the FMAP as so 
     determined for fiscal year 2003, the FMAP for the State for 
     fiscal year 2003 shall be substituted for the State's FMAP 
     for the first, second, and third calendar quarters of fiscal 
     year 2004, before the application of this subsection.
       (3) General 2.95 percentage points increase for last 2 
     calendar quarters of fiscal year 2003 and first 3 calendar 
     quarters of fiscal year 2004.--Subject to paragraphs (5), 
     (6), and (7), for each State for the third and fourth 
     calendar quarters of fiscal year 2003 and for the first, 
     second, and third calendar quarters of fiscal year 2004, the 
     FMAP (taking into account the application of paragraphs (1) 
     and (2)) shall be increased by 2.95 percentage points.
       (4) Increase in cap on medicaid payments to territories.--
     Subject to paragraphs (6) and (7), with respect to the third 
     and fourth calendar quarters of fiscal year 2003 and the 
     first, second, and third calendar quarters of fiscal year 
     2004, the amounts otherwise determined for Puerto Rico, the 
     Virgin Islands, Guam, the Northern Mariana Islands, and 
     American Samoa under subsections (f) and (g) of section 1108 
     of the Social Security Act (42 U.S.C. 1308) shall each be 
     increased by an amount equal to 5.90 percent of such amounts.
       (5) Scope of application.--The increases in the FMAP for a 
     State under this subsection shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (A) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4);
       (B) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.); or
       (C) any payments under XIX of such Act that are based on 
     the enhanced FMAP described in section 2105(b) of such Act 
     (42 U.S.C. 1397ee(b)).
       (6) State eligibility.--
       (A) In general.--Subject to subparagraph (B), a State is 
     eligible for an increase in its FMAP under paragraph (3) or 
     an increase in a cap amount under paragraph (4) only if the 
     eligibility under its State plan under title XIX of the 
     Social Security Act (including any waiver under such title or 
     under section 1115 of such Act (42 U.S.C. 1315)) is no more 
     restrictive than the eligibility under such plan (or waiver) 
     as in effect on September 2, 2003.
       (B) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after September 2, 2003, is eligible for an increase 
     in its FMAP under paragraph (3) or an increase in a cap 
     amount under paragraph (4) in the first calendar quarter (and 
     subsequent calendar quarters) in which the State has 
     reinstated eligibility that is no more restrictive than the 
     eligibility under such plan (or waiver) as in effect on 
     September 2, 2003.
       (C) Rule of construction.--Nothing in subparagraph (A) or 
     (B) shall be construed as affecting a State's flexibility 
     with respect to benefits offered under the State medicaid 
     program under title XIX of the Social Security Act (42 U.S.C. 
     1396 et seq.) (including any waiver under such title or under 
     section 1115 of such Act (42 U.S.C. 1315)).
       (7) Requirement for certain states.--In the case of a State 
     that requires political subdivisions within the State to 
     contribute toward the non-Federal share of expenditures under 
     the State medicaid plan required under section 1902(a)(2) of 
     the Social Security Act (42 U.S.C. 1396a(a)(2)), the State 
     shall not require that such political subdivisions pay a 
     greater percentage of the non-Federal share of such 
     expenditures for the third and fourth calendar quarters of 
     fiscal year 2003 and the first, second and third calendar 
     quarters of fiscal year 2004, than the percentage that was 
     required by the State under such plan on April 1, 2003, prior 
     to application of this subsection.
       (8) Definitions.--In this subsection:
       (A) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (B) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (9) Repeal.--Effective as of October 1, 2004, this 
     subsection is repealed.
       (b) $10,000,000,000 for Assistance in Providing Government 
     Services.--
       (1) Establishment.--
       (A) In general.--Not later than 45 days after the date of 
     enactment of this Act, the Secretary shall establish a 
     program under which the Secretary shall make a payment to 
     each State in accordance with paragraph (2) and each unit of 
     general local government which qualifies for a payment under 
     paragraph (3).
       (B) Requirement.--In making payments under this subsection, 
     the Secretary shall ensure that not more than 72.70 percent 
     of the amount appropriated under subparagraph (C) is paid in 
     fiscal year 2003.
       (C) Appropriation.--There is authorized to be appropriated 
     and is appropriated for making payments under this 
     subsection, $10,000,000,000. Amounts appropriated under this 
     subparagraph shall remain available for expenditure through 
     September 30, 2004.
       (2) $6,000,000,000 paid to states.--
       (A) Amount of payment.--
       (i) Based on population.--Subject to clause (ii), 
     $6,000,000,000 of the amount appropriated under paragraph 
     (1)(C) shall be used to pay each State an amount equal to the 
     relative population proportion amount described in clause 
     (iii).
       (ii) Minimum payment.--

       (I) In general.--No State shall receive a payment under 
     this paragraph that is less than--

       (aa) in the case of any of the several States or the 
     District of Columbia, $30,000,000; and
       (bb) in the case of the Commonwealth of Puerto Rico, the 
     United States Virgin Islands, Guam, the Commonwealth of the 
     Northern Mariana Islands, or American Samoa, $6,000,000.

[[Page 11660]]

       (II) Pro rata adjustments.--The Secretary shall adjust on a 
     pro rata basis the amount of the payments to States 
     determined under this subparagraph to the extent necessary to 
     comply with the requirements of subclause (I).

       (iii) Relative population proportion amount.--The relative 
     population proportion amount described in this clause is the 
     product of--

       (I) $6,000,000,000; and
       (II) the relative State population proportion (defined in 
     clause (iv)).

       (iv) Relative state population proportion defined.--For 
     purposes of clause (iii)(II), the term ``relative State 
     population proportion'' means, with respect to a State, the 
     amount equal to the quotient of--

       (I) the population of the State (as reported in the most 
     recent decennial census); and
       (II) the total population of all States (as reported in the 
     most recent decennial census).

       (B) Use of payment.--
       (i) In general.--Subject to clause (ii), a State shall use 
     the funds provided under a payment made under this paragraph 
     to fund 1 or more of the following activities:

       (I) Education or job training.
       (II) Health care or other social services.
       (III) Transportation or other infrastructure.
       (IV) Law enforcement or public safety.
       (V) Essential government services.

       (ii) Limitation.--A State may only use funds provided under 
     a payment made under this paragraph for types of expenditures 
     permitted under the most recently approved budget for the 
     State.
       (C) Certification.--In order to receive a payment under 
     this paragraph for a fiscal year, the State shall provide the 
     Secretary with a certification that the State's proposed uses 
     of the funds are consistent with subparagraph (B).
       (3) $4,000,000,000 paid to units of general local 
     government.--
       (A) Eligibility.--The Secretary shall, by regulation, 
     establish procedures under which units of general local 
     government may qualify for the payments provided under this 
     paragraph. Such procedures shall include a requirement that 
     no unit of general local government shall be eligible for a 
     payment under this paragraph unless the unit provides the 
     Secretary with a certification that the unit's proposed uses 
     of the funds are consistent with subparagraph (C).
       (B) Amount of payment.--
       (i) In general.--Subject to clause (ii), the Secretary 
     shall pay each unit of general local government that 
     qualifies for a payment under the regulation required under 
     subparagraph (A), an amount equal to the same ratio to 
     $4,000,000,000 as the population of such unit of general 
     local government (as reported in the most recent decennial 
     census) bears to the total population of all such units that 
     qualify for a payment under this paragraph (as so reported).
       (ii) Adjustments.--The Secretary may adjust the amount of 
     the payment otherwise determined for a unit of general local 
     government under this subparagraph to the extent the 
     Secretary determines necessary to ensure that all such units 
     that would qualify for a payment under this paragraph receive 
     a payment.
       (C) Use of payment.--
       (i) In general.--Subject to clause (ii), a unit of general 
     local government shall use the funds provided under a payment 
     made under this paragraph to fund 1 or more of the following 
     activities:

       (I) Education or job training.
       (II) Health care or other social services.
       (III) Transportation or other infrastructure.
       (IV) Law enforcement or public safety.
       (V) Essential government services.

       (ii) Limitation.--A unit of general local government may 
     only use funds provided under a payment made under this 
     paragraph for types of expenditures permitted under the most 
     recently approved budget for the unit.
       (4) Definitions.--In this subsection:
       (A) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury.
       (B) State.--The term ``State'' means the 50 States, the 
     District of Columbia, the Commonwealth of Puerto Rico, the 
     United States Virgin Islands, Guam, the Commonwealth of the 
     Northern Mariana Islands, and American Samoa.
       (C) Unit of general local government.--
       (i) In general.--The term ``unit of general local 
     government'' means--

       (I) a county, parish, township, city, or political 
     subdivision of a county, parish, township, or city, that is a 
     unit of general local government as determined by the 
     Secretary of Commerce for general statistical purposes; and
       (II) the recognized governing body of an Indian tribe or 
     Alaskan native village that carries out substantial 
     governmental duties and powers.

       (ii) Treatment of subsumed areas.--For purposes of 
     determining a unit of general local government under this 
     subsection, the rules under section 6720(c) of title 31, 
     United States Code, shall apply.
       (5) Repeal.--Effective as of October 1, 2004, this 
     subsection is repealed.
                                 ______
                                 
  SA 597. Mrs. CLINTON submitted an amendment intended to be proposed 
by her to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       On page 281, between lines 2 and 3, insert the following:

     SEC. . REPEAL OF ALTERNATIVE MINIMUM TAX SPECIAL DEDUCTION 
                   ADJUSTMENT FOR CERTAIN TAX-EXEMPT 
                   ORGANIZATIONS.

       (a) In General.--Paragraph (3) of section 56(c) (relating 
     to special deduction for certain organizations not allowed) 
     is amended by striking ``The'' and inserting ``Other than for 
     an organization described in paragraph (3) or (4) of section 
     501(c), the''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after the date of the 
     enactment of this section.
                                 ______
                                 
  SA 598. Mrs. CLINTON submitted an amendment intended to be proposed 
by her to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subpart C of title V, insert the following:

     SEC. __. LEAD ABATEMENT TAX CREDIT.

       (a) Findings.--Congress finds that:
       (1) Of the 98,000,000 housing units in the United States, 
     38,000,000 have lead-based paint.
       (2) Of the 38,000,000 housing units with lead-based paint, 
     25,000,000 pose a hazard, as defined by Environmental 
     Protection Agency and Department of Housing and Urban 
     Development standards, due to conditions such as peeling 
     paint and settled dust on floors and windowsills that contain 
     lead at levels above Federal safety standards.
       (3) Though the number of children in the United States ages 
     1 through 5 with blood levels higher than the Centers for 
     Disease Control action level of 10 micrograms per deciliter 
     has declined to 300,000, lead poisoning remains a serious, 
     entirely preventable threat to a child's intelligence, 
     behavior, and learning.
       (4) The Secretary of Health and Human Services has 
     established a national goal of ending childhood lead 
     poisoning by 2010.
       (5) Current Federal lead abatement programs, such as the 
     Lead Hazard Control Grant Program of the Department of 
     Housing and Urban Development, only have resources sufficient 
     to make approximately 7,000 homes lead-safe each year. In 
     many cases, when State and local public health departments 
     identify a lead-poisoned child, resources are insufficient to 
     reduce or eliminate the hazards.
       (6) Approximately 15 percent of children are lead-poisoned 
     by home renovation projects performed by remodelers who fail 
     to follow basic safeguards to control lead dust.
       (7) Old windows typically pose significant risks because 
     wood trim is more likely to be painted with lead-based paint, 
     moisture causes paint to deteriorate, and friction generates 
     lead dust. The replacement of old windows that contain lead 
     based paint significantly reduces lead poisoning hazards in 
     addition to producing significant energy savings.
       (b) Purpose.--The purpose of this section is to encourage 
     the safe removal of lead hazards from homes and thereby 
     decrease the number of children who suffer reduced 
     intelligence, learning difficulties, behavioral problems, and 
     other health consequences due to lead-poisoning.
       (c) Lead Abatement Tax Credit.--
       (1) In General.--Subpart B of part IV of subchapter A of 
     chapter 1 (relating to foreign tax credit, etc.) is amended 
     by adding at the end the following new section:

     ``SEC. 30B. HOME LEAD ABATEMENT.

       ``(a) Allowance of Credit.--There shall be allowed as a 
     credit against the tax imposed by this chapter an amount 
     equal to 50 percent of the abatement cost paid or incurred by 
     the taxpayer during the taxable year for each eligible 
     dwelling unit of the taxpayer.
       ``(b) Limitation.--The amount of the credit allowed under 
     subsection (a) for any eligible dwelling unit shall not 
     exceed--
       ``(1) $1,500, over
       ``(2) the aggregate cost taken into account under 
     subsection (a) with respect to such unit for all preceding 
     taxable years.
       ``(c) Definitions and Special Rules.--For purposes of this 
     section:
       ``(1) Abatement cost.--
       ``(A) In general.--The term `abatement cost' means, with 
     respect to any eligible dwelling unit--
       ``(i) the cost for a certified risk assessor to conduct an 
     assessment to determine the presence of a lead-based paint 
     hazard,
       ``(ii) the cost for a certified lead abatement supervisor 
     to perform the removal of paint and dust, the permanent 
     enclosure or encapsulation of lead-based paint, the 
     replacement of painted surfaces or fixtures, or the removal 
     or permanent covering of soil when lead-based paint hazards 
     are present in such paint, dust, or soil,
       ``(iii) the cost for a certified lead abatement supervisor 
     to perform all preparation,

[[Page 11661]]

     cleanup, disposal, and postabatement clearance testing 
     activities associated with the activities described in clause 
     (ii), and
       ``(iv) costs incurred by or on behalf of any occupant of 
     such dwelling unit for any relocation which is necessary to 
     achieve occupant protection (as defined under section 1345 of 
     title 24, Code of Federal Regulations).
       ``(B) Limitation.--The term `abatement cost' does not 
     include any cost to the extent such cost is funded by any 
     grant, contract, or otherwise by another person (or any 
     governmental agency).
       ``(2) Eligible dwelling unit.--
       ``(A) In general.--The term `eligible dwelling unit' means 
     any dwelling unit--
       ``(i) placed in service before 1978,
       ``(ii) located in the United States, and
       ``(iii) determined by a certified risk assessor to have a 
     lead-based paint hazard.
       ``(B) Dwelling unit.--The term `dwelling unit' has the 
     meaning given such term by section 280A(f)(1).
       ``(3) Lead-based paint hazard.--The term `lead-based paint 
     hazard' has the meaning given such term under part 745 of 
     title 40, Code of Federal Regulations.
       ``(4) Certified lead abatement supervisor.--The term 
     `certified lead abatement supervisor' means an individual 
     certified by the Environmental Protection Agency pursuant to 
     section 745.226 of title 40, Code of Federal Regulations, or 
     an appropriate State agency pursuant to section 745.325 of 
     title 40, Code of Federal Regulations.
       ``(5) Certified inspector.--The term `certified inspector' 
     means an inspector certified by the Environmental Protection 
     Agency pursuant to section 745.226 of title 40, Code of 
     Federal Regulations, or an appropriate State agency pursuant 
     to section 745.325 of title 40, Code of Federal Regulations.
       ``(6) Certified risk assessor.--The term `certified risk 
     assessor' means a risk assessor certified by the 
     Environmental Protection Agency pursuant to section 745.226 
     of title 40, Code of Federal Regulations, or an appropriate 
     State agency pursuant to section 745.325 of title 40, Code of 
     Federal Regulations.
       ``(7) Documentation required for credit allowance.--No 
     credit shall be allowed under subsection (a) with respect to 
     any eligible dwelling unit unless--
       ``(A) after lead abatement is complete, a certified 
     inspector or certified risk assessor provides written 
     documentation to the taxpayer that includes--
       ``(i) a certification that the postabatement procedures (as 
     defined by section 745.227 of title 40, Code of Federal 
     Regulations) have been performed and that the unit does not 
     contain lead dust hazards (as defined by section 
     745.227(e)(8)(viii) of title 40, Code of Federal 
     Regulations), and
       ``(ii) documentation showing that the lead abatement meets 
     the requirements of this section, and
       ``(B) the taxpayer files with the appropriate State 
     agency--
       ``(i) the documentation described in subparagraph (A),
       ``(ii) a receipt from the certified risk assessor 
     documenting the costs of determining the presence of a lead-
     based paint hazard,
       ``(iii) a receipt from the certified lead abatement 
     supervisor documenting the abatement cost (other than the 
     costs described in paragraph (1)(A)(i)), and
       ``(iv) a statement indicating the age of the dwelling unit.
       ``(8) Basis reduction.--The basis of any property for which 
     a credit is allowable under subsection (a) shall be reduced 
     by the amount of such credit (determined without regard to 
     subsection (d)).
       ``(d) Limitation based on amount of tax.--The credit 
     allowed under subsection (a) for the taxable year shall not 
     exceed the excess of--
       ``(1) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(2) the sum of the credits allowable under subpart A and 
     sections 27, 29, 30, and 30A for the taxable year.
       ``(e) Carryforward Allowed.--
       ``(1) In general.--If the credit amount allowable under 
     subsection (a) for a taxable year exceeds the amount of the 
     limitation under subsection (d) for such taxable year 
     (referred to as the `unused credit year' in this subsection), 
     such excess shall be allowed as a credit carryforward for 
     each of the 20 taxable years following the unused credit 
     year.
       ``(2) Rules.--Rules similar to the rules of section 39 
     shall apply with respect to the credit carryforward under 
     paragraph (1).''.
       (2) Conforming amendments.--
       (A) Section 1016(a) is amended by striking ``and'' in 
     paragraph (27), by striking the period and inserting ``, 
     and'' in paragraph (28), and by inserting at the end the 
     following new paragraph:
       ``(29) in the case of an eligible dwelling unit with 
     respect to which a credit for lead abatement was allowed 
     under section 30B, to the extent provided in section 
     30B(c)(8).''.
       (B) The table of sections for subpart B of part IV of 
     subchapter A of chapter 1 is amended by inserting after the 
     item relating to section 30A the following new item:

``Sec. 30B. Home lead abatement.''.

       (3) Effective date.--The amendments made by this section 
     shall apply to abatement costs incurred after December 31, 
     2003, in taxable years ending after that date.
                                 ______
                                 
  SA 599. Mrs. CLINTON submitted an amendment intended to be proposed 
by her to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end, add the following:

               TITLE __--MEDICARE AND MEDICAID PROVISIONS

     SEC. __00. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; 
                   REFERENCES TO BIPA; TABLE OF CONTENTS.

       (a) Short Title.--This title may be cited as the ``Health 
     Care Improvement Act of 2003''.
       (b) Amendments to Social Security Act.--Except as otherwise 
     specifically provided, whenever in this title an amendment 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 that section or other provision of the Social 
     Security Act.
       (c) BIPA.--In this title, the term ``BIPA'' means the 
     Medicare, Medicaid, and SCHIP Benefits Improvement and 
     Protection Act of 2000, as enacted into law by section 
     1(a)(6) of Public Law 106-554.
       (d) Table of Contents.--The table of contents of this title 
     is as follows:

               TITLE __--MEDICARE AND MEDICAID PROVISIONS

Sec. __00. Short title; amendments to Social Security Act; references 
              to BIPA; table of contents.

                    Subtitle A--Medicare Provisions

Sec. __01. Revision of acute care hospital payment updates.
Sec. __02. Extension of level of adjustment for Indirect Costs of 
              Medical Education (IME).
Sec. __03. Hospital outpatient department outlier payments.
Sec. __04. Hospital outpatient department transitional payments.
Sec. __05. Application of rules for determining provider-based status 
              for certain entities.
Sec. __06. Extension of treatment of certain physician pathology 
              services.
Sec. __07. Extension of the authorization for appropriations for 
              Medicare Rural Grant Program.
Sec. __08. Extension of enhanced payments for psychiatric hospitals.
Sec. __09. Additional delay in application of 15 percent reduction on 
              payment limits for home health services.
Sec. __10. Extension of temporary increase for home health services 
              furnished in a rural area.
Sec. __11. Extension of temporary increase in adjusted Federal per diem 
              rate under PPS for skilled nursing facilities.
Sec. __12. Extension of increase in nursing component of PPS Federal 
              rate under PPS for skilled nursing facilities.
Sec. __13. Increase in renal dialysis composite rate for services 
              furnished in 2003.
Sec. __14. Extension of the authorization for appropriations for 
              vaccines outreach expansion.
Sec. __15. Extension of moratorium on therapy caps.
Sec. __16. Increase in the conversion factor for payments under the 
              medicare physician fee schedule.
Sec. __17. Revision of Medicare+Choice minimum percentage increase.

                    Subtitle B--Medicaid Provisions

Sec. __21. Extension of medicare cost-sharing for part B premium for 
              certain additional low-income medicare beneficiaries.
Sec. __22. Medicaid DSH allotments.

            Subtitle C--Application and Budget Scorekeeping

Sec. __31. Application of provisions of title.

                    Subtitle A--Medicare Provisions

     SEC. __01. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

       Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 U.S.C. 
     1395ww(b)(3)(B)(i)) is amended by striking ``minus 0.55 
     percentage points''.

     SEC. __02. EXTENSION OF LEVEL OF ADJUSTMENT FOR INDIRECT 
                   COSTS OF MEDICAL EDUCATION (IME).

       (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
     1395ww(d)(5)(B)(ii)) is amended--
       (1) in subclause (VI) by inserting ``and fiscal year 2003'' 
     after ``2002''; and
       (2) in subclause (VII), by striking ``2002'' and inserting 
     ``2003''.
       (b) Conforming Amendment Relating to Determination of 
     Standardized Amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 
     1395ww(d)(2)(C)(i)) is amended--
       (1) by striking ``1999 or'' and inserting ``1999,''; and
       (2) by inserting ``, or of section __02 of the Health Care 
     Improvement Act of 2003'' after ``2000''.

[[Page 11662]]



     SEC. __03. HOSPITAL OUTPATIENT DEPARTMENT OUTLIER PAYMENTS.

       (a) In General.--Section 1833(t)(5) (42 U.S.C. 1395l(t)(5)) 
     is amended--
       (1) in subparagraph (C)--
       (A) in clause (i), by striking ``exceed the applicable'' 
     and inserting ``exceed a percentage specified by the 
     Secretary that is not less than the applicable minimum 
     percentage or greater than the applicable maximum''; and
       (B) by striking clause (ii) and inserting the following new 
     clause:
       ``(ii) Applicable percentages.--For purposes of clause 
     (i)--

       ``(I) the term `applicable minimum percentage' for a year 
     means zero percent for years before 2003 and 2.0 percent for 
     years after 2002; and
       ``(II) the term `applicable maximum percentage' for a year 
     means 2.5 percent for years before 2003 and 3.0 percent for 
     years after 2002.''; and

       (2) in subparagraph (D)--
       (A) in the heading, by striking ``Transitional authority'' 
     and inserting ``Flexibility''; and
       (B) in the matter preceding clause (i), by striking ``for 
     covered OPD services furnished before January 1, 2002,''.

     SEC. __04. HOSPITAL OUTPATIENT DEPARTMENT TRANSITIONAL 
                   PAYMENTS.

       Section 1833(t)(7) (42 U.S.C. 1395l(t)(7)) is amended--
       (1) in subparagraph (B)--
       (A) in the heading, by inserting ``and 2003'' after 
     ``2002''; and
       (B) by inserting ``and 2003'' after ``furnished during 
     2002'' in the matter preceding clause (i); and
       (2) in subparagraph (C)--
       (A) in the heading, by striking ``2003'' and inserting 
     ``2004''; and
       (B) by striking ``2003'' and inserting ``2004'' in the 
     matter preceding clause (i); and
       (3) in subparagraph (D)(i), by striking ``2004'' and 
     inserting ``2005''.

     SEC. __05. APPLICATION OF RULES FOR DETERMINING PROVIDER-
                   BASED STATUS FOR CERTAIN ENTITIES.

       Section 404 of BIPA (114 Stat. 2763A-506) is amended by 
     striking ``2002'' and inserting ``2003'' each place it 
     appears.

     SEC. __06. EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN 
                   PATHOLOGY SERVICES.

       Section 542(c) of BIPA (114 Stat. 2763A-550) is amended by 
     striking ``2-year period'' and inserting ``3-year period''.

     SEC. __07. EXTENSION OF THE AUTHORIZATION FOR APPROPRIATIONS 
                   FOR MEDICARE RURAL GRANT PROGRAM.

       Section 1820(j) (42 U.S.C. 1395i-4(j)) is amended by 
     striking ``2002'' and inserting ``2003''.

     SEC. __08. EXTENSION OF ENHANCED PAYMENTS FOR PSYCHIATRIC 
                   HOSPITALS.

       Section 1886(b)(2)(E)(i) (42 U.S.C. 1395ww(b)(2)(E)(i)) is 
     amended--
       (1) in subclause (I), by striking ``and'' at the end;
       (2) in subclause (II), by striking the period at the end 
     and inserting ``; and''; and
       (3) by adding at the end the following new subclause:
       ``(III) only in the case of a hospital or unit described in 
     clause (ii)(I), for a cost reporting period beginning on or 
     after October 1, 2002, and before September 30, 2003, 2 
     percent.''.

     SEC. __09. ADDITIONAL DELAY IN APPLICATION OF 15 PERCENT 
                   REDUCTION ON PAYMENT LIMITS FOR HOME HEALTH 
                   SERVICES.

       Section 1895(b)(3)(A)(i) (42 U.S.C. 1395fff(b)(3)(A)(i)) is 
     amended--
       (1) by redesignating subclause (III) as subclause (IV);
       (2) in subclause (IV), as redesignated, by striking 
     ``described in subclause (II)'' and inserting ``described in 
     subclause (III)''; and
       (3) by inserting after subclause (II) the following new 
     subclause:

       ``(III) For the 12-month period beginning after the period 
     described in subclause (II), such amount (or amounts) shall 
     be equal to the amount (or amounts) determined under 
     subclause (II), updated under subparagraph (B).''.

     SEC. __10. EXTENSION OF TEMPORARY INCREASE FOR HOME HEALTH 
                   SERVICES FURNISHED IN A RURAL AREA.

       (a) In General.--Section 508(a) BIPA (114 Stat. 2763A-533) 
     is amended--
       (1) by striking ``24-Month Increase Beginning April 1, 
     2001'' and inserting ``In General''; and
       (2) by striking ``April 1, 2003'' and inserting ``October 
     1, 2003''.
       (b) Conforming Amendment.--Section 547(c)(2) of BIPA (114 
     Stat. 2763A-553) is amended by striking ``the period 
     beginning on April 1, 2001, and ending on September 30, 
     2002,'' and inserting ``a period under such section''.

     SEC. __11. EXTENSION OF TEMPORARY INCREASE IN ADJUSTED 
                   FEDERAL PER DIEM RATE UNDER PPS FOR SKILLED 
                   NURSING FACILITIES.

       Section 101(d)(1) of the Medicare, Medicaid, and SCHIP 
     Balanced Budget Refinement Act of 1999 (Appendix F, 113 Stat. 
     1501A-325), as enacted into law by section 1000(a)(6) of 
     Public Law 106-113, is amended--
       (1) in the heading, by striking ``and 2002'' and inserting 
     ``, 2002, and 2003''; and
       (2) by striking ``and 2002'' and inserting ``, 2002, and 
     2003''.

     SEC. __12. EXTENSION OF INCREASE IN NURSING COMPONENT OF PPS 
                   FEDERAL RATE UNDER PPS FOR SKILLED NURSING 
                   FACILITIES.

       Section 312(a) of BIPA (114 Stat. 2763A-498) is amended by 
     striking ``October 1, 2002'' and inserting ``October 1, 
     2003''.

     SEC. __13. INCREASE IN RENAL DIALYSIS COMPOSITE RATE FOR 
                   SERVICES FURNISHED IN 2003.

       Notwithstanding any other provision of law, with respect to 
     payment under part B of title XVIII of the Social Security 
     Act for renal dialysis services furnished in 2003, the 
     composite payment rate otherwise established under section 
     1881(b)(7) of such Act (42 U.S.C. 1395rr(b)(7)) shall be 
     increased by 1.2 percent.

     SEC. __14. EXTENSION OF THE AUTHORIZATION FOR APPROPRIATIONS 
                   FOR VACCINES OUTREACH EXPANSION.

       Section 4107(b) of the Balanced Budget Act of 1997 (42 
     U.S.C. 1395x note) is amended by striking ``2002'' and 
     inserting ``2003''.

     SEC. __15. EXTENSION OF MORATORIUM ON THERAPY CAPS.

       Section 1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended by 
     striking ``and 2002'' and inserting ``2002, and 2003''.

     SEC. __16. INCREASE IN THE CONVERSION FACTOR FOR PAYMENTS 
                   UNDER THE MEDICARE PHYSICIAN FEE SCHEDULE.

       (a) In General.--Section 1848(d)(5)(A) of the Social 
     Security Act (42 U.S.C. 1395w-4(d)(5)(A)), as added by 
     section 402 of the Miscellaneous Appropriations Act, 2003 
     (Public Law 108-7), is amended by inserting ``increased by 2 
     percent'' after ``2002''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect as if included in the enactment of such 
     section 402.

     SEC. __17. REVISION OF MEDICARE+CHOICE MINIMUM PERCENTAGE 
                   INCREASE.

       Section 1853(c)(1)(C) (42 U.S.C. 1395w-23(c)(1)(C)) is 
     amended by striking clause (iv) and inserting the following:
       ``(iv) For 2002, 102 percent of the annual Medicare+Choice 
     capitation rate under this paragraph for the area for 2001.
       ``(v) For 2003, 104 percent of the annual Medicare+Choice 
     capitation rate under this paragraph for the area for 2002.
       ``(vii) For 2004 and each succeeding year, 102 percent of 
     the annual Medicare+Choice capitation rate under this 
     paragraph for the area for the previous year.''.

                    Subtitle B--Medicaid Provisions

     SEC. __21. EXTENSION OF MEDICARE COST-SHARING FOR PART B 
                   PREMIUM FOR CERTAIN ADDITIONAL LOW-INCOME 
                   MEDICARE BENEFICIARIES.

       Section 136 of Public Law 107-229, as added by section 5 of 
     Public Law 107-240, is amended by striking ``60 days after 
     the date specified in section 107(c) of Public Law 107-229, 
     as amended'' and inserting ``September 30, 2003''.

     SEC. __22. MEDICAID DSH ALLOTMENTS.

       (a) Continuation of BIPA Rule for Determination of 
     Allotments for Fiscal Year 2003.--
       (1) In general.--Section 1923(f)(4) (42 U.S.C. 1396r-
     4(f)(4)) is amended--
       (A) in the paragraph heading, by striking ``and 2002'' and 
     inserting ``through 2003'';
       (B) in subparagraph (A)--
       (i) in clause (i), by striking ``and'' at the end;
       (ii) in clause (ii), by striking the period and inserting 
     ``; and''; and
       (iii) by adding at the end the following:
       ``(iii) fiscal year 2003, shall be the DSH allotment 
     determined under clause (ii) increased, subject to 
     subparagraph (B) and paragraph (5), by the percentage change 
     in the consumer price index for all urban consumers (all 
     items; U.S. city average) for fiscal year 2002.''; and
       (C) in subparagraph (C)--
       (i) in the subparagraph heading, by striking ``2002'' and 
     inserting ``2003''; and
       (ii) by striking ``2003'' and inserting ``2004''.
       (2) Conforming amendments.--Section 1923(f)(3) (42 U.S.C. 
     1396r-4(f)(3)) is amended--
       (A) in the paragraph heading, by striking ``2003'' and 
     inserting ``2004''; and
       (B) by striking subparagraph (A) and inserting the 
     following:
       ``(A) In general.--The DSH allotment for any State--
       ``(i) for fiscal year 2004, is equal to the DSH allotment 
     determined for the State for fiscal year 2002 under the table 
     set forth in paragraph (2), increased, subject to 
     subparagraph (B) and paragraph (5), by the percentage change 
     in the Consumer Price Index for all urban consumers (all 
     items; U.S. city average), for fiscal year 2004; and
       ``(ii) for fiscal year 2005 and each succeeding fiscal 
     year, is equal to the DSH allotment determined for the State 
     for the preceding fiscal year under this paragraph, 
     increased, subject to subparagraph (B) and paragraph (5), by 
     the percentage change in the Consumer Price Index for all 
     urban consumers (all items; U.S. city average), for the 
     previous fiscal year.''.
       (b) Increase in Floor for Treatment as an Extremely Low DSH 
     State to 3 Percent

[[Page 11663]]

     in Fiscal Year 2003.--Section 1923(f)(5) (42 U.S.C. 1396r-
     4(f)(5)) is amended--
       (1) by striking ``fiscal year 1999'' and inserting ``fiscal 
     year 2001'';
       (2) by striking ``Health Care Financing Administration'' 
     and inserting ``Centers for Medicare & Medicaid Services'';
       (3) by striking ``August 31, 2000'' and inserting ``August 
     31, 2002'';
       (4) by striking ``1 percent'' each place it appears and 
     inserting ``3 percent''; and
       (5) by striking ``fiscal year 2001'' and inserting ``fiscal 
     year 2003 (as determined under paragraph (4)(A)(iii))''.

            Subtitle C--Application and Budget Scorekeeping

     SEC. __31. APPLICATION OF PROVISIONS OF TITLE.

       (a) Application Only to Last 6 Months of Fiscal Year 
     2003.--Except for the amendments made by sections __16 and 
     __21, the provisions of, and amendments made by, this title 
     shall only apply to the Social Security Act, the Balanced 
     Budget Act of 1997, the Medicare, Medicaid, and SCHIP 
     Balanced Budget Refinement Act of 1999 (Appendix F, 113 Stat. 
     1501A-321), as enacted into law by section 1000(a)(6) of 
     Public Law 106-113, and BIPA during the period that begins on 
     April 1, 2003, and ends on September 30, 2003.
       (b) No Effect on Periods Beyond September 30, 2003.--All 
     provisions of, and amendments made by, this title shall not 
     apply after September 30, 2003, and, after such date, the 
     Social Security Act, the Balanced Budget Act of 1997, the 
     Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
     of 1999 (Appendix F, 113 Stat. 1501A-321), as enacted into 
     law by section 1000(a)(6) of Public Law 106-113, and BIPA 
     shall be applied and administered as if the provisions of, 
     and amendments made by, this title had not been enacted.
       On page 19, strike lines 7 through 15, and insert the 
     following:
       ``(2) Limitation.--Paragraph (1) shall apply to qualified 
     dividend income of a taxpayer only to the extent such income 
     does not exceed the sum of $500 ($250 in the case of a 
     married individual filing a separate return).
       On page 26, strike lines 17 through 22.
                                 ______
                                 
  SA 600. Mr. SCHUMER submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       Strike section 371 and insert the following:

     SEC. 371. TEMPORARY STATE FISCAL RELIEF FUND.

       (a) Authority To Make Payments To States.--
       (1) In general.--Not later than 45 days after the date of 
     enactment of this Act, the Secretary of the Treasury (in this 
     section referred to as the ``Secretary'') shall establish a 
     program under which the Secretary shall make a payment to 
     each State in which the chief executive officer of the State, 
     or the chief executive officer's designee, in consultation 
     and coordination with other State and local officials, 
     notifies the Secretary not later than 6 months after the date 
     of enactment of this Act that the State intends to use the 
     payment in accordance with this section.
       (2) Requirement.--In making payments to States under this 
     section, the Secretary shall ensure that not more than 50 
     percent of the aggregate amount made available for payments 
     under this section (after the application of subsection (f)) 
     is paid to States in fiscal year 2003.
       (b) Use of Payment.--
       (1) In general.--Subject to paragraph (2), a State shall 
     use the funds provided under a payment made under this 
     section to carry out 1 or more of the following activities:
       (A) Improving education or job training.
       (B) Improving health care services.
       (C) Improving transportation or other infrastructure.
       (D) Improving law enforcement or public safety.
       (E) Maintaining essential government services.
       (2) Limitation.--A State may only use funds provided under 
     a payment made under this section for types of expenditures 
     permitted under the most recently approved budget for the 
     State.
       (c) Certifications.--In order to receive a payment under 
     this section, the State shall provide the Secretary with 
     certifications that--
       (1) the State's proposed uses of the funds are consistent 
     with subsection (b); and
       (2) the State will allocate 50 percent of the funds 
     directly to units of general local government based on the 
     relative local population proportion for the State (as 
     defined in subsection (d)(5)) and not use the funds to 
     supplant State funding or revenue that the State otherwise 
     provides to units of general local government.
       (d) Amount of Payment.--
       (1) In general.--The amount of payment made to a State 
     under this section shall be the minimum payment amount 
     described in paragraph (2) plus the relative population 
     proportion amount described in paragraph (3).
       (2) Minimum payment amount.--The minimum payment amount 
     described in this paragraph is--
       (A) in the case of any of the several States, the District 
     of Columbia, or the Commonwealth of Puerto Rico, one-half of 
     1 percent of the aggregate amount made available for payments 
     under this section (after the application of subsection (f)); 
     and
       (B) in the case of the United States Virgin Islands, Guam, 
     the Commonwealth of the Northern Mariana Islands, or American 
     Samoa, one-tenth of 1 percent of such aggregate amount (after 
     the application of subsection (f)).
       (3) Relative population proportion amount.--The relative 
     population proportion amount described in this paragraph is 
     the product of--
       (A) the aggregate amount made available for payments under 
     this section (after the application of subsection (f)) minus 
     the total of all of the minimum payment amounts determined 
     under paragraph (2); and
       (B) the relative State population proportion (as defined in 
     paragraph (4)).
       (4) Relative state population proportion defined.--In this 
     section, the term ``relative State population proportion'' 
     means, with respect to a State, the amount equal to the 
     quotient of--
       (A) the population of the State (as reported in the most 
     recent decennial census); and
       (B) the total population of all States (as reported in the 
     most recent decennial census).
       (5) Relative local population proportion defined.--In this 
     section, the term ``relative local population proportion'' 
     means, with respect to a unit of general local government 
     within a State, the amount equal to the quotient of--
       (A) the population of such unit of general local government 
     (as reported in the most recent decennial census); and
       (B) the total population of the State (as reported in the 
     most recent decennial census).
       (e) Appropriation.--There is authorized to be appropriated 
     and is appropriated for making payments under this section, 
     $30,000,000,000 for fiscal year 2003. Amounts appropriated 
     under this subsection shall remain available for expenditure 
     through December 31, 2004.
       (f) Temporary Increase of Medicaid FMAP.--
       (1) Permitting maintenance of fiscal year 2002 fmap for 
     last 2 calendar quarters of fiscal year 2003.--Subject to 
     paragraph (5), if the FMAP determined without regard to this 
     subsection for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this subsection.
       (2) Permitting maintenance of fiscal year 2003 fmap for 
     first 3 quarters of fiscal year 2004.--Subject to paragraph 
     (5), if the FMAP determined without regard to this subsection 
     for a State for fiscal year 2004 is less than the FMAP as so 
     determined for fiscal year 2003, the FMAP for the State for 
     fiscal year 2003 shall be substituted for the State's FMAP 
     for the first, second, and third calendar quarters of fiscal 
     year 2004, before the application of this subsection.
       (3) General 3.73 percentage points increase for last 2 
     calendar quarters of fiscal year 2003 and first 3 calendar 
     quarters of fiscal year 2004.--Subject to paragraphs (5) and 
     (6), for each State for the third and fourth calendar 
     quarters of fiscal year 2003 and for the first, second, and 
     third calendar quarters of fiscal year 2004, the FMAP (taking 
     into account the application of paragraphs (1) and (2)) shall 
     be increased by 3.73 percentage points.
       (4) Increase in cap on medicaid payments to territories.--
     Subject to paragraph (6), with respect to the third and 
     fourth calendar quarters of fiscal year 2003 and the first, 
     second, and third calendar quarters of fiscal year 2004, the 
     amounts otherwise determined for Puerto Rico, the Virgin 
     Islands, Guam, the Northern Mariana Islands, and American 
     Samoa under subsections (f) and (g) of section 1108 of the 
     Social Security Act (42 U.S.C. 1308) shall each be increased 
     by an amount equal to 7.56 percent of such amounts.
       (5) Scope of application.--The increases in the FMAP for a 
     State under this subsection shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (A) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4); or
       (B) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.).
       (6) State eligibility.--
       (A) In general.--Subject to subparagraph (B), a State is 
     eligible for an increase in its FMAP under paragraph (3) or 
     an increase in a cap amount under paragraph (4) only if the 
     eligibility under its State plan under title XIX of the 
     Social Security Act (including any waiver under such title or 
     under section 1115 of such Act (42 U.S.C. 1315)) is no more 
     restrictive than the eligibility under such plan (or waiver) 
     as in effect on September 2, 2003.

[[Page 11664]]

       (B) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after September 2, 2003, but prior to the date of 
     enactment of this Act is eligible for an increase in its FMAP 
     under paragraph (3) or an increase in a cap amount under 
     paragraph (4) in the first calendar quarter (and subsequent 
     calendar quarters) in which the State has reinstated 
     eligibility that is no more restrictive than the eligibility 
     under such plan (or waiver) as in effect on September 2, 
     2003.
       (C) Rule of construction.--Nothing in subparagraph (A) or 
     (B) shall be construed as affecting a State's flexibility 
     with respect to benefits offered under the State medicaid 
     program under title XIX of the Social Security Act (42 U.S.C. 
     1396 et seq.) (including any waiver under such title or under 
     section 1115 of such Act (42 U.S.C. 1315)).
       (7) Funding.--Notwithstanding subsection (e), from the 
     amounts appropriated in such section for fiscal year 2003, 
     $15,000,000,000 of such amount is hereby transferred and made 
     available for the purpose of increasing the FMAP for States 
     in accordance with this subsection. Amounts transferred under 
     this paragraph shall remain available for expenditure through 
     September 30, 2004.
       (8) Definitions.--In this subsection:
       (A) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (B) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (9) Repeal of fmap increase.--Effective as of October 1, 
     2004, this subsection is repealed.
       (g) Repeal of other provisions.--Effective as of January 1, 
     2005, subsections (a) through (e) of this section are 
     repealed.
       (h) Revision of Partial Exclusion of Dividends Received By 
     Individuals.--
       (1) In general.--Section 116(a)(2)(B), as added by section 
     201 of this Act, is amended by striking ``2007'' and 
     inserting ``2010''.
       (2) Conforming amendments.--Sections 531(a) and 541(a), as 
     amended by section 201 of this Act, are each amended by 
     striking ``2007'' and inserting ``2010''.
       (3) Application of sunset.--Section 601(a) of this Act 
     shall apply to the amendments made by paragraphs (1) and (2).
                                 ______
                                 
  SA 601. Ms. CANTWELL submitted an amendment intended to be proposed 
by her to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of end of subtitle C of title V add the 
     following:

     SEC. __. LONG-TERM CARE INCENTIVES.

       (a) Deduction for Premiums on Qualified Long-Term Care 
     Insurance Contracts.--
       (1) In general.--Part VII of subchapter B of chapter 1 
     (relating to additional itemized deductions) is amended by 
     redesignating section 223 as section 224 and by inserting 
     after section 222 the following new subsection:

     ``SEC. 223. PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE 
                   CONTRACTS.

       ``(a) In General.--In the case of an individual, there 
     shall be allowed as a deduction an amount equal to the 
     applicable percentage of eligible long-term care premiums (as 
     defined in section 213(d)(10)) paid during the taxable year 
     by the taxpayer for coverage for the taxpayer and the spouse 
     and dependents of the taxpayer.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2003, 2004, and 2005..........................................25 ....

  2006 and 2007.................................................30 ....

  2008 and 2009.................................................35 ....

  2010 and 2011.................................................40 ....

  2012 and thereafter...........................................50.....

       ``(c) Limitation Based on Modified Adjusted Gross Income.--
       ``(1) In general.--No deduction shall be allowed under 
     subsection (a) to any taxpayer if the modified adjusted gross 
     income of such taxpayer for the taxable year exceeds $60,000 
     ($120,000 in the case of a joint return).
       ``(2) Modified adjusted gross income.--For purposes of 
     paragraph (1), the term `modified adjusted gross income' 
     means adjusted gross income determined--
       ``(A) without regard to this section and sections 911, 931, 
     and 933, and
       ``(B) after application of sections 86, 135, 137, 219, 221, 
     222, and 469.
       ``(d) Limitation Based on Subsidized Coverage.--
       ``(1) In general.--Subsection (a) shall not apply to 
     premiums paid for coverage of any individual for any calendar 
     month if--
       ``(A) for such month such individual is covered by any 
     insurance which is advertised, marketed, or offered as long-
     term care insurance under any health plan maintained by any 
     employer of the taxpayer or of the taxpayer's spouse, and
       ``(B) 50 percent or more of the cost of any such coverage 
     (determined under section 4980B) for such month is paid or 
     incurred by the employer.
       ``(2) Plans maintained by certain employers.--A health plan 
     which is not otherwise described in paragraph (1)(A) shall be 
     treated as described in such paragraph if such plan would be 
     so described if all health plans of persons treated as a 
     single employer under subsection (b), (c), (m), or (o) of 
     section 414 were treated as one health plan.
       ``(e) Coordination With Other Deductions.--Any amount taken 
     into account under subsection (a) shall not be taken into 
     account in computing the amount allowable as a deduction 
     under section 162(l) or 213(a).
       ``(f) Married Couples Must File Joint Return.--
       ``(1) In general.--If the taxpayer is married at the close 
     of the taxable year, the deduction shall be allowed under 
     subsection (a) only if the taxpayer and the taxpayer's spouse 
     file a joint return for the taxable year.
       ``(2) Marital status.--For purposes of paragraph (1), 
     marital status shall be determined in accordance with section 
     7703.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section, 
     including regulations requiring employers to report to their 
     employees and the Secretary such information as the Secretary 
     determines to be appropriate.''.
       (2) Deduction allowed whether or not taxpayer itemizes.--
     Subsection (a) of section 62 is amended by inserting after 
     paragraph (18) the following new item:
       ``(19) Premiums on qualified long-term care insurance 
     contracts.--The deduction allowed by section 223.''.
       (3) Conforming amendments.--
       (A) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), 
     219(g)(3)(A)(ii), and 221(b)(2)(C)(i) are each amended by 
     inserting ``223,'' after ``222,''.
       (B) Section 222(b)(2)(C)(i) is amended by inserting 
     ``223,'' before ``911''.
       (C) Section 469(i)(3)(F)(iii) is amended by striking ``and 
     222'' and inserting ``222, and 223''.
       (4) Clerical amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 223. Premiums on qualified long-term care insurance contracts.
``Sec. 224. Cross reference.''.

       (5) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2002.
       (b) Additional Personal Exemption for Dependents with Long-
     Term Care Needs in Taxpayer's Home.--
       (1) In general.--Section 151 (relating to allowance of 
     deductions for personal exemptions) is amended by 
     redesignating subsections (d) and (e) as subsections (e) and 
     (f), respectively, and by inserting after subsection (c) the 
     following new subsection:
       ``(d) Additional Exemption for Dependents With Long-Term 
     Care Needs in Taxpayer's Home.--
       ``(1) In general.--Except as provided in paragraph (2), an 
     exemption of the exemption amount for each qualified family 
     member of the taxpayer.
       ``(2) Phase-in.--In the case of taxable years beginning in 
     calendar years before 2012, the amount of the exemption 
     provided under paragraph (1) shall not exceed the applicable 
     limitation amount determined in accordance with the following 
     table:

``For taxable years beginning in cThe applicable limitation amount is--
  2003 and 2004...............................................$500 ....

  2005 and 2006..............................................1,000 ....

  2007 and 2008..............................................1,500 ....

  2009 and 2010..............................................2,000 ....

  2011.......................................................2,500.....

       ``(3) Qualified family member.--For purposes of this 
     subsection, the term `qualified family member' means, with 
     respect to any taxable year, any individual--
       ``(A) who is--
       ``(i) the spouse of the taxpayer, or
       ``(ii) a dependent of the taxpayer with respect to whom the 
     taxpayer is entitled to an exemption under subsection (c),
       ``(B) who is an individual with long-term care needs during 
     any portion of the taxable year, and
       ``(C) other than an individual described in section 
     152(a)(9), who, for more than half of such year, has as such 
     individual's principal place of abode the home of the 
     taxpayer and is a member of the taxpayer's household.
       ``(4) Individuals with long-term care needs.--For purposes 
     of this subsection, the term `individual with long-term care 
     needs' means, with respect to any taxable year, an individual 
     who has been certified, during the 39\1/2\-month period 
     ending on the due date (without extensions) for filing the 
     return of tax for the taxable year (or such other period as 
     the Secretary prescribes), by a physician (as defined in 
     section 1861(r)(1) of the Social Security Act) as being, for 
     a period which is at least 180 consecutive days--
       ``(A) an individual who is unable to perform (without 
     substantial assistance from another individual) at least 2 
     activities of daily living (as defined in section 
     7702B(c)(2)(B)) due to a loss of functional capacity, or

[[Page 11665]]

       ``(B) an individual who requires substantial supervision to 
     protect such individual from threats to health and safety due 
     to severe cognitive impairment and is unable to perform, 
     without reminding or cuing assistance, at least 1 activity of 
     daily living (as so defined) or to the extent provided in 
     regulations prescribed by the Secretary (in consultation with 
     the Secretary of Health and Human Services), is unable to 
     engage in age appropriate activities.
       ``(5) Identification requirement.--No exemption shall be 
     allowed under this subsection to a taxpayer with respect to 
     any qualified family member unless the taxpayer includes, on 
     the return of tax for the taxable year, the name and taxpayer 
     identification of the physician certifying such member. In 
     the case of a failure to provide the information required 
     under the preceding sentence, the preceding sentence shall 
     not apply if it is shown that the taxpayer exercised due 
     diligence in attempting to provide the information so 
     required.
       ``(6) Special rules.--Rules similar to the rules of 
     paragraphs (2), (3), and (4) of section 21(e) shall apply for 
     purposes of this subsection.''.
       (2) Conforming amendments.--
       (A) Section 1(f)(6)(A) is amended by striking ``151(d)(4)'' 
     and inserting ``151(e)(4)''.
       (B) Section 1(f)(6)(B) is amended by striking 
     ``151(d)(4)(A)'' and inserting ``151(e)(4)(A)''.
       (C) Section 3402(f)(1)(A) is amended by striking 
     ``151(d)(2)'' and inserting ``151(e)(2)''.
       (D) Section 3402(r)(2)(B) is amended by striking ``151(d)'' 
     and inserting ``151(e)''.
       (E) Section 6012(a)(1)(D)(ii) is amended--
       (i) by striking ``151(d)'' and inserting ``151(e)'', and
       (ii) by striking ``151(d)(2)'' and inserting ``151(e)(2)''.
       (F) Section 6013(b)(3)(A) is amended by striking ``151(d)'' 
     and inserting ``151(e)''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2002.
       (c) Additional Consumer Protections for Long-Term Care 
     Insurance.--
       (1) In general.--Subparagraphs (A) and (B) of section 
     7702B(g)(2) (relating to requirements of model regulation and 
     Act) are amended to read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to any contract if such contract meets--
       ``(i) Model regulation.--The following requirements of the 
     model regulation:

       ``(I) Section 6A (relating to guaranteed renewal or 
     noncancellability), and the requirements of section 6B of the 
     model Act relating to such section 6A.
       ``(II) Section 6B (relating to prohibitions on limitations 
     and exclusions).
       ``(III) Section 6C (relating to extension of benefits).
       ``(IV) Section 6D (relating to continuation or conversion 
     of coverage).
       ``(V) Section 6E (relating to discontinuance and 
     replacement of policies).
       ``(VI) Section 7 (relating to unintentional lapse).
       ``(VII) Section 8 (relating to disclosure), other than 
     section 8F thereof.
       ``(VIII) Section 11 (relating to prohibitions against post-
     claims underwriting).
       ``(IX) Section 12 (relating to minimum standards).
       ``(X) Section 13 (relating to requirement to offer 
     inflation protection), except that any requirement for a 
     signature on a rejection of inflation protection shall permit 
     the signature to be on an application or on a separate form.
       ``(XI) Section 25 (relating to prohibition against 
     preexisting conditions and probationary periods in 
     replacement policies or certificates).
       ``(XII) The provisions of section 26 relating to contingent 
     nonforfeiture benefits, if the policyholder declines the 
     offer of a nonforfeiture provision described in paragraph 
     (4).

       ``(ii) Model act.--The following requirements of the model 
     Act:

       ``(I) Section 6C (relating to preexisting conditions).
       ``(II) Section 6D (relating to prior hospitalization).
       ``(III) The provisions of section 8 relating to contingent 
     nonforfeiture benefits, if the policyholder declines the 
     offer of a nonforfeiture provision described in paragraph 
     (4).

       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Model provisions.--The terms `model regulation' and 
     `model Act' means the long-term care insurance model 
     regulation, and the long-term care insurance model Act, 
     respectively, promulgated by the National Association of 
     Insurance Commissioners (as adopted as of October 2000).
       ``(ii) Coordination.--Any provision of the model regulation 
     or model Act listed under clause (i) or (ii) of subparagraph 
     (A) shall be treated as including any other provision of such 
     regulation or Act necessary to implement the provision.
       ``(iii) Determination.--For purposes of this section and 
     section 4980C, the determination of whether any requirement 
     of a model regulation or the model Act has been met shall be 
     made by the Secretary.''.
       (2) Excise tax.--Paragraph (1) of section 4980C(c) 
     (relating to requirements of model provisions) is amended to 
     read as follows:
       ``(1) Requirements of model provisions.--
       ``(A) Model regulation.--The following requirements of the 
     model regulation must be met:
       ``(i) Section 9 (relating to required disclosure of rating 
     practices to consumer).
       ``(ii) Section 14 (relating to application forms and 
     replacement coverage).
       ``(iii) Section 15 (relating to reporting requirements), 
     except that the issuer shall also report at least annually 
     the number of claims denied during the reporting period for 
     each class of business (expressed as a percentage of claims 
     denied), other than claims denied for failure to meet the 
     waiting period or because of any applicable preexisting 
     condition.
       ``(iv) Section 22 (relating to filing requirements for 
     advertising).
       ``(v) Section 23 (relating to standards for marketing), 
     including inaccurate completion of medical histories, other 
     than paragraphs (1), (6), and (9) of section 23C, except 
     that--

       ``(I) in addition to such requirements, no person shall, in 
     selling or offering to sell a qualified long-term care 
     insurance contract, misrepresent a material fact; and
       ``(II) no such requirements shall include a requirement to 
     inquire or identify whether a prospective applicant or 
     enrollee for long-term care insurance has accident and 
     sickness insurance.

       ``(vi) Section 24 (relating to suitability).
       ``(vii) Section 29 (relating to standard format outline of 
     coverage).
       ``(viii) Section 30 (relating to requirement to deliver 
     shopper's guide).

     The requirements referred to in clause (vi) shall not include 
     those portions of the personal worksheet described in 
     Appendix B of the model regulation relating to consumer 
     protection requirements not imposed by section 4980C or 
     7702B.
       ``(B) Model act.--The following requirements of the model 
     Act must be met:
       ``(i) Section 6F (relating to right to return), except that 
     such section shall also apply to denials of applications and 
     any refund shall be made within 30 days of the return or 
     denial.
       ``(ii) Section 6G (relating to outline of coverage).
       ``(iii) Section 6H (relating to requirements for 
     certificates under group plans).
       ``(iv) Section 6J (relating to policy summary).
       ``(v) Section 6K (relating to monthly reports on 
     accelerated death benefits).
       ``(vi) Section 7 (relating to incontestability period).
       ``(C) Definitions.--For purposes of this paragraph, the 
     terms `model regulation' and `model Act' have the meanings 
     given such term by section 7702B(g)(2)(B).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to policies issued after December 31, 2003.
       (d) Revision of Partial Exclusion of Dividends Received By 
     Individuals.--Section 116(a)(2)(B) of the Internal Revenue 
     Code of 1986, as added by section 201 of this Act, is amended 
     by striking ``2007'' and inserting ``2009''.
                                 ______
                                 
  SA 602. Mr. BYRD submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       On page 190, line 4, strike all through page 195, line 3.
                                 ______
                                 
  SA 603. Mr. BINGAMAN submitted an amendment intended to be proposed 
by him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       On page 22, between lines 21 and 22, insert the following:
       ``(7) Small business retirement plans.--For purposes of 
     small business plans, defined as any qualified plan 
     maintained by an employer with fewer than 25 employees, the 
     cost basis for the employees' retirement plan accounts would 
     be adjusted by the amount of dividends received by the 
     underlying investments in the account that would otherwise be 
     excluded from taxable income if held individually.''
                                 ______
                                 
  SA 604. Mr. BINGAMAN submitted an amendment intended to be proposed 
by him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V, add the following:

     SEC. __. REPEAL OF PARTIAL EXCLUSION OF DIVIDENDS AND 
                   ELIMINATION OF ACCELERATION OF TOP RATE 
                   REDUCTION IN INDIVIDUAL INCOME TAX RATES AND 
                   ESTABLISHMENT OF UNINSURED RESERVE FUND.

       (a) Repeal of Partial Exclusion of Dividends.--Section 201 
     of this Act, and the amendments made by such section, are 
     repealed.
       (b) Elimination of Acceleration of Top Rate Reduction In 
     Individual Income Tax

[[Page 11666]]

     Rates.--Notwithstanding the amendment made by section 102(a) 
     of this Act, in lieu of the percent specified in the last 
     column of the table in paragraph (2) of section 1(i) of the 
     Internal Revenue Code of 1986, as amended by such section 
     102(a), for taxable years beginning during calendar years 
     2003, 2004, and 2005, the following percentages shall be 
     substituted for such years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
       (c) Uninsured Reserve Fund.--There is hereby established in 
     the Treasury of the United States a reserve fund to provide 
     health care coverage for the uninsured to which is 
     appropriated the revenues resulting from the enactment and 
     application of subsections (a) and (b).
                                 ______
                                 
  SA 605. Ms. MIKULSKI, (for herself, Mr. Kennedy, Mr. Sarbanes, Mr. 
Johnson, Mrs. Clinton, and Mr. Durbin) submitted an amendment intended 
to be proposed by her to the bill S. 1054, to provide for 
reconciliation pursuant to section 201 of the concurrent resolution on 
the budget for fiscal year 2004; which was ordered to lie on the table; 
as follows:

       At the end of subtitle C of title V, insert the following:

     SEC. __. LONG-TERM CARE CREDIT.

       (a) Allowance of Credit.--
       (1) In general.--Paragraph (1) of section 24(a) (relating 
     to allowance of child tax credit) is amended to read as 
     follows:
       ``(1) In general.--There shall be allowed as a credit 
     against the tax imposed by this chapter for the taxable year 
     an amount equal to the sum of--
       ``(A) the per child amount multiplied by the number of 
     qualifying children of the taxpayer, plus
       ``(B) the sum of the eligible expenses of the taxpayer for 
     each applicable individual with respect to whom the taxpayer 
     is an eligible caregiver for the taxable year.''.
       (2) Limitation.--Section 24(b) is amended by redesignating 
     paragraphs (1), (2), and (3) as paragraphs (2), (3), and (4), 
     respectively, and by inserting before paragraph (2) (as 
     redesignated by this paragraph) the following new paragraph:
       ``(1) In general.--The credit allowed under subsection 
     (a)(1)(B) shall not exceed $5,000 for any taxable year.''.
       (3) Conforming amendments.--
       (A) Section 24(d)(1) is amended by striking ``subsection 
     (b)(3)'' each place it appears and inserting ``subsection 
     (b)(4)''.
       (B) The heading for section 24 is amended to read as 
     follows:

     ``SEC. 24. FAMILY CARE CREDIT.''.

       (C) The table of sections for subpart A of part IV of 
     subchapter A of chapter 1 is amended by striking the item 
     relating to section 24 and inserting the following new item:

``Sec. 24. Family care credit.''.

       (b) Eligible Expenses.--
       (1) In general.--Section 24 is amended by redesignating 
     subsections (b) through (f) as subsections (c) through (g), 
     respectively, and by inserting after subsection (a) the 
     following new subsection:
       ``(b) Eligible Expenses.--For the purposes of this 
     section--
       ``(1) In general.--The term `eligible expenses' means 
     expenses incurred by the taxpayer for--
       ``(A) medical care (as defined in section 213(d)(1) without 
     regard to subparagraph (D) thereof),
       ``(B) lodging away from home in accordance with section 
     213(d)(2),
       ``(C) adult day care,
       ``(D) custodial care,
       ``(E) respite care, and
       ``(F) other specialized services for children, including 
     day care for children with special needs.
     Such term shall not include any expense for which the 
     taxpayer is reimbursed by another person.
       ``(2) Adult day care.--The term `adult day care' means care 
     provided for adults with functional or cognitive impairments 
     through a structured, community-based group program which 
     provides health, social, and other related support services 
     on a less than 24-hour per day basis.
       ``(3) Custodial care.--The term `custodial care' means 
     reasonable personal care services provided to assist with 
     daily living and which do not require the skills of qualified 
     technical or professional personnel.
       ``(4) Respite care.--The term `respite care' means planned 
     or emergency care provided to an applicable individual in 
     order to provide temporary relief to an eligible 
     caregiver.''.
       (2) Conforming amendments.--
       (A) Section 24(e)(1) (relating to portion of credit 
     refundable), as redesignated by paragraph (1) and as amended 
     by subsection (a)(3)(A), is amended by striking ``subsection 
     (b)(4)'' each place it appears and inserting ``subsection 
     (c)(4)''.
       (B) Section 501(c)(26) is amended by striking ``section 
     24(c)'' and inserting ``section 24(d)''.
       (C) Section 6211(b)(4)(A) is amended by striking ``section 
     24(d)'' and inserting ``section 24(e)''.
       (D) Section 6213(g)(2)(I) is amended by striking ``section 
     24(e)'' and inserting ``section 24(f)''.
       (c) Definitions.--Subsection (d) of section 24, as 
     redesignated by subsection (b)(1), is amended to read as 
     follows:
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualifying child.--
       ``(A) In general.--The term `qualifying child' means any 
     individual if--
       ``(i) the taxpayer is allowed a deduction under section 151 
     with respect to such individual for the taxable year,
       ``(ii) such individual has not attained the age of 17 as of 
     the close of the calendar year in which the taxable year of 
     the taxpayer begins, and
       ``(iii) such individual bears a relationship to the 
     taxpayer described in section 32(c)(3)(B).
       ``(B) Exception for certain noncitizens.--The term 
     `qualifying child' shall not include any individual who would 
     not be a dependent if the first sentence of section 152(b)(3) 
     were applied without regard to all that follows `resident of 
     the United States'.
       ``(2) Applicable individual.--
       ``(A) In general.--The term `applicable individual' means, 
     with respect to any taxable year, any individual who has been 
     certified, before the due date for filing the return of tax 
     for the taxable year (without extensions), by a physician (as 
     defined in section 1861(r)(1) of the Social Security Act) as 
     being an individual with long-term care needs described in 
     subparagraph (B) for a period--
       ``(i) which is at least 180 consecutive days, and
       ``(ii) a portion of which occurs within the taxable year.
     Such term shall not include any individual otherwise meeting 
     the requirements of the preceding sentence unless within the 
     39\1/2\ month period ending on such due date (or such other 
     period as the Secretary prescribes) a physician (as so 
     defined) has certified that such individual meets such 
     requirements.
       ``(B) Individuals with long-term care needs.--An individual 
     is described in this subparagraph if the individual meets any 
     of the following requirements:
       ``(i) The individual is at least 18 years of age and--

       ``(I) is unable to perform (without substantial assistance 
     from another individual) at least 3 activities of daily 
     living (as defined in section 7702B(c)(2)(B)) due to a loss 
     of functional capacity, or
       ``(II) requires substantial supervision to protect such 
     individual from threats to health and safety due to severe 
     cognitive impairment and is unable to perform at least 1 
     activity of daily living (as so defined) or to the extent 
     provided in regulations prescribed by the Secretary (in 
     consultation with the Secretary of Health and Human 
     Services), is unable to engage in age appropriate activities.

       ``(ii) The individual is at least 6 but not 18 years of age 
     and--

       ``(I) is unable to perform (without substantial assistance 
     from another individual) at least 3 activities of daily 
     living (as defined in section 7702B(c)(2)(B)) due to a loss 
     of functional capacity,
       ``(II) requires substantial supervision to protect such 
     individual from threats to health and safety due to severe 
     cognitive impairment and is unable to perform at least 1 
     activity of daily living (as so defined) or to the extent 
     provided in regulations prescribed by the Secretary (in 
     consultation with the Secretary of Health and Human 
     Services), is unable to engage in age appropriate activities,
       ``(III) has a level of disability similar to the level of 
     disability described in subclause (I) (as determined under 
     regulations promulgated by the Secretary), or
       ``(IV) has a complex medical condition (as defined by the 
     Secretary) that requires medical management and coordination 
     of care.

       ``(iii) The individual is at least 2 but not 6 years of age 
     and--

       ``(I) is unable due to a loss of functional capacity to 
     perform (without substantial assistance from another 
     individual) at least 2 of the following activities: eating, 
     transferring, or mobility,
       ``(II) has a level of disability similar to the level of 
     disability described in subclause (I) (as determined under 
     regulations promulgated by the Secretary), or
       ``(III) has a complex medical condition (as defined by the 
     Secretary) that requires medical management and coordination 
     of care.

       ``(iv) The individual is under 2 years of age and--

       ``(I) requires specific durable medical equipment by reason 
     of a severe health condition or requires a skilled 
     practitioner trained to address the individual's condition to 
     be available if the individual's parents or guardians are 
     absent,
       ``(II) has a level of disability similar to the level of 
     disability described in subclause (I) (as determined under 
     regulations promulgated by the Secretary), or
       ``(III) has a complex medical condition (as defined by the 
     Secretary) that requires medical management and coordination 
     of care.

       ``(v) The individual has 5 or more chronic conditions (as 
     defined in subparagraph (C)) and is unable to perform 
     (without substantial assistance from another individual) at

[[Page 11667]]

     least 1 activity of daily living (as so defined) due to a 
     loss of functional capacity.
       ``(C) Chronic condition.--For purposes of this paragraph, 
     the term `chronic condition' means a condition that lasts for 
     at least 6 consecutive months and requires ongoing medical 
     care.
       ``(3) Eligible caregiver.--
       ``(A) In general.--A taxpayer shall be treated as an 
     eligible caregiver for any taxable year with respect to the 
     following individuals:
       ``(i) The taxpayer.
       ``(ii) The taxpayer's spouse.
       ``(iii) An individual with respect to whom the taxpayer is 
     allowed a deduction under section 151 for the taxable year.
       ``(iv) An individual who would be described in clause (iii) 
     for the taxable year if section 151(c)(1)(A) were applied by 
     substituting for the exemption amount an amount equal to the 
     sum of the exemption amount, the standard deduction under 
     section 63(c)(2)(C), and any additional standard deduction 
     under section 63(c)(3) which would be applicable to the 
     individual if clause (iii) applied.
       ``(v) An individual who would be described in clause (iii) 
     for the taxable year if--

       ``(I) the requirements of clause (iv) are met with respect 
     to the individual, and
       ``(II) the requirements of subparagraph (B) are met with 
     respect to the individual in lieu of the support test of 
     section 152(a).

       ``(B) Residency test.--The requirements of this 
     subparagraph are met if an individual has as such 
     individual's principal place of abode the home of the 
     taxpayer and--
       ``(i) in the case of an individual who is an ancestor or 
     descendant of the taxpayer or the taxpayer's spouse, is a 
     member of the taxpayer's household for over half the taxable 
     year, or
       ``(ii) in the case of any other individual, is a member of 
     the taxpayer's household for the entire taxable year.
       ``(C) Special rules where more than 1 eligible caregiver.--
       ``(i) In general.--If more than 1 individual is an eligible 
     caregiver with respect to the same applicable individual for 
     taxable years ending with or within the same calendar year, a 
     taxpayer shall be treated as the eligible caregiver if each 
     such individual (other than the taxpayer) files a written 
     declaration (in such form and manner as the Secretary may 
     prescribe) that such individual will not claim such 
     applicable individual for the credit under this section.
       ``(ii) No agreement.--If each individual required under 
     clause (i) to file a written declaration under clause (i) 
     does not do so, the individual with the highest modified 
     adjusted gross income (as defined in section 32(c)(5)) shall 
     be treated as the eligible caregiver.
       ``(iii) Married individuals filing separately.--In the case 
     of married individuals filing separately, the determination 
     under this subparagraph as to whether the husband or wife is 
     the eligible caregiver shall be made under the rules of 
     clause (ii) (whether or not one of them has filed a written 
     declaration under clause (i)).''.
       (d) Identification Requirements.--
       (1) In general.--Section 24(f) (relating to identification 
     requirement), as redesignated by subsection(b)(1), is amended 
     by adding at the end the following new sentence: ``No credit 
     shall be allowed under this section to a taxpayer with 
     respect to any applicable individual unless the taxpayer 
     includes the name and taxpayer identification number of such 
     individual, and the identification number of the physician 
     certifying such individual, on the return of tax for the 
     taxable year.''.
       (2) Assessment.--Section 6213(g)(2)(I) is amended--
       (A) by inserting ``or physician identification'' after 
     ``correct TIN'', and
       (B) by striking ``child tax'' and inserting ``family 
     care''.
       (e) Denial of Double Benefit.--
       (1) In general.--Section 213(e) (relating to exclusion of 
     amounts allowed for care of certain dependents) is amended by 
     inserting ``or section 24'' after ``section 21''.
       (2) Conforming amendment.--The heading of section 213(e) is 
     amended by inserting ``Long-Term Care or'' after ``for''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the later of 
     December 31, 2003, or the date of the enactment of this Act.

     SEC. __. ADDITIONAL LIMITATION ON EXCLUSION OF DIVIDENDS.

       (a) In General.--Paragraph (2) of section 116(a) (relating 
     to partial exclusion of dividends received by individual), as 
     amended by section 201 of this Act, is amended by striking 
     ``the sum of'' and all that follows and inserting ``$500 
     ($250 in the case of a married individual filing a separate 
     return).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 606. Ms. MIKULSKI (for herself, Mr. Kennedy, Mr. Sarbanes, Mr. 
Johnson, Mrs. Clinton, and Mr. Durbin) submitted an amendment intended 
to be proposed by her to the bill S. 1054, to provide for 
reconciliation pursuant to section 201 of the concurrent resolution on 
the budget for fiscal year 2004; which was ordered to lie on the table; 
as follows:

       On page 281, between lines 2 and 3, insert the following:

     SEC. __. LONG-TERM CARE CREDIT.

       (a) Allowance of Credit.--
       (1) In general.--Paragraph (1) of section 24(a) (relating 
     to allowance of child tax credit) is amended to read as 
     follows:
       ``(1) In general.--There shall be allowed as a credit 
     against the tax imposed by this chapter for the taxable year 
     an amount equal to the sum of--
       ``(A) the per child amount multiplied by the number of 
     qualifying children of the taxpayer, plus
       ``(B) the sum of the eligible expenses of the taxpayer for 
     each applicable individual with respect to whom the taxpayer 
     is an eligible caregiver for the taxable year.''.
       (2) Limitation.--Section 24(b) is amended by redesignating 
     paragraphs (1), (2), and (3) as paragraphs (2), (3), and (4), 
     respectively, and by inserting before paragraph (2) (as 
     redesignated by this paragraph) the following new paragraph:
       ``(1) In general.--The credit allowed under subsection 
     (a)(1)(B) shall not exceed $5,000 for any taxable year.''.
       (3) Conforming amendments.--
       (A) Section 24(d)(1) is amended by striking ``subsection 
     (b)(3)'' each place it appears and inserting ``subsection 
     (b)(4)''.
       (B) The heading for section 24 is amended to read as 
     follows:

     ``SEC. 24. FAMILY CARE CREDIT.''.

       (C) The table of sections for subpart A of part IV of 
     subchapter A of chapter 1 is amended by striking the item 
     relating to section 24 and inserting the following new item:

``Sec. 24. Family care credit.''.

       (b) Eligible Expenses.--
       (1) In general.--Section 24 is amended by redesignating 
     subsections (b) through (f) as subsections (c) through (g), 
     respectively, and by inserting after subsection (a) the 
     following new subsection:
       ``(b) Eligible Expenses.--For the purposes of this 
     section--
       ``(1) In general.--The term `eligible expenses' means 
     expenses incurred by the taxpayer for--
       ``(A) medical care (as defined in section 213(d)(1) without 
     regard to subparagraph (D) thereof),
       ``(B) lodging away from home in accordance with section 
     213(d)(2),
       ``(C) adult day care,
       ``(D) custodial care,
       ``(E) respite care, and
       ``(F) other specialized services for children, including 
     day care for children with special needs.

     Such term shall not include any expense for which the 
     taxpayer is reimbursed by another person.
       ``(2) Adult day care.--The term `adult day care' means care 
     provided for adults with functional or cognitive impairments 
     through a structured, community-based group program which 
     provides health, social, and other related support services 
     on a less than 24-hour per day basis.
       ``(3) Custodial care.--The term `custodial care' means 
     reasonable personal care services provided to assist with 
     daily living and which do not require the skills of qualified 
     technical or professional personnel.
       ``(4) Respite care.--The term `respite care' means planned 
     or emergency care provided to an applicable individual in 
     order to provide temporary relief to an eligible 
     caregiver.''.
       (2) Conforming amendments.--
       (A) Section 24(e)(1) (relating to portion of credit 
     refundable), as redesignated by paragraph (1) and as amended 
     by subsection (a)(3)(A), is amended by striking ``subsection 
     (b)(4)'' each place it appears and inserting ``subsection 
     (c)(4)''.
       (B) Section 501(c)(26) is amended by striking ``section 
     24(c)'' and inserting ``section 24(d)''.
       (C) Section 6211(b)(4)(A) is amended by striking ``section 
     24(d)'' and inserting ``section 24(e)''.
       (D) Section 6213(g)(2)(I) is amended by striking ``section 
     24(e)'' and inserting ``section 24(f)''.
       (c) Definitions.--Subsection (d) of section 24, as 
     redesignated by subsection (b)(1), is amended to read as 
     follows:
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualifying child.--
       ``(A) In general.--The term `qualifying child' means any 
     individual if--
       ``(i) the taxpayer is allowed a deduction under section 151 
     with respect to such individual for the taxable year,
       ``(ii) such individual has not attained the age of 17 as of 
     the close of the calendar year in which the taxable year of 
     the taxpayer begins, and
       ``(iii) such individual bears a relationship to the 
     taxpayer described in section 32(c)(3)(B).
       ``(B) Exception for certain noncitizens.--The term 
     `qualifying child' shall not include any individual who would 
     not be a dependent if the first sentence of section 152(b)(3) 
     were applied without regard to all that follows `resident of 
     the United States'.
       ``(2) Applicable individual.--
       ``(A) In general.--The term `applicable individual' means, 
     with respect to any taxable

[[Page 11668]]

     year, any individual who has been certified, before the due 
     date for filing the return of tax for the taxable year 
     (without extensions), by a physician (as defined in section 
     1861(r)(1) of the Social Security Act) as being an individual 
     with long-term care needs described in subparagraph (B) for a 
     period--
       ``(i) which is at least 180 consecutive days, and
       ``(ii) a portion of which occurs within the taxable year.

     Such term shall not include any individual otherwise meeting 
     the requirements of the preceding sentence unless within the 
     39\1/2\ month period ending on such due date (or such other 
     period as the Secretary prescribes) a physician (as so 
     defined) has certified that such individual meets such 
     requirements.
       ``(B) Individuals with long-term care needs.--An individual 
     is described in this subparagraph if the individual meets any 
     of the following requirements:
       ``(i) The individual is at least 18 years of age and--

       ``(I) is unable to perform (without substantial assistance 
     from another individual) at least 3 activities of daily 
     living (as defined in section 7702B(c)(2)(B)) due to a loss 
     of functional capacity, or
       ``(II) requires substantial supervision to protect such 
     individual from threats to health and safety due to severe 
     cognitive impairment and is unable to perform at least 1 
     activity of daily living (as so defined) or to the extent 
     provided in regulations prescribed by the Secretary (in 
     consultation with the Secretary of Health and Human 
     Services), is unable to engage in age appropriate activities.

       ``(ii) The individual is at least 6 but not 18 years of age 
     and--

       ``(I) is unable to perform (without substantial assistance 
     from another individual) at least 3 activities of daily 
     living (as defined in section 7702B(c)(2)(B)) due to a loss 
     of functional capacity,
       ``(II) requires substantial supervision to protect such 
     individual from threats to health and safety due to severe 
     cognitive impairment and is unable to perform at least 1 
     activity of daily living (as so defined) or to the extent 
     provided in regulations prescribed by the Secretary (in 
     consultation with the Secretary of Health and Human 
     Services), is unable to engage in age appropriate activities,
       ``(III) has a level of disability similar to the level of 
     disability described in subclause (I) (as determined under 
     regulations promulgated by the Secretary), or
       ``(IV) has a complex medical condition (as defined by the 
     Secretary) that requires medical management and coordination 
     of care.

       ``(iii) The individual is at least 2 but not 6 years of age 
     and--

       ``(I) is unable due to a loss of functional capacity to 
     perform (without substantial assistance from another 
     individual) at least 2 of the following activities: eating, 
     transferring, or mobility,
       ``(II) has a level of disability similar to the level of 
     disability described in subclause (I) (as determined under 
     regulations promulgated by the Secretary), or
       ``(III) has a complex medical condition (as defined by the 
     Secretary) that requires medical management and coordination 
     of care.

       ``(iv) The individual is under 2 years of age and--

       ``(I) requires specific durable medical equipment by reason 
     of a severe health condition or requires a skilled 
     practitioner trained to address the individual's condition to 
     be available if the individual's parents or guardians are 
     absent,
       ``(II) has a level of disability similar to the level of 
     disability described in subclause (I) (as determined under 
     regulations promulgated by the Secretary), or
       ``(III) has a complex medical condition (as defined by the 
     Secretary) that requires medical management and coordination 
     of care.

       ``(v) The individual has 5 or more chronic conditions (as 
     defined in subparagraph (C)) and is unable to perform 
     (without substantial assistance from another individual) at 
     least 1 activity of daily living (as so defined) due to a 
     loss of functional capacity.
       ``(C) Chronic condition.--For purposes of this paragraph, 
     the term `chronic condition' means a condition that lasts for 
     at least 6 consecutive months and requires ongoing medical 
     care.
       ``(3) Eligible caregiver.--
       ``(A) In general.--A taxpayer shall be treated as an 
     eligible caregiver for any taxable year with respect to the 
     following individuals:
       ``(i) The taxpayer.
       ``(ii) The taxpayer's spouse.
       ``(iii) An individual with respect to whom the taxpayer is 
     allowed a deduction under section 151 for the taxable year.
       ``(iv) An individual who would be described in clause (iii) 
     for the taxable year if section 151(c)(1)(A) were applied by 
     substituting for the exemption amount an amount equal to the 
     sum of the exemption amount, the standard deduction under 
     section 63(c)(2)(C), and any additional standard deduction 
     under section 63(c)(3) which would be applicable to the 
     individual if clause (iii) applied.
       ``(v) An individual who would be described in clause (iii) 
     for the taxable year if--

       ``(I) the requirements of clause (iv) are met with respect 
     to the individual, and
       ``(II) the requirements of subparagraph (B) are met with 
     respect to the individual in lieu of the support test of 
     section 152(a).

       ``(B) Residency test.--The requirements of this 
     subparagraph are met if an individual has as such 
     individual's principal place of abode the home of the 
     taxpayer and--
       ``(i) in the case of an individual who is an ancestor or 
     descendant of the taxpayer or the taxpayer's spouse, is a 
     member of the taxpayer's household for over half the taxable 
     year, or
       ``(ii) in the case of any other individual, is a member of 
     the taxpayer's household for the entire taxable year.
       ``(C) Special rules where more than 1 eligible caregiver.--
       ``(i) In general.--If more than 1 individual is an eligible 
     caregiver with respect to the same applicable individual for 
     taxable years ending with or within the same calendar year, a 
     taxpayer shall be treated as the eligible caregiver if each 
     such individual (other than the taxpayer) files a written 
     declaration (in such form and manner as the Secretary may 
     prescribe) that such individual will not claim such 
     applicable individual for the credit under this section.
       ``(ii) No agreement.--If each individual required under 
     clause (i) to file a written declaration under clause (i) 
     does not do so, the individual with the highest modified 
     adjusted gross income (as defined in section 32(c)(5)) shall 
     be treated as the eligible caregiver.
       ``(iii) Married individuals filing separately.--In the case 
     of married individuals filing separately, the determination 
     under this subparagraph as to whether the husband or wife is 
     the eligible caregiver shall be made under the rules of 
     clause (ii) (whether or not one of them has filed a written 
     declaration under clause (i)).''.
       (d) Identification Requirements.--
       (1) In general.--Section 24(f) (relating to identification 
     requirement), as redesignated by subsection(b)(1), is amended 
     by adding at the end the following new sentence: ``No credit 
     shall be allowed under this section to a taxpayer with 
     respect to any applicable individual unless the taxpayer 
     includes the name and taxpayer identification number of such 
     individual, and the identification number of the physician 
     certifying such individual, on the return of tax for the 
     taxable year.''.
       (2) Assessment.--Section 6213(g)(2)(I) is amended--
       (A) by inserting ``or physician identification'' after 
     ``correct TIN'', and
       (B) by striking ``child tax'' and inserting ``family 
     care''.
       (e) Denial of Double Benefit.--
       (1) In general.--Section 213(e) (relating to exclusion of 
     amounts allowed for care of certain dependents) is amended by 
     inserting ``or section 24'' after ``section 21''.
       (2) Conforming amendment.--The heading of section 213(e) is 
     amended by inserting ``Long-Term Care or'' after ``for''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the later of 
     December 31, 2003, or the date of the enactment of this Act.

       Strike the first table on page 8 and insert the following:

----------------------------------------------------------------------------------------------------------------
                                                  The corresponding percentages shall be substituted for  the
  ``In the case of taxable years  beginning                          following percentages:
            during calendar year:             ------------------------------------------------------------------
                                                     28%              31%              36%             39.6%
----------------------------------------------------------------------------------------------------------------
2001.........................................           27.5%            30.5%            35.5%        39.1%
2002.........................................           27.0%            30.0%            35.0%        38.6%
2003.........................................           25.0%            28.0%            33.0%        38.6%
2004.........................................           25.0%            28.0%            33.0%        37.6%
2005.........................................           25.0%            28.0%            33.0%        37.6%
2006 and thereafter..........................           25.0%            28.0%            33.0%        35.0%''.
----------------------------------------------------------------------------------------------------------------

                                 ______
                                 
  SA 607. Mr. HOLLINGS (for himself and Mr. Chafee) submitted an 
amendment intended to be proposed by him to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of

[[Page 11669]]

the concurrent resolution on the budget for fiscal year 2004; which was 
ordered to lie on the table; as follows:

         Strike titles I, II, IV, and V.
       Strike section 601 and insert the following:

     SEC. 601. SUNSET.

       Except as otherwise provided, the provisions of, and 
     amendments made, by section 362 shall not apply to taxable 
     years beginning after December 31, 2012, and the Internal 
     Revenue Code of 1986 shall be applied and administered to 
     such years as if such amendments had never been enacted.
                                 ______
                                 
  SA 608. Mr. DURBIN submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the appropriate place, insert the following:

     SEC. __. HEALTH CARE COVERAGE FOR CAREGIVERS

       (a) In General.--The Public Health Service Act (42 U.S.C. 
     201 et seq.) is amended by adding at the end the following:

           ``TITLE XXIX--HEALTH CARE COVERAGE FOR CAREGIVERS

     ``SEC. 2901. PURPOSE; STATE PLANS.

       ``(a) Purpose.--The purpose of this title is to provide 
     funds to States to enable them to--
       ``(1) expand the availability of health insurance coverage 
     to those individuals involved in providing care for children, 
     the disabled, and the elderly; and
       (2) provide incentives to attract and retain quality 
     caregivers.
       ``(b) State Plan Required.--A State is not eligible for 
     payment under section 2905 unless the State has submitted to 
     the Secretary under section 2906 a plan that--
       ``(1) sets forth how the State intends to use the funds 
     provided under this title to provide health insurance or 
     health care assistance through title XIX of the Social 
     Security Act, or other State or local health care assistance 
     or insurance programs, or to provide assistance through the 
     Federal Employees Health Benefits Program if permitted under 
     law, to eligible caregivers consistent with the provisions of 
     this title, and
       ``(2) has been approved under section 2906.
       ``(c) State Entitlement.--This title constitutes budget 
     authority in advance of appropriations Acts and represents 
     the obligation of the Federal Government to provide for the 
     payment to States of amounts provided under section 2904.
       ``(d) Effective Date.--No State is eligible for payments 
     under section 2905 for health care assistance for coverage 
     provided for periods beginning before October 1, 2003.

     ``SEC. 2902. GENERAL CONTENTS OF STATE PLAN; ELIGIBILITY; 
                   OUTREACH.

       ``(a) General Background and Description.--A State plan 
     shall include a description, consistent with the requirements 
     of this title, of--
       ``(1) the extent to which, and manner in which, eligible 
     caregivers in the State, currently have creditable health 
     coverage (as defined in section 2910(c)(2));
       ``(2) current State efforts to provide or obtain creditable 
     health coverage for eligible caregivers, including the steps 
     the State is taking to identify and enroll all such 
     caregivers who are eligible to participate in public health 
     insurance programs and health insurance programs that involve 
     public-private partnerships;
       ``(3) how the plan is designed to be coordinated with such 
     efforts to increase coverage of such caregivers under 
     creditable health coverage;
       ``(4) the health care assistance provided under the plan 
     for eligible caregivers and the dependent children of such 
     caregivers, including the proposed methods of delivery, and 
     utilization control systems;
       ``(5) eligibility standards consistent with subsection (b);
       ``(6) outreach activities consistent with subsection (c); 
     and
       ``(7) methods (including monitoring) used--
       ``(A) to assure the quality and appropriateness of care 
     provided under the plan, and
       ``(B) to assure access to covered services, including 
     emergency services.
       ``(b) General Description of Eligibility Standards and 
     Methodology.--
       ``(1) Eligibility standards.--
       ``(A) In general.--The plan shall include a description of 
     the standards used to determine the eligibility of caregivers 
     for health care assistance under the plan. Such standards may 
     include (to the extent consistent with this title) those 
     relating to the geographic areas to be served by the plan, 
     age, income and resources (including any standards relating 
     to spenddowns and disposition of resources), residency, 
     disability status (so long as any standard relating to such 
     status does not restrict eligibility), access to or coverage 
     under other health coverage, and duration of eligibility. 
     Such standards may not discriminate on the basis of 
     diagnosis.
       ``(B) Limitations on eligibility standards.--Such 
     eligibility standards--
       ``(i) shall, within any defined group of covered eligible 
     caregivers, not cover such caregivers with a higher family 
     income without covering caregivers with a lower family 
     income, and
       ``(ii) may not deny eligibility based on a caregiver having 
     a preexisting medical condition.
       ``(2) Methodology.--The plan shall include a description of 
     methods of establishing and continuing eligibility and 
     enrollment.
       ``(3) Eligibility screening; coordination with other health 
     coverage programs.--The plan shall include a description of 
     procedures to be used to ensure--
       ``(A) through both intake and followup screening, that only 
     eligible caregivers are furnished health care assistance 
     under the State plan;
       ``(B) that eligible caregivers found through the screening 
     to be eligible for medical assistance under the State 
     medicaid plan under title XIX of the Social Security Act are 
     enrolled for such assistance under such plan;
       ``(C) that the insurance provided under the State plan does 
     not substitute for coverage under group health plans;
       ``(D) the provision of health care assistance to eligible 
     caregivers in the State who are Indians (as defined in 
     section 4(c) of the Indian Health Care Improvement Act (25 
     U.S.C. 1603(c))); and
       ``(E) coordination with other public and private programs 
     providing creditable coverage for eligible caregivers.
       ``(4) Nonentitlement.--Nothing in this title shall be 
     construed as providing an individual with an entitlement to 
     health care assistance under a State plan.
       ``(c) Outreach and Coordination.--A State plan shall 
     include a description of the procedures to be used by the 
     State to accomplish the following:
       ``(1) Outreach.--Outreach to caregivers likely to be 
     eligible for health care assistance under the plan or under 
     other public or private health coverage programs to inform 
     such care givers of the availability of, and to assist them 
     in enrolling in, such a program.
       ``(2) Coordination with other health insurance programs.--
     Coordination of the administration of the State program under 
     this title with other public and private health insurance 
     programs.
       ``(d) Payment or Premiums.--Nothing in this title shall be 
     construed to prohibit a State from paying the eligible 
     caregiver's share of premiums required for health care 
     assistance provided to the caregiver under the State plan.

     ``SEC. 2903. COVERAGE REQUIREMENTS FOR HEALTH CARE 
                   ASSISTANCE.

       ``The health care assistance provided to an eligible 
     caregiver under the plan in the form described in paragraph 
     (1) of section 2901(a) shall consist of any of the types of 
     coverage, the benchmark benefit packages, the categories of 
     services, existing programs, the cost sharing requirements, 
     and the preexisting condition limitations described in 
     section 2103 of the Social Security Act, and shall provide 
     coverage for the dependent children of the eligible 
     caregiver.

     ``SEC. 2904. ALLOTMENTS.

       ``(a) Appropriation.--For purpose of enabling States to 
     provide assistance under this title, there is appropriated, 
     out of any money in the Treasury not otherwise appropriated, 
     $3,500,000,000 for each of fiscal years 2004 through 2011.
       ``(b) Allotments to 50 States and District of Columbia.--
       ``(1) In general.--Of the amount available for allotment 
     under subsection (a) for a fiscal year, reduced by the amount 
     of allotments made under subsection (c) for such fiscal year, 
     the Secretary shall allot to each State an amount that bears 
     the same ratio to such available amount as the population of 
     the State in such fiscal year bears to the total populations 
     of all States in such fiscal year.
       ``(5) Adjustment for geographic variations in health 
     costs.--In making allotments under this subsection, the 
     Secretary shall adjust a State's allotment based on section 
     2104(b)(3) of the Social Security Act to reflect the 
     geographic variations in health costs.
       ``(c) Allotments to Territories.--
       ``(1) In general.--Of the amount available for allotment 
     under subsection (a) for a fiscal year, the Secretary shall 
     allot 0.25 percent among each of the commonwealths and 
     territories described in paragraph (3) in the same proportion 
     as the percentage specified in paragraph (2) for such 
     commonwealth or territory bears to the sum of such 
     percentages for all such commonwealths or territories so 
     described.
       ``(2) Percentage.--The percentage specified in this 
     paragraph for--
       ``(A) Puerto Rico is 91.6 percent,
       ``(B) Guam is 3.5 percent,
       ``(C) the Virgin Islands is 2.6 percent,
       ``(D) American Samoa is 1.2 percent, and
       ``(E) the Northern Mariana Islands is 1.1 percent.
       ``(3) Commonwealths and territories.--A commonwealth or 
     territory described in this paragraph is any of the following 
     if it has a State plan approved under this title:
       ``(A) Puerto Rico.
       ``(B) Guam.
       ``(C) The Virgin Islands.
       ``(D) American Samoa.
       ``(E) The Northern Mariana Islands.
       ``(d) 3-Year Availability of Amounts Allotted.--Amounts 
     allotted to a State pursuant to this section for a fiscal 
     year shall remain available for expenditure by the State

[[Page 11670]]

     through the end of the second succeeding fiscal year; except 
     that amounts reallotted to a State under subsection (e) shall 
     be available for expenditure by the State through the end of 
     the fiscal year in which they are reallotted.
       ``(e) Procedure for Redistribution of Unused Allotments.--
     The Secretary shall determine an appropriate procedure for 
     redistribution of allotments from States that were provided 
     allotments under this section for a fiscal year but that do 
     not expend all of the amount of such allotments during the 
     period in which such allotments are available for expenditure 
     under subsection (d), to States that have fully expended the 
     amount of their allotments under this section.

     ``SEC. 2905. PAYMENTS TO STATES.

       ``(a) In General.--Subject to the succeeding provisions of 
     this section, the Secretary shall pay to each State with a 
     plan approved under this title, from its allotment for a 
     fiscal year under section 2904, an amount for each quarter 
     equal to the enhanced FMAP of expenditures in the quarter--
       ``(1) for health care assistance under the plan for 
     eligible caregivers in the form of providing health benefits 
     coverage that meets the requirements of section 2903; and
       ``(2) only to the extent permitted consistent with 
     subsection (c)--
       ``(A) for payment for other health care assistance for such 
     caregivers;
       ``(B) for expenditures for health services initiatives 
     under the plan for improving the health of such caregivers;
       ``(C) for expenditures for outreach activities as provided 
     in section 2902(c)(1) under the plan; and
       ``(D) for other reasonable costs incurred by the State to 
     administer the plan.
       ``(b) Enhanced FMAP.--For purposes of subsection (a), the 
     `enhanced FMAP', for a State for a fiscal year, is equal to 
     the Federal medical assistance percentage (as defined in the 
     first sentence of section 1905(b) of the Social Security Act) 
     for the State increased by a number of percentage points 
     equal to 30 percent of the number of percentage points by 
     which (1) such Federal medical assistance percentage for the 
     State, is less than (2) 100 percent; but in no case shall the 
     enhanced FMAP for a State exceed 85 percent.
       ``(c) Limitation on Certain Payments for Certain 
     Expenditures.--
       ``(1) General limitations.--Funds provided to a State under 
     this title shall only be used to carry out the purposes of 
     this title (as described in section 2901).
       ``(2) Use of non-federal funds for state matching 
     requirement.--Amounts provided by the Federal Government, or 
     services assisted or subsidized to any significant extent by 
     the Federal Government, may not be included in determining 
     the amount of non-Federal contributions required under 
     subsection (a).
       ``(3) Offset of receipts attributable to premiums and other 
     cost-sharing.--For purposes of subsection (a), the amount of 
     the expenditures under the plan shall be reduced by the 
     amount of any premiums and other cost-sharing received by the 
     State.
       ``(4) Prevention of duplicative payments.--
       ``(A) Other health plans.--No payment shall be made to a 
     State under this section for expenditures for health care 
     assistance provided for an eligible caregiver under its plan 
     to the extent that a private insurer (as defined by the 
     Secretary by regulation and including a group health plan (as 
     defined in section 607(1) of the Employee Retirement Income 
     Security Act of 1974), a service benefit plan, and a health 
     maintenance organization) would have been obligated to 
     provide such assistance but for a provision of its insurance 
     contract which has the effect of limiting or excluding such 
     obligation because the individual is eligible for or is 
     provided health care assistance under the plan.
       ``(B) Other federal governmental programs.--Except as 
     otherwise provided by law, no payment shall be made to a 
     State under this section for expenditures for health care 
     assistance provided for an eligible caregiver under its plan 
     to the extent that payment has been made or can reasonably be 
     expected to be made promptly (as determined in accordance 
     with regulations) under any other federally operated or 
     financed health care insurance program, other than an 
     insurance program operated or financed by the Indian Health 
     Service, as identified by the Secretary. For purposes of this 
     paragraph, rules similar to the rules for overpayments under 
     section 1903(d)(2) of the Social Security Act shall apply.
       ``(d) Maintenance of Effort.--
       ``(1) In medicaid eligibility standards.--No payment may be 
     made under subsection (a) with respect to health care 
     assistance provided under a State plan if the State adopts 
     income and resource standards and methodologies for purposes 
     of determining a caregiver's eligibility for medical 
     assistance under the State plan under title XIX of the Social 
     Security Act that are more restrictive than those applied as 
     of June 1, 1997.
       ``(2) In amounts of payment expended for certain state-
     funded health insurance programs.--
       ``(A) In general.--The amount of the allotment for a State 
     in a fiscal year (beginning with fiscal year 2004) shall be 
     reduced by the amount by which--
       ``(i) the total of the State health insurance expenditures 
     for caregivers in the preceding fiscal year, is less than
       ``(ii) the total of such expenditures in fiscal year 2003.
       ``(B) State health insurance expenditures for caregivers.--
     The term `State health insurance expenditures for caregivers' 
     means the following:
       ``(i) The State share of expenditures under this title.
       ``(ii) The State share of expenditures under title XIX of 
     the Social Security Act that are attributable to an enhanced 
     FMAP under section 1905(u) of such Act.
       ``(iii) State expenditures under health benefits coverage 
     under an existing comprehensive State-based program.
       ``(e) Advance Payment; Retrospective Adjustment.--The 
     Secretary may make payments under this section for each 
     quarter on the basis of advance estimates of expenditures 
     submitted by the State and such other investigation as the 
     Secretary may find necessary, and may reduce or increase the 
     payments as necessary to adjust for any overpayment or 
     underpayment for prior quarters.
       ``(f) Flexibility in Submittal of Claims.--Nothing in this 
     section or subsections (d) and (e) of section 2904 shall be 
     construed as preventing a State from claiming as expenditures 
     in the quarter expenditures that were incurred in a previous 
     quarter.

     ``SEC. 2906. PROCESS FOR SUBMISSION, APPROVAL, AND AMENDMENT 
                   OF STATE PLANS.

       ``(a) Initial Plan.--
       ``(1) In general.--As a condition of receiving payment 
     under section 2905, a State shall submit to the Secretary a 
     State plan that meets the applicable requirements of this 
     title.
       ``(2) Approval.--Except as the Secretary may provide under 
     subsection (e), a State plan submitted under paragraph (1)--
       ``(A) shall be approved for purposes of this title, and
       ``(B) shall be effective beginning with a calendar quarter 
     that is specified in the plan, but in no case earlier than 
     October 1, 2003.
       ``(b) Plan Amendments.--The provisions of section 2106(b) 
     of the Social Security Act shall apply with respect to the 
     amendment of a State plan under this title.
       ``(c) Disapproval of Plans and Plan Amendments.--
       ``(1) Prompt review of plan submittals.--The Secretary 
     shall promptly review State plans and plan amendments 
     submitted under this section to determine if they 
     substantially comply with the requirements of this title.
       ``(2) 90-day approval deadlines.--A State plan or plan 
     amendment is considered approved unless the Secretary 
     notifies the State in writing, within 90 days after receipt 
     of the plan or amendment, that the plan or amendment is 
     disapproved (and the reasons for disapproval) or that 
     specified additional information is needed.
       ``(3) Correction.--In the case of a disapproval of a plan 
     or plan amendment, the Secretary shall provide a State with a 
     reasonable opportunity for correction before taking financial 
     sanctions against the State on the basis of such disapproval.
       ``(d) Program Operation.--
       ``(1) In general.--The State shall conduct the program in 
     accordance with the plan (and any amendments) approved under 
     subsection (c) and with the requirements of this title.
       ``(2) Violations.--The Secretary shall establish a process 
     for enforcing requirements under this title. Such process 
     shall provide for the withholding of funds in the case of 
     substantial noncompliance with such requirements. In the case 
     of an enforcement action against a State under this 
     paragraph, the Secretary shall provide a State with a 
     reasonable opportunity for correction before taking financial 
     sanctions against the State on the basis of such an action.
       ``(e) Continued Approval.--An approved State caregivers 
     health plan shall continue in effect unless and until the 
     State amends the plan under subsection (b) or the Secretary 
     finds, under subsection (d), substantial noncompliance of the 
     plan with the requirements of this title.

     ``SEC. 2907. STRATEGIC OBJECTIVES AND PERFORMANCE GOALS; PLAN 
                   ADMINISTRATION.

       ``(a) Strategic Objectives and Performance Goals.--
       ``(1) Description.--A State plan shall include a 
     description of--
       ``(A) the strategic objectives,
       ``(B) the performance goals, and
       ``(C) the performance measures,
     the State has established for providing health care 
     assistance to eligible caregivers under the plan and 
     otherwise for maximizing health benefits coverage for other 
     caregivers generally in the State.
       ``(2) Strategic objectives.--Such plan shall identify 
     specific strategic objectives relating to increasing the 
     extent of creditable health coverage among eligible 
     caregivers.
       ``(3) Performance goals.--Such plan shall specify 1 or more 
     performance goals for each such strategic objective so 
     identified.
       ``(4) Performance measures.--Such plan shall describe how 
     performance under the plan will be--

[[Page 11671]]

       ``(A) measured through objective, independently verifiable 
     means, and
       ``(B) compared against performance goals, in order to 
     determine the State's performance under this title.
       ``(b) Records, Reports, Audits, and Evaluation.--
       ``(1) Data collection, records, and reports.--A State plan 
     shall include an assurance that the State will collect the 
     data, maintain the records, and furnish the reports to the 
     Secretary, at the times and in the standardized format the 
     Secretary may require in order to enable the Secretary to 
     monitor State program administration and compliance and to 
     evaluate and compare the effectiveness of State plans under 
     this title.
       ``(2) State assessment and study.--A State plan shall 
     include a description of the State's plan for the annual 
     assessments and reports under section 2908(a) and the 
     evaluation required by section 2908(b).
       ``(3) Audits.--A State plan shall include an assurance that 
     the State will afford the Secretary access to any records or 
     information relating to the plan for the purposes of review 
     or audit.
       ``(c) Program Development Process.--A State plan shall 
     include a description of the process used to involve the 
     public in the design and implementation of the plan and the 
     method for ensuring ongoing public involvement.
       ``(d) Program Budget.--A State plan shall include a 
     description of the budget for the plan. The description shall 
     be updated periodically as necessary and shall include 
     details on the planned use of funds and the sources of the 
     non-Federal share of plan expenditures, including any 
     requirements for cost-sharing by beneficiaries.
       ``(e) Application of Certain General Provisions.--The 
     following sections of the Social Security Act shall apply to 
     States under this title in the same manner as they apply to a 
     State under title XIX or title XI of such Act, as 
     appropriate:
       ``(1) Title xix provisions.--
       ``(A) Section 1902(a)(4)(C) (relating to conflict of 
     interest standards).
       ``(B) Paragraphs (2), (16), and (17) of section 1903(i) 
     (relating to limitations on payment).
       ``(C) Section 1903(w) (relating to limitations on provider 
     taxes and donations).
       ``(2) Title xi provisions.--
       ``(A) Section 1115 (relating to waiver authority).
       ``(B) Section 1116 (relating to administrative and judicial 
     review), but only insofar as consistent with this title.
       ``(C) Section 1124 (relating to disclosure of ownership and 
     related information).
       ``(D) Section 1126 (relating to disclosure of information 
     about certain convicted individuals).
       ``(E) Section 1128A (relating to civil monetary penalties).
       ``(F) Section 1128B(d) (relating to criminal penalties for 
     certain additional charges).
       ``(G) Section 1132 (relating to periods within which claims 
     must be filed).

     ``SEC. 2908. ANNUAL REPORTS; EVALUATIONS.

       ``(a) Annual Report.--The State shall--
       ``(1) assess the operation of the State plan under this 
     title in each fiscal year, including the progress made in 
     reducing the number of uncovered eligible caregivers; and
       ``(2) report to the Secretary, by January 1 following the 
     end of the fiscal year, on the result of the assessment.
       ``(b) State Evaluations.--
       ``(1) In general.--By March 31, 2005, each State that has a 
     State plan shall submit to the Secretary an evaluation that 
     includes each of the following:
       ``(A) An assessment of the effectiveness of the State plan 
     in increasing the number of caregivers with creditable health 
     coverage.
       ``(B) A description and analysis of the effectiveness of 
     elements of the State plan, including--
       ``(i) the characteristics of the caregivers assisted under 
     the State plan including family income, and the assisted 
     caregiver's access to or coverage by other health insurance 
     prior to the State plan and after eligibility for the State 
     plan ends,
       ``(ii) the quality of health coverage provided including 
     the types of benefits provided,
       ``(iii) the amount and level (including payment of part or 
     all of any premium) of assistance provided by the State,
       ``(iv) the service area of the State plan,
       ``(v) the time limits for coverage of a caregiver under the 
     State plan,
       ``(vi) the State's choice of health benefits coverage and 
     other methods used for providing health care assistance, and
       ``(vii) the sources of non-Federal funding used in the 
     State plan.
       ``(C) An assessment of the effectiveness of other public 
     and private programs in the State in increasing the 
     availability of affordable quality individual and family 
     health insurance for caregivers.
       ``(D) A review and assessment of State activities to 
     coordinate the plan under this title with other public and 
     private programs providing health care and health care 
     financing, including medicaid and maternal and child health 
     services.
       ``(E) An analysis of changes and trends in the State that 
     affect the provision of accessible, affordable, quality 
     health insurance and health care to caregivers.
       ``(F) A description of any plans the State has for 
     improving the availability of health insurance and health 
     care for caregivers.
       ``(G) Recommendations for improving the program under this 
     title.
       ``(H) Any other matters the State and the Secretary 
     consider appropriate.
       ``(2) Report of the secretary.--The Secretary shall submit 
     to Congress and make available to the public by December 31, 
     2005, a report based on the evaluations submitted by States 
     under paragraph (1), containing any conclusions and 
     recommendations the Secretary considers appropriate.

     ``SEC. 2909. MISCELLANEOUS PROVISIONS.

       ``(a) HIPAA.--Health benefits coverage provided under 
     section 2901(a)(1) shall be treated as creditable coverage 
     for purposes of part 7 of subtitle B of title I of the 
     Employee Retirement Income Security Act of 1974, title XXVII 
     of the Public Health Service Act, and subtitle K of the 
     Internal Revenue Code of 1986.
       ``(b) ERISA.--Nothing in this title shall be construed as 
     affecting or modifying section 514 of the Employee Retirement 
     Income Security Act of 1974 with respect to a group health 
     plan (as defined in section 2791(a)(1) of this Act.
       ``(c) Limitation on Entities.--Notwithstanding any other 
     provision of this title, a State may limit the application of 
     this title to eligible caregivers who are employed by 
     entities that provide services to a specific percentage of 
     individuals who receive assistance under, or through, Federal 
     or State assistance programs.

     ``SEC. 2910. DEFINITIONS.

       (a) Health Care Assistance.--For purposes of this title, 
     the term `health care assistance' means payment for part or 
     all of the cost of health benefits coverage for eligible 
     caregivers (and the dependent children of such caregivers) 
     that includes any of the following (and includes, in the case 
     described in section 2905(a)(2)(A), payment for part or all 
     of the cost of providing any of the following), as specified 
     under the State plan:
       ``(1) Inpatient hospital services.
       ``(2) Outpatient hospital services.
       ``(3) Physician services.
       ``(4) Surgical services.
       ``(5) Clinic services (including health center services) 
     and other ambulatory health care services.
       ``(6) Prescription drugs and biologicals and the 
     administration of such drugs and biologicals, only if such 
     drugs and biologicals are not furnished for the purpose of 
     causing, or assisting in causing, the death, suicide, 
     euthanasia, or mercy killing of a person.
       ``(7) Over-the-counter medications.
       ``(8) Laboratory and radiological services.
       ``(9) Prenatal care and prepregnancy family planning 
     services and supplies.
       ``(10) Inpatient mental health services, other than 
     services described in paragraph (18) but including services 
     furnished in a State-operated mental hospital and including 
     residential or other 24-hour therapeutically planned 
     structured services.
       ``(11) Outpatient mental health services, other than 
     services described in paragraph (19) but including services 
     furnished in a State-operated mental hospital and including 
     community-based services.
       ``(12) Durable medical equipment and other medically-
     related or remedial devices (such as prosthetic devices, 
     implants, eyeglasses, hearing aids, dental devices, and 
     adaptive devices).
       ``(13) Disposable medical supplies.
       ``(14) Home and community-based health care services and 
     related supportive services (such as home health nursing 
     services, home health aide services, personal care, 
     assistance with activities of daily living, chore services, 
     day care services, respite care services, training for family 
     members, and minor modifications to the home).
       ``(15) Nursing care services (such as nurse practitioner 
     services, nurse midwife services, advanced practice nurse 
     services, private duty nursing care, pediatric nurse 
     services, and respiratory care services) in a home, school, 
     or other setting.
       ``(16) Dental services.
       ``(17) Inpatient substance abuse treatment services and 
     residential substance abuse treatment services.
       ``(18) Outpatient substance abuse treatment services.
       ``(19) Case management services.
       ``(20) Care coordination services.
       ``(21) Physical therapy, occupational therapy, and services 
     for individuals with speech, hearing, and language disorders.
       ``(22) Hospice care.
       ``(23) Any other medical, diagnostic, screening, 
     preventive, restorative, remedial, therapeutic, or 
     rehabilitative services (whether in a facility, home, school, 
     or other setting) if recognized by State law and only if the 
     service is--
       ``(A) prescribed by or furnished by a physician or other 
     licensed or registered practitioner within the scope of 
     practice as defined by State law,
       ``(B) performed under the general supervision or at the 
     direction of a physician, or
       ``(C) furnished by a health care facility that is operated 
     by a State or local government or is licensed under State law 
     and operating within the scope of the license.
       ``(24) Premiums for private health care insurance coverage.

[[Page 11672]]

       ``(25) Medical transportation.
       ``(26) Enabling services (such as transportation, 
     translation, and outreach services) only if designed to 
     increase the accessibility of primary and preventive health 
     care services for eligible low-income individuals.
       ``(27) Any other health care services or items specified by 
     the Secretary and not excluded under this section.
       ``(b) Eligible Caregiver Defined.--For purposes of this 
     title, the term `eligible caregiver' means an individual--
       ``(1) who has been determined eligible by the State under 
     this title for assistance under the State plan;
       ``(2) who--
       ``(A) subject to section 2909(c)--
       ``(i) is employed as a child care provider, an adult day 
     care provider, a personal attendant for disabled individuals, 
     a nursing home aide, a home health aide, or in any other 
     caregiving position determined appropriate by the State, with 
     an entity that is licensed or certified under State law, or 
     is otherwise providing services under a State license or 
     certification; and
       ``(ii) is certified by, or enrolled in, an accredited 
     program recognized by the State as having received training 
     necessary in order to be employed in a position described in 
     subparagraph (A); or
       ``(B)(i) is providing caregiver services on a full-time 
     basis for a relative; and
       ``(ii) does not otherwise have access to employer-sponsored 
     health insurance coverage;
       ``(3) who is not found to be eligible for medical 
     assistance under title XIX of the Social Security Act or 
     covered under a group health plan or under health insurance 
     coverage (as such terms are defined in section 2791 of this 
     Act); and
       ``(4) who meets any other criteria determined appropriate 
     by the State.
       ``(c) Additional Definitions.--For purposes of this title:
       ``(1) Creditable health coverage.--The term `creditable 
     health coverage' has the meaning given the term `creditable 
     coverage' under section 2701(c) of this Act and includes 
     coverage that meets the requirements of section 2903 provided 
     to an eligible caregiver under this title.
       ``(2) Group health plan; health insurance coverage; etc.--
     The terms `group health plan', `group health insurance 
     coverage', and `health insurance coverage' have the meanings 
     given such terms in section 2791 of this Act.
       ``(3) Poverty line defined.--The term `poverty line' has 
     the meaning given such term in section 673(2) of the 
     Community Services Block Grant Act (42 U.S.C. 9902(2)), 
     including any revision required by such section.
       ``(4) Preexisting condition exclusion.--The term 
     `preexisting condition exclusion' has the meaning given such 
     term in section 2701(b)(1)(A) of this Act.
       ``(5) State plan; plan.--Unless the context otherwise 
     requires, the terms `State plan' and `plan' mean a State plan 
     approved under section 2906.''.
       (b) Elimination of Acceleration of Top Rate Reduction In 
     Individual Income Tax Rates.--Notwithstanding the amendment 
     made by section 102(a) of this Act, in lieu of the percent 
     specified in the last column of the table in paragraph (2) of 
     section 1(i) of the Internal Revenue Code of 1986, as amended 
     by such section 102(a), for taxable years beginning during 
     calendar years 2003, 2004, and 2005, the following 
     percentages shall be substituted for such years:
       (1) For 2003, 38.6%.
       (2) For 2004 and 2005, 37.6%.
                                 ______
                                 
  SA 609. Mr. DURBIN submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       On page 281, between lines 2 and 3, insert the following:

     SEC. __. EXTENSION OF MINIMUM TAX RELIEF.

       (a) Extension of Minimum Tax Relief.--
       (1) In general.--Paragraph (1) of section 55(d) (relating 
     to exemption amount for taxpayers other than corporations), 
     as amended by section 103 of this Act, is amended--
       (A) in the table in subparagraph (A)--
       (i) by striking ``In 2003, 2004, and 2005'' and inserting 
     ``After 2002'', and
       (ii) by striking the last row (relating to the exemption 
     amount in taxable years beginning after 2005) and inserting a 
     period after ``$61,000'', and
       (B) in the table in subparagraph (B)--
       (i) by striking ``In 2003, 2004, and 2005'' and inserting 
     ``After 2002'', and
       (ii) by striking the last row (relating to the exemption 
     amount in taxable years beginning after 2005) and inserting a 
     period after ``$41,750''.
       (2) Inflation adjustments.--Subsection (d) of section 55 is 
     amended by inserting at the end the following new paragraph:
       ``(4) Inflation Adjustment.--
       ``(A) In general.--In the case of a taxable year beginning 
     after 2005, the $61,000 amount in paragraph (1)(A) and the 
     $41,750 amount in paragraph (1)(B) shall each be increased by 
     an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 2005' 
     for calendar year `1992' in subparagraph (B) thereof.
       ``(B) Rounding.--If any amount as adjusted under 
     subparagraph (A) is not a multiple of $50, such amount shall 
     be rounded to the next lowest multiple of $50.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2002 and before January 1, 2010.
       (b) Freeze of Top Income Rate.--
       (1) In general.--The table in paragraph (2) of section 1(i) 
     (relating to reductions in rates after June 30, 2001), as 
     amended by section 102 of this Act, is amended by striking 
     ``35.0%'' in the last column and inserting ``38.6%''.
       (2) Effective date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
       (c) Repeal of Partial Exclusion of Dividends Received by 
     Individuals.--The amendments made by section 201 of this Act 
     are repealed.
       (d) Application of EGTRRA.--The amendments made by 
     subsections (a) and (b) shall be subject to title IX of the 
     Economic Growth and Tax Relief Reconciliation Act of 2001 to 
     the same extent and in the same manner as the provision of 
     such Act to which such amendment relates.
                                 ______
                                 
  SA 610. Mr. DURBIN submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V, add the following:

     SEC. __. CREDIT FOR EMPLOYEE HEALTH INSURANCE EXPENSES.

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

     ``SEC. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of a small employer, the employee health insurance 
     expenses credit determined under this section is an amount 
     equal to the sum of--
       ``(1) the expense amount described in subsection (b), and
       ``(2) the expense amount described in subsection (c),

     paid by the taxpayer during the taxable year.
       ``(b) Subsection (b) Expense Amount.--For purposes of this 
     section--
       ``(1) In general.--The expense amount described in this 
     subsection is the applicable percentage of the amount of 
     qualified employee health insurance expenses of each 
     qualified employee.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage is equal to--
       ``(A) 25 percent in the case of self-only coverage, and
       ``(B) 35 percent in the case of family coverage (as defined 
     in section 220(c)(5)).
       ``(3) Per employee dollar limitation.--The amount of 
     qualified employee health insurance expenses taken into 
     account under paragraph (1) with respect to any qualified 
     employee for any taxable year shall not exceed--
       ``(A) $750 in the case of self-only coverage, and
       ``(B) $2,450 in the case of family coverage (as so 
     defined).
       ``(c) Subsection (c) Expense Amount.--For purposes of this 
     section--
       ``(1) In general.--The expense amount described in this 
     subsection is, with respect to any taxable year during which 
     a small employer pays qualified employee health insurance 
     expenses for the applicable coverage percentage of the 
     eligible qualified employees of the small employer, the 
     applicable percentage of the amount of qualified employee 
     health insurance expenses of each qualified employee.
       ``(2) Applicable coverage percentage; applicable 
     percentage.--For purposes of paragraph (1), the applicable 
     coverage percentage and applicable percentage shall be 
     determined under the following table:

``Applicable coverage percentage:                            Applicable
                                                            percentage:
At least 70 but not more than 80 percent.................10 percent....


At least 80 but not more than 90 percent.................15 percent....


At least 90 percent......................................20 percent....



       ``(3) Eligible qualified employee.--For purposes of 
     paragraph (1), the term `eligible qualified employee' means 
     any qualified employee who is not provided health insurance 
     coverage during the taxable year under--
       ``(A) a health plan of the employee's spouse,
       ``(B) title XVIII, XIX, or XXI of the Social Security Act,

[[Page 11673]]

       ``(C) chapter 17 of title 38, United States Code,
       ``(D) chapter 55 of title 10, United States Code,
       ``(E) chapter 89 of title 5, United States Code,
       ``(F) the Indian Health Care Improvement Act, or
       ``(G) any other provision of law.
       ``(d) Limitation Based on Wages.--
       ``(1) In general.--The percentage which would (but for this 
     subsection) be taken into account as the applicable 
     percentage for purposes of subsection (b)(2) or (c)(2) for 
     the taxable year shall be reduced (but not below zero) by the 
     percentage determined under paragraph (2).
       ``(2) Amount of reduction.--The percentage determined under 
     this paragraph is the percentage which bears the same ratio 
     to the percentage which would be so taken into account as--
       ``(A) the excess of--
       ``(i) the qualified employee's wages at an annual rate 
     during such taxable year, over
       ``(ii) $20,000, bears to
       ``(B) $5,000.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Small employer.--
       ``(A) In general.--The term `small employer' means, with 
     respect to any calendar year, any employer if such employer 
     employed an average of 25 or fewer employees on business days 
     during either of the 2 preceding calendar years. For purposes 
     of the preceding sentence, a preceding calendar year may be 
     taken into account only if the employer was in existence 
     throughout such year.
       ``(B) Employers not in existence in preceding year.--In the 
     case of an employer which was not in existence throughout the 
     1st preceding calendar year, the determination under 
     subparagraph (A) shall be based on the average number of 
     employees that it is reasonably expected such employer will 
     employ on business days in the current calendar year.
       ``(2) Qualified employee health insurance expenses.--
       ``(A) In general.--The term `qualified employee health 
     insurance expenses' means any amount paid by an employer for 
     health insurance coverage to the extent such amount is 
     attributable to coverage provided to any employee while such 
     employee is a qualified employee.
       ``(B) Exception for amounts paid under salary reduction 
     arrangements.--No amount paid or incurred for health 
     insurance coverage pursuant to a salary reduction arrangement 
     shall be taken into account under subparagraph (A).
       ``(C) Health insurance coverage.--The term `health 
     insurance coverage' has the meaning given such term by 
     section 9832(b)(1).
       ``(3) Qualified employee.--
       ``(A) In general.--The term `qualified employee' means, 
     with respect to any period, an employee of an employer if the 
     total amount of wages paid or incurred by such employer to 
     such employee at an annual rate during the taxable year 
     exceeds $5,000 but does not exceed $25,000.
       ``(B) Treatment of certain employees.--For purposes of 
     subparagraph (A), the term `employee'--
       ``(i) shall not include an employee within the meaning of 
     section 401(c)(1), and
       ``(ii) shall include a leased employee within the meaning 
     of section 414(n).
       ``(C) Wages.--The term `wages' has the meaning given such 
     term by section 3121(a) (determined without regard to any 
     dollar limitation contained in such section).
       ``(D) Inflation adjustment.--
       ``(i) In general.--In the case of any taxable year 
     beginning in a calendar year after 2003, the $25,000 amount 
     contained in subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment under section 1(f)(3) 
     for the calendar year in which the taxable year begins, 
     determined by substituting `calendar year 2002' for `calendar 
     year 1992' in subparagraph (B) thereof.

       ``(ii) Rounding.--If any increase determined under clause 
     (i) is not a multiple of $100, such amount shall be rounded 
     to the nearest multiple of $100.
       ``(f) Certain Rules Made Applicable.--For purposes of this 
     section, rules similar to the rules of section 52 shall 
     apply.
       ``(g) Denial of Double Benefit.--No deduction or other 
     credit under any other provision of this chapter shall be 
     allowed for that portion of the qualified employee health 
     insurance expenses paid for the taxable year which is equal 
     to the credit determined under subsection (a).''.
       (b) Credit To Be Part of General Business Credit.--Section 
     38(b) (relating to current year business credit) is amended 
     by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following:
       ``(16) the employee health insurance expenses credit 
     determined under section 45G.''.
       (c) No Carrybacks.--Subsection (d) of section 39 (relating 
     to carryback and carryforward of unused credits) is amended 
     by adding at the end the following:
       ``(11) No carryback of section 45g credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the employee health 
     insurance expenses credit determined under section 45G may be 
     carried back to a taxable year ending before the date of the 
     enactment of section 45G.''.
       (d) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following:

``Sec. 45G. Employee health insurance expenses.''.

       (e) Delay in Acceleration of Top Rate Reduction In 
     Individual Income Tax Rates.--Notwithstanding the amendment 
     made by section 102(a) of this Act, in lieu of the percent 
     specified in the last column of the table in paragraph (2) of 
     section 1(i) of the Internal Revenue Code of 1986, as amended 
     by such section 102(a), for taxable years beginning during 
     calendar year 2003, ``38.6%'' shall be substituted for 
     ``35%'' and for taxable years beginning during calendar year 
     2004, ``37.6%'' shall be substituted for ``35%''.
       (f) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to amounts paid 
     or incurred in taxable years beginning after December 31, 
     2002.
       (2) Subsection (e).--Subsection (e) shall apply to taxable 
     years beginning after December 31, 2002.
                                 ______
                                 
  SA 611. Mr. CONRAD proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       Strike page 14, line 8 through page 15, line 11, and insert 
     the following:
       ``(d) No Interest.--No interest shall be allowed on any 
     overpayment attributable to this section.''.
       (2) Clerical amendment.--The table of sections for 
     subchapter B of chapter 65 is amended by adding at the end 
     the following new item:

``Sec. 6429. Advance payment of portion of increased child credit for 
              2003.''.

       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2002.
       (2) Subsections (a) and (c).--
       (A) The amendment made by subsection (a) shall apply to 
     taxable years beginning after December 31, 2001.
       (B) The amendments made by subsection (c) shall take effect 
     on the date of the enactment of this Act.
       Strike the first table on page 8 and insert the following:

------------------------------------------------------------------------
                                  The corresponding percentages shall be
                                      substituted for the following
 ``In the case of taxable years                percentages:
beginning during calendar year: ----------------------------------------
                                    28%       31%       36%      39.6%
------------------------------------------------------------------------
2001...........................     27.5%     30.5%     35.5%      39.1%
2002...........................     27.0%     30.0%     35.0%      38.6%
2003...........................     25.0%     28.0%     33.0%      38.6%
2004...........................     25.0%     28.0%     33.0%      37.6%
2005...........................     25.0%     28.0%     33.0%      35.0%
2006 and thereafter............     25.0%     28.0%     33.0%   35.0%''.
------------------------------------------------------------------------

                                 ______
                                 
  SA 612. Mr. BAUCUS (for Mr. McCain (for himself and Mr. Baucus)) 
proposed an amendment to the bill S. 1054, to provide for 
reconciliation pursuant to section 201 of the concurrent resolution on 
the budget for fiscal year 2004; as follows:

       At the appropriate place, insert the following:

         TITLE VI--IMPROVING TAX EQUITY FOR MILITARY PERSONNEL

     SEC. 600. SHORT TITLE.

       This title may be cited as the ``Armed Forces Tax Fairness 
     Act of 2003''.

     SEC. 601. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL 
                   RESIDENCE BY A MEMBER OF THE UNIFORMED SERVICES 
                   OR THE FOREIGN SERVICE.

       (a) In General.--Subsection (d) of section 121 (relating to 
     exclusion of gain from sale of principal residence) is 
     amended by redesignating paragraph (9) as paragraph (10) and 
     by inserting after paragraph (8) the following new paragraph:
       ``(9) Members of uniformed services and foreign service.--
       ``(A) In general.--At the election of an individual with 
     respect to a property, the running of the 5-year period 
     described in subsections (a) and (c)(1)(B) and paragraph (7) 
     of this subsection with respect to such property shall be 
     suspended during any period that such individual or such 
     individual's spouse is serving on qualified official extended 
     duty as a member of the uniformed services or of the Foreign 
     Service of the United States.
       ``(B) Maximum period of suspension.--The 5-year period 
     described in subsection (a) shall not be extended more than 
     10 years by reason of subparagraph (A).
       ``(C) Qualified official extended duty.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified official extended 
     duty' means any extended duty while serving at a duty station 
     which is at

[[Page 11674]]

     least 50 miles from such property or while residing under 
     Government orders in Government quarters.
       ``(ii) Uniformed services.--The term `uniformed services' 
     has the meaning given such term by section 101(a)(5) of title 
     10, United States Code, as in effect on the date of the 
     enactment of this paragraph.
       ``(iii) Foreign service of the united states.--The term 
     `member of the Foreign Service of the United States' has the 
     meaning given the term `member of the Service' by paragraph 
     (1), (2), (3), (4), or (5) of section 103 of the Foreign 
     Service Act of 1980, as in effect on the date of the 
     enactment of this paragraph.
       ``(iv) Extended duty.--The term `extended duty' means any 
     period of active duty pursuant to a call or order to such 
     duty for a period in excess of 90 days or for an indefinite 
     period.
       ``(D) Special rules relating to election.--
       ``(i) Election limited to 1 property at a time.--An 
     election under subparagraph (A) with respect to any property 
     may not be made if such an election is in effect with respect 
     to any other property.
       ``(ii) Revocation of election.--An election under 
     subparagraph (A) may be revoked at any time.''.
       (b) Effective Date; Special Rule.--
       (1) Effective date.--The amendments made by this section 
     shall take effect as if included in the amendments made by 
     section 312 of the Taxpayer Relief Act of 1997.
       (2) Waiver of limitations.--If refund or credit of any 
     overpayment of tax resulting from the amendments made by this 
     section is prevented at any time before the close of the 1-
     year period beginning on the date of the enactment of this 
     Act by the operation of any law or rule of law (including res 
     judicata), such refund or credit may nevertheless be made or 
     allowed if claim therefor is filed before the close of such 
     period.

     SEC. 602. EXCLUSION FROM GROSS INCOME OF CERTAIN DEATH 
                   GRATUITY PAYMENTS.

       (a) In General.--Subsection (b)(3) of section 134 (relating 
     to certain military benefits) is amended by adding at the end 
     the following new subparagraph:
       ``(C) Exception for death gratuity adjustments made by 
     law.--Subparagraph (A) shall not apply to any adjustment to 
     the amount of death gratuity payable under chapter 75 of 
     title 10, United States Code, which is pursuant to a 
     provision of law enacted after September 9, 1986.''.
       (b) Conforming Amendment.--Subparagraph (A) of section 
     134(b)(3) is amended by striking ``subparagraph (B)'' and 
     inserting ``subparagraphs (B) and (C)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to deaths occurring after September 
     10, 2001.

     SEC. 603. EXCLUSION FOR AMOUNTS RECEIVED UNDER DEPARTMENT OF 
                   DEFENSE HOMEOWNERS ASSISTANCE PROGRAM.

       (a) In General.--Section 132(a) (relating to the exclusion 
     from gross income of certain fringe benefits) is amended by 
     striking ``or'' at the end of paragraph (6), by striking the 
     period at the end of paragraph (7) and inserting ``, or'', 
     and by adding at the end the following new paragraph:
       ``(8) qualified military base realignment and closure 
     fringe.''.
       (b) Qualified Military Base Realignment and Closure 
     Fringe.--Section 132 is amended by redesignating subsection 
     (n) as subsection (o) and by inserting after subsection (m) 
     the following new subsection:
       ``(n) Qualified Military Base Realignment and Closure 
     Fringe.--For purposes of this section--
       ``(1) In general.--The term `qualified military base 
     realignment and closure fringe' means 1 or more payments 
     under the authority of section 1013 of the Demonstration 
     Cities and Metropolitan Development Act of 1966 (42 U.S.C. 
     3374) (as in effect on the date of the enactment of this 
     subsection) to offset the adverse effects on housing values 
     as a result of a military base realignment or closure.
       ``(2) Limitation.--With respect to any property, such term 
     shall not include any payment referred to in paragraph (1) to 
     the extent that the sum of all of such payments related to 
     such property exceeds the maximum amount described in clause 
     (1) of subsection (c) of such section (as in effect on such 
     date).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made after the date of the enactment 
     of this Act.

     SEC. 604. EXPANSION OF COMBAT ZONE FILING RULES TO 
                   CONTINGENCY OPERATIONS.

       (a) In General.--Section 7508(a) (relating to time for 
     performing certain acts postponed by reason of service in 
     combat zone) is amended--
       (1) by inserting ``, or when deployed outside the United 
     States away from the individual's permanent duty station 
     while participating in an operation designated by the 
     Secretary of Defense as a contingency operation (as defined 
     in section 101(a)(13) of title 10, United States Code) or 
     which became such a contingency operation by operation of 
     law'' after ``section 112'',
       (2) by inserting in the first sentence ``or at any time 
     during the period of such contingency operation'' after ``for 
     purposes of such section'',
       (3) by inserting ``or operation'' after ``such an area'', 
     and
       (4) by inserting ``or operation'' after ``such area''.
       (b) Conforming Amendments.--
       (1) Section 7508(d) is amended by inserting ``or 
     contingency operation'' after ``area''.
       (2) The heading for section 7508 is amended by inserting 
     ``OR CONTINGENCY OPERATION'' after ``COMBAT ZONE''.
       (3) The item relating to section 7508 in the table of 
     sections for chapter 77 is amended by inserting ``or 
     contingency operation'' after ``combat zone''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any period for performing an act which has not 
     expired before the date of the enactment of this Act.

     SEC. 605. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR 
                   EXEMPTION FROM TAX FOR CERTAIN VETERANS' 
                   ORGANIZATIONS.

       (a) In General.--Subparagraph (B) of section 501(c)(19) 
     (relating to list of exempt organizations) is amended by 
     striking ``or widowers'' and inserting ``, widowers, 
     ancestors, or lineal descendants''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 606. CLARIFICATION OF THE TREATMENT OF CERTAIN DEPENDENT 
                   CARE ASSISTANCE PROGRAMS.

       (a) In General.--Section 134(b) (defining qualified 
     military benefit) is amended by adding at the end the 
     following new paragraph:
       ``(4) Clarification of certain benefits.--For purposes of 
     paragraph (1), such term includes any dependent care 
     assistance program (as in effect on the date of the enactment 
     of this paragraph) for any individual described in paragraph 
     (1)(A).''.
       (b) Conforming Amendments.--
       (1) Section 134(b)(3)(A), as amended by section 102, is 
     amended by inserting ``and paragraph (4)'' after 
     ``subparagraphs (B) and (C)''.
       (2) Section 3121(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (3) Section 3306(b)(13) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (4) Section 3401(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
       (d) No Inference.--No inference may be drawn from the 
     amendments made by this section with respect to the tax 
     treatment of any amounts under the program described in 
     section 134(b)(4) of the Internal Revenue Code of 1986 (as 
     added by this section) for any taxable year beginning before 
     January 1, 2003.

     SEC. 607. CLARIFICATION RELATING TO EXCEPTION FROM ADDITIONAL 
                   TAX ON CERTAIN DISTRIBUTIONS FROM QUALIFIED 
                   TUITION PROGRAMS, ETC. ON ACCOUNT OF ATTENDANCE 
                   AT MILITARY ACADEMY.

       (a) In General.--Subparagraph (B) of section 530(d)(4) 
     (relating to exceptions from additional tax for distributions 
     not used for educational purposes) is amended by striking 
     ``or'' at the end of clause (iii), by redesignating clause 
     (iv) as clause (v), and by inserting after clause (iii) the 
     following new clause:
       ``(iv) made on account of the attendance of the designated 
     beneficiary at the United States Military Academy, the United 
     States Naval Academy, the United States Air Force Academy, 
     the United States Coast Guard Academy, or the United States 
     Merchant Marine Academy, to the extent that the amount of the 
     payment or distribution does not exceed the costs of advanced 
     education (as defined by section 2005(e)(3) of title 10, 
     United States Code, as in effect on the date of the enactment 
     of this section) attributable to such attendance, or''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 608. SUSPENSION OF TAX-EXEMPT STATUS OF TERRORIST 
                   ORGANIZATIONS.

       (a) In General.--Section 501 (relating to exemption from 
     tax on corporations, certain trusts, etc.) is amended by 
     redesignating subsection (p) as subsection (q) and by 
     inserting after subsection (o) the following new subsection:
       ``(p) Suspension of Tax-Exempt Status of Terrorist 
     Organizations.--
       ``(1) In general.--The exemption from tax under subsection 
     (a) with respect to any organization described in paragraph 
     (2), and the eligibility of any organization described in 
     paragraph (2) to apply for recognition of exemption under 
     subsection (a), shall be suspended during the period 
     described in paragraph (3).
       ``(2) Terrorist organizations.--An organization is 
     described in this paragraph if such organization is 
     designated or otherwise individually identified--
       ``(A) under section 212(a)(3)(B)(vi)(II) or 219 of the 
     Immigration and Nationality Act as a terrorist organization 
     or foreign terrorist organization,
       ``(B) in or pursuant to an Executive order which is related 
     to terrorism and issued

[[Page 11675]]

     under the authority of the International Emergency Economic 
     Powers Act or section 5 of the United Nations Participation 
     Act of 1945 for the purpose of imposing on such organization 
     an economic or other sanction, or
       ``(C) in or pursuant to an Executive order issued under the 
     authority of any Federal law if--
       ``(i) the organization is designated or otherwise 
     individually identified in or pursuant to such Executive 
     order as supporting or engaging in terrorist activity (as 
     defined in section 212(a)(3)(B) of the Immigration and 
     Nationality Act) or supporting terrorism (as defined in 
     section 140(d)(2) of the Foreign Relations Authorization Act, 
     Fiscal Years 1988 and 1989); and
       ``(ii) such Executive order refers to this subsection.
       ``(3) Period of suspension.--With respect to any 
     organization described in paragraph (2), the period of 
     suspension--
       ``(A) begins on the later of--
       ``(i) the date of the first publication of a designation or 
     identification described in paragraph (2) with respect to 
     such organization, or
       ``(ii) the date of the enactment of this subsection, and
       ``(B) ends on the first date that all designations and 
     identifications described in paragraph (2) with respect to 
     such organization are rescinded pursuant to the law or 
     Executive order under which such designation or 
     identification was made.
       ``(4) Denial of deduction.--No deduction shall be allowed 
     under any provision of this title, including sections 170, 
     545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), and 2522, 
     with respect to any contribution to an organization described 
     in paragraph (2) during the period described in paragraph 
     (3).
       ``(5) Denial of administrative or judicial challenge of 
     suspension or denial of deduction.--Notwithstanding section 
     7428 or any other provision of law, no organization or other 
     person may challenge a suspension under paragraph (1), a 
     designation or identification described in paragraph (2), the 
     period of suspension described in paragraph (3), or a denial 
     of a deduction under paragraph (4) in any administrative or 
     judicial proceeding relating to the Federal tax liability of 
     such organization or other person.
       ``(6) Erroneous designation.--
       ``(A) In general.--If--
       ``(i) the tax exemption of any organization described in 
     paragraph (2) is suspended under paragraph (1),
       ``(ii) each designation and identification described in 
     paragraph (2) which has been made with respect to such 
     organization is determined to be erroneous pursuant to the 
     law or Executive order under which such designation or 
     identification was made, and
       ``(iii) the erroneous designations and identifications 
     result in an overpayment of income tax for any taxable year 
     by such organization,
     credit or refund (with interest) with respect to such 
     overpayment shall be made.
       ``(B) Waiver of limitations.--If the credit or refund of 
     any overpayment of tax described in subparagraph (A)(iii) is 
     prevented at any time by the operation of any law or rule of 
     law (including res judicata), such credit or refund may 
     nevertheless be allowed or made if the claim therefor is 
     filed before the close of the 1-year period beginning on the 
     date of the last determination described in subparagraph 
     (A)(ii).
       ``(7) Notice of Suspensions.--If the tax exemption of any 
     organization is suspended under this subsection, the Internal 
     Revenue Service shall update the listings of tax-exempt 
     organizations and shall publish appropriate notice to 
     taxpayers of such suspension and of the fact that 
     contributions to such organization are not deductible during 
     the period of such suspension.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to designations made before, on, or after the 
     date of the enactment of this Act.

     SEC. 609. ABOVE-THE-LINE DEDUCTION FOR OVERNIGHT TRAVEL 
                   EXPENSES OF NATIONAL GUARD AND RESERVE MEMBERS.

       (a) Deduction Allowed.--Section 162 (relating to certain 
     trade or business expenses) is amended by redesignating 
     subsection (p) as subsection (q) and inserting after 
     subsection (o) the following new subsection:
       ``(p) Treatment of Expenses of Members of Reserve Component 
     of Armed Forces of the United States.--For purposes of 
     subsection (a)(2), in the case of an individual who performs 
     services as a member of a reserve component of the Armed 
     Forces of the United States at any time during the taxable 
     year, such individual shall be deemed to be away from home in 
     the pursuit of a trade or business for any period during 
     which such individual is away from home in connection with 
     such service.''.
       (b) Deduction Allowed Whether or Not Taxpayer Elects To 
     Itemize.--Section 62(a)(2) (relating to certain trade and 
     business deductions of employees) is amended by adding at the 
     end the following new subparagraph:
       ``(E) Certain expenses of members of reserve components of 
     the armed forces of the united states.--The deductions 
     allowed by section 162 which consist of expenses, determined 
     at a rate not in excess of the rates for travel expenses 
     (including per diem in lieu of subsistence) authorized for 
     employees of agencies under subchapter I of chapter 57 of 
     title 5, United States Code, paid or incurred by the taxpayer 
     in connection with the performance of services by such 
     taxpayer as a member of a reserve component of the Armed 
     Forces of the United States for any period during which such 
     individual is more than 100 miles away from home in 
     connection with such services.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 2002.

     SEC. 610. TAX RELIEF AND ASSISTANCE FOR FAMILIES OF SPACE 
                   SHUTTLE COLUMBIA HEROES.

       (a) Income Tax Relief.--
       (1) In general.--Subsection (d) of section 692 (relating to 
     income taxes of members of Armed Forces and victims of 
     certain terrorist attacks on death) is amended by adding at 
     the end the following new paragraph:
       ``(5) Relief with respect to astronauts.--The provisions of 
     this subsection shall apply to any astronaut whose death 
     occurs in the line of duty, except that paragraph (3)(B) 
     shall be applied by using the date of the death of the 
     astronaut rather than September 11, 2001.''.
       (2) Conforming amendments.--
       (A) Section 5(b)(1) is amended by inserting ``, 
     ASTRONAUTS,'' after ``FORCES''.
       (B) Section 6013(f)(2)(B) is amended by inserting ``, 
     astronauts,'' after ``Forces''.
       (3) Clerical amendments.--
       (A) The heading of section 692 is amended by inserting ``, 
     astronauts,'' after ``forces''.
       (B) The item relating to section 692 in the table of 
     sections for part II of subchapter J of chapter 1 is amended 
     by inserting ``, astronauts,'' after ``Forces''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply with respect to any astronaut whose death occurs 
     after December 31, 2002.
       (b) Death Benefit Relief.--
       (1) In general.--Subsection (i) of section 101 (relating to 
     certain death benefits) is amended by adding at the end the 
     following new paragraph:
       ``(4) Relief with respect to astronauts.--The provisions of 
     this subsection shall apply to any astronaut whose death 
     occurs in the line of duty.''.
       (2) Clerical amendment.--The heading for subsection (i) of 
     section 101 is amended by inserting ``or Astronauts'' after 
     ``Victims''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid after December 31, 2002, with 
     respect to deaths occurring after such date.
       (c) Estate Tax Relief.--
       (1) In general.--Section 2201(b) (defining qualified 
     decedent) is amended by striking ``and'' at the end of 
     paragraph (1)(B), by striking the period at the end of 
     paragraph (2) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(3) any astronaut whose death occurs in the line of 
     duty.''.
       (2) Clerical amendments.--
       (A) The heading of section 2201 is amended by inserting ``, 
     deaths of astronauts,'' after ``forces''.
       (B) The item relating to section 2201 in the table of 
     sections for subchapter C of chapter 11 is amended by 
     inserting ``, deaths of astronauts,'' after ``Forces''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to estates of decedents dying after December 31, 
     2002.

     SEC. 611. SLOWDOWN IN ACCELERATION OF REDUCTION IN TOP TAX 
                   RATE TO OFFSET ANY REVENUE LOSS.

       (a) In General.--The table contained in section 1(i)(2), as 
     amended by section 102 of this Act, is amended to read as 
     follows:


------------------------------------------------------------------------
                                  The corresponding percentages shall be
                                      substituted for  the following
 ``In the case of taxable years                percentages:
beginning during calendar year: ----------------------------------------
                                    28%       31%       36%      39.6%
------------------------------------------------------------------------
2001...........................     27.5%     30.5%     35.5%      39.1%
2002...........................     27.0%     30.0%     35.0%      38.6%
2003, 2004, and 2005...........     25.0%     28.0%     33.0%      35.3%
2006 and thereafter............     25.0%     28.0%     33.0%   35.0%''.
------------------------------------------------------------------------

       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the provisions of section 
     102 of this Act and section 108 of this Act shall apply to 
     such amendment as if so included.
                                 ______
                                 
  SA 613. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1054 to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; as follows:

       On page 281, between lines 2 and 3, insert the following:

     SEC. __. CLARIFICATION OF CONTRIBUTION IN AID OF CONSTRUCTION 
                   FOR WATER AND SEWERAGE DISPOSAL UTILITIES.

       (a) In General.--Subparagraph (A) of section 118(c)(3) 
     (relating to definitions) is amended to read as follows:
       ``(A) Contribution in aid of construction.--The term 
     `contribution in aid of construction' shall be defined by 
     regulations

[[Page 11676]]

     prescribed by the Secretary, except that such term--
       ``(i) shall include amounts paid as customer connection 
     fees (including amounts paid to connect the customer's water 
     service line or sewer lateral line to the utility's 
     distribution or collection system or extend a main water or 
     sewer line to provide service to a customer), and
       ``(ii) shall not include amounts paid as service charges 
     for starting or stopping services.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to contributions made after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 614. Ms. STABENOW proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       At the end of subtitle C of title V, add the following:

     SEC. __. ENSURING ENACTMENT OF A MEDICARE PRESCRIPTION DRUG 
                   BENEFIT.

       (a) Trigger.--Notwithstanding any other provision of this 
     Act, the provisions as described in subsection (b) shall not 
     take effect except as provided in subsection (c).
       (b) Provision Described.--A provision described in this 
     subsection is--
       (1) section 102 of this Act to the extent such section 
     accelerates the scheduled phase down of the top tax rate of 
     38.6 percent to 37.6 percent in 2004 and to 35 percent in 
     2006; and
       (2) section 116(a)(2)(B) of the Internal Revenue Code of 
     1986, as added by section 201 of this Act.
       (c) Delay Until Enactment of a Medicare Prescription Drug 
     Benefit.--The provisions described in subsection (b) shall 
     apply to taxable years beginning in or after the calendar 
     year in which a prescription drug benefit under the medicare 
     program under title XVIII of the Social Security Act (42 
     U.S.C. 1395 et seq.) is enacted that is--
       (1) available to all beneficiaries under such program; and
       (2) actuarially equivalent to the Blue Cross and Blue 
     Shield benefit offered through the Federal employees health 
     benefits program.
                                 ______
                                 
  SA 615. Mr. DAYTON submitted an amendment intended to be proposed by 
him to the bill S. 1054, to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       Strike all after the enacting clause and insert the 
     following:

     SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Jobs and 
     Growth Reconciliation Tax Act of 2003''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; references; table of contents.

 TITLE I--MODIFICATION AND ACCELERATION OF CERTAIN PREVIOUSLY ENACTED 
                             TAX REDUCTIONS

Sec. 101. Tripling the 10-percent individual income tax rate bracket 
              expansion.
Sec. 102. Acceleration of increase in standard deduction for married 
              taxpayers filing joint returns.
Sec. 103. Acceleration of 15-percent individual income tax rate bracket 
              expansion for married taxpayers filing joint returns.
Sec. 104. Acceleration of increase in, and refundability of, child tax 
              credit.

                    TITLE II--APPLICATION OF SUNSET

Sec. 201. Application of EGTRRA sunset to title I.

                     TITLE III--REVENUE PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 301. Clarification of economic substance doctrine.
Sec. 302. Penalty for failing to disclose reportable transaction.
Sec. 303. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 304. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 305. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 306. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 307. Disclosure of reportable transactions.
Sec. 308. Modifications to penalty for failure to register tax 
              shelters.
Sec. 309. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 310. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 311. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 312. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 313. Frivolous tax submissions.
Sec. 314. Penalty on promoters of tax shelters.
Sec. 315. Statute of limitations for taxable years for which listed 
              transactions not reported.
Sec. 316. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.

            Subtitle B--Enron-Related Tax Shelter Provisions

Sec. 321. Limitation on transfer or importation of built-in losses.
Sec. 322. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.
Sec. 323. Repeal of special rules for FASITs.
Sec. 324. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 325. Expanded authority to disallow tax benefits under section 
              269.
Sec. 326. Modifications of certain rules relating to controlled foreign 
              corporations.
Sec. 327. Controlled entities ineligible for REIT status.

           Subtitle C--Other Corporate Governance Provisions

                       Part I--General Provisions

Sec. 331. Affirmation of consolidated return regulation authority.
Sec. 332. Signing of corporate tax returns by chief executive officer.
Sec. 333. Denial of deduction for certain fines, penalties, and other 
              amounts.
Sec. 334. Disallowance of deduction for punitive damages.

                 Part II--Executive Compensation Reform

Sec. 335. Treatment of nonqualified deferred compensation funded with 
              assets located outside the United States.
Sec. 336. Inclusion in gross income of funded deferred compensation of 
              corporate insiders.
Sec. 337. Prohibition on deferral of gain from the exercise of stock 
              options and restricted stock gains through deferred 
              compensation arrangements.
Sec. 338. Increase in withholding from supplemental wage payments in 
              excess of $1,000,000.

                  Subtitle D--International Provisions

             Part I--Provisions to Discourage Expatriation

Sec. 340. Revision of tax rules on expatriation.
Sec. 341. Tax treatment of inverted corporate entities.
Sec. 342. Excise tax on stock compensation of insiders in inverted 
              corporations.
Sec. 343. Reinsurance of United States risks in foreign jurisdictions.

                       Part II--Other Provisions

Sec. 344. Doubling of certain penalties, fines, and interest on 
              underpayments related to certain offshore financial 
              arrangement.
Sec. 345. Effectively connected income to include certain foreign 
              source income.
Sec. 346. Determination of basis of amounts paid from foreign pension 
              plans.
Sec. 347. Recapture of overall foreign losses on sale of controlled 
              foreign corporation.
Sec. 348. Prevention of mismatching of interest and original issue 
              discount deductions and income inclusions in transactions 
              with related foreign persons.
Sec. 349. Sale of gasoline and diesel fuel at duty-free sales 
              enterprises.
Sec. 350. Repeal of earned income exclusion of citizens or residents 
              living abroad.

                  Subtitle E--Other Revenue Provisions

Sec. 352. Addition of vaccines against hepatitis A to list of taxable 
              vaccines.
Sec. 353. Disallowance of certain partnership loss transfers.
Sec. 354. Treatment of stripped interests in bond and preferred stock 
              funds, etc.
Sec. 355. Reporting of taxable mergers and acquisitions.
Sec. 356. Minimum holding period for foreign tax credit on withholding 
              taxes on income other than dividends.
Sec. 357. Qualified tax collection contracts.

[[Page 11677]]

Sec. 358. Extension of customs user fees.
Sec. 359. Clarification of exemption from tax for small property and 
              casualty insurance companies.
Sec. 360. Partial payment of tax liability in installment agreements.
Sec. 361. Extension of amortization of intangibles to sports 
              franchises.
Sec. 362. Deposits made to suspend running of interest on potential 
              underpayments.
Sec. 363. Clarification of rules for payment of estimated tax for 
              certain deemed asset sales.
Sec. 364. Limitation on deduction for charitable contributions of 
              patents and similar property.
Sec. 365. Extension of provision permitting qualified transfers of 
              excess pension assets to retiree health accounts.
Sec. 366. Proration rules for life insurance business of property and 
              casualty insurance companies.
Sec. 367. Modification of treatment of transfers to creditors in 
              divisive reorganizations.

                      Subtitle F--Other Provisions

Sec. 371. Review of State agency blindness and disability 
              determinations.
Sec. 372. Prohibition on use of SCHIP funds to provide coverage for 
              childless adults.

                    TITLE IV--APPLICATION OF SUNSET

Sec. 401. Application of sunset to title III.

                   TITLE V--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

Sec. 501. Extension of the Temporary Extended Unemployment Compensation 
              Act of 2002.
Sec. 502. Entitlement to additional weeks of temporary extended 
              unemployment compensation.

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

Sec. 511. Federal-state agreements.
Sec. 512. Payments to States having agreements under this title.
Sec. 513. Financing provisions.
Sec. 514. Definitions.
Sec. 515. Applicability.
Sec. 516. Coordination with the Temporary Extended Unemployment 
              Compensation Act of 2002.

 TITLE I--MODIFICATION AND ACCELERATION OF CERTAIN PREVIOUSLY ENACTED 
                             TAX REDUCTIONS

     SEC. 101. TRIPLING OF THE 10-PERCENT INDIVIDUAL INCOME TAX 
                   RATE BRACKET EXPANSION.

       (a) In General.--Clause (i) of section 1(i)(1)(B) (relating 
     to the initial bracket amount) is amended by striking 
     ``$14,000 ($12,000 in the case of taxable years beginning 
     before January 1, 2008)'' and inserting ``$36,000''.
       (b) Inflation Adjustment Beginning in 2004.--Subparagraph 
     (C) of section 1(i)(1) (relating to inflation adjustment) is 
     amended to read as follows:
       ``(C) Inflation adjustment.--In prescribing the tables 
     under subsection (f) which apply with respect to taxable 
     years beginning in calendar years after 2003--
       ``(i) the cost-of-living adjustment used in making 
     adjustments to the initial bracket amount shall be determined 
     under subsection (f)(3) by substituting `2002' for `1992' in 
     subparagraph (B) thereof, and
       ``(ii) such adjustment shall not apply to the amount 
     referred to in subparagraph (B)(iii).
     If any amount after adjustment under the preceding sentence 
     is not a multiple of $50, such amount shall be rounded to the 
     next lowest multiple of $50.''.
       (c) Freeze of Highest Income Tax Rate at 38.6 Percent.--The 
     last column in the table contained in section 1(i)(2) 
     (relating to reductions in rates after June 30, 2001) is 
     amended by striking ``37.6%'' and ``35.0%'' and inserting 
     ``38.6%''.
       (d) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2002.
       (2) Subsections (b) and (c).--The amendments made by 
     subsections (b) and (c) shall apply to taxable years 
     beginning after December 31, 2003.
       (3) Tables for 2003.--The Secretary of the Treasury shall 
     modify each table which has been prescribed for taxable years 
     beginning in 2003 and which relates to the amendment made by 
     subsection (a) to reflect each such amendment.

     SEC. 102. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR 
                   MARRIED TAXPAYERS FILING JOINT RETURNS.

       (a) In General.--Paragraph (2) of section 63(c) (relating 
     to basic standard deduction) is amended to read as follows:
       ``(2) Basic standard deduction.--For purposes of paragraph 
     (1), the basic standard deduction is--
       ``(A) 200 percent of the dollar amount in effect under 
     subparagraph (C) for the taxable year in the case of--
       ``(i) a joint return, or
       ``(ii) a surviving spouse (as defined in section 2(a)),
       ``(B) $4,400 in the case of a head of household (as defined 
     in section 2(b)), or
       ``(C) $3,000 in any other case.''.
       (b) Conforming Amendments.--
       (1) Section 63(c)(4) is amended by striking ``(2)(D)'' each 
     place it occurs and inserting ``(2)(C)''.
       (2) Section 63(c) is amended by striking paragraph (7).
       (3) Section 301(d) of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is amended by striking ``2004'' 
     and inserting ``2002''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 103. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX 
                   RATE BRACKET EXPANSION FOR MARRIED TAXPAYERS 
                   FILING JOINT RETURNS.

       (a) In General.--Paragraph (8) of section 1(f) (relating to 
     phaseout of marriage penalty in 15-percent bracket) is 
     amended to read as follows:
       ``(8) Elimination of marriage penalty in 15-percent 
     bracket.--With respect to taxable years beginning after 
     December 31, 2002, in prescribing the tables under paragraph 
     (1)--
       ``(A) the maximum taxable income in the 15 percent rate 
     bracket in the table contained in subsection (a) (and the 
     minimum taxable income in the next higher taxable income 
     bracket in such table) shall be 200 percent of the maximum 
     taxable income in the 15-percent rate bracket in the table 
     contained in subsection (c) (after any other adjustment under 
     this subsection), and
       ``(B) the comparable taxable income amounts in the table 
     contained in subsection (d) shall be \1/2\ of the amounts 
     determined under subparagraph (A).''.
       (b) Conforming Amendments.--
       (1) The heading for subsection (f) of section 1 is amended 
     by striking ``Phaseout'' and inserting ``Elimination''.
       (2) Section 302(c) of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is amended by striking ``2004'' 
     and inserting ``2002''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 104. ACCELERATION OF INCREASE IN, AND REFUNDABILITY OF, 
                   CHILD TAX CREDIT.

       (a) Acceleration of Increase in Credit.--Subsection (a) of 
     section 24 (relating to child tax credit) is amended to read 
     as follows:
       ``(a) Allowance of Credit.--There shall be allowed as a 
     credit against the tax imposed by this chapter for the 
     taxable year with respect to each qualifying child of the 
     taxpayer an amount equal to $1,000.''.
       (b) Expansion of Credit Refundability.--Section 
     24(d)(1)(B)(i) (relating to portion of credit refundable) is 
     amended by striking ``(10 percent in the case of taxable 
     years beginning before January 1, 2005)''.
       (c) Advance Payment of Portion of Increased Credit in 
     2003.--
       (1) In general.--Subchapter B of chapter 65 (relating to 
     abatements, credits, and refunds) is amended by adding at the 
     end the following new section:

     ``SEC. 6429. ADVANCE PAYMENT OF PORTION OF INCREASED CHILD 
                   CREDIT FOR 2003.

       ``(a) In General.--Each taxpayer who claimed a credit under 
     section 24 on the return for the taxpayer's first taxable 
     year beginning in 2002 shall be treated as having made a 
     payment against the tax imposed by chapter 1 for such taxable 
     year in an amount equal to the child tax credit refund amount 
     (if any) for such taxable year.
       ``(b) Child Tax Credit Refund Amount.--For purposes of this 
     section, the child tax credit refund amount is the amount by 
     which the aggregate credits allowed under part IV of 
     subchapter A of chapter 1 for such first taxable year would 
     have been increased if--
       ``(1) the per child amount under section 24(a)(2) for such 
     year were $1,000,
       ``(2) only qualifying children (as defined in section 
     24(c)) of the taxpayer for such year who had not attained age 
     17 as of December 31, 2003, were taken into account, and
       ``(3) section 24(d)(1)(B)(ii) did not apply.
       ``(c) Timing of Payments.--In the case of any overpayment 
     attributable to this section, the Secretary shall, subject to 
     the provisions of this title, refund or credit such 
     overpayment as rapidly as possible and, to the extent 
     practicable, before October 1, 2003. No refund or credit 
     shall be made or allowed under this section after December 
     31, 2003.
       ``(d) Coordination with Child Tax Credit.--
       ``(1) In general.--The amount of credit which would (but 
     for this subsection and section 26) be allowed under section 
     24 for the taxpayer's first taxable year beginning in 2003 
     shall be reduced (but not below zero) by the payments made to 
     the taxpayer under this section. Any failure to so reduce the 
     credit shall be treated as arising out of a mathematical or 
     clerical error and assessed according to section 6213(b)(1).
       ``(2) Joint returns.--In the case of a payment under this 
     section with respect to a joint return, half of such payment 
     shall be treated as having been made to each individual 
     filing such return.
       ``(e) No Interest.--No interest shall be allowed on any 
     overpayment attributable to this section.''.

[[Page 11678]]

       (2) Clerical amendment.--The table of sections for 
     subchapter B of chapter 65 is amended by adding at the end 
     the following new item:

``Sec. 6429. Advance payment of portion of increased child credit for 
              2003.''.

       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2002.
       (2) Subsection (c).--The amendments made by subsection (c) 
     shall take effect on the date of the enactment of this Act.

     SEC. 105. MINIMUM TAX RELIEF TO INDIVIDUALS.

       (a) In General.--So much of paragraph (1) of section 55(d) 
     (relating to exemption amount for taxpayers other than 
     corporations) as precedes subparagraph (C) thereof is amended 
     to read as follows:
       ``(1) Exemption amount for taxpayers other than 
     corporations.--In the case of a taxpayer other than a 
     corporation, the term `exemption amount' means as follows:
       ``(A) Joint return and surviving spouse.--In the case of a 
     joint return or a surviving spouse, the amount under the 
     following table:

``In the case of taxable years beginning:                 The exemption
                                                             amount is:
  Before 2001..................................................$45,000 
  In 2001 and 2002.............................................$49,000 
  In 2003, 2004, and 2005......................................$57,000 
  After 2005..................................................$45,000. 

       ``(B) Individual not married and not a surviving spouse.--
     In the case of an individual who is not a married individual 
     and is not a surviving spouse, the amount under the following 
     table:

``In the case of taxable years beginning:                 The exemption
                                                             amount is:
  Before 2001..................................................$33,750 
  In 2001 and 2002.............................................$35,750 
  In 2003, 2004, and 2005......................................$39,750 
  After 2005................................................$33,750.''.

       (b) Conforming Amendments.--
       (1) Section 55(d)(1)(C) is amended--
       (A) by striking ``, and'' and inserting a period, and
       (B) by striking ``50 percent'' and inserting ``Married 
     individual filing a separate return.--50 percent''.
       (2) Section 55(d)(1)(D) is amended by striking ``$22,500'' 
     and inserting ``Estate and trust.--$22,500''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

                    TITLE II--APPLICATION OF SUNSET

     SEC. 201. APPLICATION OF EGTRRA SUNSET TO TITLE I.

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

                     TITLE III--REVENUE PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 301. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (n) as subsection (o) and by inserting after 
     subsection (m) the following new subsection:
       ``(n) Clarification of Economic Substance Doctrine; Etc.--
       ``(1) General rules.--
       ``(A) In general.--In 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) the taxpayer's economic position, 
     and
       ``(II) the taxpayer has a substantial nontax purpose for 
     entering into such transaction and the transaction is a 
     reasonable means of accomplishing such purpose.

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

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

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).
       ``(2) Special rules for transactions with tax-indifferent 
     parties.--
       ``(A) Special rules for financing transactions.--The form 
     of a transaction which is in substance the borrowing of money 
     or the acquisition of financial capital directly or 
     indirectly from a tax-indifferent party shall not be 
     respected if the present value of the deductions to be 
     claimed with respect to the transaction is substantially in 
     excess of the present value of the anticipated economic 
     returns of the person lending the money or providing the 
     financial capital. A public offering shall be treated as a 
     borrowing, or an acquisition of financial capital, from a 
     tax-indifferent party if it is reasonably expected that at 
     least 50 percent of the offering will be placed with tax-
     indifferent parties.
       ``(B) Artificial income shifting and basis adjustments.--
     The form of a transaction with a tax-indifferent party shall 
     not be respected if--
       ``(i) it results in an allocation of income or gain to the 
     tax-indifferent party in excess of such party's economic 
     income or gain, or
       ``(ii) it results in a basis adjustment or shifting of 
     basis on account of overstating the income or gain of the 
     tax-indifferent party.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or entity not subject to tax imposed 
     by subtitle A. A person shall be treated as a tax-indifferent 
     party with respect to a transaction if the items taken into 
     account with respect to the transaction have no substantial 
     impact on such person's liability under subtitle A.
       ``(C) Exception for personal transactions of individuals.--
     In the case of an individual, this subsection shall apply 
     only to transactions entered into in connection with a trade 
     or business or an activity engaged in for the production of 
     income.
       ``(D) Treatment of lessors.--A lessor of tangible property 
     subject to a lease shall be treated as satisfying the 
     requirements of paragraph (1)(B)(ii) with respect to the 
     leased property if such lease satisfies such requirements as 
     provided by the Secretary.
       ``(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 on or after May 8, 
     2003.

     SEC. 302. 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.

[[Page 11679]]

       ``(c) Definitions.--For purposes of this section--
       ``(1) Reportable transaction.--The term `reportable 
     transaction' means any transaction with respect to which 
     information is required to be included with a return or 
     statement because, as determined under regulations prescribed 
     under section 6011, such transaction is of a type which the 
     Secretary determines as having a potential for tax avoidance 
     or evasion.
       ``(2) Listed transaction.--Except as provided in 
     regulations, the term `listed transaction' means a reportable 
     transaction which is the same as, or substantially similar 
     to, a transaction specifically identified by the Secretary as 
     a tax avoidance transaction for purposes of section 6011.
       ``(d) Authority To Rescind Penalty.--
       ``(1) In general.--The Commissioner of Internal Revenue may 
     rescind all or any portion of any penalty imposed by this 
     section with respect to any violation if--
       ``(A) the violation is with respect to a reportable 
     transaction other than a listed transaction,
       ``(B) the person on whom the penalty is imposed has a 
     history of complying with the requirements of this title,
       ``(C) it is shown that the violation is due to an 
     unintentional mistake of fact;
       ``(D) imposing the penalty would be against equity and good 
     conscience, and
       ``(E) rescinding the penalty would promote compliance with 
     the requirements of this title and effective tax 
     administration.
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may be delegated only to the head of the 
     Office of Tax Shelter Analysis. The Commissioner, in the 
     Commissioner's sole discretion, may establish a procedure to 
     determine if a penalty should be referred to the Commissioner 
     or the head of such Office for a determination under 
     paragraph (1).
       ``(3) No appeal.--Notwithstanding any other provision of 
     law, any determination under this subsection may not be 
     reviewed in any administrative or judicial proceeding.
       ``(4) Records.--If a penalty is rescinded under paragraph 
     (1), the Commissioner shall place in the file in the Office 
     of the Commissioner the opinion of the Commissioner or the 
     head of the Office of Tax Shelter Analysis with respect to 
     the determination, including--
       ``(A) the facts and circumstances of the transaction,
       ``(B) the reasons for the rescission, and
       ``(C) the amount of the penalty rescinded.
       ``(5) Report.--The Commissioner shall each year report to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate--
       ``(A) a summary of the total number and aggregate amount of 
     penalties imposed, and rescinded, under this section, and
       ``(B) a description of each penalty rescinded under this 
     subsection and the reasons therefor.
       ``(e) Penalty Reported to SEC.--In the case of a person--
       ``(1) which is required to file periodic reports under 
     section 13 or 15(d) of the Securities Exchange Act of 1934 or 
     is required to be consolidated with another person for 
     purposes of such reports, and
       ``(2) which--
       ``(A) is required to pay a penalty under this section with 
     respect to a listed transaction,
       ``(B) is required to pay a penalty under section 6662A with 
     respect to any reportable transaction at a rate prescribed 
     under section 6662A(c), or
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction,
     the requirement to pay such penalty shall be disclosed in 
     such reports filed by such person for such periods as the 
     Secretary shall specify. Failure to make a disclosure in 
     accordance with the preceding sentence shall be treated as a 
     failure to which the penalty under subsection (b)(2) applies.
       ``(f) Coordination With Other Penalties.--The penalty 
     imposed by this section is in addition to any penalty imposed 
     under this title.''.
       (b) Conforming Amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by inserting after 
     the item relating to section 6707 the following:

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

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

     SEC. 303. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS 
                   AND OTHER REPORTABLE TRANSACTIONS HAVING A 
                   SIGNIFICANT TAX AVOIDANCE PURPOSE.

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

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

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

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

  ``For reporting of section 6662A(c) penalty to the Securities and 
Exchange Commission, see section 6707A(e).''.


[[Page 11680]]


       (b) Determination of Other Understatements.--Subparagraph 
     (A) of section 6662(d)(2) is amended by adding at the end the 
     following flush sentence:

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

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

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

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

       ``(I) is a material advisor (within the meaning of section 
     6111(b)(1)) who participates in the organization, management, 
     promotion, or sale of the transaction or who is related 
     (within the meaning of section 267(b) or 707(b)(1)) to any 
     person who so participates,
       ``(II) is compensated directly or indirectly by a material 
     advisor with respect to the transaction,
       ``(III) has a fee arrangement with respect to the 
     transaction which is contingent on all or part of the 
     intended tax benefits from the transaction being sustained, 
     or
       ``(IV) as determined under regulations prescribed by the 
     Secretary, has a 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. 304. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

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

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

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

       (b) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into on or after May 8, 
     2003.

     SEC. 305. 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.''.

[[Page 11681]]

       (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. 306. 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. 307. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

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

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

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

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

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

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

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

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

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

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

     SEC. 308. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER 
                   TAX SHELTERS.

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

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

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

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

     Subparagraph (B) shall be applied by substituting `75 
     percent' for `50 percent' in the case of an intentional 
     failure or act described in subsection (a).
       ``(c) 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. 309. 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.

[[Page 11682]]



     SEC. 310. 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. 311. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

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

     SEC. 312. 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. 313. 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--

[[Page 11683]]

       (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. 314. PENALTY ON PROMOTERS OF TAX SHELTERS.

       (a) Penalty on Promoting Abusive Tax Shelters.--Section 
     6700(a) is amended by adding at the end the following new 
     sentence: ``Notwithstanding the first sentence, if an 
     activity with respect to which a penalty imposed under this 
     subsection involves a statement described in paragraph 
     (2)(A), the amount of the penalty shall be equal to 50 
     percent of the gross income derived (or to be derived) from 
     such activity by the person on which the penalty is 
     imposed.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

     SEC. 315. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   LISTED TRANSACTIONS NOT REPORTED.

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

     SEC. 316. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND 
                   NONECONOMIC SUBSTANCE TRANSACTIONS.

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

            Subtitle B--Enron-Related Tax Shelter Provisions

     SEC. 321. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN 
                   LOSSES.

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

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

     then, notwithstanding subsection (a), the transferee's 
     aggregate adjusted bases of the property so transferred shall 
     not exceed the fair market value of such property immediately 
     after such transaction.
       ``(B) Allocation of basis reduction.--The aggregate 
     reduction in basis by reason of subparagraph (A) shall be 
     allocated among the property so transferred in proportion to 
     their respective built-in losses immediately before the 
     transaction.
       ``(C) Exception for transfers within affiliated group.--
     Subparagraph (A) shall not apply to any transaction if the 
     transferor owns stock in the transferee meeting the 
     requirements of section 1504(a)(2). In the case of property 
     to which subparagraph (A) does not apply by reason of the 
     preceding sentence, the transferor's basis in the stock 
     received for such property shall not exceed its fair market 
     value immediately after the transfer.''.
       (b) Comparable Treatment Where Liquidation.--Paragraph (1) 
     of section 334(b) (relating to liquidation of subsidiary) is 
     amended to read as follows:
       ``(1) In general.--If property is received by a corporate 
     distributee in a distribution in a complete liquidation to 
     which section 332 applies (or in a transfer described in 
     section 337(b)(1)), the basis of such property in the hands 
     of such distributee shall be the same as it would be in the 
     hands of the transferor; except that the basis of such 
     property in the hands of such distributee shall be the fair 
     market value of the property at the time of the 
     distribution--
       ``(A) in any case in which gain or loss is recognized by 
     the liquidating corporation with respect to such property, or
       ``(B) in any case in which the liquidating corporation is a 
     foreign corporation, the corporate distributee is a domestic 
     corporation, and the corporate distributee's aggregate 
     adjusted bases of property described in section 362(e)(1)(B) 
     which is distributed in such liquidation would (but for this 
     subparagraph) exceed the fair market value of such property 
     immediately after such liquidation.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions after February 13, 2003.

     SEC. 322. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK 
                   HELD BY PARTNERSHIP IN CORPORATE PARTNER.

       (a) In General.--Section 755 is amended by adding at the 
     end the following new subsection:
       ``(c) No Allocation of Basis Decrease to Stock of Corporate 
     Partner.--In making an allocation under subsection (a) of any 
     decrease in the adjusted basis of partnership property under 
     section 734(b)--
       ``(1) no allocation may be made to stock in a corporation 
     (or any person which is related (within the meaning of 
     section 267(b) or 707(b)(1)) to such corporation) which is a 
     partner in the partnership, and
       ``(2) any amount not allocable to stock by reason of 
     paragraph (1) shall be allocated under subsection (a) to 
     other partnership property.

     Gain shall be recognized to the partnership to the extent 
     that the amount required to be allocated under paragraph (2) 
     to other partnership property exceeds the aggregate adjusted 
     basis of such other property immediately before the 
     allocation required by paragraph (2).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions after February 13, 2003.

     SEC. 323. 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.--

[[Page 11684]]

       (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 take effect on February 
     14, 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 to the 
     extent that regular interests issued by the FASIT before such 
     date continue to remain outstanding in accordance with the 
     original terms of issuance.
       (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. 324. 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) Exception for Certain Instruments Issued By Dealers In 
     Securities.--Section 163(l) is amended by redesignating 
     paragraphs (4) and (5) as paragraphs (5) and (6) and by 
     inserting after paragraph (3) the following new paragraph:
       ``(4) Exception for certain instruments issued by dealers 
     in securities.--For purposes of this subsection, the term 
     `disqualified debt instrument' does not include indebtedness 
     issued by a dealer in securities (or a related party) which 
     is payable in, or by reference to, equity (other than equity 
     of the issuer or a related party) held by such dealer in its 
     capacity as a dealer in securities. For purposes of this 
     paragraph, the term `dealer in securities' has the meaning 
     given such term by section 475.''.
       (c) Conforming 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''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after February 13, 
     2003.

     SEC. 325. 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. 326. 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) Effective Date.--The amendment made by this section 
     shall apply to taxable years on 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. 327. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.

       (a) In General.--Subsection (a) of section 856 (relating to 
     definition of real estate investment trust) is amended by 
     striking ``and'' at the end of paragraph (6), by 
     redesignating paragraph (7) as paragraph (8), and by 
     inserting after paragraph (6) the following new paragraph:
       ``(7) which is not a controlled entity (as defined in 
     subsection (l)); and''.
       (b) Controlled Entity.--Section 856 is amended by adding at 
     the end the following new subsection:
       ``(l) Controlled Entity.--
       ``(1) In general.--For purposes of subsection (a)(7), an 
     entity is a controlled entity if, at any time during the 
     taxable year, one person (other than a qualified entity)--
       ``(A) in the case of a corporation, owns stock--
       ``(i) possessing at least 50 percent of the total voting 
     power of the stock of such corporation, or
       ``(ii) having a value equal to at least 50 percent of the 
     total value of the stock of such corporation, or
       ``(B) in the case of a trust, owns beneficial interests in 
     the trust which would meet the requirements of subparagraph 
     (A) if such interests were stock.
       ``(2) Qualified entity.--For purposes of paragraph (1), the 
     term `qualified entity' means--
       ``(A) any real estate investment trust, and
       ``(B) any partnership in which one real estate investment 
     trust owns at least 50 percent of the capital and profits 
     interests in the partnership.
       ``(3) Attribution rules.--For purposes of this paragraphs 
     (1) and (2)--
       ``(A) In general.--Rules similar to the rules of 
     subsections (d)(5) and (h)(3) shall apply; except that 
     section 318(a)(3)(C) shall not be applied under such rules to 
     treat stock owned by a qualified entity as being owned by a 
     person which is not a qualified entity.
       ``(B) Stapled entities.--A group of entities which are 
     stapled entities (as defined in section 269B(c)(2)) shall be 
     treated as one person.
       ``(4) Exception for certain new reits.--
       ``(A) In general.--The term `controlled entity' shall not 
     include an incubator REIT.
       ``(B) Incubator reit.--A corporation shall be treated as an 
     incubator REIT for any taxable year during the eligibility 
     period if it meets all the following requirements for such 
     year:
       ``(i) The corporation elects to be treated as an incubator 
     REIT.
       ``(ii) The corporation has only voting common stock 
     outstanding.
       ``(iii) Not more than 50 percent of the corporation's real 
     estate assets consist of mortgages.
       ``(iv) From not later than the beginning of the last half 
     of the second taxable year, at least 10 percent of the 
     corporation's capital is provided by lenders or equity 
     investors who are unrelated to the corporation's largest 
     shareholder.
       ``(v) The corporation annually increases the value of its 
     real estate assets by at least 10 percent.
       ``(vi) The directors of the corporation adopt a resolution 
     setting forth an intent to engage in a going public 
     transaction.
     No election may be made with respect to any REIT if an 
     election under this subsection was in effect for any 
     predecessor of such REIT.
       ``(C) Eligibility period.--
       ``(i) In general.--The eligibility period (for which an 
     incubator REIT election can be made) begins with the REIT's 
     second taxable year and ends at the close of the REIT's third 
     taxable year, except that the REIT may, subject to clauses 
     (ii), (iii), and (iv), elect to extend such period for an 
     additional 2 taxable years.
       ``(ii) Going public transaction.--A REIT may not elect to 
     extend the eligibility period under clause (i) unless it 
     enters into an agreement with the Secretary that if it does 
     not engage in a going public transaction by the end of the 
     extended eligibility period, it shall pay Federal income 
     taxes for the 2 years of the extended eligibility period as 
     if it had not made an incubator REIT election and had ceased 
     to qualify as a REIT for those 2 taxable years.
       ``(iii) Returns, interest, and notice.--

       ``(I) Returns.--In the event the corporation ceases to be 
     treated as a REIT by operation of clause (ii), the 
     corporation shall file any appropriate amended returns 
     reflecting the change in status within 3 months of the close 
     of the extended eligibility period.
       ``(II) Interest.--Interest shall be payable on any tax 
     imposed by reason of clause (ii) for any taxable year but, 
     unless there was a finding under subparagraph (D), no 
     substantial underpayment penalties shall be imposed.
       ``(III) Notice.--The corporation shall, at the same time it 
     files its returns under subclause (I), notify its 
     shareholders and any other persons whose tax position is, or 
     may reasonably be expected to be, affected by the

[[Page 11685]]

     change in status so they also may file any appropriate 
     amended returns to conform their tax treatment consistent 
     with the corporation's loss of REIT status.
       ``(IV) Regulations.--The Secretary shall provide 
     appropriate regulations setting forth transferee liability 
     and other provisions to ensure collection of tax and the 
     proper administration of this provision.

       ``(iv) Clauses (ii) and (iii) shall not apply if the 
     corporation allows its incubator REIT status to lapse at the 
     end of the initial 2-year eligibility period without engaging 
     in a going public transaction if the corporation is not a 
     controlled entity as of the beginning of its fourth taxable 
     year. In such a case, the corporation's directors may still 
     be liable for the penalties described in subparagraph (D) 
     during the eligibility period.
       ``(D) Special penalties.--If the Secretary determines that 
     an incubator REIT election was filed for a principal purpose 
     other than as part of a reasonable plan to undertake a going 
     public transaction, an excise tax of $20,000 shall be imposed 
     on each of the corporation's directors for each taxable year 
     for which an election was in effect.
       ``(E) Going public transaction.--For purposes of this 
     paragraph, a going public transaction means--
       ``(i) a public offering of shares of the stock of the 
     incubator REIT;
       ``(ii) a transaction, or series of transactions, that 
     results in the stock of the incubator REIT being regularly 
     traded on an established securities market and that results 
     in at least 50 percent of such stock being held by 
     shareholders who are unrelated to persons who held such stock 
     before it began to be so regularly traded; or
       ``(iii) any transaction resulting in ownership of the REIT 
     by 200 or more persons (excluding the largest single 
     shareholder) who in the aggregate own at least 50 percent of 
     the stock of the REIT.

     For the purposes of this subparagraph, the rules of paragraph 
     (3) shall apply in determining the ownership of stock.
       ``(F) Definitions.--The term `established securities 
     market' shall have the meaning set forth in the regulations 
     under section 897.''.
       (c) Conforming Amendment.--Paragraph (2) of section 856(h) 
     is amended by striking ``and (6)'' each place it appears and 
     inserting ``, (6), and (7)''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after May 8, 2003.
       (2) Exception for existing controlled entities.--The 
     amendments made by this section shall not apply to any entity 
     which is a controlled entity (as defined in section 856(l) of 
     the Internal Revenue Code of 1986, as added by this section) 
     as of May 8, 2003, which is a real estate investment trust 
     for the taxable year which includes such date, and which has 
     significant business assets or activities as of such date. 
     For purposes of the preceding sentence, an entity shall be 
     treated as such a controlled entity on May 8, 2003, if it 
     becomes such an entity after such date in a transaction--
       (A) made pursuant to a written agreement which was binding 
     on such date and at all times thereafter, or
       (B) described on or before such date in a filing with the 
     Securities and Exchange Commission required solely by reason 
     of the transaction.

           Subtitle C--Other Corporate Governance Provisions

                       PART I--GENERAL PROVISIONS

     SEC. 331. AFFIRMATION OF CONSOLIDATED RETURN REGULATION 
                   AUTHORITY.

       (a) In General.--Section 1502 (relating to consolidated 
     return regulations) is amended by adding at the end the 
     following new sentence: ``In prescribing such regulations, 
     the Secretary may prescribe rules applicable to corporations 
     filing consolidated returns under section 1501 that are 
     different from other provisions of this title that would 
     apply if such corporations filed separate returns.''.
       (b) Result Not Overturned.--Notwithstanding subsection (a), 
     the Internal Revenue Code of 1986 shall be construed by 
     treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in 
     effect on January 1, 2001) as being inapplicable to the type 
     of factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
       (c) Effective Date.--The provisions of this section shall 
     apply to taxable years beginning before, on, or after the 
     date of the enactment of this Act.

     SEC. 332. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE 
                   OFFICER.

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

     SEC. 333. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

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

     SEC. 334. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

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

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

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

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

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

                 PART II--EXECUTIVE COMPENSATION REFORM

     SEC. 335. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION 
                   FUNDED WITH ASSETS LOCATED OUTSIDE THE UNITED 
                   STATES.

       (a) In General.--Section 83(c) (relating to special rules 
     for property transferred in connection with performance of 
     services) is amended by adding at the end the following new 
     paragraph:
       ``(4) Foreign assets funding nonqualified deferred 
     compensation arrangements.--
       ``(A) In general.--In determining whether there is a 
     transfer of property for purposes of subsection (a), if 
     assets are--

[[Page 11686]]

       ``(i) designated or otherwise available for the payment of 
     nonqualified deferred compensation, and
       ``(ii) located outside the United States,

     such assets shall not be treated as subject to the claims of 
     creditors.
       ``(B) Compensation for services performed in foreign 
     jurisdiction.--Subparagraph (A) shall not apply to assets 
     located in a foreign jurisdiction if substantially all of the 
     services to which the nonqualified deferred compensation 
     relates are performed in such jurisdiction.
       ``(C) Regulations.--The Secretary shall prescribe such 
     regulations as are necessary to carry out the provisions of 
     this paragraph, including regulations to exempt arrangements 
     from the application of this paragraph if--
       ``(i) the arrangement will not result in an improper 
     deferral of United States tax, and
       ``(ii) the assets involved in the arrangement will be 
     readily accessible in any insolvency or bankruptcy 
     proceeding.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to amounts deferred in taxable years beginning 
     after December 31, 2003.

     SEC. 336. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED 
                   COMPENSATION OF CORPORATE INSIDERS.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 409A. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED 
                   COMPENSATION OF CORPORATE INSIDERS.

       ``(a) In General.--If an employer maintains a funded 
     deferred compensation plan--
       ``(1) compensation of any disqualified individual which is 
     deferred under such funded deferred compensation plan shall 
     be included in the gross income of the disqualified 
     individual or beneficiary for the 1st taxable year in which 
     there is no substantial risk of forfeiture of the rights to 
     such compensation, and
       ``(2) the tax treatment of any amount made available under 
     the plan to a disqualified individual or beneficiary shall be 
     determined under section 72 (relating to annuities, etc.).
       ``(b) Funded Deferred Compensation Plan.--For purposes of 
     this section--
       ``(1) In general.--The term `funded deferred compensation 
     plan' means any plan providing for the deferral of 
     compensation unless--
       ``(A) the employee's rights to the compensation deferred 
     under the plan are no greater than the rights of a general 
     creditor of the employer, and
       ``(B) all amounts set aside (directly or indirectly) for 
     purposes of paying the deferred compensation, and all income 
     attributable to such amounts, remain (until made available to 
     the participant or other beneficiary) solely the property of 
     the employer (without being restricted to the provision of 
     benefits under the plan),
       ``(C) the amounts referred to in subparagraph (B) are 
     available to satisfy the claims of the employer's general 
     creditors at all times (not merely after bankruptcy or 
     insolvency), and
       ``(D) the investment options which a participant may elect 
     under the plan are the same as the investment options which a 
     participant may elect under the qualified employer plan of 
     the employer which has the fewest investment options.

     Such term shall not include a qualified employer plan.
       ``(2) Special rules.--
       ``(A) Employee's rights.--A plan shall be treated as 
     failing to meet the requirements of paragraph (1)(A) unless--
       ``(i) the compensation deferred under the plan is payable 
     only upon separation from service, death, disability (within 
     the meaning of section 1614(a)(3) of the Social Security Act 
     (42 U.S.C. 1382c(a)(3))), or at a specified time (or pursuant 
     to a fixed schedule), and
       ``(ii) the plan does not permit the acceleration of the 
     time such deferred compensation is payable by reason of any 
     event.

     If the employer and employee agree to a modification of the 
     plan that accelerates the time for payment of any deferred 
     compensation, then all compensation previously deferred under 
     the plan shall be includible in gross income for the taxable 
     year during which such modification takes effect and the 
     taxpayer shall pay interest at the underpayment rate on the 
     underpayments that would have occurred had the deferred 
     compensation been includible in gross income on the earliest 
     date that there is no substantial risk of forfeiture of the 
     rights to such compensation.
       ``(B) Creditor's rights.--A plan shall be treated as 
     failing to meet the requirements of paragraph (1)(B) with 
     respect to amounts set aside in a trust unless--
       ``(i) the employee has no beneficial interest in the trust,
       ``(ii) assets in the trust are available to satisfy claims 
     of general creditors at all times (not merely after 
     bankruptcy or insolvency), and
       ``(iii) there is no factor that would make it more 
     difficult for general creditors to reach the assets in the 
     trust than it would be if the trust assets were held directly 
     by the employer in the United States.

     Except as provided in regulations prescribed by the 
     Secretary, such a factor shall include the location of the 
     trust outside the United States unless substantially all of 
     the services to which the nonqualified deferred compensation 
     relates are performed outside the United States. Such 
     regulations may exempt any such trust if the trust will not 
     result in an improper deferral of United States tax, and the 
     assets involved in the trust will be readily accessible in 
     any insolvency or bankruptcy proceeding.
       ``(c) Disqualified Individual.--For purposes of this 
     section, the term `disqualified individual' means, with 
     respect to a corporation, any individual--
       ``(1) who is subject to the requirements of section 16(a) 
     of the Securities Exchange Act of 1934 with respect to such 
     corporation, or
       ``(2) who would be subject to such requirements if such 
     corporation were an issuer of equity securities referred to 
     in such section.
       ``(d) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Qualified employer plan.--The term `qualified 
     employer plan' means--
       ``(A) any plan, contract, pension, account, or trust 
     described in subparagraph (A) or (B) of section 219(g)(5), 
     and
       ``(B) any other plan of an organization exempt from tax 
     under subtitle A.
       ``(2) Plan includes arrangements, etc.--The term `plan' 
     includes any agreement or arrangement.
       ``(3) Substantial risk of forfeiture.--The rights of a 
     person to compensation are subject to a substantial risk of 
     forfeiture if such person's rights to such compensation are 
     conditioned upon the future performance of substantial 
     services by any individual.
       ``(4) Treatment of earnings.--References to deferred 
     compensation shall be treated as including references to 
     income attributable to such compensation or such income.''.
       (b) Clerical Amendment.--The table of sections for such 
     subpart A is amended by adding at the end the following new 
     item:

``Sec. 409A. Inclusion in gross income of funded deferred compensation 
              of corporate insiders.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts deferred in taxable years beginning 
     after December 31, 2003.

     SEC. 337. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE 
                   OF STOCK OPTIONS AND RESTRICTED STOCK GAINS 
                   THROUGH DEFERRED COMPENSATION ARRANGEMENTS.

       (a) In General.--Section 83 (relating to property 
     transferred in connection with performance of services) is 
     amending by adding at the end the following new subsection:
       ``(i) Prohibition on Additional Deferral Through Deferred 
     Compensation Arrangements.--If a taxpayer elects to exchange 
     an option to purchase employer securities--
       ``(1) to which subsection (a) applies, or
       ``(2) which is described in subsection (e)(3),
     or any other compensation based on employer securities, for a 
     right to receive future payments, then, notwithstanding any 
     other provision of this title, there shall be included in 
     gross income for the taxable year of the exchange an amount 
     equal to the present value of such right (or such other 
     amount as the Secretary may by regulations specify). For 
     purposes of this subsection, the term `employer securities' 
     has the meaning given such term by section 409(l).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to any exchange after December 31, 2003.

     SEC. 338. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE 
                   PAYMENTS IN EXCESS OF $1,000,000.

       (a) In General.--If an employer elects under Treasury 
     Regulation 31.3402(g)-1 to determine the amount to be 
     deducted and withheld from any supplemental wage payment by 
     using a flat percentage rate, the rate to be used in 
     determining the amount to be so deducted and withheld shall 
     not be less than 28 percent (or the corresponding rate in 
     effect under section 1(i)(2) of the Internal Revenue Code of 
     1986 for taxable years beginning in the calendar year in 
     which the payment is made).
       (b) Special Rule for Large Payments.--
       (1) In general.--Notwithstanding subsection (a), if the 
     supplemental wage payment, when added to all such payments 
     previously made by the employer to the employee during the 
     calendar year, exceeds $1,000,000, the rate used with respect 
     to such excess shall be equal to the maximum rate of tax in 
     effect under section 1 of such Code for taxable years 
     beginning in such calendar year.
       (2) Aggregation.--All persons treated as a single employer 
     under subsection (a) or (b) of section 52 of the Internal 
     Revenue Code of 1986 shall be treated as a single employer 
     for purposes of this subsection.
       (c) Conforming Amendment.--Section 13273 of the Revenue 
     Reconciliation Act of 1993 (Public Law 103-66) is repealed.
       (d) Effective Date.--The provisions of, and the amendment 
     made by, this section shall apply to payments made after 
     December 31, 2003.

[[Page 11687]]



                  Subtitle D--International Provisions

             PART I--PROVISIONS TO DISCOURAGE EXPATRIATION

     SEC. 340. REVISION OF TAX RULES ON EXPATRIATION.

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

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

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

     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2003, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2002' for `calendar year 1992' in 
     subparagraph (B) thereof.

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

[[Page 11688]]

       ``(1) Expatriate.--The term `expatriate' means--
       ``(A) any United States citizen who relinquishes 
     citizenship, and
       ``(B) any long-term resident of the United States who--
       ``(i) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(ii) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(2) Expatriation date.--The term `expatriation date' 
     means--
       ``(A) the date an individual relinquishes United States 
     citizenship, or
       ``(B) in the case of a long-term resident of the United 
     States, the date of the event described in clause (i) or (ii) 
     of paragraph (1)(B).
       ``(3) Relinquishment of citizenship.--A citizen shall be 
     treated as relinquishing United States citizenship on the 
     earliest of--
       ``(A) the date the individual renounces such individual's 
     United States nationality before a diplomatic or consular 
     officer of the United States pursuant to paragraph (5) of 
     section 349(a) of the Immigration and Nationality Act (8 
     U.S.C. 1481(a)(5)),
       ``(B) the date the individual furnishes to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(C) the date the United States Department of State issues 
     to the individual a certificate of loss of nationality, or
       ``(D) the date a court of the United States cancels a 
     naturalized citizen's certificate of naturalization.

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

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

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

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

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

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

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

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

       ``(g) Termination of Deferrals, etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--

[[Page 11689]]

       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(48) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(19) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--
       (i) Technical amendments.--Paragraph (4) of section 6103(p) 
     of the Internal Revenue Code of 1986, as amended by section 
     202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 
     116 Stat. 961), is amended by striking ``or (17)'' after 
     ``any other person described in subsection (l)(16)'' each 
     place it appears and inserting ``or (18)''.
       (ii) Conforming amendments.--Section 6103(p)(4) (relating 
     to safeguards), as amended by clause (i), is amended by 
     striking ``or (18)'' after ``any other person described in 
     subsection (l)(16)'' each place it appears and inserting 
     ``(18), or (19)''.
       (3) Effective dates.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendments made by this subsection shall apply to 
     individuals who relinquish United States citizenship on or 
     after the date of the enactment of this Act.
       (B) Technical amendments.--The amendments made by paragraph 
     (2)(B)(i) shall take effect as if included in the amendments 
     made by section 202(b)(2)(B) of the Trade Act of 2002 (Public 
     Law 107-210; 116 Stat. 961).
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(g) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after February 5, 2003.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(F) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4)(A) Paragraph (1) of section 6039G(d) is amended by 
     inserting ``or 877A'' after ``section 877''.
       (B) The second sentence of section 6039G(e) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after 
     ``877(a))''.
       (C) Section 6039G(f) is amended by inserting ``or 
     877A(e)(2)(B)'' after ``877(e)(1)''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

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

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after February 
     5, 2003.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after February 5, 2003, 
     from an individual or the estate of an individual whose 
     expatriation date (as so defined) occurs after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 341. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

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

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

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section

[[Page 11690]]

     7701(a)(4), such entity shall be treated for purposes of this 
     title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,
       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former partners of the domestic 
     partnership by reason of holding a capital or profits 
     interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.
     Except as provided in regulations, an acquisition of 
     properties of a domestic corporation shall not be treated as 
     described in subparagraph (A) if none of the corporation's 
     stock was readily tradeable on an established securities 
     market at any time during the 4-year period ending on the 
     date of the acquisition.
       ``(b) Preservation of Domestic Tax Base In Certain 
     Inversion Transactions To Which Subsection (a) Does Not 
     Apply.--
       ``(1) In general.--If a foreign incorporated entity would 
     be treated as an inverted domestic corporation with respect 
     to an acquired entity if either--
       ``(A) subsection (a)(2)(A) were applied by substituting 
     `after December 31, 1996, and on or before March 20, 2002' 
     for `after March 20, 2002' and subsection (a)(2)(B) were 
     applied by substituting `more than 50 percent' for `at least 
     80 percent', or
       ``(B) subsection (a)(2)(B) were applied by substituting 
     `more than 50 percent' for `at least 80 percent',

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

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

     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding the provisions of any other law or rule of 
     law which would otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.
       ``(d) Special Rules Applicable to Related Party 
     Transactions.--
       ``(1) Annual application for agreements on return 
     positions.--
       ``(A) In general.--Each acquired entity to which subsection 
     (b) applies shall file with the Secretary an application for 
     an approval agreement under subparagraph (D) for each taxable 
     year which includes a portion of the applicable period. Such 
     application shall be filed at such time and manner, and shall 
     contain such information, as the Secretary may prescribe.
       ``(B) Secretarial action.--Within 90 days of receipt of an 
     application under subparagraph (A) (or such longer period as 
     the Secretary and entity may agree upon), the Secretary 
     shall--
       ``(i) enter into an agreement described in subparagraph (D) 
     for the taxable year covered by the application,
       ``(ii) notify the entity that the Secretary has determined 
     that the application was filed in good faith and 
     substantially complies with the requirements for the 
     application under subparagraph (A), or
       ``(iii) notify the entity that the Secretary has determined 
     that the application was not filed in good faith or does not 
     substantially comply with such requirements.

     If the Secretary fails to act within the time prescribed 
     under the preceding sentence, the entity shall be treated for 
     purposes of this paragraph as having received notice under 
     clause (ii).
       ``(C) Failures to comply.--If an acquired entity fails to 
     file an application under subparagraph (A), or the acquired 
     entity receives a notice under subparagraph (B)(iii), for any 
     taxable year, then for such taxable year--
       ``(i) there shall not be allowed any deduction, or addition 
     to basis or cost of goods sold, for amounts paid or incurred, 
     or losses incurred, by reason of a transaction between the 
     acquired entity and a foreign related person,
       ``(ii) any transfer or license of intangible property (as 
     defined in section 936(h)(3)(B)) between the acquired entity 
     and a foreign related person shall be disregarded, and
       ``(iii) any cost-sharing arrangement between the acquired 
     entity and a foreign related person shall be disregarded.
       ``(D) Approval agreement.--For purposes of subparagraph 
     (A), the term `approval

[[Page 11691]]

     agreement' means a prefiling, advance pricing, or other 
     agreement specified by the Secretary which contains such 
     provisions as the Secretary determines necessary to ensure 
     that the requirements of sections 163(j), 267(a)(3), 482, and 
     845, and any other provision of this title applicable to 
     transactions between related persons and specified by the 
     Secretary, are met.
       ``(E) Tax court review.--
       ``(i) In general.--The Tax Court shall have jurisdiction 
     over any action brought by an acquired entity receiving a 
     notice under subparagraph (B)(iii) to determine whether the 
     issuance of the notice was an abuse of discretion, but only 
     if the action is brought within 30 days after the date of the 
     mailing (determined under rules similar to section 6213) of 
     the notice.
       ``(ii) Court action.--The Tax Court shall issue its 
     decision within 30 days after the filing of the action under 
     clause (i) and may order the Secretary to issue a notice 
     described in subparagraph (B)(ii).
       ``(iii) Review.--An order of the Tax Court under this 
     subparagraph shall be reviewable in the same manner as any 
     other decision of the Tax Court.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated as 
     pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.
       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1) would be, treated as a foreign corporation 
     for purposes of this title.
       ``(4) Foreign related person.--The term `foreign related 
     person' means, with respect to any acquired entity, a foreign 
     person which--
       ``(A) bears a relationship to such entity described in 
     section 267(b) or 707(b), or
       ``(B) is under the same common control (within the meaning 
     of section 482) as such entity.
       ``(5) Subsequent acquisitions by unrelated domestic 
     corporations.--
       ``(A) In general.--Subject to such conditions, limitations, 
     and exceptions as the Secretary may prescribe, if, after an 
     acquisition described in subsection (a)(2)(A) to which 
     subsection (b) applies, a domestic corporation stock of which 
     is traded on an established securities market acquires 
     directly or indirectly any properties of one or more acquired 
     entities in a transaction with respect to which the 
     requirements of subparagraph (B) are met, this section shall 
     cease to apply to any such acquired entity with respect to 
     which such requirements are met.
       ``(B) Requirements.--The requirements of the subparagraph 
     are met with respect to a transaction involving any 
     acquisition described in subparagraph (A) if--
       ``(i) before such transaction the domestic corporation did 
     not have a relationship described in section 267(b) or 
     707(b), and was not under common control (within the meaning 
     of section 482), with the acquired entity, or any member of 
     an expanded affiliated group including such entity, and
       ``(ii) after such transaction, such acquired entity--

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

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-through or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Treatment of Agreements.--
       (1) Confidentiality.--
       (A) Treatment as return information.--Section 6103(b)(2) 
     (relating to return information) is amended by striking 
     ``and'' at the end of subparagraph (C), by inserting ``and'' 
     at the end of subparagraph (D), and by inserting after 
     subparagraph (D) the following new subparagraph:
       ``(E) any approval agreement under section 7874(d)(1) to 
     which any preceding subparagraph does not apply and any 
     background information related to the agreement or any 
     application for the agreement,''.
       (B) Exception from public inspection as written 
     determination.--Section 6110(b)(1)(B) is amended by striking 
     ``or (D)'' and inserting ``, (D), or (E)''.
       (2) Reporting.--The Secretary of the Treasury shall include 
     with any report on advance pricing agreements required to be 
     submitted after the date of the enactment of this Act under 
     section 521(b) of the Ticket to Work and Work Incentives 
     Improvement Act of 1999 (Public Law 106-170) a report 
     regarding approval agreements under section 7874(d)(1) of the 
     Internal Revenue Code of 1986. Such report shall include 
     information similar to the information required with respect 
     to advance pricing agreements and shall be treated for 
     confidentiality purposes in the same manner as the reports on 
     advance pricing agreements are treated under section 
     521(b)(3) of such Act.
       (c) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved in 
     transactions to which section 7874 of such Code (as added by 
     subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (d) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.

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

     SEC. 342. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

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

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

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

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

       ``(a) Imposition of Tax.--In the case of an individual who 
     is a disqualified individual with respect to any inverted 
     corporation, there is hereby imposed on such person a tax 
     equal to 20 percent of the value (determined under subsection 
     (b)) of the specified stock compensation held (directly or 
     indirectly) by or for the benefit of such individual or a 
     member of such individual's family (as defined in section 
     267) at any time during the 12-month period beginning on the 
     date which is 6 months before the inversion date.
       ``(b) Value.--For purposes of subsection (a)--
       ``(1) In general.--The value of specified stock 
     compensation shall be--

[[Page 11692]]

       ``(A) in the case of a stock option (or other similar 
     right) or any stock appreciation right, the fair value of 
     such option or right, and
       ``(B) in any other case, the fair market value of such 
     compensation.
       ``(2) Date for determining value.--The determination of 
     value shall be made--
       ``(A) in the case of specified stock compensation held on 
     the inversion date, on such date,
       ``(B) in the case of such compensation which is canceled 
     during the 6 months before the inversion date, on the day 
     before such cancellation, and
       ``(C) in the case of such compensation which is granted 
     after the inversion date, on the date such compensation is 
     granted.
       ``(c) Tax To Apply Only If Shareholder Gain Recognized.--
     Subsection (a) shall apply to any disqualified individual 
     with respect to an inverted corporation only if gain (if any) 
     on any stock in such corporation is recognized in whole or 
     part by any shareholder by reason of the acquisition referred 
     to in section 7874(a)(2)(A) (determined by substituting `July 
     10, 2002' for `March 20, 2002') with respect to such 
     corporation.
       ``(d) Exception Where Gain Recognized on Compensation.--
     Subsection (a) shall not apply to--
       ``(1) any stock option which is exercised on the inversion 
     date or during the 6-month period before such date and to the 
     stock acquired in such exercise, and
       ``(2) any specified stock compensation which is sold, 
     exchanged, or distributed during such period in a transaction 
     in which gain or loss is recognized in full.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Disqualified individual.--The term `disqualified 
     individual' means, with respect to a corporation, any 
     individual who, at any time during the 12-month period 
     beginning on the date which is 6 months before the inversion 
     date--
       ``(A) is subject to the requirements of section 16(a) of 
     the Securities Exchange Act of 1934 with respect to such 
     corporation or any member of the expanded affiliated group 
     which includes such corporation, or
       ``(B) would be subject to such requirements if such 
     corporation or member were an issuer of equity securities 
     referred to in such section.
       ``(2) Inverted corporation; inversion date.--
       ``(A) Inverted corporation.--The term `inverted 
     corporation' means any corporation to which subsection (a) or 
     (b) of section 7874 applies determined--
       ``(i) by substituting `July 10, 2002' for `March 20, 2002' 
     in section 7874(a)(2)(A), and
       ``(ii) without regard to subsection (b)(1)(A).

     Such term includes any predecessor or successor of such a 
     corporation.
       ``(B) Inversion date.--The term `inversion date' means, 
     with respect to a corporation, the date on which the 
     corporation first becomes an inverted corporation.
       ``(3) Specified stock compensation.--
       ``(A) In general.--The term `specified stock compensation' 
     means payment (or right to payment) granted by the inverted 
     corporation (or by any member of the expanded affiliated 
     group which includes such corporation) to any person in 
     connection with the performance of services by a disqualified 
     individual for such corporation or member if the value of 
     such payment or right is based on (or determined by reference 
     to) the value (or change in value) of stock in such 
     corporation (or any such member).
       ``(B) Exceptions.--Such term shall not include--
       ``(i) any option to which part II of subchapter D of 
     chapter 1 applies, or
       ``(ii) any payment or right to payment from a plan referred 
     to in section 280G(b)(6).
       ``(4) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)(3)); except 
     that section 1504(a) shall be applied by substituting `more 
     than 50 percent' for `at least 80 percent' each place it 
     appears.
       ``(f) Special Rules.--For purposes of this section--
       ``(1) Cancellation of restriction.--The cancellation of a 
     restriction which by its terms will never lapse shall be 
     treated as a grant.
       ``(2) Payment or reimbursement of tax by corporation 
     treated as specified stock compensation.--Any payment of the 
     tax imposed by this section directly or indirectly by the 
     inverted corporation or by any member of the expanded 
     affiliated group which includes such corporation--
       ``(A) shall be treated as specified stock compensation, and
       ``(B) shall not be allowed as a deduction under any 
     provision of chapter 1.
       ``(3) Certain restrictions ignored.--Whether there is 
     specified stock compensation, and the value thereof, shall be 
     determined without regard to any restriction other than a 
     restriction which by its terms will never lapse.
       ``(4) Property transfers.--Any transfer of property shall 
     be treated as a payment and any right to a transfer of 
     property shall be treated as a right to a payment.
       ``(5) Other administrative provisions.--For purposes of 
     subtitle F, any tax imposed by this section shall be treated 
     as a tax imposed by subtitle A.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Denial of Deduction.--
       (1) In general.--Paragraph (6) of section 275(a) is amended 
     by inserting ``48,'' after ``46,''.
       (2) $1,000,000 limit on deductible compensation reduced by 
     payment of excise tax on specified stock compensation.--
     Paragraph (4) of section 162(m) is amended by adding at the 
     end the following new subparagraph:
       ``(G) Coordination with excise tax on specified stock 
     compensation.--The dollar limitation contained in paragraph 
     (1) with respect to any covered employee shall be reduced 
     (but not below zero) by the amount of any payment (with 
     respect to such employee) of the tax imposed by section 5000A 
     directly or indirectly by the inverted corporation (as 
     defined in such section) or by any member of the expanded 
     affiliated group (as defined in such section) which includes 
     such corporation.''.
       (c) Conforming Amendments.--
       (1) The last sentence of section 3121(v)(2)(A) is amended 
     by inserting before the period ``or to any specified stock 
     compensation (as defined in section 5000A) on which tax is 
     imposed by section 5000A''.
       (2) The table of chapters for subtitle D is amended by 
     adding at the end the following new item:

``Chapter 48. Stock compensation of insiders in inverted 
              corporations.''.

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

     SEC. 343. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

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

                       PART II--OTHER PROVISIONS

     SEC. 344. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENT.

       (a) General Rule.--If--
       (1) a taxpayer eligible to participate in the Department of 
     the Treasury's Offshore Voluntary Compliance Initiative did 
     not participate in such initiative, and
       (2) any interest or applicable penalty is imposed with 
     respect to any arrangement to which such initiative applied 
     or to any underpayment of Federal income tax attributable to 
     items arising in connection with such arrangement,
     then, notwithstanding any other provision of law, the amount 
     of such interest or penalty shall be equal to twice that 
     determined without regard to this section.
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition to tax, or fine imposed under 
     chapter 68 of the Internal Revenue Code of 1986.
       (2) Voluntary offshore compliance initiative.--The term 
     ``Voluntary Offshore Compliance Initiative'' means the 
     program established by the Department of the Treasury in 
     January of 2003 under which any taxpayer was eligible to 
     voluntarily disclose previously undisclosed income on assets 
     placed in offshore accounts and accessed through credit card 
     and other financial arrangements.
       (3) Participation.--A taxpayer shall be treated as having 
     participated in the Voluntary Offshore Compliance Initiative 
     if the taxpayer submitted the request in a timely manner and 
     all information requested by the Secretary of the Treasury or 
     his delegate within a reasonable period of time following the 
     request.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest penalties, additions to tax, and fines with 
     respect to any taxable year if as of May 8, 2003, the 
     assessment of any tax, penalty, or interest with respect to 
     such taxable year is not prevented by the operation of any 
     law or rule of law.

     SEC. 345. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN 
                   FOREIGN SOURCE INCOME.

       (a) In General.--Section 864(c)(4)(B) (relating to 
     treatment of income from sources without the United States as 
     effectively connected income) is amended by adding at the end 
     the following new flush sentence:
     ``Any income or gain which is equivalent to any item of 
     income or gain described in clause (i), (ii), or (iii) shall 
     be treated in the same manner as such item for purposes of 
     this subparagraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

[[Page 11693]]



     SEC. 346. DETERMINATION OF BASIS OF AMOUNTS PAID FROM FOREIGN 
                   PENSION PLANS.

       (a) In General.--Section 72 (relating to annuities and 
     certain proceeds of endowment and life insurance contracts) 
     is amended by redesignating subsection (w) as subsection (x) 
     and by inserting after subsection (v) the following new 
     subsection:
       ``(w) Determination of Basis of Foreign Pension Plans.--
     Notwithstanding any other provision of this section, for 
     purposes of determining the portion of any distribution from 
     a foreign pension plan which is includible in gross income of 
     the distributee, the investment in the contract with respect 
     to the plan shall not include employer or employee 
     contributions to the plan (or any earnings on such 
     contributions) unless such contributions or earnings were 
     subject to taxation by the United States or any foreign 
     government.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to distributions on or after the date of the 
     enactment of this Act.

     SEC. 347. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF 
                   CONTROLLED FOREIGN CORPORATION.

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

     SEC. 348. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL 
                   ISSUE DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS 
                   IN TRANSACTIONS WITH RELATED FOREIGN PERSONS.

       (a) Original Issue Discount.--Section 163(e)(3) (relating 
     to special rule for original issue discount on obligation 
     held by related foreign person) is amended by redesignating 
     subparagraph (B) as subparagraph (C) and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
     Notwithstanding subparagraph (A) (and any regulations 
     thereunder), in the case of any debt instrument having 
     original issue discount which is held by a related foreign 
     person which is a foreign personal holding company (as 
     defined in section 552), a controlled foreign corporation (as 
     defined in section 957), or a passive foreign investment 
     company (as defined in section 1297), a deduction shall be 
     allowable to the issuer with respect to such original issue 
     discount for any taxable year only to the extent such 
     original issue discount is included during such taxable year 
     in the gross income of a United States person who owns 
     (within the meaning of section 958(a)) stock in such 
     corporation. For purposes of this subparagraph, the 
     determination as to the proper allocation of the original 
     issue discount to shareholders shall be made in such manner 
     as the Secretary may prescribe.''.
       (b) Interest and Other Deductible Amounts.--Section 
     267(a)(3) is amended--
       (1) by striking ``The Secretary'' and inserting:
       ``(A) In general.--The Secretary'', and
       (2) by adding at the end the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
     Notwithstanding any regulations issued under subparagraph 
     (A), in the case of any amount payable to a foreign personal 
     holding company (as defined in section 552), a controlled 
     foreign corporation (as defined in section 957), or a passive 
     foreign investment company (as defined in section 1297), a 
     deduction shall be allowable to the payor with respect to 
     such amount for any taxable year only to the extent such 
     amount is included during such taxable year in the gross 
     income of a United States person who owns (within the meaning 
     of section 958(a)) stock in such corporation. For purposes of 
     this subparagraph, the determination as to the proper 
     allocation of such amount to shareholders shall be made in 
     such manner as the Secretary may prescribe.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments accrued on or after May 8, 2003.

     SEC. 349. SALE OF GASOLINE AND DIESEL FUEL AT DUTY-FREE SALES 
                   ENTERPRISES.

       (a) Prohibition.--Section 555(b) of the Tariff Act of 1930 
     (19 U.S.C. 1555(b)) is amended--
       (1) by redesignating paragraphs (6) through (8) as 
     paragraphs (7) through (9), respectively; and
       (2) by inserting after paragraph (5) the following:
       ``(6) Any gasoline or diesel fuel sold at a duty-free sales 
     enterprise shall be considered to be entered for consumption 
     into the customs territory of the United States.''.
       (b) Construction.--The amendments made by this section 
     shall not be construed to create any inference with respect 
     to the interpretation of any provision of law as such 
     provision was in effect on the day before the date of 
     enactment of this Act.
       (c) Effective date.--The amendments made by this section 
     shall take effect on the date of enactment of this Act.

     SEC. 350. REPEAL OF EARNED INCOME EXCLUSION OF CITIZENS OR 
                   RESIDENTS LIVING ABROAD.

       (a) Repeal.--Section 911 (relating to citizens or residents 
     living abroad) is amended by adding at the end the following 
     new subsection:
       ``(g) Termination.--This section shall not apply to any 
     taxable year beginning after December 31, 2003.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

                  Subtitle E--Other Revenue Provisions

     SEC. 352. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF 
                   TAXABLE VACCINES.

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

     SEC. 353. 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:

``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.--

[[Page 11694]]

       (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. 354. TREATMENT OF STRIPPED INTERESTS IN BOND AND 
                   PREFERRED STOCK FUNDS, ETC.

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

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

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

     SEC. 355. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

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

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

       ``(a) In General.--The acquiring corporation in any taxable 
     acquisition shall make a return (according to the forms or 
     regulations prescribed by the Secretary) setting forth--
       ``(1) a description of the acquisition,
       ``(2) the name and address of each shareholder of the 
     acquired corporation who is required to recognize gain (if 
     any) as a result of the acquisition,
       ``(3) the amount of money and the fair market value of 
     other property transferred to each such shareholder as part 
     of such acquisition, and
       ``(4) such other information as the Secretary may 
     prescribe.
     To the extent provided by the Secretary, the requirements of 
     this section applicable to the acquiring corporation shall be 
     applicable to the acquired corporation and not to the 
     acquiring corporation.
       ``(b) Nominee Reporting.--Any person who holds stock as a 
     nominee for another person shall furnish in the manner 
     prescribed by the Secretary to such other person the 
     information provided by the corporation under subsection (d).
       ``(c) Taxable Acquisition.--For purposes of this section, 
     the term `taxable acquisition' means any acquisition by a 
     corporation of stock in or property of another corporation if 
     any shareholder of the acquired corporation is required to 
     recognize gain (if any) as a result of such acquisition.
       ``(d) Statements to Be Furnished to Shareholders.--Every 
     person required to make a return under subsection (a) shall 
     furnish to each shareholder whose name is required to be set 
     forth in such return a written statement showing--
       ``(1) the name, address, and phone number of the 
     information contact of the person required to make such 
     return,
       ``(2) the information required to be shown on such return 
     with respect to such shareholder, and
       ``(3) such other information as the Secretary may 
     prescribe.
     The written statement required under the preceding sentence 
     shall be furnished to the shareholder on or before January 31 
     of the year following the calendar year during which the 
     taxable acquisition occurred.''.
       (b) Assessable Penalties.--
       (1) Subparagraph (B) of section 6724(d)(1) (relating to 
     definitions) is amended by redesignating clauses (ii) through 
     (xvii) as clauses (iii) through (xviii), respectively, and by 
     inserting after clause (i) the following new clause:
       ``(ii) section 6043A(a) (relating to returns relating to 
     taxable mergers and acquisitions),''.
       (2) Paragraph (2) of section 6724(d) is amended by 
     redesignating subparagraphs (F) through (AA) as subparagraphs 
     (G) through (BB), respectively, and by inserting after 
     subparagraph (E) the following new subparagraph:
       ``(F) subsections (b) and (d) of section 6043A (relating to 
     returns relating to taxable mergers and acquisitions).''.
       (c) Clerical Amendment.--The table of sections for subpart 
     B of part III of subchapter A of chapter 61 is amended by 
     inserting after the item relating to section 6043 the 
     following new item:

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

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

     SEC. 356. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON 
                   WITHHOLDING TAXES ON INCOME OTHER THAN 
                   DIVIDENDS.

       (a) In General.--Section 901 is amended by redesignating 
     subsection (l) as subsection (m) and by inserting after 
     subsection (k) the following new subsection:
       ``(l) Minimum Holding Period for Withholding Taxes on Gain 
     and Income Other than Dividends Etc.--
       ``(1) In general.--In no event shall a credit be allowed 
     under subsection (a) for any withholding tax (as defined in 
     subsection (k)) on any item of income or gain with respect to 
     any property if--
       ``(A) such property is held by the recipient of the item 
     for 15 days or less during the 30-day period beginning on the 
     date which is 15 days before the date on which the right to 
     receive payment of such item arises, or
       ``(B) to the extent that the recipient of the item is under 
     an obligation (whether pursuant to a short sale or otherwise) 
     to make related payments with respect to positions in 
     substantially similar or related property.
     This paragraph shall not apply to any dividend to which 
     subsection (k) applies.
       ``(2) Exception for taxes paid by dealers.--
       ``(A) In general.--Paragraph (1) shall not apply to any 
     qualified tax with respect to any property held in the active 
     conduct in a foreign country of a business as a dealer in 
     such property.
       ``(B) Qualified tax.--For purposes of subparagraph (A), the 
     term `qualified tax' means a tax paid to a foreign country 
     (other than the foreign country referred to in subparagraph 
     (A)) if--
       ``(i) the item to which such tax is attributable is subject 
     to taxation on a net basis by the country referred to in 
     subparagraph (A), and
       ``(ii) such country allows a credit against its net basis 
     tax for the full amount of the tax paid to such other foreign 
     country.
       ``(C) Dealer.--For purposes of subparagraph (A), the term 
     `dealer' means--
       ``(i) with respect to a security, any person to whom 
     paragraphs (1) and (2) of subsection (k) would not apply by 
     reason of paragraph (4) thereof if such security were stock, 
     and
       ``(ii) with respect to any other property, any person with 
     respect to whom such property is described in section 
     1221(a)(1).
       ``(D) Regulations.--The Secretary may prescribe such 
     regulations as may be appropriate to carry out this 
     paragraph, including regulations to prevent the abuse of the 
     exception provided by this paragraph and to treat other taxes 
     as qualified taxes.
       ``(3) Exceptions.--The Secretary may by regulation provide 
     that paragraph (1) shall not apply to property where the 
     Secretary determines that the application of paragraph (1) to 
     such property is not necessary to carry out the purposes of 
     this subsection.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (5), (6), and (7) of subsection (k) shall apply 
     for purposes of this subsection.
       ``(5) Determination of holding period.--Holding periods 
     shall be determined for purposes of this subsection without 
     regard to section 1235 or any similar rule.''.
       (b) Conforming Amendment.--The heading of subsection (k) of 
     section 901 is amended by inserting ``on Dividends'' after 
     ``Taxes''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued more than 30 days 
     after the date of the enactment of this Act.

[[Page 11695]]



     SEC. 357. QUALIFIED TAX COLLECTION CONTRACTS.

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

     ``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

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

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

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

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

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

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

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

     SEC. 358. 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''.

     SEC. 359. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

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

     SEC. 360. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT 
                   AGREEMENTS.

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

     SEC. 361. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS 
                   FRANCHISES.

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

     SEC. 362. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS.

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

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

       ``(a) Authority To Make Deposits Other Than As Payment of 
     Tax.--A taxpayer may make a cash deposit with the Secretary 
     which may be used by the Secretary to pay any tax imposed 
     under subtitle A or B or chapter 41, 42, 43, or 44 which has 
     not been assessed at the time of the deposit. Such a

[[Page 11696]]

     deposit shall be made in such manner as the Secretary shall 
     prescribe.
       ``(b) No Interest Imposed.--To the extent that such deposit 
     is used by the Secretary to pay tax, for purposes of section 
     6601 (relating to interest on underpayments), the tax shall 
     be treated as paid when the deposit is made.
       ``(c) Return of Deposit.--Except in a case where the 
     Secretary determines that collection of tax is in jeopardy, 
     the Secretary shall return to the taxpayer any amount of the 
     deposit (to the extent not used for a payment of tax) which 
     the taxpayer requests in writing.
       ``(d) Payment of Interest.--
       ``(1) In general.--For purposes of section 6611 (relating 
     to interest on overpayments), a deposit which is returned to 
     a taxpayer shall be treated as a payment of tax for any 
     period to the extent (and only to the extent) attributable to 
     a disputable tax for such period. Under regulations 
     prescribed by the Secretary, rules similar to the rules of 
     section 6611(b)(2) shall apply.
       ``(2) Disputable tax.--
       ``(A) In general.--For purposes of this section, the term 
     `disputable tax' means the amount of tax specified at the 
     time of the deposit as the taxpayer's reasonable estimate of 
     the maximum amount of any tax attributable to disputable 
     items.
       ``(B) Safe harbor based on 30-day letter.--In the case of a 
     taxpayer who has been issued a 30-day letter, the maximum 
     amount of tax under subparagraph (A) shall not be less than 
     the amount of the proposed deficiency specified in such 
     letter.
       ``(3) Other definitions.--For purposes of paragraph (2)--
       ``(A) Disputable item.--The term `disputable item' means 
     any item of income, gain, loss, deduction, or credit if the 
     taxpayer--
       ``(i) has a reasonable basis for its treatment of such 
     item, and
       ``(ii) reasonably believes that the Secretary also has a 
     reasonable basis for disallowing the taxpayer's treatment of 
     such item.
       ``(B) 30-day letter.--The term `30-day letter' means the 
     first letter of proposed deficiency which allows the taxpayer 
     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals.
       ``(4) Rate of interest.--The rate of interest allowable 
     under this subsection shall be the Federal short-term rate 
     determined under section 6621(b), compounded daily.
       ``(e) Use of Deposits.--
       ``(1) Payment of tax.--Except as otherwise provided by the 
     taxpayer, deposits shall be treated as used for the payment 
     of tax in the order deposited.
       ``(2) Returns of deposits.--Deposits shall be treated as 
     returned to the taxpayer on a last-in, first-out basis.''.
       (b) Clerical Amendment.--The table of sections for 
     subchapter A of chapter 67 is amended by adding at the end 
     the following new item:

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

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

     SEC. 363. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX 
                   FOR CERTAIN DEEMED ASSET SALES.

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

     SEC. 364. LIMITATION OF DEDUCTION FOR CHARITABLE 
                   CONTRIBUTIONS OF PATENTS AND SIMILAR PROPERTY.

       (a) In General.--Section 170(e)(1)(B) (relating to certain 
     contributions of ordinary income and capital gain property) 
     is amended by striking ``or'' at the end of clause (i), by 
     adding ``or'' at the end of clause (ii), and by inserting 
     after clause (ii) the following new clause:
       ``(iii) of any patent, copyright, trademark, trade name, 
     trade secret, know-how, software, or similar property, or 
     applications or registrations of such property,''.
       (b) Anti-Abuse Rules.--The Secretary of the Treasury may 
     prescribe such regulations or other administrative guidance 
     as may be necessary or appropriate to prevent the avoidance 
     of the purposes of section 170(e)(1)(B)(iii) of the Internal 
     Revenue Code of 1986 (as added by subsection (a)), including 
     preventing--
       (1) the circumvention of the reduction of the charitable 
     deduction by embedding or bundling the patent or similar 
     property as part of a charitable contribution of property 
     that includes the patent or similar property,
       (2) the manipulation of the basis of the property to 
     increase the amount of the charitable deduction through the 
     use of related persons, pass-thru entities, or other 
     intermediaries, or through the use of any provision of law or 
     regulation (including the consolidated return regulations), 
     and
       (3) a donor from changing the form of the patent or similar 
     property to property of a form for which different deduction 
     rules would apply.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made after May 7, 2003.

     SEC. 365. EXTENSION OF TRANSFERS OF EXCESS PENSION ASSETS TO 
                   RETIREE HEALTH ACCOUNTS.

       (a) Amendment of Internal Revenue Code of 1986.--Paragraph 
     (5) of section 420(b) (relating to expiration) is amended by 
     striking ``December 31, 2005'' and inserting ``December 31, 
     2013''.
       (b) Amendments of ERISA.--
       (1) Section 101(e)(3) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by 
     striking ``Tax Relief Extension Act of 1999'' and inserting 
     ``Jobs and Growth Reconciliation Tax Act of 2003''.
       (2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is 
     amended by striking ``Tax Relief Extension Act of 1999'' and 
     inserting ``Jobs and Growth Reconciliation Tax Act of 2003''.
       (3) Paragraph (13) of section 408(b) of such Act (29 U.S.C. 
     1108(b)(3)) is amended--
       (A) by striking ``January 1, 2006'' and inserting ``January 
     1, 2014'', and
       (B) by striking ``Tax Relief Extension Act of 1999'' and 
     inserting ``Jobs and Growth Reconciliation Tax Act of 2003''.

     SEC. 366. PRORATION RULES FOR LIFE INSURANCE BUSINESS OF 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

       (a) In General.--Section 832(b)(4) (defining premiums 
     earned) is amended--
       (1) by inserting ``, except that any deduction attributable 
     to such reserves shall be reduced in the same manner as the 
     deductions provided by sections 243, 244, and 245 for a life 
     insurance company are reduced under section 805(a)(4)'' 
     before the period at the end of the first sentence following 
     subparagraph (C), and
       (2) by adding at the end the following new sentence: ``In 
     applying section 812(d) for purposes of the reduction under 
     the third preceding sentence, only gross investment income 
     attributable to the reserves described in such sentence shall 
     be taken into account.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 367. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS 
                   IN DIVISIVE REORGANIZATIONS.

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

                      Subtitle F--Other Provisions

     SEC. 371. REVIEW OF STATE AGENCY BLINDNESS AND DISABILITY 
                   DETERMINATIONS.

       Section 1633 of the Social Security Act (42 U.S.C. 1383b) 
     is amended by adding at the end the following:
       ``(e)(1) The Commissioner of Social Security shall review 
     determinations, made by State agencies pursuant to subsection 
     (a) in connection with applications for benefits under this 
     title on the basis of blindness or disability, that 
     individuals who have attained 18 years of age are blind or 
     disabled as of a specified onset date. The Commissioner of 
     Social Security shall review such a determination before any 
     action is taken to implement the determination.
       ``(2)(A) In carrying out paragraph (1), the Commissioner of 
     Social Security shall review--
       ``(i) at least 25 percent of all determinations referred to 
     in paragraph (1) that are made in fiscal year 2004; and
       ``(ii) at least 50 percent of all such determinations that 
     are made in fiscal year 2005 or thereafter.
       ``(B) In carrying out subparagraph (A), the Commissioner of 
     Social Security shall, to the extent feasible, select for 
     review the determinations which the Commissioner of Social 
     Security identifies as being the most likely to be 
     incorrect.''.

[[Page 11697]]



     SEC. 372. PROHIBITION ON USE OF SCHIP FUNDS TO PROVIDE 
                   COVERAGE FOR CHILDLESS ADULTS.

       (a) General Limitations on Payments.--Section 2105(c)(1) of 
     the Social Security Act (42 U.S.C. 1397ee(c)(1)) is amended 
     by inserting before the period the following: ``and may not 
     include coverage of a childless adult unless the childless 
     adult is a pregnant woman. For purposes of the preceding 
     sentence, a caretaker relative (as such term is defined for 
     purposes of carrying out section 1931) shall not be 
     considered a childless adult.''.
       (b) Limitation on Waiver Authority.--Section 2107 of the 
     Social Security Act (42 U.S.C. 1397gg) is amended by adding 
     at the end the following:
       ``(f) Limitation of Waiver Authority.--Notwithstanding 
     subsection (e)(2)(A) and section 1115(a), the Secretary may 
     not approve a waiver, experimental, pilot, or demonstration 
     project, or an amendment to such a project that has been 
     approved as of the date of enactment of this subsection, that 
     would allow funds made available under this title to be used 
     to provide child health assistance or other health benefits 
     coverage to a childless adult, other than a childless adult 
     who is a pregnant woman. For purposes of the preceding 
     sentence, a caretaker relative (as such term is defined for 
     purposes of carrying out section 1931) shall not be 
     considered a childless adult.''.
       (c) Effective Date.--The amendments made by this section 
     take effect on the date of enactment of this Act and apply to 
     proposals to conduct a waiver, experimental, pilot, or 
     demonstration project affecting the State children's health 
     insurance program under title XXI of such Act, and to any 
     proposals to amend such a project, that are approved or 
     extended on or after such date of enactment.
       (d) Rule of Construction.--Nothing in this section or the 
     amendments made by this section shall be construed to--
       (1) authorize the waiver of any provision of title XXI of 
     the Social Security Act (42 U.S.C. 1397aa et seq.) that is 
     not otherwise authorized to be waived under such title or 
     under title XI of such Act (42 U.S.C. 1301 et seq.) as of the 
     date of enactment of this Act; or
       (2) imply congressional approval of any waiver, 
     experimental, pilot, or demonstration project affecting the 
     State children's health insurance program under title XXI of 
     such Act that has been approved as of such date of enactment.

                    TITLE IV--APPLICATION OF SUNSET

     SEC. 401. APPLICATION OF SUNSET TO TITLE III.

       The amendments made by section 362 shall not apply to 
     taxable years beginning after December 31, 2012, and the 
     Internal Revenue Code of 1986 shall be applied and 
     administered to such years as if such amendments had never 
     been enacted.

                   TITLE V--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

     SEC. 501. EXTENSION OF THE TEMPORARY EXTENDED UNEMPLOYMENT 
                   COMPENSATION ACT OF 2002.

       (a) In General.--Section 208 of the Temporary Extended 
     Unemployment Compensation Act of 2002 (Public Law 107-147; 
     116 Stat. 30), as amended by Public Law 108-1 (117 Stat. 3), 
     is amended--
       (1) in subsection (a)(2), by striking ``before June 1'' and 
     inserting ``on or before November 30'';
       (2) in subsection (b)(1), by striking ``May 31, 2003'' and 
     inserting ``November 30, 2003'';
       (3) in subsection (b)(2)--
       (A) in the heading, by striking ``may 31, 2003'' and 
     inserting ``november 30, 2003''; and
       (B) by striking ``May 31, 2003'' and inserting ``November 
     30, 2003''; and
       (4) in subsection (b)(3), by striking ``August 30, 2003'' 
     and inserting ``February 28, 2004''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 21).

     SEC. 502. ENTITLEMENT TO ADDITIONAL WEEKS OF TEMPORARY 
                   EXTENDED UNEMPLOYMENT COMPENSATION.

       (a) Entitlement to Additional Weeks.--
       (1) In general.--Paragraph (1) of section 203(b) of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 28) is amended--
       (A) in subparagraph (A), by striking ``50 percent'' and 
     inserting ``100 percent''; and
       (B) in subparagraph (B), by striking ``13 times'' and 
     inserting ``26 times''.
       (2) Repeal of restriction on augmentation during 
     transitional period.--Section 208(b) of the Temporary 
     Extended Unemployment Compensation Act of 2002 (Public Law 
     107-147), as amended by Public Law 108-1 (117 Stat. 3) and 
     section 501(a), is amended--
       (A) in paragraph (1)--
       (i) by striking ``paragraphs (2) and (3)'' and inserting 
     ``paragraph (2)''; and
       (ii) by inserting before the period at the end the 
     following: ``, including such compensation payable by reason 
     of amounts deposited in such account after such date pursuant 
     to the application of subsection (c) of such section'';
       (B) by striking paragraph (2); and
       (C) by redesignating paragraph (3) as paragraph (2).
       (3) Extension of transition limitation.--Section 208(b)(2) 
     of the Temporary Extended Unemployment Compensation Act of 
     2002 (Public Law 107-147), as amended by Public Law 108-1 
     (117 Stat. 3) and section 501(a)(4) and as redesignated by 
     paragraph (2), is amended by striking ``February 28, 2004'' 
     and inserting ``May 29, 2004''.
       (4) Conforming amendment for augmented benefits.--Section 
     203(c)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended by 
     striking ``the amount originally established in such account 
     (as determined under subsection (b)(1))'' and inserting ``7 
     times the individual's average weekly benefit amount for the 
     benefit year''.
       (b) Effective Date and Application.--
       (1) In general.--The amendments made by subsection (a) 
     shall apply with respect to weeks of unemployment beginning 
     on or after the date of enactment this Act.
       (2) TEUC-X amounts deposited in account prior to date of 
     enactment deemed to be the additional teuc amounts provided 
     by this section.--In applying the amendments made by 
     subsection (a) under the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 26), 
     the Secretary of Labor shall deem any amounts deposited into 
     an individual's temporary extended unemployment compensation 
     account by reason of section 203(c) of such Act (commonly 
     known as ``TEUC-X amounts'') prior to the date of enactment 
     of this Act to be amounts deposited in such account by reason 
     of section 203(b) of such Act, as amended by subsection (a) 
     (commonly known as ``TEUC amounts'').
       (3) Application to exhaustees and current beneficiaries.--
       (A) Exhaustees.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) who exhausted such individual's rights to such 
     compensation (by reason of the payment of all amounts in such 
     individual's temporary extended unemployment compensation 
     account) before such date,
     such individual's eligibility for any additional weeks of 
     temporary extended unemployment compensation by reason of the 
     amendments made by subsection (a) shall apply with respect to 
     weeks of unemployment beginning on or after the date of 
     enactment of this Act.
       (B) Current beneficiaries.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) as to whom the condition described in subparagraph 
     (A)(ii) does not apply,
     such individual shall be eligible for temporary extended 
     unemployment compensation (in accordance with the provisions 
     of the Temporary Extended Unemployment Compensation Act of 
     2002, as amended by subsection (a)) with respect to weeks of 
     unemployment beginning on or after the date of enactment of 
     this Act.
       (4) Redetermination of eligibility for augmented amounts 
     for individuals for whom such a determination was made prior 
     to the date of enactment.--Any determination of whether the 
     individual's State is in an extended benefit period under 
     section 203(c) of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 28) 
     made prior to the date of enactment of this Act shall be 
     disregarded and the determination under such section shall be 
     made as follows:
       (A) Individuals who exhausted all teuc and teuc-x amounts 
     prior to the date of enactment.--In the case of an individual 
     whose temporary extended unemployment account has, prior to 
     the date of enactment of this Act, been both augmented under 
     such section 203(c) and exhausted of all amounts by which it 
     was so augmented, the determination shall be made as of such 
     date of enactment.
       (B) All other individuals.--In the case of an individual 
     who is not described in subparagraph (A), the determination 
     shall be made at the time that the individual's account 
     established under such section 203, as amended by subsection 
     (a), is exhausted.
       (5) No effect on provisions related to displaced airline 
     related workers.--The amendments made by this section and 
     section 501 shall have no effect on the provisions of section 
     4002 of the Emergency Wartime Supplemental Appropriations 
     Act, 2003 (Public Law 108-11).

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

     SEC. 511. FEDERAL-STATE AGREEMENTS.

       (a) In General.--Any State which desires to do so may enter 
     into and participate in an agreement under this title with 
     the Secretary of Labor (in this title referred to as the 
     ``Secretary''). Any State which is a party to an agreement 
     under this title may, upon providing 30 days' written notice 
     to the Secretary, terminate such agreement.
       (b) Provisions of Agreement.--
       (1) In general.--Subject to paragraph (3), any agreement 
     under subsection (a) shall provide that the State agency of 
     the State,

[[Page 11698]]

     in addition to any amounts of regular compensation to which 
     an individual may be entitled under the State law, shall make 
     payments of temporary enhanced regular unemployment 
     compensation to an individual in an amount and to the extent 
     that the individual would be entitled to regular compensation 
     if the State law were applied with the modifications 
     described in paragraph (2).
       (2) Modifications described.--The modifications described 
     in this paragraph are as follows:
       (A) In the case of an individual who is not eligible for 
     regular compensation under the State law because of the use 
     of a definition of base period that does not count wages 
     earned in the most recently completed calendar quarter, then 
     eligibility for compensation shall be determined by applying 
     a base period ending at the close of the most recently 
     completed calendar quarter.
       (B) In the case of an individual who is not eligible for 
     regular compensation under the State law because such 
     individual does not meet requirements relating to 
     availability for work, active search for work, or refusal to 
     accept work, because such individual is seeking, or is 
     available for, less than full-time work, then compensation 
     shall not be denied by such State to an otherwise eligible 
     individual who seeks less than full-time work or fails to 
     accept full-time work.
       (3) Reduction of amounts of regular compensation available 
     for individuals who sought part-time work or failed to accept 
     full-time work.--Any agreement under subsection (a) shall 
     provide that the State agency of the State shall reduce the 
     amount of regular compensation available to an individual who 
     has received temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in paragraph (2)(B) by the amount of 
     such temporary enhanced regular unemployment compensation.
       (c) Coordination Rule.--The modifications described in 
     subsection (b)(2) shall also apply in determining the amount 
     of benefits payable under any Federal law to the extent that 
     those benefits are determined by reference to regular 
     compensation payable under the State law of the State 
     involved.

     SEC. 512. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS 
                   TITLE.

       (a) General Rule.--There shall be paid to each State which 
     has entered into an agreement under this title an amount 
     equal to--
       (1) 100 percent of any temporary enhanced regular 
     unemployment compensation; and
       (2) 100 percent of any regular compensation which is paid 
     to individuals by such State by reason of the fact that its 
     State law contains provisions comparable to the modifications 
     described in subparagraphs (A) and (B) of section 511(b)(2), 
     but only to the extent that those amounts would, if such 
     amounts were instead payable by virtue of the State law's 
     being deemed to be so modified pursuant to section 511(b)(1), 
     have been reimbursable under paragraph (1).
       (b) Determination of Amount.--Sums under subsection (a) 
     payable to any State by reason of such State having an 
     agreement under this title shall be payable, either in 
     advance or by way of reimbursement (as may be determined by 
     the Secretary), in such amounts as the Secretary estimates 
     the State will be entitled to receive under this title for 
     each calendar month, reduced or increased, as the case may 
     be, by any amount by which the Secretary finds that the 
     Secretary's estimates for any prior calendar month were 
     greater or less than the amounts which should have been paid 
     to the State. Such estimates may be made on the basis of such 
     statistical, sampling, or other method as may be agreed upon 
     by the Secretary and the State agency of the State involved.

     SEC. 513. FINANCING PROVISIONS.

       (a) In General.--Funds in the extended unemployment 
     compensation account (as established by section 905(a) of the 
     Social Security Act (42 U.S.C. 1105(a))), and the Federal 
     unemployment account (as established by section 904(g) of 
     such Act (42 U.S.C. 1104(g))), of the Unemployment Trust Fund 
     (as established by section 904(a) of such Act (42 U.S.C. 
     1104(a))) shall be used for the making of payments to States 
     having agreements entered into under this title.
       (b) Certification.--The Secretary shall from time to time 
     certify to the Secretary of the Treasury for payment to each 
     State the sums which are payable to such State under this 
     title. The Secretary of the Treasury, prior to audit or 
     settlement by the General Accounting Office, shall make 
     payments to the State in accordance with such certification 
     by transfers from the extended unemployment compensation 
     account (as so established), or, to the extent that there are 
     insufficient funds in that account, from the Federal 
     unemployment account, to the account of such State in the 
     Unemployment Trust Fund (as so established).
       (c) Assistance to States.--There are appropriated out of 
     the employment security administration account of the 
     Unemployment Trust Fund (as established by section 901(a) of 
     the Social Security Act (42 U.S.C. 1101(a))) $500,000,000 to 
     reimburse States for the costs of the administration of 
     agreements under this title (including any improvements in 
     technology in connection therewith) and to provide 
     reemployment services to unemployment compensation claimants 
     in States having agreements under this title. Each State's 
     share of the amount appropriated by the preceding sentence 
     shall be determined by the Secretary according to the factors 
     described in section 302(a) of the Social Security Act (42 
     U.S.C. 502(a)) and certified by the Secretary to the 
     Secretary of the Treasury.
       (d) Appropriations for Certain Payments.--There are 
     appropriated from the general fund of the Treasury, without 
     fiscal year limitation, to the extended unemployment 
     compensation account (as so established) of the Unemployment 
     Trust Fund (as so established) such sums as the Secretary 
     estimates to be necessary to make the payments under this 
     section in respect of--
       (1) compensation payable under chapter 85 of title 5, 
     United States Code; and
       (2) compensation payable on the basis of services to which 
     section 3309(a)(1) of the Internal Revenue Code of 1986 
     applies.
     Amounts appropriated pursuant to the preceding sentence shall 
     not be required to be repaid.

     SEC. 514. DEFINITIONS.

       For purposes of this title, the terms ``compensation'', 
     ``base period'', ``regular compensation'', ``State'', ``State 
     agency'', ``State law'', and ``week'' have the respective 
     meanings given such terms under section 205 of the Federal-
     State Extended Unemployment Compensation Act of 1970.

     SEC. 515. APPLICABILITY.

       (a) In General.--Except as provided in subsection (b), an 
     agreement entered into under this title shall apply to weeks 
     of unemployment--
       (1) beginning after the date on which such agreement is 
     entered into; and
       (2) ending before July 1, 2004.
       (b) Phase-Out of TERUC.--
       (1) In general.--Subject to paragraph (2), in the case of 
     an individual who has established eligibility for temporary 
     enhanced regular unemployment compensation, but who has not 
     exhausted all rights to such compensation, as of the last day 
     of the week ending before July 1, 2004, such compensation 
     shall continue to be payable to such individual for any week 
     beginning after such date for which the individual meets the 
     eligibility requirements of this title.
       (2) Limitation.--No compensation shall be payable by reason 
     of paragraph (1) for any week beginning after December 31, 
     2004.

     SEC. 516. COORDINATION WITH THE TEMPORARY EXTENDED 
                   UNEMPLOYMENT COMPENSATION ACT OF 2002.

       (a) In General.--The Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended--
       (1) in section 202(b)(1), by inserting ``, and who have 
     exhausted all rights to temporary enhanced regular 
     unemployment compensation'' before the semicolon at the end;
       (2) in section 202(b)(2), by inserting ``, temporary 
     enhanced regular unemployment compensation,'' after ``regular 
     compensation'';
       (3) in section 202(c), by inserting ``(or, as the case may 
     be, such individual's rights to temporary enhanced regular 
     unemployment compensation)'' after ``State law'' in the 
     matter preceding paragraph (1);
       (4) in section 202(c)(1), by inserting ``and no payments of 
     temporary enhanced regular unemployment compensation can be 
     made'' after ``under such law'';
       (5) in section 202(d)(1), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     (including dependents' allowances) payable to such individual 
     for such a week,'' after ``total unemployment'';
       (6) in section 202(d)(2)(A), by inserting ``, or, as the 
     case may be, to temporary enhanced regular unemployment 
     compensation,'' after ``State law'';
       (7) in section 203(b)(1)(A), by inserting ``plus the amount 
     of any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``under 
     such law''; and
       (8) in section 203(b)(2), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``total 
     unemployment''.
       (b) Amount of TEUC Offset by Amount of TERUC.--Section 
     203(b)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended--
       (1) in subparagraph (B), by striking the period at the end 
     and inserting a comma; and
       (2) by adding at the end the following:
     ``minus the number of weeks in which the individual was 
     entitled to temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in section 511(b)(2)(A) of the Jobs 
     and Growth Reconciliation Tax Act of 2003 (relating to the 
     alternative base period) multiplied by the individual's 
     average weekly benefit amount for the benefit year.''.
       (c) Temporary Enhanced Regular Unemployment Compensation 
     Defined.--Section 207 of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended to read as follows:

     ``SEC. 207. DEFINITIONS.

       ``In this title:

[[Page 11699]]

       ``(1) General definitions.--The terms `compensation', 
     `regular compensation', `extended compensation', `additional 
     compensation', `benefit year', `base period', `State', `State 
     agency', `State law', and `week' have the respective meanings 
     given such terms under section 205 of the Federal-State 
     Extended Unemployment Compensation Act of 1970 (26 U.S.C. 
     3304 note).
       ``(2) Temporary enhanced regular unemployment 
     compensation.--The term `temporary enhanced regular 
     unemployment compensation' means temporary enhanced regular 
     unemployment benefits payable under title VI of the Jobs and 
     Growth Reconciliation Tax Act of 2003.''.
                                 ______
                                 
  SA 616. Mr. DAYTON submitted an amendment intended to be proposed by 
him to the bill S. 1054 to provide for reconciliation pursuant to 
section 201 of the concurrent resolution on the budget for fiscal year 
2004; which was ordered to lie on the table; as follows:

       At the end of subtitle C of title V add the following:

     SEC. __. PROHIBITION ON THE CONSIDERATION OF ANY LONG-TERM 
                   PHASEIN OF ANY REVENUE-REDUCING MEASURE.

       (a) In General.--Title III of the Congressional Budget and 
     Impoundment Control Act of 1974 is amended by adding at the 
     end the following:


  ``prohibition on the consideration of any long-term phasein of any 
                        revenue-reducing measure

       ``Sec. 316. (a) In General.--It shall not be in order in 
     the House of Representatives or the Senate to consider any 
     bill, joint resolution, amendment, motion, or conference 
     report, that phases in a revenue-reducing measure for a 
     period longer than the 1-taxable year period beginning after 
     the date of the enactment of such measure.
       ``(b) Revenue-Reducing Measure.--The term `revenue-reducing 
     measure' means any change in any rate of tax, deduction, 
     exemption, credit, exclusion, or similar change to the 
     Internal Revenue Code of 1986 that will result in a reduction 
     in revenues to the United States Treasury.''.
       (b) Supermajority Point of Order.--Subsections (c)(1) and 
     (d)(2) of section 904 of the Congressional Budget and 
     Impoundment Control Act of 1974 are amended by inserting 
     ``316,'' after ``313,''.
       (c) Conforming Amendment.--The table of contents for the 
     Congressional Budget and Impoundment Control Act of 1974 is 
     amended by inserting after the item relating to section 315 
     the following:

``Sec. 316. Prohibition on the consideration of any long-term phasein 
              of any revenue-reducing measure.''.

       (d) Effective Date.--The amendments made by this section 
     take effect on January 1, 2004.
                                 ______
                                 
  SA 617. Mr. GRAHAM of Florida proposed an amendment to the bill S. 
1054, to provide for reconciliation pursuant to section 201 of the 
concurrent resolution on the budget for fiscal year 2004; as follows:

       Strike all after the enacting clause and insert the 
     following:
       (a) Short Title.--This Act may be cited as the ``Family 
     Paycheck Tax Relief Economic Act of 2003''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--

                          TITLE I--TAX RELIEF

Sec. 101. Refundable wage credit.
Sec. 102. Modifications to expensing under section 179.

                     TITLE II--STATE FISCAL RELIEF

Sec. 201. Temporary increase of medicaid FMAP.

                  TITLE III--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

Sec. 301. Extension of the Temporary Extended Unemployment Compensation 
              Act of 2002.
Sec. 302. Entitlement to additional weeks of temporary extended 
              unemployment compensation.

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

Sec. 311. Federal-State agreements.
Sec. 312. Payments to States having agreements under this title.
Sec. 313. Financing provisions.
Sec. 314. Definitions.
Sec. 315. Applicability.
Sec. 316. Coordination with the Temporary Extended Unemployment 
              Compensation Act of 2002.

                      TITLE IV--REVENUE PROVISIONS

                     Subtitle A--General Provisons

Sec. 401. Suspension of income tax rate reductions for highest income 
              taxpayers.
Sec. 402. Suspension of elimination of PEP and Pease phaseouts.
Sec. 403. Suspension of reductions in estate tax after 2006.
Sec. 404. Application of EGTRRA sunset to this subtitle.

        Subtitle B--Provisions Designed To Curtail Tax Shelters

Sec. 411. Clarification of economic substance doctrine.
Sec. 412. Penalty for failing to disclose reportable transaction.
Sec. 413. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 414. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 415. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 416. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 417. Disclosure of reportable transactions.
Sec. 418. Modifications to penalty for failure to register tax 
              shelters.
Sec. 419. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 420. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 421. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 422. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 423. Frivolous tax submissions.
Sec. 424. Penalty on promoters of tax shelters.
Sec. 425. Statute of limitations for taxable years for which listed 
              transactions not reported.
Sec. 426. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.

           Subtitle C--Other Corporate Governance Provisions

Sec. 431. Affirmation of consolidated return regulation authority.
Sec. 432. Signing of corporate tax returns by chief executive officer.
Sec. 433. Securities civil enforcement provisions.

       Subtitle D--Reversing the Expatriation of Profits Offshore

Sec. 440. Revision of tax rules on expatriation.
Sec. 441. Tax treatment of inverted corporate entities.
Sec. 442. Excise tax on stock compensation of insiders in inverted 
              corporations.
Sec. 443. Reinsurance of United States risks in foreign jurisdictions.

                   Subtitle E--Additional Provisions

Sec. 451. Treatment on nonqualified deferred compensation plans.
Sec. 452. Extension of customs user fees.

                          TITLE I--TAX RELIEF

     SEC. 101. REFUNDABLE WAGE CREDIT.

       (a) In General.--Subpart C of part IV of subchapter A of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     refundable credits) is amended by redesignating section 36 as 
     section 37 and by inserting after section 35 the following 
     new section:

     ``SEC. 36. WAGE CREDIT.

       ``(a) In General.--In the case of an individual, there 
     shall be allowed as a credit against the tax imposed by this 
     subtitle for the taxpayer's first taxable year beginning in 
     2003 or 2004 an amount equal to 7.65 percent of so much of 
     the taxpayer's wages (as defined in section 3401(a)) as does 
     not exceed $10,000.
       ``(b) Coordination with Advance Refunds of Credit.--
       ``(1) In general.--The amount of credit which would (but 
     for this paragraph) be allowable under subsection (a) shall 
     be reduced (but not below zero) by the aggregate adjustments 
     taken unto account under subsection (c). Any failure to so 
     reduce the credit shall be treated as arising out of a 
     mathematical or clerical error and assessed according to 
     section 6213(b)(1).
       ``(2) Joint returns.--In the case of an adjustment taken 
     into account under subsection (c) with respect to a joint 
     return, half of such credit shall be treated as having been 
     made or allowed to each individual filing such return.
       ``(c) Credit Paid Through Adjustment of Wage Withholding 
     Tables.--The Secretary shall adjust the wage withholding 
     tables prescribed under section 3402(a)(1), as soon as 
     practicable, to take into account the credit allowed under 
     under subsection (a).''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 1324(b) of title 31, United 
     States Code, is amended by inserting before the period ``, or 
     from section 36 of such Code''.
       (2) The table of sections for subpart C of part IV of 
     subchapter A of chapter 1 of the Internal Revenue Code of 
     1986 is amended by

[[Page 11700]]

     striking the last item and inserting the following new items:

``Sec. 36. Wage credit.
``Sec. 37. Overpayments of tax.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 102. MODIFICATIONS TO EXPENSING UNDER SECTION 179.

       (a) Increase of Amount Which May Be Expensed.--
       (1) In general.--Paragraph (1) of section 179(b) (relating 
     to dollar limitation) is amended to read as follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed $25,000 ($100,000 in the case of section 179 
     property placed in service after June 30, 2003, and before 
     January 1, 2005).''
       (2) Increase in phaseout threshold.--Paragraph (2) of 
     section 179(b) is amended by striking ``$200,000'' and 
     inserting ``$200,000 ($400,000 in the case of section 179 
     property placed in service after June 30, 2003, and before 
     January 1, 2005)''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after June 30, 
     2003.

                     TITLE II--STATE FISCAL RELIEF

     SEC. 201. TEMPORARY INCREASE OF MEDICAID FMAP.

       (a) Permitting Maintenance of Fiscal Year 2002 FMAP for 
     Last 2 Calendar Quarters of Fiscal Year 2003.--
     Notwithstanding any other provision of law, but subject to 
     subsection (e), if the FMAP determined without regard to this 
     section for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this section.
       (b) Permitting Maintenance of Fiscal Year 2003 FMAP for 
     First 2 Calendar Quarters of Fiscal Year 2004.--
     Notwithstanding any other provision of law, but subject to 
     subsection (e), if the FMAP determined without regard to this 
     section for a State for fiscal year 2004 is less than the 
     FMAP as so determined for fiscal year 2003, the FMAP for the 
     State for fiscal year 2003 shall be substituted for the 
     State's FMAP for the first and second calendar quarters of 
     fiscal year 2004, before the application of this section.
       (c) General 15.1 Percentage Points Increase for Last 2 
     Calendar Quarters of Fiscal Year 2003 and First 2 Calendar 
     Quarters of Fiscal Year 2004.--Notwithstanding any other 
     provision of law, but subject to subsections (e) and (f), for 
     each State for the third and fourth calendar quarters of 
     fiscal year 2003 and the first and second calendar quarters 
     of fiscal year 2004, the FMAP (taking into account the 
     application of subsections (a) and (b)) shall be increased by 
     15.1 percentage points.
       (d) Increase in Cap on Medicaid Payments To Territories.--
     Notwithstanding any other provision of law, but subject to 
     subsection (f), with respect to the third and fourth calendar 
     quarters of fiscal year 2003 and the first and second 
     calendar quarters of fiscal year 2004, the amounts otherwise 
     determined for Puerto Rico, the Virgin Islands, Guam, the 
     Northern Mariana Islands, and American Samoa under 
     subsections (f) and (g) of section 1108 of the Social 
     Security Act (42 U.S.C. 1308) shall each be increased by an 
     amount equal to 30.2 percent of such amounts.
       (e) Scope of Application.--The increases in the FMAP for a 
     State under this section shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (1) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4); or
       (2) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.).
       (f) State Eligibility.--
       (1) In general.--Subject to paragraph (2), a State is 
     eligible for an increase in its FMAP under subsection (c) or 
     an increase in a cap amount under subsection (d) only if the 
     eligibility under its State plan under title XIX of the 
     Social Security Act (including any waiver under such title or 
     under section 1115 of such Act (42 U.S.C. 1315)) is no more 
     restrictive than the eligibility under such plan (or waiver) 
     as in effect on September 2, 2003.
       (2) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after September 2, 2003, but prior to the date of 
     enactment of this Act is eligible for an increase in its FMAP 
     under subsection (c) or an increase in a cap amount under 
     subsection (d) in the first calendar quarter (and subsequent 
     calendar quarters) in which the State has reinstated 
     eligibility that is no more restrictive than the eligibility 
     under such plan (or waiver) as in effect on September 2, 
     2003.
       (3) Rule of construction.--Nothing in paragraph (1) or (2) 
     shall be construed as affecting a State's flexibility with 
     respect to benefits offered under the State medicaid program 
     under title XIX of the Social Security Act (42 U.S.C. 1396 et 
     seq.) (including any waiver under such title or under section 
     1115 of such Act (42 U.S.C. 1315)).
       (g) Definitions.--In this section:
       (1) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (2) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (h) Repeal.--Effective as of April 1, 2004, this section is 
     repealed.

                  TITLE III--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

     SEC. 301. EXTENSION OF THE TEMPORARY EXTENDED UNEMPLOYMENT 
                   COMPENSATION ACT OF 2002.

       (a) In General.--Section 208 of the Temporary Extended 
     Unemployment Compensation Act of 2002 (Public Law 107-147; 
     116 Stat. 30), as amended by Public Law 108-1 (117 Stat. 3), 
     is amended--
       (1) in subsection (a)(2), by striking ``before June 1'' and 
     inserting ``on or before November 30'';
       (2) in subsection (b)(1), by striking ``May 31, 2003'' and 
     inserting ``November 30, 2003'';
       (3) in subsection (b)(2)--
       (A) in the heading, by striking ``may 31, 2003'' and 
     inserting ``november 30, 2003''; and
       (B) by striking ``May 31, 2003'' and inserting ``November 
     30, 2003''; and
       (4) in subsection (b)(3), by striking ``August 30, 2003'' 
     and inserting ``February 28, 2004''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 21).

     SEC. 302. ENTITLEMENT TO ADDITIONAL WEEKS OF TEMPORARY 
                   EXTENDED UNEMPLOYMENT COMPENSATION.

       (a) Entitlement to Additional Weeks.--
       (1) In general.--Paragraph (1) of section 203(b) of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 28) is amended--
       (A) in subparagraph (A), by striking ``50 percent'' and 
     inserting ``100 percent''; and
       (B) in subparagraph (B), by striking ``13 times'' and 
     inserting ``26 times''.
       (2) Repeal of restriction on augmentation during 
     transitional period.--Section 208(b) of the Temporary 
     Extended Unemployment Compensation Act of 2002 (Public Law 
     107-147), as amended by Public Law 108-1 (117 Stat. 3) and 
     section 301(a), is amended--
       (A) in paragraph (1)--
       (i) by striking ``paragraphs (2) and (3)'' and inserting 
     ``paragraph (2)''; and
       (ii) by inserting before the period at the end the 
     following: ``, including such compensation payable by reason 
     of amounts deposited in such account after such date pursuant 
     to the application of subsection (c) of such section'';
       (B) by striking paragraph (2); and
       (C) by redesignating paragraph (3) as paragraph (2).
       (3) Extension of transition limitation.--Section 208(b)(2) 
     of the Temporary Extended Unemployment Compensation Act of 
     2002 (Public Law 107-147), as amended by Public Law 108-1 
     (117 Stat. 3) and section 301(a)(4) and as redesignated by 
     paragraph (2), is amended by striking ``February 28, 2004'' 
     and inserting ``May 29, 2004''.
       (4) Conforming amendment for augmented benefits.--Section 
     203(c)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended by 
     striking ``the amount originally established in such account 
     (as determined under subsection (b)(1))'' and inserting ``7 
     times the individual's average weekly benefit amount for the 
     benefit year''.
       (b) Effective Date and Application.--
       (1) In general.--The amendments made by subsection (a) 
     shall apply with respect to weeks of unemployment beginning 
     on or after the date of enactment this Act.
       (2) TEUC-X amounts deposited in account prior to date of 
     enactment deemed to be the additional teuc amounts provided 
     by this section.--In applying the amendments made by 
     subsection (a) under the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 26), 
     the Secretary of Labor shall deem any amounts deposited into 
     an individual's temporary extended unemployment compensation 
     account by reason of section 203(c) of such Act (commonly 
     known as ``TEUC-X amounts'') prior to the date of enactment 
     of this Act to be amounts deposited in such account by reason 
     of section 203(b) of such Act, as amended by subsection (a) 
     (commonly known as ``TEUC amounts'').
       (3) Application to exhaustees and current beneficiaries.--
       (A) Exhaustees.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) who exhausted such individual's rights to such 
     compensation (by reason of the payment of all amounts in such 
     individual's temporary extended unemployment compensation 
     account) before such date,

     such individual's eligibility for any additional weeks of 
     temporary extended unemployment compensation by reason of the

[[Page 11701]]

     amendments made by subsection (a) shall apply with respect to 
     weeks of unemployment beginning on or after the date of 
     enactment of this Act.
       (B) Current beneficiaries.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) as to whom the condition described in subparagraph 
     (A)(ii) does not apply,

     such individual shall be eligible for temporary extended 
     unemployment compensation (in accordance with the provisions 
     of the Temporary Extended Unemployment Compensation Act of 
     2002, as amended by subsection (a)) with respect to weeks of 
     unemployment beginning on or after the date of enactment of 
     this Act.
       (4) Redetermination of eligibility for augmented amounts 
     for individuals for whom such a determination was made prior 
     to the date of enactment.--Any determination of whether the 
     individual's State is in an extended benefit period under 
     section 203(c) of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 28) 
     made prior to the date of enactment of this Act shall be 
     disregarded and the determination under such section shall be 
     made as follows:
       (A) Individuals who exhausted all teuc and teuc-x amounts 
     prior to the date of enactment.--In the case of an individual 
     whose temporary extended unemployment account has, prior to 
     the date of enactment of this Act, been both augmented under 
     such section 203(c) and exhausted of all amounts by which it 
     was so augmented, the determination shall be made as of such 
     date of enactment.
       (B) All other individuals.--In the case of an individual 
     who is not described in subparagraph (A), the determination 
     shall be made at the time that the individual's account 
     established under such section 203, as amended by subsection 
     (a), is exhausted.
       (5) No effect on provisions related to displaced airline 
     related workers.--The amendments made by this section and 
     section 301 shall have no effect on the provisions of section 
     4002 of the Emergency Wartime Supplemental Appropriations 
     Act, 2003 (Public Law 108-11).

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

     SEC. 311. FEDERAL-STATE AGREEMENTS.

       (a) In General.--Any State which desires to do so may enter 
     into and participate in an agreement under this title with 
     the Secretary of Labor (in this title referred to as the 
     ``Secretary''). Any State which is a party to an agreement 
     under this title may, upon providing 30 days' written notice 
     to the Secretary, terminate such agreement.
       (b) Provisions of Agreement.--
       (1) In general.--Subject to paragraph (3), any agreement 
     under subsection (a) shall provide that the State agency of 
     the State, in addition to any amounts of regular compensation 
     to which an individual may be entitled under the State law, 
     shall make payments of temporary enhanced regular 
     unemployment compensation to an individual in an amount and 
     to the extent that the individual would be entitled to 
     regular compensation if the State law were applied with the 
     modifications described in paragraph (2).
       (2) Modifications described.--The modifications described 
     in this paragraph are as follows:
       (A) In the case of an individual who is not eligible for 
     regular compensation under the State law because of the use 
     of a definition of base period that does not count wages 
     earned in the most recently completed calendar quarter, then 
     eligibility for compensation shall be determined by applying 
     a base period ending at the close of the most recently 
     completed calendar quarter.
       (B) In the case of an individual who is not eligible for 
     regular compensation under the State law because such 
     individual does not meet requirements relating to 
     availability for work, active search for work, or refusal to 
     accept work, because such individual is seeking, or is 
     available for, less than full-time work, then compensation 
     shall not be denied by such State to an otherwise eligible 
     individual who seeks less than full-time work or fails to 
     accept full-time work.
       (3) Reduction of amounts of regular compensation available 
     for individuals who sought part-time work or failed to accept 
     full-time work.--Any agreement under subsection (a) shall 
     provide that the State agency of the State shall reduce the 
     amount of regular compensation available to an individual who 
     has received temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in paragraph (2)(B) by the amount of 
     such temporary enhanced regular unemployment compensation.
       (c) Coordination Rule.--The modifications described in 
     subsection (b)(2) shall also apply in determining the amount 
     of benefits payable under any Federal law to the extent that 
     those benefits are determined by reference to regular 
     compensation payable under the State law of the State 
     involved.

     SEC. 312. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS 
                   TITLE.

       (a) General Rule.--There shall be paid to each State which 
     has entered into an agreement under this title an amount 
     equal to--
       (1) 100 percent of any temporary enhanced regular 
     unemployment compensation; and
       (2) 100 percent of any regular compensation which is paid 
     to individuals by such State by reason of the fact that its 
     State law contains provisions comparable to the modifications 
     described in subparagraphs (A) and (B) of section 311(b)(2), 
     but only to the extent that those amounts would, if such 
     amounts were instead payable by virtue of the State law's 
     being deemed to be so modified pursuant to section 311(b)(1), 
     have been reimbursable under paragraph (1).
       (b) Determination of Amount.--Sums under subsection (a) 
     payable to any State by reason of such State having an 
     agreement under this title shall be payable, either in 
     advance or by way of reimbursement (as may be determined by 
     the Secretary), in such amounts as the Secretary estimates 
     the State will be entitled to receive under this title for 
     each calendar month, reduced or increased, as the case may 
     be, by any amount by which the Secretary finds that the 
     Secretary's estimates for any prior calendar month were 
     greater or less than the amounts which should have been paid 
     to the State. Such estimates may be made on the basis of such 
     statistical, sampling, or other method as may be agreed upon 
     by the Secretary and the State agency of the State involved.

     SEC. 313. FINANCING PROVISIONS.

       (a) In General.--Funds in the extended unemployment 
     compensation account (as established by section 905(a) of the 
     Social Security Act (42 U.S.C. 1105(a))), and the Federal 
     unemployment account (as established by section 904(g) of 
     such Act (42 U.S.C. 1104(g))), of the Unemployment Trust Fund 
     (as established by section 904(a) of such Act (42 U.S.C. 
     1104(a))) shall be used for the making of payments to States 
     having agreements entered into under this title.
       (b) Certification.--The Secretary shall from time to time 
     certify to the Secretary of the Treasury for payment to each 
     State the sums which are payable to such State under this 
     title. The Secretary of the Treasury, prior to audit or 
     settlement by the General Accounting Office, shall make 
     payments to the State in accordance with such certification 
     by transfers from the extended unemployment compensation 
     account (as so established), or, to the extent that there are 
     insufficient funds in that account, from the Federal 
     unemployment account, to the account of such State in the 
     Unemployment Trust Fund (as so established).
       (c) Assistance to States.--There are appropriated out of 
     the employment security administration account of the 
     Unemployment Trust Fund (as established by section 901(a) of 
     the Social Security Act (42 U.S.C. 1101(a))) $500,000,000 to 
     reimburse States for the costs of the administration of 
     agreements under this title (including any improvements in 
     technology in connection therewith) and to provide 
     reemployment services to unemployment compensation claimants 
     in States having agreements under this title. Each State's 
     share of the amount appropriated by the preceding sentence 
     shall be determined by the Secretary according to the factors 
     described in section 302(a) of the Social Security Act (42 
     U.S.C. 502(a)) and certified by the Secretary to the 
     Secretary of the Treasury.
       (d) Appropriations for Certain Payments.--There are 
     appropriated from the general fund of the Treasury, without 
     fiscal year limitation, to the extended unemployment 
     compensation account (as so established) of the Unemployment 
     Trust Fund (as so established) such sums as the Secretary 
     estimates to be necessary to make the payments under this 
     section in respect of--
       (1) compensation payable under chapter 85 of title 5, 
     United States Code; and
       (2) compensation payable on the basis of services to which 
     section 3309(a)(1) of the Internal Revenue Code of 1986 
     applies.

     Amounts appropriated pursuant to the preceding sentence shall 
     not be required to be repaid.

     SEC. 314. DEFINITIONS.

       For purposes of this title, the terms ``compensation'', 
     ``base period'', ``regular compensation'', ``State'', ``State 
     agency'', ``State law'', and ``week'' have the respective 
     meanings given such terms under section 205 of the Federal-
     State Extended Unemployment Compensation Act of 1970.

     SEC. 315. APPLICABILITY.

       (a) In General.--Except as provided in subsection (b), an 
     agreement entered into under this title shall apply to weeks 
     of unemployment--
       (1) beginning after the date on which such agreement is 
     entered into; and
       (2) ending before July 1, 2004.
       (b) Phase-Out of TERUC.--
       (1) In general.--Subject to paragraph (2), in the case of 
     an individual who has established eligibility for temporary 
     enhanced regular unemployment compensation, but who has not 
     exhausted all rights to such compensation, as of the last day 
     of the week ending before July 1, 2004, such compensation 
     shall continue to be payable to such individual for any week 
     beginning after such date for which the individual meets the 
     eligibility requirements of this title.
       (2) Limitation.--No compensation shall be payable by reason 
     of paragraph (1) for any week beginning after December 31, 
     2004.

[[Page 11702]]



     SEC. 316. COORDINATION WITH THE TEMPORARY EXTENDED 
                   UNEMPLOYMENT COMPENSATION ACT OF 2002.

       (a) In General.--The Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended--
       (1) in section 202(b)(1), by inserting ``, and who have 
     exhausted all rights to temporary enhanced regular 
     unemployment compensation'' before the semicolon at the end;
       (2) in section 202(b)(2), by inserting ``, temporary 
     enhanced regular unemployment compensation,'' after ``regular 
     compensation'';
       (3) in section 202(c), by inserting ``(or, as the case may 
     be, such individual's rights to temporary enhanced regular 
     unemployment compensation)'' after ``State law'' in the 
     matter preceding paragraph (1);
       (4) in section 202(c)(1), by inserting ``and no payments of 
     temporary enhanced regular unemployment compensation can be 
     made'' after ``under such law'';
       (5) in section 202(d)(1), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     (including dependents' allowances) payable to such individual 
     for such a week,'' after ``total unemployment'';
       (6) in section 202(d)(2)(A), by inserting ``, or, as the 
     case may be, to temporary enhanced regular unemployment 
     compensation,'' after ``State law'';
       (7) in section 203(b)(1)(A), by inserting ``plus the amount 
     of any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``under 
     such law''; and
       (8) in section 203(b)(2), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``total 
     unemployment''.
       (b) Amount of TEUC Offset by Amount of TERUC.--Section 
     203(b)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended--
       (1) in subparagraph (B), by striking the period at the end 
     and inserting a comma; and
       (2) by adding at the end the following:

     ``minus the number of weeks in which the individual was 
     entitled to temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in section 311(b)(2)(A) of the Family 
     Paycheck Tax Relief Act of 2003 (relating to the alternative 
     base period) multiplied by the individual's average weekly 
     benefit amount for the benefit year.''.
       (c) Temporary Enhanced Regular Unemployment Compensation 
     Defined.--Section 207 of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended to read as follows:

     ``SEC. 207. DEFINITIONS.

       ``In this title:
       ``(1) General definitions.--The terms `compensation', 
     `regular compensation', `extended compensation', `additional 
     compensation', `benefit year', `base period', `State', `State 
     agency', `State law', and `week' have the respective meanings 
     given such terms under section 205 of the Federal-State 
     Extended Unemployment Compensation Act of 1970 (26 U.S.C. 
     3304 note).
       ``(2) Temporary enhanced regular unemployment 
     compensation.--The term `temporary enhanced regular 
     unemployment compensation' means temporary enhanced regular 
     unemployment benefits payable under title III of the Family 
     Paycheck Tax Relief Act of 2003.''.

                      TITLE IV--REVENUE PROVISIONS

                     Subtitle A--General Provisons

     SEC. 401. SUSPENSION OF INCOME TAX RATE REDUCTIONS FOR 
                   HIGHEST INCOME TAXPAYERS.

       (a) In General.--The table contained in section 1(i)(2) of 
     the Internal Revenue Code of 1986 (relating to reductions in 
     rates after June 30, 2001) is amended--
       (1) in the second column, by striking ``29.0%'' and 
     inserting ``30.0%'',
       (2) in the second column, by striking ``28.9%'' and 
     inserting ``30.0%'',
       (3) in the third column, by striking ``34.0%'' and 
     inserting ``35.0%'',
       (4) in the third column, by striking ``33.0%'' and 
     inserting ``35.0%'',
       (5) in the last column, by striking ``37.6%'' and inserting 
     ``38.6%'', and
       (6) in the last column, by striking ``35.0%'' and inserting 
     ``38.6%''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 402. SUSPENSION OF ELIMINATION OF PEP AND PEASE 
                   PHASEOUTS.

       (a) PEP.--Section 151(d)(3) (relating to phaseout) is 
     amended by striking subparagraphs (E) and (F).
       (b) Pease.--Section 68 (relating to overall limitation on 
     itemized deductions) is amended by striking subsections (f) 
     and (g).

     SEC. 403. SUSPENSION OF REDUCTIONS IN ESTATE TAX AFTER 2006.

       (a) Elimination of Estate Tax Repeal.--Subtitle A of title 
     V, sections 511(d), 511(e), and 521(b)(2), and subtitle E of 
     title V of the Economic Growth and Tax Relief Reconciliation 
     Act of 2001 are repealed.
       (b) Conforming Amendments.--The table contained in section 
     2001(c)(2)(B) of the Internal Revenue Code of 1986 is 
     amended--
       (1) by striking the item relating to 2007, 2008, and 2009, 
     and
       (2) by striking ``2006'' and inserting ``2006, 2007, 2008, 
     and 2009''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to the estates of decedents dying, and gifts 
     made, after December 31, 2006.

     SEC. 404. APPLICATION OF EGTRRA SUNSET TO THIS SUBTITLE.

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

        Subtitle B--Provisions Designed To Curtail Tax Shelters

     SEC. 411. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

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

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

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

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

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

[[Page 11703]]

       ``(4) Other common law doctrines not affected.--Except as 
     specifically provided in this subsection, the provisions of 
     this subsection shall not be construed as altering or 
     supplanting any other rule of law, and the requirements of 
     this subsection shall be construed as being in addition to 
     any such other rule of law.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection. Such regulations may include 
     exemptions from the application of this subsection.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after February 15, 
     2004.

     SEC. 412. PENALTY FOR FAILING TO DISCLOSE REPORTABLE 
                   TRANSACTION.

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

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

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

     the penalty under paragraph (1) or (2) shall be twice the 
     amount determined without regard to this paragraph.
       ``(B) Large entity.--For purposes of subparagraph (A), the 
     term `large entity' means, with respect to any taxable year, 
     a person (other than a natural person) with gross receipts in 
     excess of $10,000,000 for the taxable year in which the 
     reportable transaction occurs or the preceding taxable year. 
     Rules similar to the rules of paragraph (2) and subparagraphs 
     (B), (C), and (D) of paragraph (3) of section 448(c) shall 
     apply for purposes of this subparagraph.
       ``(C) High net worth individual.--The term `high net worth 
     individual' means, with respect to a transaction, a natural 
     person whose net worth exceeds $2,000,000 immediately before 
     the transaction.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Reportable transaction.--The term `reportable 
     transaction' means any transaction with respect to which 
     information is required to be included with a return or 
     statement because, as determined under regulations prescribed 
     under section 6011, such transaction is of a type which the 
     Secretary determines as having a potential for tax avoidance 
     or evasion.
       ``(2) Listed transaction.--Except as provided in 
     regulations, the term `listed transaction' means a reportable 
     transaction which is the same as, or substantially similar 
     to, a transaction specifically identified by the Secretary as 
     a tax avoidance transaction for purposes of section 6011.
       ``(d) Authority To Rescind Penalty.--
       ``(1) In general.--The Commissioner of Internal Revenue may 
     rescind all or any portion of any penalty imposed by this 
     section with respect to any violation if--
       ``(A) the violation is with respect to a reportable 
     transaction other than a listed transaction,

       ``(B) the person on whom the penalty is imposed has a 
     history of complying with the requirements of this title,
       ``(C) it is shown that the violation is due to an 
     unintentional mistake of fact;
       ``(D) imposing the penalty would be against equity and good 
     conscience, and
       ``(E) rescinding the penalty would promote compliance with 
     the requirements of this title and effective tax 
     administration.
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may be delegated only to the head of the 
     Office of Tax Shelter Analysis. The Commissioner, in the 
     Commissioner's sole discretion, may establish a procedure to 
     determine if a penalty should be referred to the Commissioner 
     or the head of such Office for a determination under 
     paragraph (1).
       ``(3) No appeal.--Notwithstanding any other provision of 
     law, any determination under this subsection may not be 
     reviewed in any administrative or judicial proceeding.
       ``(4) Records.--If a penalty is rescinded under paragraph 
     (1), the Commissioner shall place in the file in the Office 
     of the Commissioner the opinion of the Commissioner or the 
     head of the Office of Tax Shelter Analysis with respect to 
     the determination, including--
       ``(A) the facts and circumstances of the transaction,
       ``(B) the reasons for the rescission, and
       ``(C) the amount of the penalty rescinded.
       ``(5) Report.--The Commissioner shall each year report to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate--
       ``(A) a summary of the total number and aggregate amount of 
     penalties imposed, and rescinded, under this section, and
       ``(B) a description of each penalty rescinded under this 
     subsection and the reasons therefor.
       ``(e) Penalty Reported to SEC.--In the case of a person--
       ``(1) which is required to file periodic reports under 
     section 13 or 15(d) of the Securities Exchange Act of 1934 or 
     is required to be consolidated with another person for 
     purposes of such reports, and
       ``(2) which--
       ``(A) is required to pay a penalty under this section with 
     respect to a listed transaction,
       ``(B) is required to pay a penalty under section 6662A with 
     respect to any reportable transaction at a rate prescribed 
     under section 6662A(c), or
       ``(C) is required to pay a penalty under section 6662B with 
     respect to any noneconomic substance transaction,
     the requirement to pay such penalty shall be disclosed in 
     such reports filed by such person for such periods as the 
     Secretary shall specify. Failure to make a disclosure in 
     accordance with the preceding sentence shall be treated as a 
     failure to which the penalty under subsection (b)(2) applies.
       ``(f) Coordination With Other Penalties.--The penalty 
     imposed by this section is in addition to any penalty imposed 
     under this title.''
       (b) Conforming Amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by inserting after 
     the item relating to section 6707 the following:

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

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

     SEC. 413. 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.

[[Page 11704]]

       ``(B) Applicable rules.--The rules of paragraphs (2), (3), 
     (4), and (5) of section 6707A(d) shall apply for purposes of 
     subparagraph (A).
       ``(d) Definitions of Reportable and Listed Transactions.--
     For purposes of this section, the terms `reportable 
     transaction' and `listed transaction' have the respective 
     meanings given to such terms by section 6707A(c).
       ``(e) Special Rules.--
       ``(1) Coordination with penalties, etc., on other 
     understatements.--In the case of an understatement (as 
     defined in section 6662(d)(2))--
       ``(A) the amount of such understatement (determined without 
     regard to this paragraph) shall be increased by the aggregate 
     amount of reportable transaction understatements and 
     noneconomic substance transaction understatements for 
     purposes of determining whether such understatement is a 
     substantial understatement under section 6662(d)(1), and
       ``(B) the addition to tax under section 6662(a) shall apply 
     only to the excess of the amount of the substantial 
     understatement (if any) after the application of subparagraph 
     (A) over the aggregate amount of reportable transaction 
     understatements and noneconomic substance transaction 
     understatements.
       ``(2) Coordination with other penalties.--
       ``(A) Application of fraud penalty.--References to an 
     underpayment in section 6663 shall be treated as including 
     references to a reportable transaction understatement and a 
     noneconomic substance transaction understatement.
       ``(B) No double penalty.--This section shall not apply to 
     any portion of an understatement on which a penalty is 
     imposed under section 6662B or 6663.
       ``(3) Special rule for amended returns.--Except as provided 
     in regulations, in no event shall any tax treatment included 
     with an amendment or supplement to a return of tax be taken 
     into account in determining the amount of any reportable 
     transaction understatement or noneconomic substance 
     transaction understatement if the amendment or supplement is 
     filed after the earlier of the date the taxpayer is first 
     contacted by the Secretary regarding the examination of the 
     return or such other date as is specified by the Secretary.
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).
       ``(5) Cross reference.--

  ``For reporting of section 6662A(c) penalty to the Securities and 
Exchange Commission, see section 6707A(e).''

       (b) Determination of Other Understatements.--Subparagraph 
     (A) of section 6662(d)(2) is amended by adding at the end the 
     following flush sentence:

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

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

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

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

       ``(I) is a material advisor (within the meaning of section 
     6111(b)(1)) who participates in the organization, management, 
     promotion, or sale of the transaction or who is related 
     (within the meaning of section 267(b) or 707(b)(1)) to any 
     person who so participates,
       ``(II) is compensated directly or indirectly by a material 
     advisor with respect to the transaction,
       ``(III) has a fee arrangement with respect to the 
     transaction which is contingent on all or part of the 
     intended tax benefits from the transaction being sustained, 
     or
       ``(IV) as determined under regulations prescribed by the 
     Secretary, has a 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. 414. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

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

       ``(a) Imposition of Penalty.--If a taxpayer has an 
     noneconomic substance transaction understatement for any 
     taxable year, there shall be added to the tax an amount equal 
     to 40 percent of the amount of such understatement.
       ``(b) Reduction of Penalty for Disclosed Transactions.--
     Subsection (a) shall be applied by substituting `20 percent' 
     for `40 percent' with respect to the portion of any 
     noneconomic substance transaction understatement with respect 
     to which the relevant facts affecting the tax treatment of 
     the item are adequately disclosed in the return or a 
     statement attached to the return.
       ``(c) Noneconomic Substance Transaction Understatement.--
     For purposes of this section--
       ``(1) In general.--The term `noneconomic substance 
     transaction understatement' means any amount which would be 
     an understatement under section 6662A(b)(1) if section 6662A 
     were applied by taking into account items attributable to 
     noneconomic substance transactions rather than items to which 
     section 6662A applies.
       ``(2) Noneconomic substance transaction.--The term 
     `noneconomic substance transaction' means any transaction 
     if--

[[Page 11705]]

       ``(A) there is a lack of economic substance (within the 
     meaning of section 7701(o)(1)) for the transaction giving 
     rise to the claimed benefit or the transaction was not 
     respected under section 7701(o)(2), or
       ``(B) the transaction fails to meet the requirements of any 
     similar rule of law.
       ``(d) Rules Applicable To Compromise of Penalty.--
       ``(1) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which this section 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(2) Applicable rules.--The rules of paragraphs (2), (3), 
     (4), and (5) of section 6707A(d) shall apply for purposes of 
     paragraph (1).
       ``(e) Coordination With Other Penalties.--Except as 
     otherwise provided in this part, the penalty imposed by this 
     section shall be in addition to any other penalty imposed by 
     this title.
       ``(f) Cross References.--

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

       (b) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after February 15, 
     2004.

     SEC. 415. 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. 416. 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. 417. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

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

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

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

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

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

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

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

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

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

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

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

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

     SEC. 418. 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).

[[Page 11706]]

       ``(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. 419. 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. 420. 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. 421. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

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

     SEC. 422. 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. 423. 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).

[[Page 11707]]

       ``(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. 424. PENALTY ON PROMOTERS OF TAX SHELTERS.

       (a) Penalty on Promoting Abusive Tax Shelters.--Section 
     6700(a) is amended by adding at the end the following new 
     sentence: ``Notwithstanding the first sentence, if an 
     activity with respect to which a penalty imposed under this 
     subsection involves a statement described in paragraph 
     (2)(A), the amount of the penalty shall be equal to 50 
     percent of the gross income derived (or to be derived) from 
     such activity by the person on which the penalty is 
     imposed.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

     SEC. 425. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   LISTED TRANSACTIONS NOT REPORTED.

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

     SEC. 426. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
                   ATTRIBUTABLE TO NONDISCLOSED REPORTABLE AND 
                   NONECONOMIC SUBSTANCE TRANSACTIONS.

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

           Subtitle C--Other Corporate Governance Provisions

     SEC. 431. AFFIRMATION OF CONSOLIDATED RETURN REGULATION 
                   AUTHORITY.

       (a) In General.--Section 1502 (relating to consolidated 
     return regulations) is amended by adding at the end the 
     following new sentence: ``In prescribing such regulations, 
     the Secretary may prescribe rules applicable to corporations 
     filing consolidated returns under section 1501 that are 
     different from other provisions of this title that would 
     apply if such corporations filed separate returns.''
       (b) Result Not Overturned.--Notwithstanding subsection (a), 
     the Internal Revenue Code of 1986 shall be construed by 
     treating Treasury regulation Sec. 1.1502-20(c)(1)(iii) (as in 
     effect on January 1, 2001) as being inapplicable to the type 
     of factual situation in 255 F.3d 1357 (Fed. Cir. 2001).
       (c) Effective Date.--The provisions of this section shall 
     apply to taxable years beginning before, on, or after the 
     date of the enactment of this Act.

     SEC. 432. SIGNING OF CORPORATE TAX RETURNS BY CHIEF EXECUTIVE 
                   OFFICER.

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

     SEC. 433. SECURITIES CIVIL ENFORCEMENT PROVISIONS.

       (a) Authority To Assess Civil Money Penalties.--
       (1) Securities act of 1933.--Section 8A of the Securities 
     Act of 1933 (15 U.S.C. 77h-1) is amended by adding at the end 
     the following new subsection:
       ``(g) Authority of the Commission To Assess Money 
     Penalty.--
       ``(1) In general.--In any cease-and-desist proceeding under 
     subsection (a), the Commission may impose a civil monetary 
     penalty if it finds, on the record after notice and 
     opportunity for hearing, that a person is violating, has 
     violated, or is or was a cause of the violation of, any 
     provision of this title or any rule or regulation thereunder, 
     and that such penalty is in the public interest.
       ``(2) Maximum amount of penalty.--
       ``(A) First tier.--The maximum amount of penalty for each 
     act or omission described in paragraph (1) shall be $100,000 
     for a natural person or $250,000 for any other person.
       ``(B) Second tier.--Notwithstanding subparagraph (A), the 
     maximum amount of penalty for such act or omission described 
     in paragraph (1) shall be $500,000 for a natural person or 
     $1,000,000 for any other person, if the act or omission 
     involved fraud, deceit, manipulation, or deliberate or 
     reckless disregard of a statutory or regulatory requirement.
       ``(C) Third tier.--Notwithstanding subparagraphs (A) and 
     (B), the maximum amount of penalty for each act or omission 
     described in paragraph (1) shall be $1,000,000 for a natural 
     person or $2,000,000 for any other person, if--
       ``(i) the act or omission involved fraud, deceit, 
     manipulation, or deliberate or reckless

[[Page 11708]]

     disregard of a statutory or regulatory requirement; and
       ``(ii) such act or omission directly or indirectly resulted 
     in substantial losses or created a significant risk of 
     substantial losses to other persons or resulted in 
     substantial pecuniary gain to the person who committed the 
     act or omission.
       ``(3) Evidence concerning ability to pay.--In any 
     proceeding in which the Commission or the appropriate 
     regulatory agency may impose a penalty under this section, a 
     respondent may present evidence of the ability of the 
     respondent to pay such penalty. The Commission or the 
     appropriate regulatory agency may, in its discretion, 
     consider such evidence in determining whether the penalty is 
     in the public interest. Such evidence may relate to the 
     extent of the person's ability to continue in business and 
     the collectability of a penalty, taking into account any 
     other claims of the United States or third parties upon the 
     assets of that person and the amount of the assets of that 
     person.''.
       (2) Securities exchange act of 1934.--Section 21B(a) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78u-2(a)) is 
     amended--
       (A) in paragraph (4), by striking ``supervision;'' and all 
     that follows through the end of the subsection and inserting 
     ``supervision.'';
       (B) by redesignating paragraphs (1) through (4) as 
     subparagraphs (A) through (D), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(1) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(2) Other money penalties.--In any proceeding under 
     section 21C against any person, the Commission may impose a 
     civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any provision of this title or any rule or 
     regulation thereunder, and that such penalty is in the public 
     interest.''.
       (3) Investment company act of 1940.--Section 9(d)(1) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-9(d)(1)) is 
     amended--
       (A) in subparagraph (C), by striking ``therein;'' and all 
     that follows through the end of the paragraph and inserting 
     ``supervision.'';
       (B) by redesignating subparagraphs (A) through (C) as 
     clauses (i) through (iii), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(A) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(B) Other money penalties.--In any proceeding under 
     subsection (f) against any person, the Commission may impose 
     a civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any provision of this title or any rule or 
     regulation thereunder, and that such penalty is in the public 
     interest.''.
       (4) Investment advisers act of 1940.--Section 203(i)(1) of 
     the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(i)(1)) 
     is amended--
       (A) in subparagraph (D), by striking ``supervision;'' and 
     all that follows through the end of the paragraph and 
     inserting ``supervision.'';
       (B) by redesignating subparagraphs (A) through (D) as 
     clauses (i) through (iv), respectively, and moving the 
     margins 2 ems to the right;
       (C) by inserting ``that such penalty is in the public 
     interest and'' after ``hearing,'';
       (D) by striking ``In any proceeding'' and inserting the 
     following:
       ``(A) In general.--In any proceeding''; and
       (E) by adding at the end the following:
       ``(B) Other money penalties.--In any proceeding under 
     subsection (k) against any person, the Commission may impose 
     a civil monetary penalty if it finds, on the record after 
     notice and opportunity for hearing, that such person is 
     violating, has violated, or is or was a cause of the 
     violation of, any provision of this title or any rule or 
     regulation thereunder, and that such penalty is in the public 
     interest.''.
       (b) Increased Maximum Civil Money Penalties.--
       (1) Securities act of 1933.--Section 20(d)(2) of the 
     Securities Act of 1933 (15 U.S.C. 77t(d)(2)) is amended--
       (A) in subparagraph (A)(i)--
       (i) by striking ``$5,000'' and inserting ``$100,000''; and
       (ii) by striking ``$50,000'' and inserting ``$250,000'';
       (B) in subparagraph (B)(i)--
       (i) by striking ``$50,000'' and inserting ``$500,000''; and
       (ii) by striking ``$250,000'' and inserting ``$1,000,000''; 
     and
       (C) in subparagraph (C)(i)--
       (i) by striking ``$100,000'' and inserting ``$1,000,000''; 
     and
       (ii) by striking ``$500,000'' and inserting ``$2,000,000''.
       (2) Securities exchange act of 1934.--
       (A) Penalties.--Section 32 of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78ff) is amended--
       (i) in subsection (b), by striking ``$100'' and inserting 
     ``$10,000''; and
       (ii) in subsection (c)--

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

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

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

       (ii) in paragraph (2)--

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

       (iii) in paragraph (3)--

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

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

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

       (ii) in clause (ii)--

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

       (iii) in clause (iii)--

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

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

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

       (ii) in subparagraph (B)--

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

       (iii) in subparagraph (C)--

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

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

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

       (ii) in subparagraph (B)--

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

       (iii) in subparagraph (C)--

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

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

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

       (ii) in subparagraph (B)--

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

       (iii) in subparagraph (C)--

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

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

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

       (ii) in subparagraph (B)--

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

       (iii) in subparagraph (C)--

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

[[Page 11709]]

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

       Subtitle D--Reversing the Expatriation of Profits Offshore

     SEC. 440. REVISION OF TAX RULES ON EXPATRIATION.

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

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

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

     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2003, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2002' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and
       ``(iii) complies with such other requirements as the 
     Secretary may prescribe.
       ``(C) Election.--An election under subparagraph (A) shall 
     apply to all property to which this section would apply but 
     for the election and, once made, shall be irrevocable. Such 
     election shall also apply to property the basis of which is 
     determined in whole or in part by reference to the property 
     with respect to which the election was made.
       ``(b) Election To Defer Tax.--
       ``(1) In general.--If the taxpayer elects the application 
     of this subsection with respect to any property treated as 
     sold by reason of subsection (a), the payment of the 
     additional tax attributable to such property shall be 
     postponed until the due date of the return for the taxable 
     year in which such property is disposed of (or, in the case 
     of property disposed of in a transaction in which gain is not 
     recognized in whole or in part, until such other date as the 
     Secretary may prescribe).
       ``(2) Determination of tax with respect to property.--For 
     purposes of paragraph (1), the additional tax attributable to 
     any property is an amount which bears the same ratio to the 
     additional tax imposed by this chapter for the taxable year 
     solely by reason of subsection (a) as the gain taken into 
     account under subsection (a) with respect to such property 
     bears to the total gain taken into account under subsection 
     (a) with respect to all property to which subsection (a) 
     applies.
       ``(3) Termination of postponement.--No tax may be postponed 
     under this subsection later than the due date for the return 
     of tax imposed by this chapter for the taxable year which 
     includes the date of death of the expatriate (or, if earlier, 
     the time that the security provided with respect to the 
     property fails to meet the requirements of paragraph (4), 
     unless the taxpayer corrects such failure within the time 
     specified by the Secretary).
       ``(4) Security.--
       ``(A) In general.--No election may be made under paragraph 
     (1) with respect to any property unless adequate security is 
     provided to the Secretary with respect to such property.
       ``(B) Adequate security.--For purposes of subparagraph (A), 
     security with respect to any property shall be treated as 
     adequate security if--
       ``(i) it is a bond in an amount equal to the deferred tax 
     amount under paragraph (2) for the property, or
       ``(ii) the taxpayer otherwise establishes to the 
     satisfaction of the Secretary that the security is adequate.
       ``(5) Waiver of certain rights.--No election may be made 
     under paragraph (1) unless the taxpayer consents to the 
     waiver of any right under any treaty of the United States 
     which would preclude assessment or collection of any tax 
     imposed by reason of this section.
       ``(6) Elections.--An election under paragraph (1) shall 
     only apply to property described in the election and, once 
     made, is irrevocable. An election may be made under paragraph 
     (1) with respect to an interest in a trust with respect to 
     which gain is required to be recognized under subsection 
     (f)(1).
       ``(7) Interest.--For purposes of section 6601--
       ``(A) the last date for the payment of tax shall be 
     determined without regard to the election under this 
     subsection, and
       ``(B) section 6621(a)(2) shall be applied by substituting 
     `5 percentage points' for `3 percentage points' in 
     subparagraph (B) thereof.
       ``(c) Covered Expatriate.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `covered expatriate' means an expatriate.
       ``(2) Exceptions.--An individual shall not be treated as a 
     covered expatriate if--
       ``(A) the individual--
       ``(i) became at birth a citizen of the United States and a 
     citizen of another country and, as of the expatriation date, 
     continues to be a citizen of, and is taxed as a resident of, 
     such other country, and
       ``(ii) has not been a resident of the United States (as 
     defined in section 7701(b)(1)(A)(ii)) during the 5 taxable 
     years ending with the

[[Page 11710]]

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

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

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

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

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

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

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

[[Page 11711]]

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

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

       ``(g) Termination of Deferrals, etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable penalty, and costs attributable 
     to the deferred amount) shall be a lien in favor of the 
     United States on all property of the expatriate located in 
     the United States (without regard to whether this section 
     applies to the property).
       ``(B) Deferred amount.--For purposes of this subsection, 
     the deferred amount is the amount of the increase in the 
     covered expatriate's income tax which, but for the election 
     under subsection (a)(4) or (b), would have occurred by reason 
     of this section for the taxable year including the 
     expatriation date.
       ``(2) Period of lien.--The lien imposed by this subsection 
     shall arise on the expatriation date and continue until--
       ``(A) the liability for tax by reason of this section is 
     satisfied or has become unenforceable by reason of lapse of 
     time, or
       ``(B) it is established to the satisfaction of the 
     Secretary that no further tax liability may arise by reason 
     of this section.
       ``(3) Certain rules apply.--The rules set forth in 
     paragraphs (1), (3), and (4) of section 6324A(d) shall apply 
     with respect to the lien imposed by this subsection as if it 
     were a lien imposed by section 6324A.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Inclusion in Income of Gifts and Bequests Received by 
     United States Citizens and Residents From Expatriates.--
     Section 102 (relating to gifts, etc. not included in gross 
     income) is amended by adding at the end the following new 
     subsection:
       ``(d) Gifts and Inheritances From Covered Expatriates.--
       ``(1) In general.--Subsection (a) shall not exclude from 
     gross income the value of any property acquired by gift, 
     bequest, devise, or inheritance from a covered expatriate 
     after the expatriation date. For purposes of this subsection, 
     any term used in this subsection which is also used in 
     section 877A shall have the same meaning as when used in 
     section 877A.
       ``(2) Exceptions for transfers otherwise subject to estate 
     or gift tax.--Paragraph (1) shall not apply to any property 
     if either--
       ``(A) the gift, bequest, devise, or inheritance is--
       ``(i) shown on a timely filed return of tax imposed by 
     chapter 12 as a taxable gift by the covered expatriate, or
       ``(ii) included in the gross estate of the covered 
     expatriate for purposes of chapter 11 and shown on a timely 
     filed return of tax imposed by chapter 11 of the estate of 
     the covered expatriate, or
       ``(B) no such return was timely filed but no such return 
     would have been required to be filed even if the covered 
     expatriate were a citizen or long-term resident of the United 
     States.''.
       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(48) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(19) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--
       (i) Technical amendments.--Paragraph (4) of section 6103(p) 
     of the Internal Revenue Code of 1986, as amended by section 
     202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 
     116 Stat. 961), is amended by striking ``or (17)'' after 
     ``any other person described in subsection (l)(16)'' each 
     place it appears and inserting ``or (18)''.
       (ii) Conforming amendments.--Section 6103(p)(4) (relating 
     to safeguards), as amended by clause (i), is amended by 
     striking ``or (18)'' after ``any other person described in 
     subsection (l)(16)'' each place it appears and inserting 
     ``(18), or (19)''.
       (3) Effective dates.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendments made by this subsection shall apply to 
     individuals who relinquish United States citizenship on or 
     after the date of the enactment of this Act.
       (B) Technical amendments.--The amendments made by paragraph 
     (2)(B)(i) shall take effect as if included in the amendments 
     made

[[Page 11712]]

     by section 202(b)(2)(B) of the Trade Act of 2002 (Public Law 
     107-210; 116 Stat. 961).
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(g) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after February 5, 2003.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(F) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4)(A) Paragraph (1) of section 6039G(d) is amended by 
     inserting ``or 877A'' after ``section 877''.
       (B) The second sentence of section 6039G(e) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after 
     ``877(a))''.
       (C) Section 6039G(f) is amended by inserting ``or 
     877A(e)(2)(B)'' after ``877(e)(1)''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

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

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after February 
     5, 2003.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after February 5, 2003, 
     from an individual or the estate of an individual whose 
     expatriation date (as so defined) occurs after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

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

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

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section 7701(a)(4), such entity shall be 
     treated for purposes of this title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,
       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former partners of the domestic 
     partnership by reason of holding a capital or profits 
     interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.

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

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

     For purposes of determining the credit allowed by section 901 
     inversion gain shall be treated as from sources within the 
     United States.
       ``(3) Special rules for partnerships.--In the case of an 
     acquired entity which is a partnership--
       ``(A) the limitations of this subsection shall apply at the 
     partner rather than the partnership level,
       ``(B) the inversion gain of any partner for any taxable 
     year shall be equal to the sum of--
       ``(i) the partner's distributive share of inversion gain of 
     the partnership for such taxable year, plus
       ``(ii) income or gain required to be recognized for the 
     taxable year by the partner under section 367(a), 741, or 
     1001, or under any other provision of chapter 1, by reason of 
     the transfer during the applicable period of any partnership 
     interest of the partner in such partnership to the foreign 
     incorporated entity, and
       ``(C) the highest rate of tax specified in the rate 
     schedule applicable to the partner under chapter 1 shall be 
     substituted for the rate of tax under paragraph (2)(B).
       ``(4) Inversion gain.--For purposes of this section, the 
     term `inversion gain' means any income or gain required to be 
     recognized under section 304, 311(b), 367, 1001, or 1248, or 
     under any other provision of chapter 1, by reason of the 
     transfer during the applicable period of stock or other 
     properties by an acquired entity--
       ``(A) as part of the acquisition described in subsection 
     (a)(2)(A) to which subsection (b) applies, or
       ``(B) after such acquisition to a foreign related person.
     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding

[[Page 11713]]

     the provisions of any other law or rule of law which would 
     otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.
       ``(d) Special Rules Applicable to Related Party 
     Transactions.--
       ``(1) Annual application for agreements on return 
     positions.--
       ``(A) In general.--Each acquired entity to which subsection 
     (b) applies shall file with the Secretary an application for 
     an approval agreement under subparagraph (D) for each taxable 
     year which includes a portion of the applicable period. Such 
     application shall be filed at such time and manner, and shall 
     contain such information, as the Secretary may prescribe.
       ``(B) Secretarial action.--Within 90 days of receipt of an 
     application under subparagraph (A) (or such longer period as 
     the Secretary and entity may agree upon), the Secretary 
     shall--
       ``(i) enter into an agreement described in subparagraph (D) 
     for the taxable year covered by the application,
       ``(ii) notify the entity that the Secretary has determined 
     that the application was filed in good faith and 
     substantially complies with the requirements for the 
     application under subparagraph (A), or
       ``(iii) notify the entity that the Secretary has determined 
     that the application was not filed in good faith or does not 
     substantially comply with such requirements.

     If the Secretary fails to act within the time prescribed 
     under the preceding sentence, the entity shall be treated for 
     purposes of this paragraph as having received notice under 
     clause (ii).
       ``(C) Failures to comply.--If an acquired entity fails to 
     file an application under subparagraph (A), or the acquired 
     entity receives a notice under subparagraph (B)(iii), for any 
     taxable year, then for such taxable year--
       ``(i) there shall not be allowed any deduction, or addition 
     to basis or cost of goods sold, for amounts paid or incurred, 
     or losses incurred, by reason of a transaction between the 
     acquired entity and a foreign related person,
       ``(ii) any transfer or license of intangible property (as 
     defined in section 936(h)(3)(B)) between the acquired entity 
     and a foreign related person shall be disregarded, and
       ``(iii) any cost-sharing arrangement between the acquired 
     entity and a foreign related person shall be disregarded.
       ``(D) Approval agreement.--For purposes of subparagraph 
     (A), the term `approval agreement' means a prefiling, advance 
     pricing, or other agreement specified by the Secretary which 
     contains such provisions as the Secretary determines 
     necessary to ensure that the requirements of sections 163(j), 
     267(a)(3), 482, and 845, and any other provision of this 
     title applicable to transactions between related persons and 
     specified by the Secretary, are met.
       ``(E) Tax court review.--
       ``(i) In general.--The Tax Court shall have jurisdiction 
     over any action brought by an acquired entity receiving a 
     notice under subparagraph (B)(iii) to determine whether the 
     issuance of the notice was an abuse of discretion, but only 
     if the action is brought within 30 days after the date of the 
     mailing (determined under rules similar to section 6213) of 
     the notice.
       ``(ii) Court action.--The Tax Court shall issue its 
     decision within 30 days after the filing of the action under 
     clause (i) and may order the Secretary to issue a notice 
     described in subparagraph (B)(ii).
       ``(iii) Review.--An order of the Tax Court under this 
     subparagraph shall be reviewable in the same manner as any 
     other decision of the Tax Court.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated as 
     pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.
       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1) would be, treated as a foreign corporation 
     for purposes of this title.
       ``(4) Foreign related person.--The term `foreign related 
     person' means, with respect to any acquired entity, a foreign 
     person which--
       ``(A) bears a relationship to such entity described in 
     section 267(b) or 707(b), or
       ``(B) is under the same common control (within the meaning 
     of section 482) as such entity.
       ``(5) Subsequent acquisitions by unrelated domestic 
     corporations.--
       ``(A) In general.--Subject to such conditions, limitations, 
     and exceptions as the Secretary may prescribe, if, after an 
     acquisition described in subsection (a)(2)(A) to which 
     subsection (b) applies, a domestic corporation stock of which 
     is traded on an established securities market acquires 
     directly or indirectly any properties of one or more acquired 
     entities in a transaction with respect to which the 
     requirements of subparagraph (B) are met, this section shall 
     cease to apply to any such acquired entity with respect to 
     which such requirements are met.
       ``(B) Requirements.--The requirements of the subparagraph 
     are met with respect to a transaction involving any 
     acquisition described in subparagraph (A) if--
       ``(i) before such transaction the domestic corporation did 
     not have a relationship described in section 267(b) or 
     707(b), and was not under common control (within the meaning 
     of section 482), with the acquired entity, or any member of 
     an expanded affiliated group including such entity, and
       ``(ii) after such transaction, such acquired entity--

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

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-through or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Treatment of Agreements.--
       (1) Confidentiality.--
       (A) Treatment as return information.--Section 6103(b)(2) 
     (relating to return information) is amended by striking 
     ``and'' at the end of subparagraph (C), by inserting ``and'' 
     at the end of subparagraph (D), and by inserting after 
     subparagraph (D) the following new subparagraph:
       ``(E) any approval agreement under section 7874(d)(1) to 
     which any preceding subparagraph does not apply and any 
     background information related to the agreement or any 
     application for the agreement,''.
       (B) Exception from public inspection as written 
     determination.--Section 6110(b)(1)(B) is amended by striking 
     ``or (D)'' and inserting ``, (D), or (E)''.
       (2) Reporting.--The Secretary of the Treasury shall include 
     with any report on advance pricing agreements required to be 
     submitted after the date of the enactment of this Act under 
     section 521(b) of the Ticket to Work and Work Incentives 
     Improvement Act of 1999 (Public Law 106-170) a report 
     regarding approval agreements under section 7874(d)(1) of the 
     Internal Revenue Code of

[[Page 11714]]

     1986. Such report shall include information similar to the 
     information required with respect to advance pricing 
     agreements and shall be treated for confidentiality purposes 
     in the same manner as the reports on advance pricing 
     agreements are treated under section 521(b)(3) of such Act.
       (c) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved in 
     transactions to which section 7874 of such Code (as added by 
     subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (d) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.

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

     SEC. 442. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

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

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

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

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

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

``Chapter 48. Stock compensation of insiders in inverted 
              corporations.''.

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

     SEC. 443. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

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

[[Page 11715]]



                   Subtitle E--Additional Provisions

     SEC. 451. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION 
                   PLANS.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED 
                   COMPENSATION UNDER NONQUALIFIED DEFERRED 
                   COMPENSATION PLANS.

       ``(a) Rules Relating to Constructive Receipt.--
       ``(1) In general.--
       ``(A) Gross income inclusion.--In the case of a 
     nonqualified deferred compensation plan, all compensation 
     deferred under the plan for all taxable years (to the extent 
     not previously included in gross income) shall be includible 
     in gross income for the taxable year unless at all times 
     during the taxable year the plan meets the requirements of 
     paragraphs (2), (3), and (4) and is operated in accordance 
     with such requirements.
       ``(B) Interest on tax liability payable with respect to 
     previously deferred compensation.--
       ``(i) In general.--If compensation is required to be 
     included in gross income under subparagraph (A) for a taxable 
     year, the tax imposed by this chapter for such taxable year 
     shall be increased by the amount of interest determined under 
     clause (ii).
       ``(ii) Interest.--For purposes of clause (i), the interest 
     determined under this clause for any taxable year is the 
     amount of interest at the underpayment rate plus 1 percentage 
     point on the underpayments that would have occurred had the 
     deferred compensation been includible in gross income for the 
     taxable year in which first deferred.
       ``(2) Distributions.--
       ``(A) In general.--The requirements of this paragraph are 
     met if the plan provides that compensation deferred under the 
     plan may not be distributed earlier than--
       ``(i) separation from service (except as provided in 
     subparagraph (B)(i)),
       ``(ii) disability (as defined by section 223(d) of the 
     Social Security Act),
       ``(iii) death,
       ``(iv) a specified time (or pursuant to a fixed schedule) 
     specified under the plan as of the date of the deferral of 
     such compensation,
       ``(v) to the extent provided by the Secretary, a change in 
     the ownership or effective control of the corporation, or in 
     the ownership of a substantial portion of the assets of the 
     corporation, or
       ``(vi) the occurrence of an unforeseeable emergency.
       ``(B) Special rules.--
       ``(i) Specified employees.--In the case of specified 
     employees, the requirement of subparagraph (A)(i) is met only 
     if distributions may not be made earlier than 6 months after 
     the date of separation from service. For purposes of the 
     preceding sentence, a specified employee is a disqualified 
     individual (as defined in section 280G(c)) with respect to a 
     corporation the stock in which is publicly traded on an 
     established securities market or otherwise.
       ``(ii) Unforeseeable emergency.--For purposes of 
     subparagraph (A)(vi)--

       ``(I) In general.--The term `unforeseeable emergency' means 
     a severe financial hardship to the participant resulting from 
     a sudden and unexpected illness or accident of the 
     participant or of a dependent (as defined in section 152(a)) 
     of the participant, loss of the participant's property due to 
     casualty, or other similar extraordinary and unforeseeable 
     circumstances arising as a result of events beyond the 
     control of the participant.
       ``(II) Limitation on distributions.--The requirement of 
     subparagraph (A)(vi) is met only if, as determined under 
     regulations of the Secretary, the amounts distributed with 
     respect to an emergency do not exceed the amounts necessary 
     to satisfy such emergency plus amounts necessary to pay taxes 
     reasonably anticipated as a result of the distribution, after 
     taking into account the extent to which such hardship is or 
     may be relieved through reimbursement or compensation by 
     insurance or otherwise or by liquidation of the participant's 
     assets (to the extent the liquidation of such assets would 
     not itself cause severe financial hardship).

       ``(3) Acceleration of benefits.--The requirements of this 
     paragraph are met if the plan does not permit the 
     acceleration of the time or schedule under paragraph 
     (2)(A)(iv).
       ``(4) Elections.--
       ``(A) In general.--The requirements of this paragraph are 
     met if the requirements of subparagraphs (B) and (C) are met.
       ``(B) Initial deferral decision.--The requirements of this 
     subparagraph are met if the plan provides that compensation 
     earned during a taxable year may be deferred at the 
     employee's election only if the election to defer such 
     compensation is made during the preceding taxable year or at 
     such other time as provided in regulations. In the case of 
     the first year in which an employee becomes eligible to 
     participate in the plan, such election may be made with 
     respect to services to be performed subsequent to the 
     election within 30 days after the date the employee becomes 
     eligible to participate in such plan.
       ``(C) Changes in time and form of distribution.--The 
     requirements of this subparagraph are met if, in the case of 
     a plan which permits under a subsequent election a delay in a 
     payment distributable under paragraph (2)(A)(iv) or a change 
     in the form of payment--
       ``(i) such election may not be made less than 12 months 
     prior to the date of the first scheduled payment under 
     paragraph (2)(A)(iv),
       ``(ii) the plan requires that payments with respect to 
     which such election is made be deferred for a period of not 
     less than 5 years from the date of such election, and
       ``(iii) an employee may make such election only once.
       ``(b) Rules Relating to Funding.--
       ``(1) Offshore property in a trust.--In the case of 
     property set aside (directly or indirectly) in a trust (or 
     other arrangement determined by the Secretary) for purposes 
     of paying deferred compensation under a nonqualified deferred 
     compensation plan, such property shall be treated as 
     transferred for purposes of section 83 whether or not such 
     property is available to satisfy claims of general 
     creditors--
       ``(A) at the time set aside if such property is located 
     outside of the United States, or
       ``(B) at the time transferred if such property is 
     subsequently transferred outside of the United States.
       ``(2) Employer's financial health.--In the case of a 
     nonqualified deferred compensation plan, there is a transfer 
     of property within the meaning of section 83 as of the 
     earlier of--
       ``(A) the date on which the plan first provides that assets 
     will become restricted to the provision of benefits under the 
     plan in connection with a change in the employer's financial 
     health, or
       ``(B) the date on which assets are so restricted.
       ``(3) Income inclusion for offshore trusts and employer's 
     financial health.--For each taxable year that assets treated 
     as transferred under this subsection remain set aside in a 
     trust or other arrangement subject to paragraph (1) or (2), 
     any increase in value in, or earnings with respect to, such 
     assets shall be treated as an additional transfer of property 
     under this subsection (to the extent not previously included 
     in income).
       ``(4) Interest on tax liability payable with respect to 
     transferred property.--
       ``(A) In general.--If amounts are required to be included 
     in gross income by reason of paragraph (1) or (2) for a 
     taxable year, the tax imposed by this chapter for such 
     taxable year shall be increased by the amount of interest 
     determined under subparagraph (B).
       ``(B) Interest.--The interest determined under this 
     subparagraph for any taxable year is the amount of interest 
     at the underpayment rate plus 1 percentage point on the 
     underpayments that would have occurred had the amounts so 
     required to be included in gross income by paragraph (1) or 
     (2) been includible in gross income for the taxable year in 
     which such assets were first set aside (directly or 
     indirectly) in a trust (or other arrangement determined by 
     the Secretary) for purposes of the nonqualified deferred 
     compensation plan.
       ``(c) No Inference on Earlier Income Inclusion.--Nothing in 
     this section shall be construed to prevent the inclusion of 
     amounts in gross income under any other provision of this 
     chapter or any other rule of law earlier than the time 
     provided in this section.
       ``(d) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Nonqualified deferred compensation plan.--The term 
     `nonqualified deferred compensation plan' means any plan that 
     provides for the deferral of compensation other than a 
     qualified employer plan.
       ``(2) Qualified employer plan.--The term `qualified 
     employer plan' means--
       ``(A) any plan, contract, pension, account, or trust 
     described in subparagraph (A) or (B) of section 219(g)(5), 
     and
       ``(B) any eligible deferred compensation plan (within the 
     meaning of section 457(b)) of an employer described in 
     section 457(e)(1)(A).
       ``(3) Plan includes arrangements, etc.--The term `plan' 
     includes any agreement or arrangement, including an agreement 
     or arrangement that includes one person.
       ``(4) Treatment of earnings.--References to deferred 
     compensation shall be treated as including references to 
     income (whether actual or notional) attributable to such 
     compensation or such income.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section, including regulations--
       ``(1) providing for the determination of amounts of 
     deferral in the case of a nonqualified deferred compensation 
     plan which is a defined benefit plan,
       ``(2) relating to changes in the ownership and control of a 
     corporation or assets of a corporation for purposes of 
     subsection (a)(2)(A)(v),
       ``(3) exempting arrangements from the application of 
     subsection (b) if such arrangements will not result in an 
     improper deferral of United States tax and will not result in 
     assets being effectively beyond the reach of creditors, and
       ``(4) defining financial health for purposes of subsection 
     (b)(2).''.
       (b) W-2 Forms.--
       (1) In general.--Subsection (a) of section 6051 (relating 
     to receipts for employees) is amended by striking ``and'', by 
     striking the

[[Page 11716]]

     period at the end of paragraph (11) and inserting ``, and'', 
     and by inserting after paragraph (11) the following new 
     paragraph:
       ``(12) the total amount of deferrals under a nonqualified 
     deferred compensation plan (within the meaning of section 
     409A(d)).''.
       (2) Threshold.--Subsection (a) of section 6051 is amended 
     by adding at the end the following: ``In the case of the 
     amounts required to be shown by paragraph (12), the Secretary 
     may (by regulation) establish a minimum amount of deferrals 
     below which paragraph (12) does not apply.''.
       (c) Conforming and Clerical Amendments.--
       (1) Section 414(b) is amended by inserting ``409A,'' after 
     ``408(p),''.
       (2) Section 414(c) is amended by inserting ``409A,'' after 
     ``408(p),''.
       (3) The table of sections for such subpart A is amended by 
     adding at the end the following new item:

``Sec. 409A. Inclusion in gross income of deferred compensation under 
              nonqualified deferred compensation plans.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts deferred in taxable years beginning 
     after December 31, 2003.

     SEC. 452. 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''.
                                 ______
                                 
  SA 618. Mr. ROCKEFELLER (for himself, Mr. Daschle, Mr. Bingaman, Mr. 
Harkin, Mr. Kennedy, Mr. Pryor, Mrs. Murray, Mr. Kerry, Mr. Reid, Mr. 
Johnson, Mr. Levin, and Mr. Reed) submitted an amendment intended to be 
proposed by him to the bill S. 1054, to provide for reconciliation 
pursuant to section 201 of the concurrent resolution on the budget for 
fiscal year 2004; which was ordered to lie on the table; as follows:

       On page 281, between lines 2 and 3, insert the following:

                Subtitle D--Public School Modernization

     SEC. 531. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.

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

         ``Subchapter Z--Public School Modernization Provisions

``Sec. 1400M. Credit to holders of qualified public school 
              modernization bonds.
``Sec. 1400N. Qualified school construction bonds.
``Sec. 1400O. Qualified zone academy bonds.
``Sec. 1400P. Qualified tribal school modernization bonds.

     ``SEC. 1400M. CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL 
                   MODERNIZATION BONDS.

       ``(a) Allowance of Credit.--In the case of a taxpayer who 
     holds a qualified public school modernization bond on a 
     credit allowance date of such bond which occurs during the 
     taxable year, there shall be allowed as a credit against the 
     tax imposed by this chapter for such taxable year an amount 
     equal to the sum of the credits determined under subsection 
     (b) with respect to credit allowance dates during such year 
     on which the taxpayer holds such bond.
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any credit allowance 
     date for a qualified public school modernization bond is 25 
     percent of the annual credit determined with respect to such 
     bond.
       ``(2) Annual credit.--The annual credit determined with 
     respect to any qualified public school modernization bond is 
     the product of--
       ``(A) the applicable credit rate, multiplied by
       ``(B) the outstanding face amount of the bond.
       ``(3) Applicable credit rate.--For purposes of paragraph 
     (1), the applicable credit rate with respect to an issue is 
     the rate equal to an average market yield (as of the day 
     before the date of issuance of the issue) on outstanding 
     long-term corporate debt obligations (determined under 
     regulations prescribed by the Secretary).
       ``(4) Special rule for issuance and redemption.--In the 
     case of a bond which is issued during the 3-month period 
     ending on a credit allowance date, the amount of the credit 
     determined under this subsection with respect to such credit 
     allowance date shall be a ratable portion of the credit 
     otherwise determined based on the portion of the 3-month 
     period during which the bond is outstanding. A similar rule 
     shall apply when the bond is redeemed.
       ``(c) Limitation Based on Amount of Tax.--
       ``(1) In general.--The credit allowed under subsection (a) 
     for any taxable year shall not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under part IV of 
     subchapter A (other than subpart C thereof, relating to 
     refundable credits).
       ``(2) Carryover of unused credit.--If the credit allowable 
     under subsection (a) exceeds the limitation imposed by 
     paragraph (1) for such taxable year, such excess shall be 
     carried to the succeeding taxable year and added to the 
     credit allowable under subsection (a) for such taxable year.
       ``(d) Qualified Public School Modernization Bond; Credit 
     Allowance Date.--For purposes of this section--
       ``(1) Qualified public school modernization bond.--The term 
     `qualified public school modernization bond' means--
       ``(A) a qualified zone academy bond,
       ``(B) a qualified school construction bond, and
       ``(C) a qualified tribal school modernization bond.
       ``(2) Credit allowance date.--The term `credit allowance 
     date' means--
       ``(A) March 15,
       ``(B) June 15,
       ``(C) September 15, and
       ``(D) December 15.

     Such term includes the last day on which the bond is 
     outstanding.
       ``(e) Other Definitions.--For purposes of this subchapter--
       ``(1) Local educational agency.--The term `local 
     educational agency' has the meaning given to such term by 
     section 9101 of the Elementary and Secondary Education Act of 
     1965. Such term includes the local educational agency that 
     serves the District of Columbia but does not include any 
     other State agency.
       ``(2) Bond.--The term `bond' includes any obligation.
       ``(3) State.--The term `State' includes the District of 
     Columbia and any possession of the United States.
       ``(4) Public school facility.--The term `public school 
     facility' shall not include--
       ``(A) any stadium or other facility primarily used for 
     athletic contests or exhibitions or other events for which 
     admission is charged to the general public, or
       ``(B) any facility which is not owned by a State or local 
     government or any agency or instrumentality of a State or 
     local government.
       ``(f) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this section (determined without regard to subsection 
     (c)) and the amount so included shall be treated as interest 
     income.
       ``(g) Recapture of Portion of Credit Where Cessation of 
     Compliance.--
       ``(1) In general.--If any bond which when issued purported 
     to be a qualified public school modernization bond ceases to 
     be a qualified public school modernization bond, the issuer 
     shall pay to the United States (at the time required by the 
     Secretary) an amount equal to the sum of--
       ``(A) the aggregate of the credits allowable under this 
     section with respect to such bond (determined without regard 
     to subsection (c)) for taxable years ending during the 
     calendar year in which such cessation occurs and the 2 
     preceding calendar years, and
       ``(B) interest at the underpayment rate under section 6621 
     on the amount determined under subparagraph (A) for each 
     calendar year for the period beginning on the first day of 
     such calendar year.
       ``(2) Failure to pay.--If the issuer fails to timely pay 
     the amount required by paragraph (1) with respect to such 
     bond, the tax imposed by this chapter on each holder of any 
     such bond which is part of such issue shall be increased (for 
     the taxable year of the holder in which such cessation 
     occurs) by the aggregate decrease in the credits allowed 
     under this section to such holder for taxable years beginning 
     in such 3 calendar years which would have resulted solely 
     from denying any credit under this section with respect to 
     such issue for such taxable years.
       ``(3) Special rules.--
       ``(A) Tax benefit rule.--The tax for the taxable year shall 
     be increased under paragraph (2) only with respect to credits 
     allowed by reason of this section which were used to reduce 
     tax liability. In the case of credits not so used to reduce 
     tax liability, the carryforwards and carrybacks under section 
     39 shall be appropriately adjusted.
       ``(B) No credits against tax.--Any increase in tax under 
     paragraph (2) shall not be treated as a tax imposed by this 
     chapter for purposes of determining--
       ``(i) the amount of any credit allowable under this part, 
     or
       ``(ii) the amount of the tax imposed by section 55.
       ``(h) Bonds Held by Regulated Investment Companies.--If any 
     qualified public school modernization bond is held by a 
     regulated investment company, the credit determined under 
     subsection (a) shall be allowed to shareholders of such 
     company under procedures prescribed by the Secretary.
       ``(i) Credits May Be Stripped.--Under regulations 
     prescribed by the Secretary--
       ``(1) In general.--There may be a separation (including at 
     issuance) of the ownership of a qualified public school 
     modernization bond and the entitlement to the credit under 
     this section with respect to such bond. In case of any such 
     separation, the credit under

[[Page 11717]]

     this section shall be allowed to the person who on the credit 
     allowance date holds the instrument evidencing the 
     entitlement to the credit and not to the holder of the bond.
       ``(2) Certain rules to apply.--In the case of a separation 
     described in paragraph (1), the rules of section 1286 shall 
     apply to the qualified public school modernization bond as if 
     it were a stripped bond and to the credit under this section 
     as if it were a stripped coupon.
       ``(j) Treatment for Estimated Tax Purposes.--Solely for 
     purposes of sections 6654 and 6655, the credit allowed by 
     this section to a taxpayer by reason of holding a qualified 
     public school modernization bonds on a credit allowance date 
     shall be treated as if it were a payment of estimated tax 
     made by the taxpayer on such date.
       ``(k) Credit May Be Transferred.--Nothing in any law or 
     rule of law shall be construed to limit the transferability 
     of the credit allowed by this section through sale and 
     repurchase agreements.
       ``(l) Reporting.--Issuers of qualified public school 
     modernization bonds shall submit reports similar to the 
     reports required under section 149(e).
       ``(m) Termination.--This section shall not apply to any 
     bond issued after September 30, 2007 (December 31, 2012, in 
     the case of any qualified tribal school modernization bond).

     ``SEC. 1400N. QUALIFIED SCHOOL CONSTRUCTION BONDS.

       ``(a) Qualified School Construction Bond.--For purposes of 
     this subchapter, the term `qualified school construction 
     bond' means any bond issued as part of an issue if--
       ``(1) 95 percent or more of the proceeds of such issue are 
     to be used for the construction, rehabilitation, or repair of 
     a public school facility or for the acquisition of land on 
     which such a facility is to be constructed with part of the 
     proceeds of such issue,
       ``(2) the bond is issued by a State or local government 
     within the jurisdiction of which such school is located,
       ``(3) the issuer designates such bond for purposes of this 
     section, and
       ``(4) the term of each bond which is part of such issue 
     does not exceed 15 years.
       ``(b) Limitation on Amount of Bonds Designated.--The 
     maximum aggregate face amount of bonds issued during any 
     calendar year which may be designated under subsection (a) by 
     any issuer shall not exceed the limitation amount allocated 
     under subsection (d) for such calendar year to such issuer.
       ``(c) National Limitation on Amount of Bonds Designated.--
     There is a national qualified school construction bond 
     limitation for each calendar year. Such limitation is--
       ``(1) $11,000,000,000 for 2004,
       ``(2) $11,000,000,000 for 2005, and
       ``(3) except as provided in subsection (f), zero after 
     2005.
       ``(d) Limitation Allocated Among States.--
       ``(1) In general.--The limitation applicable under 
     subsection (c) for any calendar year shall be allocated by 
     the Secretary among the States in proportion to the 
     respective amounts each such State received for basic grants 
     under section 1124 of the Elementary and Secondary Education 
     Act of 1965 for the most recent fiscal year ending before 
     such calendar year. The limitation amount allocated to a 
     State under the preceding sentence shall be allocated by the 
     State to issuers within such State.
       ``(2) Minimum allocations to states.--
       ``(A) In general.--The Secretary shall adjust the 
     allocations under this subsection for any calendar year for 
     each State to the extent necessary to ensure that the amount 
     allocated to such State under this subsection for such year 
     is not less than an amount equal to such State's minimum 
     percentage of the amount to be allocated under paragraph (1) 
     for the calendar year.
       ``(B) Minimum percentage.--A State's minimum percentage for 
     any calendar year is the minimum percentage described in 
     section 1124(d) of the Elementary and Secondary Education Act 
     of 1965 for such State for the most recent fiscal year ending 
     before such calendar year.
       ``(3) Allocations to certain possessions.--The amount to be 
     allocated under paragraph (1) to any possession of the United 
     States other than Puerto Rico shall be the amount which would 
     have been allocated if all allocations under paragraph (1) 
     were made on the basis of respective populations of 
     individuals below the poverty line (as defined by the Office 
     of Management and Budget). In making other allocations, the 
     amount to be allocated under paragraph (1) shall be reduced 
     by the aggregate amount allocated under this paragraph to 
     possessions of the United States.
       ``(e) Carryover of Unused Limitation.--If for any calendar 
     year--
       ``(1) the amount allocated under subsection (d) to any 
     State, exceeds
       ``(2) the amount of bonds issued during such year which are 
     designated under subsection (a) pursuant to such allocation,

     the limitation amount under such subsection for such State 
     for the following calendar year shall be increased by the 
     amount of such excess. A similar rule shall apply to the 
     amounts allocated under subsection (d)(4).
       ``(f) Special Rules Relating to Arbitrage.--
       ``(1) In general.--A bond shall not be treated as failing 
     to meet the requirement of subsection (a)(1) solely by reason 
     of the fact that the proceeds of the issue of which such bond 
     is a part are invested for a temporary period (but not more 
     than 36 months) until such proceeds are needed for the 
     purpose for which such issue was issued.
       ``(2) Binding commitment requirement.--Paragraph (1) shall 
     apply to an issue only if, as of the date of issuance, there 
     is a reasonable expectation that--
       ``(A) at least 10 percent of the proceeds of the issue will 
     be spent within the 6-month period beginning on such date for 
     the purpose for which such issue was issued, and
       ``(B) the remaining proceeds of the issue will be spent 
     with due diligence for such purpose.
       ``(3) Earnings on proceeds.--Any earnings on proceeds 
     during the temporary period shall be treated as proceeds of 
     the issue for purposes of applying subsection (a)(1) and 
     paragraph (1) of this subsection.

     ``SEC. 1400O. QUALIFIED ZONE ACADEMY BONDS.

       ``(a) Qualified Zone Academy Bond.--For purposes of this 
     subchapter--
       ``(1) In general.--The term `qualified zone academy bond' 
     means any bond issued as part of an issue if--
       ``(A) 95 percent or more of the proceeds of such issue are 
     to be used for a qualified purpose with respect to a 
     qualified zone academy established by a local educational 
     agency,
       ``(B) the bond is issued by a State or local government 
     within the jurisdiction of which such academy is located,
       ``(C) the issuer--
       ``(i) designates such bond for purposes of this section,
       ``(ii) certifies that it has written assurances that the 
     private business contribution requirement of paragraph (2) 
     will be met with respect to such academy, and
       ``(iii) certifies that it has the written approval of the 
     local educational agency for such bond issuance, and
       ``(D) the term of each bond which is part of such issue 
     does not exceed 15 years.
     Rules similar to the rules of section 1400N(f) shall apply 
     for purposes of paragraph (1).
       ``(2) Private business contribution requirement.--
       ``(A) In general.--For purposes of paragraph (1), the 
     private business contribution requirement of this paragraph 
     is met with respect to any issue if the local educational 
     agency that established the qualified zone academy has 
     written commitments from private entities to make qualified 
     contributions having a present value (as of the date of 
     issuance of the issue) of not less than 10 percent of the 
     proceeds of the issue.
       ``(B) Qualified contributions.--For purposes of 
     subparagraph (A), the term `qualified contribution' means any 
     contribution (of a type and quality acceptable to the local 
     educational agency) of--
       ``(i) equipment for use in the qualified zone academy 
     (including state-of-the-art technology and vocational 
     equipment),
       ``(ii) technical assistance in developing curriculum or in 
     training teachers in order to promote appropriate market 
     driven technology in the classroom,
       ``(iii) services of employees as volunteer mentors,
       ``(iv) internships, field trips, or other educational 
     opportunities outside the academy for students, or
       ``(v) any other property or service specified by the local 
     educational agency.
       ``(3) Qualified zone academy.--The term `qualified zone 
     academy' means any public school (or academic program within 
     a public school) which is established by and operated under 
     the supervision of a local educational agency to provide 
     education or training below the postsecondary level if--
       ``(A) such public school or program (as the case may be) is 
     designed in cooperation with business to enhance the academic 
     curriculum, increase graduation and employment rates, and 
     better prepare students for the rigors of college and the 
     increasingly complex workforce,
       ``(B) students in such public school or program (as the 
     case may be) will be subject to the same academic standards 
     and assessments as other students educated by the local 
     educational agency,
       ``(C) the comprehensive education plan of such public 
     school or program is approved by the local educational 
     agency, and
       ``(D)(i) such public school is located in an empowerment 
     zone or enterprise community (including any such zone or 
     community designated after the date of the enactment of this 
     section), or
       ``(ii) there is a reasonable expectation (as of the date of 
     issuance of the bonds) that at least 35 percent of the 
     students attending such school or participating in such 
     program (as the case may be) will be eligible for free or 
     reduced-cost lunches under the school lunch program 
     established under the Richard B. Russell National School 
     Lunch Act.
       ``(4) Qualified purpose.--The term `qualified purpose' 
     means, with respect to any qualified zone academy--
       ``(A) constructing, rehabilitating, or repairing the public 
     school facility in which the academy is established,

[[Page 11718]]

       ``(B) acquiring the land on which such facility is to be 
     constructed with part of the proceeds of such issue,
       ``(C) providing equipment for use at such academy,
       ``(D) developing course materials for education to be 
     provided at such academy, and
       ``(E) training teachers and other school personnel in such 
     academy.
       ``(b) Limitations on Amount of Bonds Designated.--
       ``(1) In general.--There is a national zone academy bond 
     limitation for each calendar year. Such limitation is--
       ``(A) $400,000,000 for 1998,
       ``(B) $400,000,000 for 1999,
       ``(C) $400,000,000 for 2000,
       ``(D) $400,000,000 for 2001,
       ``(E) $400,000,000 for 2002,
       ``(F) $400,000,000 for 2003,
       ``(G) $1,400,000,000 for 2004,
       ``(H) $1,400,000,000 for 2005, and
       ``(I) except as provided in paragraph (3), zero after 2005.
       ``(2) Allocation of limitation.--
       ``(A) Allocation among states.--
       ``(i) 1998, 1999, 2000, 2001, 2002, and 2003 limitations.--
     The national zone academy bond limitations for calendar years 
     1998, 1999, 2000, 2001, 2002, and 2003 shall be allocated by 
     the Secretary among the States on the basis of their 
     respective populations of individuals below the poverty line 
     (as defined by the Office of Management and Budget).
       ``(ii) Limitation after 2003.--The national zone academy 
     bond limitation for any calendar year after 2003 shall be 
     allocated by the Secretary among the States in proportion to 
     the respective amounts each such State received for basic 
     grants under section 1124 of the Elementary and Secondary 
     Education Act of 1965 for the most recent fiscal year ending 
     before such calendar year.
       ``(B) Allocation to local educational agencies.--The 
     limitation amount allocated to a State under subparagraph (A) 
     shall be allocated by the State to qualified zone academies 
     within such State.
       ``(C) Designation subject to limitation amount.--The 
     maximum aggregate face amount of bonds issued during any 
     calendar year which may be designated under subsection (a) 
     with respect to any qualified zone academy shall not exceed 
     the limitation amount allocated to such academy under 
     subparagraph (B) for such calendar year.
       ``(3) Carryover of unused limitation.--If for any calendar 
     year--
       ``(A) the limitation amount under this subsection for any 
     State, exceeds
       ``(B) the amount of bonds issued during such year which are 
     designated under subsection (a) (or the corresponding 
     provisions of prior law) with respect to qualified zone 
     academies within such State,

     the limitation amount under this subsection for such State 
     for the following calendar year shall be increased by the 
     amount of such excess.

     ``SEC. 1400P. QUALIFIED TRIBAL SCHOOL MODERNIZATION BONDS.

       ``(a) Qualified Tribal School Modernization Bond.--For 
     purposes of this subchapter--
       ``(1) In general.--The term `qualified tribal school 
     modernization bond' means, subject to paragraph (2), any bond 
     issued as part of an issue under section 532(c) of the Jobs 
     and Growth Tax Relief Reconciliation Act of 2003, as in 
     effect on the date of the enactment of this section, if--
       ``(A) 95 percent or more of the proceeds of such issue are 
     to be used for the construction, rehabilitation, or repair of 
     a school facility funded by the Bureau of Indian Affairs of 
     the Department of the Interior or for the acquisition of land 
     on which such a facility is to be constructed with part of 
     the proceeds of such issue,
       ``(B) the bond is issued by an Indian tribe,
       ``(C) the issuer designates such bond for purposes of this 
     section, and
       ``(D) the term of each bond which is part of such issue 
     does not exceed 15 years.
       ``(2) National limitation on amount of bonds designated.--
       ``(A) National limitation.--There is a national qualified 
     tribal school modernization bond limitation for each calendar 
     year. Such limitation is--
       ``(i) $200,000,000 for 2004,
       ``(ii) $200,000,000 for 2005, and
       ``(iii) zero after 2005.
       ``(B) Allocation of limitation.--The national qualified 
     tribal school modernization bond limitation shall be 
     allocated to Indian tribes by the Secretary of the Interior 
     subject to the provisions of section 532 of the Jobs and 
     Growth Tax Relief Reconciliation Act of 2003, as in effect on 
     the date of the enactment of this section.
       ``(C) Designation subject to limitation amount.--The 
     maximum aggregate face amount of bonds issued during any 
     calendar year which may be designated under paragraph (1) 
     with respect to any Indian tribe shall not exceed the 
     limitation amount allocated to such government under 
     subparagraph (B) for such calendar year.
       ``(D) Carryover of unused limitation.--If for any calendar 
     year--
       ``(i) the limitation amount under this paragraph, exceeds
       ``(ii) the amount of qualified tribal school modernization 
     bonds issued during such year,

     the limitation amount under this paragraph for the following 
     calendar year shall be increased by the amount of such 
     excess. The preceding sentence shall not apply if such 
     following calendar year is after 2012.
       ``(b) Tribe.--For purposes of this section, the term 
     `tribe' has the meaning given the term `Indian tribal 
     government' by section 7701(a)(40), including the application 
     of section 7871(d). Such term includes any consortium of 
     tribes approved by the Secretary of the Interior.''.
       (b) Reporting.--Subsection (d) of section 6049 (relating to 
     returns regarding payments of interest) is amended by adding 
     at the end the following new paragraph:
       ``(8) Reporting of credit on qualified public school 
     modernization bonds.--
       ``(A) In general.--For purposes of subsection (a), the term 
     `interest' includes amounts includible in gross income under 
     section 1400M(f) and such amounts shall be treated as paid on 
     the credit allowance date (as defined in section 
     1400M(d)(2)).
       ``(B) Reporting to corporations, etc.--Except as otherwise 
     provided in regulations, in the case of any interest 
     described in subparagraph (A) of this paragraph, subsection 
     (b)(4) of this section shall be applied without regard to 
     subparagraphs (A), (H), (I), (J), (K), and (L)(i).
       ``(C) Regulatory authority.--The Secretary may prescribe 
     such regulations as are necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations which 
     require more frequent or more detailed reporting.''.
       (c) Conforming Amendments.--
       (1) Subchapter U of chapter 1 is amended by striking part 
     IV, by redesignating part V as part IV, and by redesignating 
     section 1397F as section 1397E.
       (2) The table of subchapters for chapter 1 is amended by 
     adding at the end the following new item:

``Subchapter Z. Public school modernization provisions.''.

       (3) The table of parts of subchapter U of chapter 1 is 
     amended by striking the last 2 items and inserting the 
     following new item:

``Part IV. Regulations.''.

       (d) Sovereign Immunity.--This section and the amendments 
     made by this section shall not be construed to impact, limit, 
     or affect the sovereign immunity of the Federal Government or 
     any State or tribal government.
       (e) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to obligations issued after December 31, 2003.
       (2) Repeal of restriction on zone academy bond holders.--In 
     the case of bonds to which section 1397E of the Internal 
     Revenue Code of 1986 (as in effect before the date of the 
     enactment of this Act) applies, the limitation of such 
     section to eligible taxpayers (as defined in subsection 
     (d)(6) of such section) shall not apply after the date of the 
     enactment of this Act.

     SEC. 532. INDIAN SCHOOL CONSTRUCTION.

       (a) Definitions.--In this section:
       (1) Bureau.--The term ``Bureau'' means the Bureau of Indian 
     Affairs of the Department.
       (2) Department.--The term ``Department'' means the 
     Department of the Interior.
       (3) Escrow account.--The term ``escrow account'' means the 
     tribal school modernization escrow account established under 
     subsection (b)(6)(B)(i).
       (4) Indian.--The term ``Indian'' means any individual who 
     is a member of an Indian tribe.
       (5) Indian tribe.--
       (A) In general.--The term ``Indian tribe'' has the meaning 
     given the term ``Indian tribal government'' by section 
     7701(a)(40) of the Internal Revenue Code of 1986 (including 
     the application of section 7871(d) of that Code).
       (B) Inclusion.--The term ``Indian tribe'' includes a 
     consortium of Indian tribes approved by the Secretary.
       (6) Secretary.--The term ``Secretary'' means the Secretary 
     of the Interior.
       (7) Tribal school.--The term ``tribal school'' means an 
     elementary school, secondary school, or dormitory that--
       (A) is operated by a tribal organization or the Bureau for 
     the education of Indian children; and
       (B) under a contract, a grant, or an agreement, or for a 
     Bureau-operated school, receives financial assistance to pay 
     the costs of operation from funds made available under--
       (i) section 102, 103(a), or 208 of the Indian Self-
     Determination and Education Assistance Act (25 U.S.C. 450f, 
     450h(a), 458d); or
       (ii) the Tribally Controlled Schools Act of 1988 (25 U.S.C. 
     2501 et seq.).
       (b) Issuance of Bonds.--
       (1) In general.--The Secretary shall establish a pilot 
     program under which eligible Indian tribes may issue 
     qualified tribal school modernization bonds to provide 
     funding for the construction, rehabilitation, or repair of 
     tribal schools (including the advance planning and design of 
     tribal schools).
       (2) Eligibility.--
       (A) In general.--To be eligible to issue any qualified 
     tribal school modernization bond under the program under 
     paragraph (1), an Indian tribe shall--

[[Page 11719]]

       (i) prepare and submit to the Secretary a plan of 
     construction that meets the requirements of subparagraph (B);
       (ii) provide for quarterly and final inspection of the 
     project by the Bureau; and
       (iii) pledge that the facilities financed by the bond will 
     be used primarily for elementary and secondary educational 
     purposes for not less than the period during which the bond 
     remains outstanding.
       (B) Plan of construction.--A plan of construction referred 
     to in subparagraph (A)(i) meets the requirements of this 
     subparagraph if the plan--
       (i) contains a description of the construction to be 
     carried out with funding provided under a qualified tribal 
     school modernization bond;
       (ii) demonstrates that a comprehensive survey has been 
     completed to determine the construction needs of the tribal 
     school involved;
       (iii) contains assurances that funding under the bond will 
     be used only for the activities described in the plan;
       (iv) contains a response to the evaluation criteria 
     contained in Instructions and Application for Replacement 
     School Construction, Revision 6, dated February 6, 1999; and
       (v) contains any other reasonable and related information 
     determined to be appropriate by the Secretary.
       (C) Priority.--In determining whether an Indian tribe is 
     eligible to participate in the program under this subsection, 
     the Secretary shall give priority to an Indian tribe that, as 
     demonstrated by the relevant plans of construction, will fund 
     projects--
       (i) described in the Education Facilities Replacement 
     Construction Priorities List, as of fiscal year 2000, of the 
     Bureau (65 Fed. Reg. 4623);
       (ii) described in any subsequent priorities list published 
     in the Federal Register; or
       (iii) that meet the criteria for ranking schools as 
     described in Instructions and Application for Replacement 
     School Construction, Revision 6, dated February 6, 1999.
       (D) Advance planning and design funding.--
       (i) In general.--An Indian tribe may propose in the plan of 
     construction of the Indian tribe to receive advance planning 
     and design funding from the escrow account.
       (ii) Conditions on allocation of funds.--As a condition to 
     the allocation to an Indian tribe of advance planning and 
     design funds from the escrow account under clause (i), the 
     Indian tribe shall agree--

       (I) to issue qualified tribal school modernization bonds 
     after the date of receipt of the funds; and
       (II) as a condition of each bond issuance, that the Indian 
     tribe will deposit into the escrow account, or a fund managed 
     by the trustee as described in paragraph (4)(C), an amount 
     equal to the amount of funds received from the escrow 
     account.

       (3) Permissible activities.--In addition to the use of 
     funds permitted under paragraph (1), an Indian tribe may use 
     amounts received through the issuance of a qualified tribal 
     school modernization bond--
       (A) to enter into and make payments under contracts with 
     licensed and bonded architects, engineers, and construction 
     firms--
       (i) to determine the needs of the tribal school; and
       (ii) for the design and engineering of the tribal school;
       (B) enter into and make payments under contracts with 
     financial advisers, underwriters, attorneys, trustees, and 
     other professionals who would be able to provide assistance 
     to the Indian tribe in issuing bonds; and
       (C) carry out other activities determined to be appropriate 
     by the Secretary.
       (4) Bond trustee.--
       (A) In general.--Notwithstanding any other provision of 
     law, any qualified tribal school modernization bond issued by 
     an Indian tribe under this subsection shall be subject to a 
     trust agreement between the Indian tribe and a trustee.
       (B) Trustee.--Any bank or trust company that meets 
     requirements established by the Secretary may be designated 
     as a trustee under subparagraph (A).
       (C) Content of trust agreement.--A trust agreement entered 
     into by an Indian tribe under this paragraph shall specify 
     that the trustee, with respect to any bond issued under this 
     subsection, shall--
       (i) act as a repository for the proceeds of the bond;
       (ii) make payments to bondholders;
       (iii) receive, as a condition to the issuance of the bond, 
     a transfer of funds from the escrow account, or from other 
     funds furnished by or on behalf of the Indian tribe, in an 
     amount that (including interest earnings from the investment 
     of the funds in obligations of, or fully guaranteed by, the 
     United States, or from other investments authorized by 
     paragraph (10)) will produce funds sufficient to timely pay 
     in full the entire principal amount of the bond on the stated 
     maturity date of the bond;
       (iv) invest the funds transferred under clause (iii) in an 
     investment described in that clause; and
       (v)(I) hold and invest the funds transferred under clause 
     (iii) in a segregated fund or account under the agreement; 
     and
       (II) use the fund or account solely for payment of the 
     costs of items described in paragraph (3).
       (D) Requirements for making direct payments.--
       (i) Payments.--

       (I) In general.--Notwithstanding any other provision of 
     law, the trustee shall make any payment referred to in 
     subparagraph (C)(v) in accordance with such requirements as 
     the Indian tribe shall prescribe in the trust agreement 
     entered into under subparagraph (C).
       (II) Inspection.--Before making a payment for a project to 
     a contractor under subparagraph (C)(v), to ensure completion 
     of the project, the trustee shall require an inspection of 
     the project by--

       (aa) a local financial institution; or
       (bb) an independent inspecting architect or engineer.
       (ii) Contracts.--Each contract referred to in paragraph (3) 
     shall specify, or be renegotiated to specify, that payments 
     under the contract shall be made in accordance with this 
     paragraph.
       (5) Payments of principal and interest.--
       (A) Principal.--
       (i) In general.--No principal payment on any qualified 
     tribal school modernization bond shall be required under this 
     subsection until the final, stated date on which the bond 
     reaches maturity.
       (ii) Maturity; outstanding principal.--With respect to a 
     qualified tribal school modernization bond issued under this 
     subsection--

       (I) the bond shall reach maturity not later than 15 years 
     after the date of issuance of the bond; and

       (II) on the date on which the bond reaches maturity, the 
     entire outstanding principal under the bond shall become due 
     and payable.

       (B) Interest.--There shall be awarded a tax credit under 
     section 1400M of the Internal Revenue Code of 1986 in lieu of 
     interest on a qualified tribal school modernization bond 
     issued under this subsection.
       (6) Bond guarantees.--
       (A) In general.--Payment of the principal portion of a 
     qualified tribal school modernization bond issued under this 
     subsection shall be guaranteed solely by amounts deposited 
     with each respective bond trustee as described in paragraph 
     (4)(C)(iii).
       (B) Establishment of account.--
       (i) In general.--Notwithstanding any other provision of 
     law, the Secretary may--

       (I) establish a tribal school modernization escrow account; 
     and
       (II) beginning in fiscal year 2004, deposit such funds as 
     may be appropriated for each fiscal year into the escrow 
     account.

       (ii) Transfers of excess proceeds.--Excess proceeds held 
     under any trust agreement that are not needed for any of the 
     purposes described in clauses (iii) and (v) of paragraph 
     (4)(C) shall be transferred, from time to time, by the 
     trustee for deposit into the escrow account.
       (iii) Payments.--The Secretary shall use any amounts 
     deposited in the escrow account under clauses (i) and (ii)--

       (I) to make payments to trustees appointed and acting in 
     accordance with paragraph (4); or
       (II) to make payments described in paragraph (2)(D).

       (7) Limitations.--
       (A) Obligation to repay.--
       (i) In general.--Notwithstanding any other provision of 
     law, the principal amount on any qualified tribal school 
     modernization bond issued under this subsection shall be 
     repaid only to the extent of any escrowed funds provided 
     under paragraph (4)(C)(iii).
       (ii) No guarantee.--No qualified tribal school 
     modernization bond issued by an Indian tribe under this 
     subsection shall be an obligation of, and no payment of the 
     principal of such a bond shall be guaranteed by--

       (I) the United States;
       (II) the Indian tribe; or
       (III) the tribal school for which the bond was issued.

       (B) Land and facilities.--No land or facility purchased or 
     improved with amounts derived from a qualified tribal school 
     modernization bond issued under this subsection shall be 
     mortgaged or used as collateral for the bond.
       (8) Sale of bonds.--A qualified tribal school modernization 
     bond may be sold at a purchase price equal to, in excess of, 
     or at a discount from, the par amount of the bond.
       (9) Treatment of trust agreement earnings.--No amount 
     earned through the investment of funds under the control of a 
     trustee under any trust agreement described in paragraph (4) 
     shall be subject to Federal income taxation.
       (10) Investment of sinking funds.--A sinking fund 
     established for the purpose of the payment of principal on a 
     qualified tribal school modernization bond issued under this 
     subsection shall be invested in--
       (A) obligations issued by or guaranteed by the United 
     States; or
       (B) such other assets as the Secretary of the Treasury may 
     by regulation allow.

     SEC. 533. APPLICATION OF CERTAIN LABOR STANDARDS ON 
                   CONSTRUCTION PROJECTS FINANCED UNDER PUBLIC 
                   SCHOOL MODERNIZATION PROGRAM.

       Section 439 of the General Education Provisions Act (20 
     U.S.C. 1232b) is amended--

[[Page 11720]]

       (1) by inserting ``(a)'' before ``All laborers and 
     mechanics'', and
       (2) by adding at the end the following new subsection:
       ``(b)(1) For purposes of this section, the term `applicable 
     program' also includes the qualified zone academy bond 
     provisions enacted by section 226 of the Taxpayer Relief Act 
     of 1997 and the program established by section 531 of the 
     Jobs and Growth Tax Relief Reconciliation Act of 2003.
       ``(2) A State or local government participating in a 
     program described in paragraph (1) shall--
       ``(A) in the awarding of contracts, give priority to 
     contractors with substantial numbers of employees residing in 
     the local education area to be served by the school being 
     constructed; and
       ``(B) include in the construction contract for such school 
     a requirement that the contractor give priority in hiring new 
     workers to individuals residing in such local education area.
       ``(3) In the case of a program described in paragraph (1), 
     nothing in this subsection or subsection (a) shall be 
     construed to deny any tax credit allowed under such program. 
     If amounts are required to be withheld from contractors to 
     pay wages to which workers are entitled, such amounts shall 
     be treated as expended for construction purposes in 
     determining whether the requirements of such program are 
     met.''.

     SEC. 534. EMPLOYMENT AND TRAINING ACTIVITIES RELATING TO 
                   CONSTRUCTION OR RECONSTRUCTION OF PUBLIC SCHOOL 
                   FACILITIES.

       (a) In General.--Section 134 of the Workforce Investment 
     Act of 1998 (29 U.S.C. 2864) is amended by adding at the end 
     the following new subsection:
       ``(f) Local Employment and Training Activities Relating to 
     Construction or Reconstruction of Public School Facilities.--
       ``(1) In general.--In order to provide training services 
     related to construction or reconstruction of public school 
     facilities receiving funding assistance under an applicable 
     program, each State shall establish a specialized program of 
     training meeting the following requirements:
       ``(A) The specialized program provides training for jobs in 
     the construction industry.
       ``(B) The program provides trained workers for projects for 
     the construction or reconstruction of public school 
     facilities receiving funding assistance under an applicable 
     program.
       ``(C) The program ensures that skilled workers (residing in 
     the area to be served by the school facilities) will be 
     available for the construction or reconstruction work.
       ``(2) Coordination.--The specialized program established 
     under paragraph (1) shall be integrated with other activities 
     under this Act, with the activities carried out under the 
     National Apprenticeship Act of 1937 by the State 
     Apprenticeship Council or through the Bureau of 
     Apprenticeship and Training in the Department of Labor, as 
     appropriate, and with activities carried out under the Carl 
     D. Perkins Vocational and Technical Education Act of 1998. 
     Nothing in this subsection shall be construed to require 
     services duplicative of those referred to in the preceding 
     sentence.
       ``(3) Applicable program.--In this subsection, the term 
     `applicable program' has the meaning given the term in 
     section 439(b) of the General Education Provisions Act 
     (relating to labor standards).''.
       (b) State Plan.--Section 112(b)(17)(A) of the Workforce 
     Investment Act of 1998 (29 U.S.C. 2822(b)(17)(A)) is 
     amended--
       (1) in clause (iii), by striking ``and'' at the end;
       (2) by redesignating clause (iv) as clause (v); and
       (3) by inserting after clause (iii) the following new 
     clause:
       ``(iv) how the State will establish and carry out a 
     specialized program of training under section 134(f); and''.
       On page 19, line 13, strike ``2007'' and insert ``2009''.
       On page 26, line 19, strike ``2007'' and insert ``2009''.
       On page 26, line 22, strike ``2007'' and insert ``2009''.
                                 ______
                                 
  SA 619. Ms. LANDRIEU (for herself, Mr. Corzine, and Mr. Schumer) 
proposed an amendment to the bill S. 1054, to provide for 
reconciliation pursuant to section 201 of the concurrent resolution on 
the budget for fiscal year 2004; as follows:

       Strike all after the enacting clause and insert the 
     following

     SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Jobs and 
     Growth Reconciliation Tax Relief Act of 2003''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; references; table of contents.

                        TITLE I--WAGE TAX RELIEF

Sec. 101. Refund of employee payroll taxes.
Sec. 102. Refund of employer payroll taxes on first $10,000 of wages 
              per employee.

                     TITLE II--ASSISTANCE TO STATES

Sec. 201. Temporary increase of medicaid FMAP.
Sec. 202. One-time revenue grant to States and local governments.
Sec. 203. Additional advance refundings of certain governmental bonds.

                   TITLE III--TAX RELIEF FOR FAMILIES

Sec. 301. Acceleration of increase in standard deduction for married 
              taxpayers filing joint returns.
Sec. 302. Acceleration of 15-percent individual income tax rate bracket 
              expansion for married taxpayers filing joint returns.
Sec. 303. Acceleration of increase in child tax credit
Sec. 304. Application of EGTRRA sunset to this title.

                   TITLE IV--TAX RELIEF FOR BUSINESS

Sec. 401. Increased expensing for small business.
Sec. 402. Small business tax credit for 50 percent of health premiums.
Sec. 403. Ready Reserve-National Guard employee credit added to general 
              business credit.
Sec. 404. Renewal community employers may qualify for employment credit 
              by employing residents of certain other renewal 
              communities.

                   TITLE V--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

Sec. 501. Extension of the Temporary Extended Unemployment Compensation 
              Act of 2002.
Sec. 502. Entitlement to additional weeks of temporary extended 
              unemployment compensation.

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

Sec. 511. Federal-State agreements.
Sec. 512. Payments to States having agreements under this title.
Sec. 513. Financing provisions.
Sec. 514. Definitions.
Sec. 515. Applicability.
Sec. 516. Coordination with the Temporary Extended Unemployment 
              Compensation Act of 2002.

              Subtitle C--Railroad Unemployment Insurance

Sec. 517. Temporary increase in extended unemployment benefits under 
              the Railroad Unemployment Insurance Act.

                       TITLE VI--OTHER PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 601. Clarification of economic substance doctrine.
Sec. 602. Penalty for failing to disclose reportable transaction.
Sec. 603. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 604. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 605. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 606. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 607. Disclosure of reportable transactions.
Sec. 608. Modifications to penalty for failure to register tax 
              shelters.
Sec. 609. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 610. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 611. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 612. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 613. Frivolous tax submissions.
Sec. 614. Penalty on promoters of tax shelters.
Sec. 615. Statute of limitations for taxable years for which listed 
              transactions not reported.
Sec. 616. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.

            Subtitle B--Enron-Related Tax Shelter Provisions

Sec. 621. Limitation on transfer or importation of built-in losses.
Sec. 622. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.

[[Page 11721]]

Sec. 623. Repeal of special rules for FASITS.
Sec. 624. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 625. Expanded authority to disallow tax benefits under section 
              269.
Sec. 626. Modifications of certain rules relating to controlled foreign 
              corporations.

      Subtitle C--Provisions to Discourage Corporate Expatriation

Sec. 631. Tax treatment of inverted corporate entities.
Sec. 632. Excise tax on stock compensation of insiders in inverted 
              corporations.
Sec. 633. Reinsurance of United States risks in foreign jurisdictions.

              Subtitle D--Imposition of Customs User Fees

Sec. 641. Customs user fees.

                           TITLE VII--SUNSET

Sec. 701. Sunset.

                        TITLE I--WAGE TAX RELIEF

     SEC. 101. REFUND OF EMPLOYEE PAYROLL TAXES.

       (a) Payment of Refunds.--
       (1) In general.--The Secretary of the Treasury shall pay, 
     out of any money in the Treasury not otherwise appropriated, 
     to each individual an amount equal to the lesser of--
       (A) $765, or
       (B) the amount of the individual's social security taxes 
     for 2001.
       (2) Payment in installments.--The Secretary of the Treasury 
     shall make the payment under paragraph (1) in two equal 
     installments--
       (A) the first of which shall be paid on the date which is 2 
     months after the date of the enactment of this Act, and
       (B) the second of which shall be paid on December 1, 2003.

     The Secretary may, after notice to the Senate and House of 
     Representatives, make adjustments in the timing of each 
     installment to the extent the adjustments are 
     administratively necessary.
       (3) No interest.--No interest shall be allowed on any 
     payment required by this subsection.
       (4) Certain individuals not eligible.--No payment shall be 
     made under this subsection to--
       (A) any estate or trust,
       (B) any nonresident alien, or
       (C) any individual with respect to whom a deduction under 
     section 151 of such Code is allowable to another taxpayer for 
     a taxable year beginning in 2001.
       (5) Social security taxes.--For purposes of this 
     subsection--
       (A) In general.--The term ``social security taxes'' has the 
     meaning given such term by section 24(d)(2) of the Internal 
     Revenue Code of 1986.
       (B) State and local employees not covered by social 
     security system.--In the case of any individual--
       (i) whose service is not treated as employment by reason of 
     section 3121(b)(7) of such Code (relating to exemption for 
     State and local employees), and
       (ii) who, without regard to this subparagraph, has no 
     social security taxes for 2001,
     the term ``social security taxes'' shall include the 
     individual's employee contributions to a governmental pension 
     plan by reason of the service described in clause (i).
       (b) 2002 Refund for Individuals Not Receiving Full 2001 
     Refund.--Subchapter B of chapter 65 (relating to abatements, 
     credits, and refunds) is amended by adding at the end the 
     following new section:

     ``SEC. 6429. REFUND OF CERTAIN 2002 PAYROLL TAXES.

       ``(a) In General.--Each eligible individual shall be 
     treated as having made a payment against the tax imposed by 
     chapter 1 for such individual's first taxable year beginning 
     in 2002 in an amount equal to the payroll tax refund amount 
     for such taxable year.
       ``(b) Payroll Tax Refund Amount.--For purposes of 
     subsection (a), the payroll tax refund amount is the excess 
     (if any) of--
       ``(1) the lesser of--
       ``(A) $765, or
       ``(B) the amount of the individual's social security taxes 
     for 2002, over
       ``(2) the amount of the payment to the individual under 
     section 101(a) of the Jobs and Growth Reconciliation Tax 
     Relief Act of 2003.
       ``(c) Eligible Individual.--For purposes of this section, 
     the term `eligible individual' means any individual other 
     than--
       ``(1) any estate or trust,
       ``(2) any nonresident alien, or
       ``(3) any individual with respect to whom a deduction under 
     section 151 is allowable to another taxpayer for a taxable 
     year beginning in 2002.
       ``(d) Timing of Payments.--In the case of any overpayment 
     attributable to this section, the Secretary shall, subject to 
     the provisions of this title, refund or credit such 
     overpayment as rapidly as possible and, to the extent 
     practicable, before December 31, 2003.
       ``(e) No Interest.--No interest shall be allowed on any 
     overpayment attributable to this section.
       ``(f) Social Security Taxes.--For purposes of this section, 
     the term `social security taxes' has the meaning given such 
     term by section 101(a)(5) of the Jobs and Growth 
     Reconciliation Tax Relief Act of 2003.''
       (c) Clerical Amendment.--The table of sections for 
     subchapter B of chapter 65 of such Code is amended by adding 
     at the end the following new item:

``Sec. 6429. Refund of certain 2002 payroll taxes.''

     SEC. 102. REFUND OF EMPLOYER PAYROLL TAXES ON FIRST $10,000 
                   OF WAGES PER EMPLOYEE.

       (a) In General.--Subchapter B of chapter 65 (relating to 
     abatements, credits, and refunds), as amended by section 101, 
     is amended by adding at the end the following:

     ``SEC. 6430. REFUND OF EMPLOYER PAYROLL TAXES ON FIRST 
                   $10,000 OF WAGES OF AN EMPLOYEE.

       ``(a) General Rule.--Each employer subject to tax under 
     section 3111 or 3221(a) with respect to employment during the 
     payroll tax holiday period shall be treated as having made a 
     payment against the tax imposed by chapter 1 for each taxable 
     year which includes any portion of such period in an amount 
     equal to the sum of the payroll tax refund amounts determined 
     for all employees of the employer for such taxable year.
       ``(b) Payroll Tax Refund Amount.--For purposes of this 
     section, the term `payroll tax refund amount' means, with 
     respect to any employee for any taxable year of an employer, 
     the excess (if any) of--
       ``(1) the lesser of--
       ``(A) $765, or
       ``(B) the amount of the employer's social security taxes 
     paid or incurred with respect to employment of the employee 
     during any portion of the payroll tax holiday period within 
     the taxable year, over
       ``(2) the amount treated as paid by the employer under this 
     section with respect to the employee for any preceding 
     taxable year.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Payroll tax holiday period.--The term `payroll tax 
     holiday period' means the 12-month period beginning with the 
     first month following the date of the enactment of this 
     section. The Secretary may, after notice to the Senate and 
     House of Representatives, delay the beginning of such period 
     if the Secretary determines such delay is administratively 
     necessary to provide adequate notice of the provisions of 
     this section to employers and employees.
       ``(2) Employer payroll taxes.--
       ``(A) In general.--The term `employer payroll taxes' means 
     the taxes imposed by sections 3111 and 3221(a).
       ``(B) Special rule.--A rule similar to the rule of section 
     24(d)(2)(C) shall apply for purposes of subparagraph (A).
       ``(3) Employment.--The term `employment' includes services 
     subject to tax under chapter 22 (relating to railroad 
     retirement taxes).
       ``(d) Special Rules.--For purposes of this section--
       ``(1) Common control.--All employers treated as a single 
     employer under subsection (a) or (b) of section 52 shall be 
     treated as a single employer for purposes of this section.
       ``(2) Trade or business requirement.--This section shall 
     not apply to employer payroll taxes paid with respect to an 
     employee unless more than one-half of the employee's 
     remuneration is for services performed in a trade or business 
     of the employer. Any determination under this subparagraph 
     shall be made without regard to subsections (a) and (b) of 
     section 52.''
       (b) Conforming Amendment.--The table of sections for 
     subchapter B of chapter 65 is amended by adding at the end 
     the following new item:

``Sec. 6430. Refund of employer payroll taxes on first $10,000 of wages 
              of an employee.''

                     TITLE II--ASSISTANCE TO STATES

     SEC. 201. TEMPORARY INCREASE OF MEDICAID FMAP.

       (a) Permitting Maintenance of Fiscal Year 2002 FMAP for 
     Last 2 Calendar Quarters of Fiscal Year 2003.--
     Notwithstanding any other provision of law, but subject to 
     subsection (e), if the FMAP determined without regard to this 
     section for a State for fiscal year 2003 is less than the 
     FMAP as so determined for fiscal year 2002, the FMAP for the 
     State for fiscal year 2002 shall be substituted for the 
     State's FMAP for the third and fourth calendar quarters of 
     fiscal year 2003, before the application of this section.
       (b) Permitting Maintenance of Fiscal Year 2003 FMAP for 
     Fiscal Year 2004.--Notwithstanding any other provision of 
     law, but subject to subsection (e), if the FMAP determined 
     without regard to this section for a State for fiscal year 
     2004 is less than the FMAP as so determined for fiscal year 
     2003, the FMAP for the State for fiscal year 2003 shall be 
     substituted for the State's FMAP for each calendar quarter of 
     fiscal year 2004, before the application of this section.
       (c) General 2.45 Percentage Points Increase for Last 2 
     Calendar Quarters of Fiscal Year 2003 and Fiscal Year 2004.--
     Notwithstanding any other provision of law, but subject to 
     subsections (e) and (f), for each State for the third and 
     fourth calendar quarters of fiscal year 2003 and each 
     calendar quarter of fiscal year 2004, the FMAP (taking into 
     account the application of subsections

[[Page 11722]]

     (a) and (b)) shall be increased by 2.45 percentage points.
       (d) Increase in Cap on Medicaid Payments To Territories.--
     Notwithstanding any other provision of law, but subject to 
     subsection (f), with respect to the third and fourth calendar 
     quarters of fiscal year 2003 and each calendar quarter of 
     fiscal year 2004, the amounts otherwise determined for Puerto 
     Rico, the Virgin Islands, Guam, the Northern Mariana Islands, 
     and American Samoa under subsections (f) and (g) of section 
     1108 of the Social Security Act (42 U.S.C. 1308) shall each 
     be increased by an amount equal to 4.90 percent of such 
     amounts.
       (e) Scope of Application.--The increases in the FMAP for a 
     State under this section shall apply only for purposes of 
     title XIX of the Social Security Act and shall not apply with 
     respect to--
       (1) disproportionate share hospital payments described in 
     section 1923 of such Act (42 U.S.C. 1396r-4); or
       (2) payments under title IV or XXI of such Act (42 U.S.C. 
     601 et seq. and 1397aa et seq.).
       (f) State Eligibility.--
       (1) In general.--Subject to paragraph (2), a State is 
     eligible for an increase in its FMAP under subsection (c) or 
     an increase in a cap amount under subsection (d) only if the 
     eligibility under its State plan under title XIX of the 
     Social Security Act (including any waiver under such title or 
     under section 1115 of such Act (42 U.S.C. 1315)) is no more 
     restrictive than the eligibility under such plan (or waiver) 
     as in effect on September 2, 2003.
       (2) State reinstatement of eligibility permitted.--A State 
     that has restricted eligibility under its State plan under 
     title XIX of the Social Security Act (including any waiver 
     under such title or under section 1115 of such Act (42 U.S.C. 
     1315)) after September 2, 2003, but prior to the date of 
     enactment of this Act is eligible for an increase in its FMAP 
     under subsection (c) or an increase in a cap amount under 
     subsection (d) in the first calendar quarter (and subsequent 
     calendar quarters) in which the State has reinstated 
     eligibility that is no more restrictive than the eligibility 
     under such plan (or waiver) as in effect on September 2, 
     2003.
       (3) Rule of construction.--Nothing in paragraph (1) or (2) 
     shall be construed as affecting a State's flexibility with 
     respect to benefits offered under the State medicaid program 
     under title XIX of the Social Security Act (42 U.S.C. 1396 et 
     seq.) (including any waiver under such title or under section 
     1115 of such Act (42 U.S.C. 1315)).
       (g) Definitions.--In this section:
       (1) FMAP.--The term ``FMAP'' means the Federal medical 
     assistance percentage, as defined in section 1905(b) of the 
     Social Security Act (42 U.S.C. 1396d(b)).
       (2) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.).
       (h) Repeal.--Effective as of October 1, 2004, this section 
     is repealed.

     SEC. 202. ONE-TIME REVENUE GRANT TO STATES AND LOCAL 
                   GOVERNMENTS.

       (a) Appropriation.--There is authorized to be appropriated 
     and is appropriated to carry out this section $30,000,000,000 
     for fiscal year 2003.
       (b) Payments to States.--
       (1) In general.--From the amount appropriated under 
     subsection (a) for fiscal year 2003, the Secretary of the 
     Treasury shall, as soon as practicable after the date of the 
     enactment of this Act, pay with respect to a State, the sum 
     of the amounts determined for the State under paragraphs (2), 
     (3), and (4).
       (2) Funding to meet the requirements of the no child left 
     behind act.--$7,500,000,000 shall be paid to States in the 
     same manner as allocations are made with respect to States 
     under section 1122 of the Elementary and Secondary Education 
     Act of 1965 (20 U.S.C. 6332).
       (3) Funding for child care for low-income families.--
     $3,000,000,000 shall be paid to States in the same manner as 
     allocations are made with respect to States under section 
     658O of the Child Care and Development Block Grant Act of 
     1990 (42 U.S.C. 9858m).
       (4) Funding for other state priorities.--
       (A) 50 percent based on population.--$4,875,000,000 shall 
     be allotted among such States on the basis of the relative 
     population of each such State, as determined by the Secretary 
     on the basis of the most recent satisfactory data.
       (B) 50 percent based on change in unemployment rate.--
       (i) Tier 1.--$1,220,000,000 shall be allotted among such 
     States which have experienced a tier 1 unemployment rate on 
     the basis of the relative number of unemployed individuals 
     for calendar year 2002 in each such State, as determined by 
     the Secretary on the basis of the most recent satisfactory 
     data.
       (ii) Tier 2.--$3,655,000,000 shall be allotted among such 
     States which have experienced a tier 2 unemployment rate on 
     the basis of the relative number of unemployed individuals 
     for calendar year 2002 in each such State, as determined by 
     the Secretary on the basis of the most recent satisfactory 
     data.
       (C) Guidelines for Use of Funds.--It is the sense of 
     Congress that States should use funds paid under this 
     paragraph for homeland security, public health, highway 
     construction, and the prevention of additional property and 
     other tax increases.
       (c) Payments to Units of General Local Government.--
       (1) In general.--From the amount appropriated under 
     subsection (a) for fiscal year 2003, the Secretary of the 
     Treasury shall, as soon as practicable after the date of the 
     enactment of this Act, pay with respect to a unit of general 
     local government, the sum of the amounts determined for the 
     unit of general local government under paragraphs (2) and 
     (3).
       (2)  percent based on population.--$4,875,000,000 shall be 
     allotted among such States as determined under subsection 
     (b)(4)(A) for distribution to the various units of general 
     local government within such States on the basis of the 
     relative population of each such unit within each such State, 
     as determined by the Secretary on the basis of the most 
     recent satisfactory data.
       (3) 50 percent based on change in unemployment rate.--
       (i) Tier 1.--$1,220,000,000 shall be allotted among such 
     States which have experienced a tier 1 unemployment rate as 
     determined under subsection (b)(4)(B)(i) for distribution to 
     the various units of general local government within such 
     States on the basis of the relative number of unemployed 
     individuals for calendar year 2002 in each such unit within 
     each such State, as determined by the Secretary on the basis 
     of the most recent satisfactory data.
       (ii) Tier 2.--$3,655,000,000 shall be allotted among such 
     States which have experienced a tier 2 unemployment rate as 
     determined under subsection (b)(4)(B)(ii) for distribution to 
     the various units of general local government within such 
     States on the basis of the relative number of unemployed 
     individuals for calendar year 2002 in each such unit within 
     each such State, as determined by the Secretary on the basis 
     of the most recent satisfactory data.
       (4) Guidelines for Use of Funds.--It is the sense of 
     Congress that units of general local government should use 
     funds paid in accordance with this subsection for homeland 
     security, public health, highway construction, and the 
     prevention of additional property and other tax increases.
       (d) Definitions.--For purposes of this section--
       (1) State.--The term ``State'' means any of the several 
     States, the District of Columbia, and the Commonwealth of 
     Puerto Rico.
       (2) Unit of general local government.--
       (A) In general.--The term ``unit of general local 
     government'' means--
       (i) a county, parish, township, city, or political 
     subdivision of a county, parish, township, or city, that is a 
     unit of general local government as determined by the 
     Secretary of Commerce for general statistical purposes; and
       (ii) the District of Columbia, the Commonwealth of Puerto 
     Rico, and the recognized governing body of an Indian tribe or 
     Alaskan native village that carries out substantial 
     governmental duties and powers.
       (B) Treatment of subsumed areas.--For purposes of 
     determining a unit of general local government under this 
     section, the rules under section 6720(c) of title 31, United 
     States Code, shall apply.
       (3) Unemployment.--With respect to any State or unit of 
     general local government--
       (A) Tier 1 unemployment rate.--The term ``tier 1 
     unemployment rate'' means an unemployment rate for calendar 
     year 2002 which was at least .4 but not more than 1.0 
     percentage point greater than such rate for calendar year 
     2000.
       (B) Tier 2 unemployment rate.--The term ``tier 2 
     unemployment rate'' means an unemployment rate for calendar 
     year 2002 which was more than 1.0 percentage point greater 
     than such rate for calendar year 2000.

     SEC. 203. ADDITIONAL ADVANCE REFUNDINGS OF CERTAIN 
                   GOVERNMENTAL BONDS.

       (a) In General.--Section 149(d)(3)(A)(i) (relating to 
     advance refundings of other bonds) is amended--
       (1) by striking ``or'' at the end of subclause (I),
       (2) by adding ``or'' at the end of subclause (II), and
       (3) by inserting after subclause (II) the following:

       ``(III) the 2nd advance refunding of the original bond if 
     the original bond was issued after 1985 or the 3rd advance 
     refunding of the original bond if the original bond was 
     issued before 1986, if, in either case, the refunding bond is 
     issued before the date which is 2 years after the date of the 
     enactment of this subclause and the original bond was issued 
     as part of an issue 90 percent or more of the net proceeds of 
     which were used to finance governmental facilities used for 1 
     or more essential governmental functions (within the meaning 
     of section 141(c)(2)),''.

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

                   TITLE III--TAX RELIEF FOR FAMILIES

     SEC. 301. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR 
                   MARRIED TAXPAYERS FILING JOINT RETURNS.

       (a) In General.--Paragraph (2) of section 63(c) (relating 
     to basic standard deduction) is amended to read as follows:

[[Page 11723]]

       ``(2) Basic standard deduction.--For purposes of paragraph 
     (1), the basic standard deduction is--
       ``(A) 200 percent of the dollar amount in effect under 
     subparagraph (C) for the taxable year in the case of--
       ``(i) a joint return, or
       ``(ii) a surviving spouse (as defined in section 2(a)),
       ``(B) $4,400 in the case of a head of household (as defined 
     in section 2(b)), or
       ``(C) $3,000 in any other case.''.
       (b) Conforming Amendments.--
       (1) Section 63(c)(4) is amended by striking ``(2)(D)'' each 
     place it occurs and inserting ``(2)(C)''.
       (2) Section 63(c) is amended by striking paragraph (7).
       (3) Section 301(d) of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is amended by striking ``2004'' 
     and inserting ``2002''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 302. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX 
                   RATE BRACKET EXPANSION FOR MARRIED TAXPAYERS 
                   FILING JOINT RETURNS.

       (a) In General.--Paragraph (8) of section 1(f) (relating to 
     phaseout of marriage penalty in 15-percent bracket) is 
     amended to read as follows:
       ``(8) Elimination of marriage penalty in 15-percent 
     bracket.--With respect to taxable years beginning after 
     December 31, 2002, in prescribing the tables under paragraph 
     (1)--
       ``(A) the maximum taxable income in the 15 percent rate 
     bracket in the table contained in subsection (a) (and the 
     minimum taxable income in the next higher taxable income 
     bracket in such table) shall be 200 percent of the maximum 
     taxable income in the 15-percent rate bracket in the table 
     contained in subsection (c) (after any other adjustment under 
     this subsection), and
       ``(B) the comparable taxable income amounts in the table 
     contained in subsection (d) shall be \1/2\ of the amounts 
     determined under subparagraph (A).''.
       (b) Conforming Amendments.--
       (1) The heading for subsection (f) of section 1 is amended 
     by striking ``Phaseout'' and inserting ``Elimination''.
       (2) Section 302(c) of the Economic Growth and Tax Relief 
     Reconciliation Act of 2001 is amended by striking ``2004'' 
     and inserting ``2002''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 303. ACCELERATION OF INCREASE IN CHILD TAX CREDIT

       (a) In General.--The table contained in section 24(a)(2) 
     (relating to per child amount) is amended to read as follows:

``In the case of any taxable year beginning   The per child amount is--
  2003, 2004, or 2005........................................  800 ....

  2006 or thereafter......................................1,000.''.....

       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 304. APPLICATION OF EGTRRA SUNSET TO THIS TITLE.

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

                   TITLE IV--TAX RELIEF FOR BUSINESS

     SEC. 401. INCREASED EXPENSING FOR SMALL BUSINESS.

       (a) In General.--Paragraph (1) of section 179(b) (relating 
     to dollar limitation) is amended to read as follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed $25,000 ($100,000 in the case of taxable 
     years beginning after 2002 and before 2008).''.
       (b) Increase in Qualifying Investment at Which Phaseout 
     Begins.--Paragraph (2) of section 179(b) (relating to 
     reduction in limitation) is amended by inserting ``($400,000 
     in the case of taxable years beginning after 2002 and before 
     2008)'' after ``$200,000''.
       (c) Off-the-Shelf Computer Software.--Paragraph (1) of 
     section 179(d) (defining section 179 property) is amended to 
     read as follows:
       ``(1) Section 179 property.--For purposes of this section, 
     the term `section 179 property' means property--
       ``(A) which is--
       ``(i) tangible property (to which section 168 applies), or
       ``(ii) computer software (as defined in section 
     197(e)(3)(B)) which is described in section 197(e)(3)(A)(i), 
     to which section 167 applies, and which is placed in service 
     in a taxable year beginning after 2002 and before 2008,
       ``(B) which is section 1245 property (as defined in section 
     1245(a)(3)), and
       ``(C) which is acquired by purchase for use in the active 
     conduct of a trade or business.
     Such term shall not include any property described in section 
     50(b) and shall not include air conditioning or heating 
     units.''.
       (d) Adjustment of Dollar Limit and Phaseout Threshold for 
     Inflation.--Subsection (b) of section 179 (relating to 
     limitations) is amended by adding at the end the following 
     new paragraph:
       ``(5) Inflation adjustments.--
       ``(A) In general.--In the case of any taxable year 
     beginning in a calendar year after 2003 and before 2008, the 
     $100,000 and $400,000 amounts in paragraphs (1) and (2) shall 
     each be increased by an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, by substituting `calendar year 2002' for 
     `calendar year 1992' in subparagraph (B) thereof.
       ``(B) Rounding.--
       ``(i) Dollar limitation.--If the amount in paragraph (1) as 
     increased under subparagraph (A) is not a multiple of $1,000, 
     such amount shall be rounded to the nearest multiple of 
     $1,000.
       ``(ii) Phaseout amount.--If the amount in paragraph (2) as 
     increased under subparagraph (A) is not a multiple of 
     $10,000, such amount shall be rounded to the nearest multiple 
     of $10,000.''.
       (e) Revocation of Election.--Paragraph (2) of section 
     179(c) (relating to election irrevocable) is amended to read 
     as follows:
       ``(2) Revocation of election.--An election under paragraph 
     (1) with respect to any taxable year beginning after 2002 and 
     before 2008, and any specification contained in any such 
     election, may be revoked by the taxpayer with respect to any 
     property. Such revocation, once made, shall be 
     irrevocable.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 402. SMALL BUSINESS TAX CREDIT FOR 50 PERCENT OF HEALTH 
                   PREMIUMS.

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

     ``SEC. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of a qualified small employer, the employee health 
     insurance expenses credit determined under this section is an 
     amount equal to the applicable percentage of the amount paid 
     by the taxpayer during the taxable year for qualified 
     employee health insurance expenses.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage is equal to--
       ``(1) 50 percent in the case of an employer with less than 
     26 qualified employees,
       ``(2) 40 percent in the case of an employer with more than 
     25 but less than 36 qualified employees, and
       ``(3) 30 percent in the case of an employer with more than 
     35 but less than 51 qualified employees.
       ``(c) Per Employee Dollar Limitation.--The amount of 
     qualified employee health insurance expenses taken into 
     account under subsection (a) with respect to any qualified 
     employee for any taxable year shall not exceed the maximum 
     employer contribution for self-only coverage or family 
     coverage (as applicable) determined under section 8906(a) of 
     title 5, United States Code, for the calendar year in which 
     such taxable year begins.
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified small employer.--
       ``(A) In general.--The term `qualified small employer' 
     means any small employer which provides eligibility for 
     health insurance coverage (after any waiting period (as 
     defined in section 9801(b)(4)) to all qualified employees of 
     the employer.
       ``(B) Small employer.--
       ``(i) In general.--For purposes of this paragraph, the term 
     `small employer' means, with respect to any calendar year, 
     any employer if such employer employed an average of not less 
     than 2 and not more than 50 qualified employees on business 
     days during either of the 2 preceding calendar years. For 
     purposes of the preceding sentence, a preceding calendar year 
     may be taken into account only if the employer was in 
     existence throughout such year.
       ``(ii) Employers not in existence in preceding year.--In 
     the case of an employer which was not in existence throughout 
     the 1st preceding calendar year, the determination under 
     clause (i) shall be based on the average number of qualified 
     employees that it is reasonably expected such employer will 
     employ on business days in the current calendar year.
       ``(2) Qualified employee health insurance expenses.--
       ``(A) In general.--The term `qualified employee health 
     insurance expenses' means any amount paid by an employer for 
     health insurance coverage to the extent such amount is 
     attributable to coverage provided to any employee while such 
     employee is a qualified employee.
       ``(B) Exception for amounts paid under salary reduction 
     arrangements.--No amount paid or incurred for health 
     insurance coverage pursuant to a salary reduction arrangement 
     shall be taken into account under subparagraph (A).
       ``(C) Health insurance coverage.--The term `health 
     insurance coverage' has the

[[Page 11724]]

     meaning given such term by paragraph (1) of section 9832(b) 
     (determined by disregarding the last sentence of paragraph 
     (2) of such section).
       ``(3) Qualified employee.--The term `qualified employee' 
     means an employee of an employer who, with respect to any 
     period, is not provided health insurance coverage under--
       ``(A) a health plan of the employee's spouse,
       ``(B) title XVIII, XIX, or XXI of the Social Security Act,
       ``(C) chapter 17 of title 38, United States Code,
       ``(D) chapter 55 of title 10, United States Code,
       ``(E) chapter 89 of title 5, United States Code, or
       ``(F) any other provision of law.
       ``(4) Employee--.The term `employee'--
       ``(A) means any individual, with respect to any calendar 
     year, who is reasonably expected to receive at least $5,000 
     of compensation from the employer during such year,
       ``(B) does not include an employee within the meaning of 
     section 401(c)(1), and
       ``(C) includes a leased employee within the meaning of 
     section 414(n).
       ``(5) Compensation.--The term `compensation' means amounts 
     described in section 6051(a)(3).
       ``(e) Certain Rules Made Applicable.--For purposes of this 
     section, rules similar to the rules of section 52 shall 
     apply.
       ``(f) Denial of Double Benefit.--No deduction or credit 
     under any other provision of this chapter shall be allowed 
     with respect to qualified employee health insurance expenses 
     taken into account under subsection (a).
       ``(g) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 2003.''.
       (b) Credit To Be Part of General Business Credit.--Section 
     38(b) (relating to current year business credit) is amended 
     by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following:
       ``(16) the employee health insurance expenses credit 
     determined under section 45G.''.
       (c) Credit Allowed Against Minimum Tax.--
       (1) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Special rules for employee health insurance credit.--
       ``(A) In general.--In the case of the employee health 
     insurance credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) the amounts in subparagraphs (A) and (B) thereof 
     shall be treated as being zero, and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the employee 
     health insurance credit).

       ``(B) Employee health insurance credit.--For purposes of 
     this subsection, the term `employee health insurance credit' 
     means the credit allowable under subsection (a) by reason of 
     section 45G(a).''.
       (2) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) is amended by striking ``(other'' and all 
     that follows through ``credit)'' and inserting ``(other than 
     the empowerment zone employment credit or the employee health 
     insurance credit)''.
       (d) No Carrybacks.--Subsection (d) of section 39 (relating 
     to carryback and carryforward of unused credits) is amended 
     by adding at the end the following:
       ``(11) No carryback of section 45g credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the employee health 
     insurance expenses credit determined under section 45G may be 
     carried back to a taxable year ending before the date of the 
     enactment of section 45G.''.
       (e) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following:

``Sec. 45G. Employee health insurance expenses.''.

       (f) Employer Outreach.--The Internal Revenue Service shall, 
     in conjunction with the Small Business Administration, 
     develop materials and implement an educational program to 
     ensure that business personnel are aware of--
       (1) the eligibility criteria for the tax credit provided 
     under section 45G of the Internal Revenue Code of 1986 (as 
     added by this section),
       (2) the methods to be used in calculating such credit,
       (3) the documentation needed in order to claim such credit, 
     and
       (4) any available health plan purchasing alliances 
     established under title II,

     so that the maximum number of eligible businesses may claim 
     the tax credit.
       (g) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 2002.

     SEC. 403. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT ADDED 
                   TO GENERAL BUSINESS CREDIT.

       (a) Ready Reserve-National Guard Credit.--Subpart D of part 
     IV of subchapter A of chapter 1 (relating to business-related 
     credits), as amended by section 402, is amended by adding at 
     the end the following:

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

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year is an amount equal to 50 percent 
     of the actual compensation amount for such taxable year.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day during a taxable year when the employee 
     was absent from employment for the purpose of performing 
     qualified active duty.
       ``(c) Limitations.--
       ``(1) Maximum period for credit per employee.--The maximum 
     period with respect to which the credit may be allowed with 
     respect to any Ready Reserve-National Guard employee shall 
     not exceed the 12-month period beginning on the first day 
     such credit is so allowed with respect to such employee.
       ``(2) Days other than work days.--No credit shall be 
     allowed with respect to a Ready Reserve-National Guard 
     employee who performs qualified active duty on any day on 
     which the employee was not scheduled to work (for reason 
     other than to participate in qualified active duty).
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave of absence from 
     employment under chapter 43 of title 38, United States Code, 
     and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve or of the National Guard.
       ``(4) National guard.--The term `National Guard' has the 
     meaning given such term by section 101(c)(1) of title 10, 
     United States Code.
       ``(5) Ready reserve.--The term `Ready Reserve' has the 
     meaning given such term by section 10142 of title 10, United 
     States Code.''.
       (b) Credit To Be Part of General Business Credit.--
     Subsection (b) of section 38 (relating to general business 
     credit), as amended by section 403, is amended by striking 
     ``plus'' at the end of paragraph (15), by striking the period 
     at the end of paragraph (16) and inserting ``, plus'', and by 
     adding at the end the following:
       ``(17) the Ready Reserve-National Guard employee credit 
     determined under section 45H(a).''.
       (c) Conforming Amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1, as amended 
     by section 403, is amended by adding at the end the 
     following:

``Sec. 45H. Ready Reserve-National Guard employee credit.''.

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

     SEC. 404. RENEWAL COMMUNITY EMPLOYERS MAY QUALIFY FOR 
                   EMPLOYMENT CREDIT BY EMPLOYING RESIDENTS OF 
                   CERTAIN OTHER RENEWAL COMMUNITIES.

       (a) In General.--Section 1400H(b)(2) (relating to 
     modification) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) subsection (d)(1)(B) thereof shall be applied by 
     substituting `such renewal community, an adjacent renewal 
     community within the same State as such renewal community, or 
     a renewal community within such State which is within 5 miles 
     of any border of such renewal community' for `such 
     empowerment zone'.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the amendment made by 
     section 101(a) of the Community Renewal Tax Relief Act of 
     2000.

[[Page 11725]]



                   TITLE V--UNEMPLOYMENT COMPENSATION

      Subtitle A--Extension and Enhancement of Temporary Extended 
                       Unemployment Compensation

     SEC. 501. EXTENSION OF THE TEMPORARY EXTENDED UNEMPLOYMENT 
                   COMPENSATION ACT OF 2002.

       (a) In General.--Section 208 of the Temporary Extended 
     Unemployment Compensation Act of 2002 (Public Law 107-147; 
     116 Stat. 30), as amended by Public Law 108-1 (117 Stat. 3), 
     is amended--
       (1) in subsection (a)(2), by striking ``before June 1'' and 
     inserting ``on or before November 30'';
       (2) in subsection (b)(1), by striking ``May 31, 2003'' and 
     inserting ``November 30, 2003'';
       (3) in subsection (b)(2)--
       (A) in the heading, by striking ``may 31, 2003'' and 
     inserting ``november 30, 2003''; and
       (B) by striking ``May 31, 2003'' and inserting ``November 
     30, 2003''; and
       (4) in subsection (b)(3), by striking ``August 30, 2003'' 
     and inserting ``February 28, 2004''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 21).

     SEC. 502. ENTITLEMENT TO ADDITIONAL WEEKS OF TEMPORARY 
                   EXTENDED UNEMPLOYMENT COMPENSATION.

       (a) Entitlement to Additional Weeks.--
       (1) In general.--Paragraph (1) of section 203(b) of the 
     Temporary Extended Unemployment Compensation Act of 2002 
     (Public Law 107-147; 116 Stat. 28) is amended--
       (A) in subparagraph (A), by striking ``50 percent'' and 
     inserting ``100 percent''; and
       (B) in subparagraph (B), by striking ``13 times'' and 
     inserting ``26 times''.
       (2) Repeal of restriction on augmentation during 
     transitional period.--Section 208(b) of the Temporary 
     Extended Unemployment Compensation Act of 2002 (Public Law 
     107-147), as amended by Public Law 108-1 (117 Stat. 3) and 
     section 301(a), is amended--
       (A) in paragraph (1)--
       (i) by striking ``paragraphs (2) and (3)'' and inserting 
     ``paragraph (2)''; and
       (ii) by inserting before the period at the end the 
     following: ``, including such compensation payable by reason 
     of amounts deposited in such account after such date pursuant 
     to the application of subsection (c) of such section'';
       (B) by striking paragraph (2); and
       (C) by redesignating paragraph (3) as paragraph (2).
       (3) Extension of transition limitation.--Section 208(b)(2) 
     of the Temporary Extended Unemployment Compensation Act of 
     2002 (Public Law 107-147), as amended by Public Law 108-1 
     (117 Stat. 3) and section 301(a)(4) and as redesignated by 
     paragraph (2), is amended by striking ``February 28, 2004'' 
     and inserting ``May 29, 2004''.
       (4) Conforming amendment for augmented benefits.--Section 
     203(c)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended by 
     striking ``the amount originally established in such account 
     (as determined under subsection (b)(1))'' and inserting ``7 
     times the individual's average weekly benefit amount for the 
     benefit year''.
       (b) Effective Date and Application.--
       (1) In general.--The amendments made by subsection (a) 
     shall apply with respect to weeks of unemployment beginning 
     on or after the date of enactment this Act.
       (2) TEUC-X amounts deposited in account prior to date of 
     enactment deemed to be the additional teuc amounts provided 
     by this section.--In applying the amendments made by 
     subsection (a) under the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 26), 
     the Secretary of Labor shall deem any amounts deposited into 
     an individual's temporary extended unemployment compensation 
     account by reason of section 203(c) of such Act (commonly 
     known as ``TEUC-X amounts'') prior to the date of enactment 
     of this Act to be amounts deposited in such account by reason 
     of section 203(b) of such Act, as amended by subsection (a) 
     (commonly known as ``TEUC amounts'').
       (3) Application to exhaustees and current beneficiaries.--
       (A) Exhaustees.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) who exhausted such individual's rights to such 
     compensation (by reason of the payment of all amounts in such 
     individual's temporary extended unemployment compensation 
     account) before such date,

     such individual's eligibility for any additional weeks of 
     temporary extended unemployment compensation by reason of the 
     amendments made by subsection (a) shall apply with respect to 
     weeks of unemployment beginning on or after the date of 
     enactment of this Act.
       (B) Current beneficiaries.--In the case of any individual--
       (i) to whom any temporary extended unemployment 
     compensation was payable for any week beginning before the 
     date of enactment of this Act; and
       (ii) as to whom the condition described in subparagraph 
     (A)(ii) does not apply,

     such individual shall be eligible for temporary extended 
     unemployment compensation (in accordance with the provisions 
     of the Temporary Extended Unemployment Compensation Act of 
     2002, as amended by subsection (a)) with respect to weeks of 
     unemployment beginning on or after the date of enactment of 
     this Act.
       (4) Redetermination of eligibility for augmented amounts 
     for individuals for whom such a determination was made prior 
     to the date of enactment.--Any determination of whether the 
     individual's State is in an extended benefit period under 
     section 203(c) of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 28) 
     made prior to the date of enactment of this Act shall be 
     disregarded and the determination under such section shall be 
     made as follows:
       (A) Individuals who exhausted all teuc and teuc-x amounts 
     prior to the date of enactment.--In the case of an individual 
     whose temporary extended unemployment account has, prior to 
     the date of enactment of this Act, been both augmented under 
     such section 203(c) and exhausted of all amounts by which it 
     was so augmented, the determination shall be made as of such 
     date of enactment.
       (B) All other individuals.--In the case of an individual 
     who is not described in subparagraph (A), the determination 
     shall be made at the time that the individual's account 
     established under such section 203, as amended by subsection 
     (a), is exhausted.
       (5) No effect on provisions related to displaced airline 
     related workers.--The amendments made by this section and 
     section 301 shall have no effect on the provisions of section 
     4002 of the Emergency Wartime Supplemental Appropriations 
     Act, 2003 (Public Law 108-11).

    Subtitle B--Temporary Enhanced Regular Unemployment Compensation

     SEC. 511. FEDERAL-STATE AGREEMENTS.

       (a) In General.--Any State which desires to do so may enter 
     into and participate in an agreement under this title with 
     the Secretary of Labor (in this title referred to as the 
     ``Secretary''). Any State which is a party to an agreement 
     under this title may, upon providing 30 days' written notice 
     to the Secretary, terminate such agreement.
       (b) Provisions of Agreement.--
       (1) In general.--Subject to paragraph (3), any agreement 
     under subsection (a) shall provide that the State agency of 
     the State, in addition to any amounts of regular compensation 
     to which an individual may be entitled under the State law, 
     shall make payments of temporary enhanced regular 
     unemployment compensation to an individual in an amount and 
     to the extent that the individual would be entitled to 
     regular compensation if the State law were applied with the 
     modifications described in paragraph (2).
       (2) Modifications described.--The modifications described 
     in this paragraph are as follows:
       (A) In the case of an individual who is not eligible for 
     regular compensation under the State law because of the use 
     of a definition of base period that does not count wages 
     earned in the most recently completed calendar quarter, then 
     eligibility for compensation shall be determined by applying 
     a base period ending at the close of the most recently 
     completed calendar quarter.
       (B) In the case of an individual who is not eligible for 
     regular compensation under the State law because such 
     individual does not meet requirements relating to 
     availability for work, active search for work, or refusal to 
     accept work, because such individual is seeking, or is 
     available for, less than full-time work, then compensation 
     shall not be denied by such State to an otherwise eligible 
     individual who seeks less than full-time work or fails to 
     accept full-time work.
       (3) Reduction of amounts of regular compensation available 
     for individuals who sought part-time work or failed to accept 
     full-time work.--Any agreement under subsection (a) shall 
     provide that the State agency of the State shall reduce the 
     amount of regular compensation available to an individual who 
     has received temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in paragraph (2)(B) by the amount of 
     such temporary enhanced regular unemployment compensation.
       (c) Coordination Rule.--The modifications described in 
     subsection (b)(2) shall also apply in determining the amount 
     of benefits payable under any Federal law to the extent that 
     those benefits are determined by reference to regular 
     compensation payable under the State law of the State 
     involved.

     SEC. 512. PAYMENTS TO STATES HAVING AGREEMENTS UNDER THIS 
                   TITLE.

       (a) General Rule.--There shall be paid to each State which 
     has entered into an agreement under this title an amount 
     equal to--
       (1) 100 percent of any temporary enhanced regular 
     unemployment compensation; and
       (2) 100 percent of any regular compensation which is paid 
     to individuals by such State by reason of the fact that its 
     State law contains provisions comparable to the modifications 
     described in subparagraphs (A) and (B) of section 311(b)(2), 
     but only to the extent that those amounts would, if such 
     amounts were instead payable by virtue of the State law's

[[Page 11726]]

     being deemed to be so modified pursuant to section 311(b)(1), 
     have been reimbursable under paragraph (1).
       (b) Determination of Amount.--Sums under subsection (a) 
     payable to any State by reason of such State having an 
     agreement under this title shall be payable, either in 
     advance or by way of reimbursement (as may be determined by 
     the Secretary), in such amounts as the Secretary estimates 
     the State will be entitled to receive under this title for 
     each calendar month, reduced or increased, as the case may 
     be, by any amount by which the Secretary finds that the 
     Secretary's estimates for any prior calendar month were 
     greater or less than the amounts which should have been paid 
     to the State. Such estimates may be made on the basis of such 
     statistical, sampling, or other method as may be agreed upon 
     by the Secretary and the State agency of the State involved.

     SEC. 513. FINANCING PROVISIONS.

       (a) In General.--Funds in the extended unemployment 
     compensation account (as established by section 905(a) of the 
     Social Security Act (42 U.S.C. 1105(a))), and the Federal 
     unemployment account (as established by section 904(g) of 
     such Act (42 U.S.C. 1104(g))), of the Unemployment Trust Fund 
     (as established by section 904(a) of such Act (42 U.S.C. 
     1104(a))) shall be used for the making of payments to States 
     having agreements entered into under this title.
       (b) Certification.--The Secretary shall from time to time 
     certify to the Secretary of the Treasury for payment to each 
     State the sums which are payable to such State under this 
     title. The Secretary of the Treasury, prior to audit or 
     settlement by the General Accounting Office, shall make 
     payments to the State in accordance with such certification 
     by transfers from the extended unemployment compensation 
     account (as so established), or, to the extent that there are 
     insufficient funds in that account, from the Federal 
     unemployment account, to the account of such State in the 
     Unemployment Trust Fund (as so established).
       (c) Assistance to States.--There are appropriated out of 
     the employment security administration account of the 
     Unemployment Trust Fund (as established by section 901(a) of 
     the Social Security Act (42 U.S.C. 1101(a))) $500,000,000 to 
     reimburse States for the costs of the administration of 
     agreements under this title (including any improvements in 
     technology in connection therewith) and to provide 
     reemployment services to unemployment compensation claimants 
     in States having agreements under this title. Each State's 
     share of the amount appropriated by the preceding sentence 
     shall be determined by the Secretary according to the factors 
     described in section 302(a) of the Social Security Act (42 
     U.S.C. 502(a)) and certified by the Secretary to the 
     Secretary of the Treasury.
       (d) Appropriations for Certain Payments.--There are 
     appropriated from the general fund of the Treasury, without 
     fiscal year limitation, to the extended unemployment 
     compensation account (as so established) of the Unemployment 
     Trust Fund (as so established) such sums as the Secretary 
     estimates to be necessary to make the payments under this 
     section in respect of--
       (1) compensation payable under chapter 85 of title 5, 
     United States Code; and
       (2) compensation payable on the basis of services to which 
     section 3309(a)(1) of the Internal Revenue Code of 1986 
     applies.
     Amounts appropriated pursuant to the preceding sentence shall 
     not be required to be repaid.

     SEC. 514. DEFINITIONS.

       For purposes of this title, the terms ``compensation'', 
     ``base period'', ``regular compensation'', ``State'', ``State 
     agency'', ``State law'', and ``week'' have the respective 
     meanings given such terms under section 205 of the Federal-
     State Extended Unemployment Compensation Act of 1970.

     SEC. 515. APPLICABILITY.

       (a) In General.--Except as provided in subsection (b), an 
     agreement entered into under this title shall apply to weeks 
     of unemployment--
       (1) beginning after the date on which such agreement is 
     entered into; and
       (2) ending before July 1, 2004.
       (b) Phase-Out of TERUC.--
       (1) In general.--Subject to paragraph (2), in the case of 
     an individual who has established eligibility for temporary 
     enhanced regular unemployment compensation, but who has not 
     exhausted all rights to such compensation, as of the last day 
     of the week ending before July 1, 2004, such compensation 
     shall continue to be payable to such individual for any week 
     beginning after such date for which the individual meets the 
     eligibility requirements of this title.
       (2) Limitation.--No compensation shall be payable by reason 
     of paragraph (1) for any week beginning after December 31, 
     2004.

     SEC. 516. COORDINATION WITH THE TEMPORARY EXTENDED 
                   UNEMPLOYMENT COMPENSATION ACT OF 2002.

       (a) In General.--The Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended--
       (1) in section 202(b)(1), by inserting ``, and who have 
     exhausted all rights to temporary enhanced regular 
     unemployment compensation'' before the semicolon at the end;
       (2) in section 202(b)(2), by inserting ``, temporary 
     enhanced regular unemployment compensation,'' after ``regular 
     compensation'';
       (3) in section 202(c), by inserting ``(or, as the case may 
     be, such individual's rights to temporary enhanced regular 
     unemployment compensation)'' after ``State law'' in the 
     matter preceding paragraph (1);
       (4) in section 202(c)(1), by inserting ``and no payments of 
     temporary enhanced regular unemployment compensation can be 
     made'' after ``under such law'';
       (5) in section 202(d)(1), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     (including dependents' allowances) payable to such individual 
     for such a week,'' after ``total unemployment'';
       (6) in section 202(d)(2)(A), by inserting ``, or, as the 
     case may be, to temporary enhanced regular unemployment 
     compensation,'' after ``State law'';
       (7) in section 203(b)(1)(A), by inserting ``plus the amount 
     of any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``under 
     such law''; and
       (8) in section 203(b)(2), by inserting ``or the amount of 
     any temporary enhanced regular unemployment compensation 
     payable to such individual for such week,'' after ``total 
     unemployment''.
       (b) Amount of TEUC Offset by Amount of TERUC.--Section 
     203(b)(1) of the Temporary Extended Unemployment Compensation 
     Act of 2002 (Public Law 107-147; 116 Stat. 28) is amended--
       (1) in subparagraph (B), by striking the period at the end 
     and inserting a comma; and
       (2) by adding at the end the following:
     ``minus the number of weeks in which the individual was 
     entitled to temporary enhanced regular unemployment 
     compensation as a result of the application of the 
     modification described in section 511(b)(2)(A) of the Jobs 
     and Growth Reconciliation Tax Relief Act of 2003 (relating to 
     the alternative base period) multiplied by the individual's 
     average weekly benefit amount for the benefit year.''.
       (c) Temporary Enhanced Regular Unemployment Compensation 
     Defined.--Section 207 of the Temporary Extended Unemployment 
     Compensation Act of 2002 (Public Law 107-147; 116 Stat. 30) 
     is amended to read as follows:

     ``SEC. 207. DEFINITIONS.

       ``In this title:
       ``(1) General definitions.--The terms `compensation', 
     `regular compensation', `extended compensation', `additional 
     compensation', `benefit year', `base period', `State', `State 
     agency', `State law', and `week' have the respective meanings 
     given such terms under section 205 of the Federal-State 
     Extended Unemployment Compensation Act of 1970 (26 U.S.C. 
     3304 note).
       ``(2) Temporary enhanced regular unemployment 
     compensation.--The term `temporary enhanced regular 
     unemployment compensation' means temporary enhanced regular 
     unemployment benefits payable under title V of the Jobs and 
     Growth Reconciliation Tax Relief Act of 2003.''.

              Subtitle C--Railroad Unemployment Insurance

     SEC. 517. TEMPORARY INCREASE IN EXTENDED UNEMPLOYMENT 
                   BENEFITS UNDER THE RAILROAD UNEMPLOYMENT 
                   INSURANCE ACT.

       Section 2(c)(2) of the Railroad Unemployment Insurance Act 
     (45 U.S.C. 352(c)(2)) is amended by adding at the end the 
     following:
       ``(D) Temporary increase in extended unemployment 
     benefits.--
       ``(i) Employees with 10 or more years of service.--Subject 
     to clause (iii), in the case of an employee who has 10 or 
     more years of service (as so defined), with respect to 
     extended unemployment benefits--

       ``(I) subparagraph (A) shall be applied by substituting 
     ``130 days of unemployment'' for ``65 days of unemployment''; 
     and
       ``(II) subparagraph (B) shall be applied by inserting 
     ``(or, in the case of unemployment benefits, 13 consecutive 
     14-day periods'' after ``7 consecutive 14-day periods''.

       ``(ii) Employees with less than 10 years of service.--
     Subject to clause (iii), in the case of an employee who has 
     less than 10 years of service (as so defined), with respect 
     to extended unemployment benefits, this paragraph shall apply 
     to such an employee in the same manner as this paragraph 
     would apply to an employee described in clause (i) if such 
     clause had not been enacted.
       ``(iii) Application.--The provisions of clauses (i) and 
     (ii) shall apply to--

       ``(I) an employee who received normal benefits for days of 
     unemployment under this Act during the period beginning on 
     July 1, 2002, and ending on November 30, 2003; and
       ``(II) days of unemployment beginning on or after the date 
     of enactment of Jobs and Growth Reconciliation Tax Relief Act 
     of 2003.''.

                       TITLE VI--OTHER PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 601. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

       (a) In General.--Section 7701 is amended by redesignating 
     subsection (n) as subsection (o) and by inserting after 
     subsection (m) the following new subsection:
       ``(n) Clarification of Economic Substance Doctrine; Etc.--

[[Page 11727]]

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

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

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

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).
       ``(2) Special rules for transactions with tax-indifferent 
     parties.--
       ``(A) Special rules for financing transactions.--The form 
     of a transaction which is in substance the borrowing of money 
     or the acquisition of financial capital directly or 
     indirectly from a tax-indifferent party shall not be 
     respected if the present value of the deductions to be 
     claimed with respect to the transaction is substantially in 
     excess of the present value of the anticipated economic 
     returns of the person lending the money or providing the 
     financial capital. A public offering shall be treated as a 
     borrowing, or an acquisition of financial capital, from a 
     tax-indifferent party if it is reasonably expected that at 
     least 50 percent of the offering will be placed with tax-
     indifferent parties.
       ``(B) Artificial income shifting and basis adjustments.--
     The form of a transaction with a tax-indifferent party shall 
     not be respected if--
       ``(i) it results in an allocation of income or gain to the 
     tax-indifferent party in excess of such party's economic 
     income or gain, or
       ``(ii) it results in a basis adjustment or shifting of 
     basis on account of overstating the income or gain of the 
     tax-indifferent party.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Economic substance doctrine.--The term `economic 
     substance doctrine' means the common law doctrine under which 
     tax benefits under subtitle A with respect to a transaction 
     are not allowable if the transaction does not have economic 
     substance or lacks a business purpose.
       ``(B) Tax-indifferent party.--The term `tax-indifferent 
     party' means any person or entity not subject to tax imposed 
     by subtitle A. A person shall be treated as a tax-indifferent 
     party with respect to a transaction if the items taken into 
     account with respect to the transaction have no substantial 
     impact on such person's liability under subtitle A.
       ``(C) Exception for personal transactions of individuals.--
     In the case of an individual, this subsection shall apply 
     only to transactions entered into in connection with a trade 
     or business or an activity engaged in for the production of 
     income.
       ``(D) Treatment of lessors.--A lessor of tangible property 
     subject to a lease shall be treated as satisfying the 
     requirements of paragraph (1)(B)(ii) with respect to the 
     leased property if such lease satisfies such requirements as 
     provided by the Secretary.
       ``(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 on or after May 8, 
     2003.

     SEC. 602. PENALTY FOR FAILING TO DISCLOSE REPORTABLE 
                   TRANSACTION.

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

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

       ``(a) Imposition of Penalty.--Any person who fails to 
     include on any return or statement any information with 
     respect to a reportable transaction which is required under 
     section 6011 to be included with such return or statement 
     shall pay a penalty in the amount determined under subsection 
     (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraphs (2) and 
     (3), the amount of the penalty under subsection (a) shall be 
     $50,000.
       ``(2) Listed transaction.--The amount of the penalty under 
     subsection (a) with respect to a listed transaction shall be 
     $100,000.
       ``(3) Increase in penalty for large entities and high net 
     worth individuals.--
       ``(A) In general.--In the case of a failure under 
     subsection (a) by--
       ``(i) a large entity, or
       ``(ii) a high net worth individual,
     the penalty under paragraph (1) or (2) shall be twice the 
     amount determined without regard to this paragraph.
       ``(B) Large entity.--For purposes of subparagraph (A), the 
     term `large entity' means, with respect to any taxable year, 
     a person (other than a natural person) with gross receipts in 
     excess of $10,000,000 for the taxable year in which the 
     reportable transaction occurs or the preceding taxable year. 
     Rules similar to the rules of paragraph (2) and subparagraphs 
     (B), (C), and (D) of paragraph (3) of section 448(c) shall 
     apply for purposes of this subparagraph.
       ``(C) High net worth individual.--For purposes of 
     subparagraph (A), the term `high net worth individual' means, 
     with respect to a reportable transaction, a natural person 
     whose net worth exceeds $2,000,000 immediately before the 
     transaction.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Reportable transaction.--The term `reportable 
     transaction' means any transaction with respect to which 
     information is required to be included with a return or 
     statement because, as determined under regulations prescribed 
     under section 6011, such transaction is of a type which the 
     Secretary determines as having a potential for tax avoidance 
     or evasion.
       ``(2) Listed transaction.--Except as provided in 
     regulations, the term `listed transaction' means a reportable 
     transaction which is the same as, or substantially similar 
     to, a transaction specifically identified by the Secretary as 
     a tax avoidance transaction for purposes of section 6011.
       ``(d) Authority To Rescind Penalty.--
       ``(1) In general.--The Commissioner of Internal Revenue may 
     rescind all or any portion of any penalty imposed by this 
     section with respect to any violation if--
       ``(A) the violation is with respect to a reportable 
     transaction other than a listed transaction,
       ``(B) the person on whom the penalty is imposed has a 
     history of complying with the requirements of this title,
       ``(C) it is shown that the violation is due to an 
     unintentional mistake of fact;
       ``(D) imposing the penalty would be against equity and good 
     conscience, and
       ``(E) rescinding the penalty would promote compliance with 
     the requirements of this title and effective tax 
     administration.
       ``(2) Discretion.--The exercise of authority under 
     paragraph (1) shall be at the sole discretion of the 
     Commissioner and may be delegated only to the head of the 
     Office of Tax Shelter Analysis. The Commissioner, in the 
     Commissioner's sole discretion, may establish a procedure to 
     determine if a penalty should be referred to the Commissioner 
     or the head of such Office for a determination under 
     paragraph (1).
       ``(3) No appeal.--Notwithstanding any other provision of 
     law, any determination under this subsection may not be 
     reviewed in any administrative or judicial proceeding.
       ``(4) Records.--If a penalty is rescinded under paragraph 
     (1), the Commissioner shall place in the file in the Office 
     of the Commissioner the opinion of the Commissioner or the 
     head of the Office of Tax Shelter Analysis with respect to 
     the determination, including--
       ``(A) the facts and circumstances of the transaction,
       ``(B) the reasons for the rescission, and
       ``(C) the amount of the penalty rescinded.
       ``(5) Report.--The Commissioner shall each year report to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate--
       ``(A) a summary of the total number and aggregate amount of 
     penalties imposed, and rescinded, under this section, and
       ``(B) a description of each penalty rescinded under this 
     subsection and the reasons therefor.
       ``(e) Penalty Reported to SEC.--In the case of a person--
       ``(1) which is required to file periodic reports under 
     section 13 or 15(d) of the Securities Exchange Act of 1934 or 
     is required to be consolidated with another person for 
     purposes of such reports, and
       ``(2) which--
       ``(A) is required to pay a penalty under this section with 
     respect to a listed transaction,
       ``(B) is required to pay a penalty under section 6662A with 
     respect to any reportable

[[Page 11728]]

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

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

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

       ``(a) Imposition of Penalty.--If a taxpayer has a 
     reportable transaction understatement for any taxable year, 
     there shall be added to the tax an amount equal to 20 percent 
     of the amount of such understatement.
       ``(b) Reportable Transaction Understatement.--For purposes 
     of this section--
       ``(1) In general.--The term `reportable transaction 
     understatement' means the sum of--
       ``(A) the product of--
       ``(i) the amount of the increase (if any) in taxable income 
     which results from a difference between the proper tax 
     treatment of an item to which this section applies and the 
     taxpayer's treatment of such item (as shown on the taxpayer's 
     return of tax), and
       ``(ii) the highest rate of tax imposed by section 1 
     (section 11 in the case of a taxpayer which is a 
     corporation), and
       ``(B) the amount of the decrease (if any) in the aggregate 
     amount of credits determined under subtitle A which results 
     from a difference between the taxpayer's treatment of an item 
     to which this section applies (as shown on the taxpayer's 
     return of tax) and the proper tax treatment of such item.
     For purposes of subparagraph (A), any reduction of the excess 
     of deductions allowed for the taxable year over gross income 
     for such year, and any reduction in the amount of capital 
     losses which would (without regard to section 1211) be 
     allowed for such year, shall be treated as an increase in 
     taxable income.
       ``(2) Items to which section applies.--This section shall 
     apply to any item which is attributable to--
       ``(A) any listed transaction, and
       ``(B) any reportable transaction (other than a listed 
     transaction) if a significant purpose of such transaction is 
     the avoidance or evasion of Federal income tax.
       ``(c) Higher Penalty for Nondisclosed Listed and Other 
     Avoidance Transactions.--
       ``(1) In general.--Subsection (a) shall be applied by 
     substituting `30 percent' for `20 percent' with respect to 
     the portion of any reportable transaction understatement with 
     respect to which the requirement of section 6664(d)(2)(A) is 
     not met.
       ``(2) Rules applicable to compromise of penalty.--
       ``(A) In general.--If the 1st letter of proposed deficiency 
     which allows the taxpayer an opportunity for administrative 
     review in the Internal Revenue Service Office of Appeals has 
     been sent with respect to a penalty to which paragraph (1) 
     applies, only the Commissioner of Internal Revenue may 
     compromise all or any portion of such penalty.
       ``(B) Applicable rules.--The rules of paragraphs (2), (3), 
     (4), and (5) of section 6707A(d) shall apply for purposes of 
     subparagraph (A).
       ``(d) Definitions of Reportable and Listed Transactions.--
     For purposes of this section, the terms `reportable 
     transaction' and `listed transaction' have the respective 
     meanings given to such terms by section 6707A(c).
       ``(e) Special Rules.--
       ``(1) Coordination with penalties, etc., on other 
     understatements.--In the case of an understatement (as 
     defined in section 6662(d)(2))--
       ``(A) the amount of such understatement (determined without 
     regard to this paragraph) shall be increased by the aggregate 
     amount of reportable transaction understatements and 
     noneconomic substance transaction understatements for 
     purposes of determining whether such understatement is a 
     substantial understatement under section 6662(d)(1), and
       ``(B) the addition to tax under section 6662(a) shall apply 
     only to the excess of the amount of the substantial 
     understatement (if any) after the application of subparagraph 
     (A) over the aggregate amount of reportable transaction 
     understatements and noneconomic substance transaction 
     understatements.
       ``(2) Coordination with other penalties.--
       ``(A) Application of fraud penalty.--References to an 
     underpayment in section 6663 shall be treated as including 
     references to a reportable transaction understatement and a 
     noneconomic substance transaction understatement.
       ``(B) No double penalty.--This section shall not apply to 
     any portion of an understatement on which a penalty is 
     imposed under section 6662B or 6663.
       ``(3) Special rule for amended returns.--Except as provided 
     in regulations, in no event shall any tax treatment included 
     with an amendment or supplement to a return of tax be taken 
     into account in determining the amount of any reportable 
     transaction understatement or noneconomic substance 
     transaction understatement if the amendment or supplement is 
     filed after the earlier of the date the taxpayer is first 
     contacted by the Secretary regarding the examination of the 
     return or such other date as is specified by the Secretary.
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).
       ``(5) Cross reference.--

  ``For reporting of section 6662A(c) penalty to the Securities and 
Exchange Commission, see section 6707A(e).''.

       (b) Determination of Other Understatements.--Subparagraph 
     (A) of section 6662(d)(2) is amended by adding at the end the 
     following flush sentence:
     ``The excess under the preceding sentence shall be determined 
     without regard to items to which section 6662A applies and 
     without regard to items with respect to which a penalty is 
     imposed by section 6662B.''.
       (c) Reasonable Cause Exception.--
       (1) In general.--Section 6664 is amended by adding at the 
     end the following new subsection:
       ``(d) Reasonable Cause Exception for Reportable Transaction 
     Understatements.--
       ``(1) In general.--No penalty shall be imposed under 
     section 6662A with respect to any portion of a reportable 
     transaction understatement if it is shown that there was a 
     reasonable cause for such portion and that the taxpayer acted 
     in good faith with respect to such portion.
       ``(2) Special rules.--Paragraph (1) shall not apply to any 
     reportable transaction understatement unless--
       ``(A) the relevant facts affecting the tax treatment of the 
     item are adequately disclosed in accordance with the 
     regulations prescribed under section 6011,
       ``(B) there is or was substantial authority for such 
     treatment, and
       ``(C) the taxpayer reasonably believed that such treatment 
     was more likely than not the proper treatment.
     A taxpayer failing to adequately disclose in accordance with 
     section 6011 shall be treated as meeting the requirements of 
     subparagraph (A) if the penalty for such failure was 
     rescinded under section 6707A(d).
       ``(3) Rules relating to reasonable belief.--For purposes of 
     paragraph (2)(C)--
       ``(A) In general.--A taxpayer shall be treated as having a 
     reasonable belief with respect to the tax treatment of an 
     item only if such belief--
       ``(i) is based on the facts and law that exist at the time 
     the return of tax which includes such tax treatment is filed, 
     and
       ``(ii) relates solely to the taxpayer's chances of success 
     on the merits of such treatment and does not take into 
     account the possibility that a return will not be audited, 
     such treatment will not be raised on audit, or such treatment 
     will be resolved through settlement if it is raised.
       ``(B) Certain opinions may not be relied upon.--
       ``(i) In general.--An opinion of a tax advisor may not be 
     relied upon to establish the reasonable belief of a taxpayer 
     if--

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

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

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

[[Page 11729]]

       ``(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. 604. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO 
                   TRANSACTIONS LACKING ECONOMIC SUBSTANCE, ETC.

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

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

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

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

       (b) Clerical Amendment.--The table of sections for part II 
     of subchapter A of chapter 68 is amended by inserting after 
     the item relating to section 6662A the following new item:

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

       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into on or after May 8, 
     2003.

     SEC. 605. 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. 606. 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. 607. DISCLOSURE OF REPORTABLE TRANSACTIONS.

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

     ``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

       ``(a) In General.--Each material advisor with respect to 
     any reportable transaction shall make a return (in such form 
     as the Secretary may prescribe) setting forth--
       ``(1) information identifying and describing the 
     transaction,
       ``(2) information describing any potential tax benefits 
     expected to result from the transaction, and
       ``(3) such other information as the Secretary may 
     prescribe.
     Such return shall be filed not later than the date specified 
     by the Secretary.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Material advisor.--
       ``(A) In general.--The term `material advisor' means any 
     person--
       ``(i) who provides any material aid, assistance, or advice 
     with respect to organizing, promoting, selling, implementing, 
     or carrying out any reportable transaction, and
       ``(ii) who directly or indirectly derives gross income in 
     excess of the threshold amount for such aid, assistance, or 
     advice.

[[Page 11730]]

       ``(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. 608. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER 
                   TAX SHELTERS.

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

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

       ``(a) In General.--If a person who is required to file a 
     return under section 6111(a) with respect to any reportable 
     transaction--
       ``(1) fails to file such return on or before the date 
     prescribed therefor, or
       ``(2) files false or incomplete information with the 
     Secretary with respect to such transaction,
     such person shall pay a penalty with respect to such return 
     in the amount determined under subsection (b).
       ``(b) Amount of Penalty.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     penalty imposed under subsection (a) with respect to any 
     failure shall be $50,000.
       ``(2) Listed transactions.--The penalty imposed under 
     subsection (a) with respect to any listed transaction shall 
     be an amount equal to the greater of--
       ``(A) $200,000, or
       ``(B) 50 percent of the gross income derived by such person 
     with respect to aid, assistance, or advice which is provided 
     with respect to the listed transaction before the date the 
     return including the transaction is filed under section 6111.
     Subparagraph (B) shall be applied by substituting `75 
     percent' for `50 percent' in the case of an intentional 
     failure or act described in subsection (a).
       ``(c) 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. 609. 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. 610. 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. 611. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

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

[[Page 11731]]



     SEC. 612. 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. 613. 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. 614. PENALTY ON PROMOTERS OF TAX SHELTERS.

       (a) Penalty on Promoting Abusive Tax Shelters.--Section 
     6700(a) is amended by adding at the end the following new 
     sentence: ``Notwithstanding the first sentence, if an 
     activity with respect to which a penalty imposed under this 
     subsection involves a statement described in paragraph 
     (2)(A), the amount of the penalty shall be equal to 50 
     percent of the gross income derived (or to be derived) from 
     such activity by the person on which the penalty is 
     imposed.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

     SEC. 615. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   LISTED TRANSACTIONS NOT REPORTED.

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

     SEC. 616. 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

[[Page 11732]]

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

            Subtitle B--Enron-Related Tax Shelter Provisions

     SEC. 621. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN 
                   LOSSES.

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

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

     then, notwithstanding subsection (a), the transferee's 
     aggregate adjusted bases of the property so transferred shall 
     not exceed the fair market value of such property immediately 
     after such transaction.
       ``(B) Allocation of basis reduction.--The aggregate 
     reduction in basis by reason of subparagraph (A) shall be 
     allocated among the property so transferred in proportion to 
     their respective built-in losses immediately before the 
     transaction.
       ``(C) Exception for transfers within affiliated group.--
     Subparagraph (A) shall not apply to any transaction if the 
     transferor owns stock in the transferee meeting the 
     requirements of section 1504(a)(2). In the case of property 
     to which subparagraph (A) does not apply by reason of the 
     preceding sentence, the transferor's basis in the stock 
     received for such property shall not exceed its fair market 
     value immediately after the transfer.''.
       (b) Comparable Treatment Where Liquidation.--Paragraph (1) 
     of section 334(b) (relating to liquidation of subsidiary) is 
     amended to read as follows:
       ``(1) In general.--If property is received by a corporate 
     distributee in a distribution in a complete liquidation to 
     which section 332 applies (or in a transfer described in 
     section 337(b)(1)), the basis of such property in the hands 
     of such distributee shall be the same as it would be in the 
     hands of the transferor; except that the basis of such 
     property in the hands of such distributee shall be the fair 
     market value of the property at the time of the 
     distribution--
       ``(A) in any case in which gain or loss is recognized by 
     the liquidating corporation with respect to such property, or
       ``(B) in any case in which the liquidating corporation is a 
     foreign corporation, the corporate distributee is a domestic 
     corporation, and the corporate distributee's aggregate 
     adjusted bases of property described in section 362(e)(1)(B) 
     which is distributed in such liquidation would (but for this 
     subparagraph) exceed the fair market value of such property 
     immediately after such liquidation.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions after February 13, 2003.

     SEC. 622. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK 
                   HELD BY PARTNERSHIP IN CORPORATE PARTNER.

       (a) In General.--Section 755 is amended by adding at the 
     end the following new subsection:
       ``(c) No Allocation of Basis Decrease to Stock of Corporate 
     Partner.--In making an allocation under subsection (a) of any 
     decrease in the adjusted basis of partnership property under 
     section 734(b)--
       ``(1) no allocation may be made to stock in a corporation 
     (or any person which is related (within the meaning of 
     section 267(b) or 707(b)(1)) to such corporation) which is a 
     partner in the partnership, and
       ``(2) any amount not allocable to stock by reason of 
     paragraph (1) shall be allocated under subsection (a) to 
     other partnership property.

     Gain shall be recognized to the partnership to the extent 
     that the amount required to be allocated under paragraph (2) 
     to other partnership property exceeds the aggregate adjusted 
     basis of such other property immediately before the 
     allocation required by paragraph (2).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions after February 13, 2003.

     SEC. 623. 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 take effect on February 
     14, 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 to the 
     extent that regular interests issued by the FASIT before such 
     date continue to remain outstanding in accordance with the 
     original terms of issuance.
       (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. 624. 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) Exception for Certain Instruments Issued by Dealers in 
     Securities.--Section 163(l) is amended by redesignating 
     paragraphs (4) and (5) as paragraphs (5) and (6) and by 
     inserting after paragraph (3) the following new paragraph:
       ``(4) Exception for certain instruments issued by dealers 
     in securities.--For purposes of this subsection, the term 
     `disqualified debt instrument' does not include indebtedness 
     issued by a dealer in securities (or a related party) which 
     is payable in, or by reference to, equity (other than equity 
     of the issuer or a related party) held by such dealer in its 
     capacity as a dealer in securities. For purposes of this 
     paragraph, the term `dealer in securities' has the meaning 
     given such term by section 475.''.
       (c) Conforming 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''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after February 13, 
     2003.

     SEC. 625. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER 
                   SECTION 269.

       (a) In General.--Subsection (a) of section 269 (relating to 
     acquisitions made to evade or

[[Page 11733]]

     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. 626. 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) Effective Date.--The amendment made by this section 
     shall apply to taxable years on 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.

      Subtitle C--Provisions to Discourage Corporate Expatriation

     SEC. 631. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

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

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

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section 7701(a)(4), such entity shall be 
     treated for purposes of this title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,
       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former partners of the domestic 
     partnership by reason of holding a capital or profits 
     interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.
     Except as provided in regulations, an acquisition of 
     properties of a domestic corporation shall not be treated as 
     described in subparagraph (A) if none of the corporation's 
     stock was readily tradeable on an established securities 
     market at any time during the 4-year period ending on the 
     date of the acquisition.
       ``(b) Preservation of Domestic Tax Base in Certain 
     Inversion Transactions to Which Subsection (a) Does Not 
     Apply.--
       ``(1) In general.--If a foreign incorporated entity would 
     be treated as an inverted domestic corporation with respect 
     to an acquired entity if either--
       ``(A) subsection (a)(2)(A) were applied by substituting 
     `after December 31, 1996, and on or before March 20, 2002' 
     for `after March 20, 2002' and subsection (a)(2)(B) were 
     applied by substituting `more than 50 percent' for `at least 
     80 percent', or
       ``(B) subsection (a)(2)(B) were applied by substituting 
     `more than 50 percent' for `at least 80 percent',

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

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

     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding the provisions of any other law or rule of 
     law which would otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.

[[Page 11734]]

       ``(d) Special Rules Applicable to Related Party 
     Transactions.--
       ``(1) Annual application for agreements on return 
     positions.--
       ``(A) In general.--Each acquired entity to which subsection 
     (b) applies shall file with the Secretary an application for 
     an approval agreement under subparagraph (D) for each taxable 
     year which includes a portion of the applicable period. Such 
     application shall be filed at such time and manner, and shall 
     contain such information, as the Secretary may prescribe.
       ``(B) Secretarial action.--Within 90 days of receipt of an 
     application under subparagraph (A) (or such longer period as 
     the Secretary and entity may agree upon), the Secretary 
     shall--
       ``(i) enter into an agreement described in subparagraph (D) 
     for the taxable year covered by the application,
       ``(ii) notify the entity that the Secretary has determined 
     that the application was filed in good faith and 
     substantially complies with the requirements for the 
     application under subparagraph (A), or
       ``(iii) notify the entity that the Secretary has determined 
     that the application was not filed in good faith or does not 
     substantially comply with such requirements.

     If the Secretary fails to act within the time prescribed 
     under the preceding sentence, the entity shall be treated for 
     purposes of this paragraph as having received notice under 
     clause (ii).
       ``(C) Failures to comply.--If an acquired entity fails to 
     file an application under subparagraph (A), or the acquired 
     entity receives a notice under subparagraph (B)(iii), for any 
     taxable year, then for such taxable year--
       ``(i) there shall not be allowed any deduction, or addition 
     to basis or cost of goods sold, for amounts paid or incurred, 
     or losses incurred, by reason of a transaction between the 
     acquired entity and a foreign related person,
       ``(ii) any transfer or license of intangible property (as 
     defined in section 936(h)(3)(B)) between the acquired entity 
     and a foreign related person shall be disregarded, and
       ``(iii) any cost-sharing arrangement between the acquired 
     entity and a foreign related person shall be disregarded.
       ``(D) Approval agreement.--For purposes of subparagraph 
     (A), the term `approval agreement' means a prefiling, advance 
     pricing, or other agreement specified by the Secretary which 
     contains such provisions as the Secretary determines 
     necessary to ensure that the requirements of sections 163(j), 
     267(a)(3), 482, and 845, and any other provision of this 
     title applicable to transactions between related persons and 
     specified by the Secretary, are met.
       ``(E) Tax court review.--
       ``(i) In general.--The Tax Court shall have jurisdiction 
     over any action brought by an acquired entity receiving a 
     notice under subparagraph (B)(iii) to determine whether the 
     issuance of the notice was an abuse of discretion, but only 
     if the action is brought within 30 days after the date of the 
     mailing (determined under rules similar to section 6213) of 
     the notice.
       ``(ii) Court action.--The Tax Court shall issue its 
     decision within 30 days after the filing of the action under 
     clause (i) and may order the Secretary to issue a notice 
     described in subparagraph (B)(ii).
       ``(iii) Review.--An order of the Tax Court under this 
     subparagraph shall be reviewable in the same manner as any 
     other decision of the Tax Court.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated as 
     pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.
       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1) would be, treated as a foreign corporation 
     for purposes of this title.
       ``(4) Foreign related person.--The term `foreign related 
     person' means, with respect to any acquired entity, a foreign 
     person which--
       ``(A) bears a relationship to such entity described in 
     section 267(b) or 707(b), or
       ``(B) is under the same common control (within the meaning 
     of section 482) as such entity.
       ``(5) Subsequent acquisitions by unrelated domestic 
     corporations.--
       ``(A) In general.--Subject to such conditions, limitations, 
     and exceptions as the Secretary may prescribe, if, after an 
     acquisition described in subsection (a)(2)(A) to which 
     subsection (b) applies, a domestic corporation stock of which 
     is traded on an established securities market acquires 
     directly or indirectly any properties of one or more acquired 
     entities in a transaction with respect to which the 
     requirements of subparagraph (B) are met, this section shall 
     cease to apply to any such acquired entity with respect to 
     which such requirements are met.
       ``(B) Requirements.--The requirements of the subparagraph 
     are met with respect to a transaction involving any 
     acquisition described in subparagraph (A) if--
       ``(i) before such transaction the domestic corporation did 
     not have a relationship described in section 267(b) or 
     707(b), and was not under common control (within the meaning 
     of section 482), with the acquired entity, or any member of 
     an expanded affiliated group including such entity, and
       ``(ii) after such transaction, such acquired entity--

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

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-through or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Treatment of Agreements.--
       (1) Confidentiality.--
       (A) Treatment as return information.--Section 6103(b)(2) 
     (relating to return information) is amended by striking 
     ``and'' at the end of subparagraph (C), by inserting ``and'' 
     at the end of subparagraph (D), and by inserting after 
     subparagraph (D) the following new subparagraph:
       ``(E) any approval agreement under section 7874(d)(1) to 
     which any preceding subparagraph does not apply and any 
     background information related to the agreement or any 
     application for the agreement,''.
       (B) Exception from public inspection as written 
     determination.--Section 6110(b)(1)(B) is amended by striking 
     ``or (D)'' and inserting ``, (D), or (E)''.
       (2) Reporting.--The Secretary of the Treasury shall include 
     with any report on advance pricing agreements required to be 
     submitted after the date of the enactment of this Act under 
     section 521(b) of the Ticket to Work and Work Incentives 
     Improvement Act of 1999 (Public Law 106-170) a report 
     regarding approval agreements under section 7874(d)(1) of the 
     Internal Revenue Code of 1986. Such report shall include 
     information similar to the information required with respect 
     to advance pricing agreements and shall be treated for 
     confidentiality purposes in the same manner as the reports on 
     advance pricing agreements are treated under section 
     521(b)(3) of such Act.
       (c) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved

[[Page 11735]]

     in transactions to which section 7874 of such Code (as added 
     by subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (d) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.

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

     SEC. 632. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

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

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

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

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

       ``(a) Imposition of Tax.--In the case of an individual who 
     is a disqualified individual with respect to any inverted 
     corporation, there is hereby imposed on such person a tax 
     equal to 20 percent of the value (determined under subsection 
     (b)) of the specified stock compensation held (directly or 
     indirectly) by or for the benefit of such individual or a 
     member of such individual's family (as defined in section 
     267) at any time during the 12-month period beginning on the 
     date which is 6 months before the inversion date.
       ``(b) Value.--For purposes of subsection (a)--
       ``(1) In general.--The value of specified stock 
     compensation shall be--
       ``(A) in the case of a stock option (or other similar 
     right) or any stock appreciation right, the fair value of 
     such option or right, and
       ``(B) in any other case, the fair market value of such 
     compensation.
       ``(2) Date for determining value.--The determination of 
     value shall be made--
       ``(A) in the case of specified stock compensation held on 
     the inversion date, on such date,
       ``(B) in the case of such compensation which is canceled 
     during the 6 months before the inversion date, on the day 
     before such cancellation, and
       ``(C) in the case of such compensation which is granted 
     after the inversion date, on the date such compensation is 
     granted.
       ``(c) Tax To Apply Only if Shareholder Gain Recognized.--
     Subsection (a) shall apply to any disqualified individual 
     with respect to an inverted corporation only if gain (if any) 
     on any stock in such corporation is recognized in whole or 
     part by any shareholder by reason of the acquisition referred 
     to in section 7874(a)(2)(A) (determined by substituting `July 
     10, 2002' for `March 20, 2002') with respect to such 
     corporation.
       ``(d) Exception Where Gain Recognized on Compensation.--
     Subsection (a) shall not apply to--
       ``(1) any stock option which is exercised on the inversion 
     date or during the 6-month period before such date and to the 
     stock acquired in such exercise, and
       ``(2) any specified stock compensation which is sold, 
     exchanged, or distributed during such period in a transaction 
     in which gain or loss is recognized in full.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Disqualified individual.--The term `disqualified 
     individual' means, with respect to a corporation, any 
     individual who, at any time during the 12-month period 
     beginning on the date which is 6 months before the inversion 
     date--
       ``(A) is subject to the requirements of section 16(a) of 
     the Securities Exchange Act of 1934 with respect to such 
     corporation or any member of the expanded affiliated group 
     which includes such corporation, or
       ``(B) would be subject to such requirements if such 
     corporation or member were an issuer of equity securities 
     referred to in such section.
       ``(2) Inverted corporation; inversion date.--
       ``(A) Inverted corporation.--The term `inverted 
     corporation' means any corporation to which subsection (a) or 
     (b) of section 7874 applies determined--
       ``(i) by substituting `July 10, 2002' for `March 20, 2002' 
     in section 7874(a)(2)(A), and
       ``(ii) without regard to subsection (b)(1)(A).

     Such term includes any predecessor or successor of such a 
     corporation.
       ``(B) Inversion date.--The term `inversion date' means, 
     with respect to a corporation, the date on which the 
     corporation first becomes an inverted corporation.
       ``(3) Specified stock compensation.--
       ``(A) In general.--The term `specified stock compensation' 
     means payment (or right to payment) granted by the inverted 
     corporation (or by any member of the expanded affiliated 
     group which includes such corporation) to any person in 
     connection with the performance of services by a disqualified 
     individual for such corporation or member if the value of 
     such payment or right is based on (or determined by reference 
     to) the value (or change in value) of stock in such 
     corporation (or any such member).
       ``(B) Exceptions.--Such term shall not include--
       ``(i) any option to which part II of subchapter D of 
     chapter 1 applies, or
       ``(ii) any payment or right to payment from a plan referred 
     to in section 280G(b)(6).
       ``(4) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)(3)); except 
     that section 1504(a) shall be applied by substituting `more 
     than 50 percent' for `at least 80 percent' each place it 
     appears.
       ``(f) Special Rules.--For purposes of this section--
       ``(1) Cancellation of restriction.--The cancellation of a 
     restriction which by its terms will never lapse shall be 
     treated as a grant.
       ``(2) Payment or reimbursement of tax by corporation 
     treated as specified stock compensation.--Any payment of the 
     tax imposed by this section directly or indirectly by the 
     inverted corporation or by any member of the expanded 
     affiliated group which includes such corporation--
       ``(A) shall be treated as specified stock compensation, and
       ``(B) shall not be allowed as a deduction under any 
     provision of chapter 1.
       ``(3) Certain restrictions ignored.--Whether there is 
     specified stock compensation, and the value thereof, shall be 
     determined without regard to any restriction other than a 
     restriction which by its terms will never lapse.
       ``(4) Property transfers.--Any transfer of property shall 
     be treated as a payment and any right to a transfer of 
     property shall be treated as a right to a payment.
       ``(5) Other administrative provisions.--For purposes of 
     subtitle F, any tax imposed by this section shall be treated 
     as a tax imposed by subtitle A.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Denial of Deduction.--
       (1) In general.--Paragraph (6) of section 275(a) is amended 
     by inserting ``48,'' after ``46,''.
       (2) $1,000,000 limit on deductible compensation reduced by 
     payment of excise tax on specified stock compensation.--
     Paragraph (4) of section 162(m) is amended by adding at the 
     end the following new subparagraph:
       ``(G) Coordination with excise tax on specified stock 
     compensation.--The dollar limitation contained in paragraph 
     (1) with respect to any covered employee shall be reduced 
     (but not below zero) by the amount of any payment (with 
     respect to such employee) of the tax imposed by section 5000A 
     directly or indirectly by the inverted corporation (as 
     defined in such section) or by any member of the expanded 
     affiliated group (as defined in such section) which includes 
     such corporation.''.
       (c) Conforming Amendments.--
       (1) The last sentence of section 3121(v)(2)(A) is amended 
     by inserting before the period ``or to any specified stock 
     compensation (as defined in section 5000A) on which tax is 
     imposed by section 5000A''.
       (2) The table of chapters for subtitle D is amended by 
     adding at the end the following new item:

``Chapter 48. Stock compensation of insiders in inverted 
              corporations.''.

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

     SEC. 633. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

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

              Subtitle D--Imposition of Customs User Fees

     SEC. 641. 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''.

                           TITLE VII--SUNSET

     SEC. 701. SUNSET.

       (a) In General.--Except as otherwise provided, the 
     provisions of, and amendments made, by this Act shall not 
     apply to taxable

[[Page 11736]]

     years beginning after December 31, 2012, and the Internal 
     Revenue Code of 1986 shall be applied and administered to 
     such years as if such amendments had never been enacted.
       (b) Exceptions.--Subsection (a) shall not apply to the 
     following provisions of, and amendments made, by this Act:
       (1) Title III.
       (2) Title VI.
                                 ______
                                 
  SA 620. Ms. LANDRIEU proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       At the end of subtitle C of title V add the following:

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

       (a) Ready Reserve-National Guard Credit.--Subpart D of part 
     IV of subchapter A of chapter 1 (relating to business-related 
     credits) is amended by adding at the end the following:

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

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year is an amount equal to 50 percent 
     of the actual compensation amount for such taxable year.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day during a taxable year when the employee 
     was absent from employment for the purpose of performing 
     qualified active duty.
       ``(c) Limitations.--
       ``(1) Maximum period for credit per employee.--The maximum 
     period with respect to which the credit may be allowed with 
     respect to any Ready Reserve-National Guard employee shall 
     not exceed the 12-month period beginning on the first day 
     such credit is so allowed with respect to such employee.
       ``(2) Days other than work days.--No credit shall be 
     allowed with respect to a Ready Reserve-National Guard 
     employee who performs qualified active duty on any day on 
     which the employee was not scheduled to work (for reason 
     other than to participate in qualified active duty).
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave of absence from 
     employment under chapter 43 of title 38, United States Code, 
     and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve or of the National Guard.
       ``(4) National guard.--The term `National Guard' has the 
     meaning given such term by section 101(c)(1) of title 10, 
     United States Code.
       ``(5) Ready reserve.--The term `Ready Reserve' has the 
     meaning given such term by section 10142 of title 10, United 
     States Code.''.
       (b) Credit To Be Part of General Business Credit.--
     Subsection (b) of section 38 (relating to general business 
     credit) is amended by striking ``plus'' at the end of 
     paragraph (14), by striking the period at the end of 
     paragraph (15) and inserting ``, plus'', and by adding at the 
     end the following:
       ``(16) the Ready Reserve-National Guard employee credit 
     determined under section 45G(a).''.
       (c) Conforming Amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1 is amended 
     by inserting after the item relating to section 45F the 
     following:

``Sec. 45G. Ready Reserve-National Guard employee credit.''.

       (d) Revision of Partial Exclusion of Dividends Received By 
     Individuals.--Section 116(a)(2)(B) of the Internal Revenue 
     Code of 1986, as added by section 201, is amended by striking 
     ``2007'' and inserting ``2008''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 621. Ms. LANDRIEU proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       At the end of subtitle C of title V add the following:

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

       (a) In General.--Section 1400H(b)(2) (relating to 
     modification) is amended by striking ``and'' at the end of 
     paragraph (1), by striking the period at the end of paragraph 
     (2) and inserting ``, and'', and by adding at the end the 
     following new paragraph:
       ``(3) subsection (d)(1)(B) thereof shall be applied by 
     substituting `such renewal community, an adjacent renewal 
     community within the same State as such renewal community, or 
     a renewal community within such State which is within 5 miles 
     of any border of such renewal community' for `such 
     empowerment zone'.''.
       (b) Reduction of Acceleration of Top Rate Reduction In 
     Individual Income Tax Rates.--Notwithstanding the amendment 
     made by section 102(a) of this Act, in lieu of the percent 
     specified in the last column of the table in paragraph (2) of 
     section 1(i) of the Internal Revenue Code of 1986, as amended 
     by such section 102(a), for taxable years beginning during 
     calendar year 2003, 35.1% shall be substituted for such year.
       (c) Effective Dates.--
       (1) The amendments made by subsection (a) shall take effect 
     as if included in the amendment made by section 101(a) of the 
     Community Renewal Tax Relief Act of 2000.
       (2) Subsection (b) shall take effect on the date of 
     enactment of this Act.
                                 ______
                                 
  SA 622. Mr. ENSIGN proposed an amendment to the bill S. 1054, to 
provide for reconciliation pursuant to section 201 of the concurrent 
resolution on the budget for fiscal year 2004; as follows:

       On page 281, between lines 2 and 3, insert the following:

     SEC. __. TOLL TAX ON EXCESS QUALIFIED FOREIGN DISTRIBUTION 
                   AMOUNT.

       (a) In General.--Subpart F of part III of subchapter N of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 965. TOLL TAX IMPOSED ON EXCESS QUALIFIED FOREIGN 
                   DISTRIBUTION AMOUNT.

       ``(a) Toll Tax Imposed on Excess Qualified Foreign 
     Distribution Amount.--If a corporation elects the application 
     of this section, a tax shall be imposed on the taxpayer in an 
     amount equal to 5.25 percent of--
       ``(1) the taxpayer's excess qualified foreign distribution 
     amount, and
       ``(2) the amount determined under section 78 which is 
     attributable to such excess qualified foreign distribution 
     amount.

     Such tax shall be imposed in lieu of the tax imposed under 
     section 11 or 55 on the amounts described in paragraphs (1) 
     and (2) for such taxable year.
       ``(b) Excess Qualified Foreign Distribution Amount.--For 
     purposes of this section--
       ``(1) In general.--The term `excess qualified foreign 
     distribution amount' means the excess (if any) of--
       ``(A) dividends received by the taxpayer during the taxable 
     year which are--
       ``(i) from 1 or more corporations which are controlled 
     foreign corporations in which the taxpayer is a United States 
     shareholder on the date such dividends are paid, and
       ``(ii) described in a domestic reinvestment plan approved 
     by the taxpayer's president, chief executive officer, or 
     comparable official before the payment of such dividends and 
     subsequently approved by the taxpayer's board of directors, 
     management committee, executive committee, or similar body, 
     which plan shall provide for the reinvestment of such 
     dividends in the United States, including as a source for the 
     funding of worker hiring and training; infrastructure; 
     research and development; capital investments; or the 
     financial stabilization of the corporation for the purposes 
     of job retention or creation, over
       ``(B) the base dividend amount.
       ``(2) Base dividend amount.--The term `base dividend 
     amount' means an amount designated under subsection (c)(7), 
     but not less than the average amount of dividends received 
     during the fixed base period from 1 or more corporations 
     which are controlled foreign corporations in which the 
     taxpayer is a United States shareholder on the date such 
     dividends are paid.
       ``(3) Fixed base period.--
       ``(A) In general.--The term `fixed base period' means each 
     of 3 taxable years which are among the 5 most recent taxable 
     years of the taxpayer ending on or before December 31, 2002, 
     determined by disregarding--
       ``(i) the 1 taxable year for which the taxpayer had the 
     highest amount of dividends from 1 or more corporations which 
     are controlled foreign corporations relative to the other 4 
     taxable years, and
       ``(ii) the 1 taxable year for which the taxpayer had the 
     lowest amount of dividends from such corporations relative to 
     the other 4 taxable years.
       ``(B) Shorter period.--If the taxpayer has fewer than 5 
     taxable years ending on or before December 31, 2002, then in 
     lieu of applying subparagraph (A), the fixed base period

[[Page 11737]]

     shall mean such shorter period representing all of the 
     taxable years of the taxpayer ending on or before December 
     31, 2002.
       ``(c) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Dividends.--The term `dividend' means a dividend as 
     defined in section 316, except that the term shall also 
     include amounts described in section 951(a)(1)(B), and shall 
     exclude amounts described in sections 78 and 959.
       ``(2) Controlled foreign corporations and united states 
     shareholders.--The term `controlled foreign corporation' 
     shall have the same meaning as under section 957(a) and the 
     term `United States shareholder' shall have the same meaning 
     as under section 951(b).
       ``(3) Foreign tax credits.--The amount of any income, war, 
     profits, or excess profit taxes paid (or deemed paid under 
     sections 902 and 960) or accrued by the taxpayer with respect 
     to the excess qualified foreign distribution amount for which 
     a credit would be allowable under section 901 in the absence 
     of this section, shall be reduced by 85 percent.
       ``(4) Foreign tax credit limitation.--For all purposes of 
     section 904, there shall be disregarded 85 percent of--
       ``(A) the excess qualified foreign distribution amount,
       ``(B) the amount determined under section 78 which is 
     attributable to such excess qualified foreign distribution 
     amount, and
       ``(C) the amounts (including assets, gross income, and 
     other relevant bases of apportionment) which are attributable 
     to the excess qualified foreign distribution amount which 
     would, determined without regard to this section, be used to 
     apportion the expenses, losses, and deductions of the 
     taxpayer under section 861 and 864 in determining its taxable 
     income from sources without the United States.

     For purposes of applying subparagraph (C), the principles of 
     section 864(e)(3)(A) shall apply.
       ``(5) Treatment of acquisitions and dispositions.--Rules 
     similar to the rules of section 41(f)(3) shall apply in the 
     case of acquisitions or dispositions of controlled foreign 
     corporations occurring on or after the first day of the 
     earliest taxable year taken into account in determining the 
     fixed base period.
       ``(6) Treatment of consolidated groups.--Members of an 
     affiliated group of corporations filing a consolidated return 
     under section 1501 shall be treated as a single taxpayer in 
     applying the rules of this section.
       ``(7) Designation of dividends.--Subject to subsection 
     (b)(2), the taxpayer shall designate the particular dividends 
     received during the taxable year from 1 or more corporations 
     which are controlled foreign corporations in which it is a 
     United States shareholder which are dividends excluded from 
     the excess qualified foreign distribution amount. The total 
     amount of such designated dividends shall equal the base 
     dividend amount.
       ``(8) Treatment of expenses, losses, and deductions.--Any 
     expenses, losses, or deductions of the taxpayer allowable 
     under subchapter B--
       ``(A) shall not be applied to reduce the amounts described 
     in subsection (a)(1), and
       ``(B) shall be applied to reduce other income of the 
     taxpayer (determined without regard to the amounts described 
     in subsection (a)(1)).
       ``(d) Election.--
       ``(1) In general.--An election under this section shall be 
     made on the taxpayer's timely filed income tax return for the 
     taxable year (determined by taking extensions into account) 
     ending 120 days or more after the date of the enactment of 
     this section, and, once made, may be revoked only with the 
     consent of the Secretary.
       ``(2) All controlled foreign corporations.--The election 
     shall apply to all corporations which are controlled foreign 
     corporations in which the taxpayer is a United States 
     shareholder during the taxable year.
       ``(3) Consolidated groups.--If a taxpayer is a member of an 
     affiliated group of corporations filing a consolidated return 
     under section 1501 for the taxable year, an election under 
     this section shall be made by the common parent of the 
     affiliated group which includes the taxpayer, and shall apply 
     to all members of the affiliated group.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary and appropriate to carry out 
     the purposes of this section, including regulations under 
     section 55 and regulations addressing corporations which, 
     during the fixed base period or thereafter, join or leave an 
     affiliated group of corporations filing a consolidated 
     return.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart F of part III of subchapter N of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 965. Toll tax imposed on excess qualified foreign distribution 
              amount.''.

       (c) Effective Date.--Except as otherwise provided, the 
     amendments made by this section, other than the amendment 
     made by subsection (d), shall apply only to the first taxable 
     year of the electing taxpayer ending 120 days or more after 
     the date of the enactment of this Act.
       (e) Termination of Rehabilitation Credit.--Section 47 
     (relating to rehabilitation credit) is amended by adding at 
     the end the following new subsection:
       ``(e) Termination.--This section shall not apply to 
     expenditures incurred after December 31, 2003.''.

                          ____________________