[Congressional Record (Bound Edition), Volume 150 (2004), Part 10]
[House]
[Pages 12846-12888]
[From the U.S. Government Publishing Office, www.gpo.gov]


  The SPEAKER pro tempore. The gentleman from California (Mr. Thomas) 
and the gentleman from New York (Mr. Rangel) each will control 30 
minutes.
  The Chair recognizes the gentleman from California (Mr. Thomas).
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  (Mr. THOMAS asked and was given permission to revise and extend his 
remarks.)
  Mr. THOMAS. Mr. Speaker, we are here today because the United States 
Tax Code is out of sync with the rest of the world. Among our major 
trading partners, the United States is alone in the world in not using 
other forms of taxation other than direct income taxation.
  Four times the United States defended our ability to create subsidies 
and, therefore, produce a more level playing field among our trading 
partners. We had for years refused to reexamine our code more 
fundamentally and thought that a subsidy mandate would create a more 
level playing field. Four times, the World Trade Organization said that 
under the rules of the World Trade Organization, of which we are a 
founding member, that that would not be permissible.
  We are here today because the core of the bill is to repeal the 
Foreign Sales Corporation extraterritorial tax structure, and it also 
affords us an opportunity to examine an out-of-date Tax Code.
  For those who say all we should be doing is repealing the subsidy, 
which has been declared against the rules, is to ignore the reason why 
we put the rules in place in the first place. The reason we did the 
subsidy was because we were at a disadvantage. It can certainly be 
argued we should have fundamentally changed our Tax Code back when we 
did that, but the simple answer is, we did not.
  What we are trying to do is correct the errors of our ways, primarily 
by omission, but occasionally by commission, of not allowing U.S.-
based, U.S. workers to put products and services out in the world on a 
level playing field with the rest of the world. That is what this bill 
does.
  In addition to that, in examining these areas, we discovered portions 
of the Tax Code that are just flat out unfair. And this is an 
opportunity; I believe everybody deserves 1 day every 20 years to have 
a look at the problems they face in the Tax Code. Why? Because small 
business in certain industries are faced with a discriminatory U.S. Tax 
Code that puts U.S. small businesses at a disadvantage to foreign 
businesses.
  We are going to hear there is a provision in here about arrows, there 
is a provision in here about tackle boxes, there is a provision in here 
about sonar, fish detecting equipment. The reason it is in here is 
because our code discriminates against American producers.
  So not only are we rewriting our laws to be good trading partners and 
assisting those people who no longer get the subsidy because we are 
rewriting the laws, we are providing one day every 20 years to examine 
those portions of the code that make absolutely no sense.
  Mr. Speaker, I reserve the balance of my time.
  Mr. RANGEL. Mr. Speaker, I yield myself such time as I may consume.
  This is so interesting. The chairman of the committee stands to tell 
us what this bill is all about, which is labeled the American Jobs 
Creation Act and, guess what? This is nothing about jobs. He would have 
us believe that the reason for this legislation is to reform the Tax 
Code, to bring it up to date. Well, I have heard this type of 
Republican talk before: we have to pull it out by the roots. That is 
when we only had thousands of pages in the Tax Code.
  But in the middle of the night, they bring us now a bill that is 400 
pages long, and probably nobody in the House has even seen it yet. Do 
not call this a tax bill and do not say that you are reforming the 
system, because the fact is, if you wanted to really fix what this bill 
was supposed to do, and that is to remove the subsidy, all you do is 
remove the subsidy, and you do not give a tax cut for $150 billion, but 
you pick up $50 billion, which is the amount of the subsidy.
  So you can put lipstick on a pig, but you cannot call it a lady. This 
is a lousy bill. It has nothing to do with reform.
  And about this one day that someone is entitled to get their 
priorities, well, he is 100 percent correct. They sent the word out 
that every lobbyist in Washington has one day to get his favorite in 
this bill. It is just unfortunate that the American people did not get 
their one day to get jobs in this bill.
  Mr. Speaker, I reserve the balance of my time.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  I do not rise to defend the honor of Miss Piggy, as the gentleman 
from New York indicated, and I am anxiously finding a flashlight 
because, apparently, the gentleman from New York exists in perpetual 
darkness since he believes night extends for more than 2 years. This 
bill has been around a long, long time.
  Mr. Speaker, I yield such time as he may consume to the gentleman 
from New York (Mr. Walsh) for the purpose of entering into a colloquy 
with the gentleman from Colorado (Mr. Beauprez).
  Mr. WALSH. Mr. Speaker, I thank the gentleman from California 
(Chairman Thomas) for his leadership on this important legislation.
  I understand the Senate version of the FSC/ETI bill includes the 
``Green Bonds'' proposal. As the gentleman knows, the Green Bonds 
proposal is intended to spur investment in building design and 
technologies which reduce energy consumption. They promote alternative 
energy use and improve environmental quality. The Green Bonds proposal 
also has tremendous job creation potential, as it includes specific 
minimum job creation requirements for projects.
  While the legislation we are about to approve does not include the 
language relating to Green Bonds, I hope that the House will be able to 
accept the Senate-passed Green Bonds proposal in conference.
  Mr. Speaker, I yield to the gentleman from Colorado (Mr. Beauprez).
  Mr. BEAUPREZ. Mr. Speaker, I thank the gentleman for yielding, and I 
thank him for raising this question.
  This is technology, Mr. Speaker, that I am very familiar with, have 
been for many, many years, and similar to the gentleman from New York, 
this technology holds great potential for economic development, job and 
career development within my own district back in Colorado. I similarly 
hope that the House can favorably entertain inclusion of this provision 
when we go to conference.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume to 
thank the gentlemen from New York and Colorado, because without their 
active participation, the Green Bonds provision would not have been 
included in the House Energy Conference Report, H.R. 6, but it was, and 
this House passed it. Therefore, the opportunity to examine it in this 
conference is available to us. We did not deliberately exclude that 
measure from this bill, and I look forward to working with the 
gentlemen as we deliberate with the Senate on this bill.

[[Page 12847]]

  Mr. Speaker, I reserve the balance of my time.
  Mr. RANGEL. Mr. Speaker, I yield 1 minute to the gentleman from 
California (Mr. Stark), a senior member of the Committee on Ways and 
Means and ranking member of the Subcommittee on Health.
  Mr. STARK. Mr. Speaker, very seldom do I find myself almost 
speechless. If it were not for the rule which appears to gag all of the 
Members from offering any amendments that would perhaps help this bill 
and correct the problem which we know as FSC, and it is the first time 
that I have known that when you take away a subsidy that was not any 
good, that was improper in the first place, that for some reason you 
owe business the money that you have been improperly paying them all of 
these years.
  As anybody who has ever had a job in private industry would know, 
this bill does very little for producers or farmers or small business. 
It is a return to right-wing radical McCarthyism.
  The real serious problem, as I have thought about it this morning, my 
young 8-year-old son is here, and he is going to be paying for this 
bill for a long time. It is us elderly white, mostly elderly white 
males who are doing this to help the lobbyists who have contributed so 
generously to the Republican campaigns who are going to make these 
youngsters pay for it, and I think that is an obscenity that will stand 
long after we have left these halls.


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore. The Chair would remind all Members that it 
is not appropriate under the rules of debate to introduce guests on the 
House floor.
  Mr. THOMAS. Mr. Speaker, it is my pleasure to yield 3 minutes to the 
gentleman from Illinois (Mr. Crane), and to observe that I was worried 
about a job for the young man, but it is clear that he now has a job 
being a shield for his father.
  Mr. CRANE. Mr. Speaker, I thank the gentleman for yielding me this 
time.
  Mr. Speaker, I am pleased to offer my strong support for H.R. 4520, 
the American Jobs Creation Act of 2004. This important legislation will 
end EU sanctions against our exporters, which is harming U.S. workers, 
and will deliver much-needed tax relief to the manufacturing sector of 
our economy.
  In April 2003, I introduced bipartisan legislation to repeal ETI and 
return that money to domestic manufacturers. That legislation lowered 
the corporate tax rate for domestic manufacturing from 35 to 32 
percent, and I am therefore quite pleased that $75 billion in direct 
relief for U.S. manufacturers has been included in this legislation. Of 
this, $13 billion is devoted to current ETI beneficiaries through 
important transition relief, and over $60 billion is devoted to rate 
cuts for manufacturers. Lowering the cost of doing business for this 
sector of our economy is critical for keeping the playing field level 
with our foreign competitors and stimulating U.S. job growth.
  I would like to thank the gentleman from California (Chairman Thomas) 
for working with me to include these very important provisions in the 
legislation before us today and, at the same time, I am pleased that 
the legislation also includes significant international tax reforms.
  Contrary to the assertion by some, these provisions do not shift jobs 
overseas. Rather, they allow our multinationals doing business abroad 
to become more competitive.

                              {time}  1230

  This creates jobs here at home and is critically important to the 
long-term competitiveness of our multinationals engaged in the global 
economy.
  H.R. 4520 also extends the enhanced section 179 expensing for 2 
years, making it easier for small businesses to invest in new equipment 
and grow their businesses, and includes many tax relief and 
simplification provisions for smaller, subchapter S corporations. This, 
coupled with the nearly $200 billion in tax relief for small businesses 
provided in the Bush cuts of 2001 and 2003, is fundamental for helping 
small business, the backbone of our economy, continue to thrive.
  No legislation is perfect; and I, for one, wish we had the resources 
available to do more. But this is a great first step, and it comes at 
an important time. If we do not act, EU sanctions against many U.S. 
goods will continue to grow until they reach 17 percent, further 
harming U.S. businesses and workers. And we must not allow that to 
happen.
  Mr. Speaker, we have traveled a long road in bringing this 
legislation to the floor, and I am glad to be here today in support of 
a great bill. We have two alternatives. We can vote to end EU sanctions 
against U.S. manufacturers then ensuring that all sectors of our 
corporate economy continue to flourish, or we can vote to allow 
sanctions to continue to grow. I suggest that there is only one 
responsible choice, and I urge my colleagues to vote for the American 
Job Creation Act.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Michigan (Mr. Levin), a senior member of Committee on Ways and Means 
and ranking member on the Subcommittee on Trade.
  Mr. LEVIN. Mr. Speaker, this bill is called the American Jobs 
Creation Act. Because of specific provisions in it under truth-in-
packaging, it should be called the Overseas Job Creation Act. I point 
to three provisions. They are technical. They matter.
  One, reducing nine foreign tax credit baskets to two, costing $8 
billion. And what it would do is make it more profitable, and I urge 
you to listen to this, to invest in a tax haven overseas than in the 
U.S. It was President Reagan who put it this way some years ago: this 
kind of provision ``gives U.S. taxpayers with operations in a high-tax 
country an incentive to invest in low-tax countries overseas. Low-tax 
country investments may be more attractive than investments in the 
United States.''
  Secondly, the look-through provisions for payments between related 
corporations, $3\1/2\ billion. What it tells the U.S. multinational is 
invest your overseas profit other than in the United States and get 
benefits.
  Thirdly, the repatriation provision, $5 billion. It says those 
profits coming back need to be invested in the United States. There is 
no definition of what an investment is. They could use the money to 
close down a factory.
  Last year, the gentleman from Illinois (Mr. Crane), the gentleman 
from New York (Mr. Rangel), and the gentleman from Illinois (Mr. 
Manzullo), and I introduced a bill to replace FSC that related to 
manufacturing with provisions that related to manufacturing, 40 billion 
for 40 billion. Instead, we have 150 billion, and monies for so-called 
manufacturing can be used for entities that process hamburgers. This 
bill makes mincemeat out of good, sound policy. Reject it.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  In 1986 the reason the basket went from two to nine was for pure 
revenue to be spent in other areas. And as President Reagan said, it 
would entice someone to go from a high-tax country to a low-tax 
country. Shame on us if we are the high-tax country.
  Mr. Speaker, I yield 1 minute to the gentlewoman from Washington (Ms. 
Dunn), a champion in trade around the world.
  Ms. DUNN. Mr. Speaker, this is a critically important bill for the 
constituents I represent. It contains tax relief for domestic 
manufacturers including producers of software, a provision on which I 
insisted during committee consideration.
  The bill also restores after 18 years a tax deduction for State sales 
taxes. This relief is long overdue; and it enjoys bipartisan support, 
very strong here in the House.
  The litigation of major provisions goes on and on. It provides a tax 
rate cut for small business. It updates 40-year-old provisions in the 
law that overtax U.S. businesses operating overseas. It provides 
incentives to companies to bring home foreign earnings, invest them 
here in the United States; and it extends the R&D tax credit, and it 
provides transition relief for current users of ETI.

[[Page 12848]]

  I am sure every Member of this Chamber could think of ways he or she 
would change this bill. But insisting this or that provision and 
ignoring the larger issue will not bring us into compliance with our 
international trade obligations under the WTO. And it will not get us 
closer to providing real tax relief to U.S. workers and businesses.
  I urge support of this bill.
  Mr. Speaker, I rise in strong support of H.R. 4520 and urge my 
colleagues on both sides of the aisle to join me in voting for this 
important legislation.
  This bill contains a number of critically important provisions. It 
brings us into compliance with the WTO and it will remove punitive 
sanctions on American products that are hurting U.S. sales in Europe 
and jeopardizing American workers.
  Voting against this bill is a sure way to increase foreign tariffs on 
U.S. products, making it tougher for U.S. workers to compete in the 
world economy.
  The simple fact is this: U.S. workers need this bill. They need the 
opportunity to compete domestically and internationally.
  I urge my colleagues to vote for it.
  Mr. Speaker, this is a good bill, a strong bill, a bipartisan bill, 
and it is a necessary bill.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Washington (Mr. McDermott), who will explain how in the Congress we 
find Christmas in mid-June.
  Mr. McDERMOTT. Mr. Speaker, I wanted to bring out the symbol for 
today.
  Like the Queen of England, the Republican Party can declare when 
Christmas comes. Christmas comes on the 17th of June. We were supposed 
to fix an international trade practice bill here; but every day we 
delay, American companies have to pay more, and so they finally got 
around to the other day putting out this beautiful Christmas tree that 
we have; but instead of offering a solution to the trades problems, 
they just had a giveaway for all the special interests.
  They raised the taxes on the exporters and lowered the taxes on those 
people who put the jobs overseas. They intended to give $30 billion to 
oil, tobacco, drug companies; and to get this bill passed, the 
Republican leadership bought one special interest after another.
  Now, they started out with corporate jets. That is this one up here. 
And then the collection agents. Do you know that they are going to give 
your tax record to private collection agencies to collect people's 
debts to the IRS? And also there is tackle boxes here, and there are 
bows and arrows and sonar devices. And there are two for tobacco here: 
one, they reduce their taxes, and then they have a buy out. And they 
were just practically for anybody.
  This one is the pharmaceutical companies. Here is Coke and Pepsi. My 
goodness, they have just gone on and on and on.
  Now, my Latin friends say this is Feliz Navidad, but I say it is 
fleecing America. They are not taking care of small business people. 
Every one of those. Yes, I know the bow and arrow makers, they are not 
very big. They are just a little bauble that gets two votes or one 
vote. Some of these are two votes, and some of these are 25 votes. 
There are a whole bunch more that I wanted to put on here.
  Maybe we could give unemployment benefits to people who have had 
long-term unemployment. That would be Christmas for them. But, no, we 
just got special interests. Do not vote for this bill.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I tell the gentleman, only my friends on the other side 
of the aisle would have a 6-inch tree and call it Christmas.
  Mr. Speaker, I yield 1 minute to the gentleman from Arizona (Mr. 
Hayworth).
  Mr. HAYWORTH. Mr. Speaker, I appreciate very much the comments of my 
friend from Washington State. Apparently, they were not pre-cleared by 
the ACLU because he referred to a Christmas tree rather than a holiday 
tree. I am sure he may get phone calls on that.
  Be that as it may, rather than focusing on posturing or props or 
process, let us take a look at results, a little economics 101.
  The fact is when you reduce income tax rates, you create economic 
incentive. You put people back to work. That is the essence of the job 
bill. One of the biggest taxes, as the chairman pointed out, 
geopolitically right now as it exists, American manufacturers and 
farmers are being hit with escalating tariffs. Tariffs is another term 
for taxes. Right now they are at 8 percent.
  Guess what happens because of rising tariffs? The very exports that 
everyone champions, even those who say they are friends of workers, 
when you have higher tariffs, you do not have the exports; that costs 
jobs. Lowering those tariffs will actually create jobs.
  We could talk more about the restaurant owners and depreciation and 
opportunities, but the bottom line is with this bill we create jobs. 
Vote ``yes.'' Reject the holiday ornamentation and the props and the 
pandering. Vote ``yes'' on this bill.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Georgia (Mr. Lewis), the conscience of the Congress, a member of the 
Committee on Ways and Means.
  Mr. LEWIS of Georgia. Mr. Speaker, I want to thank the gentleman from 
New York (Mr. Rangel) for yielding me time.
  Mr. Speaker, I rise in outrage at this irresponsible bill we are 
voting on today. This bill is so reckless that the majority refused to 
allow us to vote on a substitute for fear that the debate would show 
the bill for what it really is. This bill is an overloaded Christmas 
tree with Christmas gifts for all sorts of special interests, from 
Chinese ceiling fans, to tackle boxes.
  Mr. Speaker, instead of replacing the FSC incentive with much-needed 
help for United States manufacturers, as the Rangel substitute would 
have done, this bill provides $5 billion in new tax breaks that 
actually encourages companies to move their operations offshore. We are 
bleeding manufacturing jobs, and this bill encourages outsourcing. It 
is outrageous. It is a disgrace and a shame.
  To add insult to injury, this bill will increase our deficit by a 
minimum of $34 billion over 10 years. But because the gimmicks are 
designed to hide the true costs, the actual price tag will be much 
higher.
  Perhaps the most outrageous provisions of the bill, though, are the 
blatant sweeteners and special interest tax breaks designed to buy 
votes. Not one of them has anything to do with FSC.
  These are just a few of the many gifts that have been placed on the 
tree: a tax break for manufacturers of fish and tackle boxes, a tax 
break for a maker of sonar devices used in fishing, a tax break for 
landowners who sell timber from their land, a tax break for makers of 
bows and arrows, a tax break for whaling, a tax break for alcoholic 
beverage wholesalers, and a $9 million buyout for tobacco.
  Mr. Speaker, the calendar may say June 17; but make no mistake, today 
is Christmas for specialty interests. I urge my colleagues to do what 
is right and reject this bill.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I just find it amazing that allowing American 
manufacturers to have a level playing field with foreign manufacturers 
is called a tax break.
  Mr. Speaker, I yield 1\1/2\ minutes to the gentleman from Florida 
(Mr. Shaw), a valuable member of the Committee on Ways and Means.
  Mr. SHAW. Mr. Speaker, I thank the gentleman for yielding me time to 
speak in strong favor of this most important bill.
  We have heard so much. The gentleman from Georgia (Mr. Lewis), while 
very eloquent, was missing the point. The point is this bill does 
create jobs and the louder one talks does not change that fact.
  We have been running corporations offshore in this country because of 
our tax bills. One has to look no further than Chrysler leaving the 
United States, one of the Big Three going to Germany because they got a 
better deal. That is what jobs are: companies and people. Employers 
create jobs, not the United States Congress. But the

[[Page 12849]]

United States Congress for years has been taking jobs away and running 
jobs offshore because of higher taxes and more regulation and then 
coming to the floor and complaining about the jobs leaving.
  But I want to speak about one other part of this bill which is very 
important. If you are from Nevada, if you are from Texas, if you are 
from Florida and some other States, this bill has something that is so 
long in coming, something that we have been working for for so many 
years; and that part of this bill is for the first time in about 20 
years, the American public is going to be able to deduct its sales tax 
from its taxable income here in this country.
  This is huge. If you are from Florida you better think about this. If 
you vote against the deductibility of sales tax, you are voting against 
the taxpayers of Florida, Texas, Nevada, Ohio, and other States. We do 
not have an income tax in Florida to deduct from taxable income tax. So 
Florida does not get to deduct anything. This is pure fairness. I am 
proud that it is part of this bill.
  Mr. RANGEL. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I do not know why he is so proud of giving these people 
a break just for 2 years when the Democratic alternative would have 
made it permanent so they would not have to worry about paying it back 
in 2 years.
  Mr. Speaker, I yield 2 minutes to the gentleman from California (Mr. 
Becerra), a strong, hard-working member of the Committee on Ways and 
Means.

                              {time}  1245

  Mr. BECERRA. Mr. Speaker, I thank the gentleman for yielding me time.
  There are 8.2 million Americans unemployed today, another 4.7 million 
Americans who have been so frustrated in their search for a job that 
they have dropped out of the workforce looking for work, and another 
4.7 million Americans who cannot find anything more than part-time 
employment: Close to 18 million Americans today not satisfied with 
their opportunities to have a full paying job.
  There were 2.7 million manufacturing jobs lost in the last 3 years. 
The share of the population in America that is working today at 62 
percent is the lowest it has ever been since 1994. Payroll remains 5.5 
million jobs short of the average that we have seen in most economic 
recoveries since World War II.
  What is the response of this House to those conditions of America's 
trying to work? Billions of dollars of tax incentives for corporations 
to invest abroad and ship American jobs with that investment. This is a 
textbook case of how loopholes seep into our Tax Code. Where else but 
in the world of catering to special interests would it take $150 
billion in tax cuts for corporations to remedy a $4 billion problem?
  The dirtiest joke about all of this is that while we are giving tax 
cuts to corporations to send jobs overseas, there is a provision in 
this bill that actually would have bounty hunters to go out and try to 
collect taxes from Americans who actually filed a tax return but have 
not yet been able to pay the perhaps $500 that they still owe the IRS. 
So now these bounty hunters will be paid 25 percent of what they 
collect from you and you and you to do the work that the IRS says it 
could do at 4 to 5 percent of the cost.
  That is what this bill is loaded down with. That is why this bill 
should not win. Democrats had a bill that would have kept jobs here, 
given manufacturing corporations in America a chance to pay less in 
taxes if they kept jobs here. We were not given a chance to put that 
bill on the floor today. That is what we have today.
  Who will win? It will not be the interests of the American public, 
but there are a lot of special interests that are watching very 
closely. Vote against this bill.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  The gentleman well knows that no substitute was offered in committee, 
no substitute was offered in front of the Committee on Rules. You can 
say it till you are blue in the face, but the Democrats offered no 
substitute, neither in committee nor in the Committee on Rules.
  Mr. Speaker, it is now my pleasure to yield 1\1/2\ minutes to the 
gentlewoman from Connecticut (Mrs. Johnson), someone who is extremely 
interested in American jobs.
  Mrs. JOHNSON of Connecticut. Mr. Speaker, I thank the chairman for 
yielding me the time.
  This is plain and simple a jobs bill. If American multinational 
companies are not competitive, we lose jobs all across this country, in 
the millions and millions of small businesses that produce parts and 
products that go abroad, and furthermore, if our multinationals are not 
strong, we do not produce jobs in America for this reason.
  A 10-year study of our multinationals showed that they produced 2.8 
million jobs abroad over the last 10 years, but those same parent 
companies produced 5.5 million new jobs right here in America. Being 
able to compete internationally is what creates jobs here at home. And 
it is not just those who export that have to be able to compete 
internationally; it is everyone because international competition is 
right down the street at Wal-Mart. So if we are not competitive, we 
lose jobs.
  This bill reforms the structure under which we tax international 
earnings so we are competitive. That is all it does. We have to repeal 
one section of our law, so we feed that money back in to level the 
playing field for our companies so that they can continue to grow more 
jobs in America than they do abroad and so that they can continue to 
buy product from the millions of small businesses all across America 
that supply the goods that go abroad and make us competitive.
  This is a jobs bill, and do not forget it for one minute. If we do 
not pass it, we lose jobs.
  Mr. RANGEL. Mr. Speaker, talking about jobs or lack of it, I yield 2 
minutes to the gentlewoman from Ohio (Mrs. Jones), who knows that they 
do not have the jobs. She is a hardworking member of the Committee on 
Ways and Means.
  Mrs. JONES of Ohio. Mr. Speaker, I want to thank my ranking member 
and my chairman the gentleman from New York (Mr. Rangel) for his 
leadership.
  I rise against H.R. 4520, and in Ohio it is truly the place where we 
know about a loss of jobs. Since President Bush took office, in the 
City of Cleveland alone we have lost 60,000 jobs. In the State of Ohio 
we have lost more than 200,000 jobs, many of them manufacturing jobs 
and many of them service workers jobs, and that was why in the 
Committee on Ways and Means I offered an amendment and subsequently 
withdrew it that would have provided benefits to service sector workers 
that have lost their jobs due to international trade.
  The irony is that my amendment was ruled nongermane. H.R. 4520 is 
overloaded with special interest measures, but my amendment which would 
have dealt with service workers who are left out of the process was 
denied an opportunity, but more importantly, if H.R. 4520 is such a 
good bill, why not allow the Democrats to offer a bill so that our 
colleagues would have an option? I know they keep saying it was not a 
substitute, but this is a semantical argument that it is not a 
substitute. The Democrats had a bill that would have allowed us to do 
many of the things that are offered in H.R. 4520 but made them 
permanent.
  I smile as I stand here and say this this morning to all the people 
of America, do not be fooled. Do not get fooled. Do not be fooled. This 
is not a jobs bill. Tell the Republican leadership you want a J-O-B. 
You want a J-O-B, not benefits for other corporations.
  Mr. THOMAS. Mr. Speaker, it is my pleasure to yield 1 minute to the 
gentleman from California (Mr. Herger), a colleague and member of the 
Committee on Ways and Means.
  Mr. HERGER. Mr. Speaker, I rise in strong support of the American 
Jobs Creation Act. It is critical that we pass this legislation today. 
Many of our exports to Europe are currently facing an 8 percent tariff, 
and this tariff will rise to 17 percent if we do not act.
  This legislation is also critical because it recognizes that American 
companies are operating in a global economy, and we need a tax system 
that allows them to compete and win.

[[Page 12850]]

  This bill makes necessary reforms, but most importantly, this 
legislation will be a tremendous benefit to U.S. manufacturers, both 
large and small.
  Some have said this legislation does not do enough for small 
business; yet this legislation is strongly supported by the largest 
small business group in America, the National Federation of Independent 
Business.
  I urge my colleagues to support this legislation.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Maryland (Mr. Cardin), a hard-working member of the Committee on Ways 
and Means.
  Mr. CARDIN. Mr. Speaker, if Congress was subject to the truth-in-
advertising law, we would be held accountable for the title of this 
bill, American Jobs Creation Act, as misleading the American people. My 
colleagues can call it what they want, this bill will not create jobs 
or save jobs in this country. It will cost us jobs, and we know that.
  This bill costs $34 billion, according to the Joint Tax Committee, 
over the next 10 years. It will add to the deficit of the country. That 
is certainly not going to help our economy, but the truth is it costs a 
lot more than $34 billion. Because of all the sunsets and the phasing 
in, this bill costs a lot more than that, hundreds of billions of 
dollars, which is just going to add to the national debt and cost us 
jobs.
  Mr. Speaker, the tragedy is that we do have a problem with the World 
Trade Organization that we should correct. Legislation has been offered 
to do that on a revenue neutral basis, without adding to the deficit 
and helping U.S. manufacturers so we keep jobs here in America. That 
has been rejected.
  So what do we have? We have a bill that is laden with special 
interest provisions, hundreds of special interest provisions, that have 
been given out, that have nothing to do with job creation, have nothing 
to with the underlying problem with the World Trade Organization and 
has everything to do with trying to pass a bill to help special 
interests. Then we have provisions in here that actually harm our 
country, such as the private contracting of tax collection functions. I 
cannot think of anything more basic to our government than collection 
of taxes, and now we want to have private collection agencies dealing 
with our constituents? I do not want to see that happen.
  Mr. Speaker, this bill will not help create jobs. It will hurt us in 
keeping jobs in America. We should have done better. We should have 
corrected the problem. Let us go back and do that. I urge my colleagues 
to reject this bill.
  Mr. THOMAS. Mr. Speaker, it is now my pleasure to yield 1 minute to 
the gentlewoman from Tennessee (Mrs. Blackburn), a newer Member of the 
House but someone who has already made an impact on a portion of this 
bill.
  Mrs. BLACKBURN. Mr. Speaker, I want to thank the chairman for his 
work on this issue.
  As we pass the American Jobs Creation Act today, this is a great day, 
a great day for the people of Tennessee and Florida and Texas and 
Washington and Wyoming. There are 55 million people in the U.S. that 
live in States that do not have a State income tax, that have a State 
sales tax, and restoring the deductibility of that State sales tax to 
our Federal income tax filing is important.
  It is important in my State. I started working on this issue when I 
was in the State Senate. This means $1 billion a year to Tennessee's 
economy, and let me tell my colleagues, Mr. Speaker, that means jobs 
because Tennessee is a small business State. This will assist us in 
creating jobs, good, solid, home-grown jobs, that are going to stay 
right there with us.
  I want to thank the gentleman from Texas (Mr. Brady) and the 
gentleman from Texas (Mr. DeLay) for their work on this important piece 
of legislation and especially thank our chairman.
  Mr. RANGEL. Mr. Speaker, I yield myself such time as I may consume.
  I would just like to make it clear that if the Democrats had a chance 
to have an alternative this provision would have not lasted just for 2 
years, as Republicans would have it, but would have been made 
permanent.
  Mr. Speaker, I yield 2 minutes to the gentleman from Texas (Mr. 
Doggett), a hardworking member of the Committee on Ways and Means.
  Mr. DOGGETT. Mr. Speaker, I thank the gentleman for the time.
  When $4 billion in sanctions are imposed for an unjustified tax break 
declared illegal in an international forum, this House Republican 
leadership produces this monstrosity of a bill to expand this $4 
billion problem to an outrageous $150 billion chunk of corporate 
welfare.
  The title of a lead column in the Business section of the Washington 
Post captures the essence of this sorry legislation: ``Tax Legislation 
Only Worthy of the Trash Heap.'' At least one corporate lobbyist was 
candid in boasting that this bill has ``risen to a new level of 
sleaze.'' The latest bit of sleaze was added only in the wee hours of 
this morning, a provision to obstruct an ongoing investigation by the 
Internal Revenue Service of corporate tax shelters, denying our IRS 
even the identity of those who were sold abusive corporate tax 
products.
  Once again, with tax breaks for the private jets of corporate 
executives, for sonar devices for finding fish, for whale hunters, we 
can see that the big fish do rather well in this bill, while the 
American people are told one whopper after another.
  This is a jobs bill all right. It is a jobs bill for corporate 
lobbyists who have done rather well. It is also a jobs bill for people 
in Bermuda and China. Indeed, I think the taxpayers of Bermuda and 
China ought to be footing the $150 billion price tag for this bill, not 
the American taxpayers because they appear to be the ones benefiting 
from this legislation. To those corporations that will dodge their 
taxes by planting their corporate flags on the shores of Bermuda, this 
bill gives them a pat on the back.
  The Republicans once said they were opposed to this fleeing of 
American corporations abroad. Now they help buy them first class 
airfare at the expense of American taxpayers. Certainly, the most 
appalling provision of all is the $10 billion given to the producers of 
nicotine, a lethal product that ruins the lives of so many American 
families. Under this outrageous section, Big Tobacco will get cheaper 
tobacco, even more tobacco will be grown, and the American taxpayer 
will be the loser.

                              {time}  1300

  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I believe the gentleman from Texas (Judge Doggett) needs 
to know that provision has been ruled by the courts not to provide 
attorney/client privilege and that there was no new power granted under 
that language. And the gentleman from Texas (Judge Doggett) knows that 
when the courts rule, we try to be responsible in that regard.
  Former Speaker Tip O'Neill said, ``All politics is local.'' I had 
said that some areas of the code have not been examined in 20 years or 
more, and people deserve a day at least once every 20 years to try to 
correct the horrible, horrible condition of many areas of our economy 
under our current Tax Code.
  Mr. Speaker, I yield 2\1/2\ minutes to the gentleman from North 
Carolina (Mr. McIntyre) who wants to talk about ending a subsidy to a 
particular group of Americans, and this is the first time they have had 
their day in court in almost three-quarters of a century.
  Mr. McINTYRE. Mr. Speaker, I rise in strong support of H.R. 4520, the 
American Jobs Creation Act. In North Carolina, we have known something 
about losing jobs and we know what it means to be able to gain jobs 
back. That is why these WTO penalties that we are concerned about are 
being discussed today in many areas like textile, agriculture, and 
high-tech.
  But my point today is a concern about tobacco. There are some things 
that are rather disparaging that are simply not true. This is not a 
Republican or Democratic issue. This is about helping families and 
helping gain jobs for those who have suffered

[[Page 12851]]

enough under the only remaining Depression-era Federal farm program in 
America.
  Members are concerned about American government being involved in 
tobacco. Well, let us get out of the 1930s. This is not a bail-out; it 
is a buy-out. And if we continue to do nothing, it will be a wipe-out.
  What if Members' income was cut by 50 percent in the last 5 years 
like our tobacco farmers and you do not have control over it? It is 
done through a formula set by the Secretary of Agriculture, and this 
fall you may face another 20 to 30 percent cut in income. How are you 
going to pay for your kids, their education, their health care, their 
families? Are we going to take these farmers and put them on welfare?
  We have to get the American government out of the tobacco business, 
and we can do that with this buy-out. We are not just paying off 
farmers, we are giving back to them what the Federal Government has 
taken from them. There is a Federal property interest in a tobacco 
allotment. Farmers can put it in deed, lease it, rent it, and that is 
controlled through the Federal Government.
  This would be an opportunity to help our farmers make a decision: Are 
they going to continue to farm tobacco or get out? This is an 
opportunity for us to make a decision for the American taxpayer: Will 
the American taxpayer continue to subsidize tobacco or will we get out 
of the tobacco business, which so many people want to do?
  This is a logical situation to help the American tobacco farmer and 
their family to be able to have the interest that the Federal 
Government has taken from them and now controls their income to be able 
to buy back that interest and then let them make the decision.
  Our farmers in our rural regional and State economies have suffered 
enough. It is time for this uncertainty to end, not only for these 
families but for the American government's involvement in tobacco. It 
is also time to give farmers the freedom of choice and get them out 
from under a government mandate where they have no control over the 
amount of income they can make.
  Let us do right by our farmers and their families. Let this be a win 
for the farmer, a win for the taxpayer, and a win for the American 
government.
  Mr. RANGEL. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, this is the biggest fraud on farmers, and especially 
tobacco farmers, that I have seen in my 34 years in Congress. Here we 
have some help allegedly for the tobacco farmers, and those of us on 
the Committee on Ways and Means could not even discuss it because it is 
not in our jurisdiction, yet it is in our bill.
  A person does not have to be a politician or Member of Congress to 
know if we are talking about farming and tobacco, we should be talking 
about the Committee on Agriculture and not the tax-writing committee. 
This bill has nothing to do with taxes, nothing to do with 
international sanctions against us. It has everything to do with trying 
to pick up votes for those people who know that they are facing 
economic distress in this area.
  The right thing to have done was to have it in the Committee on 
Agriculture, which has jurisdiction and who understands this issue even 
better than some of the smartest Members on the Committee on Ways and 
Means.
  Mr. Speaker, I yield 1 minute to the gentleman from Mississippi (Mr. 
Taylor).
  Mr. TAYLOR of Mississippi. Mr. Speaker, it is interesting that the 
sponsor of this bill would mention that all politics is local. I would 
remind the gentleman that in my State of Mississippi local elected 
officials are held personally liable for debts they incur while in 
office. If they spend more money than they can collect in taxes, they 
are personally liable. I wonder if the sponsor of this bill would be 
willing to pay his share of the $1,553,114,795,203.56 that his policies 
have added to the American debt in just the past 3 years?
  I wonder how many of the Members who feel so strongly about this bill 
would be willing to pay their share of the $34 billion it is going to 
add to our Nation's debt. Do Members really feel that strongly about 
it? Do Members really think they are doing enough good to stick my kids 
with their $34 billion bill?
  We are at war, and shame on us if we are the first generation of 
Americans to cut taxes as young Americans are dying on a daily basis. 
We are at war and we ought to be willing to pay for it and we ought to 
quit sticking our kids with our bills.
  Mr. THOMAS. Mr. Speaker, I yield 2\1/2\ minutes to the gentleman from 
Louisiana (Mr. McCrery), the chairman of the Subcommittee on Select 
Revenue of the Committee on Ways and Means.
  Mr. McCRERY. Mr. Speaker, I thank the gentleman for yielding me this 
time to talk about what I think is perhaps the most important tax bill 
we have passed through this House in the last several years.
  There has been a lot of talk and rhetoric about how the international 
tax provisions contained in this bill will ship jobs overseas when in 
fact just the opposite is the case and just the opposite is supported 
by the facts, but we do not hear many facts coming from those critics 
from the bill, we just hear rhetoric. Rhetoric is easy.
  Let me give Members some facts. I will start with the fact that 93 
percent of all products made overseas by American companies with 
operations overseas are sold overseas, not made over there and brought 
back here to be sold in our market to replace part of the market share 
here in the United States. Those products made overseas by American 
companies that have affiliates overseas are sold overseas. That should 
tell Members something. It should tell Members that our American 
companies who create facilities overseas to make things do so in order 
to compete in those overseas markets. They want market share over 
there, and in many cases and in most cases they need those facilities 
over there to serve those markets.
  Another fact, another statistic that is important: 40 percent of all 
exports by American manufacturers from the United States go to foreign 
affiliates of those same American manufacturers. In other words, our 
manufacturers here in the United States are making things here to sell 
over there to their own foreign affiliates. So if it were not for the 
fact that American companies had those foreign affiliates overseas, 
those exports probably would not be sold. Those exports would not be 
leaving the United States. And all those exports, those products, are 
made by workers here in the United States.
  So those jobs overseas, those plants overseas owned by American 
manufacturers support jobs here in the United States. Those are the 
facts. Forget the rhetoric, this bill is about jobs here in the United 
States. It is the best bill we have had on the floor in a long, long 
time, and we ought to pass it.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Maryland (Mr. Hoyer), our distinguished minority whip.
  Mr. HOYER. Mr. Speaker, the other side can say it over and over and 
over again, but the facts are correct that this is not about jobs here 
because if it was about jobs here, we could have passed the Manzullo-
Rangel bill 6 months ago. We did not. We did not because we wanted to 
pass a partisan bill.
  The Heritage Foundation says, ``There is always a certain amount of 
grease that is part of getting any tax policy changes through the 
process,'' but with this bill the Heritage Foundation says that ``the 
actual policy seems to be secondary to the grease.''
  This is a sad day in this House. I have served here for 23 years. 
This is the worst tax bill that I have seen on the floor of this House. 
It is the most irresponsible bill. I challenge the Members on that side 
of the aisle to bring me one editorial, Members will not find it in the 
Wall Street Journal, Members will not find it out of the Heritage 
Foundation, one editorial that says this bill is worth passing.
  We have been involved in an orgy of self-indulgence. That is how 
great empires fail, so focused on self and corporate and individual 
embellishment that they forget about the community,

[[Page 12852]]

they forget about their country, they forget about investing in their 
people. They forget about investing in jobs in America.
  The gentleman from Illinois (Mr. Manzullo) is not on the floor, he 
was just a few minutes ago. He and the gentleman from New York (Mr. 
Rangel) and the gentleman from Illinois (Mr. Crane) had a bill that 
spoke to jobs in America. This bill does not. Defeat this bill. Be 
responsible, stand up for America, send this bill back to committee.
  Mr. THOMAS. Mr. Speaker, I yield 1\1/2\ minutes to the gentleman from 
Kentucky (Mr. Lewis) who understands all politics are local, and the 
Chair appreciates the tremendous work the gentleman from Kentucky has 
put in in perfecting this bill.
  Mr. LEWIS of Kentucky. Mr. Speaker, I rise today to voice my support, 
my strong support for H.R. 4520, the American Jobs Creation Act of 
2004, and encourage my colleagues to vote in favor of this important 
legislation.
  There are over 40,000 tobacco farms in Kentucky alone. Tobacco 
farming is the primary source of livelihood of tens of thousands of 
Americans supporting local economies in nine U.S. States. Every tobacco 
dollar is said to turn over 6 to 7 times in its community.
  Under current Federal policy, American farmers lose while farmers in 
countries like Brazil win. American tobacco farmers simply cannot 
respond to new market pressures and opportunities while beholden to an 
outdated government-controlled system.
  With this bill, farmers can move beyond tobacco. By ending the quota 
system, economists anticipate as many as two-thirds of current tobacco 
farmers would exit the business without increasing taxes or the 
national debt.
  Our obligation as Members of Congress is always to our constituents, 
not to special interest groups. Including a buy-out provision in H.R. 
4520 provides long-awaited relief to American farmers, replacing lost 
jobs and revitalizing thousands of communities across the Nation who 
depend upon tobacco for their economic stability.
  I commend the gentleman from California (Mr. Thomas) for his 
leadership and vision on this issue, understanding the plight of 
American farmers and working with a bipartisan coalition to include 
this important provision in the Jobs Creation bill. I urge my 
colleagues to vote in favor of H.R. 4520.
  Mr. RANGEL. Mr. Speaker, I yield 10 seconds to the gentleman from 
Maryland (Mr. Hoyer), our distinguished whip.
  Mr. HOYER. Mr. Speaker, there will be some Members who will speak on 
behalf of this bill, but I have not talked to one of them that thought 
this was a good bill. They think there are provisions in this bill, as 
the chairman said, that have not been considered for some time, and 
they are voting for that provision. Not one Member have I talked to on 
this side of the aisle or that thinks this is a good bill.

                              {time}  1315

  Mr. RANGEL. Mr. Speaker, I yield 3 minutes to the gentleman from 
Illinois (Mr. Manzullo) from the other side of the aisle. He is just as 
much a Republican as I am a Democrat. One thing we have in common is 
that when we have a problem with the WTO we do not think it is a 
Republican or a Democratic issue, but we think in a bipartisan way we 
should work toward trying to resolve that. We have done that. It has 
been a pleasure working with him.
  Mr. MANZULLO. Mr. Speaker, after 1999 all businesses, from normally 
large chapter C corporations to nontraditional corporations such as sub 
S partnerships, limited liability corporations and sole 
proprietorships, have had a tax break for the items that they export. 
This is the extraterritorial income exclusion, or ETI. The WTO held 
this tax break illegal because it gives a preferential tax break to 
exported items, even though Europe does the very same thing through its 
VAT tax, which is rebated at the border.
  The present House bill replaces the ETI tax with a large tax cut for 
businesses that manufacture in the U.S., similar to what the other body 
did, except that in this House bill, only chapter C corporations get 
the tax cut because the House bill tax cut does not apply to other 
nonchapter C businesses, such as subchapter S, limited liability and 
sole proprietorships, normally the little guys.
  The present House bill has the same problem as my bill did from early 
last year. That is why I admitted my mistake and abandoned the original 
Crane-Rangel-Manzullo bill because it, too, limited relief only to 
chapter C corporations. My district's 2,000 manufacturing businesses 
are little guys, mostly sub S like the rest of the Nation. I worked 
with the other body last summer to include the manufacturing benefit to 
everybody, which is what that body did. The House bill hurts businesses 
which are presently exporting and which are nonchapter C corporations 
by causing a tax increase.
  SAS in North Carolina, 100 employees, manufactures software, exports 
a lot. Because it is a subchapter S business and not a chapter C 
corporation, SAS will have a massive tax increase. Excel Foundry and 
Machine in Pekin, Illinois, 100 employees, a third of its revenue 
coming from exports. They just added three engineers and put on an 
addition. Because they are a sub S and not a chapter C, their tax 
benefit will end, and they will have a tax increase. National Machinery 
of Tiffin, Ohio, the last U.S. manufacturer of cold forming machines, 
exports most of its product. Because they are an LLC and not a chapter 
C, they will have a massive tax increase. They make a machine that 
makes bullets.
  There are tax cuts for small businesses and depending on how you 
total them, somewhere between $2.75 billion and $18 billion; and I want 
to thank everybody for those tax cuts. We appreciate the sub S reform 
and expensing extension for 2 years. However, the bill totals about 
$143 billion in gross tax cuts, meaning the large and multinational 
corporations get a benefit of about 93 percent of the entire bill.
  The class warfare between large and small businesses was not asked 
for by the large companies. They want the smaller manufacturers to 
thrive because the little guys are the suppliers for the large 
companies. The supporters of the bill say the nonchapter C people got 
their tax break when personal income tax rates were reduced for 
everybody, but everybody knows it costs a lot more to run a small 
business. As chairman of the Committee on Small Business, I cannot 
discriminate against small businesses; and I hope the majority of the 
House will agree with that.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, now I guess I am a little bit baffled. The gentleman 
from Illinois, chairman of the Committee on Small Business, was an 
original cosponsor of H.R. 1769, the Rangel-Manzullo bill. That 
included a corporate rate cut and specifically limited it to C corps. 
It did not extend it to S corps and partnerships, and it did not have 
any of the 11 subchapter S provisions that we include. He is making an 
appeal for bullets, but he is not supporting bows and arrows.
  Mr. Speaker, it is my pleasure to yield 1 minute to the gentleman 
from Tennessee (Mr. Jenkins).
  Mr. JENKINS. I thank the gentleman for yielding me this time.
  Mr. Speaker, I strongly support H.R. 4520 for many reasons. Number 
one, it protects American jobs. In addition, it brings some measure of 
relief to a segment of our economy that has been under assault for a 
long period of time. Lawsuits, actions and inactions of our government 
have put hardworking tobacco farm families in peril and threaten the 
economic well-being of rural communities in many States. This will help 
prevent an economic train wreck in those areas that have depended on 
this crop as a mainstay of their economy longer than we have been a 
Nation. In addition, it will help, in my honest opinion, to satisfy the 
mandate of the fifth amendment to our Constitution that no property 
will be taken without just compensation.
  Finally, Mr. Speaker, it will address a great inequity that has 
existed since 1986. It restores the State sales tax exemption for 
Federal income tax. I urge my colleagues to support this legislation.

[[Page 12853]]

  Mr. Speaker. I strongly support H.R. 4520 and I commend the chairman 
and the Committee on Ways and Means for bringing to the House this 
legislation to protect American jobs and to bring fairness to a segment 
of our agricultural economy and a section of our Tax Code.
  Assessments totaling billions of dollars are being assessed against 
exported American goods by the World Trade Organization--threatening 
tens of thousands of American jobs--unless the Congress responds with 
remedial measures. This is the remedial action that will provide 
protection for those jobs for thousands of Americans.
  In addition it brings some measure of relief to a segment of our 
economy that has been under assault for a long period of time. 
Lawsuits--actions and inactions of our government have put hardworking 
tobacco farm families in peril--and threaten the economic well being of 
rural communities in many States. This will help prevent an economic 
train wreck in those areas that have depended on this crop as a 
mainstay of their economy longer than we have been a nation. In 
addition it will help--in my opinion--to satisfy the mandate of the 
fifth amendment to our Constitution--that no property will be taken 
without compensation.
  Finally, Mr. Speaker, it will address a great inequity that has 
existed since 1986. In that year the ability to claim as a deduction on 
our Federal income tax an amount that was paid in State sales tax was 
taken away. Many states rely on sales tax as their principle source of 
revenue and do not have a State income tax. State income tax is still a 
valid deduction on a Federal income tax return--but not State sales 
tax. H.R. 4520 restores sales tax as a deduction. If H.R. 4520 becomes 
the law of the land it will alleviate the existence of this inequity 
that many have never been able to understand.
  I urge my colleagues to support this legislation.
  Mr. RANGEL. Mr. Speaker, I yield 30 seconds to the gentleman from 
Illinois (Mr. Manzullo), whom I would like to believe as the chairman 
of the Committee on Small Business knows more about small businesses 
than the chairman of the Committee on Ways and Means knows about 
tobacco.
  Mr. MANZULLO. Mr. Speaker, I would like to respond to my colleague, 
the chairman of the Committee on Ways and Means. I am in favor of a tax 
cut for all manufacturing entities, from large corporations through to 
the sole proprietorships. The reason I abandoned my own bill, Manzullo-
Rangel-Crane, is the fact that it limited relief only to the large 
corporations. Only. Only to the large corporations. I cannot support 
that. What we need is a bill as in the other body that has a 
manufacturing benefit for everybody who manufactures, not just the 
large ones.
  Mr. THOMAS. Mr. Speaker, it is my pleasure to yield 1 minute to the 
gentleman from Texas (Mr. Sam Johnson), a valuable member of the 
Committee on Ways and Means.
  Mr. SAM JOHNSON of Texas. Mr. Speaker, I rise today in strong support 
of this international tax bill. We worked for the better part of 3 
years to get to this point. Everyone in here knows we need it. I want 
to congratulate Chairman Thomas for leading us. The bill strikes the 
right tone in the repeal and replacement of FSC/ETI. This section of 
the bill was debated long and hard, and I am proud of the deal we have 
reached on this section. I am also glad to see long overdue 
international competitiveness reforms are still in this bill.
  In addition, I want to mention my strong support for the return of 
the State sales tax deduction. Since 1986, the residents of seven 
States, including Texas, that rely upon sales taxes rather than income 
taxes have been unfairly denied this deduction. From every corner of my 
congressional district, my constituents are thrilled at the prospect of 
being given this tax deduction. We like to say no taxes in Texas.
  I urge my colleagues to vote for this bill.
  Mr. Speaker, I rise today in strong support of this international tax 
bill. We have worked for the better part of 3 years to get to this 
point and I want to thank and congratulate Chairman Thomas for leading 
us.
  The bill strikes the right tone in the repeal and replacement of the 
``FSC-ETI'' benefit. This section of the bill was debated long and 
hard, and I am proud of the deal we have reached on this section. I am 
also glad to see long-overdue international competitiveness reforms are 
still in this bill.
  In addition, I want to mention my strong support for the return of 
the State sales tax deduction. Since 1986, the residents of seven 
States, including Texas, that rely upon sales taxes rather than income 
taxes, have been unfairly denied this deduction.
  From every corner of my congressional district, my constituents are 
thrilled at the prospect of being given this tax deduction. We like to 
say no taxes in Texas.
  I urge my colleagues to vote for this bill.
  I want to urge caution however on the revenue raisers that are used 
to offset some of our tax cuts.
  I find the revenue raisers in the House bill to have many flaws--
large and small. I have been sharing my reservations with the Chairman 
and other committee members who are likely to be conferees.
  My reservations about the House offsets, however, are magnified into 
grave concerns when I look at the Senate tax increases. In particular, 
I cannot accept retroactive tax increases and will not support a 
conference agreement that includes retroactive tax increases.
  I am firmly in the camp of those who believe that tax cuts do not 
need to be offset with tax increases. This is simply money the Federal 
Government is not collecting that belongs to individuals or companies 
that have earned the money.
  However, to the extent that we are forced to offset some off our tax 
cuts, I urge the Chairman and other conferees to pick through these 
offsets so that the ``pay-for'' is not worse policy than the items we 
are trying to fix.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentlewoman from 
California (Ms. Waters).
  Ms. WATERS. Mr. Speaker, I certainly would like to thank the 
gentleman from New York (Mr. Rangel) for all the hard work that he has 
put in on this legislation, and I would like to thank Lou Dobbs at CNN 
for his constant exposure of the practice of U.S. firms that are 
outsourcing jobs. These firms are simply exporting American jobs to 
Third World countries for cheap exploited labor. This bill is a prime 
example of what Lou Dobbs has been reporting about. This bill is a $140 
billion tax boondoggle at a time when U.S. unemployment rates are still 
too high and at a time when this administration has created historic 
deficits.
  This bill gives $35 billion of the $140 billion tax break that they 
have created to U.S. firms to invest in jobs overseas, not American 
jobs, not jobs in your city, not jobs in your hometown, not jobs in 
your county. The Republicans have become experts at outsourcing jobs. 
The Republican National Committee and George W. Bush even outsourced 
their fund-raising solicitation telephone calls to a firm that employs 
workers in India. This brazen, costly tax giveaway to corporations 
exporting jobs, 60 percent of whom pay no taxes, is an assault on 
hardworking Americans who are now collectively paying more taxes than 
rich corporations. Shame, shame, shame.
  The Republicans refused to support targeted U.S. manufacturing 
credits. These so-called conservative Republicans, who are supposed to 
be fiscal conservatives, no longer care about the huge United States 
deficit. They have become the big spenders of the taxpayers' dollars, 
outsourcing the jobs to foreign countries for cheap labor. These are 
conservative Republicans piling up this deficit and giving away our 
American jobs. They no longer care about the joblessness of Americans 
in their own hometowns.
  Shame, shame, shame.
  Mr. THOMAS. Mr. Speaker, it is my pleasure to yield 15 seconds to the 
gentleman from Ohio (Mr. Portman) who understands the difference 
between spending and investing.
  Mr. PORTMAN. Mr. Speaker, I thank the gentleman from California for 
putting together a good bill that actually does just the opposite of 
what my friend from California just talked about. It helps American 
businesses be able to compete in the global marketplace. That will 
create jobs in this country. And it enables our businesses to be able 
to compete in an increasingly competitive global marketplace. That is 
good for America.
  I want to commend Chairman Thomas for crafting a bill that will 
create jobs here in America. I am particularly pleased that the 
American Jobs Creation Act includes important and long-needed reforms 
to the rules

[[Page 12854]]

under which U.S. businesses are taxed on their global operations. Those 
reforms are one of the key reasons I support this legislation.
  They are a long time in coming, and I want to particularly thank Mr. 
Houghton for his leadership and perseverance in this area. He has been 
a champion of tax simplification, and focused much of his attention on 
the complicated, archaic and outdated international tax rules. On a 
bipartisan basis, he initiated a comprehensive package of reforms that 
have been vetted and fine-tuned over a decade. I am pleased many of 
those provisions are in this bill. These are critical provisions that 
will determine whether or not our nation can compete in the global 
marketplace.
  Some have tried to characterize the international tax reforms as 
provisions that would reward U.S. companies that move jobs offshore. 
The exact opposite is true. These reforms are critical to U.S. 
manufacturers that make products in the United States and sell those 
products in the global marketplace. To access global markets, U.S. 
exporters must compete directly with non-U.S. companies. The 
international tax reforms in the American Jobs Creation Act begin to 
level the playing field between U.S. companies and their foreign 
competitors. They are necessary to protect and grow U.S. manufacturing 
jobs in export industries. Ninety-six percent of the world's consumers 
are outside the United States. Without markets in which to sell their 
goods, U.S. companies cannot provide U.S. jobs to manufacture those 
goods. Companies with global operations provide over half of all U.S. 
manufacturing jobs. Suppliers who depend on those multinational 
companies to buy their products provide many more U.S. manufacturing 
jobs.
  Mr. Speaker, I want to mention two specific reforms that are included 
in this bill. The first, dealing with interest allocation, would 
eliminate a fundamental distortion in the U.S. tax law that results in 
double taxation of U.S. taxpayers that have operations abroad. 
Currently, we tax corporations on their worldwide income, but allow a 
foreign tax credit against the U.S. tax on foreign-source income. The 
foreign tax credit limitation applies so that foreign tax credits may 
be used to offset only the U.S. tax on foreign-source income and not on 
U.S.-source income.
  In order to determine the foreign tax credit that can be claimed, 
expenses must be allocated between U.S.-source income and foreign-
source income. These allocation rules cause a disproportionate amount 
of U.S. interest expense to be allocated to foreign-source income--
which in turns reduces the foreign tax credit. This double taxation 
makes it more difficult for U.S. companies to compete in the global 
marketplace.
  Perhaps the most outrageous aspect is the fact that this double 
taxation makes it more costly to build factories in the United States. 
Only our own U.S. companies are facing this distortion. Foreign 
corporations making an investment in the United States do not suffer 
double taxation. That is a perverse result. H.R. 4520 would correct 
this.
  Another key international reform is the reduction in the number of 
foreign tax credit limitation baskets. It is a matter of 
simplification, fairness and U.S. jobs. The current basket structure is 
a major source of complexity and inefficiency in the U.S. international 
tax rules. It requires a U.S. company to divide its business income 
earned outside the U.S. into at least two, and perhaps many more, 
baskets. Thus, every company with global operations must characterize 
and allocate each dollar of its business income--on an item-by-item 
basis--to one of the nine baskets. The company must then associate 
every item of expense incurred everywhere in the world to one of the 
nine baskets. The company must then go through the same exercise for 
every dollar of tax paid to any foreign government. That does not make 
sense. No other country in the world requires anything approaching this 
level of complexity.
  Reducing the number of foreign tax credit limitation baskets is also 
a matter of fairness. Some U.S. global companies do not face the 
complications caused by the separate baskets simply because they do not 
engage in any financial services businesses or because they engage in 
those businesses exclusively. U.S. companies that do both should not be 
disadvantaged. Finally, it's a matter of U.S. jobs. For many companies, 
creating one active business basket will rescue the U.S. tax on 
exports. The export of U.S. manufactured property typically gives rise 
to foreign-source income that is not highly taxed. If credits 
attributable to other types of business income can be used to reduce 
that tax burden further, those exports will be more competitive in the 
global marketplace. That means more jobs here.
  Mr. Speaker, our international tax system needs to be changed to 
reflect today's economy. It's time to simplify these taxes to make U.S. 
companies more competitive and to create more jobs here in America.
  Mr. RANGEL. Mr. Speaker, it is my pleasure to yield 1 minute to the 
gentlewoman from California (Ms. Pelosi), the leader of the minority 
and a person that has been very sensitive to the necessity and the 
creation of jobs for all Americans.
  Ms. PELOSI. Mr. Speaker, I thank the gentleman from New York for 
yielding me this time.
  Mr. Speaker, today our country is at a crossroads, and this debate on 
the floor clearly defines the choice that we have to make. The 
gentleman from New York (Mr. Rangel) at that crossroads offers us a 
path to expand opportunity in our country and to grow community. The 
gentleman from New York, as we make this important decision, knows that 
nothing less is at stake than our technological, industrial, and 
manufacturing base. The path that the gentleman from New York will take 
us down is one that will stop the hemorrhaging of U.S. jobs overseas. 
The gentleman from New York will strengthen our base. That is a 
decision we have to make. Are we going to strengthen that base, which 
is so essential to our national security, so essential to job creation 
in our country? Or are we going to abandon it? The gentleman from New 
York strengthens it. The Republican proposal abandons it.
  But I have to give the Republicans credit, I really have to give them 
credit, because they are consistent. They are consistently the 
handmaidens of the special interests at the expense of the public 
interest and the public good. Every opportunity they get to bring 
legislation to the floor, we see the difference between the Democrats 
and the Republicans in that regard. That is most unfortunate. Because 
people across our country are suffering from job loss, from uncertainty 
in their lives, from their communities dissolving because businesses 
are leaving and what that means to America's families and America's 
communities. That is most unfortunate.
  The gentleman from New York on the other hand again takes us to a 
place which strengthens community and strengthens and expands 
opportunity. We have to view what the Republicans are doing within the 
context of their reckless economic policies. Here they come to the 
floor abandoning the American worker at a time when the Republican 
reckless policies have produced the worst job loss since Herbert 
Hoover. No President of the United States since Herbert Hoover has lost 
jobs in office, but these Republican policies have produced those 
losses. It has to be viewed within the context of, again, that 
uncertainty in American life. How sad.
  The gentleman from New York's proposal should be viewed in the 
context of a Democratic proposal to take the initiative on outsourcing, 
a proposal that says we must have innovation to create the jobs of the 
future, we must have education to produce the workforce of the future, 
and we must have job creation using the Tax Code that will reward 
businesses that stay here, create jobs here, and maintain jobs in the 
U.S.; and that is the distinct difference between what the Republicans 
are proposing and what the gentleman from New York is proposing today.

                              {time}  1330

  Unfortunately, because the Republicans are once again afraid of 
ideas, they would not allow the gentleman from New York's (Mr. Rangel) 
proposal to come to the floor. They would not allow a substitute to be 
brought to the floor so we could have a fair airing of these different 
visions of America, because they are two different visions of America.
  Instead, the gentleman from New York (Mr. Rangel) is confined to a 
motion to recommit, a parliamentary instrument that gives him only a 
few minutes to present his case. But his case is a clearly distinctly 
different one from the Republicans.
  We are talking about two different visions of America. The gentleman 
from New York's (Mr. Rangel) is about supporting American values, of 
expanding opportunity again through innovation, education, using the 
Tax Code for

[[Page 12855]]

job creations, rewarding those who keep jobs here in the U.S. It 
recognizes the reality of the global economy and wants to make the U.S. 
manufacturers the most competitive in the world with the most 
productive workers, the U.S. workers, in the world.
  So I thank the gentleman from New York (Mr. Rangel) for his sense of 
responsibility to the American worker, to the American economy, for his 
sense of responsibility that we all have to make the future better and 
not have an erosion of jobs in our country but of an enhancing of 
opportunity. And I thank him for what he is doing as far as a sense of 
communities is concerned because that is a strong American value that 
is being seriously undermined by again the erosion of our manufacturing 
base and what that does to communities across the country.
  So I urge my colleagues as they stand at this crossroad to choose the 
gentleman from New York's (Mr. Rangel) vision of America. They can do 
so by supporting his motion to recommit. They can do so by rejecting 
the Republicans' ill-conceived legislation and voting ``no'' on final 
passage.
  Mr. THOMAS. Mr. Speaker, I request respectively that I have the same 
1 minute to be able to yield to the gentleman from Florida, a member of 
the committee.
  The SPEAKER pro tempore (Mr. LaTourette). With all due respect, the 
Chair has historically granted the courtesy to the Speaker, the 
majority leader, and the minority leader to conclude their 
observations, and the Chair provided the same courtesy to the minority 
leader.
  Mr. THOMAS. Mr. Speaker, I understand 1 minute was yielded, and I 
just respectfully ask for 1 minute to the gentleman from Florida as was 
done on the other side. That is all.
  The SPEAKER pro tempore. The Chair will recognize the gentleman from 
Florida (Mr. Foley) for 1 minute.
  Mr. FOLEY. Mr. Speaker, I never thought I would see the day on this 
House floor that Democrats would criticize and belittle American 
workers making tackle boxes and bows and arrows, hard-working citizens. 
They may not be as elegant as George Soros or as wealthy, but they work 
hard.
  The very simple issue is a tackle box made in America has an excise 
tax; a tackle box sent from China does not. So I guess their inference 
is keep jobs in China, do not worry about us.
  I never thought I would see the day when the Democrats would 
criticize a corporation like Tyco that has thousands of American 
workers, hard-working citizens in our community and they criticize them 
and call them unpatriotic, but they get up on the floor and start 
worrying about protecting people that owe the taxpayers money. They are 
afraid of collecting taxes that are due the United States Treasury. 
This is a perverse sense of arguments that really is almost laughable.
  We have got great provisions in this bill. We have got important 
provisions in this bill. We have got things that will make the economy 
work, leasehold improvements, faster, accelerated depreciation. So they 
can crow all they want about this, but it is a jobs bill.
  It is a fair bill, and we urge its adoption.
  Mr. RANGEL. Mr. Speaker, I ask how much time is remaining?
  The SPEAKER pro tempore. The gentleman from New York (Mr. Rangel) has 
2 minutes, and the gentleman from California (Mr. Thomas) has 3\1/4\ 
minutes.
  Mr. RANGEL. Mr. Speaker, I reserve the balance of my time.
  Mr. THOMAS. Mr. Speaker, I yield 30 seconds to the gentlewoman from 
Guam (Ms. Bordallo) for a colloquy.
  Ms. BORDALLO. Mr. Speaker, I thank the chairman for yielding me this 
time.
  The Senate has included a provision in their version of this 
legislation that uses an offset derived from closing a loophole in 
residency requirements for filing taxes in the U.S. Territories to fund 
Green Bonds.
  Given that this issue has been addressed by the House in other 
legislation, I hope that the House will take the position that this 
offset should be used instead to help the U.S. Territories with the 
unfunded federal mandate of the earned income credit, and I hope he can 
help us with this provision.
  Mr. THOMAS. Mr. Speaker, will the gentlewoman yield?
  Ms. BORDALLO. I yield to the gentleman from California.
  Mr. THOMAS. Mr. Speaker, I tell the gentlewoman, a Delegate from 
Guam, and the gentlewoman from the Virgin Islands I would be pleased to 
work with them in conference to try to solve this problem for the 
Territories.
  Ms. BORDALLO. Mr. Speaker, I thank the gentleman for his response.
  Mr. THOMAS. Mr. Speaker, I yield 1 minute to the gentleman from 
Wisconsin (Mr. Ryan), a very valued member of the committee.
  Mr. RYAN of Wisconsin. Mr. Speaker, let us look at what this bill is 
all about. What we do when our companies go overseas to compete, to 
sell goods and services, to create jobs here at home and sell overseas, 
they pay two taxes. Our foreign competitor countries pay one tax. When 
an American company sells a good and service overseas, they pay the 
U.S. tax and the foreign country tax at the same time. When our foreign 
competitors compete against us, they pay one tax. We are double taxing 
American jobs and American operations overseas.
  So in replacing this current tax policy we have which goes to \1/2\ 
of 1 percent of American manufacturers, we are giving a tax rate 
reduction for all American manufacturing corporations on what they 
produce in America, and we are removing this double tax so when we 
operate overseas by selling goods and services overseas to create jobs 
here at home, we are not tying one hand behind our backs.
  We are pushing jobs overseas with the American Tax Code we have 
today, and this bill corrects that problem. This protects jobs, and 
this is a good bill that has to pass because we have to get rid of 
these tariffs. I urge adoption of this legislation.
  Mr. THOMAS. Mr. Speaker, I yield 1 minute to the gentleman from Texas 
(Mr. Brady), who has been a champion for something that is extremely 
important to his constituency.
  Mr. BRADY of Texas. Mr. Speaker, I rise in strong support of this 
measure. My older brother is a computer salesman in Houston, Texas, and 
when he and his American colleagues try to sell their American products 
overseas, they find they have an anchor around their neck. It is the 
American Tax Code. It is so outdated that it really costs us American 
jobs and American workers.
  This bill changes that. It gives us a chance to compete overseas, and 
we help local manufacturers build and local farmers grow and local 
companies sell by lowering their tax rates so they can hire new 
workers, so they can buy new equipment, so they can compete wherever 
they choose to be sell.
  This provision also includes a sales tax deductibility to help 
families afford clothes and cars and tires, and all that adds up over 
the years. It allows taxpayers in each State to choose the highest of 
their State income or their State sales tax. It is a direct economic 
boost to families to help them afford it. It is very important to 
States like Texas, which will capture almost, I think, $1 billion for 
families through this, and it provides a measure of fairness.
  We are pushing for permanency. That will come. But this is a major 
victory for sales tax States.
  The SPEAKER pro tempore. The Chair would advise the gentleman from 
California (Mr. Thomas) has 3\1/4\ minutes remaining, and the gentleman 
from New York (Mr. Rangel) has 2 minutes.
  Mr. RANGEL. Mr. Speaker, I yield myself such time as I may consume.
  It is abundantly clear that the majority will succeed in passing this 
bill not because the bill is good but because they have succeeded in 
reaching out to other people and giving them gifts to be putting on the 
tree under this Christmas tree bill. In other words, we call it buying 
votes.
  But I would ask the seller to beware and the buyer to beware because 
when some of these gifts are opened, they will find the boxes empty. 
Our beleaguered tobacco farmers will find that there will be a sign 
there: We do not

[[Page 12856]]

have the money we promised, go to Appropriations; we do not have the 
regulations, go to Commerce; we do not have the jurisdiction, go to 
Agriculture. They will find that when they take a look at this bill and 
they are looking for jobs, there is going to be a sign there: Take a 
flight overseas. That is where the jobs are going to be.
  So I am suggesting that even though they may be successful in winning 
this, they are not winning the minds and the hearts of the American 
people, who know that they have denied the minority an opportunity to 
say that we have a better idea in order to do these things.
  Mr. Speaker, I yield 30 seconds to the gentleman from California (Mr. 
Waxman).
  Mr. WAXMAN. Mr. Speaker, I thank the gentleman for yielding me this 
time.
  I include my statement in the Record, especially in opposition to the 
giveaway of taxpayers' dollars, the money that is going to go to those 
who hold quotas for big tobacco.
  I am here today to express my strong opposition to a $9.6 billion 
dollar taxpayer-funded tobacco bailout that has been slipped into 
unrelated legislation at the 11th hour. This proposal undermines public 
health, fleeces taxpayers, and embarrasses Congress.
  We have learned today that Americans reject this bailout by an eight 
to one margin. It is no surprise why. The bailout is a massive giveaway 
to Big Tobacco. The quota program keeps prices of tobacco leaf high. By 
ending the program, the legislation would cause the price to collapse. 
The result would be windfall profits for cigarette manufacturers. An 
Agriculture Department economist has estimated that Big Tobacco would 
pocket $15 billion dollars in profit over 14 years. This profit could 
then be used to lower prices and addict more children.
  The public health impact of this proposal is reason enough to reject 
it. But there's more. The proposal is also a shameless raid on the 
Federal treasury. It is a no-stings-attached $9.6 billion dollar cash 
transfer from taxpayers to tobacco growers. There is not even a 
guarantee that anyone will stop growing tobacco.
  Other farmers do not get this kind of treatment. Nor do factory 
workers, service employees, or anyone else that I know. It does not 
make any sense for the taxpayer to write checks to tobacco growers and 
not expect anything in return. Even newspapers in tobacco-growing 
regions have objected to this proposal.
  An idea this bad and unpopular could never pass the House in an 
honest, up-or-down vote. That's why the Republican leadership has 
refused to permit a vote on the bailout.
  Taxpayers deserve not to be fleeced. And parents need our help 
keeping their kids from becoming addicted to tobacco. But we are doing 
just the opposite by passing a massive giveaway to Big Tobacco. All we 
are asking is for the Republican leadership to schedule a vote on this 
proposal and let democracy take its course.
  Mr. RANGEL. Mr. Speaker, I yield myself the balance of my time.
  I am suggesting if this bill was as good as some of you are saying 
that it is, you would not have to come on this side of the aisle and 
offer promises that you know you cannot fulfill in conference and you 
know you cannot fulfill because you do not have jurisdiction. There 
will come a time that we are going to say when you call it a jobs bill, 
at least it should mean jobs for United States citizens and not jobs 
for foreigners.
  Mr. THOMAS. Mr. Speaker, I yield myself such time as I may consume.
  Perhaps the gentleman is not aware that the gentleman from Virginia 
(Mr. Goodlatte), chairman of the Committee on Agriculture, and the 
chairman of the Committee on Ways and Means have exchanged letters on 
questions of jurisdiction as is often done. Also, I guess the gentleman 
is expressing clearly the current attitude of the minority, and, sadly, 
it is different than it used to be. What happened to the can-do 
attitude that Americans always exhibit?
  It seems to me after 20 years, somebody ought to get 1 day to take a 
look at the fact that when he was in the majority, if one were in a 
State that had a sales tax and they rented, they got nothing. After 65 
years people want an end of subsidy. Why not? Why not allow U.S. aero 
manufacturers to be treated the same as foreigners? If someone has new 
technology, why not, not punish them with a different tax system?
  Mr. Speaker, I will place in the Record the Statement of 
Administration Policy which says ``The administration urges the House 
to pass H.R. 4520 promptly.'' And I would urge the House to do the 
same.

                   Statement of Administration Policy


             h.r. 4520--american jobs creation Act of 2004

       The Administration supports foreign sales corporation/
     extraterritorials income (FSC/ETI) legislation that reforms 
     the tax code, removes the underlying reason for the tariffs 
     that have been imposed on American exports by the European 
     Union (EU), and further advances the competitiveness of 
     American manufacturers and other job creators.
       The Administration urges the House to pass H.R. 4520 
     promptly. If Congress does not act to replace the current 
     FSC/ETI provisions in the tax code, then the tariffs that 
     were imposed by the EU on March 1st will inflict an 
     increasing burden on American exporters, American workers, 
     and the overall economy. To support the continued 
     strengthening of our economy and to create more jobs, 
     Congress should act now to end the threat posed by these 
     tariffs and to promote the competitiveness of American 
     manufacturers and other job-creating sectors of the U.S. 
     economy. The Administration looks forward to working with the 
     conferees on this legislation to move it toward budget 
     neutrality, and to enacting legislation that removes the 
     threat of escalating EU sanctions and encourages economic 
     growth and job creation at home.
  Mr. STARK. Mr. Speaker, I rise today in strident opposition to H.R. 
4520 the so-called ``Jobs Creation Act.'' This bill is a sham and a 
disgrace--and everybody knows it. Repealing the extraterritorial income 
(ETI) regime is absolutely necessary to avoid retaliatory duties 
imposed by the European Union, but replacing that regime with 
unnecessary corporate tax cuts, and including extraneous provisions 
that have no business in a corporate tax bill, is ludicrous.
  We have known for years that tax systems benefiting exports are 
clearly prohibited under our international trade agreements. Now we are 
faced with growing duties on certain exports, which hurt manufacturers 
and put American jobs in jeopardy. A bill to put the United States in 
compliance with World Trade Organization trade laws has been turned 
into a Christmas tree of special interest give-aways. By reducing from 
nine to two the number of foreign tax credit baskets, foreign 
controlled subsidiaries of U.S. corporations will have new tax shelters 
including domestic companies to move even more jobs overseas. During 
this jobless economic recovery, we cannot afford to give corporations 
even more incentive to ship jobs offshore. I'm appalled that such a 
bill would even be considered on the House floor.
  The Republicans have always claimed to be fiscally responsible, but 
this bill is one of the most fiscally irresponsible pieces of 
legislation I have ever seen. According to a February GAO report, on 
average, 61 percent of all U.S. controlled corporations reported no tax 
liability between 1996 and 2000. When nearly two-thirds of U.S. 
corporations already have no tax liability, it is preposterous that we 
would reduce the top corporate tax rate from 35 to 32 percent at an 
estimated cost of over $63 billion over the next ten years. It would 
only cost $50 billion to make corporations whole after the loss of the 
ETI exclusion, but the Republicans are reducing corporate tax revenue 
by another $29 billion with these new rate reductions.
  Fiscal irresponsibility surrounding the ETI exclusion is reason 
enough to vote against this bill, but H.R. 4520 goes even further, 
adding a total of $34 billion to the national debt through a litany of 
unnecessary tax breaks. For example, the bill would allow foreign 
controlled corporations to move income back to the U.S. with a one time 
85 percent deduction for that foreign income. This provision would cost 
more than $3 billion over ten years, and rewards corporations who have 
moved jobs overseas in the past. In addition, the reduction of foreign 
tax credit baskets from nine to two categories will decrease revenue by 
almost $8 billion during the next 10 years. These provisions and many 
others mortgage the future of our economy and create an enormous tax 
burden for our children and grandchildren.
  Even if the American Jobs Creation Act merely repealed the ETI 
exclusion and replaced it with fair tax breaks for domestic production, 
I could not support this bill. Why? Because it contains so many blatant 
and shameful provisions that have no business being in a tax bill! The 
Republican leadership refused to write a bill that could garner 
bipartisan support, so they tossed in these provisions to buy members 
votes. This is not democracy. This is a Republican House bowing to the 
power of corporate America and doing whatever it takes to get this 
ridiculous piece of legislation passed.

[[Page 12857]]

  The most egregious portion of this legislation is a dangerous buyout 
for the tobacco industry that would cost $9.6 billion dollars, most of 
which would line the pockets of large tobacco manufacturers like 
Phillip Morris. The tobacco buyout is nothing more than an election 
year bribe to enlist southern Democrats' votes on a bill they would 
otherwise be unlikely to support. Just recently the Surgeon General 
released a report saying that tobacco causes diseases in ``nearly every 
organ of the body.'' Instead of using this opportunity to allow the FDA 
to regulate tobacco, Republicans are giving a huge windfall to the 
tobacco industry while doing nothing to reduce tobacco production and 
improve public health.
  Finally, the Republicans have thwarted the democratic process by 
refusing to allow the Democrats an amendment in the nature of a 
substitute for this bill. Are the Republicans afraid that the 
bipartisan approach that passed with flying colors in the Senate might 
actually have enough votes to pass in the House? My friend and 
colleague Mr. Rangel has been working on a bipartisan approach to 
solving the FSC/ETI problem for years. But we won't have the 
opportunity to vote on that proposal today because the Republicans 
don't want anyone to compare our fair and responsible alternative to 
their unfair, irresponsible corporate tax break grab bag.
  The so-called American Jobs Creation Act does not create jobs. 
Instead, it creates new incentives for U.S. corporations to send jobs 
overseas. The fiscal irresponsibility of adding another $34 billion to 
the national debt over the next 10 years while the economy is trying to 
recover from recession is inconceivable to me. Finally, the extraneous 
provisions in this bill are mere gifts to Republican friends. This bill 
is a disaster for the American people and our tax code. Republicans 
should be hanging their heads in shame--but Republicans have no shame, 
as this bill clearly shows. I strongly urge all my colleagues to vote 
against H.R. 4520.
  Mr. HOLT. Mr. Speaker, today I rise to express my disappointment that 
the American Jobs Creation Act (H.R. 4520) includes a provision that 
grants the tobacco industry a $10 billion buyout but does not grant the 
Food and Drug Administration the authority to regulate tobacco 
products.
  The consequences of tobacco use are disturbing. Smoking-related 
illnesses claim an estimated 430,700 American lives each year. Smoking 
costs the United States approximately $92.2 billion annually in health-
care costs and lost productivity. It is directly responsible for 87 
percent of lung cancer cases and causes most cases of emphysema and 
chronic bronchitis. Spit tobacco and other smokeless tobacco are not 
safe alternatives. They can lead to tooth decay and loss, gum disease 
and oral cancer.
  Dispite the enormous risks to tobacco--which is the most deadly of 
all consumer products--the Federal agency that is most responsible for 
protecting the public health is powerless to effectively regulate this 
product. In 2000, the Supreme Court explicitly ruled that the FDA does 
not have the authority to regulate tobacco products and that it is the 
responsibility of Congress to provide the USDA with this authority. 
Congress cannot wait any longer to act on this matter.
  Many of my colleagues have fought hard to reach a compromise that 
will give the proper authority to the FDA to regulate tobacco products 
without needlessly impeding on the tobacco industry's right to produce 
and sell its product. Unfortunately, the legislation we are considering 
today squanders an opportunity to couple a tobacco buyout measure with 
improving public health. Even more disheartening than this missed 
opportunity is the sad reality that a bargaining tool has been removed 
from the table and our ability to pass legislation providing the FDA 
with the regulatory authority it needs has been jeopardized.
  I urge my colleagues to vote against this bill and to pass 
legislation that will allow the FDA to carry out its mission to ensure 
the safety of products consumed by the public.
  Mr. UDALL of Colorado. Mr. Speaker, Congress definitely needs to 
respond to the retaliatory tariffs imposed on American exports because 
of the World Trade Organization's rulings addressed by this bill.
  But, we do not need to pass the bill as it stands--in fact, we 
shouldn't.
  The bill is unbalanced and excessive. It includes provisions that 
could provide new incentives for American companies to move overseas. I 
am concerned that it could allow companies to simultaneously outsource 
much of the work needed to make a product and at the same time benefit 
from a tax break for ``domestic production.''
  The bill is unduly tilted toward large companies rather than the 
small businesses that are the source of most jobs in our country. It 
also includes billions of dollars worth of new narrow special-interest 
tax breaks, as well as other provisions that supposedly will raise 
revenue to offset the corporate tax incentives. Those offsets include 
provisions for outsourcing IRS debt collection, which I think is a bad 
idea, and creating additional paperwork for charitable contributions.
  Of course, the bill also includes desirable provisions. If they stood 
alone, or were part of a bill that otherwise was acceptable, I would be 
happy to vote for the legislation. And I did support the motion to 
recommit, which would have greatly improved the bill.
  If the motion to recommit had been adopted, the result would have 
been to provide an incentive to manufacturers to keep jobs in the 
United States by reducing corporate tax rates for domestic production 
by 3.5 percent.
  The motion to recommit also would have removed the provisions that 
provide incentives to move jobs overseas and the targeted special 
interest provisions. It would have provided better treatment for small 
businesses, farming cooperatives, and domestic manufacturers.
  At the same time, the motion to recommit would have retained such 
desirable provisions as those extending small business expensing, the 
research and development tax credit, and renewable energy credits as 
well as the same temporary foreign income repatriation provisions as 
those in the Senate-passed version of this legislation.
  Unfortunately, the motion to recommit was not successful, and so I 
cannot support this bill in its present form.
  I expect that a conference committee will be appointed to resolve 
differences between this bill and corresponding legislation passed by 
the Senate. I hope that this will result in a revised and improved 
version that deserves enactment.
  Mr. BALDWIN. Mr. Speaker, many months ago, Congress was tasked with 
replacing a $5 billion-a-year export subsidy for domestic manufacturers 
that was deemed illegal by the World Trade Organization. At the time, I 
believed this would be a golden opportunity for Congress to not only 
replace the subsidy, but also craft a bill that would provide 
incentives to domestic manufacturers in order to create more jobs and 
get America back to work. The bill on the floor today, H.R. 4520, is 
sad evidence that Congress has squandered this opportunity by letting 
the needs of special interests and lobbyists come before the needs of 
American families.
  Like the rest of America, my home State of Wisconsin has been hit 
hard by the loss of good paying manufacturing jobs over the last few 
years. Many of those workers who have found new jobs are typically 
working longer hours, working for less pay, working for fewer benefits, 
and working harder than ever to keep their families' budgets afloat. 
There are thousands of other Wisconsinites who have yet to find a job. 
By passing H.R. 4520 today, Congress will essentially turn its back on 
those who are struggling to maintain or find a job.
  The so-called American Jobs Creation Act is a 930-page bill that 
reads like a horror story to me. Simply replacing the export subsidy 
would have cost $50 billion over 10 years. Instead, House Republicans 
have brought to the floor a bill, riddled with special-interest 
provisions and favors, that costs $150 billion over 10 years. Instead 
of creating jobs, it creates tax cuts for cruise-ship operators, 
foreign dog-race gamblers, NASCAR track owners, whaling tribes, bow-
and-arrow makers, Chinese ceiling fan manufacturers, Oldsmobile 
dealers, and beer and liquor wholesalers.
  It is clear to me that our nation's economy is changing--and not for 
the better. As you may know, 2.7 million manufacturing jobs have been 
lost since the beginning of the Bush Administration. Many on the other 
side of this issue say that the outsourcing of information technology 
and service industry jobs to other countries like China and India is 
healthy for our economy even though it is estimated that 3.4 million 
service industry jobs alone will move offshore by 2015. This is 
outrageous. Instead of confronting and fixing these serious economic 
challenges, H.R. 4520 makes them worse.
  For example, H.R. 4250 provides Republican plan includes at least $30 
billion in additional tax incentives for companies to move overseas. 
Specifically, it includes a large loophole that allows corporations to 
outsource almost all of the work needed to make a product and still 
reap most of the benefits from a tax break for ``domestic production.'' 
For example, if Microsoft hires foreign computer programmers to produce 
parts of its software because of lower wage rates overseas, it will 
receive a rate reduction for the cost savings so long as the final 
computer program is assembled in the U.S. I find it reprehensible that 
Republicans would bring a bill to the floor that discourages companies 
from keeping jobs where they belong--right here in the United States.

[[Page 12858]]

  As I mentioned earlier, I believe that we need to give American 
companies the incentives they need to expand their businesses and 
create more good paying jobs. Unfortunately, tax breaks in H.R. 4250 
unfairly discriminate against smaller companies even though these small 
firms create 75 percent of all new U.S. jobs every year. In fact, 82 
percent of all profitable corporations will receive no tax benefit from 
this bill because they do not have incomes large enough to benefit from 
reducing the corporate tax rate to 32 from 35 percent. The rate 
reduction is essentially the core of this bill and I believe it makes 
no sense that subchapter S corporations, partnerships, farms, and other 
proprietorships engaged in manufacturing activities will receive no 
benefit from this reduction even though they are vital to the health of 
our nation's economy.
  I am supporting an alternative bill, H.R. 1769, which was authored by 
Representative Charles Rangel (D-NY). The bill provides tax incentives 
for companies to manufacture their products in America and provides no 
incentives for businesses to move offshore or utilize tax havens. It 
would also extend tax incentives and tax relief to small firms and 
farms--not just large corporations. Above any other reason, I support 
H.R. 1769 rather than the bill on the floor today because it puts our 
nation's best economic interests before special interests.
  In conclusion, the number of gifts and favors in this bill makes it 
clear that Christmas has indeed come early for many lobbyists in 
Washington, DC. They have succeeded in taking a bill that could have 
created thousands of jobs in the U.S. and converting it into a bill 
that no Member of Congress--and no American worker--should be proud of. 
I urge the House to reject the American Jobs Creation Act of 2004 and 
bring to the floor a bill that truly creates American jobs now and well 
into the future.
  Mr. BLUMENAUER. Mr. Speaker, there is no more fitting counterpoint to 
the Reagan legacy than what we are seeing here today. Ronald Reagan was 
President during one of Congress's most significant tax 
accomplishments--The Tax Reform Act of 1986. It truly was tax reform. 
It made the tax system more fair, less complicated, and reduced 
governmental distortion of fundamental economic decisions by reducing 
categories of taxation. There was at least some nod towards maintaining 
a balance between resources and requirements.
  Today's bill, H.R. 4520, is the antithesis of reform, making the tax 
code more complex while ignoring fiscal realities. Some provisions are 
just downright cynical. The Republican leadership was forced to 
withdraw an invitation for churches to break the law and to violate the 
fundamental principle of separation of church and State three times 
every election year.
  This bill represents a troubling breakdown of the legislative 
process, illustrating how far the Ways and Means Committee has fallen 
from its previous reputation for bipartisanship and cooperation in 
crafting tax policy. This measure is a political grab-bag for 
lobbyists. Good legislation has been taken hostage by adding on 
provisions to ``buy'' votes for passage. We will then roll the 
political dice and let the chips fall where they may.
  At a time of exploding deficits, when there's a battle over 
adequately funding our Nation's infrastructure which would put tens of 
thousands of people to work everyday, we're spending at least $34 
billion, but realistically up to $180 billion over the next 11 years, 
if supposedly temporary provisions are extended.
  The saddest aspect of this legislation is not a lack of fiscal 
responsibility or an abnegation of sound tax policy. This bill signals 
a surrender; not just by the leadership, but by Members of Congress, in 
the struggle to be meaningful, responsible policy makers. This cannot 
be foisted off on the inability of one committee chairman to manage the 
committee inconsistent with its historic role and achievements. It's 
not merely his failure. It's not just the failure of the majority 
leadership to be able to have the committee function and have a set of 
comprehensive objectives that meet the needs of the country. A vote of 
support on H.R. 4520 is our failure as a Congress.
  Mr. MATSUI. Mr. Speaker, I rise today in strong opposition to H.R. 
4520. Let me be clear--I support enacting legislation that would bring 
the United States into compliance with its WTO obligations and lead to 
the removal of the millions of dollars in sanctions that are hurting 
farmers and business across America. However, I cannot support a bill 
that provides over $250 million in corporate tax cuts over 10 years--
during a time when our nation is experiencing record deficits.
  Mr. Speaker, this year, the United States is expected to incur record 
deficits of over $450 billion. Over the next 10 years, the nation's 
debt is expected to grow by more than $2.5 trillion! If there ever was 
a time when Congress should be promoting fiscal responsibility--now is 
that time.
  Mr. Speaker, the bill before us today would add hundreds of billions 
of dollars to our nation's deficit over the next ten years. The 
official cost of this bill is $34 billion. However, this estimate 
severely underestimates the true, long-term cost of the bill. The 
legislation includes numerous budget gimmicks--such as phasing in some 
of the major tax cuts and scheduling other tax cuts to expire after 
only a few years. In fact, when these budget gimmicks are removed, the 
true long-term cost of the bill is more than $250 billion!
  Mr. Speaker, it is important to consider what the American people are 
getting for a bill that would add hundreds of billions of dollars to 
our nation's deficit. Unfortunately, rather than addressing critical 
national priorities--such as protecting Social Security and Medicare, 
providing incentives for the creation of U.S. jobs, or promoting 
affordable and accessible health care--this bill would provide billions 
of dollars in tax cuts to special interests and corporations.
  Mr. Speaker, almost two-thirds of America's corporations paid no 
federal taxes from 1996 to 2000, according to a study by the General 
Accounting Office. Given these figures, I cannot understand why we 
would not take the money raised by repealing our WTO-inconsistent tax 
provisions and use these funds to address America's critical 
priorities--such as paying down the national debt to protect Social 
Security and Medicare, promoting U.S. jobs, or providing for affordable 
and accessible health care.
  Mr. Speaker, we are a nation at war. We have deficits so large that 
international organizations like the IMF are warning that the 
continuation of our fiscal policies threaten to hurt not just the U.S. 
economy, but the global economy. This is no time to be giving special 
interests and corporations hundreds of billions in tax cuts. Mr. 
Speaker, the legislation under consideration today is a stark 
reflection of the differences in priorities and values that many of us 
have with the current tax and economic agenda of the majority. I 
strongly encourage my colleagues to vote ``no'' on this bill.
  Mr. SANDLIN. Mr. Speaker, I rise today to claim a victory for Texans, 
but I remain uncertain that this bill is a victory for Americans or 
American jobs.
  For Texans, I am pleased that after a great many months of work and 
much discussion, this legislation finally returns some fairness to our 
nation's tax code that had been missing for almost twenty years. Since 
1986, some 54 million American taxpayers--almost 20% of our nation's 
population--have been denied the ability to deduct the state tax burden 
they bear from their income solely because the seven states where they 
live rely only on a retail sales tax to meet their needs.
  Mr. Speaker, as a consequence of the reinstatement of the 
deductibility of sales tax provided in this bill, the taxpayers in my 
home state of Texas will save almost a billion dollars from their 
federal income tax burden in this year alone. That works out to around 
$300 in federal tax savings for every family in Texas, and, Mr. 
Speaker, that's a good thing. This bill is not.
  While I am pleased that this legislation provides 22 million Texans 
with the ability to deduct their state tax burden from their income, I 
am disappointed that Chairman Thomas's provision only allows Texans 
this benefit for two years. In the Ways and Means Committee on Monday, 
in the Rules Committee this morning, and in discussions over the past 
several weeks, I have insisted that Texans and the 42 million other 
Americans who live in states with a retail sales tax and without a 
state income tax deserve better than temporary equality. I have 
insisted that the deductibility of sales tax payments be made 
permanent.
  If the deductibility of sales tax was good tax policy before 1986 and 
it is good tax policy for the next two years, then it appears clear to 
me that the ability to deduct sales tax payments is good tax policy on 
a permanent basis. The citizens of Florida, Nevada, South Dakota, 
Washington, Wyoming, and Texas have for too long borne a 
disproportionate share of the federal tax burden. That is not fair. 
That is not American.
  While I wish that the deduction had been made permanent and made more 
generous, I am pleased that this bill at least rectifies an obvious 
inequity and reinstates the deductibility of sales tax payments, 
however temporarily.
  However, Mr. Speaker, the good news for Texans is tempered by what is 
a terribly flawed bill. A wise man once said, ``There are

[[Page 12859]]

two things you never want to see made: legislation and sausage.'' After 
witnessing the development of this bill for the past two years, I am 
convinced that he was right.
  Mr. Speaker, the legislation before us today takes a $40 million 
problem and purports to solve it with $150 billion. In doing so, it 
passes on at least $34 billion in debt to the American people--to our 
children and grandchildren. I say that it adds ``at least'' $34 
billion, because the bill is riddled with budget gimmicks such as 
delayed provisions and sunsets that obscure the true effect of this 
bill on the national debt. It is estimated that without these gimmicks 
the true cost of this bill could be as much as $300 billion over ten 
years--that comes out to $1,000 in corporate tax breaks for every man, 
woman and child in this country.
  As a Blue Dog, Mr. Speaker, the continuing glut of deficit spending 
that we have witnessed in the past few years is of great concern to me 
and to my constituents. Potentially adding $300 billion to the national 
debt to solve a $40 billion problem--a problem that the Senate has 
proven can be solved without adding a penny to the debt--is a tragic 
breach of faith with the people who sent us to this House, whose best 
interests we are supposed to be representing. Adding $1,000 to the 
``debt tax'' owed by every man, woman and child is simply bad tax 
policy, not to mention bad financial policy for the generations to come 
who will have to pay for this bill.
  Mr. Speaker, this bill has some good provisions. Texans and others 
need to be treated fairly under our tax code; they need the ability to 
deduct their state tax burden, just as other Americans have the last 18 
years. This bill allows that, and that's a good thing. Mr. Speaker, our 
nation's corporations thrive on their capacity to innovate. Innovation 
is driven by their ability to invest in research and development, and 
this bill extends the very important R&D tax credit that drives the 
innovation that makes America's corporations the envy of the world. 
That's a good thing.
  Mr. Speaker, this bill fixes the problem for which U.S. companies are 
being subjected to international trade sanctions. That repair will take 
a significant burden off the backs of our nation's exporters and once 
again enable them to compete effectively around the world. Finally, Mr. 
Speaker, the bill reduces the tax rate for American manufacturers, 
which frees up necessary capital to continue to build their business 
and keep American business on its best game. These are good things, to.
  However, Mr. Speaker, while those provisions may be good for American 
business, for American taxpayers, and for American workers, the vast 
majority of the 450-page bill is so larded with special interest 
corporate giveaways, that it gives the term ``pork barrel'' a bad name. 
I for one have never been whaling, but I am no sure why native Alaskan 
subsistence whalers need a tax break. But of one thing I am absolutely 
certain, my children and grandchildren should not have to pay for it.
  Mr. PAUL. Mr. Speaker, I will vote for H.R. 4520 today because the 
tax cuts contained in the bill outweigh the unfortunate but inevitable 
subsidies also included. I promise my constituents that I will vote for 
all tax cuts and against all new spending. So when faced with a bill 
that contains both, my decision is based on whether the bill cuts taxes 
overall, i.e. whether its ultimate impact will be to reduce or increase 
federal revenues. This legislation does reduce revenues, and therefore 
takes a small step towards reducing the size of the federal government. 
So while I certainly object to some parts of the bill, especially the 
tobacco bailout, I do support tax cuts.
  My biggest concern with the bill, however, is not based on its 
contents. I object to the process underlying the bill and the political 
reason for which it was written. This bill is on the floor for one 
reason and one reason only: the World Trade Organization demanded that 
we change our domestic tax law. Since America first joined the WTO in 
1994, Europe has objected to how we tax American companies on their 
overseas earnings. The EU took its dispute to the WTO grievance board, 
which voted in favor of the Europeans. After all, it's not fair for 
high-tax Europe to compete with relatively low tax America; the only 
solution is to force the U.S. to tax its companies more. The WTO ruling 
was clear: Congress must change American tax rules to comply with 
``international law.''
  Sadly, Congress chose to comply. We scrambled to change our corporate 
tax laws in 2001, but failed to appease the Europeans. They again 
complained to the WTO, which again sided with the EU. So we're back to 
the drawing board, working overtime to change our domestic laws to 
satisfy the WTO and the Europeans.
  This outrageous affront to our national sovereignty was of course 
predictable when we joined the WTO. During congressional debates we 
were assured that entry into the organization posed no threat 
whatsoever to our sovereignty. But this was nonsense. A Congressional 
Research Service report was quite clear about the consequences of our 
membership: ``As a member of the WTO, the United States does commit to 
act in accordance with the rules of the multi-lateral body. It is 
legally obligated to insure that national laws do not conflict with WTO 
rules.'' With the Europeans and the WTO now telling us our laws are 
illegal and must be changed, it's hard to imagine a more blatant loss 
of American sovereignty.
  The bill does cut taxes overall, and for that reason I will vote in 
favor of it. Any legislation that results in less money being sent to 
the black hole that is the federal Treasury is worth supporting. I 
especially support the provision that allows Texans (and citizens of 
other states that do not have an income tax) to deduct state sales 
taxes, and will vote yes accordingly.
  Mr. CAMP. Mr. Speaker, I rise today in strong support of H.R. 4520, 
the American Jobs Creation Act.
  Mr. Speaker, the bill before us today is about creating American jobs 
and making U.S. manufacturers more competitive in the world 
marketplace. To accomplish these core objectives we need to pass 
legislation that reduces the high tax rate U.S. manufacturers are 
forced to pay. Many would be surprised to learn that the U.S. has the 
second highest corporate tax burden at 40 percent, of any developed 
nation, just two percentage points below Japan. While the Republican 
Congress has done much to lower individual tax rates, it is also 
important to pass legislation that helps American employers better 
compete with Irish companies that have a 12.5 percent tax rate, Korean 
businesses that have a 29.7 percent rate, and British companies that 
incur a 30 percent tax rate. Although the United States leads the world 
in terms of productivity and efficiency, we need to begin to erase the 
serious disadvantages our tax code places on our companies.
  By passing this bill today, we will be on our way to stopping another 
tariff increase imposed by the European Union on U.S. exports. On June 
1, the EU increased the retaliatory tariff another percentage point to 
eight percent on American goods. If Congress fails to address this 
issue, the EU will continue to tack on another tariff each month until 
we act. Tariffs on American exports could go as high as 17 percent. 
Every one of our districts will feel the effects of the EU's actions. 
Products on the wide-ranging EU sanctions list range from agriculture, 
iron and steel, timber, textiles, to machinery. Imagine a 17 percent 
tax on U.S. exports! This would amount to a $4 billion bill that the 
American people would ultimately pay every time they went to the 
grocery store or mall.
  If we do nothing and let the tariffs grow to the full 17 percent, 
American companies will not be able to hire new workers, expand 
operations, make new investments, and remain viable in the marketplace. 
The bill before us today will make the needed adjustments to our 
international tax laws plus give our U.S. manufacturers overdue tax 
relief, and lift the onerous tariffs on American products.
  I urge my colleagues to vote for this critically important jobs bill. 
If you want to help the U.S. manufacturing sector grow and our economy 
to continue to expand, vote for this bill. By doing nothing, we risk 
crippling our robust new economy and endanger American job creation.
  Mr. HOLT. Mr. Speaker, I rise in opposition to this tax bill which is 
full of giveaways to special interests. I wanted to support this bill. 
I support an across-the-board corporate rate reduction for income from 
U.S. manufacturing activities so that more manufacturing jobs can be 
created here in the United States. I am also a strong supporter of the 
R&D tax credit because it is an investment in the future and will keep 
our economy strong over the longterm.
  However, this bill is full of items that have nothing to do with job 
creation or long-term investment in research.
  This bill is a tax break for special interests. Do we really need a 
special tax loophole for manufactures of fishing tackle boxes? Or a tax 
break to benefit makers of sonar devices used for fishing. As an 
outdoorsman, I support fishing but we don't need a tax break to do it.
  Many of my constituents enjoy target shooting with bow and arrows but 
do the makers of bow and arrows really need the tax break that this 
bill provides?
  Further, the bill continues the Republicans' attack on the 
environment. In this bill is a tax break for whaling and a tax break to 
benefit landowners who sell timber from their property.
  Also in this bill is a provision that isn't even tax policy, that is 
the tobacco ``buyout''. I can

[[Page 12860]]

understand helping small tobacco farmers, however this bill only helps 
big tobacco corporations. The provisions of this bill will line their 
pockets with billions of dollars.
  If the current quota system is eliminated, as proposed in the FSC 
bill, the price of tobacco will collapse. The minimum drop that can be 
expected in 50 cents per pound of tobacco--roughly the current amount 
that goes for rent to quota owners. As the U.S. price drops, foreign 
producers will lower their prices too. Falling prices will drive small 
tobacco farmers off of their land, while enriching Big Tobacco.
  U.S. tobacco manufacturers intend to purchase 450 million pounds of 
domestic tobacco this year. At a discount of 50 cents per pound, the 
immediate savings is $225 million. But this is just a minimum estimate. 
According to a USDA economist, factoring in prices changes for both 
domestic and foreign tobacco, the end of the quota is worth $15 billion 
to the tobacco industry over 14 years.
  Cigarette manufacturers can take this entire windfall as profit or 
use part of it to lower prices, addicting more children and killing 
more Americans. It is no surprise that leading public health groups 
consider this proposal an unmitigated disaster.
  The list of special interest tax breaks goes on. If that is not bad 
enough the bill once again hurts the future generations of Americans by 
adding at least $34 billion in debt that will have to be paid back by 
our children. The legislation in the other body was at least revenue 
neutral.
  More tax cuts of this sort will not only jeopardize critical public 
services now, but they will also hurt Americans well into the future. 
Massive deficits create large debt and will create high interest 
payments that will crowd out spending on public investments for future 
generations. Moreover, these deep deficits threaten to increase 
interest rates in the future--making it harder for Americans to buy 
homes and afford higher education and making it harder for businesses 
to raise capital.
  The President is pretending that we can have war without sacrifice. 
Eventually, someone has to pay. I believe Chairman Greenspan's recent 
comments are appropriate: ``Our fiscal prospects are, in my judgment, a 
significant obstacle to long-term stability because the budget deficit 
is not readily subject to correction by market forces that stabilize 
other imbalances. The free lunch has still to be invented.''
  Mr. Speaker, today we should be passing a revenue neutral bill that 
helps manufacturing here in the United States, discourages sending jobs 
overseas and invests in research and development for our future.
  Ms. GINNY BROWN-WAITE of Florida. Mr. Speaker, I rise today to thank 
the honorable gentleman from California for his hard and patient work 
in getting the American Jobs Creation Act out of committee and to the 
floor.
  It has been a difficult process I know, but with the passage of this 
bill we will add to the 1.1 million jobs this economy has created in 
the last 9 months.
  I want to say that again: We have added 1.1 million new jobs in the 
last 9 months. And still the Democrats are talking about the worst 
economy since the great Depression.
  I call their strategy Snipe and Gripe. Snipe at the heels of the 
leaders who are making progress and gripe about the economic recovery.
  Theirs is a deliberate effort to talk down this economic recovery and 
slow its growth.
  Our economy took a blow 2\1/2\ years ago, but Americans are fighting 
back. Thanks to the policies of this President and this Republican 
Congress, businesses are putting people back to work and our economy is 
growing at rates not seen in 20 years.
  I want to take a second to thank Chairman Thomas for cutting the 
corporate tax rate from 35 percent to 32 percent permanently. With this 
and other tax changes in the bill, American companies will be more 
competitive, more able to compete internationally, and, to the dismay 
of the Democrats, able to add even still more jobs.
  As importantly, this bill recognizes the inequity taxpayers of states 
without income taxes face under current law. Finally, residents of 
Florida will be allowed to deduct their state sales tax from federal 
taxable income.
  By including the sales tax deductibility, even temporarily, this bill 
brings fairness and relief to the residents of Florida.
  It is only with dogged determination that we have been able to move 
this legislation and bring a greater measure of fairness to the tax 
code.
  Ms. WATSON. Mr. Speaker, I rise today to voice my strong opposition 
to the Thomas ``American Jobs Exportation Act'' that provides billions 
of new tax breaks for offshore operations at the expense of 
exacerbating our Nation's deficits.
  At the same time, I am extremely disappointed that millions of U.S. 
producers, farmers, and small business owners will be left behind. In 
my Los Angeles district, where the entertainment industry is the main 
driving force of our local economy, hundreds of thousands of workers 
are hurt by the phenomenon of runaway production, or the practice of 
filming overseas for pure economic reasons. The Senate JOBS Act has 
taken a serious look at this issue and included provisions to encourage 
domestic film production through tax write-offs. I regret that this was 
stripped out of the House bill, and, with the closed rule we are 
operating under today, no member could offer an amendment to address 
this devastating issue.
  I support the underlying goals of what we are attempting today, which 
is to replace FSC/ETI export incentives with help for U.S. 
manufacturers. But H.R. 4520 has turned into a big corporate gift that 
keeps on giving, an overstuffed pinata for lobbyists. Millions of 
workers, such as the creative workforce hit hard by the outsourcing of 
film production, are altogether ignored.
  H.R. 4520 is an outrageous bill not only because it fails to 
adequately address the plight of U.S. workers, but it helps move U.S. 
investment and jobs abroad. There is little wonder then that a modest 
provision to help keep entertainment jobs in the United States was 
completely discounted. While I strongly urge my colleagues to oppose 
H.R. 4520, I hope better legislation will be negotiated in conference.
  Mr. GRAVES. Mr. Speaker, I rise today in support of the tobacco 
buyout provision that has been added to H.R. 4520, the American Jobs 
Creation Act. This provision offers great relief to the hard working 
tobacco farmers of Missouri and the Nation.
  The American tobacco farmer has been financially pressed for decades 
due to outdated government regulations. This bill provides hope to many 
tobacco farmers and quota owners nationwide that face the increased 
challenges to their operations.
  This tobacco provision provides $9.6 billion in compensation to quota 
holders and tobacco growers over 5 years. This ends a depression-era 
program and introduces free market reforms to tobacco farming.
  Many may not realize Missouri's contribution to the tobacco industry, 
but our state alone in 2000 contributed roughly $2 million in annual 
sales. While tobacco farmers may be small in numbers, their 
contribution should not go unnoticed.
  I want to commend Chairman Thomas and House leadership for working to 
assist Missouri tobacco farmers and farmers across the Nation. I am 
pleased by my colleagues' efforts to include the tobacco provision in 
the American Jobs Creation Act and I look forward to supporting this 
legislation.
  Mr. ROGERS of Michigan. Mr. Speaker, over the last 15 years, the 
Archery products industry has seen a tremendous growth in its sport due 
to increased deer populations and expanded hunting seasons. 
Unfortunately, that expansion has reached a plateau and we are seeing 
decreasing numbers of bow hunters and sportsmen nationwide.
  This problem threatens not only our industry but the future of our 
sport as well. The archery industry tax adopted in the early 1970's has 
accomplished many of its original goals, but has shown a limitation 
that keeps the sport from growing in the future.
  I believe that it is once again time for the leaders in the archery 
industry to step forward and reform the archery excise tax to meet the 
demands of the next century. This reform must protect the archery 
industry by benefiting the next generation of sportsmen and enhancing 
our heritage.
  The current tax represents an unfair burden shared by only a few 
manufacturers in the larger archery industry. While you cannot fault 
the leaders who drafted this legislation in the early 1970's, since 
then, the sport has created dozens of new industries and products. 
Unfortunately, the tax has not changed to keep up with the changing 
market in archery products. Today, only a few of the manufacturers of 
archery products pay the tax, most products used in archery hunting 
today have never paid the tax, and with the legislation passing today, 
that failed legacy will continue. It is time to create a program that 
will accomplish the goal of expanding the sport and sharing the tax 
among the broad variety of archery product industries.
  When the legislation to tax the archery industry was enacted in the 
1970's, one-half of the revenue was to be used for purposes of the 
regular Federal Aid in Wildlife Restoration Program and one-half could 
be used for the acquisition and development of public archery ranges 
and for courses. Unfortunately, budget constraints have limited the 
amount of money state agencies had been able to expend on development 
of ranges.

[[Page 12861]]

  Reform should mandate that 20 percent of the funding be directed to 
``wildlife heritage, skills and education programs.'' This would 
include tremendous programs like ``Becoming an Outdoors Woman'' and 
``Archery in Schools.''
  The current system taxes domestically made arrows, bows and equipment 
leaving much of the current industry untaxed and making the current 
structure a heavy burden on the consumers and a few manufacturers.
  Reform should clarify the definition of arrows and make several 
additional changes to the bow and arrow excise tax provisions in 
current law. Under current law, imported arrows are not taxed. To 
remedy this, a 3-5 percent excise tax would be imposed on the first 
sale of a shaft suitable for making an arrow. Since many arrow shaft 
manufacturers also sell arrows, a 3-5 percent excise tax would be 
imposed on the first sale of an arrow unless the excise tax has already 
been collected on the arrow shaft used in making the arrow. In 
addition, a 3-5 percent tax will be levied on other industry items 
including: tree stands, releases, quivers, hunting blinds, archery 
targets, scents and sprays. The list of taxable items, among others, 
already includes bow handles, bow levels, bow stabilizers, camouflaged 
bow covers, kisser buttons, and string peeps.
  This proposal never received serious consideration from Congress and 
was dismissed by the proponents of the current proposal as too 
complicated and too troublesome to consider. Unfortunately, the 
proposal in H.R. 4520 is a half step that will force the State 
agencies, wildlife groups, and the archery industry to come back to the 
Congress for a real reform that will promote the sport of archery, 
enhance our nation's wildlife resources and protect the archery 
industry.
  Mrs. MALONEY. Mr. Speaker, I rise today in opposition to this 
legislation. There is no question that Congress must act promptly to 
repeal the tax breaks for U.S. exporters. The EU sanctions are 
increasing and are unfairly hurting sectors of the economy that do not 
benefit from the tax advantage.
  But this is the wrong way to do it. This bill--with all the special 
interest tax breaks that have been loaded onto it--would hurt the 
economy more than doing nothing. It abolishes the tax subsidies for 
exporters but replaces them with an array of special interest tax 
breaks. We have an opportunity here for reform that would help our 
manufacturing sector while responding to the UE sanctions. We should 
not affirmatively do harm by passing this bill instead.
  I am particularly concerned that this bill substantially increases 
incentives to move American jobs offshore--by 40 million dollars, 
according to one estimate. How can we encourage companies to move jobs 
offshore at a time when the unemployment rate in New York City is at 
8.1 percent and the national rate is 5.6 percent? Who are we helping 
here? Certainly not the American worker.
  Unfortunately, the Majority has denied us the opportunity to vote on 
the Rangel substitute to this misguided legislation. The Rangel 
alternative would strike provisions that promote shipping jobs 
overseas, add provisions to create more jobs in the United States by 
giving tax relief to American manufacturing including small business 
and farmers, strike narrow special interest provisions, and is fully 
paid for. And the Rangel substitute would close tax loopholes for 
corporations and individuals that move abroad to avoid paying taxes. By 
limiting debate on these critical issues, the Republicans do a 
disservice to the American people.
  I strongly urge my colleagues to vote against this legislation.
  Ms. ESHOO. Mr. Speaker, I'm very disappointed that I can't support 
this legislation because there are parts of the bill that I do support 
and also because American industry needs to have a resolution to avoid 
debilitating trade sanctions and tariffs.
  I support the bill's extension of the Research and Development tax 
credit which is set to expire at the end of this month. I also strongly 
support the inclusion of incentives for corporations to repatriate 
their overseas profits which would stimulate the investment of hundreds 
of millions of dollars in our domestic economy. I've been a strong 
advocate of both of these provisions which were included in the 
alternative offered by Representative Rangel. In fact, the alternative 
includes language on repatriation of overseas profits that would 
provide even greater benefits than the bill before us.
  Unfortunately, with this bill, what began as an opportunity to 
correct the tax code and avert retaliatory tariffs has turned into a 
special interest handout for everything from tobacco to tackle boxes. 
None of the special interest provisions added have anything to do with 
amending international tax law but are merely an attempt to buy votes 
for this misguided bill. The bill also discriminates against small 
businesses, excluding them from many of the tax breaks granted to large 
corporation.
  Not only does this bill not do enough to create American jobs, as the 
title claims, but it adds $34 billion to our nation's deficit at a time 
when the Administration and the Majority in Congress are underfunding 
important priorities such as education, health care, and antiterrorism.
  In contract to this bill, Representative Rangel's alternative is a 
responsible approach and I'm pleased to vote for it. Instead of a $34 
billion price tag, the alternative is revenue neutral; every provision 
in the bill is offset with other revenue. In addition to the Research 
and Development tax credit extension and reduced taxes on repatriated 
profits, the proposal also provides tax relief for domestic 
manufacturers--including small businesses and farms--to promote job 
growth here in America and boost our economy.
  I'm hopeful that the conference committee will report back to the 
House a bill that addresses the necessary reform of international tax 
law without creating special interest loopholes and exacerbating our 
record national deficits.
  The SPEAKER pro tempore. All time for debate has expired.
  Pursuant to House Resolution 681, the previous question is ordered on 
the bill, as amended.
  The question is on the engrossment and third reading of the bill.
  The bill was ordered to be engrossed and read a third time, and was 
read the third time.


                Motion to Recommit Offered by Mr. Rangel

  Mr. RANGEL. Mr. Speaker, I offer a motion to recommit.
  The SPEAKER pro tempore. Is the gentleman opposed to the bill?
  Mr. RANGEL. Yes, Mr. Speaker.
  The SPEAKER pro tempore. The Clerk will report the motion to 
recommit.
  The Clerk read as follows:

       Mr. Rangel moves to recommit the bill H.R. 4520 to the 
     Committee on Ways and Means with instructions to report the 
     same back to the House forthwith with the following 
     amendments:

       Strike all after the enacting clause other than title VII 
     and insert before title VII the following:

     SECTION 1. SHORT TITLE; ETC.

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

Sec. 1. Short title; etc.

      TITLE I--ELIMINATE TRADE SANCTIONS AND REDUCE CORPORATE AND 
             NONCORPORATE TAX RATES FOR DOMESTIC PRODUCERS

Sec. 101. Repeal of exclusion for extraterritorial income.
Sec. 102. Deduction relating to income attributable to United States 
              production activities.

                 TITLE II--ADDITIONAL BUSINESS BENEFITS

                  Subtitle A--Small Business Expensing

Sec. 201. 2-year extension of increased expensing for small business.

          Subtitle B--S Corporation Reform and Simplification

Sec. 211. Members of family treated as 1 shareholder.
Sec. 212. Increase in number of eligible shareholders to 100.
Sec. 213. Expansion of bank S corporation eligible shareholders to 
              include IRAs.
Sec. 214. Disregard of unexercised powers of appointment in determining 
              potential current beneficiaries of ESBT.
Sec. 215. Transfer of suspended losses incident to divorce, etc.
Sec. 216. Use of passive activity loss and at-risk amounts by qualified 
              subchapter S trust income beneficiaries.
Sec. 217. Exclusion of investment securities income from passive income 
              test for bank S corporations.
Sec. 218. Treatment of bank director shares.
Sec. 219. Relief from inadvertently invalid qualified subchapter S 
              subsidiary elections and terminations.
Sec. 220. Information returns for qualified subchapter S subsidiaries.
Sec. 221. Repayment of loans for qualifying employer securities.

  Subtitle C--Toll Tax on Excess Qualified Foreign Distribution Amount

Sec. 231. Toll tax on excess qualified foreign distribution amount.

[[Page 12862]]

              TITLE III--EXTENSION OF EXPIRING PROVISIONS

Sec. 301. Allowance of nonrefundable personal credits against regular 
              and minimum tax liability.
Sec. 302. Extension of research credit.
Sec. 303. Extension of credit for electricity produced from certain 
              renewable resources.
Sec. 304. Indian employment tax credit.
Sec. 305. Work opportunity credit.
Sec. 306. Welfare-to-work credit.
Sec. 307. Certain expenses of elementary and secondary school teachers.
Sec. 308. Extension of accelerated depreciation benefit for property on 
              Indian reservations.
Sec. 309. Charitable contributions of computer technology and equipment 
              used for educational purposes.
Sec. 310. Expensing of environmental remediation costs.
Sec. 311. Availability of medical savings accounts.
Sec. 312. Taxable income limit on percentage depletion for oil and 
              natural gas produced from marginal properties.
Sec. 313. Qualified zone academy bonds.
Sec. 314. District of Columbia.
Sec. 315. Extension of certain New York liberty zone bond financing.
Sec. 316. Disclosures relating to terrorist activities.
Sec. 317. Disclosure of return information relating to student loans.
Sec. 318. Cover over of tax on distilled spirits.
Sec. 319. Joint review of strategic plans and budget for the Internal 
              Revenue Service.
Sec. 320. Parity in the application of certain limits to mental health 
              benefits.
Sec. 321. Combined employment tax reporting project.
Sec. 322. Clean-fuel vehicles.

TITLE IV--PERMANENT DEDUCTION FOR STATE AND LOCAL GENERAL RETAIL SALES 
                                 TAXES

Sec. 401. Deduction of State and local general sales taxes in lieu of 
              State and local income taxes.

  TITLE V--PROVISIONS TO PREVENT TAX AVOIDANCE THROUGH INDIVIDUAL AND 
                         CORPORATE EXPATRIATION

                  Subtitle A--Individual Expatriation

Sec. 501. Imposition of mark-to-market tax on individuals who 
              expatriate.

                   Subtitle B--Corporate Expatriation

Sec. 511. Prevention of corporate expatriation to avoid United States 
              income tax.

                    TITLE VI--OTHER REVENUE OFFSETS

        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. Regulation of individuals practicing before the department of 
              treasury.
Sec. 615. Penalty for promoting abusive tax shelters.
Sec. 616. Statute of limitations for taxable years for which required 
              listed transactions not reported.
Sec. 617. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.
Sec. 618. Authorization of appropriations for tax law enforcement.
Sec. 619. Penalty for aiding and abetting the understatement of tax 
              liability.
Sec. 620. Study on information sharing among law enforcement agencies.

            Subtitle B--Enron-Related Tax Shelter Provisions

Sec. 631. Limitation on transfer or importation of built-in losses.
Sec. 632. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.
Sec. 633. Repeal of special rules for FASITs.
Sec. 634. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 635. Expanded authority to disallow tax benefits under section 
              269.
Sec. 636. Modification of interaction between subpart F and passive 
              foreign investment company rules.

    Subtitle C--Restructuring of Incentives for Alcohol Fuels, Etc.

Sec. 641. Reduced rates of tax on gasohol replaced with excise tax 
              credit; repeal of other alcohol-based fuel incentives; 
              etc.
Sec. 642. Alcohol fuel subsidies borne by general fund.

               Subtitle D--Reduction of Fuel Tax Evasion

Sec. 651. Exemption from certain excise taxes for mobile machinery.
Sec. 652. Taxation of aviation-grade kerosene.
Sec. 653. Dye injection equipment.
Sec. 654. Authority to inspect on-site records.
Sec. 655. Registration of pipeline or vessel operators required for 
              exemption of bulk transfers to registered terminals or 
              refineries.
Sec. 656. Display of registration.
Sec. 657. Penalties for failure to register and failure to report.
Sec. 658. Collection from customs bond where importer not registered.
Sec. 659. Modifications of tax on use of certain vehicles.
Sec. 660. Modification of ultimate vendor refund claims with respect to 
              farming.
Sec. 661. Dedication of revenues from certain penalties to the highway 
              trust fund.
Sec. 662. Taxable fuel refunds for certain ultimate vendors.
Sec. 663. Two-party exchanges.
Sec. 664. Simplification of tax on tires.

    Subtitle E--Prevention of Tax Avoidance Through Treaty Shopping

Sec. 671. Denial of treaty benefits for certain deductible payments.
Sec. 672. Transfer price reduced by deflected tax haven income.

           Subtitle F--Additions to List of Taxable Vaccines

Sec. 681. Addition of vaccines against hepatitis A to list of taxable 
              vaccines.
Sec. 682. Addition of vaccines against influenza to list of taxable 
              vaccines.

                      Subtitle G--Other Provisions

Sec. 691. IRS user fees made permanent.
Sec. 692. Cobra fees.

      TITLE I--ELIMINATE TRADE SANCTIONS AND REDUCE CORPORATE AND 
             NONCORPORATE TAX RATES FOR DOMESTIC PRODUCERS

     SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

       (a) In General.--Section 114 of the Internal Revenue Code 
     of 1986 is hereby repealed.
       (b) Conforming Amendments.--
       (1)(A) Subpart E of part III of subchapter N of chapter 1 
     (relating to qualifying foreign trade income) is hereby 
     repealed.
       (B) The table of subparts for such part III is amended by 
     striking the item relating to subpart E.
       (2) The table of sections for part III of subchapter B of 
     chapter 1 is amended by striking the item relating to section 
     114.
       (3) The second sentence of section 56(g)(4)(B)(i) is 
     amended by striking ``or under section 114''.
       (4) Section 275(a) is amended--
       (A) by inserting ``or'' at the end of paragraph (4)(A), by 
     striking ``or'' at the end of paragraph (4)(B) and inserting 
     a period, and by striking subparagraph (C), and
       (B) by striking the last sentence.
       (5) Paragraph (3) of section 864(e) is amended--
       (A) by striking:
       ``(3) Tax-exempt assets not taken into account.--
       ``(A) In general.--For purposes of''; and inserting:
       ``(3) Tax-exempt assets not taken into account.--For 
     purposes of'', and
       (B) by striking subparagraph (B).
       (6) Section 903 is amended by striking ``114, 164(a),'' and 
     inserting ``164(a)''.
       (7) Section 999(c)(1) is amended by striking 
     ``941(a)(5),''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to transactions occurring after December 31, 2004.
       (2) Binding contracts.--The amendments made by this section 
     shall not apply to any transaction in the ordinary course of 
     a trade or business which occurs pursuant to a binding 
     contract--
       (A) which is between the taxpayer and a person who is not a 
     related person (as defined in section 943(b)(3) of such Code, 
     as in effect on the day before the date of the enactment of 
     this Act), and
       (B) which is in effect on September 17, 2003, and at all 
     times thereafter.
       (d) Revocation of Section 943(e) Elections.--

[[Page 12863]]

       (1) In general.--In the case of a corporation that elected 
     to be treated as a domestic corporation under section 943(e) 
     of the Internal Revenue Code of 1986 (as in effect on the day 
     before the date of the enactment of this Act)--
       (A) the corporation may revoke such election, effective as 
     of the close of December 31, 2004, and
       (B) if the corporation does revoke such election--
       (i) such corporation shall be treated as a domestic 
     corporation transferring (as of December 31, 2004) all of its 
     property to a foreign corporation in connection with an 
     exchange described in section 354 of the Internal Revenue 
     Code of 1986, and
       (ii) no gain or loss shall be recognized on such transfer.
       (2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall 
     not apply to gain on any asset held by the revoking 
     corporation if--
       (A) the basis of such asset is determined in whole or in 
     part by reference to the basis of such asset in the hands of 
     the person from whom the revoking corporation acquired such 
     asset,
       (B) the asset was acquired by transfer (not as a result of 
     the election under section 943(e) of such Code) occurring on 
     or after the 1st day on which its election under section 
     943(e) of such Code was effective, and
       (C) a principal purpose of the acquisition was the 
     reduction or avoidance of tax (other than a reduction in tax 
     under section 114 of such Code, as in effect on the day 
     before the date of the enactment of this Act).
       (e) General Transition.--
       (1) In general.--In the case of a taxable year ending after 
     the date of the enactment of this Act and beginning before 
     January 1, 2007, for purposes of chapter 1 of such Code, each 
     current FSC/ETI beneficiary shall be allowed a deduction 
     equal to the transition amount determined under this 
     subsection with respect to such beneficiary for such year.
       (2) Current fsc/eti beneficiary.--The term ``current FSC/
     ETI beneficiary'' means any corporation which entered into 
     one or more transactions during its taxable year beginning in 
     calendar year 2001 with respect to which FSC/ETI benefits 
     were allowable.
       (3) Transition amount.--For purposes of this subsection--
       (A) In general.--The transition amount applicable to any 
     current FSC/ETI beneficiary for any taxable year is the 
     phaseout percentage of the base period amount.
       (B) Phaseout percentage.--
       (i) In general.--In the case of a taxpayer using the 
     calendar year as its taxable year, the phaseout percentage 
     shall be determined under the following table:

                                                           The phaseout
      ``Years:                                           percentage is:
        2005................................................         80
        2006................................................         60
        2007 and thereafter.................................          0

       (ii) Special rule for fiscal year taxpayers.--In the case 
     of a taxpayer not using the calendar year as its taxable 
     year, the phaseout percentage is the weighted average of the 
     phaseout percentages determined under the preceding 
     provisions of this paragraph with respect to calendar years 
     any portion of which is included in the taxpayer's taxable 
     year. The weighted average shall be determined on the basis 
     of the respective portions of the taxable year in each 
     calendar year.
       (4) Base period amount.--For purposes of this subsection, 
     the base period amount is the aggregate FSC/ETI benefits for 
     the taxpayer's taxable year beginning in calendar year 2001.
       (5) FSC/ETI benefit.--For purposes of this subsection, the 
     term `FSC/ETI benefit' means--
       (A) amounts excludable from gross income under section 114 
     of such Code, and
       (B) the exempt foreign trade income of related foreign 
     sales corporations from property acquired from the taxpayer 
     (determined without regard to section 923(a)(5) of such Code 
     (relating to special rule for military property), as in 
     effect on the day before the date of the enactment of the FSC 
     Repeal and Extraterritorial Income Exclusion Act of 2000).
     In determining the FSC/ETI benefit there shall be excluded 
     any amount attributable to a transaction with respect to 
     which the taxpayer is the lessor unless the leased property 
     was manufactured or produced in whole or in significant part 
     by the taxpayer.
       (6) Special rule for farm and horticultural cooperatives.--
     Determinations under this subsection with respect to an 
     organization described in section 943(g)(1) of such Code, as 
     in effect on the day before the date of the enactment of this 
     Act, shall be made at the cooperative level and the purposes 
     of this subsection shall be carried out in a manner similar 
     to section 199(h)(2) of such Code, as added by this Act. Such 
     determinations shall be in accordance with such requirements 
     and procedures as the Secretary may prescribe.
       (7) Certain rules to apply.--Rules similar to the rules of 
     section 41(f) of such Code shall apply for purposes of this 
     subsection.
       (8) Coordination with binding contract rule.--The deduction 
     determined under paragraph (1) for any taxable year shall be 
     reduced by the phaseout percentage of any FSC/ETI benefit 
     realized for the taxable year by reason of subsection (c)(2) 
     or section 5(c)(1)(B) of the FSC Repeal and Extraterritorial 
     Income Exclusion Act of 2000.
       (9) Special rule for certain taxable years which include 
     December 31, 2004.--In the case of a taxable year which is 
     not a calendar year and which includes December 31, 2004, the 
     deduction allowed under this subsection to any current FSC/
     ETI beneficiary shall in no event exceed--
       (A) 100 percent of such beneficiary's base period amount, 
     reduced by
       (B) the aggregate FSC/ETI benefits of such beneficiary with 
     respect to transactions occurring during the portion of the 
     taxable year ending on December 31, 2004.

     SEC. 102. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED 
                   STATES PRODUCTION ACTIVITIES.

       (a) In General.--Part VII of subchapter B of chapter 1 
     (relating to itemized deductions for individuals and 
     corporations) is amended by adding at the end the following 
     new section:

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

       ``(a) In General.--There shall be allowed as a deduction an 
     amount equal to 10 percent of the qualified production 
     activities income of the taxpayer for the taxable year.
       ``(b) Phasein.--In the case of taxable years beginning in 
     2005, 2006, or 2007, subsection (a) shall be applied by 
     substituting for the percentage contained therein the 
     transition percentage determined under the following table:

      ``Taxable years                                    The transition
      beginning in:                                      percentage is:

        2005..................................................        3
        2006..................................................        6
        2007..................................................        9

       ``(c) Qualified Production Activities Income.--For purposes 
     of this section, the term `qualified production activities 
     income' means the product of--
       ``(1) the portion of the modified taxable income of the 
     taxpayer which is attributable to domestic production 
     activities, and
       ``(2) the domestic/worldwide fraction.
       ``(d) Determination of Income Attributable to Domestic 
     Production Activities.--For purposes of this section--
       ``(1) In general.--The portion of the modified taxable 
     income which is attributable to domestic production 
     activities is so much of the modified taxable income for the 
     taxable year as does not exceed--
       ``(A) the taxpayer's domestic production gross receipts for 
     such taxable year, reduced by
       ``(B) the sum of--
       ``(i) the costs of goods sold that are allocable to such 
     receipts,
       ``(ii) other deductions, expenses, or losses directly 
     allocable to such receipts, and
       ``(iii) a proper share of other deductions, expenses, and 
     losses that are not directly allocable to such receipts or 
     another class of income.
       ``(2) Allocation method.--The Secretary shall prescribe 
     rules for the proper allocation of items of income, 
     deduction, expense, and loss for purposes of determining 
     income attributable to domestic production activities.
       ``(3) Special rule for determining costs.--
       ``(A) For purposes of determining costs under clause (i) of 
     paragraph (1)(B), any item or service brought into the United 
     States shall be treated as acquired by purchase, and its cost 
     shall be treated as not less than its value in the United 
     States, determined immediately after it was brought into the 
     United States. A similar rule shall apply in determining the 
     adjusted basis of leased or rented property where the lease 
     or rental gives rise to domestic production gross receipts.
       ``(B) In the case of any property described in subparagraph 
     (A) that had been exported by the taxpayer for further 
     manufacture, the increase in cost (or adjusted basis) under 
     subparagraph (A) shall not exceed the difference between the 
     value of the property when exported and the value of the 
     property when brought back into the United States after the 
     further manufacture.
       ``(4) Modified taxable income.--The term `modified taxable 
     income' means taxable income computed without regard to the 
     deduction allowable under this section.
       ``(e) Domestic Production Gross Receipts.--For purposes of 
     this section--
       ``(1) In general.--The term `domestic production gross 
     receipts' means the gross receipts of the taxpayer which are 
     derived from--
       ``(A) any sale, exchange, or other disposition of, or
       ``(B) any lease, rental or license of,
     qualifying production property which was manufactured, 
     produced, grown, or extracted in whole or in significant part 
     by the taxpayer within the United States.
       ``(2) Special rules for certain property.--In the case of 
     any qualifying production property described in subsection 
     (f)(1)(C)--
       (A) such property shall be treated for purposes of 
     paragraph (1) as produced in significant part by the taxpayer 
     within the United

[[Page 12864]]

     States if more than 50 percent of the aggregate development 
     and production costs are incurred by the taxpayer within the 
     United States, and
       (B) if a taxpayer acquires such property before such 
     property begins to generate substantial gross receipts, any 
     development or production costs incurred before the 
     acquisition shall be treated as incurred by the taxpayer for 
     purposes of subparagraph (A) and paragraph (1).
       ``(f) Qualifying Production Property.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the term `qualifying production property' means--
       ``(A) any tangible personal property,
       ``(B) any computer software, and
       ``(C) any property described in paragraph (3) or (4) of 
     section 168(f), including any underlying copyright or 
     trademark.
     Subparagraph (C) shall not apply to any property with respect 
     to which records are required to be maintained under section 
     2257 of title 18, United States Code.
       ``(2) Exclusions from qualifying production property.--The 
     term `qualifying production property' shall not include--
       ``(A) consumable property that is sold, leased, or licensed 
     by the taxpayer as an integral part of the provision of 
     services,
       ``(B) oil or gas (or any primary product thereof),
       ``(C) electricity,
       ``(D) water supplied by pipeline to the consumer,
       ``(E) utility services, or
       ``(F) any property (not described in paragraph (1)(B)) 
     which is a film, tape, recording, book, magazine, newspaper, 
     or similar property the market for which is primarily topical 
     or otherwise essentially transitory in nature.
       ``(3) Special rule for noncorporate taxpayers.--In the case 
     of a taxpayer other than a corporation subject to tax under 
     section 11, the term `qualifying production property' only 
     includes--
       ``(A) agricultural or horticultural products, including 
     timber, and
       ``(B) other tangible personal property not described in 
     subparagraph (B) or (C) of paragraph (1) and not described in 
     section 1221(a)(3).
       ``(g) Domestic/Worldwide Fraction.--For purposes of this 
     section--
       ``(1) In general.--The term `domestic/worldwide fraction' 
     means a fraction (not greater than 1)--
       ``(A) the numerator of which is the value of the domestic 
     production of the taxpayer, and
       ``(B) the denominator of which is the value of the 
     worldwide production of the taxpayer.
       ``(2) Value of domestic production.--The value of domestic 
     production is the excess (if any) of--
       ``(A) the domestic production gross receipts, over
       ``(B) the cost of purchased inputs allocable to such 
     receipts that are deductible under this chapter for the 
     taxable year.
       ``(3) Purchased inputs.--
       ``(A) In general.--Purchased inputs are any of the 
     following items acquired by purchase:
       ``(i) Services (other than services of employees) used in 
     manufacture, production, growth, or extraction activities.
       ``(ii) Items consumed in connection with such activities.
       ``(iii) Items incorporated as part of the property being 
     manufactured, produced, grown, or extracted.
       ``(B) Special rule.--Rules similar to the rules of 
     subsection (d)(3) shall apply for purposes of this 
     subsection.
       ``(4) Value of worldwide production.--
       ``(A) In general.--The value of worldwide production shall 
     be determined under the principles of paragraph (2), except 
     that--
       ``(i) worldwide production gross receipts shall be taken 
     into account, and
       ``(ii) paragraph (3)(B) shall not apply.
       ``(B) Worldwide production gross receipts.--The worldwide 
     production gross receipts is the amount that would be 
     determined under subsection (e) if such subsection were 
     applied without any reference to the United States.
       ``(h) Definitions and Special Rules.--
       ``(1) United states.--For purposes of this section, the 
     term `United States' includes the Commonwealth of Puerto Rico 
     and any other possession of the United States.
       ``(2) Exclusion for patrons of agricultural and 
     horticultural cooperatives.--
       ``(A) In general.--If any amount described in paragraph (1) 
     or (3) of section 1385 (a)--
       ``(i) is received by a person from an organization to which 
     part I of subchapter T applies which is engaged in the 
     marketing of agricultural or horticultural products, and
       ``(ii) is allocable to the portion of the qualified 
     production activities income of the organization which is 
     deductible under subsection (a) (determined as if the 
     organization were a corporation if it is not) and designated 
     as such by the organization in a written notice mailed to its 
     patrons during the payment period described in section 
     1382(a),
     then such person shall be allowed an exclusion from gross 
     income with respect to such amount. The taxable income of the 
     organization shall not be reduced under section 1382 by the 
     portion of any such amount with respect to which an exclusion 
     is allowable to a person by reason of this paragraph.
       ``(B) Special rules.--For purposes of applying subparagraph 
     (A), in determining the qualified production activities 
     income of the organization under this section--
       ``(i) there shall not be taken into account in computing 
     the organization's modified taxable income any deduction 
     allowable under subsection (b) or (c) of section 1382 
     (relating to patronage dividends, per-unit retain 
     allocations, and nonpatronage distributions), and
       ``(ii) the organization shall be treated as having 
     manufactured, produced, grown, or extracted in whole or 
     significant part any qualifying production property marketed 
     by the organization which its patrons have so manufactured, 
     produced, grown, or extracted.
       ``(3) Special rules for partnerships and s corporations.--
     For purposes of this section, a partner's distributive share 
     of any partnership item shall be taken into account as if 
     directly realized by the partner. A rule similar to the rule 
     of the preceding sentence shall apply in the case of a 
     shareholder in an S Corporation.
       ``(4) Special rule for affiliated groups.--
       ``(A) In general.--All members of an expanded affiliated 
     group shall be treated as a single corporation for purposes 
     of this section.
       ``(B) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a), determined--
       ``(i) by substituting `50 percent' for `80 percent' each 
     place it appears, and
       ``(ii) without regard to paragraphs (2) and (4) of section 
     1504(b).
     For purposes of determining the domestic/worldwide fraction 
     under subsection (g), clause (ii) shall be applied by also 
     disregarding paragraphs (3) and (8) of section 1504(b).
       ``(5) Coordination with minimum tax.--The deduction under 
     this section shall be allowed for purposes of the tax imposed 
     by section 55; except that for purposes of section 55, 
     alternative minimum taxable income shall be taken into 
     account in determining the deduction under this section.
       ``(6) Ordering rule.--The amount of any other deduction 
     allowable under this chapter shall be determined as if this 
     section had not been enacted.
       ``(7) Trade or business requirement.--This section shall be 
     applied by only taking into account items which are 
     attributable to the actual conduct of a trade or business.
       ``(8) Coordination with transition rules.--For purposes of 
     this section--
       ``(A) domestic production gross receipts shall not include 
     gross receipts from any transaction if the binding contract 
     transition relief of section 101(c)(2) of the American Jobs 
     Creation Act of 2004 applies to such transaction, and
       ``(B) any deduction allowed under section 101(e) of such 
     Act shall be disregarded in determining the portion of the 
     taxable income which is attributable to domestic production 
     gross receipts.''.
       (b) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by adding at the end 
     the following new item:

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

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after December 31, 2004.
       (2) Application of section 15.--Section 15 of the Internal 
     Revenue Code of 1986 shall apply to the amendments made by 
     this section as if they were changes in a rate of tax.

                 TITLE II--ADDITIONAL BUSINESS BENEFITS

                  Subtitle A--Small Business Expensing

     SEC. 201. 2-YEAR EXTENSION OF INCREASED EXPENSING FOR SMALL 
                   BUSINESS.

       Subsections (b), (c), and (d) of section 179 are each 
     amended by striking ``2006'' each place it appears and 
     inserting ``2008''.

          Subtitle B--S Corporation Reform and Simplification

     SEC. 211. MEMBERS OF FAMILY TREATED AS 1 SHAREHOLDER.

       (a) In General.--Paragraph (1) of section 1361(c) (relating 
     to special rules for applying subsection (b)) is amended to 
     read as follows:
       ``(1) Members of family treated as 1 shareholder.--
       ``(A) In general.--For purpose of subsection (b)(1)(A)--
       ``(i) except as provided in clause (ii), a husband and wife 
     (and their estates) shall be treated as 1 shareholder, and
       ``(ii) in the case of a family with respect to which an 
     election is in effect under subparagraph (D), all members of 
     the family shall be treated as 1 shareholder.
       ``(B) Members of the family.--For purpose of subparagraph 
     (A)(ii)--
       ``(i) In general.--The term `members of the family' means 
     the common ancestor, lineal descendants of the common 
     ancestor, and the spouses (or former spouses) of such lineal 
     descendants or common ancestor.
       ``(ii) Common Ancestor.--For purposes of this paragraph, an 
     individual shall not be

[[Page 12865]]

     considered a common ancestor if, as of the later of the 
     effective date of this paragraph or the time the election 
     under section 1362(a) is made, the individual is more than 3 
     generations removed from the youngest generation of 
     shareholders who would (but for this clause) be members of 
     the family. For purposes of the preceding sentence, a spouse 
     (or former spouse) shall be treated as being of the same 
     generation as the individual to which such spouse is (or was) 
     married.
       ``(C) Effect of adoption, etc.--In determining whether any 
     relationship specified in subparagraph (B) exists, the rules 
     of section 152(b)(2) shall apply.
       ``(D) Election.--An election under subparagraph (A)(ii)--
       ``(i) may, except as otherwise provided in regulations 
     prescribed by the Secretary, be made by any member of the 
     family, and
       ``(ii) shall remain in effect until terminated as provided 
     in regulations prescribed by the Secretary.''.
       (b) Relief From Inadvertent Invalid Election or 
     Termination.--Section 1362(f) (relating to inadvertent 
     invalid elections or terminations), as amended by section 
     219, is amended--
       (1) by inserting ``or section 1361(c)(1)(A)(ii)'' after 
     ``section 1361(b)(3)(B)(ii),'' in paragraph (1), and
       (2) by inserting ``or section 1361(c)(1)(D)(iii)'' after 
     ``section 1361(b)(3)(C),'' in paragraph (1)(B).
       (c) Effective Dates.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2004.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to elections and terminations made after December 
     31, 2004.

     SEC. 212. INCREASE IN NUMBER OF ELIGIBLE SHAREHOLDERS TO 100.

       (a) In General.--Section 1361(b)(1)(A) (defining small 
     business corporation) is amended by striking ``75'' and 
     inserting ``100''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 213. EXPANSION OF BANK S CORPORATION ELIGIBLE 
                   SHAREHOLDERS TO INCLUDE IRAS.

       (a) In General.--Section 1361(c)(2)(A) (relating to certain 
     trusts permitted as shareholders) is amended by inserting 
     after clause (v) the following new clause:
       ``(vi) In the case of a corporation which is a bank (as 
     defined in section 581), a trust which constitutes an 
     individual retirement account under section 408(a), including 
     one designated as a Roth IRA under section 408A, but only to 
     the extent of the stock held by such trust in such bank as of 
     the date of the enactment of this clause.''.
       (b) Treatment as Shareholder.--Section 1361(c)(2)(B) 
     (relating to treatment as shareholders) is amended by adding 
     at the end the following new clause:
       ``(vi) In the case of a trust described in clause (vi) of 
     subparagraph (A), the individual for whose benefit the trust 
     was created shall be treated as a shareholder.''.
       (c) Sale of Bank Stock in IRA Relating to S Corporation 
     Election Exempt From Prohibited Transaction Rules.--Section 
     4975(d) (relating to exemptions) is amended by striking 
     ``or'' at the end of paragraph (14), by striking the period 
     at the end of paragraph (15) and inserting ``; or'', and by 
     adding at the end the following new paragraph:
       ``(16) a sale of stock held by a trust which constitutes an 
     individual retirement account under section 408(a) to the 
     individual for whose benefit such account is established if--
       ``(A) such stock is in a bank (as defined in section 581),
       ``(B) such stock is held by such trust as of the date of 
     the enactment of this paragraph,
       ``(C) such sale is pursuant to an election under section 
     1362(a) by such bank,
       ``(D) such sale is for fair market value at the time of 
     sale (as established by an independent appraiser) and the 
     terms of the sale are otherwise at least as favorable to such 
     trust as the terms that would apply on a sale to an unrelated 
     party,
       ``(E) such trust does not pay any commissions, costs, or 
     other expenses in connection with the sale, and
       ``(F) the stock is sold in a single transaction for cash 
     not later than 120 days after the S corporation election is 
     made.''.
       (d) Conforming Amendment.--Section 512(e)(1) is amended by 
     inserting ``1361(c)(2)(A)(vi) or'' before ``1361(c)(6)''.
       (e) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 214. DISREGARD OF UNEXERCISED POWERS OF APPOINTMENT IN 
                   DETERMINING POTENTIAL CURRENT BENEFICIARIES OF 
                   ESBT.

       (a) In General.--Section 1361(e)(2) (defining potential 
     current beneficiary) is amended--
       (1) by inserting ``(determined without regard to any power 
     of appointment to the extent such power remains unexercised 
     at the end of such period)'' after ``of the trust'' in the 
     first sentence, and
       (2) by striking ``60-day'' in the second sentence and 
     inserting ``1-year''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 215. TRANSFER OF SUSPENDED LOSSES INCIDENT TO DIVORCE, 
                   ETC.

       (a) In General.--Section 1366(d)(2) (relating to indefinite 
     carryover of disallowed losses and deductions) is amended to 
     read as follows:
       ``(2) Indefinite carryover of disallowed losses and 
     deductions.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     any loss or deduction which is disallowed for any taxable 
     year by reason of paragraph (1) shall be treated as incurred 
     by the corporation in the succeeding taxable year with 
     respect to that shareholder.
       ``(B) Transfers of stock between spouses or incident to 
     divorce.--In the case of any transfer described in section 
     1041(a) of stock of an S corporation, any loss or deduction 
     described in subparagraph (A) with respect such stock shall 
     be treated as incurred by the corporation in the succeeding 
     taxable year with respect to the transferee.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 216. USE OF PASSIVE ACTIVITY LOSS AND AT-RISK AMOUNTS BY 
                   QUALIFIED SUBCHAPTER S TRUST INCOME 
                   BENEFICIARIES.

       (a) In General.--Section 1361(d)(1) (relating to special 
     rule for qualified subchapter S trust) is amended--
       (1) by striking ``and'' at the end of subparagraph (A),
       (2) by striking the period at the end of subparagraph (B) 
     and inserting ``, and'', and
       (3) by adding at the end the following new subparagraph:
       ``(C) for purposes of applying sections 465 and 469 to the 
     beneficiary of the trust, the disposition of the S 
     corporation stock by the trust shall be treated as a 
     disposition by such beneficiary.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transfers made after December 31, 2004.

     SEC. 217. EXCLUSION OF INVESTMENT SECURITIES INCOME FROM 
                   PASSIVE INCOME TEST FOR BANK S CORPORATIONS.

       (a) In General.--Section 1362(d)(3) (relating to where 
     passive investment income exceeds 25 percent of gross 
     receipts for 3 consecutive taxable years and corporation has 
     accumulated earnings and profits) is amended by adding at the 
     end the following new subparagraph:
       ``(F) Exception for banks; etc.--In the case of a bank (as 
     defined in section 581), a bank holding company (within the 
     meaning of section 2(a) of the Bank Holding Company Act of 
     1956 (12 U.S.C. 1841(a))), or a financial holding company 
     (within the meaning of section 2(p) of such Act), the term 
     `passive investment income' shall not include--
       ``(i) interest income earned by such bank or company, or
       ``(ii) dividends on assets required to be held by such bank 
     or company, including stock in the Federal Reserve Bank, the 
     Federal Home Loan Bank, or the Federal Agricultural Mortgage 
     Bank or participation certificates issued by a Federal 
     Intermediate Credit Bank.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 218. TREATMENT OF BANK DIRECTOR SHARES.

       (a) In General.--Section 1361 (defining S corporation) is 
     amended by adding at the end the following new subsection:
       ``(f) Restricted Bank Director Stock.--
       ``(1) In general.--Restricted bank director stock shall not 
     be taken into account as outstanding stock of the S 
     corporation in applying this subchapter (other than section 
     1368(f)).
       ``(2) Restricted bank director stock.--For purposes of this 
     subsection, the term `restricted bank director stock' means 
     stock in a bank (as defined in section 581), a bank holding 
     company (within the meaning of section 2(a) of the Bank 
     Holding Company Act of 1956 (12 U.S.C. 1841(a))), or a 
     financial holding company (within the meaning of section 2(p) 
     of such Act), registered with the Federal Reserve System if 
     such stock--
       ``(A) is required to be held by an individual under 
     applicable Federal or State law in order to permit such 
     individual to serve as a director, and
       ``(B) is subject to an agreement with such bank or company 
     (or a corporation which controls (within the meaning of 
     section 368(c)) such bank or company) pursuant to which the 
     holder is required to sell back such stock (at the same price 
     as the individual acquired such stock) upon ceasing to hold 
     the office of director.
       ``(3) Cross reference.--

  ``For treatment of certain distributions with respect to restricted 
bank director stock, see section 1368(f).''.
       (b) Distributions.--Section 1368 (relating to 
     distributions) is amended by adding at the end the following 
     new subsection:
       ``(f) Restricted Bank Director Stock.--If a director 
     receives a distribution (not in part or full payment in 
     exchange for stock) from an S corporation with respect to any 
     restricted bank director stock (as defined in section 
     1361(f)), the amount of such distribution--
       ``(1) shall be includible in gross income of the director, 
     and
       ``(2) shall be deductible by the corporation for the 
     taxable year of such corporation in

[[Page 12866]]

     which or with which ends the taxable year in which such 
     amount in included in the gross income of the director.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 219. RELIEF FROM INADVERTENTLY INVALID QUALIFIED 
                   SUBCHAPTER S SUBSIDIARY ELECTIONS AND 
                   TERMINATIONS.

       (a) In General.--Section 1362(f) (relating to inadvertent 
     invalid elections or terminations) is amended--
       (1) by inserting ``, section 1361(b)(3)(B)(ii),'' after 
     ``subsection (a)'' in paragraph (1),
       (2) by inserting ``, section 1361(b)(3)(C),'' after 
     ``subsection (d)'' in paragraph (1)(B),
       (3) by amending paragraph (3)(A) to read as follows:
       ``(A) so that the corporation for which the election was 
     made is a small business corporation or a qualified 
     subchapter S subsidiary, as the case may be, or'',
       (4) by amending paragraph (4) to read as follows:
       ``(4) the corporation for which the election was made, and 
     each person who was a shareholder in such corporation at any 
     time during the period specified pursuant to this subsection, 
     agrees to make such adjustments (consistent with the 
     treatment of such corporation as an S corporation or a 
     qualified subchapter S subsidiary, as the case may be) as may 
     be required by the Secretary with respect to such period,'', 
     and
       (5) by inserting ``or a qualified subchapter S subsidiary, 
     as the case may be'' after ``S corporation'' in the matter 
     following paragraph (4).
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 220. INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S 
                   SUBSIDIARIES.

       (a) In General.--Section 1361(b)(3)(A) (relating to 
     treatment of certain wholly owned subsidiaries) is amended by 
     inserting ``and in the case of information returns required 
     under part III of subchapter A of chapter 61'' after 
     ``Secretary''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 221. REPAYMENT OF LOANS FOR QUALIFYING EMPLOYER 
                   SECURITIES.

       (a) In General.--Subsection (f) of section 4975 (relating 
     to other definitions and special rules) is amended by adding 
     at the end the following new paragraph:
       ``(7) S corporation repayment of loans for qualifying 
     employer securities.--A plan shall not be treated as 
     violating the requirements of section 401 or 409 or 
     subsection (e)(7), or as engaging in a prohibited transaction 
     for purposes of subsection (d)(3), merely by reason of any 
     distribution (as described in section 1368(a)) with respect 
     to S corporation stock that constitutes qualifying employer 
     securities, which in accordance with the plan provisions is 
     used to make payments on a loan described in subsection 
     (d)(3) the proceeds of which were used to acquire such 
     qualifying employer securities (whether or not allocated to 
     participants). The preceding sentence shall not apply in the 
     case of a distribution which is paid with respect to any 
     employer security which is allocated to a participant unless 
     the plan provides that employer securities with a fair market 
     value of not less than the amount of such distribution are 
     allocated to such participant for the year which (but for the 
     preceding sentence) such distribution would have been 
     allocated to such participant.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions with respect to S corporation 
     stock made after December 31, 2004.

  Subtitle C--Toll Tax on Excess Qualified Foreign Distribution Amount

     SEC. 231. 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 the 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) the aggregate 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 which--

       ``(I) is 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, and
       ``(II) provides for the reinvestment of such dividends in 
     the United States (other than as payment for executive 
     compensation), 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 
     shall include all 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' has the meaning given 
     such term by section 316, except that the term shall include 
     amounts described in section 951(a)(1)(B), but shall not 
     include amounts described in sections 78 and 959.
       ``(2) Controlled foreign corporations and united states 
     shareholders.--The term `controlled foreign corporation' has 
     the meaning given such term by section 957(a) and the term 
     `United States shareholder' has the meaning given such term 
     by 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. No deduction 
     shall be allowed under this chapter for the portion of any 
     tax for which credit is not allowable by reason of the 
     preceding sentence.
       ``(4) Foreign tax credit limitation.--For 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 for 
     purposes 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)).

[[Page 12867]]

       ``(d) Election.--
       ``(1) In general.--An election under this section shall be 
     made on the taxpayer's timely filed income tax return for the 
     first 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.--The amendments made by this section 
     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.

              TITLE III--EXTENSION OF EXPIRING PROVISIONS

     SEC. 301. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST 
                   REGULAR AND MINIMUM TAX LIABILITY.

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

     SEC. 302. EXTENSION OF RESEARCH CREDIT.

       (a) Extension.--
       (1) In general.--Section 41(h)(1)(B) (relating to 
     termination) is amended by striking ``June 30, 2004'' and 
     inserting ``December 31, 2005''.
       (2) Conforming amendment.--Section 45C(b)(1)(D) is amended 
     by striking ``June 30, 2004'' and inserting ``December 31, 
     2005''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.

     SEC. 303. EXTENSION OF CREDIT FOR ELECTRICITY PRODUCED FROM 
                   CERTAIN RENEWABLE RESOURCES.

       (a) In General.--Subparagraphs (A) and (B) of section 
     45(c)(3) (defining qualified facility) are both amended by 
     striking ``2004'' and inserting ``2006''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to electricity produced and sold after December 
     31, 2003.

     SEC. 304. INDIAN EMPLOYMENT TAX CREDIT.

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

     SEC. 305. WORK OPPORTUNITY CREDIT.

       (a) In General.--Subparagraph (B) of section 51(c)(4) is 
     amended by striking ``December 31, 2003'' and inserting 
     ``December 31, 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to individuals who begin work for the employer 
     after December 31, 2003.

     SEC. 306. WELFARE-TO-WORK CREDIT.

       (a) In General.--Subsection (f) of section 51A is amended 
     by striking ``December 31, 2003'' and inserting ``December 
     31, 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to individuals who begin work for the employer 
     after December 31, 2003.

     SEC. 307. 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 by striking ``or 2003'' and inserting 
     ``, 2003, 2004, or 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 308. EXTENSION OF ACCELERATED DEPRECIATION BENEFIT FOR 
                   PROPERTY ON INDIAN RESERVATIONS.

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

     SEC. 309. CHARITABLE CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND 
                   EQUIPMENT USED FOR EDUCATIONAL PURPOSES.

       (a) In General.--Subparagraph (G) of section 170(e)(6) 
     (relating to special rule for contributions of computer 
     technology and equipment for educational purposes) is amended 
     by striking ``December 31, 2003'' and inserting ``December 
     31, 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 310. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

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

     SEC. 311. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.

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

     SEC. 312. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR 
                   OIL AND NATURAL GAS PRODUCED FROM MARGINAL 
                   PROPERTIES.

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

     SEC. 313. QUALIFIED ZONE ACADEMY BONDS.

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

     SEC. 314. DISTRICT OF COLUMBIA.

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

     SEC. 315. EXTENSION OF CERTAIN NEW YORK LIBERTY ZONE BOND 
                   FINANCING.

       Subparagraph (D) of section 1400L(d)(2) is amended by 
     striking ``2005'' and inserting ``2009''.

     SEC. 316. DISCLOSURES RELATING TO TERRORIST ACTIVITIES.

       (a) In General.--Clause (iv) of section 6103(i)(3)(C) and 
     subparagraph (E) of section 6103(i)(7) are both amended by 
     striking ``December 31, 2003'' and inserting ``December 31, 
     2005''.
       (b) Disclosure of Taxpayer Identity to Law Enforcement 
     Agencies Investigating Terrorism.--Subparagraph (A) of 
     section 6103(i)(7) is amended by adding at the end the 
     following new clause:
       ``(v) Taxpayer identity.--For purposes of this 
     subparagraph, a taxpayer's identity shall not be treated as 
     taxpayer return information.''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by subsection (a) 
     shall apply to disclosures on

[[Page 12868]]

     or after the date of the enactment of this Act.
       (2) Subsection (b).--The amendment made by subsection (b) 
     shall take effect as if included in section 201 of the 
     Victims of Terrorism Tax Relief Act of 2001.

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

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

     SEC. 318. COVER OVER OF TAX ON DISTILLED SPIRITS.

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

     SEC. 319. JOINT REVIEW OF STRATEGIC PLANS AND BUDGET FOR THE 
                   INTERNAL REVENUE SERVICE.

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

     SEC. 320. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO 
                   MENTAL HEALTH BENEFITS.

       (a) In General.--Subsection (f) of section 9812 is 
     amended--
       (1) by striking ``and'' at the end of paragraph (1), by 
     striking paragraph (2), and by inserting after paragraph (1) 
     the following new paragraphs:
       ``(2) on or after January 1, 2004, and before the date of 
     the enactment of American Jobs Creation Act of 2004, and
       ``(3) after December 31, 2005.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to benefits for services furnished on or after 
     December 31, 2003.

     SEC. 321. COMBINED EMPLOYMENT TAX REPORTING PROJECT.

       (a) In General.--Paragraph (1) of section 976(b) of the 
     Taxpayer Relief Act of 1997 (111 Stat. 898) is amended by 
     striking ``for a period ending with the date which is 5 years 
     after the date of the enactment of this Act'' and inserting 
     ``during the period ending on December 31, 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to disclosures on or after the date of the 
     enactment of this Act.

     SEC. 322. CLEAN-FUEL VEHICLES.

       (a) Credit for Qualified Electric Vehicles.--Paragraph (2) 
     of section 30(b) (relating to phaseout) is amended to read as 
     follows:
       ``(2) Phaseout.--In the case of any qualified electric 
     vehicle placed in service after December 31, 2005, the credit 
     otherwise allowable under subsection (a) (determined after 
     the application of paragraph (1)) shall be reduced by 75 
     percent.''.
       (b) Deduction for Qualified Clean-Fuel Vehicle Property.--
     Subparagraph (B) of section 179A(b)(1) (relating to phaseout) 
     is amended to read as follows:
       ``(B) Phaseout.--In the case of any qualified clean-fuel 
     vehicle property placed in service after December 31, 2005, 
     the limit otherwise applicable under subparagraph (A) shall 
     be reduced by 75 percent.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after December 31, 
     2003.

TITLE IV--PERMANENT DEDUCTION FOR STATE AND LOCAL GENERAL RETAIL SALES 
                                 TAXES

     SEC. 401. DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES IN 
                   LIEU OF STATE AND LOCAL INCOME TAXES.

       (a) In General.--Subsection (b) of section 164 (relating to 
     definitions and special rules) is amended by adding at the 
     end the following:
       ``(5) General sales taxes.--For purposes of subsection 
     (a)--
       ``(A) Election to deduct state and local sales taxes in 
     lieu of state and local income taxes.--
       ``(i) In general.--At the election of the taxpayer for the 
     taxable year, subsection (a) shall be applied--

       ``(I) without regard to the reference to State and local 
     income taxes, and
       ``(II) as if State and local general sales taxes were 
     referred to in a paragraph thereof.

       ``(B) Definition of general sales tax.--The term `general 
     sales tax' means a tax imposed at one rate with respect to 
     the sale at retail of a broad range of classes of items.
       ``(C) Special rules for food, etc.--In the case of items of 
     food, clothing, medical supplies, and motor vehicles--
       ``(i) the fact that the tax does not apply with respect to 
     some or all of such items shall not be taken into account in 
     determining whether the tax applies with respect to a broad 
     range of classes of items, and
       ``(ii) the fact that the rate of tax applicable with 
     respect to some or all of such items is lower than the 
     general rate of tax shall not be taken into account in 
     determining whether the tax is imposed at one rate.
       ``(D) Items taxed at different rates.--Except in the case 
     of a lower rate of tax applicable with respect to an item 
     described in subparagraph (C), no deduction shall be allowed 
     under this paragraph for any general sales tax imposed with 
     respect to an item at a rate other than the general rate of 
     tax.
       ``(E) Compensating use taxes.--A compensating use tax with 
     respect to an item shall be treated as a general sales tax. 
     For purposes of the preceding sentence, the term 
     `compensating use tax' means, with respect to any item, a tax 
     which--
       ``(i) is imposed on the use, storage, or consumption of 
     such item, and
       ``(ii) is complementary to a general sales tax, but only if 
     a deduction is allowable under this paragraph with respect to 
     items sold at retail in the taxing jurisdiction which are 
     similar to such item.
       ``(F) Special rule for motor vehicles.--In the case of 
     motor vehicles, if the rate of tax exceeds the general rate, 
     such excess shall be disregarded and the general rate shall 
     be treated as the rate of tax.
       ``(G) Separately stated general sales taxes.--If the amount 
     of any general sales tax is separately stated, then, to the 
     extent that the amount so stated is paid by the consumer 
     (other than in connection with the consumer's trade or 
     business) to the seller, such amount shall be treated as a 
     tax imposed on, and paid by, such consumer.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

  TITLE V--PROVISIONS TO PREVENT TAX AVOIDANCE THROUGH INDIVIDUAL AND 
                         CORPORATE EXPATRIATION

                  Subtitle A--Individual Expatriation

     SEC. 501. IMPOSITION OF MARK-TO-MARKET TAX ON INDIVIDUALS WHO 
                   EXPATRIATE.

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

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

       ``(a) General Rules.--For purposes of this subtitle--
       ``(1) Mark to market.--Except as provided in subsections 
     (d) and (f), all property of a covered expatriate to whom 
     this section applies shall be treated as sold on the day 
     before the expatriation date for its fair market value.
       ``(2) Recognition of gain or loss.--In the case of any sale 
     under paragraph (1)--
       ``(A) notwithstanding any other provision of this title, 
     any gain arising from such sale shall be taken into account 
     for the taxable year of the sale, and
       ``(B) any loss arising from such sale shall be taken into 
     account for the taxable year of the sale to the extent 
     otherwise provided by this title, except that section 1091 
     shall not apply to any such loss.
     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence.
       ``(3) Exclusion for certain gain.--
       ``(A) In general.--The amount which, but for this 
     paragraph, would be includible in the gross income of any 
     individual by reason of this section shall be reduced (but 
     not below zero) by $600,000. For purposes of this paragraph, 
     allocable expatriation gain taken into account under 
     subsection (f)(2) shall be treated in the same manner as an 
     amount required to be includible in gross income.
       ``(B) Cost-of-living adjustment.--
       ``(i) In general.--In the case of an expatriation date 
     occurring in any calendar year after 2004, the $600,000 
     amount under subparagraph (A) shall be increased by an amount 
     equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, determined by 
     substituting `calendar year 2003' for `calendar year 1992' in 
     subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $1,000, such amount 
     shall be rounded to the next lower multiple of $1,000.
       ``(4) Election to continue to be taxed as united states 
     citizen.--
       ``(A) In general.--If a covered expatriate elects the 
     application of this paragraph--
       ``(i) this section (other than this paragraph and 
     subsection (i)) shall not apply to the expatriate, but
       ``(ii) in the case of property to which this section would 
     apply but for such election, the expatriate shall be subject 
     to tax under this title in the same manner as if the 
     individual were a United States citizen.
       ``(B) Requirements.--Subparagraph (A) shall not apply to an 
     individual unless the individual--
       ``(i) provides security for payment of tax in such form and 
     manner, and in such amount, as the Secretary may require,
       ``(ii) consents to the waiver of any right of the 
     individual under any treaty of the United States which would 
     preclude assessment or collection of any tax which may be 
     imposed by reason of this paragraph, and

[[Page 12869]]

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

[[Page 12870]]

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

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

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

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

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

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

       ``(g) Termination of Deferrals, etc.--In the case of any 
     covered expatriate, notwithstanding any other provision of 
     this title--
       ``(1) any period during which recognition of income or gain 
     is deferred shall terminate on the day before the 
     expatriation date, and
       ``(2) any extension of time for payment of tax shall cease 
     to apply on the day before the expatriation date and the 
     unpaid portion of such tax shall be due and payable at the 
     time and in the manner prescribed by the Secretary.
       ``(h) Imposition of Tentative Tax.--
       ``(1) In general.--If an individual is required to include 
     any amount in gross income under subsection (a) for any 
     taxable year, there is hereby imposed, immediately before the 
     expatriation date, a tax in an amount equal to the amount of 
     tax which would be imposed if the taxable year were a short 
     taxable year ending on the expatriation date.
       ``(2) Due date.--The due date for any tax imposed by 
     paragraph (1) shall be the 90th day after the expatriation 
     date.
       ``(3) Treatment of tax.--Any tax paid under paragraph (1) 
     shall be treated as a payment of the tax imposed by this 
     chapter for the taxable year to which subsection (a) applies.
       ``(4) Deferral of tax.--The provisions of subsection (b) 
     shall apply to the tax imposed by this subsection to the 
     extent attributable to gain includible in gross income by 
     reason of this section.
       ``(i) Special Liens for Deferred Tax Amounts.--
       ``(1) Imposition of lien.--
       ``(A) In general.--If a covered expatriate makes an 
     election under subsection (a)(4) or (b) which results in the 
     deferral of any tax imposed by reason of subsection (a), the 
     deferred amount (including any interest, additional amount, 
     addition to tax, assessable 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

[[Page 12871]]

     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) 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 after the date of the enactment 
     of this subsection.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(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)''.
       (e) 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.''.

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

                   Subtitle B--Corporate Expatriation

     SEC. 511. PREVENTION OF CORPORATE EXPATRIATION TO AVOID 
                   UNITED STATES INCOME TAX.

       (a) In General.--Paragraph (4) of section 7701(a) of the 
     Internal Revenue Code of 1986 (defining domestic) is amended 
     to read as follows:
       ``(4) Domestic.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `domestic' when applied to a corporation or 
     partnership means created or organized in the United States 
     or under the law of the United States or of any State unless, 
     in the case of a partnership, the Secretary provides 
     otherwise by regulations.
       ``(B) Certain corporations treated as domestic.--
       ``(i) In general.--The acquiring corporation in a corporate 
     expatriation transaction shall be treated as a domestic 
     corporation.
       ``(ii) Corporate expatriation transaction.--For purposes of 
     this subparagraph, the term `corporate expatriation 
     transaction' means any transaction if--

       ``(I) a nominally foreign corporation (referred to in this 
     subparagraph as the `acquiring corporation') acquires, as a 
     result of such transaction, directly or indirectly 
     substantially all of the properties held directly or 
     indirectly by a domestic corporation, and
       ``(II) immediately after the transaction, more than 80 
     percent of the stock (by vote or value) of the acquiring 
     corporation is held by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation.

       ``(iii) Lower stock ownership requirement in certain 
     cases.--Subclause (II) of clause (ii) shall be applied by 
     substituting `50 percent' for `80 percent' with respect to 
     any nominally foreign corporation if--

       ``(I) such corporation does not have substantial business 
     activities (when compared to the total business activities of 
     the expanded affiliated group) in the foreign country in 
     which or under the law of which the corporation is created or 
     organized, and
       ``(II) the stock of the corporation is publicly traded and 
     the principal market for the public trading of such stock is 
     in the United States.

       ``(iv) Partnership transactions.--The term `corporate 
     expatriation transaction' includes any transaction if--

       ``(I) a nominally foreign corporation (referred to in this 
     subparagraph as the `acquiring corporation') acquires, as a 
     result of such transaction, directly or indirectly properties 
     constituting a trade or business of a domestic partnership,
       ``(II) immediately after the transaction, more than 80 
     percent of the stock (by vote or value) of the acquiring 
     corporation is held by former partners of the domestic 
     partnership or related foreign partnerships (determined 
     without regard to stock of the acquiring corporation which is 
     sold in a public offering related to the transaction), and
       ``(III) the acquiring corporation meets the requirements of 
     subclauses (I) and (II) of clause (iii).

       ``(v) Special rules.--For purposes of this subparagraph--

       ``(I) a series of related transactions shall be treated as 
     1 transaction, and
       ``(II) stock held by members of the expanded affiliated 
     group which includes the acquiring corporation shall not be 
     taken into account in determining ownership.

       ``(vi) Other definitions.--For purposes of this 
     subparagraph--

       ``(I) Nominally foreign corporation.--The term `nominally 
     foreign corporation' means any corporation which would (but 
     for this subparagraph) be treated as a foreign corporation.
       ``(II) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)).
       ``(III) Related foreign partnership.--A foreign partnership 
     is related to a domestic partnership if they are under common 
     control (within the meaning of section 482), or they shared 
     the same trademark or tradename.''

       (b) Effective Dates.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

                    TITLE VI--OTHER REVENUE OFFSETS

        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 any case in which a court determines 
     that the economic substance doctrine is relevant for purposes 
     of this title to a transaction (or series of transactions), 
     such transaction (or series of transactions) shall have 
     economic substance only if the requirements of this paragraph 
     are met.
       ``(B) Definition of economic substance.--For purposes of 
     subparagraph (A)--
       ``(i) In general.--A transaction has economic substance 
     only if--

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

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

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

       ``(C) Treatment of fees and foreign taxes.--Fees and other 
     transaction expenses and foreign taxes shall be taken into 
     account as expenses in determining pre-tax profit under 
     subparagraph (B)(ii).

[[Page 12872]]

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

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

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

     SEC. 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 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) Disclosure by Secretary.--
       (1) In general.--Section 6103 is amended by redesignating 
     subsection (q) as subsection (r) and by inserting after 
     subsection (p) the following new subsection:
       ``(q) Disclosure Relating to Payments of Certain 
     Penalties.--Notwithstanding any other provision of this 
     section, the Secretary shall make public the name of any 
     person required to pay a penalty described in section 
     6707A(e)(2) and the amount of the penalty.''.
       (2) Records.--Section 6103(p)(3)(A) is amended by striking 
     ``or (n)'' and inserting ``(n), or (q)''.
       (c) 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:


[[Page 12873]]


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

       (d) 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 assertion and compromise of 
     penalty.--
       ``(A) In general.--Only upon the approval by the Chief 
     Counsel for the Internal Revenue Service or the Chief 
     Counsel's delegate at the national office of the Internal 
     Revenue Service may a penalty to which paragraph (1) applies 
     be included in a 1st letter of proposed deficiency which 
     allows the taxpayer an opportunity for administrative review 
     in the Internal Revenue Service Office of Appeals. If such a 
     letter is provided to the taxpayer, only the Commissioner of 
     Internal Revenue may compromise all or any portion of such 
     penalty.
       ``(B) Applicable rules.--The rules of paragraphs (2), (3), 
     (4), and (5) of section 6707A(d) shall apply for purposes of 
     subparagraph (A).
       ``(d) Definitions of Reportable and Listed Transactions.--
     For purposes of this section, the terms `reportable 
     transaction' and `listed transaction' have the respective 
     meanings given to such terms by section 6707A(c).
       ``(e) Special Rules.--
       ``(1) Coordination with penalties, etc., on other 
     understatements.--In the case of an understatement (as 
     defined in section 6662(d)(2))--
       ``(A) the amount of such understatement (determined without 
     regard to this paragraph) shall be increased by the aggregate 
     amount of reportable transaction understatements and 
     noneconomic substance transaction understatements for 
     purposes of determining whether such understatement is a 
     substantial understatement under section 6662(d)(1), and
       ``(B) the addition to tax under section 6662(a) shall apply 
     only to the excess of the amount of the substantial 
     understatement (if any) after the application of subparagraph 
     (A) over the aggregate amount of reportable transaction 
     understatements and noneconomic substance transaction 
     understatements.
       ``(2) Coordination with other penalties.--
       ``(A) Application of fraud penalty.--References to an 
     underpayment in section 6663 shall be treated as including 
     references to a reportable transaction understatement and a 
     noneconomic substance transaction understatement.
       ``(B) No double penalty.--This section shall not apply to 
     any portion of an understatement on which a penalty is 
     imposed under section 6662B or 6663.
       ``(3) Special rule for amended returns.--Except as provided 
     in regulations, in no event shall any tax treatment included 
     with an amendment or supplement to a return of tax be taken 
     into account in determining the amount of any reportable 
     transaction understatement or noneconomic substance 
     transaction understatement if the amendment or supplement is 
     filed after the earlier of the date the taxpayer is first 
     contacted by the Secretary regarding the examination of the 
     return or such other date as is specified by the Secretary.
       ``(4) Noneconomic substance transaction understatement.--
     For purposes of this subsection, the term `noneconomic 
     substance transaction understatement' has the meaning given 
     such term by section 6662B(c).
       ``(5) Cross reference.--

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

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

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

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

       ``(I) is a material advisor (within the meaning of section 
     6111(b)(1)) who participates in the organization, management, 
     promotion, or sale of the transaction or who is related 
     (within the meaning of section 267(b) or 707(b)(1)) to any 
     person who so participates,
       ``(II) is compensated directly or indirectly by a material 
     advisor with respect to the transaction,
       ``(III) has a fee arrangement with respect to the 
     transaction which is contingent on all or part of the 
     intended tax benefits from the transaction being sustained,
       ``(IV) has an arrangement with respect to the transaction 
     which provides that contractual disputes between the taxpayer 
     and the advisor are to be settled by arbitration or which 
     limits damages by reference to fees paid to the advisor for 
     such transaction, or
       ``(V) as determined under regulations prescribed by the 
     Secretary, has a disqualifying financial interest with 
     respect to the transaction.

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

       ``(I) is based on unreasonable factual or legal assumptions 
     (including assumptions as to future events),
       ``(II) unreasonably relies on representations, statements, 
     findings, or agreements of the taxpayer or any other person,
       ``(III) does not identify and consider all relevant facts,
       ``(IV) is not signed by all individuals who are principal 
     authors of the opinion, or

[[Page 12874]]

       ``(V) 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 after the date of 
     the enactment of this Act.

     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, managing, promoting, selling, 
     implementing, insuring, 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.

[[Page 12875]]

       ``(2) Reportable transaction.--The term `reportable 
     transaction' has the meaning given to such term by section 
     6707A(c).
       ``(c) Regulations.--The Secretary may prescribe regulations 
     which provide--
       ``(1) that only 1 person shall be required to meet the 
     requirements of subsection (a) in cases in which 2 or more 
     persons would otherwise be required to meet such 
     requirements,
       ``(2) exemptions from the requirements of this section, and
       ``(3) such rules as may be necessary or appropriate to 
     carry out the purposes of this section.''.
       (b) Conforming Amendments.--
       (1) The item relating to section 6111 in the table of 
     sections for subchapter B of chapter 61 is amended to read as 
     follows:

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

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

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

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

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

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

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

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

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

       (c) Required Disclosure Not Subject to Claim of 
     Confidentiality.--Subparagraph (A) of section 6112(b)(1), as 
     redesignated by subsection (b)(2)(B), is amended by adding at 
     the end the following new flush sentence:
     ``For purposes of this section, the identity of any person on 
     such list shall not be privileged.''.
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transactions 
     with respect to which material aid, assistance, or advice 
     referred to in section 6111(b)(1)(A)(i) of the Internal 
     Revenue Code of 1986 (as added by this section) is provided 
     after the date of the enactment of this Act.
       (2) No claim of confidentiality against disclosure.--The 
     amendment made by subsection (c) shall take effect as if 
     included in the amendments made by section 142 of the Deficit 
     Reduction Act of 1984.

     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) Certain Rules To Apply.--The provisions of section 
     6707A(d) shall apply to any penalty imposed under this 
     section.
       ``(d) Reportable and Listed Transactions.--The terms 
     `reportable transaction' and `listed transaction' have the 
     respective meanings given to such terms by section 
     6707A(c).''.
       (b) Clerical Amendment.--The item relating to section 6707 
     in the table of sections for part I of subchapter B of 
     chapter 68 is amended by striking ``tax shelters'' and 
     inserting ``reportable transactions''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns the due date for which is after the 
     date of the enactment of this Act.

     SEC. 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, which is--
       ``(1) subject to penalty under section 6700, 6701, 6707, or 
     6708, or
       ``(2) in violation of any requirement under regulations 
     issued under section 320 of title 31, United States Code.''.
       (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''.

[[Page 12876]]

       (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 $10,000.
       ``(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) $100,000, or
       ``(II) 50 percent of the amount 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. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE 
                   DEPARTMENT OF TREASURY.

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

[[Page 12877]]



     SEC. 615. PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS.

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

     SEC. 616. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH 
                   REQUIRED LISTED TRANSACTIONS NOT REPORTED.

       (a) In General.--Section 6501(c) (relating to exceptions) 
     is amended by adding at the end the following new paragraph:
       ``(10) Listed transactions.--If a taxpayer fails to include 
     on any return or statement for any taxable year any 
     information with respect to a listed transaction (as defined 
     in section 6707A(c)(2)) which is required under section 6011 
     to be included with such return or statement, the time for 
     assessment of any tax imposed by this title with respect to 
     such transaction shall not expire before the date which is 1 
     year after the earlier of--
       ``(A) the date on which the Secretary is furnished the 
     information so required; or
       ``(B) the date that a material advisor (as defined in 
     section 6111) meets the requirements of section 6112 with 
     respect to a request by the Secretary under section 6112(b) 
     relating to such transaction with respect to such 
     taxpayer.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years with respect to which the period 
     for assessing a deficiency did not expire before the date of 
     the enactment of this Act.

     SEC. 617. 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. 618. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW 
                   ENFORCEMENT.

       There is authorized to be appropriated $300,000,000 for 
     each fiscal year beginning after September 30, 2003, for the 
     purpose of carrying out tax law enforcement to combat tax 
     avoidance transactions and other tax shelters, including the 
     use of offshore financial accounts to conceal taxable income.

     SEC. 619. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT 
                   OF TAX LIABILITY.

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

     SEC. 620. STUDY ON INFORMATION SHARING AMONG LAW ENFORCEMENT 
                   AGENCIES.

       (a) Study.--The Secretary of the Treasury shall, jointly 
     with the Attorney General, the Securities and Exchange 
     Commission, and the Commissioner of Internal Revenue, study 
     the effectiveness of, and ways to improve, the sharing of 
     information related to the promotion of prohibited tax 
     shelters or tax avoidance schemes and other potential 
     violations of Federal laws.
       (b) Report.--The Secretary shall, not later than 1 year 
     after the date of the enactment of this Act, report to the 
     appropriate committees of the Congress the results of the 
     study under subsection (a), including any recommendations for 
     legislation.

            Subtitle B--Enron-Related Tax Shelter Provisions

     SEC. 631. 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

[[Page 12878]]

     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 Dates.--
       (1) In general.--The amendment made by subsection (a) shall 
     apply to transactions after December 31, 2003.
       (2) Liquidations.--The amendment made by subsection (b) 
     shall apply to liquidations after December 31, 2003.

     SEC. 632. NO REDUCTION OF BASIS UNDER SECTION 734 IN STOCK 
                   HELD BY PARTNERSHIP IN CORPORATE PARTNER.

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

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

     SEC. 633. REPEAL OF SPECIAL RULES FOR FASITS.

       (a) In general.--Part V of subchapter M of chapter 1 
     (relating to financial asset securitization investment 
     trusts) is hereby repealed.
       (b) Conforming Amendments.--
       (1) Paragraph (6) of section 56(g) is amended by striking 
     ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (2) Clause (ii) of section 382(l)(4)(B) is amended by 
     striking ``a REMIC to which part IV of subchapter M applies, 
     or a FASIT to which part V of subchapter M applies,'' and 
     inserting ``or a REMIC to which part IV of subchapter M 
     applies,''.
       (3) Paragraph (1) of section 582(c) is amended by striking 
     ``, and any regular interest in a FASIT,''.
       (4) Subparagraph (E) of section 856(c)(5) is amended by 
     striking the last sentence.
       (5)(A) Section 860G(a)(1) is amended by adding at the end 
     the following new sentence: ``An interest shall not fail to 
     qualify as a regular interest solely because the specified 
     principal amount of the regular interest (or the amount of 
     interest accrued on the regular interest) can be reduced as a 
     result of the nonoccurrence of 1 or more contingent payments 
     with respect to any reverse mortgage loan held by the REMIC 
     if, on the startup day for the REMIC, the sponsor reasonably 
     believes that all principal and interest due under the 
     regular interest will be paid at or prior to the liquidation 
     of the REMIC.''.
       (B) The last sentence of section 860G(a)(3) is amended by 
     inserting ``, and any reverse mortgage loan (and each balance 
     increase on such loan meeting the requirements of 
     subparagraph (A)(iii)) shall be treated as an obligation 
     secured by an interest in real property'' before the period 
     at the end.
       (6) Paragraph (3) of section 860G(a) is amended by adding 
     ``and'' at the end of subparagraph (B), by striking ``, and'' 
     at the end of subparagraph (C) and inserting a period, and by 
     striking subparagraph (D).
       (7) Section 860G(a)(3), as amended by paragraph (6), is 
     amended by adding at the end the following new sentence: 
     ``For purposes of subparagraph (A), if more than 50 percent 
     of the obligations transferred to, or purchased by, the REMIC 
     are originated by the United States or any State (or any 
     political subdivision, agency, or instrumentality of the 
     United States or any State) and are principally secured by an 
     interest in real property, then each obligation transferred 
     to, or purchased by, the REMIC shall be treated as secured by 
     an interest in real property.''.
       (8)(A) Section 860G(a)(3)(A) is amended by striking ``or'' 
     at the end of clause (i), by inserting ``or'' at the end of 
     clause (ii), and by inserting after clause (ii) the following 
     new clause:
       ``(iii) represents an increase in the principal amount 
     under the original terms of an obligation described in clause 
     (i) or (ii) if such increase--

       ``(I) is attributable to an advance made to the obligor 
     pursuant to the original terms of the obligation,
       ``(II) occurs after the startup day, and
       ``(III) is purchased by the REMIC pursuant to a fixed price 
     contract in effect on the startup day.''.

       (B) Section 860G(a)(7)(B) is amended to read as follows:
       ``(B) Qualified reserve fund.--For purposes of subparagraph 
     (A), the term `qualified reserve fund' means any reasonably 
     required reserve to--
       ``(i) provide for full payment of expenses of the REMIC or 
     amounts due on regular interests in the event of defaults on 
     qualified mortgages or lower than expected returns on cash 
     flow investments, or
       ``(ii) provide a source of funds for the purchase of 
     obligations described in clause (ii) or (iii) of paragraph 
     (3)(A).

     The aggregate fair market value of the assets held in any 
     such reserve shall not exceed 50 percent of the aggregate 
     fair market value of all of the assets of the REMIC on the 
     startup day, and the amount of any such reserve shall be 
     promptly and appropriately reduced to the extent the amount 
     held in such reserve is no longer reasonably required for 
     purposes specified in clause (i) or (ii) of this 
     subparagraph.''.
       (9) Subparagraph (C) of section 1202(e)(4) is amended by 
     striking ``REMIC, or FASIT'' and inserting ``or REMIC''.
       (10) Clause (xi) of section 7701(a)(19)(C) is amended--
       (A) by striking ``and any regular interest in a FASIT,'', 
     and
       (B) by striking ``or FASIT'' each place it appears.
       (11) Subparagraph (A) of section 7701(i)(2) is amended by 
     striking ``or a FASIT''.
       (12) The table of parts for subchapter M of chapter 1 is 
     amended by striking the item relating to part V.
       (c) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall take effect on February 
     14, 2003.
       (2) Exception for existing fasits.--Paragraph (1) shall not 
     apply to any FASIT in existence on the date of the enactment 
     of this Act to the extent that regular interests issued by 
     the FASIT before such date continue to remain outstanding in 
     accordance with the original terms of issuance.

     SEC. 634. EXPANDED DISALLOWANCE OF DEDUCTION FOR INTEREST ON 
                   CONVERTIBLE DEBT.

       (a) In General.--Paragraph (2) of section 163(l) is amended 
     by inserting ``or equity held by the issuer (or any related 
     party) in any other person'' after ``or a related party''.
       (b) Capitalization Allowed With Respect to Equity of 
     Persons Other Than Issuer and Related Parties.--Section 
     163(l) is amended by redesignating paragraphs (4) and (5) as 
     paragraphs (5) and (6) and by inserting after paragraph (3) 
     the following new paragraph:
       ``(4) Capitalization allowed with respect to equity of 
     persons other than issuer and related parties.--If the 
     disqualified debt instrument of a corporation is payable in 
     equity held by the issuer (or any related party) in any other 
     person (other than a related party), the basis of such equity 
     shall be increased by the amount not allowed as a deduction 
     by reason of paragraph (1) with respect to the instrument.''.
       (c) Exception for Certain Instruments Issued by Dealers in 
     Securities.--Section 163(l), as amended by subsection (b), is 
     amended by redesignating paragraphs (5) and (6) as paragraphs 
     (6) and (7) and by inserting after paragraph (4) the 
     following new paragraph:
       ``(5) Exception for certain instruments issued by dealers 
     in securities.--For purposes of this subsection, the term 
     `disqualified debt instrument' does not include indebtedness 
     issued by a dealer in securities (or a related party) which 
     is payable in, or by reference to, equity (other than equity 
     of the issuer or a related party) held by such dealer in its 
     capacity as a dealer in securities. For purposes of this 
     paragraph, the term `dealer in securities' has the meaning 
     given such term by section 475.''.
       (d) Conforming Amendments.--Paragraph (3) of section 163(l) 
     is amended--
       (1) by striking ``or a related party'' in the material 
     preceding subparagraph (A) and inserting ``or any other 
     person'', and
       (2) by striking ``or interest'' each place it appears.

[[Page 12879]]

       (e) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after February 13, 
     2003.

     SEC. 635. EXPANDED AUTHORITY TO DISALLOW TAX BENEFITS UNDER 
                   SECTION 269.

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

     then the Secretary may disallow such deduction, credit, or 
     other allowance. For purposes of paragraph (1)(A), control 
     means the ownership of stock possessing at least 50 percent 
     of the total combined voting power of all classes of stock 
     entitled to vote or at least 50 percent of the total value of 
     all shares of all classes of stock of the corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to stock and property acquired after February 13, 
     2003.

     SEC. 636. MODIFICATION OF INTERACTION BETWEEN SUBPART F AND 
                   PASSIVE FOREIGN INVESTMENT COMPANY RULES.

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

     ``Such term shall not include any period if the earning of 
     subpart F income by such corporation during such period would 
     result in only a remote likelihood of an inclusion in gross 
     income under section 951(a)(1)(A)(i).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of controlled foreign 
     corporations beginning after February 13, 2003, and to 
     taxable years of United States shareholders with or within 
     which such taxable years of controlled foreign corporations 
     end.

    Subtitle C--Restructuring of Incentives for Alcohol Fuels, Etc.

     SEC. 641. REDUCED RATES OF TAX ON GASOHOL REPLACED WITH 
                   EXCISE TAX CREDIT; REPEAL OF OTHER ALCOHOL-
                   BASED FUEL INCENTIVES; ETC.

       (a) Excise Tax Credit for Alcohol Fuel Mixtures.--
       (1) In general.--Subsection (f) of section 6427 is amended 
     to read as follows:
       ``(f) Alcohol Fuel Mixtures.--
       ``(1) In general.--The amount of credit which would (but 
     for section 40(c)) be determined under section 40(a)(1) for 
     any period--
       ``(A) shall, with respect to taxable events occurring 
     during such period, be treated--
       ``(i) as a payment of the taxpayer's liability for tax 
     imposed by section 4081, and
       ``(ii) as received at the time of the taxable event, and
       ``(B) to the extent such amount of credit exceeds such 
     liability for such period, shall (except as provided in 
     subsection (k)) be paid subject to subsection (i)(3) by the 
     Secretary without interest.
       ``(2) Special rules.--
       ``(A) Only certain alcohol taken into account.--For 
     purposes of paragraph (1), section 40 shall be applied--
       ``(i) by not taking into account alcohol with a proof of 
     less than 190, and
       ``(ii) by treating as alcohol the alcohol gallon equivalent 
     of ethyl tertiary butyl ether or other ethers produced from 
     such alcohol.
       ``(B) Treatment of refiners.--For purposes of paragraph 
     (1), in the case of a mixture--
       ``(i) the alcohol in which is described in subparagraph 
     (A)(ii), and
       ``(ii) which is produced by any person at a refinery prior 
     to any taxable event,

     section 40 shall be applied by treating such person as having 
     sold such mixture at the time of its removal from the 
     refinery (and only at such time) to another person for use as 
     a fuel.
       ``(3) Mixtures not used as fuel.--Rules similar to the 
     rules of subparagraphs (A) and (D) of section 40(d)(3) shall 
     apply for purposes of this subsection.
       ``(4) Termination.--This section shall apply only to 
     periods to which section 40 applies, determined by 
     substituting in section 40(e)--
       ``(A) `December 31, 2010' for `December 31, 2007', and
       ``(B) `January 1, 2011' for `January 1, 2008'.''
       (2) Revision of rules for payment of credit.--Paragraph (3) 
     of section 6427(i) is amended to read as follows:
       ``(3) Special rule for alcohol mixture credit.--
       ``(A) In general.--A claim may be filed under subsection 
     (f)(1)(B) by any person for any period--
       ``(i) for which $200 or more is payable under such 
     subsection (f)(1)(B), and
       ``(ii) which is not less than 1 week.

     In the case of an electronic claim, this subparagraph shall 
     be applied without regard to clause (i).
       ``(B) Payment of claim.--Notwithstanding subsection 
     (f)(1)(B), if the Secretary has not paid pursuant to a claim 
     filed under this section within 45 days of the date of the 
     filing of such claim (20 days in the case of an electronic 
     claim), the claim shall be paid with interest from such date 
     determined by using the overpayment rate and method under 
     section 6621.
       ``(C) Time for filing claim.--No claim filed under this 
     paragraph shall be allowed unless filed on or before the last 
     day of the first quarter following the earliest quarter 
     included in the claim.''
       (b) Repeal of Other Incentives for Fuel Mixtures.--
       (1) Subsection (b) of section 4041 is amended to read as 
     follows:
       ``(b) Exemption for Off-Highway Business Use.--
       ``(1) In general.--No tax shall be imposed by subsection 
     (a) or (d)(1) on liquids sold for use or used in an off-
     highway business use.
       ``(2) Tax where other use.--If a liquid on which no tax was 
     imposed by reason of paragraph (1) is used otherwise than in 
     an off-highway business use, a tax shall be imposed by 
     paragraph (1)(B), (2)(B), or (3)(A)(ii) of subsection (a) 
     (whichever is appropriate) and by the corresponding provision 
     of subsection (d)(1) (if any).
       ``(3) Off-highway business use defined.--For purposes of 
     this subsection, the term `off-highway business use' has the 
     meaning given to such term by section 6421(e)(2); except that 
     such term shall not, for purposes of subsection (a)(1), 
     include use in a diesel-powered train.''
       (2) Section 4041(k) is hereby repealed.
       (3) Section 4081(c) is hereby repealed.
       (4) Section 4091(c) is hereby repealed.
       (c) Transfers to Highway Trust Fund.--Paragraph (4) of 
     section 9503(b) is amended by adding ``or'' at the end of 
     subparagraph (B), by striking the comma at the end of 
     subparagraph (C) and inserting a period, and by striking 
     subparagraphs (D), (E), and (F).
       (d) Conforming Amendments.--
       (1) Subsection (c) of section 40 is amended to read as 
     follows:
       ``(c) Coordination With Excise Tax Benefits.--The amount of 
     the credit determined under this section with respect to any 
     alcohol shall, under regulations prescribed by the Secretary, 
     be properly reduced to take into account the benefit provided 
     with respect to such alcohol under section 6427(f).''
       (2) Subparagraph (B) of section 40(d)(4) is amended by 
     striking ``under section 4041(k) or 4081(c)'' and inserting 
     ``under section 6427(f)''.
       (e) Effective Dates.--
       (1) In general.--Except as provided by paragraph (2), the 
     amendments made by this section shall apply to fuel sold or 
     used after September 30, 2004.
       (2) Subsection (c).--The amendments made by subsection (c) 
     shall apply to taxes imposed after September 30, 2003.

     SEC. 642. ALCOHOL FUEL SUBSIDIES BORNE BY GENERAL FUND.

       (a) Transfers to Fund.--Section 9503(b)(1) is amended by 
     adding at the end the following new flush sentence:

     ``For purposes of this paragraph, the amount of taxes 
     received under section 4081 shall include any amount treated 
     as a payment under section 6427(f)(1)(A) and shall not be 
     reduced by the amount paid under section 6427(f)(1)(B).''.
       (b) Transfers From Fund.--Subparagraph (A) of section 
     9503(c)(2) is amended by adding at the end the following new 
     sentence: ``Clauses (i)(III) and (ii) shall not apply to 
     claims under section 6427(f)(1)(B).''
       (c) Effective Date.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to taxes received after September 30, 2004.
       (2) Subsection (b).--The amendment made by subsection (b) 
     shall apply to amounts paid after September 30, 2004, and (to 
     the extent related to section 34 of the Internal Revenue Code 
     of 1986) to fuel used after such date.

               Subtitle D--Reduction of Fuel Tax Evasion

     SEC. 651. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE 
                   MACHINERY.

       (a) Exemption From Tax on Heavy Trucks and Trailers Sold at 
     Retail.--
       (1) In general.--Section 4053 (relating to exemptions) is 
     amended by adding at the end the following new paragraph:
       ``(8) Mobile machinery.--Any vehicle which consists of a 
     chassis--
       ``(A) to which there has been permanently mounted (by 
     welding, bolting, riveting, or other means) machinery or 
     equipment to perform a construction, manufacturing, 
     processing, farming, mining, drilling, timbering, or similar 
     operation if the operation of the machinery or equipment is 
     unrelated to transportation on or off the public highways,
       ``(B) which has been specially designed to serve only as a 
     mobile carriage and mount (and a power source, where 
     applicable) for the particular machinery or equipment 
     involved, whether or not such machinery or equipment is in 
     operation, and
       ``(C) which, by reason of such special design, could not, 
     without substantial structural modification, be used as a 
     component of a vehicle designed to perform a function of 
     transporting any load other than that particular machinery or 
     equipment or similar

[[Page 12880]]

     machinery or equipment requiring such a specially designed 
     chassis.''.
       (2) Effective date.--The amendment made by this subsection 
     shall take effect on the day after the date of the enactment 
     of this Act.
       (b) Exemption From Tax on Use of Certain Vehicles.--
       (1) In general.--Section 4483 (relating to exemptions) is 
     amended by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Exemption for Mobile Machinery.--No tax shall be 
     imposed by section 4481 on the use of any vehicle described 
     in section 4053(8).''.
       (2) Effective date.--The amendments made by this subsection 
     shall take effect on the day after the date of the enactment 
     of this Act.
       (c) Exemption From Tax on Tires.--
       (1) In general.--Section 4072(b)(2) is amended by adding at 
     the end the following flush sentence: ``Such term shall not 
     include tires of a type used exclusively on vehicles 
     described in section 4053(8).''.
       (2) Effective date.--The amendment made by this subsection 
     shall take effect on the day after the date of the enactment 
     of this Act.
       (d) Refund of Fuel Taxes.--
       (1) In general.--Section 6421(e)(2) (defining off-highway 
     business use) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Uses in mobile machinery.--
       ``(i) In general.--The term `off-highway business use' 
     shall include any use in a vehicle which meets the 
     requirements described in clause (ii).
       ``(ii) Requirements for mobile machinery.--The requirements 
     described in this clause are--

       ``(I) the design-based test, and
       ``(II) the use-based test.

       ``(iii) Design-based test.--For purposes of clause (ii)(I), 
     the design-based test is met if the vehicle consists of a 
     chassis--

       ``(I) to which there has been permanently mounted (by 
     welding, bolting, riveting, or other means) machinery or 
     equipment to perform a construction, manufacturing, 
     processing, farming, mining, drilling, timbering, or similar 
     operation if the operation of the machinery or equipment is 
     unrelated to transportation on or off the public highways,
       ``(II) which has been specially designed to serve only as a 
     mobile carriage and mount (and a power source, where 
     applicable) for the particular machinery or equipment 
     involved, whether or not such machinery or equipment is in 
     operation, and
       ``(III) which, by reason of such special design, could not, 
     without substantial structural modification, be used as a 
     component of a vehicle designed to perform a function of 
     transporting any load other than that particular machinery or 
     equipment or similar machinery or equipment requiring such a 
     specially designed chassis.

       ``(iv) Use-based test.--For purposes of clause (ii)(II), 
     the use-based test is met if the use of the vehicle on public 
     highways was less than 7,500 miles during the taxpayer's 
     taxable year.''.
       (2) No tax-free sales.--Subsection (b) of section 4082, as 
     amended by section 652, is amended by inserting before the 
     period at the end ``and such term shall not include any use 
     described in section 6421(e)(2)(C)''.
       (3) Annual refund of tax paid.--Section 6427(i)(2) 
     (relating to exceptions) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Nonapplication of paragraph.--This paragraph shall 
     not apply to any fuel used solely in any off-highway business 
     use described in section 6421(e)(2)(C).''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 652. TAXATION OF AVIATION-GRADE KEROSENE.

       (a) Rate of Tax.--
       (1) In general.--Subparagraph (A) of section 4081(a)(2) is 
     amended by striking ``and'' at the end of clause (ii), by 
     striking the period at the end of clause (iii) and inserting 
     ``, and'', and by adding at the end the following new clause:
       ``(iv) in the case of aviation-grade kerosene, 21.8 cents 
     per gallon.''.
       (2) Commercial aviation.--Paragraph (2) of section 4081(a) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(C) Taxes imposed on fuel used in commercial aviation.--
     In the case of aviation-grade kerosene which is removed from 
     any refinery or terminal directly into the fuel tank of an 
     aircraft for use in commercial aviation, the rate of tax 
     under subparagraph (A)(iv) shall be 4.3 cents per gallon.''.
       (3) Certain refueler trucks, tankers, and tank wagons 
     treated as terminal.--Subsection (a) of section 4081 is 
     amended by adding at the end the following new paragraph:
       ``(3) Certain refueler trucks, tankers, and tank wagons 
     treated as terminal.--
       ``(A) In general.--In the case of aviation-grade kerosene 
     which is removed from any terminal directly into the fuel 
     tank of an aircraft (determined without regard to any 
     refueler truck, tanker, or tank wagon which meets the 
     requirements of subparagraph (B)), a refueler truck, tanker, 
     or tank wagon shall be treated as part of such terminal if--
       ``(i) such truck, tanker, or wagon meets the requirements 
     of subparagraph (B) with respect to an airport, and
       ``(ii) except in the case of exigent circumstances 
     identified by the Secretary in regulations, no vehicle 
     registered for highway use is loaded with aviation-grade 
     kerosene at such terminal.
       ``(B) Requirements.--A refueler truck, tanker, or tank 
     wagon meets the requirements of this subparagraph with 
     respect to an airport if such truck, tanker, or wagon--
       ``(i) is loaded with aviation-grade kerosene at such 
     terminal located within such airport and delivers such 
     kerosene only into aircraft at such airport,
       ``(ii) has storage tanks, hose, and coupling equipment 
     designed and used for the purposes of fueling aircraft,
       ``(iii) is not registered for highway use, and
       ``(iv) is operated by--

       ``(I) the terminal operator of such terminal, or
       ``(II) a person that makes a daily accounting to such 
     terminal operator of each delivery of fuel from such truck, 
     tanker, or wagon.

       ``(C) Reporting.--The Secretary shall require under section 
     4101(d) reporting by such terminal operator of--
       ``(i) any information obtained under subparagraph 
     (B)(iv)(II), and
       ``(ii) any similar information maintained by such terminal 
     operator with respect to deliveries of fuel made by trucks, 
     tankers, or wagons operated by such terminal operator.''.
       (4) Liability for tax on aviation-grade kerosene used in 
     commercial aviation.--Subsection (a) of section 4081 is 
     amended by adding at the end the following new paragraph:
       ``(4) Liability for tax on aviation-grade kerosene used in 
     commercial aviation.--For purposes of paragraph (2)(C), the 
     person who uses the fuel for commercial aviation shall pay 
     the tax imposed under such paragraph. For purposes of the 
     preceding sentence, fuel shall be treated as used when such 
     fuel is removed into the fuel tank.''.
       (5) Nontaxable uses.--
       (A) In general.--Section 4082 is amended by redesignating 
     subsections (e) and (f) as subsections (f) and (g), 
     respectively, and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Aviation-Grade Kerosene.--In the case of aviation-
     grade kerosene which is exempt from the tax imposed by 
     section 4041(c) (other than by reason of a prior imposition 
     of tax) and which is removed from any refinery or terminal 
     directly into the fuel tank of an aircraft, the rate of tax 
     under section 4081(a)(2)(A)(iv) shall be zero.''.
       (B) Conforming amendments.--
       (i) Subsection (b) of section 4082 is amended by adding at 
     the end the following new flush sentence:

     ``The term `nontaxable use' does not include the use of 
     aviation-grade kerosene in an aircraft.''.
       (ii) Section 4082(d) is amended by striking paragraph (1) 
     and by redesignating paragraphs (2) and (3) as paragraphs (1) 
     and (2), respectively.
       (6) Nonaircraft use of aviation-grade kerosene.--
       (A) In general.--Subparagraph (B) of section 4041(a)(1) is 
     amended by adding at the end the following new sentence: 
     ``This subparagraph shall not apply to aviation-grade 
     kerosene.''.
       (B) Conforming amendment.--The heading for paragraph (1) of 
     section 4041(a) is amended by inserting ``and kerosene'' 
     after ``diesel fuel''.
       (b) Commercial Aviation.--Section 4083 is amended by 
     redesignating subsections (b) and (c) as subsections (c) and 
     (d), respectively, and by inserting after subsection (a) the 
     following new subsection:
       ``(b) Commercial Aviation.--For purposes of this subpart, 
     the term `commercial aviation' means any use of an aircraft 
     in a business of transporting persons or property for 
     compensation or hire by air, unless properly allocable to any 
     transportation exempt from the taxes imposed by sections 4261 
     and 4271 by reason of section 4281 or 4282 or by reason of 
     section 4261(h).''.
       (c) Refunds.--
       (1) In general.--Paragraph (4) of section 6427(l) is 
     amended to read as follows:
       ``(4) Refunds for aviation-grade kerosene.--
       ``(A) No refund of certain taxes on fuel used in commercial 
     aviation.--In the case of aviation-grade kerosene used in 
     commercial aviation (as defined in section 4083(b)) (other 
     than supplies for vessels or aircraft within the meaning of 
     section 4221(d)(3)), paragraph (1) shall not apply to so much 
     of the tax imposed by section 4081 as is attributable to--
       ``(i) the Leaking Underground Storage Tank Trust Fund 
     financing rate imposed by such section, and
       ``(ii) so much of the rate of tax specified in section 
     4081(a)(2)(A)(iv) as does not exceed 4.3 cents per gallon.
       ``(B) Payment to ultimate, registered vendor.--With respect 
     to aviation-grade kerosene, if the ultimate purchaser of such 
     kerosene waives (at such time and in such form

[[Page 12881]]

     and manner as the Secretary shall prescribe) the right to 
     payment under paragraph (1) and assigns such right to the 
     ultimate vendor, then the Secretary shall pay the amount 
     which would be paid under paragraph (1) to such ultimate 
     vendor, but only if such ultimate vendor--
       ``(i) is registered under section 4101, and
       ``(ii) meets the requirements of subparagraph (A), (B), or 
     (D) of section 6416(a)(1).''.
       (2) Time for filing claims.--Subparagraph (A) of section 
     6427(i)(4) is amended--
       (A) by striking ``subsection (l)(5)'' both places it 
     appears and inserting ``paragraph (4)(B) or (5) of subsection 
     (l)'', and
       (B) by striking ``the preceding sentence'' and inserting 
     ``subsection (l)(5)''.
       (3) Conforming amendment.--Subparagraph (B) of section 
     6427(l)(2) is amended to read as follows:
       ``(B) in the case of aviation-grade kerosene--
       ``(i) any use which is exempt from the tax imposed by 
     section 4041(c) other than by reason of a prior imposition of 
     tax, or
       ``(ii) any use in commercial aviation (within the meaning 
     of section 4083(b)).''.
       (d) Repeal of Prior Taxation of Aviation Fuel.--
       (1) In general.--Part III of subchapter A of chapter 32 is 
     amended by striking subpart B and by redesignating subpart C 
     as subpart B.
       (2) Conforming amendments.--
       (A) Section 4041(c) is amended to read as follows:
       ``(c) Aviation-Grade Kerosene.--
       ``(1) In general.--There is hereby imposed a tax upon 
     aviation-grade kerosene--
       ``(A) sold by any person to an owner, lessee, or other 
     operator of an aircraft for use in such aircraft, or
       ``(B) used by any person in an aircraft unless there was a 
     taxable sale of such fuel under subparagraph (A).
       ``(2) Exemption for previously taxed fuel.--No tax shall be 
     imposed by this subsection on the sale or use of any 
     aviation-grade kerosene if tax was imposed on such liquid 
     under section 4081 and the tax thereon was not credited or 
     refunded.
       ``(3) Rate of tax.--The rate of tax imposed by this 
     subsection shall be the rate of tax specified in section 
     4081(a)(2)(A)(iv) which is in effect at the time of such sale 
     or use.''.
       (B) Section 4041(d)(2) is amended by striking ``section 
     4091'' and inserting ``section 4081''.
       (C) Section 4041 is amended by striking subsection (e).
       (D) Section 4041 is amended by striking subsection (i).
       (E) Sections 4101(a), 4103, 4221(a), and 6206 are each 
     amended by striking ``, 4081, or 4091'' and inserting ``or 
     4081''.
       (F) Section 6416(b)(2) is amended by striking ``4091 or''.
       (G) Section 6416(b)(3) is amended by striking ``or 4091'' 
     each place it appears.
       (H) Section 6416(d) is amended by striking ``or to the tax 
     imposed by section 4091 in the case of refunds described in 
     section 4091(d)''.
       (I) Section 6427(j)(1) is amended by striking ``, 4081, and 
     4091'' and inserting ``and 4081''.
       (J)(i) Section 6427(l)(1) is amended to read as follows:
       ``(1) In general.--Except as otherwise provided in this 
     subsection and in subsection (k), if any diesel fuel or 
     kerosene on which tax has been imposed by section 4041 or 
     4081 is used by any person in a nontaxable use, the Secretary 
     shall pay (without interest) to the ultimate purchaser of 
     such fuel an amount equal to the aggregate amount of tax 
     imposed on such fuel under section 4041 or 4081, as the case 
     may be, reduced by any payment made to the ultimate vendor 
     under paragraph (4)(B).''.
       (ii) Paragraph (5)(B) of section 6427(l) is amended by 
     striking ``Paragraph (1)(A) shall not apply to kerosene'' and 
     inserting ``Paragraph (1) shall not apply to kerosene (other 
     than aviation-grade kerosene)''.
       (K) Subparagraph (B) of section 6724(d)(1) is amended by 
     striking clause (xv) and by redesignating the succeeding 
     clauses accordingly.
       (L) Paragraph (2) of section 6724(d) is amended by striking 
     subparagraph (W) and by redesignating the succeeding 
     subparagraphs accordingly.
       (M) Paragraph (1) of section 9502(b) is amended by adding 
     ``and'' at the end of subparagraph (B) and by striking 
     subparagraphs (C) and (D) and inserting the following new 
     subparagraph:
       ``(C) section 4081 with respect to aviation gasoline and 
     aviation-grade kerosene, and''.
       (N) The last sentence of section 9502(b) is amended to read 
     as follows:

     ``There shall not be taken into account under paragraph (1) 
     so much of the taxes imposed by section 4081 as are 
     determined at the rate specified in section 4081(a)(2)(B).''.
       (O) Subsection (b) of section 9508 is amended by striking 
     paragraph (3) and by redesignating paragraphs (4) and (5) as 
     paragraphs (3) and (4), respectively.
       (P) Section 9508(c)(2)(A) is amended by striking ``sections 
     4081 and 4091'' and inserting ``section 4081''.
       (Q) The table of subparts for part III of subchapter A of 
     chapter 32 is amended to read as follows:

``Subpart A. Motor and aviation fuels.
``Subpart B. Special provisions applicable to fuels tax.''.

       (R) The heading for subpart A of part III of subchapter A 
     of chapter 32 is amended to read as follows:

                ``Subpart A--Motor and Aviation Fuels''.

       (S) The heading for subpart B of part III of subchapter A 
     of chapter 32, as redesignated by paragraph (1), is amended 
     to read as follows:

       ``Subpart B--Special Provisions Applicable to Fuels Tax''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to aviation-grade kerosene removed, entered, or 
     sold after September 30, 2004.
       (f) Floor Stocks Tax.--
       (1) In general.--There is hereby imposed on aviation-grade 
     kerosene held on October 1, 2004, by any person a tax equal 
     to--
       (A) the tax which would have been imposed before such date 
     on such kerosene had the amendments made by this section been 
     in effect at all times before such date, reduced by
       (B) the tax imposed before such date under section 4091 of 
     the Internal Revenue Code of 1986, as in effect on the day 
     before the date of the enactment of this Act.
       (2) Liability for tax and method of payment.--
       (A) Liability for tax.--The person holding the kerosene on 
     October 1, 2004, to which the tax imposed by paragraph (1) 
     applies shall be liable for such tax.
       (B) Method and time for payment.--The tax imposed by 
     paragraph (1) shall be paid at such time and in such manner 
     as the Secretary of the Treasury (or the Secretary's 
     delegate) shall prescribe, including the nonapplication of 
     such tax on de minimis amounts of kerosene.
       (3) Transfer of floor stock tax revenues to trust funds.--
     For purposes of determining the amount transferred to any 
     trust fund, the tax imposed by this subsection shall be 
     treated as imposed by section 4081 of the Internal Revenue 
     Code of 1986--
       (A) at the Leaking Underground Storage Tank Trust Fund 
     financing rate under such section to the extent of 0.1 cents 
     per gallon, and
       (B) at the rate under section 4081(a)(2)(A)(iv) to the 
     extent of the remainder.
       (4) Held by a person.--For purposes of this section, 
     kerosene shall be considered as held by a person if title 
     thereto has passed to such person (whether or not delivery to 
     the person has been made).
       (5) Other laws applicable.--All provisions of law, 
     including penalties, applicable with respect to the tax 
     imposed by section 4081 of such Code shall, insofar as 
     applicable and not inconsistent with the provisions of this 
     subsection, apply with respect to the floor stock tax imposed 
     by paragraph (1) to the same extent as if such tax were 
     imposed by such section.

     SEC. 653. DYE INJECTION EQUIPMENT.

       (a) In General.--Section 4082(a)(2) (relating to exemptions 
     for diesel fuel and kerosene) is amended by inserting ``by 
     mechanical injection'' after ``indelibly dyed''.
       (b) Dye Injector Security.--Not later than 180 days after 
     the date of the enactment of this Act, the Secretary of the 
     Treasury shall issue regulations regarding mechanical dye 
     injection systems described in the amendment made by 
     subsection (a), and such regulations shall include standards 
     for making such systems tamper resistant.
       (c) Penalty for Tampering With or Failing To Maintain 
     Security Requirements for Mechanical Dye Injection Systems.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by adding after 
     section 6715 the following new section:

     ``SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY 
                   REQUIREMENTS FOR MECHANICAL DYE INJECTION 
                   SYSTEMS.

       ``(a) Imposition of Penalty--
       ``(1) Tampering.--If any person tampers with a mechanical 
     dye injection system used to indelibly dye fuel for purposes 
     of section 4082, such person shall pay a penalty in addition 
     to the tax (if any).
       ``(2) Failure to maintain security requirements.--If any 
     operator of a mechanical dye injection system used to 
     indelibly dye fuel for purposes of section 4082 fails to 
     maintain the security standards for such system as 
     established by the Secretary, then such operator shall pay a 
     penalty in addition to the tax (if any).
       ``(b) Amount of Penalty.--The amount of the penalty under 
     subsection (a) shall be--
       ``(1) for each violation described in paragraph (1), the 
     greater of--
       ``(A) $25,000, or
       ``(B) $10 for each gallon of fuel involved, and
       ``(2) for each--
       ``(A) failure to maintain security standards described in 
     paragraph (2), $1,000, and
       ``(B) failure to correct a violation described in paragraph 
     (2), $1,000 per day for each day after which such violation 
     was discovered or such person should have reasonably known of 
     such violation.
       ``(c) Joint and Several Liability.--
       ``(1) In general.--If a penalty is imposed under this 
     section on any business entity, each officer, employee, or 
     agent of such entity or other contracting party who willfully

[[Page 12882]]

     participated in any act giving rise to such penalty shall be 
     jointly and severally liable with such entity for such 
     penalty.
       ``(2) Affiliated groups.--If a business entity described in 
     paragraph (1) is part of an affiliated group (as defined in 
     section 1504(a)), the parent corporation of such entity shall 
     be jointly and severally liable with such entity for the 
     penalty imposed under this section.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by adding after the 
     item related to section 6715 the following new item:

``Sec. 6715A. Tampering with or failing to maintain security 
              requirements for mechanical dye injection systems.''.

       (d) Effective Date.--The amendments made by subsections (a) 
     and (c) shall take effect on the 180th day after the date on 
     which the Secretary issues the regulations described in 
     subsection (b).

     SEC. 654. AUTHORITY TO INSPECT ON-SITE RECORDS.

       (a) In General.--Section 4083(d)(1)(A) (relating to 
     administrative authority), as previously amended by this Act, 
     is amended by striking ``and'' at the end of clause (i) and 
     by inserting after clause (ii) the following new clause:
       ``(iii) inspecting any books and records and any shipping 
     papers pertaining to such fuel, and''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 655. REGISTRATION OF PIPELINE OR VESSEL OPERATORS 
                   REQUIRED FOR EXEMPTION OF BULK TRANSFERS TO 
                   REGISTERED TERMINALS OR REFINERIES.

       (a) In general.--Section 4081(a)(1)(B) (relating to 
     exemption for bulk transfers to registered terminals or 
     refineries) is amended--
       (1) by inserting ``by pipeline or vessel'' after 
     ``transferred in bulk'', and
       (2) by inserting ``, the operator of such pipeline or 
     vessel,'' after ``the taxable fuel''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.
       (c) Publication of Registered Persons.--Beginning on July 
     1, 2004, the Secretary of the Treasury (or the Secretary's 
     delegate) shall periodically publish a current list of 
     persons registered under section 4101 of the Internal Revenue 
     Code of 1986 who are required to register under such section.

     SEC. 656. DISPLAY OF REGISTRATION.

       (a) In General.--Subsection (a) of section 4101 (relating 
     to registration) is amended--
       (1) by striking ``Every'' and inserting the following:
       ``(1) In general.--Every'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Display of registration.--Every operator of a vessel 
     required by the Secretary to register under this section 
     shall display proof of registration through an electronic 
     identification device prescribed by the Secretary on each 
     vessel used by such operator to transport any taxable 
     fuel.''.
       (b) Civil Penalty for Failure To Display Registration.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by inserting 
     after section 6716 the following new section:

     ``SEC. 6717. FAILURE TO DISPLAY TAX REGISTRATION ON VESSELS.

       ``(a) Failure To Display Registration.--Every operator of a 
     vessel who fails to display proof of registration pursuant to 
     section 4101(a)(2) shall pay a penalty of $500 for each such 
     failure. With respect to any vessel, only one penalty shall 
     be imposed by this section during any calendar month.
       ``(b) Multiple Violations.--In determining the penalty 
     under subsection (a) on any person, subsection (a) shall be 
     applied by increasing the amount in subsection (a) by the 
     product of such amount and the aggregate number of penalties 
     (if any) imposed with respect to prior months by this section 
     on such person (or a related person or any predecessor of 
     such person or related person).
       ``(c) Reasonable Cause Exception.--No penalty shall be 
     imposed under this section with respect to any failure if it 
     is shown that such failure is due to reasonable cause.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by inserting after 
     the item relating to section 6716 the following new item:

``Sec. 6717. Failure to display tax registration on vessels.''.

       (c) Effective Dates.--
       (1) Subsection (a).--The amendments made by subsection (a) 
     shall take effect on October 1, 2004.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to penalties imposed after September 30, 2004.

     SEC. 657. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO 
                   REPORT.

       (a) Increased Penalty.--Subsection (a) of section 7272 
     (relating to penalty for failure to register) is amended by 
     inserting ``($10,000 in the case of a failure to register 
     under section 4101)'' after ``$50''.
       (b) Increased Criminal Penalty.--Section 7232 (relating to 
     failure to register under section 4101, false representations 
     of registration status, etc.) is amended by striking 
     ``$5,000'' and inserting ``$10,000''.
       (c) Assessable Penalty for Failure To Register.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by inserting 
     after section 6717 the following new section:

     ``SEC. 6718. FAILURE TO REGISTER.

       ``(a) Failure To Register.--Every person who is required to 
     register under section 4101 and fails to do so shall pay a 
     penalty in addition to the tax (if any).
       ``(b) Amount of Penalty.--The amount of the penalty under 
     subsection (a) shall be--
       ``(1) $10,000 for each initial failure to register, and
       ``(2) $1,000 for each day thereafter such person fails to 
     register.
       ``(c) Reasonable Cause Exception.--No penalty shall be 
     imposed under this section with respect to any failure if it 
     is shown that such failure is due to reasonable cause.''.
       (2) Clerical amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by inserting after 
     the item relating to section 6717 the following new item:

``Sec. 6718. Failure to register.''.

       (d) Assessable Penalty for Failure To Report.--
       (1) In general.--Part II of subchapter B of chapter 68 
     (relating to assessable penalties) is amended by adding at 
     the end the following new section:

     ``SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 
                   4101.

       ``(a) In General.--In the case of each failure described in 
     subsection (b) by any person with respect to a vessel or 
     facility, such person shall pay a penalty of $10,000 in 
     addition to the tax (if any).
       ``(b) Failures Subject to Penalty.--For purposes of 
     subsection (a), the failures described in this subsection 
     are--
       ``(1) any failure to make a report under section 4101(d) on 
     or before the date prescribed therefor, and
       ``(2) any failure to include all of the information 
     required to be shown on such report or the inclusion of 
     incorrect information.
       ``(c) Reasonable Cause Exception.--No penalty shall be 
     imposed under this section with respect to any failure if it 
     is shown that such failure is due to reasonable cause.''.
       (2) Clerical amendment.--The table of sections for part II 
     of subchapter B of chapter 68 is amended by adding at the end 
     the following new item:

``Sec. 6725. Failure to report information under section 4101.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to penalties imposed after September 30, 2004.

     SEC. 658. COLLECTION FROM CUSTOMS BOND WHERE IMPORTER NOT 
                   REGISTERED.

       (a) Tax at Point of Entry Where Importer Not Registered.--
     Subpart B of part III of subchapter A of chapter 32, as 
     redesignated by section 652(d), is amended by adding after 
     section 4103 the following new section:

     ``SEC. 4104. COLLECTION FROM CUSTOMS BOND WHERE IMPORTER NOT 
                   REGISTERED.

       ``(a) In General.--The importer of record shall be jointly 
     and severally liable for the tax imposed by section 
     4081(a)(1)(A)(iii) if, under regulations prescribed by the 
     Secretary, any other person that is not a person who is 
     registered under section 4101 is liable for such tax.
       ``(b) Collection From Customs Bond.--If any tax for which 
     any importer of record is liable under subsection (a), or for 
     which any importer of record that is not a person registered 
     under section 4101 is otherwise liable, is not paid on or 
     before the last date prescribed for payment, the Secretary 
     may collect such tax from the Customs bond posted with 
     respect to the importation of the taxable fuel to which the 
     tax relates. For purposes of determining the jurisdiction of 
     any court of the United States or any agency of the United 
     States, any action by the Secretary described in the 
     preceding sentence shall be treated as an action to collect 
     the tax from a bond described in section 4101(b)(1) and not 
     as an action to collect from a bond relating to the 
     importation of merchandise.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 32, as 
     redesignated by section 652(d), is amended by adding after 
     the item related to section 4103 the following new item:

``Sec. 4104. Collection from Customs bond where importer not 
              registered.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to fuel entered after September 30, 
     2004.

     SEC. 659. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.

       (a) Proration of Tax Where Vehicle Sold.--
       (1) In general.--Subparagraph (A) of section 4481(c)(2) 
     (relating to where vehicle destroyed or stolen) is amended by 
     striking ``destroyed or stolen'' both places it appears and 
     inserting ``sold, destroyed, or stolen''.
       (2) Conforming amendment.--The heading for section 
     4481(c)(2) is amended by striking ``destroyed or stolen'' and 
     inserting ``sold, destroyed, or stolen''.

[[Page 12883]]

       (b) Repeal of Installment Payment.--
       (1) Section 6156 (relating to installment payment of tax on 
     use of highway motor vehicles) is repealed.
       (2) The table of sections for subchapter A of chapter 62 is 
     amended by striking the item relating to section 6156.
       (c) Electronic Filing.--Section 4481 is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following new subsection:
       ``(e) Electronic Filing.--Any taxpayer who files a return 
     under this section with respect to 25 or more vehicles for 
     any taxable period shall file such return electronically.''.
       (d) Repeal of Reduction in Tax for Certain Trucks.--Section 
     4483 is amended by striking subsection (f).
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable periods beginning after the date of 
     the enactment of this Act.

     SEC. 660. MODIFICATION OF ULTIMATE VENDOR REFUND CLAIMS WITH 
                   RESPECT TO FARMING.

       (a) In General.--
       (1) Refunds.--Section 6427(l) is amended by adding at the 
     end the following new paragraph:
       ``(6) Registered vendors permitted to administer certain 
     claims for refund of diesel fuel and kerosene sold to 
     farmers.--
       ``(A) In general.--In the case of diesel fuel or kerosene 
     used on a farm for farming purposes (within the meaning of 
     section 6420(c)), paragraph (1) shall not apply to the 
     aggregate amount of such diesel fuel or kerosene if such 
     amount does not exceed 250 gallons (as determined under 
     subsection (i)(5)(A)(iii)).
       ``(B) Payment to ultimate vendor.--The amount which would 
     (but for subparagraph (A)) have been paid under paragraph (1) 
     with respect to any fuel shall be paid to the ultimate vendor 
     of such fuel, if such vendor--
       ``(i) is registered under section 4101, and
       ``(ii) meets the requirements of subparagraph (A), (B), or 
     (D) of section 6416(a)(1).''.
       (2) Filing of claims.--Section 6427(i) is amended by 
     inserting at the end the following new paragraph:
       ``(5) Special rule for vendor refunds with respect to 
     farmers.--
       ``(A) In general.--A claim may be filed under subsection 
     (l)(6) by any person with respect to fuel sold by such person 
     for any period--
       ``(i) for which $200 or more ($100 or more in the case of 
     kerosene) is payable under subsection (l)(6),
       ``(ii) which is not less than 1 week, and
       ``(iii) which is for not more than 250 gallons for each 
     farmer for which there is a claim.

     Notwithstanding subsection (l)(1), paragraph (3)(B) shall 
     apply to claims filed under the preceding sentence.
       ``(B) Time for filing claim.--No claim filed under this 
     paragraph shall be allowed unless filed on or before the last 
     day of the first quarter following the earliest quarter 
     included in the claim.''.
       (3) Conforming amendments.--
       (A) Section 6427(l)(5)(A) is amended to read as follows:
       ``(A) In general.--Paragraph (1) shall not apply to diesel 
     fuel or kerosene used by a State or local government.''.
       (B) The heading for section 6427(l)(5) is amended by 
     striking ``farmers and''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to fuels sold for nontaxable use after the date 
     of the enactment of this Act.

     SEC. 661. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO 
                   THE HIGHWAY TRUST FUND.

       (a) In General.--Subsection (b) of section 9503 (relating 
     to transfer to Highway Trust Fund of amounts equivalent to 
     certain taxes) is amended by redesignating paragraph (5) as 
     paragraph (6) and inserting after paragraph (4) the following 
     new paragraph:
       ``(5) Certain penalties.--There are hereby appropriated to 
     the Highway Trust Fund amounts equivalent to the penalties 
     paid under sections 6715, 6715A, 6717, 6718, 6725, 7232, and 
     7272 (but only with regard to penalties under such section 
     related to failure to register under section 4101).''.
       (b) Conforming Amendments.--
       (1) The heading of subsection (b) of section 9503 is 
     amended by inserting ``and Penalties'' after ``Taxes''.
       (2) The heading of paragraph (1) of section 9503(b) is 
     amended by striking ``In general'' and inserting ``Certain 
     taxes''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to penalties assessed after October 1, 2004.

     SEC. 662. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.

       (a) In General.--Paragraph (4) of section 6416(a) (relating 
     to abatements, credits, and refunds) is amended to read as 
     follows:
       ``(4) Registered ultimate vendor to administer credits and 
     refunds of gasoline tax.--
       ``(A) In general.--For purposes of this subsection, if an 
     ultimate vendor purchases any gasoline on which tax imposed 
     by section 4081 has been paid and sells such gasoline to an 
     ultimate purchaser described in subparagraph (C) or (D) of 
     subsection (b)(2) (and such gasoline is for a use described 
     in such subparagraph), such ultimate vendor shall be treated 
     as the person (and the only person) who paid such tax, but 
     only if such ultimate vendor is registered under section 
     4101. For purposes of this subparagraph, if the sale of 
     gasoline is made by means of a credit card, the person 
     extending the credit to the ultimate purchaser shall be 
     deemed to be the ultimate vendor.
       ``(B) Timing of claims.--The procedure and timing of any 
     claim under subparagraph (A) shall be the same as for claims 
     under section 6427(i)(4), except that the rules of section 
     6427(i)(3)(B) regarding electronic claims shall not apply 
     unless the ultimate vendor has certified to the Secretary for 
     the most recent quarter of the taxable year that all ultimate 
     purchasers of the vendor covered by such claim are certified 
     and entitled to a refund under subparagraph (C) or (D) of 
     subsection (b)(2).''.
       (b) Credit Card Purchases of Diesel Fuel or Kerosene by 
     State and Local Governments.--Section 6427(l)(5)(C) (relating 
     to nontaxable uses of diesel fuel, kerosene, and aviation 
     fuel) is amended by adding at the end the following new flush 
     sentence: ``For purposes of this subparagraph, if the sale of 
     diesel fuel or kerosene is made by means of a credit card, 
     the person extending the credit to the ultimate purchaser 
     shall be deemed to be the ultimate vendor.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2004.

     SEC. 663. TWO-PARTY EXCHANGES.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 32, as amended by this Act, is amended by adding 
     after section 4104 the following new section:

     ``SEC. 4105. TWO-PARTY EXCHANGES.

       ``(a) In General.--In a two-party exchange, the delivering 
     person shall not be liable for the tax imposed under section 
     4081(a)(1)(A)(ii).
       ``(b) Two-Party Exchange.--The term `two-party exchange' 
     means a transaction, other than a sale, in which taxable fuel 
     is transferred from a delivering person registered under 
     section 4101 as a taxable fuel registrant fuel to a receiving 
     person who is so registered where all of the following occur:
       ``(1) The transaction includes a transfer from the 
     delivering person, who holds the inventory position for 
     taxable fuel in the terminal as reflected in the records of 
     the terminal operator.
       ``(2) The exchange transaction occurs before or 
     contemporaneous with completion of removal across the rack 
     from the terminal by the receiving person.
       ``(3) The terminal operator in its books and records treats 
     the receiving person as the person that removes the taxable 
     fuel across the terminal rack for purposes of reporting the 
     transaction to the Secretary.
       ``(4) The transaction is the subject of a written 
     contract.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart B of part III of subchapter A of chapter 32, as 
     amended by this Act, is amended by adding after the item 
     relating to section 4104 the following new item:

``Sec. 4105. Two-party exchanges.''.

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

     SEC. 664. SIMPLIFICATION OF TAX ON TIRES.

       (a) In General.--Subsection (a) of section 4071 is amended 
     to read as follows:
       ``(a) Imposition and Rate of Tax.--There is hereby imposed 
     on taxable tires sold by the manufacturer, producer, or 
     importer thereof a tax at the rate of 9.4 cents (4.7 cents in 
     the case of a biasply tire) for each 10 pounds so much of the 
     maximum rated load capacity thereof as exceeds 3,500 
     pounds.''
       (b) Taxable Tire.--Section 4072 is amended by redesignating 
     subsections (a) and (b) as subsections (b) and (c), 
     respectively, and by inserting before subsection (b) (as so 
     redesignated) the following new subsection:
       ``(a) Taxable Tire.--For purposes of this chapter, the term 
     `taxable tire' means any tire of the type used on highway 
     vehicles if wholly or in part made of rubber and if marked 
     pursuant to Federal regulations for highway use.''
       (c) Exemption for Tires Sold to Department of Defense.--
     Section 4073 is amended to read as follows:

     ``SEC. 4073. EXEMPTIONS.

       ``The tax imposed by section 4071 shall not apply to tires 
     sold for the exclusive use of the Department of Defense or 
     the Coast Guard.''
       (d) Conforming Amendments.--
       (1) Section 4071 is amended by striking subsection (c) and 
     by moving subsection (e) after subsection (b) and 
     redesignating subsection (e) as subsection (c).
       (2) The item relating to section 4073 in the table of 
     sections for part II of subchapter A of chapter 32 is amended 
     to read as follows:

``Sec. 4073. Exemptions.''

       (e) Effective Date.--The amendments made by this section 
     shall apply to sales in calendar years beginning more than 30 
     days after the date of the enactment of this Act.

    Subtitle E--Prevention of Tax Avoidance Through Treaty Shopping

     SEC. 671. DENIAL OF TREATY BENEFITS FOR CERTAIN DEDUCTIBLE 
                   PAYMENTS.

       (a) In General.--Section 894 (relating to income affected 
     by treaty) is amended by

[[Page 12884]]

     adding at the end the following new subsection:
       ``(d) Denial of Treaty Benefits for Certain Deductible 
     Payments.--
       ``(1) In general.--A foreign entity shall not be entitled 
     under any income tax treaty of the United States with a 
     foreign country to any reduced rate of any withholding tax 
     imposed by this title on any deductible foreign payment 
     unless such entity is predominantly owned by individuals who 
     are residents of such foreign country.
       ``(2) Deductible foreign payment.--For purposes of 
     paragraph (1), the term `deductible foreign payment' means 
     any payment--
       ``(A) which is made by a domestic entity directly or 
     indirectly to a related person which is a foreign entity, and
       ``(B) which is allowable as a deduction under this chapter.
       ``(3) Domestic and foreign entities; related person.--For 
     purposes of this subsection--
       ``(A) Domestic entity.--The term `domestic entity' means 
     any domestic corporation or domestic partnership.
       ``(B) Foreign entity.--The term `foreign entity' means any 
     foreign corporation or foreign partnership.
       ``(C) Related person.--The term `related person' has the 
     meaning given such term by section 954(d)(3) (determined by 
     substituting `domestic entity' for `controlled foreign 
     corporation' each place it appears).
       ``(4) Predominant ownership.--For purposes of this 
     subsection--
       ``(A) In general.--An entity is predominantly owned by 
     individuals who are residents of a foreign country if--
       ``(i) in the case of a corporation, more than 50 percent 
     (by value) of the stock of such corporation is owned (within 
     the meaning of section 883(c)(4)) by individuals who are 
     residents of such foreign country, or
       ``(ii) in the case of a partnership, more than 50 percent 
     (by value) of the beneficial interests in such partnership 
     are so owned.
       ``(B) Publicly traded corporations.--A foreign corporation 
     also shall be treated as predominantly owned by individuals 
     who are residents of a foreign country if--
       ``(i)(I) the stock of such corporation is primarily and 
     regularly traded on an established securities market in such 
     foreign country, and
       ``(II) such corporation has activities within such foreign 
     country which are substantial in relation to the total 
     activities of such corporation and its related persons, or
       ``(ii) such corporation is wholly owned (directly or 
     indirectly) by another foreign corporation which is described 
     in clause (i).
       ``(C) Special rule.--
       ``(i) In general.--A foreign corporation shall be treated 
     as meeting the requirements of subparagraph (A) if--

       ``(I) such requirements would be met if `30 percent' were 
     substituted for `50 percent' in subparagraph (A)(i),
       ``(II) the treaty country is a member of a multinational 
     economic association such as the European Union, and
       ``(III) at least 50 percent of the value of the stock of 
     the corporation is owned (within the meaning of section 
     883(c)(4)) by individuals who are residents of the treaty 
     country or other qualified foreign countries.

       ``(ii) Qualified foreign country.--For purposes of this 
     subparagraph, the term `qualified foreign country' means any 
     foreign country if--

       ``(I) such foreign country is a member of the multinational 
     economic association of which the treaty country is a member, 
     and
       ``(II) such foreign country has a tax treaty with the 
     United States providing a withholding tax rate reduction 
     which is not less than the withholding tax rate reduction 
     applicable (without regard to this subsection) to the payment 
     received by such foreign corporation.

       ``(5) Exception for corporations with substantial business 
     activities in treaty country.--Paragraph (1) shall not apply 
     to a payment received by a foreign corporation if such 
     corporation has substantial business activities in the treaty 
     country and if such corporation establishes to the 
     satisfaction of the Secretary that the payment is subject to 
     an effective rate of income tax imposed by such country 
     greater than 90 percent of the maximum rate of tax specified 
     in section 11.
       ``(6) Exception for payments received by controlled foreign 
     corporation.--Paragraph (1) shall not apply to any deductible 
     foreign payment made by a corporation if the recipient of the 
     payment is a controlled foreign corporation and the payor is 
     a United States shareholder (as defined in section 951(b)) of 
     such corporation.
       ``(7) Conduit payments.--Under regulations prescribed by 
     the Secretary, paragraph (1) shall not apply to a payment 
     received by a foreign entity referred to in paragraph (1) 
     if--
       ``(A) within a reasonable period after such entity receives 
     such payment, such entity makes a comparable payment directly 
     or indirectly to another related person,
       ``(B) such related person is a resident of a foreign 
     country with which the United States has an income tax 
     treaty,
       ``(C) such related person is predominantly owned by 
     individuals who are residents of such country, and
       ``(D) the withholding tax rate applicable under such treaty 
     is equal to or greater than the withholding tax rate 
     applicable (without regard to this paragraph) to the payment 
     received by such foreign entity.

     A similar rule shall apply where the payment is includible in 
     the gross income of a related person by reason of a foreign 
     law comparable to subpart F of part III of subchapter N.''
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 672. TRANSFER PRICE REDUCED BY DEFLECTED TAX HAVEN 
                   INCOME.

       (a) In General.--Section 482 (relating to allocation of 
     income and deductions among taxpayers) is amended by 
     inserting ``(a) In General.--'' before ``In the case of two 
     or more'' and by adding at the end the following new 
     subsection:
       ``(b) Special Rule for Related-Party Inbound and Outbound 
     Transactions.--
       ``(1) In general.--In the case of property or services to 
     which this subsection applies, the transfer price under this 
     section for such property or service shall be the transfer 
     price determined without regard to this subsection--
       ``(A) in the case of a related-party inbound transaction, 
     reduced by the deflected tax haven income with respect to 
     such property or service, or
       ``(B) in the case of a related-party outbound transaction, 
     increased by the deflected tax haven income with respect to 
     such property or service.
       ``(2) Property or services to which subsection applies.--
       ``(A) In general.--This subsection applies to any property 
     or services if there is a related-party inbound or outbound 
     transaction with respect to such property or services.
       ``(B) Related-party inbound transaction.--A related-party 
     inbound transaction is any transaction where--
       ``(i) property is acquired directly or indirectly by a 
     foreign-controlled domestic corporation from a foreign 
     related person, or
       ``(ii) the services are performed directly or indirectly 
     for a foreign-controlled domestic corporation by a foreign 
     related person.
       ``(C) Related-party outbound transaction.--A related-party 
     outbound transaction is any transaction where--
       ``(i) property is sold directly or indirectly by a foreign-
     controlled domestic corporation to a foreign related person, 
     or
       ``(ii) services are performed directly or indirectly by a 
     foreign-controlled domestic corporation for a foreign related 
     person.
       ``(3) Deflected tax haven income.--For purposes of this 
     subsection--
       ``(A) In general.--The term `deflected tax haven income' 
     means income (whether in the form of profits, commissions, 
     fees, or otherwise) derived by a foreign related person in 
     connection with any transaction related to property or 
     services to which this subsection applies if such income 
     would be treated as foreign base company sales income (as 
     defined in section 954(d)) or foreign base company services 
     income (as defined in section 954(e)) were such foreign 
     related person treated as a controlled foreign corporation.
       ``(B) Exception for income subject to foreign taxes.--
       ``(i) High taxes.--Such term shall not include any item of 
     income with respect to which the requirements of section 
     954(b)(4) are met.
       ``(ii) Other taxes.--If the taxpayer establishes to the 
     satisfaction of the Secretary that an item of income was 
     subject to an income tax imposed by a foreign country and the 
     effective rate of such tax (and such effective rate was not 
     greater than 90 percent of the maximum rate of tax specified 
     in section 11), the term `deflected tax haven income' shall 
     not include the same proportion of such income as such 
     effective rate of tax bears to 90 percent.
       ``(4) Other definitions.--For purposes of this subsection--
       ``(A) Foreign related person.--The term `foreign related 
     person' means any foreign person who is related (within the 
     meaning of subsection (a)) to the foreign-controlled domestic 
     corporation.
       ``(B) Foreign-controlled domestic corporation.--The term 
     `foreign-controlled domestic corporation' means any domestic 
     corporation which is 25-percent foreign-owned (as defined in 
     section 6038A(c)).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to property acquired, and services performed, 
     after the date of the enactment of this Act.

           Subtitle F--Additions to List of Taxable Vaccines

     SEC. 681. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF 
                   TAXABLE VACCINES.

       (a) In General.--Paragraph (1) of section 4132(a) (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) Effective Date.--
       (1) Sales, etc.--The amendments made by subsection (a) 
     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.

[[Page 12885]]

       (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. 682. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF 
                   TAXABLE VACCINES.

       (a) In General.--Section 4132(a)(1) (defining taxable 
     vaccine), as amended by this Act, is amended by adding at the 
     end the following new subparagraph:
       ``(N) Any trivalent vaccine against influenza.''.
       (b) Effective Date.--
       (1) Sales, etc.--The amendment made by this section shall 
     apply to sales and uses on or after the later of--
       (A) the first day of the first month which begins more than 
     4 weeks after the date of the enactment of this Act, or
       (B) the date on which the Secretary of Health and Human 
     Services lists any vaccine against influenza for purposes of 
     compensation for any vaccine-related injury or death through 
     the Vaccine Injury Compensation Trust Fund.
       (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.

                      Subtitle G--Other Provisions

     SEC. 691. IRS USER FEES MADE PERMANENT.

       (a) In General.--Section 7528 (relating to Internal Revenue 
     Service user fees) is amended by striking subsection (c).
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests after the date of the enactment of 
     this Act.

     SEC. 692. COBRA FEES.

       (a) Use of Merchandise Processing Fee.--Section 13031(f) of 
     the Consolidated Omnibus Budget Reconciliation Act of 1985 
     (19 U.S.C. 58c(f)) is amended--
       (1) in paragraph (1), by aligning subparagraph (B) with 
     subparagraph (A); and
       (2) in paragraph (2), by striking ``commercial operations'' 
     and all that follows through ``processing.'' and inserting 
     ``customs revenue functions as defined in section 415 of the 
     Homeland Security Act of 2002 (other than functions performed 
     by the Office of International Affairs referred to in section 
     415(8) of that Act), and for automation (including the 
     Automation Commercial Environment computer system), and for 
     no other purpose. To the extent that funds in the Customs 
     User Fee Account are insufficient to pay the costs of such 
     customs revenue functions, customs duties in an amount equal 
     to the amount of such insufficiency shall be available, to 
     the extent provided for in appropriations Acts, to pay the 
     costs of such customs revenue functions in the amount of such 
     insufficiency, and shall be available for no other purpose. 
     The provisions of the first and second sentences of this 
     paragraph specifying the purposes for which amounts in the 
     Customs User Fee Account may be made available shall not be 
     superseded except by a provision of law which specifically 
     modifies or supersedes such provisions.''.
       (b) Reimbursement of Appropriations From COBRA Fees.--
     Section 13031(f)(3) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (19 U.S.C. 58c(f)(3)) is amended 
     by adding at the end the following:
       ``(E) Nothing in this paragraph shall be construed to 
     preclude the use of appropriated funds, from sources other 
     than the fees collected under subsection (a), to pay the 
     costs set forth in clauses (i), (ii), and (iii) of 
     subparagraph (A).''.
       (c) Sense of Congress; Effective Period for Collecting 
     Fees; Standard for Setting Fees.--
       (1) Sense of congress.--The Congress finds that--
       (A) the fees set forth in paragraphs (1) through (8) of 
     subsection (a) of section 13031 of the Consolidated Omnibus 
     Budget Reconciliation Act of 1985 have been reasonably 
     related to the costs of providing customs services in 
     connection with the activities or items for which the fees 
     have been charged under such paragraphs; and
       (B) the fees collected under such paragraphs have not 
     exceeded, in the aggregate, the amounts paid for the costs 
     described in subsection (f)(3)(A) incurred in providing 
     customs services in connection with the activities or items 
     for which the fees were charged under such paragraphs.
       (2) Effective period; standard for setting fees.--Section 
     13031(j) of the Consolidated Omnibus Budget Reconciliation 
     Act of 1985 is amended by striking paragraph (3).
       (d) Clerical Amendments.--Section 13031 of the Consolidated 
     Omnibus Budget Reconciliation Act of 1985 is amended--
       (1) in subsection (a)(5)(B), by striking ``$1.75'' and 
     inserting ``$1.75.'';
       (2) in subsection (b)--
       (A) in paragraph (1)(A), by aligning clause (iii) with 
     clause (ii);
       (B) in paragraph (7), by striking ``paragraphs'' and 
     inserting ``paragraph''; and
       (C) in paragraph (9), by aligning subparagraph (B) with 
     subparagraph (A); and
       (3) in subsection (e)(2), by aligning subparagraph (B) with 
     subparagraph (A).
       (e) Study of All Fees Collected by Department of Homeland 
     Security.--The Secretary of the Treasury shall conduct a 
     study of all the fees collected by the Department of Homeland 
     Security, and shall submit to the Congress, not later than 
     September 30, 2005, a report containing the recommendations 
     of the Secretary on--
       (1) what fees should be eliminated;
       (2) what the rate of fees retained should be; and
       (3) any other recommendations with respect to the fees that 
     the Secretary considers appropriate.
       Amend subsection (c) of section 641 of the bill as amended 
     above to read as follows:
       (c) Transfers to Highway Trust Fund.--
       (1) Paragraph (4) of section 9503(b) is amended by adding 
     ``or'' at the end of subparagraph (C), by striking the comma 
     at the end of subparagraph (D) and inserting a period, and by 
     striking subparagraphs (E) and (F).
       (2) Paragraph (4) of section 9503(b), as amended by 
     paragraph (1), is further amended by adding ``or'' at the end 
     of subparagraph (B), by striking the comma at the end of 
     subparagraph (C) and inserting a period, and by striking 
     subparagraph (D).
       Amend paragraph (2) of section 641(e) of the bill as 
     amended above to read as follows:
       (2) Subsection (c).--
       (A) The amendments made by subsection (c)(1) shall apply to 
     taxes imposed after September 30, 2003.
       (B) The amendments made by subsection (c)(2) shall apply to 
     taxes imposed after September 30, 2006.

  Mr. RANGEL (during the reading). Mr. Speaker, I ask unanimous consent 
that the motion to recommit be considered as read and printed in the 
Record.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from New York?
  There was no objection.
  The SPEAKER pro tempore. The gentleman from New York (Mr. Rangel) is 
recognized for 5 minutes in support of his motion.
  Mr. RANGEL. Mr. Speaker, I yield 1 minute to the gentleman from 
Tennessee (Mr. Cooper).
  Mr. COOPER. Mr. Speaker, I thank the gentleman from New York for 
yielding me this time.
  Many Members here today are voting for this motion to recommit for a 
very important reason, because if we care about State tax fairness, if 
one is from one of those seven States like Florida or Texas or 
Tennessee or Washington or Nevada or South Dakota that rely primarily 
on a State sales tax, the best way to give one's citizens relief is 
through their Rangel motion to recommit because tax relief there is 
permanent, not temporary. All that is being offered in the majority 
bill here is 2 years of relief.
  What are they going to tell their people back home when they have 
given them a tax break for 2 years, not the permanent relief that my 
friend from New York is offering?
  So it is very important for folks who are sincere about this issue, 
who really care about tax relief for their citizens, to vote for the 
motion to recommit. If one is from one of these seven States and do not 
vote for the motion to recommit, they are not truly serving their 
people.

                              {time}  1345

  Mr. RANGEL. Mr. Speaker, this motion to recommit, we have a 
restricted amount of time, because the majority denied us the 
opportunity to have a substitute. If the underlying bill is so good, 
why not allow in the democratic process, with a small ``d,'' the 
opportunity for someone to say, I have a better idea; and since they 
are the majority, why do they not believe that they have enough votes 
and must have confidence in what they are doing, at least to get the 
majority to vote for it?
  So my motion to recommit, what we would have done if we had had the 
chance, is that we do not provide tax incentives for manufacturers and 
other people to move their jobs overseas. What we do is grab the 
essence of the agreement that we had with the gentleman from Illinois 
(Mr. Manzullo), with the gentleman from Illinois (Mr. Crane) when we 
put together a bipartisan bill to create jobs, not for those overseas, 
but for those in the United States of America.
  We also do not include all of the addition of tax incentives for 
things that are not related to resolving the problem before us. We have 
what is indeed called a jobs bill, and that is what we had hoped that 
we would be able to do.

[[Page 12886]]

  As was pointed out by the gentleman from Tennessee (Mr. Cooper), we 
believe that States who do not have income taxes and rely on sales 
taxes should get relief, but why the majority would restrict this 
relief to 2 years is far beyond my expectation; and that is why we 
thought we had a better idea to make it permanent.
  When kids look under the Christmas tree, there is going to be a gift 
for them too. They will be inheriting one of the biggest debts that we 
have ever seen, because this bill that started out with a plus of $50 
billion, they have now provided a $34 billion deficit. And indeed, if 
you take all of the phasing-outs and take the sunsettings out of it, it 
is estimated that it would add $300 million to the deficit.
  One thing that we do not do, and that is to provide safe harbor for 
churches, allowing them entry into partisan politics, because we were 
so pleased to see that they knew that they really had overburdened the 
purposes of this bill and finally excluded that.
  It would seem to me that those people who really are interested in 
the jobs of the United States will have an opportunity to vote on this 
motion to recommit, and those people who believe that there is a gift 
for them under the tree and that that is the only reason that they are 
voting for a bill that most people who get a chance to read this bill, 
since it was not made available today to most of the members of the 
subcommittees in this House, would realize that this bill is bad for 
American job seekers, it is bad for America, and it is bad for our 
economy.
  So I do hope that perhaps sometime in the future when Republicans 
think that they have a great idea, that they also should remember in a 
democracy and in this Congress they should not just attempt 
continuously to stifle the opposition but to have enough confidence in 
what they are doing to give us a chance to say, we want a substitute, 
we want to be heard, we want our bill on the floor for people to 
evaluate and to be able to vote for.
  But each time we do it, they said that if we did not take their 
tobacco, it was out of the jurisdiction. We have been hampered in the 
committee, we have been hampered by the Committee on Rules, and we are 
hampered now by the rules of the House. I think we should stop talking 
about what happened in the days of Rostenkowski and think what is 
happening to the American people today and what can we do in a 
bipartisan way, working together to resolve problems that we have.
  It should be embarrassing to everyone in this House that when a 
foreign group like the World Trade Organization provides sanctions 
against United States exporters that we believe that we come up with a 
Republican solution. It should be an American solution, congressional 
solution, and not an attempt of a partisan solution for partisan 
purposes.
  Mr. THOMAS. Mr. Speaker, I rise in opposition to the motion to 
recommit.
  The SPEAKER pro tempore (Mr. LaTourette). The gentleman from 
California (Mr. Thomas) is recognized for 5 minutes.
  Mr. THOMAS. Mr. Speaker, the minority leader, in discussing the 
minority position, talked about the vision of the gentleman from New 
York, the path that he wished to take. We were just handed 3 minutes 
ago this particular motion to recommit, so if we are looking for a 
contest of freshness, the gentleman's vision is clearly the most 
recently pasted-together piece of legislation to be presented us. In 
fact, the paste is still kind of damp.
  So if, in fact, the vision is the path that the gentleman from New 
York wishes to follow, we would hope it is a shining path. But when you 
look at this legislation, what you discover, notwithstanding the half 
an hour of berating on the floor of the House the tobacco proposal, 
guess what is recently pasted to his vision? You guessed it, the 
tobacco proposal. Apparently he has had a change of vision.
  For more than 20 years, when they were the majority, they did not 
give a dang about people deducting sales taxes, because they were the 
ones who removed it from the code. But, guess what? That vision had a 
bolt of lightning 20 minutes ago, and now we have permanent sales tax 
removal.
  Had Republicans decided to go with permanent sales tax removal, I am 
quite sure they would have come up with a deduction for your dog. Why? 
Because no matter what we do, they are going to be better. But better 
is not copying. Better is starting out with an idea, carrying it 
through, and presenting it to you.
  What their motion to recommit will do is to say if you are a company 
in the U.S. and you deign to try to make a profit by selling overseas, 
you will be punished. It says that in our desire to raise revenue, we 
will examine what you have been doing. Not tomorrow, not the day after 
tomorrow. We will retroactively go back to what you have been doing for 
20 or 30 or 40 years and now say not only can you not do it; you are 
going to have to pay for doing it, notwithstanding the fact it was 
legal. Retroactively.
  And then bragging about the fact that they removed the international 
tax provisions, what they are really bragging about is since U.S.-based 
companies are double taxed today, without these changes, they will 
continue to be double taxed.
  Why are companies going overseas? Because they are double taxed. They 
want to keep double taxation, and they want to complain about companies 
going overseas.
  It is pretty simple: support H.R. 4520. Companies will stay at home, 
and that creates jobs.
  So I appreciate the gentleman from New York's vision. I just hope the 
paste lasts through the vote, because, frankly, that is about what it 
is worth.


                         Parliamentary Inquiry

  Mr. RANGEL. Mr. Speaker, I have a parliamentary inquiry.
  The SPEAKER pro tempore. The gentleman will state his parliamentary 
inquiry.
  Mr. RANGEL. Mr. Speaker, how does one find out whether or not the 
former speaker did not tell the truth as it relates to what is in the 
motion to recommit? How would one be able to find out, when he said 
that the tobacco proposals are in the motion to recommit, that he did 
not tell the truth? What procedure does one follow in order to adjust 
the record and to make certain that truth will prevail over this 
partisan effort?
  The SPEAKER pro tempore. In response to the gentleman's inquiry, the 
Chair is not able to place remarks in debate in historical context. 
That is a matter for the Members to debate.
  Mr. RANGEL. Mr. Speaker, I am sorry, I did not hear the Speaker.
  The SPEAKER pro tempore. The Chair is unable to put the matter into 
historical context. The gentleman has raised a matter for Members to 
address by debate.
  Without objection, the previous question is ordered on the motion to 
recommit.
  There was no objection.
  The SPEAKER pro tempore. The question is on the motion to recommit.
  The question was taken; and the Speaker pro tempore announced that 
the noes appeared to have it.
  Mr. RANGEL. Mr. Speaker, I object to the vote on the ground that a 
quorum is not present and make the point of order that a quorum is not 
present.
  The SPEAKER pro tempore. Evidently a quorum is not present.
  The Sergeant at Arms will notify absent Members.
  The SPEAKER pro tempore. Pursuant to clause 8, rule XX, this 15-
minute vote on the motion to recommit will be followed by a 15-minute 
vote, if ordered, on the passage of H.R. 4520, and then a 5-minute 
vote, if ordered, on the approval of the Journal.
  The vote was taken by electronic device, and there were--yeas 193, 
nays 235, not voting 5, as follows:

                             [Roll No. 258]

                               YEAS--193

     Abercrombie
     Ackerman
     Alexander
     Allen
     Andrews
     Baca
     Baird
     Baldwin
     Becerra
     Bell
     Berkley
     Berman
     Berry
     Bishop (NY)
     Blumenauer
     Boswell
     Boucher
     Boyd
     Brady (PA)
     Brown (OH)
     Brown, Corrine
     Capps
     Capuano
     Cardin
     Cardoza
     Carson (IN)
     Carson (OK)
     Case
     Clay
     Clyburn
     Cooper
     Costello
     Cramer
     Crowley
     Cummings
     Davis (AL)

[[Page 12887]]


     Davis (CA)
     Davis (FL)
     Davis (IL)
     Davis (TN)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Dooley (CA)
     Doyle
     Edwards
     Emanuel
     Engel
     Eshoo
     Evans
     Farr
     Fattah
     Filner
     Ford
     Frank (MA)
     Frost
     Gephardt
     Gonzalez
     Green (TX)
     Grijalva
     Gutierrez
     Harman
     Herseth
     Hill
     Hinchey
     Hinojosa
     Hoeffel
     Holden
     Holt
     Honda
     Hooley (OR)
     Hoyer
     Inslee
     Israel
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson, E. B.
     Jones (OH)
     Kanjorski
     Kaptur
     Kennedy (RI)
     Kildee
     Kind
     Kleczka
     Kucinich
     Lampson
     Langevin
     Lantos
     Larsen (WA)
     Larson (CT)
     Lee
     Levin
     Lewis (GA)
     Lipinski
     Lofgren
     Lowey
     Lynch
     Majette
     Maloney
     Markey
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McDermott
     McGovern
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Michaud
     Millender-McDonald
     Miller (NC)
     Miller, George
     Mollohan
     Moore
     Moran (VA)
     Murtha
     Nadler
     Napolitano
     Neal (MA)
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Peterson (MN)
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Ross
     Rothman
     Roybal-Allard
     Ruppersberger
     Rush
     Ryan (OH)
     Sabo
     Sanchez, Linda T.
     Sanchez, Loretta
     Sanders
     Sandlin
     Schakowsky
     Schiff
     Scott (VA)
     Serrano
     Sherman
     Skelton
     Slaughter
     Smith (WA)
     Snyder
     Solis
     Spratt
     Stark
     Stenholm
     Strickland
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson (CA)
     Thompson (MS)
     Tierney
     Towns
     Turner (TX)
     Udall (CO)
     Udall (NM)
     Van Hollen
     Velazquez
     Visclosky
     Waters
     Watson
     Watt
     Waxman
     Weiner
     Wexler
     Woolsey
     Wu
     Wynn

                               NAYS--235

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

                             NOT VOTING--5

     Conyers
     DeMint
     Hastings (FL)
     Kilpatrick
     Quinn


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. LaTourette) (during the vote). Members 
are advised that 2 minutes remain in this vote.

                              {time}  1418

  Mr. TIAHRT, Mr. WALSH and Mr. OSE changed their vote from ``yea'' to 
``nay.''
  So the motion to recommit was rejected.
  The result of the vote was announced as above recorded.
  The SPEAKER pro tempore. The question is on the passage of the bill.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.


                             Recorded Vote

  Mr. LEVIN. Mr. Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The SPEAKER pro tempore. This will be a 15-minute vote followed by a 
5-minute vote on approval of the Journal.
  The vote was taken by electronic device, and there were--ayes 251, 
noes 178, not voting 5, as follows:

                             [Roll No. 259]

                               AYES--251

     Abercrombie
     Aderholt
     Akin
     Alexander
     Bachus
     Baker
     Ballenger
     Barrett (SC)
     Barton (TX)
     Beauprez
     Bereuter
     Biggert
     Bilirakis
     Bishop (GA)
     Bishop (UT)
     Blackburn
     Blunt
     Boehlert
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     John
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     Johnson, Sam
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     Simpson
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     Weldon (PA)
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     Wilson (SC)
     Wu
     Young (AK)

                               NOES--178

     Ackerman
     Allen
     Andrews
     Baca
     Baird
     Baldwin
     Bartlett (MD)
     Bass
     Becerra
     Bell
     Berkley
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     Davis, Jo Ann
     Davis, Tom
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     DeLauro
     Deutsch
     Dicks
     Dingell
     Doggett
     Doyle
     Emanuel
     Engel
     Eshoo
     Evans
     Farr
     Fattah
     Filner
     Flake
     Frank (MA)
     Gephardt
     Gonzalez

[[Page 12888]]


     Green (TX)
     Grijalva
     Gutierrez
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     Sabo
     Sanchez, Linda T.
     Sanchez, Loretta
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     Wilson (NM)
     Wolf
     Woolsey
     Wynn
     Young (FL)

                             NOT VOTING--5

     Conyers
     DeMint
     Hastings (FL)
     Kilpatrick
     Quinn


                Announcement by the Speaker Pro Tempore

  The SPEAKER pro tempore (Mr. LaTourette) (during the vote). Members 
are advised 2 minutes remain in this vote.

                              {time}  1437

  Ms. MAJETTE changed her vote from ``no'' to ``aye.''
  So the bill was passed.
  The result of the vote was announced as above recorded.
  A motion to reconsider was laid on the table.

                          ____________________