[Congressional Record (Bound Edition), Volume 150 (2004), Part 4]
[Senate]
[Pages 4716-4787]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           TEXT OF AMENDMENTS

  SA 2860. Mrs. BOXER submitted an amendment intended to be proposed by 
her to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table as follows:

       At the appropriate place, insert the following:

     SEC. __. CREDIT AGAINST FICA TAXES FOR EMPLOYERS OF FIRST 
                   RESPONDERS WHO ARE CALLED TO ACTIVE DUTY.

       (a) In General.--Subchapter C of chapter 21 is amended by 
     redesignating section 3128 as section 3129 and inserting 
     after section 3127 the following new section:

     ``SEC. 3128. CREDIT AGAINST TAX FOR EMPLOYERS OF FIRST 
                   RESPONDERS.

       ``(a) Allowance of Credit.--There shall be allowed as a 
     credit against the tax imposed by this chapter an amount 
     equal to 50 percent of the wages paid to each qualified first 
     responder of the employer.
       ``(b) Qualified First Responder.--For purposes of this 
     section, the term `qualified first responder' means any 
     person who is--
       ``(1) employed as a law enforcement official, a 
     firefighter, or a paramedic,
       ``(2) a member of the Ready Reserve of a reserve component 
     of an Armed Force of the United States (as defined in section 
     10142 and 10101 of title 10, United States Code), and
       ``(3)(A) serving on active duty for a period of more than 
     30 days (within the meaning of section 101(d) of such title 
     10),
       ``(B) hospitalized for, or convalescing from, an illness or 
     injury incurred in, or aggravated during, the performance of 
     such active duty, or
       ``(C) not present at work during the 14-day period 
     beginning at the end of such active duty or the end of the 
     period referred to in paragraph (2).''.
       (b) Transfer of Funds.--The Secretary of the Treasury shall 
     transfer from the general revenues of the Federal Government 
     an amount sufficient so as to ensure that the income and 
     balances of the trust funds under section 201 of the Social 
     Security Act are not reduced as a result of the application 
     of the amendment made by subsection (a).
       (c) Determination of Benefits.--In making any determination 
     of benefits under title II of the Social Security Act and 
     part A of title XVIII of such Act, the Commissioner of Social 
     Security shall disregard the effect of the amendment made by 
     subsection (a) on any individual's earnings record.
       (d) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 21 is amended by striking the last 2 
     items and inserting the following:

``Sec. 3128. Credit against tax for employers of first responders.
``Sec. 3129. Short title.''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to wages paid after the date of the enactment of 
     this Act.
                                 ______
                                 
  SA 2861. Mr. VOINOVICH (for himself and Mr. Baucus) submitted an 
amendment intended to be proposed by him to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table as follows:

       At the appropriate place, insert the following:

     SEC. __. BLUE RIBBON COMMISSION ON COMPREHENSIVE TAX REFORM.

       (a) Establishment.--
       (1) In general.--There is established the ``Blue Ribbon 
     Commission on Comprehensive Tax Reform'' (in this section 
     referred to as the ``Commission'').
       (2) Membership.--
       (A) Composition.--The Commission shall be composed of 17 
     members of whom--
       (i) 3 shall be appointed by the majority leader of the 
     Senate;
       (ii) 3 shall be appointed by the minority leader of the 
     Senate;
       (iii) 3 shall be appointed by the Speaker of the House of 
     Representatives;
       (iv) 3 shall be appointed by the minority leader of the 
     House of Representatives; and
       (v) 5 shall be appointed by the President, of which no more 
     than 3 shall be of the same party as the President.
       (B) Federal employees.--The members of the Commission may 
     be employees or former employees of the Federal Government.
       (C) Date.--The appointments of the members of the 
     Commission shall be made not later than October 30, 2004.
       (3) Period of appointment; vacancies.--Members shall be 
     appointed for the life of the Commission. Any vacancy in the 
     Commission shall not affect its powers, but shall be filled 
     in the same manner as the original appointment.
       (4) Initial meeting.--Not later than 30 days after the date 
     on which all members of the Commission have been appointed, 
     the Commission shall hold its first meeting.
       (5) Meetings.--The Commission shall meet at the call of the 
     Chairman.
       (6) Quorum.--A majority of the members of the Commission 
     shall constitute a quorum, but a lesser number of members may 
     hold hearings.
       (7) Chairman and vice chairman.--The President shall select 
     a Chairman and Vice Chairman from among its members.
       (b) Duties of the Commission.--
       (1) Study.--The Commission shall conduct a thorough study 
     of all matters relating to a comprehensive reform of the 
     Federal tax system, including the reform of the Internal 
     Revenue Code of 1986 and the implementation (if appropriate) 
     of other types of tax systems.
       (2) Recommendations.--The Commission shall develop 
     recommendations on how to comprehensively reform the Federal 
     tax system in a manner that generates appropriate revenue for 
     the Federal Government.
       (3) Report.--Not later than 18 months after the date on 
     which all initial members of the commission have been 
     appointed pursuant to subsection (a)(2), the Commission shall 
     submit a report to the President and Congress which shall 
     contain a detailed statement of the findings and conclusions 
     of the Commission, together with its recommendations for such 
     legislation and administrative actions as it considers 
     appropriate.

[[Page 4717]]

       (c) Powers of the Commission.--
       (1) Hearings.--The Commission may hold such hearings, sit 
     and act at such times and places, take such testimony, and 
     receive such evidence as the Commission considers advisable 
     to carry out this Act.
       (2) Information from federal agencies.--The Commission may 
     secure directly from any Federal department or agency such 
     information as the Commission considers necessary to carry 
     out this Act. Upon request of the Chairman of the Commission, 
     the head of such department or agency shall furnish such 
     information to the Commission.
       (3) Postal services.--The Commission may use the United 
     States mails in the same manner and under the same conditions 
     as other departments and agencies of the Federal Government.
       (4) Gifts.--The Commission may accept, use, and dispose of 
     gifts or donations of services or property.
       (d) Commission Personnel Matters.--
       (1) Compensation of members.--Each member of the Commission 
     who is not an officer or employee of the Federal Government 
     shall be compensated at a rate equal to the daily equivalent 
     of the annual rate of basic pay prescribed for level IV of 
     the Executive Schedule under section 5315 of title 5, United 
     States Code, for each day (including travel time) during 
     which such member is engaged in the performance of the duties 
     of the Commission. All members of the Commission who are 
     officers or employees of the United States shall serve 
     without compensation in addition to that received for their 
     services as officers or employees of the United States.
       (2) Travel expenses.--The members of the Commission shall 
     be allowed travel expenses, including per diem in lieu of 
     subsistence, at rates authorized for employees of agencies 
     under subchapter I of chapter 57 of title 5, United States 
     Code, while away from their homes or regular places of 
     business in the performance of services for the Commission.
       (3) Staff.--
       (A) In general.--The Chairman of the Commission may, 
     without regard to the civil service laws and regulations, 
     appoint and terminate an executive director and such other 
     additional personnel as may be necessary to enable the 
     Commission to perform its duties. The employment of an 
     executive director shall be subject to confirmation by the 
     Commission.
       (B) Compensation.--The Chairman of the Commission may fix 
     the compensation of the executive director and other 
     personnel without regard to chapter 51 and subchapter III of 
     chapter 53 of title 5, United States Code, relating to 
     classification of positions and General Schedule pay rates, 
     except that the rate of pay for the executive director and 
     other personnel may not exceed the rate payable for level V 
     of the Executive Schedule under section 5316 of such title.
       (4) Detail of government employees.--Any Federal Government 
     employee may be detailed to the Commission without 
     reimbursement, and such detail shall be without interruption 
     or loss of civil service status or privilege.
       (5) Procurement of temporary and intermittent services.--
     The Chairman of the Commission may procure temporary and 
     intermittent services under section 3109(b) of title 5, 
     United States Code, at rates for individuals which do not 
     exceed the daily equivalent of the annual rate of basic pay 
     prescribed for level V of the Executive Schedule under 
     section 5316 of such title.
       (e) Termination of the Commission.--The Commission shall 
     terminate 90 days after the date on which the Commission 
     submits its report under subsection (b).
       (f) Authorization of Appropriations.--There are authorized 
     to be appropriated such sums as are necessary to the 
     Commission to carry out this section.
                                 ______
                                 
  SA 2862. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table as follows:

       At the end of the bill, add the following:

                    TITLE V--NON-REVENUE PROVISIONS

     SEC. 501. LCD PANEL ASSEMBLIES.

       (a) In General.--Subchapter II of chapter 99 of the 
     Harmonized Tariff Schedule of the United States is amended by 
     inserting in numerical sequence the following new heading:

``      9902.85.24      LCD panel           Free            No change       No change       On or before 12/
                         assemblies for                                                      31/2006          ''
                         use in LCD                                                                            .
                         projection type
                         televisions
                         (provided for in
                         subheading
                         9013.80.90)......
----------------------------------------------------------------------------------------------------------------

       (b) Effective Date.--The amendment made by this section 
     applies with respect to goods entered, or withdrawn from 
     warehouse for consumption, on or after the 15th day after the 
     date of the enactment of this Act.
                                 ______
                                 
  SA 2863. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the end of the bill, add the following:

                    TITLE V--NON-REVENUE PROVISIONS

     SEC. 501. PLASMA DISPLAY PANELS.

       (a) In General.--Subchapter II of chapter 99 of the 
     Harmonized Tariff Schedule of the United States is amended by 
     inserting in numerical sequence the following new heading:

``      9902.85.23      Plasma display      Free            No change       No change       On or before 12/
                         panels for use in                                                   31/2006          ''
                         plasma flat                                                                           .
                         screen
                         televisions
                         (provided for in
                         subheading
                         8529.90.53)......
----------------------------------------------------------------------------------------------------------------

       (b) Effective Date.--The amendment made by this section 
     applies with respect to goods entered, or withdrawn from 
     warehouse for consumption, on or after the 15th day after the 
     date of the enactment of this Act.
                                 ______
                                 
  SA 2864. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the end of the bill, add the following:

                    TITLE V--NON-REVENUE PROVISIONS

     SEC. 501. ELECTRON GUNS FOR CATHODE RAY TUBES.

       (a) In General.--Subchapter II of chapter 99 of the 
     Harmonized Tariff Schedule of the United States is amended by 
     inserting in numerical sequence the following new heading:

``      9902.85.25      Electron guns       Free            No change       No change       On or before 12/
                         actually used for                                                   31/2006          ''
                         cathode ray tubes                                                                     .
                         (CRT's) with a
                         high definition
                         television screen
                         aspect ratio of
                         16:9 (provided
                         for in subheading
                         8540.91.50)......
----------------------------------------------------------------------------------------------------------------

       (b) Effective Date.--The amendment made by this section 
     applies with respect to goods entered, or withdrawn from 
     warehouse for consumption, on or after the 15th day after the 
     date of the enactment of this Act.
                                 ______
                                 
   SA 2865. Mr. HATCH submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:


[[Page 4718]]

       At the appropriate place, insert the following:

     SEC.   . REVISIONS TO REIT PROVISIONS.

       (a) Rules of Application for Failure To Satisfy Section 
     856(c)(4).--Section 856(c) (relating to definition of real 
     estate investment trust), as amended by section 101, is 
     amended by inserting after paragraph (6) the following new 
     paragraph:
        ``(7) Rules of application for failure to satisfy 
     paragraph (4)--
        ``(A) De minimus failure.--A corporation, trust, or 
     association that fails to meet the requirements of paragraph 
     (4)(B)(iii) for a particular quarter shall nevertheless be 
     considered to have satisfied the requirements of such 
     paragraph for such quarter if--
        ``(i) such failure is due to the ownership of assets the 
     total value of which does not exceed the lesser of--
        ``(I) 1 percent of the total value of the trust's assets 
     at the end of the quarter for which such measurement is done, 
     and
        ``(II) $10,000,000, and
        ``(ii)(I) the corporation, trust, or association, 
     following the identification of such failure, disposes of 
     assets in order to meet the requirements of such paragraph 
     within 6 months after the last day of the quarter in which 
     the corporation, trust or association's identification of the 
     failure to satisfy the requirements of such paragraph 
     occurred or such other time period prescribed by the 
     Secretary and in the manner prescribed by the Secretary, or
        ``(II) the requirements of such paragraph are otherwise 
     met within the time period specified in subclause (I).
        ``(B) Failures exceeding de minimis amount.--A 
     corporation, trust, or association that fails to meet the 
     requirements of paragraph (4) for a particular quarter shall 
     nevertheless be considered to have satisfied the requirements 
     of such paragraph for such quarter if--
        ``(i) such failure involves the ownership of assets the 
     total value of which exceeds the de minimis standard 
     described in subparagraph (A)(i) at the end of the quarter 
     for which such measurement is done,
        ``(ii) following the corporation, trust, or association's 
     identification of the failure to satisfy the requirements of 
     such paragraph for a particular quarter, a description of 
     each asset that causes the corporation, trust, or association 
     to fail to satisfy the requirements of such paragraph at the 
     close of such quarter of any taxable year is set forth in a 
     schedule for such quarter filed in accordance with 
     regulations prescribed by the Secretary,
        ``(iii) the failure to meet the requirements of such 
     paragraph for a particular quarter is due to reasonable cause 
     and not due to willful neglect,
        ``(iv) the corporation, trust, or association pays a tax 
     computed under subparagraph (C), and
       ``(v)(I) the corporation, trust, or association disposes of 
     the assets set forth on the schedule specified in clause (ii) 
     within 6 months after the last day of the quarter in which 
     the corporation, trust or association's identification of the 
     failure to satisfy the requirements of such paragraph 
     occurred or such other time period prescribed by the 
     Secretary and in the manner prescribed by the Secretary, or
       ``(II) the requirements of such paragraph are otherwise met 
     within the time period specified in subclause (I).
       ``(C) Tax.--For purposes of subparagraph (B)(iv)--
       ``(i) Tax imposed.--If a corporation, trust, or association 
     elects the application of this subparagraph, there is hereby 
     imposed a tax on the failure described in subparagraph (B) of 
     such corporation, trust, or association. Such tax shall be 
     paid by the corporation, trust, or association.
       ``(ii) Tax computed.--The amount of the tax imposed by 
     clause (i) shall be the greater of--
       ``(I) $50,000, or
       ``(II) the amount determined (pursuant to regulations 
     promulgated by the Secretary) by multiplying the net income 
     generated by the assets described in the schedule specified 
     in subparagraph (B)(ii) for the period specified in clause 
     (iii) by the highest rate of tax specified in section 11.
       ``(iii) Period.--For purposes of clause (ii)(II), the 
     period described in this clause is the period beginning on 
     the first date that the failure to satisfy the requirements 
     of such paragraph (4) occurs as a result of the ownership of 
     such assets and ending on the earlier of the date on which 
     the trust disposes of such assets or the end of the first 
     quarter when there is no longer a failure to satisfy such 
     paragraph (4).
       ``(iv) Administrative provisions.--For purposes of subtitle 
     F, the taxes imposed by this subparagraph shall be treated as 
     excise taxes with respect to which the deficiency procedures 
     of such subtitle apply.''.
       ``(b) Modification of Rules of Application for Failure To 
     Satisfy Sections 856(c)(2) or 856(c)(3).--Paragraph (6) of 
     section 856(c) (relating to definition of real estate 
     investment trust) is amended by striking subparagraphs (A) 
     and (B), by redesignating subparagraph (C) as subparagraph 
     (B), and by inserting before subparagraph (B) (as so 
     redesignated) the following new subparagraph:
       ``(A) following the corporation, trust, or association's 
     identification of the failure to meet the requirements of 
     paragraph (2) or (3), or of both such paragraphs, for any 
     taxable year, a description of each item of its gross income 
     described in such paragraphs is set forth in a schedule for 
     such taxable year filed in accordance with regulations 
     prescribed by the Secretary, and''.
       (c) Reasonable Cause Exception to Loss of Reit Status if 
     Failure To Satisfy Requirements.--Subsection (g) of section 
     856 (relating to termination of election) is amended--
       (1) in paragraph (1) by inserting before the period at the 
     end of the first sentence the following: ``unless paragraph 
     (5) applies'', and
       (2) by adding at the end the following new paragraph:
       ``(5) Entities to which paragraph applies.--This paragraph 
     applies to a corporation, trust, or association--
       ``(A) which is not a real estate investment trust to which 
     the provisions of this part apply for the taxable year due to 
     one or more failures to comply with one or more of the 
     provisions of this part (other than subsection (c)(6) or 
     (c)(7) of section 856),
       ``(B) such failures are due to reasonable cause and not due 
     to willful neglect, and
       ``(C) if such corporation, trust, or association pays (as 
     prescribed by the Secretary in regulations and in the same 
     manner as tax) a penalty of $50,000 for each failure to 
     satisfy a provision of this part due to reasonable cause and 
     not willful neglect.''.
       (d) Deduction of Tax Paid From Amount Required To Be 
     Distributed.--Subparagraph (E) of section 857(b)(2) is 
     amended by striking ``(7)'' and inserting ``(7) of this 
     subsection, section 856(c)(7)(B)(iii), and section 
     856(g)(1).''.
       (e) Expansion of Deficiency Dividend Procedure.--Subsection 
     (e) of section 860 is amended by striking ``or'' at the end 
     of paragraph (2), by striking the period at the end of 
     paragraph (3) and inserting ``; or,'' and by adding at the 
     end the following new paragraph:
       ``(4) a statement by the taxpayer attached to its amendment 
     or supplement to a return of tax for the relevant tax 
     year.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after date of the 
     enactment of this Act.
                                 ______
                                 
  SA 2866. Mr. BUNNING (for himself and Mr. Conrad) submitted an 
amendment intended to be proposed by him to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; which was ordered to lie on the table as follows:

       On page 179, after line 25, insert the following:

     SEC. __. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH OTHER 
                   COMPANIES PERMITTED.

       (a) In General.--Section 1504(b) (defining includible 
     corporation) is amended by striking paragraph (2) and by 
     redesignating paragraphs (3) through (8) as paragraphs (2) 
     through (7), respectively.
       (b) Conforming Amendments.--
       (1) Section 1503 is amended by striking subsection (c) 
     (relating to special rule for application of certain losses 
     against income of insurance companies taxed under section 
     801) and by redesignating subsections (d), (e), and (f) as 
     subsections (b), (c), and (d), respectively.
       (2) Section 1504 is amended by striking subsection (c) and 
     by redesignating subsections (d), (e), and (f) as subsections 
     (c), (d), and (e), respectively.
       (3) Section 243(b)(2)(A) is amended by striking ``sections 
     1504(b)(2), 1504(b)(4), and 1504(c)'' and inserting ``section 
     1504(b)(3)''.
       (4) Section 542(b)(5) is repealed.
       (5) Section 805(a)(4)(E) is amended by striking 
     ``1504(b)(3)'' and inserting ``1504(b)(2)''.
       (6) Section 806(b)(3)(C) is repealed.
       (7) Section 818(e)(1) is amended to read as follows:
       ``(1) Items of companies other than insurance companies.--
     If an affiliated group includes members which are and which 
     are not life insurance companies, all items of the members of 
     such group which are not life insurance companies shall not 
     be taken into account in determining the amount of the 
     tentative LICTI of members of such group which are life 
     insurance companies.''.
       (8) Section 832(b)(5)(D)(ii)(II) is amended by striking 
     ``1504(b)(3)'' and inserting ``1504(b)(2)''.
       (9) Section 847(8) is amended by striking ``without regard 
     to the limitations'' and all that follows and inserting a 
     period.
       (10) Section 864(e)(5)(A) is amended by striking 
     ``paragraph (4)'' and inserting ``paragraph (3)''.
       (11) Section 936(i)(5)(A) is amended by striking ``section 
     1504(b)(3) or (4)'' and inserting ``section 1504(b)(2) or 
     (3)''.
       (12) Section 952(c)(1)(B)(vii)(II) is amended by striking 
     ``1504(b)(3)'' and inserting ``1504(b)(2)''.

[[Page 4719]]

       (13) Section 953(d)(3) is amended by striking ``1503(d)'' 
     and inserting ``1503(c)''.
       (14) Section 954(h)(4)(F)(ii) is amended by striking 
     ``1504(b)(3)'' and inserting ``1504(b)(2)''.
       (15) Section 6166(b)(10)(B)(ii)(V) is amended by striking 
     ``1504(b)(3)'' and inserting ``1504(b)(2)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. __. PHASE-IN OF APPLICATION OF CERTAIN LOSSES AGAINST 
                   INCOME OF INSURANCE COMPANIES.

       (a) Phase-in.--
       (1) In general.--For taxable years beginning after December 
     31, 2003, and before January 1, 2010, if--
       (A) an affiliated group includes 1 or more domestic 
     insurance companies subject to tax under section 801 of the 
     Internal Revenue Code of 1986,
       (B) the common parent of such group has not elected under 
     subsection (b) to treat all such insurance companies as 
     corporations which are not includible corporations, and
       (C) the consolidated taxable income of the members of the 
     group not taxed under such section 801 results in a 
     consolidated net operating loss for such taxable year,

     then, under regulations prescribed by the Secretary of the 
     Treasury or his delegate, the amount of such loss which 
     cannot be absorbed in the applicable carryback periods 
     against the taxable income of such members not taxed under 
     such section 801 shall be taken into account in determining 
     the consolidated taxable income of the affiliated group for 
     such taxable year to the extent of the applicable percentage 
     of such loss or the applicable percentage of the taxable 
     income of the members taxed under such section 801, whichever 
     is less. The unused portion of such loss shall be available 
     as a carryover, subject to the same limitations (applicable 
     to the sum of the loss for the carryover year and the loss 
     (or losses) carried over to such year), in applicable 
     carryover years.
       (2) Applicable percentage.--For purposes of paragraph (1), 
     the applicable percentage shall be determined in accordance 
     with the following table:

  For taxable years beginning in:         The applicable percentage is:
  2004..............................................................40 
  2005..............................................................50 
  2006..............................................................60 
  2007..............................................................70 
  2008..............................................................80 
  2009..............................................................90.
       (b) Election for Pre-2010 Years of Groups With Insurance 
     Companies.--For taxable years beginning after December 31, 
     2003, and before January 1, 2010, the common parent of an 
     affiliated group (determined without regard to section 
     1504(b)(2) of the Internal Revenue Code of 1986 as in effect 
     on the day before the date of enactment of this Act) which 
     includes 1 or more domestic insurance companies subject to 
     tax under section 801 of such Code may elect to treat all 
     such insurance companies as corporations which are not 
     includible corporations within the meaning of subsection (b) 
     of section 1504 of such Code, if, as of the date of enactment 
     of this section--
       (1) such affiliated group included 1 or more insurance 
     companies subject to tax under section 801 of such Code, and
       (2) no additional election was in effect under section 
     1504(c)(2) of such Code (as in effect on the day before the 
     date of the enactment of this Act).
       (c) No Carryback Before January 1, 2004.--To the extent 
     that a consolidated net operating loss is allowed or 
     increased by reason of this section or the amendments made by 
     this Act, such loss may not be carried back to a taxable year 
     beginning before January 1, 2004.
       (d) Nontermination of Group.--No affiliated group shall 
     terminate solely as a result of this section or the 
     amendments made by this Act.
       (e) Subsidiary Stock Basis Adjustments.--A member 
     corporation's basis in the stock of a subsidiary corporation 
     shall be adjusted upon consolidation to reflect the 
     preconsolidation income, gain, deduction, loss, 
     distributions, and other relevant amounts during a period 
     when such corporations were members of an affiliated group 
     (determined without regard to section 1504(b)(2) of the 
     Internal Revenue Code of 1986 as in effect on the day before 
     the date of enactment of this Act) but were not included in a 
     consolidated return of such group by operation of section 
     1504(c)(2)(A) of such Code (as in effect on the day before 
     the date of the enactment of this Act) or by reason of the 
     election allowed under subsection (b).
       (f) Waiver of 5-Year Waiting Period.--An automatic waiver 
     from the 5-year waiting period for reconsolidation provided 
     in section 1504(a)(3) of the Internal Revenue Code of 1986 
     shall be granted to any corporation which was previously an 
     includible corporation but was subsequently deemed a 
     nonincludible corporation as a result of becoming a 
     subsidiary of a corporation which was not an includible 
     corporation solely by operation of section 1504(c)(2) of such 
     Code (as in effect on the day before the date of enactment of 
     this Act), subject to such conditions as the Secretary may 
     prescribe.

                                 ______
                                 

  SA 2867. Mr. BENNETT submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table as follows:

       On page 179, after line 25, add the following:

     SEC. __. MODIFICATION OF INVOLUNTARY CONVERSION RULES FOR 
                   BUSINESSES AFFECTED BY THE SEPTEMBER 11TH 
                   TERRORIST ATTACKS.

       (a) In General.--Subsection (g) of section 1400L is amended 
     to read as follows:
       ``(g) Modification of Rules Applicable to Nonrecognition of 
     Gain.--In the case of property which is compulsorily or 
     involuntarily converted as a result of the terrorist attacks 
     on September 11, 2001, in the New York Liberty Zone--
       ``(1) which was held by a corporation which is a member of 
     an affiliated group filing a consolidated return, such 
     corporation shall be treated as satisfying the purchase 
     requirement of section 1033(a)(2) with respect to such 
     property to the extent such requirement is satisfied by 
     another member of the group, and
       ``(2) notwithstanding subsections (g) and (h) of section 
     1033, clause (i) of section 1033(a)(2)(B) shall be applied by 
     substituting `5 years' for `2 years' with respect to property 
     which is compulsorily or involuntarily converted as a result 
     of the terrorist attacks on September 11, 2001, in the New 
     York Liberty Zone but only if substantially all of the use of 
     the replacement property is in the City of New York, New 
     York.''.
       (b) Effective Date.--The amendments made by this Act shall 
     apply to involuntary conversions occurring on or after 
     September 11, 2001.

                                 ______
                                 

  SA 2868. Mrs. DOLE submitted an amendment intended to be proposed by 
her to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table as follows:

       At the appropriate place, insert the following:

     SEC. __. TAX TREATMENT OF STATE OWNERSHIP OF RAILROAD REAL 
                   ESTATE INVESTMENT TRUST.

       (a) In General.--If a State owns all of the outstanding 
     stock of a corporation which is a real estate investment 
     trust, which is a non-operating class III railroad, and 
     substantially all of the activities of which consist of the 
     ownership, leasing, and operation by such corporation of 
     facilities, equipment, and other property used by the 
     corporation or other persons in railroad transportation, 
     then, for purposes of section 115 of the Internal Revenue 
     Code of 1986--
       (1) income derived from such activities by the corporation 
     shall be treated as accruing to the State, and
       (2) such activities shall be treated as the exercise of an 
     essential governmental function of the State to the extent 
     such activities are of a type which are an essential 
     government function (within the meaning of section 115 of 
     such Code).
       (b) Gain or Loss Not Recognized on Conversion.--
     Notwithstanding section 337(d) of the Internal Revenue Code 
     of 1986--
       (1) no gain or loss shall be recognized under section 336 
     or 337 of such Code, and
       (2) no change in basis of the property of such corporation 
     shall occur,

     because of any change of status of the corporation to a tax-
     exempt entity by reason of the application of subsection (a).
       (c) Tax-Exempt Financing.--Any obligation issued by an 
     entity described in subsection (a) shall be treated as an 
     obligation of the State for purposes of applying section 103 
     and part IV of subchapter B of chapter 1 of the Internal 
     Revenue Code of 1986.
       (d) Definitions.--For purposes of this section--
       (1) Real estate investment trust.--The term ``real estate 
     investment trust'' has the meaning given such term by section 
     856(a) of the Internal Revenue Code of 1986.
       (2) Non-operating class iii railroad.--The term ``non-
     operating class III railroad'' has the meaning given such 
     term by part A of subtitle IV of title 49, United States Code 
     (49 U.S.C. 10101 et seq.) and the regulations thereunder.
       (3) State.--The term ``State'' includes--
       (A) the District of Columbia and any possession of the 
     United States, and
       (B) any authority, agency, or public corporation of a 
     State.
       (e) Applicability.--
       (1) In general.--Except as provided in paragraph (2), this 
     section shall apply on and after the date on which a State 
     becomes the

[[Page 4720]]

     owner of all of the outstanding stock of a corporation 
     described in subsection (a).
       (2) Exception.--This section shall not apply to any State 
     which--
       (A) becomes the owner of all of the voting stock of a 
     corporation described in subsection (a) after December 31, 
     2003, or
       (B) becomes the owner of all of the outstanding stock of a 
     corporation described in subsection (a) after December 31, 
     2005.
                                 ______
                                 
  SA 2869. Mr. GRAHAM of Florida (for himself, Mr. Nelson of Florida, 
Ms. Cantwell, and Mrs. Murray) submitted an amendment intended to be 
proposed by him to the bill S. 1637, to amend the Internal Revenue Code 
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities 
in the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

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

     SEC. __. DELAY IN EFFECTIVE DATE OF FINAL REGULATIONS 
                   GOVERNING EXCLUSION OF INCOME FROM 
                   INTERNATIONAL OPERATION OF SHIPS OR AIRCRAFT.

       Notwithstanding the provisions of Treasury regulation 
     Sec. 1.883-5, the final regulations issued by the Secretary 
     of the Treasury relating to income derived by foreign 
     corporations from the international operation of ships or 
     aircraft (Treasury regulations Sec. 1.883-1 through 
     Sec. 1.883-5) shall apply to taxable years of a foreign 
     corporation seeking qualified foreign corporation status 
     beginning after September 24, 2004.
                                 ______
                                 
  SA 2870. Mr. GRAHAM of Florida submitted an amendment intended to be 
proposed by him to the bill S. 1637, to amend the Internal Revenue Code 
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities 
in the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 179, after line 25, insert the following:

     SEC. __. EXPANSION OF PERIOD WITHIN WHICH CONVERTED CITRUS 
                   TREE PROPERTY MUST BE REPLACED.

       (a) In General.--Section 1033 (relating to period within 
     which property must be replaced) is amended by redesignating 
     subsection (k) as subsection (l) and by inserting after 
     subsection (j) the following new subsection:
       ``(k) Commercial Trees Destroyed Because of Citrus Tree 
     Canker.--In the case of commercial citrus trees which are 
     compulsorily or involuntarily converted under a public order 
     as a result of the citrus tree canker, clause (i) of 
     subsection (a)(2)(B) shall be applied as if such clause read: 
     `2 years after the close of the taxable year in which a State 
     or Federal plant health authority determines that the land on 
     which such trees grew is free from the bacteria that causes 
     citrus tree canker and permits replanting to begin'.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to taxable years beginning before, on, or after 
     the date of the enactment of this Act.

     SEC. __. 10-YEAR RATABLE INCOME INCLUSION FOR CITRUS CANKER 
                   TREE PAYMENTS.

       (a) In General.--Part I of subchapter Q of chapter 1 
     (relating to income averaging) is amended by inserting after 
     section 1301 the following new section:

     ``SEC. 1302. 10-YEAR RATABLE INCOME INCLUSION FOR CITRUS 
                   CANKER TREE PAYMENTS.

       ``(a) In General.--At the election of the taxpayer, any 
     amount taken into account as income or gain by reason of 
     receiving a citrus canker tree payment shall be included in 
     the income of the taxpayer ratably over the 10-year period 
     beginning with the taxable year in which the payment is 
     received or accrued by the taxpayer.
       ``(b) Citrus Canker Tree Payment.--For purposes of 
     subsection (a), the term `citrus canker tree payment' means a 
     payment made to an owner of a commercial citrus grove to 
     recover income that was lost as a result of the removal of 
     commercial citrus trees to control canker under the 
     amendments to the citrus canker regulations (7 C.F.R. 301) 
     made by the final rule published in the Federal Register by 
     the Secretary of Agriculture on June 18, 2001 (66 Fed. Reg. 
     32713, Docket No. 00-37-4).''.
       (b) Clerical Amendment.--The table of sections for part I 
     of subchapter Q of chapter 1 is amended by inserting after 
     the item relating to section 1301 the following new item:

``Sec. 1302. 10-year ratable income inclusion for citrus canker tree 
              payments.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made before, on, or after the date of 
     the enactment of this Act.
                                 ______
                                 
  SA 2871. Mr. GRAHAM of Florida submitted an amendment intended to be 
proposed by him to the bill S. 1637, to amend the Internal Revenue Code 
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities 
in the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the appropriate place insert the following:

     SEC. __. REPEAL OF APPLICATION OF BELOW-MARKET LOAN RULES TO 
                   AMOUNTS PAID TO CERTAIN CONTINUING CARE 
                   FACILITIES.

       (a) In General.--Section 7872(c)(1) (relating to below-
     market loans to which section applies) is amended by striking 
     subparagraph (F).
       (b) Full Exception.--Section 7872(g) (relating to exception 
     for certain loans to qualified continuing care facilities) is 
     amended--
       (1) by striking paragraphs (2) and (5),
       (2) by redesignating paragraphs (3) and (4) as paragraphs 
     (2) and (3), respectively,
       (3) by adding at the end of paragraph (2) (as so 
     redesignated) the following new flush sentence:
     ``The Secretary shall issue guidance which limits such term 
     to contracts which provide to an individual or individual's 
     spouse only facilities, care, and services described in this 
     paragraph which are customarily offered by continuing care 
     facilities.'', and
       (4) by striking ``Certain'' in the heading thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to calendar years beginning after December 31, 
     2004.
                                 ______
                                 
  SA 2872. Mr. GRAHAM of Florida submitted an amendment intended to be 
proposed by him to the bill S. 1637, to amend the Internal Revenue Code 
of 1986 to comply with the World Trade Organization rulings on the FSC/
ETI benefit in a manner that preserves jobs and production activities 
in the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table as follows:

       On page 179, after line 25, insert the following:

     SEC. __. SPACEPORTS TREATED LIKE AIRPORTS UNDER EXEMPT 
                   FACILITY BOND RULES.

       (a) In General.--Paragraph (1) of section 142(a) (relating 
     to exempt facility bonds) is amended to read as follows:
       ``(1) airports and spaceports,''.
       (b) Treatment of Ground Leases.--Paragraph (1) of section 
     142(b) (relating to certain facilities must be governmentally 
     owned) is amended by adding at the end the following new 
     subparagraph:
       ``(C) Special rule for spaceport ground leases.--For 
     purposes of subparagraph (A), spaceport property which is 
     located on land owned by the United States and which is used 
     by a governmental unit pursuant to a lease (as defined in 
     section 168(h)(7)) from the United States shall be treated as 
     owned by such unit if--
       ``(i) the lease term (within the meaning of section 
     168(i)(3)) is at least 15 years, and
       ``(ii) such unit would be treated as owning such property 
     if such lease term were equal to the useful life of such 
     property.''.
       (c) Definition of Spaceport.--Section 142 is amended by 
     adding at the end the following new subsection:
       ``(l) Spaceport.--
       ``(1) In general.--For purposes of subsection (a)(1), the 
     term `spaceport' means--
       ``(A) any facility directly related and essential to 
     servicing spacecraft, enabling spacecraft to launch or 
     reenter, or transferring passengers or space cargo to or from 
     spacecraft, but only if such facility is located at, or in 
     close proximity to, the launch site or reentry site, and
       ``(B) any other functionally related and subordinate 
     facility at or adjacent to the launch site or reentry site at 
     which launch services or reentry services are provided, 
     including a launch control center, repair shop, maintenance 
     or overhaul facility, and rocket assembly facility.
       ``(2) Additional terms.--For purposes of paragraph (1)--
       ``(A) Space cargo.--The term `space cargo' includes 
     satellites, scientific experiments, other property 
     transported into space, and any other type of payload, 
     whether or not such property returns from space.
       ``(B) Spacecraft.--The term `spacecraft' means a launch 
     vehicle or a reentry vehicle.
       ``(C) Other terms.--The terms `launch', `launch site', 
     `launch services', `launch vehicle', `payload', `reenter', 
     `reentry services', `reentry site', and `reentry vehicle' 
     shall have the respective meanings given to such terms by 
     section 70102 of title 49, United

[[Page 4721]]

     States Code (as in effect on the date of enactment of this 
     subsection).''.
       (d) Exception From Federally Guaranteed Bond Prohibition.--
     Paragraph (3) of section 149(b) (relating to exceptions) is 
     amended by adding at the end the following new subparagraph:
       ``(E) Exception for spaceports.--Paragraph (1) shall not 
     apply to any exempt facility bond issued as part of an issue 
     described in paragraph (1) of section 142(a) to provide a 
     spaceport in situations where--
       ``(i) the guarantee of the United States (or an agency or 
     instrumentality thereof) is the result of payment of rent, 
     user fees, or other charges by the United States (or any 
     agency or instrumentality thereof), and
       ``(ii) the payment of the rent, user fees, or other charges 
     is for, and conditioned upon, the use of the spaceport by the 
     United States (or any agency or instrumentality thereof).''.
       (e) Conforming Amendment.--The heading for section 142(c) 
     is amended by inserting ``, Spaceports,'' after ``Airports''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.
                                 ______
                                 
  SA 2873. Mr. THOMAS submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. DEFINITION OF MANUFACTURING FACILITY FOR SMALL ISSUE 
                   BONDS.

       (a) In General.--Section 144(a)(12) (relating to 
     termination dates) is amended by striking subparagraph (C) 
     and inserting the following new subparagraphs:
       ``(C) Manufacturing facility.--For purposes of this 
     paragraph, the term `manufacturing facility' means any 
     facility which is used in--
       ``(i) the manufacture of tangible personal property 
     (including processing which results in a change in the 
     condition of such property),
       ``(ii) the manufacture or development of any software 
     product or process if--

       ``(I) it takes more than 6 months to manufacture or develop 
     such product,
       ``(II) the manufacture or development could not with due 
     diligence be reasonably expected to occur in less than 6 
     months, and
       ``(III) the software product or process comprises programs, 
     routines, and attendant documentation developed and 
     maintained for use in computer and telecommunications 
     technology, or

       ``(iii) the manufacture or development of any biobased 
     product or bioenergy if--

       ``(I) it takes more than 6 months to manufacture or 
     develop, and
       ``(II) the manufacture or development could not with due 
     diligence be reasonably expected to occur in less than 6 
     months.

       ``(D) Related facilities.--For purposes of subparagraph 
     (C), the term `manufacturing facility' includes a facility 
     which is directly and functionally related to a manufacturing 
     facility (determined without regard to subparagraph (C)) if--
       ``(i) such facility, including an office facility and a 
     research and development facility, is located on the same 
     site as the manufacturing facility, and
       ``(ii) not more than 40 percent of the net proceeds of the 
     issue are used to provide such facility.
       ``(E) Other definitions.--For purposes of subparagraph 
     (C)(iii)--
       ``(i) Biobased product.--The term `biobased product' means 
     a commercial or industrial product (other than food or feed) 
     which utilizes biological products or renewable domestic 
     agricultural (plant, animal, and marine) or forestry 
     materials.
       ``(ii) Bioenergy.--The term `bioenergy' means biomass used 
     in the production of energy, including liquid, solid, or 
     gaseous fuels, electricity, and heat.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to obligations issued after the date of the 
     enactment of this Act.
                                 ______
                                 
  SA 2874. Mr. THOMAS submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       On page 179, after line 25, add the following:

     SEC. 3__. SODA ASH ROYALTIES.

       Section 24 of the Mineral Leasing Act (30 U.S.C. 262) is 
     amended--
       (1) by striking ``Sec. 24. That upon'' and inserting the 
     following:

     ``SEC. 24. LEASES.

       ``(a) In General.--Upon''; and
       (2) by adding at the end the following:
       ``(b) Soda Ash Royalties.--Notwithstanding subsection (a), 
     during the 5-year period beginning on the date of enactment 
     of this subsection, the royalty rate applicable to any soda 
     ash lease entered into under subsection (a) before, on, or 
     after the date of enactment of this subsection shall be 2 
     percent.''.
                                 ______
                                 
  SA 2875. Ms. COLLINS (for herself, Mr. Grassley, Mr. Bingaman, Mr. 
Chafee, Mr. Daschle, and Mr. Smith) submitted an amendment intended to 
be proposed by her to the bill S. 1637, to amend the Internal Revenue 
Code of 1986 to comply with the World Trade Organization rulings on the 
FSC/ETI benefit in a manner that preserves jobs and production 
activities in the United States, to reform and simplify the 
international taxation rules of the United States, and for other 
purposes; which was ordered to lie on the table; as follows:

       At the end add the following:

                   TITLE VI--CIVIL RIGHTS TAX RELIEF

     SEC. 601. EXCLUSION FROM GROSS INCOME FOR AMOUNTS RECEIVED ON 
                   ACCOUNT OF CERTAIN UNLAWFUL DISCRIMINATION.

       (a) In General.--Part III of subchapter B of chapter 1 
     (relating to items specifically excluded from gross income) 
     is amended by redesignating section 140 as section 140A and 
     by inserting after section 139 the following new section:

     ``SEC. 140. AMOUNTS RECEIVED ON ACCOUNT OF CERTAIN UNLAWFUL 
                   DISCRIMINATION.

       ``(a) In General.--
       ``(1) Exclusion.--Gross income does not include amounts 
     received by a claimant (whether by suit or agreement and 
     whether as lump sums or periodic payments) on account of a 
     claim of unlawful discrimination (as defined in subsection 
     (b)) or a claim of a violation of subchapter III of chapter 
     37 of title 31, United States Code.
       ``(2) Amounts covered.--For purposes of paragraph (1), the 
     term `amounts' does not include--
       ``(A) backpay or frontpay, as defined in section 1302(b), 
     or
       ``(B) punitive damages.
       ``(b) Unlawful Discrimination Defined.--For purposes of 
     this section, the term `unlawful discrimination' means an act 
     that is unlawful under any of the following:
       ``(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C. 
     1202).
       ``(2) Section 201, 202, 203, 204, 205, 206, or 207 of the 
     Congressional Accountability Act of 1995 (2 U.S.C. 1311, 
     1312, 1313, 1314, 1315, 1316, or 1317).
       ``(3) The National Labor Relations Act (29 U.S.C. 151 et 
     seq.).
       ``(4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201 
     et seq.).
       ``(5) Section 4 or 15 of the Age Discrimination in 
     Employment Act of 1967 (29 U.S.C. 623 or 633a).
       ``(6) Section 501 or 504 of the Rehabilitation Act of 1973 
     (29 U.S.C. 791 or 794).
       ``(7) Section 510 of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1140).
       ``(8) Title IX of the Education Amendments of 1972 (29 
     U.S.C. 1681 et seq.).
       ``(9) The Employee Polygraph Protection Act of 1988 (29 
     U.S.C. 201 et seq.).
       ``(10) The Worker Adjustment and Retraining Notification 
     Act (29 U.S.C. 2102 et seq.).
       ``(11) Section 105 of the Family and Medical Leave Act of 
     1993 (29 U.S.C. 2615).
       ``(12) Chapter 43 of title 38, United States Code (relating 
     to employment and reemployment rights of members of the 
     uniformed services).
       ``(13) Section 1977, 1979, or 1980 of the Revised Statutes 
     (42 U.S.C. 1981, 1983, or 1985).
       ``(14) Section 703, 704, or 717 of the Civil Rights Act of 
     1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
       ``(15) Section 804, 805, 806, 808, or 818 of the Fair 
     Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
       ``(16) Section 102, 202, 302, or 503 of the Americans with 
     Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or 
     12203).
       ``(17) Any provision of Federal law (popularly known as 
     whistleblower protection provisions) prohibiting the 
     discharge of an employee, the discrimination against an 
     employee, or any other form of retaliation or reprisal 
     against an employee for asserting rights or taking other 
     actions permitted under Federal law.
       ``(18) Any provision of Federal, State, or local law, or 
     common law claims permitted under Federal, State, or local 
     law--
       ``(A) providing for the enforcement of civil rights, or
       ``(B) regulating any aspect of the employment relationship, 
     including claims for wages, compensation, or benefits, or 
     prohibiting the discharge of an employee, the discrimination 
     against an employee, or any other form of retaliation or 
     reprisal against an employee for asserting rights or taking 
     other actions permitted by law.''.

[[Page 4722]]

       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following:

``Sec. 140. Amounts received on account of certain unlawful 
              discrimination.
``Sec. 140. Cross references to other Acts.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to damages received in taxable years beginning 
     after December 31, 2002.

     SEC. 602. LIMITATION ON TAX BASED ON INCOME AVERAGING FOR 
                   BACKPAY AND FRONTPAY RECEIVED ON ACCOUNT OF 
                   CERTAIN UNLAWFUL EMPLOYMENT DISCRIMINATION.

       (a) In General.--Part I of subchapter Q of chapter 1 
     (relating to income averaging) is amended by adding at the 
     end the following new section:

     ``SEC. 1302. INCOME FROM BACKPAY AND FRONTPAY RECEIVED ON 
                   ACCOUNT OF CERTAIN UNLAWFUL EMPLOYMENT 
                   DISCRIMINATION.

       ``(a) General Rule.--If employment discrimination backpay 
     or frontpay is received by a taxpayer during a taxable year, 
     the tax imposed by this chapter for such taxable year shall 
     not exceed the sum of--
       ``(1) the tax which would be so imposed if--
       ``(A) no amount of such backpay or frontpay were included 
     in gross income for such year, and
       ``(B) no deduction were allowed for such year for expenses 
     (otherwise allowable as a deduction to the taxpayer for such 
     year) in connection with making or prosecuting any claim of 
     unlawful employment discrimination by or on behalf of the 
     taxpayer, plus
       ``(2) the product of--
       ``(A) the number of years in the backpay period and 
     frontpay period, and
       ``(B) the amount by which the tax determined under 
     paragraph (1) would increase if the amount on which such tax 
     is determined were increased by the average annual net 
     backpay and frontpay amount.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Employment discrimination backpay or frontpay.--The 
     term `employment discrimination backpay or frontpay' means 
     backpay or frontpay receivable (whether as lump sums or 
     periodic payments) on account of a claim of unlawful 
     employment discrimination.
       ``(2) Unlawful employment discrimination.--The term 
     `unlawful employment discrimination' has the meaning provided 
     the term `unlawful discrimination' in section 140(b).
       ``(3) Backpay and frontpay.--The terms `backpay' and 
     `frontpay' mean amounts includible in gross income in the 
     taxable year--
       ``(A) as compensation which is attributable--
       ``(i) in the case of backpay, to services performed, or 
     that would have been performed but for a claimed violation of 
     law, as an employee, former employee, or prospective employee 
     before such taxable year for the taxpayer's employer, former 
     employer, or prospective employer; and
       ``(ii) in the case of frontpay, to employment that would 
     have been performed but for a claimed violation of law, in a 
     taxable year or taxable years following the taxable year; and
       ``(B) which are--
       ``(i) ordered, recommended, or approved by any governmental 
     entity to satisfy a claim for a violation of law, or
       ``(ii) received from the settlement of such a claim.
       ``(4) Backpay period.--The term `backpay period' means the 
     period during which services are performed (or would have 
     been performed) to which backpay is attributable. If such 
     period is not equal to a whole number of taxable years, such 
     period shall be increased to the next highest number of whole 
     taxable years.
       ``(5) Frontpay period.--The term `frontpay period' means 
     the period of foregone employment to which frontpay is 
     attributable. If such period is not equal to a whole number 
     of taxable years, such period shall be increased to the next 
     highest number of whole taxable years.
       ``(6) Average annual net backpay and frontpay amount.--The 
     term `average annual net backpay and frontpay amount' means 
     the amount equal to--
       ``(A) the excess of--
       ``(i) employment discrimination backpay and frontpay, over
       ``(ii) the amount of deductions that would have been 
     allowable but for subsection (a)(1)(B), divided by
       ``(B) the number of years in the backpay period and 
     frontpay period.''.
       (b) Clerical Amendment.--The table of sections for part I 
     of subchapter Q of chapter 1 is amended by inserting after 
     section 1301 the following new item:

``Sec. 1302. Income from backpay or frontpay received on account of 
              certain unlawful employment discrimination.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received in taxable years beginning 
     after December 31, 2002.

     SEC. 603. INCOME AVERAGING FOR BACKPAY AND FRONTPAY RECEIVED 
                   ON ACCOUNT OF CERTAIN UNLAWFUL EMPLOYMENT 
                   DISCRIMINATION NOT TO INCREASE ALTERNATIVE 
                   MINIMUM TAX LIABILITY.

       (a) In General.--Section 55(c) (defining regular tax) is 
     amended by redesignating paragraph (2) as paragraph (3) and 
     by inserting after paragraph (1) the following:
       ``(2) Coordination with income averaging for amounts 
     received on account of employment discrimination.--Solely for 
     purposes of this section, section 1302 (relating to averaging 
     of income from backpay or frontpay received on account of 
     certain unlawful employment discrimination) shall not apply 
     in computing the regular tax.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.
                                 ______
                                 
  SA 2876. Mrs. HUTCHISON (for herself, Mr. Smith, and Ms. Landrieu) 
submitted an amendment intended to be proposed by her to the bill S. 
1637, to amend the Internal Revenue Code of 1986 to comply with the 
World Trade Organization rulings on the FSC/ETI benefit in a manner 
that preserves jobs and production activities in the United States, to 
reform and simplify the international taxation rules of the United 
States, and for other purposes; which was ordered to lie on the table; 
as follows:

       On page 76, strike lines 3 through 14 and insert the 
     following:
       ``(e) Domestic Production Gross Receipts.--For purposes of 
     this section--
       ``(1) In general.--
       ``(A) Receipts from qualifying production property.--The 
     term `domestic production gross receipts' means the gross 
     receipts of the taxpayer which are derived from--
       ``(i) any sale, exchange, or other disposition of, or
       ``(ii) 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.
       ``(B) Receipts from certain services.--Such term also 
     includes the gross receipts of the taxpayer which are derived 
     from any construction, engineering, or architectural services 
     performed in the United States for construction projects in 
     the United States.
                                 ______
                                 
  SA 2877. Mr. BAUCUS submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table as follows:

       Beginning on page 164, strike line 12 through page 165, 
     line 2, and insert the following:
       (b) Special Rule for Mutual or Cooperative Telephone 
     Companies.--Section 512(b) (relating to modifications) is 
     amended by adding at the end the following new paragraph:
       ``(18) Special rule for mutual or cooperative telephone 
     companies.--A mutual or cooperative telephone company which 
     for the taxable year satisfies the requirements of section 
     501(c)(12)(A) may elect to reduce its unrelated business 
     taxable income for such year, if any, by an amount that does 
     not exceed the qualified broadband expenditures which would 
     be taken into account under section 191 for such year by such 
     company if such company was not exempt from taxation. Any 
     amount which is allowed as a deduction under this paragraph 
     shall not be allowed as a deduction under section 191 and the 
     basis of any property to which this paragraph applies shall 
     be reduced under section 1016(a)(29).''.

       On page 168, strike lines 16 through 18 and insert the 
     following:
       (f) Effective Dates.--The amendments made by this section 
     shall apply to expenditures incurred after the date of the 
     enactment of this Act and before the date which is 12 months 
     after the date of the enactment of this Act.
                                 ______
                                 
  SA 2878. Mr. PRYOR submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table as follows:

       Strike section 487 in amendment No. 2645, as agreed to.
                                 ______
                                 
  SA 2879. Mrs. CLINTON submitted an amendment intended to be proposed 
by

[[Page 4723]]

her to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table as follows:

       At the appropriate place, insert the following:

     SEC. __. TRANSMISSION OF PERSONALLY IDENTIFIABLE INFORMATION 
                   TO FOREIGN AFFILIATES OR SUBCONTRACTORS.

       (a) Definitions.--As used in this section, the following 
     definitions shall apply:
       (1) Business enterprise.--The term ``business enterprise'' 
     means any organization, association, or venture established 
     to make a profit.
       (2) Country with adequate privacy protection.--The term 
     ``country with adequate privacy protection'' means a country 
     that has been certified by the Federal Trade Commission as 
     having a legal system that provides adequate privacy 
     protection for such information.
       (3) Health care business.--The term ``health care 
     business'' means any business enterprise or nonprofit 
     organization that collects or retains personally identifiable 
     information about consumers in relation to medical care, 
     including--
       (A) hospitals;
       (B) health maintenance organizations;
       (C) medical partnerships;
       (D) emergency medical transportation companies;
       (E) medical transcription companies; and
       (F) subcontractors, or potential subcontractors, of the 
     entities described in subparagraphs (A) through (E).
       (4) Personally identifiable information.--The term 
     ``personally identifiable information'' includes name, bank 
     account information, social security number, address, 
     telephone number, passwords, mother's maiden name, and age.
       (b) Transmission of Information.--
       (1) In general.--A business enterprise may transmit 
     personally identifiable information regarding a citizen of 
     the United States to any foreign affiliate or subcontractor 
     located in a country that is a country with adequate privacy 
     protection.
       (2) Consent required.--A business enterprise may not 
     transmit personally identifiable information regarding a 
     citizen of the United States to any foreign affiliate or 
     subcontractor located in a country that is not a country with 
     adequate privacy protection, unless--
       (A) the business enterprise obtains consent from the 
     citizen, before a consumer relationship is established or 
     before the effective date of this section, to transmit such 
     information to such foreign affiliate or subcontractor; and
       (B) the consent referred to in subparagraph (A) is renewed 
     by the citizen within 1 year before such information is 
     transmitted.
       (3) Liability.--A business enterprise shall be liable for 
     any damages arising from the improper storage, duplication, 
     sharing, or other misuse of personally identifiable 
     information by the business enterprise or by any of its 
     foreign affiliates or subcontractors that received such 
     information from the business enterprise.
       (4) Rulemaking.--The Chairman of the Federal Trade 
     Commission shall promulgate regulations through which the 
     Chairman may enforce the provisions of this subsection and 
     impose a fine for a violation of this subsection.
       (c) Health Care Information.--
       (1) In general.--A health care business shall be liable for 
     any damages arising from the improper storage, duplication, 
     sharing, or other misuse of personally identifiable 
     information by the business enterprise or by any of its 
     foreign affiliates or subcontractors that received such 
     information from the business enterprise.
       (2) No opt out provision.--A health care business may not 
     terminate an existing relationship with a consumer of health 
     care services to avoid the consent requirement under 
     subsection (b)(2).
       (3) Rulemaking.--The Secretary of Health and Human Services 
     shall promulgate regulations through which the Secretary may 
     enforce the provisions of this subsection and impose a fine 
     for the violation of this subsection.
       (d) Effective Date.--This section shall take effect on the 
     date which is 90 days after the date of enactment of this 
     Act.
                                 ______
                                 
  SA 2880. Mr. DURBIN submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       On page 179, after line 25, insert the following:

     SEC. __. CREDIT FOR QUALIFIED EXPENDITURES FOR MEDICAL 
                   PROFESSIONAL MALPRACTICE INSURANCE.

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

     ``SEC. 45G. CREDIT FOR EXPENDITURES FOR MEDICAL PROFESSIONAL 
                   MALPRACTICE INSURANCE.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of a taxpayer which is an eligible person, the medical 
     malpractice insurance expenditure tax credit determined under 
     this section for a covered year shall equal the applicable 
     percentage of the qualified medical malpractice insurance 
     expenditures incurred by an eligible person during the 
     covered year.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage is--
       ``(1) in the case of an eligible person described in 
     subsection (c)(2)(A), 20 percent,
       ``(2) in the case of an eligible person described in 
     subsection (c)(2)(B), 10 percent, and
       ``(3) in the case of an eligible person described in 
     subsection (c)(2)(C), 15 percent.
       ``(c) Definitions.--In this section:
       ``(1) Covered year.--The term `covered year' means taxable 
     years beginning in 2004 and 2005.
       ``(2) Eligible person.--The term `eligible person' means--
       ``(A) any physician (as defined in section 213(d)(4)) who 
     practices in any surgical specialty or subspecialty, 
     emergency medicine, obstetrics, anesthesiology or who does 
     intervention work which is reflected in medical malpractice 
     insurance expenditures,
       ``(B) any physician (as so defined) who practices in 
     general medicine, allergy, dermatology, pathology, or any 
     other specialty not otherwise described in this section, and
       ``(C) any hospital, clinic, or long-term care provider,
     which meets applicable legal requirements to provide the 
     health care services involved.
       ``(3) Qualified medical malpractice insurance 
     expenditure.--The term `qualified medical malpractice 
     insurance expenditure' means so much of any professional 
     insurance premium, surcharge, payment or other cost or 
     expense which is incurred by an eligible person in a covered 
     year for the sole purpose of providing or furnishing general 
     medical malpractice liability insurance for such eligible 
     person as does not exceed twice the average of such costs for 
     similarly situated eligible persons.
       ``(d) Special Rules.--
       ``(1) In general.--The credit determined under this section 
     shall be claimed by the eligible person incurring the 
     qualified medical malpractice insurance expenditure.
       ``(2) Certification.--Each State, through its board of 
     medical licensure and State board (or agency) regulating 
     insurance, annually shall provide such information to the 
     Secretary of Health and Human Services as is necessary to 
     permit the Secretary to calculate average costs for purposes 
     of subsection (c)(3) and to certify such average costs 
     (rounded to the nearest whole dollar) to the Secretary of the 
     Treasury on or before the 15th day of November of each year.
       ``(e) Application of Section.--This section shall apply to 
     qualified medical malpractice expenditures incurred after 
     December 31, 2003.''.
       (b) Credit Made Part of General Business Credit.--Section 
     38(b) (relating to current year business credit) is amended 
     by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following 
     new paragraph:
       ``(16) the medical malpractice insurance expenditure tax 
     credit determined under section 45G(a).''.
       (c) Limitation on Carryback.--Section 39(d) (relating to 
     transition rules) is amended by adding at the end the 
     following new paragraph:
       ``(11) No carryback of medical malpractice insurance 
     expenditure tax credit before effective date.--No portion of 
     the unused business credit for any taxable year which is 
     attributable to the credit determined under section 45G may 
     be carried back to any taxable year beginning before 2004.''.
       (d) Denial of Double Benefit.--Section 280C (relating to 
     certain expenses for which credits are allowable) is amended 
     by adding at the end the following new subsection:
       ``(d) Credit for Medical Malpractice Liability Insurance 
     Premiums.--
       ``(1) In general.--No deduction shall be allowed for that 
     portion of the qualified medical malpractice insurance 
     expenditures otherwise allowable as a deduction for the 
     taxable year which is equal to the amount of the credit 
     allowable for the taxable year under section 45G (determined 
     without regard to section 38(c)).
       ``(2) Controlled groups.--In the case of a corporation 
     which is a member of a controlled group of corporations 
     (within the meaning of section 41(f)(5)) or a trade or 
     business which is treated as being under common control with 
     other trades or business (within the meaning of section 
     41(f)(1)(B)), this subsection shall be applied

[[Page 4724]]

     under rules prescribed by the Secretary similar to the rules 
     applicable under subparagraphs (A) and (B) of section 
     41(f)(1).''.
       (e) Grants to Non-Profit Hospitals, Clinics, and Long-Term 
     Care Providers.--
       (1) In general.--The Secretary of Health and Human 
     Services, acting through the Administrator of the Health 
     Resources and Services Administration, shall award grants to 
     eligible non-profit hospitals, clinics, and long-term care 
     providers to assist such hospitals, clinics, and long-term 
     care providers in defraying qualified medical malpractice 
     insurance expenditures.
       (2) Eligible non-profit hospital, clinic, or long-term care 
     provider.--To be eligible to receive a grant under paragraph 
     (1) an entity shall--
       (A) be a non-profit hospital, clinic, or long-term care 
     provider;
       (B) be unable to claim the tax credit described in section 
     45G for the year for which an application is submitted under 
     subparagraph (C); and
       (C) prepare and submit to the Secretary of Health and Human 
     Services an application at such time, in such manner, and 
     containing such information as the Secretary may require.
       (3) Amount of grant.--The amount of a grant to a non-profit 
     hospital, clinic, or long-term care provider under paragraph 
     (1) shall equal 15 percent of the amount of the qualified 
     medical malpractice insurance expenditures of the hospital, 
     clinic, or long-term care provider for the year involved.
       (4) Qualified medical malpractice insurance expenditure.--
     In this subsection, the term ``qualified medical malpractice 
     insurance expenditure'' means so much of any professional 
     insurance premium, surcharge, payment or other cost or 
     expense which is incurred by a non-profit hospital, clinic, 
     or long-term care provider in a year for the sole purpose of 
     providing or furnishing general medical malpractice liability 
     insurance for such hospital, clinic, or long-term care 
     provider as does not exceed twice the average of such costs 
     for similarly situated hospitals, clinics, or long-term care 
     provider homes.
       (5) Authorization of appropriations.--There are authorized 
     to be appropriated to carry out this subsection, such sums as 
     may be necessary for each of fiscal years 2005 and 2006.
       (f) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following new item:

``Sec. 45G. Credit for expenditures for medical professional 
              malpractice insurance.''.

       (g) Effective Date.--The amendments made by this section 
     shall apply to expenditures incurred after December 31, 2003.
                                 ______
                                 
  SA 2881. Mr. HARKIN (for himself, Mr. Kennedy, Mr. Sarbanes, Mr. 
Kerry, and Ms. Mikulski) proposed an amendment to the bill S. 1637, to 
amend the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; as follows:

       At the appropriate place, insert the following:

     SEC. __. PROTECTION OF OVERTIME PAY.

       Section 13 of the Fair Labor Standards Act of 1938 (29 
     U.S.C. 213) is amended by adding at the end the following:
       ``(k)(1) The Secretary shall not promulgate any rule under 
     subsection (a)(1) that exempts from the overtime pay 
     provisions of section 7 any employee who would not be exempt 
     under regulations in effect on March 31, 2003.
       ``(2) Any portion of a rule promulgated under subsection 
     (a)(1) after March 31, 2003, that exempts from the overtime 
     pay provisions of section 7 any employee who would not 
     otherwise be exempt if the regulations in effect on March 31, 
     2003, remained in effect, shall have no force or effect.''.
                                 ______
                                 
  SA 2882. Mr. GRASSLEY (for Mr. Bunning (for himself, Mrs. Lincoln, 
Mr. Santorum, Mr. Conrad, and Mr. Baucus)) proposed an amendment to 
amendment SA 2686 proposed by Mr. Bunning (for himself, Ms. Stabenow, 
Mrs. Feinstein, Mr. Levin, Mr. Kohl, and Mr. Rockefeller) to the bill 
S. 1637, to amend the Internal Revenue Code of 1986 to comply with the 
World Trade Organization rulings on the FSC/ETI benefit in a manner 
that preserves jobs and production activities in the United States, to 
reform and simplify the international taxation rules of the United 
States, and for other purposes; as follows:

       At the end of the matter proposed to be inserted at the end 
     of the bill, add the following:

     SEC. __. FIVE-YEAR CARRYBACK OF NET OPERATING LOSSES.

       (a) In General.--Subparagraph (H) of section 172(b)(1) is 
     amended--
       (1) by inserting ``5-year carryback of certain losses.--'' 
     after ``(H)'', and
       (2) by striking ``or 2002'' and inserting ``, 2002, or 
     2003''.
       (b) Rules Relating to Certain Extended Net Operating 
     Losses.--Section 172 is amended by redesignating subsection 
     (k) as subsection (l) and by inserting after subsection (j) 
     the following new subsection:
       ``(k) Rules Relating to Certain Extended Net Operating 
     Losses.--For purposes of this section, in the case of a 
     taxpayer which has a net operating loss for any taxable year 
     ending during 2003 and does not make an election under 
     subsection (j), such taxpayer shall be deemed to have made an 
     election under paragraphs (4)(E) and (2)(C)(iii) of section 
     168(k) with respect to all classes of property for such 
     taxable year.
       (c) Temporary Suspension of 90 Percent Limit on Certain NOL 
     Carryovers.--Section 56(d)(1)(A)(ii)(I) (relating to general 
     rule defining alternative tax net operating loss deduction) 
     is amended--
       (1) by striking ``or 2002'' and inserting ``, 2002, or 
     2003'', and
       (2) by striking ``and 2002'' and inserting ``, 2002, and 
     2003''.
       (d) Technical Corrections.--
       (1) Subparagraph (H) of section 172(b)(1) is amended by 
     striking ``a taxpayer which has''.
       (2) Section 102(c)(2) of the Job Creation and Worker 
     Assistance Act of 2002 (Public Law 107-147) is amended by 
     striking ``before January 1, 2003'' and inserting ``after 
     December 31, 1990''.
       (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended 
     by striking ``attributable to carryovers''.
       (B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
       (i) by striking ``for taxable years'' and inserting ``from 
     taxable years'', and
       (ii) by striking ``carryforwards'' and inserting 
     ``carryovers''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to net operating 
     losses for taxable years ending after December 31, 2002.
       (2) Technical corrections.--The amendments made by 
     subsection (d) shall take effect as if included in the 
     amendments made by section 102 of the Job Creation and Worker 
     Assistance Act of 2002.
       (3) Election.--In the case of a net operating loss for a 
     taxable year ending during 2003--
       (A) any election made under section 172(b)(3) of such Code 
     may (notwithstanding such section) be revoked before April 
     15, 2004, and
       (B) any election made under section 172(j) of such Code 
     shall (notwithstanding such section) be treated as timely 
     made if made before April 15, 2004.
       (4) Special rule for taxpayers with taxable years ending 
     during january.--Any taxpayer which has a taxable year ending 
     during January may elect under this paragraph to apply 
     section 172(b)(1)(H) of the Internal Revenue Code of 1986 (as 
     amended by this section) to its taxable year ending in 2004 
     rather than its taxable year ending in 2003. If such election 
     is made, then section 172(k) of such Code (as added by this 
     section) shall be applied to the taxpayer's taxable year 
     ending in 2004. Such election shall be made in such manner 
     and at such time as may be prescribed by the Secretary of the 
     Treasury. Such election, once made, shall be irrevocable.
       (c) Prior Section To Have No Effect.--Notwithstanding 
     section 311(e) of this Act, such section, and the amendments 
     made by such section, shall not take effect.
                                 ______
                                 
  SA 2883. Mr. DAYTON submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table as follows:

       At the end add the following:

 TITLE V--HOUSING BOND AND CREDIT MODERNIZATION AND FAIRNESS PROVISIONS

     SEC. 501. REPEAL OF REQUIRED USE OF CERTAIN PRINCIPAL 
                   REPAYMENTS ON MORTGAGE SUBSIDY BOND FINANCINGS 
                   TO REDEEM BONDS.

       (a) In General.--Subparagraph (A) of section 143(a)(2) 
     (defining qualified mortgage issue) is amended by adding 
     ``and'' at the end of clause (ii), by striking ``, and'' at 
     the end of clause (iii) and inserting a period, and by 
     striking clause (iv) and the last sentence.
       (b) Conforming Amendment.--Clause (ii) of section 
     143(a)(2)(D) of such Code is amended by striking ``(and 
     clause (iv) of subparagraph (A))''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to repayments received after the date of the 
     enactment of this Act.

[[Page 4725]]



     SEC. 502. MODIFICATION OF PURCHASE PRICE LIMITATION UNDER 
                   MORTGAGE SUBSIDY BOND RULES BASED ON MEDIAN 
                   FAMILY INCOME.

       (a) In General.--Paragraph (1) of section 143(e) (relating 
     to purchase price requirement) is amended to read as follows:
       ``(1) In general.--An issue meets the requirements of this 
     subsection only if the acquisition cost of each residence the 
     owner-financing of which is provided under the issue does not 
     exceed the greater of--
       ``(A) 90 percent of the average area purchase price 
     applicable to the residence, or
       ``(B) 3.5 times the applicable median family income (as 
     defined in subsection (f)).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to financing provided, and mortgage credit 
     certificates issued, after the date of the enactment of this 
     Act.

     SEC. 503. DETERMINATION OF AREA MEDIAN GROSS INCOME FOR LOW-
                   INCOME HOUSING CREDIT PROJECTS.

       (a) In General.--Paragraph (4) of section 42(g) (relating 
     to certain rules made applicable) is amended by striking the 
     period at the end and inserting ``and the term `area median 
     gross income' means the amount equal to the greater of--
       ``(A) the area median gross income determined under section 
     142(d)(2)(B), or
       ``(B) the statewide median gross income for the State in 
     which the project is located.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to--
       (1) housing credit dollar amounts allocated after the date 
     of the enactment of this Act, and
       (2) buildings placed in service after such date to the 
     extent paragraph (1) of section 42(h) of the Internal Revenue 
     Code of 1986 does not apply to any building by reason of 
     paragraph (4) thereof.
                                 ______
                                 
  SA 2884. Mr. DAYTON submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table as follows:

       On page 179, after line 25, add the following:

     SEC. __. REPEAL OF CHECK-THE-BOX RULES.

       (a) In General.--Paragraph (3) of section 7701(a) (relating 
     to corporation) is amended by inserting at the end the 
     following new sentence: ``The determination as to whether any 
     foreign business entity is a corporation shall be made 
     without regard to any election regarding the classification 
     of the business form of such entity and shall be made under 
     rules similar to the rules for determining the status of such 
     entity on December 31, 1996 (except that any foreign business 
     entity which is defined as a corporation under regulations on 
     the date of the enactment of this sentence shall continue to 
     be classified as a corporation).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning in calendar years 
     beginning after the date of the enactment of this Act.
                                 ______
                                 
  SA 2885. Mr. DAYTON submitted an amendment intended to be proposed by 
him to the bill S. 1637, to amend the Internal Revenue Code of 1986 to 
comply with the World Trade Organization rulings on the FSC/ETI benefit 
in a manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table as follows:

       Beginning on page 85, line 20, strike all through page 146, 
     line 23, and insert the following:

     SEC. 201. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY 
                   INCOME WITH RESPECT TO TRANSACTIONS IN 
                   COMMODITIES.

       (a) In General.--Clauses (i) and (ii) of section 
     954(c)(1)(C) (relating to commodity transactions) are amended 
     to read as follows:
       ``(i) arise out of commodity hedging transactions (as 
     defined in paragraph (4)(A)),
       ``(ii) are active business gains or losses from the sale of 
     commodities, but only if substantially all of the controlled 
     foreign corporation's commodities are property described in 
     paragraph (1), (2), or (8) of section 1221(a), or''.
       (b) Definition and Special Rules.--Subsection (c) of 
     section 954 is amended by adding after paragraph (3) the 
     following new paragraph:
       ``(4) Definition and special rules relating to commodity 
     transactions.--
       ``(A) Commodity hedging transactions.--For purposes of 
     paragraph (1)(C)(i), the term `commodity hedging transaction' 
     means any transaction with respect to a commodity if such 
     transaction--
       ``(i) is a hedging transaction as defined in section 
     1221(b)(2), determined--

       ``(I) without regard to subparagraph (A)(ii) thereof,
       ``(II) by applying subparagraph (A)(i) thereof by 
     substituting `ordinary property or property described in 
     section 1231(b)' for `ordinary property', and
       ``(III) by substituting `controlled foreign corporation' 
     for `taxpayer' each place it appears, and

       ``(ii) is clearly identified as such in accordance with 
     section 1221(a)(7).
       ``(B) Treatment of dealer activities under paragraph 
     (1)(C).--Commodities with respect to which gains and losses 
     are not taken into account under paragraph (2)(C) in 
     computing a controlled foreign corporation's foreign personal 
     holding company income shall not be taken into account in 
     applying the substantially all test under paragraph 
     (1)(C)(ii) to such corporation.
       ``(C) Regulations.--The Secretary shall prescribe such 
     regulations as are appropriate to carry out the purposes of 
     paragraph (1)(C) in the case of transactions involving 
     related parties.''.
       (c) Modification of Exception for Dealers.--Clause (i) of 
     section 954(c)(2)(C) is amended by inserting ``and 
     transactions involving physical settlement'' after 
     ``(including hedging transactions''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after December 31, 
     2004.
                                 ______
                                 
  SA 2886. Mr. McCONNELL (for Mr. Frist) submitted an amendment 
intended to be proposed by Mr. McConnell to the bill S. 1637, to amend 
the Internal Revenue Code of 1986 to comply with the World Trade 
Organization rulings on the FSC/ETI benefit in a manner that preserves 
jobs and production activities in the United States, to reform and 
simplify the international taxation rules of the United States, and for 
other purposes; as follows:

       Strike all after the enacting clause and insert the 
     following:

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

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

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

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

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

                 TITLE II--INTERNATIONAL TAX PROVISIONS

                  Subtitle A--International Tax Reform

Sec. 201. 20-year foreign tax credit carryover; 1-year foreign tax 
              credit carryback.
Sec. 202. Look-thru rules to apply to dividends from noncontrolled 
              section 902 corporations.
Sec. 203. Foreign tax credit under alternative minimum tax.
Sec. 204. Recharacterization of overall domestic loss.
Sec. 205. Interest expense allocation rules.
Sec. 206. Determination of foreign personal holding company income with 
              respect to transactions in commodities.

              Subtitle B--International Tax Simplification

Sec. 211. Repeal of foreign personal holding company rules and foreign 
              investment company rules.
Sec. 212. Expansion of de minimis rule under subpart F.
Sec. 213. Attribution of stock ownership through partnerships to apply 
              in determining section 902 and 960 credits.
Sec. 214. Application of uniform capitalization rules to foreign 
              persons.
Sec. 215. Repeal of withholding tax on dividends from certain foreign 
              corporations.
Sec. 216. Repeal of special capital gains tax on aliens present in the 
              United States for 183 days or more.

          Subtitle C--Additional International Tax Provisions

Sec. 221. Active leasing income from aircraft and vessels.
Sec. 222. Look-thru treatment of payments between related controlled 
              foreign corporations under foreign personal holding 
              company income rules.
Sec. 223. Look-thru treatment for sales of partnership interests.
Sec. 224. Election not to use average exchange rate for foreign tax 
              paid other than in functional currency.

[[Page 4726]]

Sec. 225. Treatment of income tax base differences.
Sec. 226. Modification of exceptions under subpart F for active 
              financing.
Sec. 227. United States property not to include certain assets of 
              controlled foreign corporation.
Sec. 228. Provide equal treatment for interest paid by foreign 
              partnerships and foreign corporations.
Sec. 229. Clarification of treatment of certain transfers of intangible 
              property.
Sec. 230. Modification of the treatment of certain REIT distributions 
              attributable to gain from sales or exchanges of United 
              States real property interests.
Sec. 231. Toll tax on excess qualified foreign distribution amount.
Sec. 232. Exclusion of income derived from certain wagers on horse 
              races and dog races from gross income of nonresident 
              alien individuals.
Sec. 233. Limitation of withholding tax for Puerto Rico corporations.
Sec. 234. Report on WTO dispute settlement panels and the appellate 
              body.
Sec. 235. Study of impact of international tax laws on taxpayers other 
              than large corporations.

       TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

                     Subtitle A--General Provisions

Sec. 301. Expansion of qualified small-issue bond program.
Sec. 302. Expensing of broadband Internet access expenditures.
Sec. 303. Exemption of natural aging process in determination of 
              production period for distilled spirits under section 
              263A.
Sec. 304. Modification of active business definition under section 355.
Sec. 305. Exclusion of certain indebtedness of small business 
              investment companies from acquisition indebtedness.
Sec. 306. Modified taxation of imported archery products.
Sec. 307. Modification to cooperative marketing rules to include value 
              added processing involving animals.
Sec. 308. Extension of declaratory judgment procedures to farmers' 
              cooperative organizations.
Sec. 309. Temporary suspension of personal holding company tax.
Sec. 310. Increase in section 179 expensing.
Sec. 311. Five-year carryback of net operating losses.
Sec. 312. Extension and modification of research credit.
Sec. 313. Expansion of research credit.

              Subtitle B--Manufacturing Relating to Films

Sec. 321. Special rules for certain film and television productions.
Sec. 322. Modification of application of income forecast method of 
              depreciation.

              Subtitle C--Manufacturing Relating to Timber

Sec. 331. Expensing of certain reforestation expenditures.
Sec. 332. Election to treat cutting of timber as a sale or exchange.
Sec. 333. Capital gain treatment under section 631(b) to apply to 
              outright sales by landowners.
Sec. 334. Modification of safe harbor rules for timber REITS.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 401. Clarification of economic substance doctrine.
Sec. 402. Penalty for failing to disclose reportable transaction.
Sec. 403. Accuracy-related penalty for listed transactions and other 
              reportable transactions having a significant tax 
              avoidance purpose.
Sec. 404. Penalty for understatements attributable to transactions 
              lacking economic substance, etc.
Sec. 405. Modifications of substantial understatement penalty for 
              nonreportable transactions.
Sec. 406. Tax shelter exception to confidentiality privileges relating 
              to taxpayer communications.
Sec. 407. Disclosure of reportable transactions.
Sec. 408. Modifications to penalty for failure to register tax 
              shelters.
Sec. 409. Modification of penalty for failure to maintain lists of 
              investors.
Sec. 410. Modification of actions to enjoin certain conduct related to 
              tax shelters and reportable transactions.
Sec. 411. Understatement of taxpayer's liability by income tax return 
              preparer.
Sec. 412. Penalty on failure to report interests in foreign financial 
              accounts.
Sec. 413. Frivolous tax submissions.
Sec. 414. Regulation of individuals practicing before the Department of 
              Treasury.
Sec. 415. Penalty on promoters of tax shelters.
Sec. 416. Statute of limitations for taxable years for which required 
              listed transactions not reported.
Sec. 417. Denial of deduction for interest on underpayments 
              attributable to nondisclosed reportable and noneconomic 
              substance transactions.
Sec. 418. Authorization of appropriations for tax law enforcement.
Sec. 419. Increases in penalties for aiding and abetting 
              understatements.
Sec. 420. Study on information sharing among law enforcement agencies.

           Subtitle B--Other Corporate Governance Provisions

Sec. 421. Affirmation of consolidated return regulation authority.
Sec. 422. Declaration by chief executive officer relating to Federal 
              annual income tax return of a corporation.
Sec. 423. Denial of deduction for certain fines, penalties, and other 
              amounts.
Sec. 424. Disallowance of deduction for punitive damages.
Sec. 425. Increase in criminal monetary penalty limitation for the 
              underpayment or overpayment of tax due to fraud.

            Subtitle C--Enron-Related Tax Shelter Provisions

Sec. 431. Limitation on transfer or importation of built-in losses.
Sec. 432. No reduction of basis under section 734 in stock held by 
              partnership in corporate partner.
Sec. 433. Repeal of special rules for FASITs.
Sec. 434. Expanded disallowance of deduction for interest on 
              convertible debt.
Sec. 435. Expanded authority to disallow tax benefits under section 
              269.
Sec. 436. Modification of interaction between subpart F and passive 
              foreign investment company rules.

           Subtitle D--Provisions To Discourage Expatriation

Sec. 441. Tax treatment of inverted corporate entities.
Sec. 442. Imposition of mark-to-market tax on individuals who 
              expatriate.
Sec. 443. Excise tax on stock compensation of insiders of inverted 
              corporations.
Sec. 444. Reinsurance of United States risks in foreign jurisdictions.
Sec. 445. Reporting of taxable mergers and acquisitions.

                     Subtitle E--International Tax

Sec. 451. Clarification of banking business for purposes of determining 
              investment of earnings in United States property.
Sec. 452. Prohibition on nonrecognition of gain through complete 
              liquidation of holding company.
Sec. 453. Prevention of mismatching of interest and original issue 
              discount deductions and income inclusions in transactions 
              with related foreign persons.
Sec. 454. Effectively connected income to include certain foreign 
              source income.
Sec. 455. Recapture of overall foreign losses on sale of controlled 
              foreign corporation.
Sec. 456. Minimum holding period for foreign tax credit on withholding 
              taxes on income other than dividends.

                  Subtitle F--Other Revenue Provisions

                     Part I--Financial Instruments

Sec. 461. Treatment of stripped interests in bond and preferred stock 
              funds, etc.
Sec. 462. Application of earnings stripping rules to partnerships and S 
              corporations.
Sec. 463. Recognition of cancellation of indebtedness income realized 
              on satisfaction of debt with partnership interest.
Sec. 464. Modification of straddle rules.
Sec. 465. Denial of installment sale treatment for all readily 
              tradeable debt.

                 Part II--Corporations and Partnerships

Sec. 466. Modification of treatment of transfers to creditors in 
              divisive reorganizations.
Sec. 467. Clarification of definition of nonqualified preferred stock.
Sec. 468. Modification of definition of controlled group of 
              corporations.
Sec. 469. Mandatory basis adjustments in connection with partnership 
              distributions and transfers of partnership interests.

                Part III--Depreciation and Amortization

Sec. 471. Extension of amortization of intangibles to sports 
              franchises.
Sec. 472. Class lives for utility grading costs.
Sec. 473. Expansion of limitation on depreciation of certain passenger 
              automobiles.
Sec. 474. Consistent amortization of periods for intangibles.
Sec. 475. Reform of tax treatment of leasing operations.

[[Page 4727]]

Sec. 476. Limitation on deductions allocable to property used by 
              governments or other tax-exempt entities.

                   Part IV--Administrative Provisions

Sec. 481. Clarification of rules for payment of estimated tax for 
              certain deemed asset sales.
Sec. 482. Extension of IRS user fees.
Sec. 483. Doubling of certain penalties, fines, and interest on 
              underpayments related to certain offshore financial 
              arrangement.
Sec. 484. Partial payment of tax liability in installment agreements.
Sec. 485. Extension of customs user fees.
Sec. 486. Deposits made to suspend running of interest on potential 
              underpayments.
Sec. 487. Qualified tax collection contracts.

                    Part V--Miscellaneous Provisions

Sec. 491. Addition of vaccines against hepatitis A to list of taxable 
              vaccines.
Sec. 492. Recognition of gain from the sale of a principal residence 
              acquired in a like-kind exchange within 5 years of sale.
Sec. 493. Clarification of exemption from tax for small property and 
              casualty insurance companies.
Sec. 494. Definition of insurance company for section 831.
Sec. 495. Limitations on deduction for charitable contributions of 
              patents and similar property.
Sec. 496. Repeal of 10-percent rehabilitation tax credit.
Sec. 497. Increase in age of minor children whose unearned income is 
              taxed as if parent's income.
Sec. 498. Holding period for preferred stock.

   TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF 
                           FOREIGN WORKFORCES

Sec. 501. Limitations on off-shore performance of contracts.
Sec. 502. Repeal of superseded law.
Sec. 503. Effective date and applicability.

                       TITLE VI--OTHER PROVISIONS

               Subtitle A--Provisions Relating to Housing

Sec. 601. Treatment of qualified mortgage bonds.
Sec. 602. Premiums for mortgage insurance.
Sec. 603. Increase in historic rehabilitation credit for certain low-
              income housing for the elderly.

                Subtitle B--Provisions Relating to Bonds

Sec. 611. Expansion of New York liberty zone tax benefits.
Sec. 612. Modifications of treatment of qualified zone academy bonds.
Sec. 613. Modifications of authority of Indian tribal governments to 
              issue tax-exempt bonds.
Sec. 614. Definition of manufacturing facility for small issue bonds.
Sec. 615. Conservation bonds.

            Subtitle C--Provisions Relating to Depreciation

Sec. 621. Special placed in service rule for bonus depreciation 
              property.
Sec. 622. Modification of depreciation allowance for aircraft.
Sec. 623. Modification of class life for certain track facilities.
Sec. 624. Minimum tax relief for certain taxpayers.

                Subtitle D--Expansion of Business Credit

Sec. 631. New markets tax credit for Native American reservations.
Sec. 632. Ready reserve-national guard employee credit added to general 
              business credit.
Sec. 633. Rural investment tax credit.
Sec. 634. Qualified rural small business investment credit.
Sec. 635. Credit for maintenance of railroad track.
Sec. 636. Railroad revitalization and security investment credit.

                  Subtitle E--Miscellaneous Provisions

Sec. 641. Exclusion of gain or loss on sale or exchange of certain 
              brownfield sites from unrelated business taxable income.
Sec. 642. Modification of unrelated business income limitation on 
              investment in certain debt-financed properties.
Sec. 643. Civil rights tax relief.
Sec. 644. Exclusion for payments to individuals under national health 
              service corps loan repayment program and certain State 
              loan repayment programs.
Sec. 645. Certain expenses of rural letter carriers.
Sec. 646. Method of accounting for naval shipbuilders.
Sec. 647. Suspension of policyholders surplus account provisions.
Sec. 648. Payment of dividends on stock of cooperatives without 
              reducing patronage dividends.
Sec. 649. Special rules for livestock sold on account of weather-
              related conditions.
Sec. 650. Motor vehicle dealer transitional assistance.
Sec. 651. Expansion of designated renewal community area based on 2000 
              census data.
Sec. 652. Reduction of holding period to 12 months for purposes of 
              determining whether horses are section 1231 assets.
Sec. 653. Blue ribbon commission on comprehensive tax reform.
Sec. 654. Treatment of distributions by esops with respect to S 
              corporation stock.
Sec. 655. Clarification of working capital for reasonably anticipated 
              needs of a business for purposes of accumulated earnings 
              tax.

                     Subtitle F--Revenue Provisions

                   Part I--General Revenue Provisions

Sec. 661. Treasury regulations on foreign tax credit.
Sec. 662. Nonattribution of certain manufacturing by persons other than 
              controlled foreign corporation.
Sec. 663. Freeze of provisions regarding suspension of interest where 
              Secretary fails to contact taxpayer.

               Part II--Pension and Deferred Compensation

Sec. 671. Treatment of nonqualified deferred compensation plans.
Sec. 672. Prohibition on deferral of gain from the exercise of stock 
              options and restricted stock gains through deferred 
              compensation arrangements.
Sec. 673. Increase in withholding from supplemental wage payments in 
              excess of $1,000,000.
Sec. 674. Treatment of sale of stock acquired pursuant to exercise of 
              stock options to comply with conflict-of-interest 
              requirements.
Sec. 675. Determination of basis of amounts paid from foreign pension 
              plans.

          TITLE VII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

                         Subtitle A--Extensions

Sec. 701. Parity in the application of certain limits to mental health 
              benefits.
Sec. 702. Modifications to work opportunity credit and welfare-to-work 
              credit.
Sec. 703. Consolidation of work opportunity credit with welfare-to-work 
              credit.
Sec. 704. Qualified zone academy bonds.
Sec. 705. Cover over of tax on distilled spirits.
Sec. 706. Deduction for corporate donations of scientific property and 
              computer technology.
Sec. 707. Deduction for certain expenses of school teachers.
Sec. 708. Expensing of environmental remediation costs.
Sec. 709. Expansion of certain New York Liberty Zone benefits.
Sec. 710. Temporary special rules for taxation of life insurance 
              companies.
Sec. 711. Tax incentives for investment in the District of Columbia.
Sec. 712. Combined employment tax reporting program.
Sec. 713. Allowance of nonrefundable personal credits against regular 
              and minimum tax liability.
Sec. 714. Credit for electricity produced from certain renewable 
              resources.
Sec. 715. Taxable income limit on percentage depletion for oil and 
              natural gas produced from marginal properties.
Sec. 716. Indian employment tax credit.
Sec. 717. Accelerated depreciation for business property on Indian 
              reservation.
Sec. 718. Disclosure of return information relating to student loans.
Sec. 719. Extension of transfers of excess pension assets to retiree 
              health accounts.
Sec. 720. Elimination of phaseout of credit for qualified electric 
              vehicles.
Sec. 721. Elimination of phaseout for deduction for clean-fuel vehicle 
              property.

                     Subtitle B--Revenue Provisions

Sec. 731. Donations of motor vehicles, boats, and airplanes. 
Sec. 732. Addition of vaccines against influenza to list of taxable 
              vaccines.
Sec. 733. Treatment of contingent payment convertible debt instruments.
Sec. 734. Modification of continuing levy on payments to Federal 
              venders.

        TITLE I--PROVISIONS RELATING TO REPEAL OF EXCLUSION FOR 
                        EXTRATERRITORIAL INCOME

     SEC. 101. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

       (a) In General.--Section 114 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 ``114 or''.

[[Page 4728]]

       (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 the date of the 
     enactment of this Act.
       (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.--
       (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, during the 1-year period beginning 
     on the date of the enactment of this Act, revoke such 
     election, effective as of such date of enactment, and
       (B) if the corporation does revoke such election--
       (i) such corporation shall be treated as a domestic 
     corporation transferring (as of such date of enactment) all 
     of its property to a foreign corporation in connection with 
     an exchange described in section 354 of such Code, 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, a 
     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 2002 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
      percentage is:
         80 ...........................................................
         80 ...........................................................
         60............................................................
       (ii) Special rule for 2004.--The phaseout percentage for 
     2004 shall be the amount that bears the same ratio to 100 
     percent as the number of days after the date of the enactment 
     of this Act bears to 365.
       (iii) 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.
       (C) Short taxable year.--The Secretary shall prescribe 
     guidance for the computation of the transition amount in the 
     case of a short taxable year.
       (4) Base period amount.--For purposes of this subsection, 
     the base period amount is the average FSC/ETI benefit for the 
     taxpayer's taxable years beginning in calendar years 2000, 
     2001, and 2002.
       (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 agricultural 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, except that for purposes of 
     this paragraph the phaseout percentage for 2004 shall be 
     treated as being equal to 100 percent.
       (9) Special rule for taxable year which includes date of 
     enactment.--In the case of a taxable year which includes the 
     date of the enactment of this Act, 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 
     for calendar year 2004, reduced by
       (B) the FSC/ETI benefit of such beneficiary with respect to 
     transactions occurring during the portion of the taxable year 
     ending on the date of the enactment of this Act.

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

       (a) In General.--Part VI 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) Allowance of Deduction.--
       ``(1) In general.--There shall be allowed as a deduction an 
     amount equal to 9 percent of the qualified production 
     activities income of the taxpayer for the taxable year.
       ``(2) Phasein.--In the case of taxable years beginning in 
     2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be 
     applied by substituting for the percentage contained therein 
     the transition percentage determined under the following 
     table:

      The transitions
      beginning in:

      percentage is:

        5 , 2005, or 2006..............................................
        6 .............................................................
        7..............................................................
       ``(b) Deduction Limited to Wages Paid.--
       ``(1) In general.--The amount of the deduction allowable 
     under subsection (a) for any taxable year shall not exceed 50 
     percent of the W-2 wages of the employer for the taxable 
     year.
       ``(2) W-2 wages.--For purposes of paragraph (1), the term 
     `W-2 wages' means the sum of the aggregate amounts the 
     taxpayer is required to include on statements under 
     paragraphs (3) and (8) of section 6051(a) with respect to 
     employment of employees of the taxpayer during the taxpayer's 
     taxable year.
       ``(3) Special rules.--
       ``(A) Pass-thru entities.--In the case of an S corporation, 
     partnership, estate or trust, or other pass-thru entity, the 
     limitation under this subsection shall apply at the entity 
     level. The preceding sentence shall not apply to any entity 
     all of the ownership interests of which are held directly or 
     indirectly by members of the same expanded affiliated group.
       ``(B) Acquisitions and dispositions.--The Secretary shall 
     provide for the application of this subsection in cases where 
     the taxpayer acquires, or disposes of, the major portion of a 
     trade or business or the major portion of a separate unit of 
     a trade or business during the taxable year.
       ``(c) Qualified Production Activities Income.--For purposes 
     of this section--

[[Page 4729]]

       ``(1) In general.--The term `qualified production 
     activities income' means an amount equal to the portion of 
     the modified taxable income of the taxpayer which is 
     attributable to domestic production activities.
       ``(2) Reduction for taxable years beginning before 2013.--
     The amount otherwise determined under paragraph (1) (the 
     `unreduced amount') shall not exceed--
       ``(A) in the case of taxable years beginning before 2010, 
     the product of the unreduced amount and the domestic/
     worldwide fraction, and
       ``(B) in the case of taxable years beginning in 2010, 2011, 
     or 2012, an amount equal to the sum of--
       ``(i) the product of the unreduced amount and the domestic/
     worldwide fraction, plus
       ``(ii) the applicable percentage of an amount equal to the 
     unreduced amount minus the amount determined under clause 
     (i).

     For purposes of subparagraph (B)(ii), the applicable 
     percentage is 25 percent for 2010, 50 percent for 2011, and 
     75 percent for 2012.
       ``(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 rules for determining costs.--
       ``(A) In general.--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 
     fair market value immediately after it entered 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) Exports for further manufacture.--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 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 
     paragraph, the term `qualifying production property' means--
       ``(A) any tangible personal property,
       ``(B) any computer software, and
       ``(C) any property described in section 168(f) (3) or (4), 
     including any underlying copyright or trademark.
       ``(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,
       ``(C) electricity,
       ``(D) water supplied by pipeline to the consumer,
       ``(E) utility services, or
       ``(F) any film, tape, recording, book, magazine, newspaper, 
     or similar property the market for which is primarily topical 
     or otherwise essentially transitory in nature.
       ``(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) Application of section to pass-thru entities.--In the 
     case of an S corporation, partnership, estate or trust, or 
     other pass-thru entity--
       ``(A) subject to the provisions of paragraph (2) and 
     subsection (b)(3)(A), this section shall be applied at the 
     shareholder, partner, or similar level, and
       ``(B) the Secretary shall prescribe rules for the 
     application of this section, including rules relating to--
       ``(i) restrictions on the allocation of the deduction to 
     taxpayers at the partner or similar level, and
       ``(ii) additional reporting requirements.
       ``(2) 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--

       ``(I) in the manufacturing, production, growth, or 
     extraction in whole or significant part of any agricultural 
     or horticultural product, or
       ``(II) 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, but 
     for this paragraph, would be deductible under subsection (a) 
     by the organization and is designated as such by the 
     organization in a written notice mailed to its patrons during 
     the payment period described in section 1382(d),

     then such person shall be allowed a deduction under 
     subsection (a) with respect to such amount. The taxable 
     income of the organization shall not be reduced under section 
     1382 by reason of any amount to which the preceding sentence 
     applies.
       ``(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) in the case of an organization described in 
     subparagraph (A)(i)(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 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--

[[Page 4730]]

       ``(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).
       ``(4) 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.
       ``(5) Ordering rule.--The amount of any other deduction 
     allowable under this chapter shall be determined as if this 
     section had not been enacted.
       ``(6) 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.
       ``(7) Possessions, etc.--
       ``(A) In general.--For purposes of subsections (d) and (e), 
     the term `United States' includes the Commonwealth of Puerto 
     Rico, Guam, American Samoa, the Commonwealth of the Northern 
     Mariana Islands, and the Virgin Islands of the United States.
       ``(B) Special rules for applying wage limitation.--For 
     purposes of applying the limitation under subsection (b) for 
     any taxable year--
       ``(i) the determination of W-2 wages of a taxpayer shall be 
     made without regard to any exclusion under section 3401(a)(8) 
     for remuneration paid for services performed in a 
     jurisdiction described in subparagraph (A), and
       ``(ii) in determining the amount of any credit allowable 
     under section 30A or 936 for the taxable year, there shall 
     not be taken into account any wages which are taken into 
     account in applying such limitation.
       ``(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 Jumpstart Our 
     Business Strength (JOBS) Act 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.
       ``(9) Separate application to films and videotape.--In the 
     case of qualifying production property described in section 
     168(f)(3), this section shall be applied separately to 
     qualified production activities income of the taxpayer 
     allocable to each of the following markets with respect to 
     such property:
       ``(A) Theatrical.
       ``(B) Broadcast television (including cable, foreign, pay-
     per-view, and syndication).
       ``(C) Home video.''.
       (b) Minimum Tax.--Section 56(g)(4)(C) (relating to 
     disallowance of items not deductible in computing earnings 
     and profits) is amended by adding at the end the following 
     new clause:
       ``(v) Deduction for domestic production.--Clause (i) shall 
     not apply to any amount allowable as a deduction under 
     section 199.''.
       (c) Clerical Amendment.--The table of sections for part VI 
     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.''.

       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (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--INTERNATIONAL TAX PROVISIONS

                  Subtitle A--International Tax Reform

     SEC. 201. 20-YEAR FOREIGN TAX CREDIT CARRYOVER; 1-YEAR 
                   FOREIGN TAX CREDIT CARRYBACK.

       (a) General Rule.--Section 904(c) (relating to carryback 
     and carryover of excess tax paid) is amended--
       (1) by striking ``in the second preceding taxable year,'', 
     and
       (2) by striking ``, and in the first, second, third, 
     fourth, or fifth'' and inserting ``and in any of the first 
     20''.
       (b) Excess Extraction Taxes.--Paragraph (1) of section 
     907(f) is amended--
       (1) by striking ``in the second preceding taxable year,'',
       (2) by striking ``, and in the first, second, third, 
     fourth, or fifth'' and inserting ``and in any of the first 
     20'', and
       (3) by striking the last sentence.
       (c) Effective Date.--
       (1) Carryback.--The amendments made by subsections (a)(1) 
     and (b)(1) shall apply to excess foreign taxes arising in 
     taxable years beginning after the date of the enactment of 
     this Act.
       (2) Carryover.--The amendments made by subsections (a)(2) 
     and (b)(2) shall apply to excess foreign taxes which (without 
     regard to the amendments made by this section) may be carried 
     to any taxable year ending after the date of the enactment of 
     this Act.

     SEC. 202. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM 
                   NONCONTROLLED SECTION 902 CORPORATIONS.

       (a) In General.--Section 904(d)(4) (relating to look-thru 
     rules apply to dividends from noncontrolled section 902 
     corporations) is amended to read as follows:
       ``(4) Look-thru applies to dividends from noncontrolled 
     section 902 corporations.--
       ``(A) In general.--For purposes of this subsection, any 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer shall be treated as income described 
     in a subparagraph of paragraph (1) in proportion to the ratio 
     of--
       ``(i) the portion of earnings and profits attributable to 
     income described in such subparagraph, to
       ``(ii) the total amount of earnings and profits.
       ``(B) Earnings and profits of controlled foreign 
     corporations.--In the case of any distribution from a 
     controlled foreign corporation to a United States 
     shareholder, rules similar to the rules of subparagraph (A) 
     shall apply in determining the extent to which earnings and 
     profits of the controlled foreign corporation which are 
     attributable to dividends received from a noncontrolled 
     section 902 corporation may be treated as income in a 
     separate category.
       ``(C) Special rules.--For purposes of this paragraph--
       ``(i) Earnings and profits.--

       ``(I) In general.--The rules of section 316 shall apply.
       ``(II) Regulations.--The Secretary may prescribe 
     regulations regarding the treatment of distributions out of 
     earnings and profits for periods before the taxpayer's 
     acquisition of the stock to which the distributions relate.

       ``(ii) Inadequate substantiation.--If the Secretary 
     determines that the proper subparagraph of paragraph (1) in 
     which a dividend is described has not been substantiated, 
     such dividend shall be treated as income described in 
     paragraph (1)(A).
       ``(iii) Coordination with high-taxed income provisions.--
     Rules similar to the rules of paragraph (3)(F) shall apply 
     for purposes of this paragraph.
       ``(iv) Look-thru with respect to carryover of credit.--
     Rules similar to subparagraph (A) also shall apply to any 
     carryforward under subsection (c) from a taxable year 
     beginning before January 1, 2003, of tax allocable to a 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer. The Secretary may by regulations 
     provide for the allocation of any carryback of tax allocable 
     to a dividend from a noncontrolled section 902 corporation to 
     such a taxable year for purposes of allocating such dividend 
     among the separate categories in effect for such taxable 
     year.''.
       (b) Conforming Amendments.--
       (1) Subparagraph (E) of section 904(d)(1) is hereby 
     repealed.
       (2) Section 904(d)(2)(C)(iii) is amended by adding ``and'' 
     at the end of subclause (I), by striking subclause (II), and 
     by redesignating subclause (III) as subclause (II).
       (3) The last sentence of section 904(d)(2)(D) is amended to 
     read as follows: ``Such term does not include any financial 
     services income.''.
       (4) Section 904(d)(2)(E) is amended--
       (A) by inserting ``or (4)'' after ``paragraph (3)'' in 
     clause (i), and
       (B) by striking clauses (ii) and (iv) and by redesignating 
     clause (iii) as clause (ii).
       (5) Section 904(d)(3)(F) is amended by striking ``(D), or 
     (E)'' and inserting ``or (D)''.
       (6) Section 864(d)(5)(A)(i) is amended by striking 
     ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 203. FOREIGN TAX CREDIT UNDER ALTERNATIVE MINIMUM TAX.

       (a) In General.--
       (1) Subsection (a) of section 59 is amended by striking 
     paragraph (2) and by redesignating paragraphs (3) and (4) as 
     paragraphs (2) and (3), respectively.
       (2) Section 53(d)(1)(B)(i)(II) is amended by striking ``and 
     if section 59(a)(2) did not apply''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 204. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

       (a) General Rule.--Section 904 is amended by redesignating 
     subsections (g), (h), (i), (j), and (k) as subsections (h), 
     (i), (j), (k), and (l) respectively, and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Recharacterization of Overall Domestic Loss.--
       ``(1) General rule.--For purposes of this subpart and 
     section 936, in the case of any taxpayer who sustains an 
     overall domestic loss for any taxable year beginning after 
     December 31, 2006, that portion of the taxpayer's taxable 
     income from sources within the United States for each 
     succeeding taxable year which is equal to the lesser of--
       ``(A) the amount of such loss (to the extent not used under 
     this paragraph in prior taxable years), or

[[Page 4731]]

       ``(B) 50 percent of the taxpayer's taxable income from 
     sources within the United States for such succeeding taxable 
     year,
     shall be treated as income from sources without the United 
     States (and not as income from sources within the United 
     States).
       ``(2) Overall domestic loss defined.--For purposes of this 
     subsection--
       ``(A) In general.--The term `overall domestic loss' means 
     any domestic loss to the extent such loss offsets taxable 
     income from sources without the United States for the taxable 
     year or for any preceding taxable year by reason of a 
     carryback. For purposes of the preceding sentence, the term 
     `domestic loss' means the amount by which the gross income 
     for the taxable year from sources within the United States is 
     exceeded by the sum of the deductions properly apportioned or 
     allocated thereto (determined without regard to any carryback 
     from a subsequent taxable year).
       ``(B) Taxpayer must have elected foreign tax credit for 
     year of loss.--The term `overall domestic loss' shall not 
     include any loss for any taxable year unless the taxpayer 
     chose the benefits of this subpart for such taxable year.
       ``(3) Characterization of subsequent income.--
       ``(A) In general.--Any income from sources within the 
     United States that is treated as income from sources without 
     the United States under paragraph (1) shall be allocated 
     among and increase the income categories in proportion to the 
     loss from sources within the United States previously 
     allocated to those income categories.
       ``(B) Income category.--For purposes of this paragraph, the 
     term `income category' has the meaning given such term by 
     subsection (f)(5)(E)(i).
       ``(4) Coordination with subsection (f).--The Secretary 
     shall prescribe such regulations as may be necessary to 
     coordinate the provisions of this subsection with the 
     provisions of subsection (f).''.
       (b) Conforming Amendments.--
       (1) Section 535(d)(2) is amended by striking ``section 
     904(g)(6)'' and inserting ``section 904(h)(6)''.
       (2) Subparagraph (A) of section 936(a)(2) is amended by 
     striking ``section 904(f)'' and inserting ``subsections (f) 
     and (g) of section 904''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to losses for taxable years beginning after 
     December 31, 2006.

     SEC. 205. INTEREST EXPENSE ALLOCATION RULES.

       (a) Election To Allocate on Worldwide Basis.--Section 864 
     is amended by redesignating subsection (f) as subsection (g) 
     and by inserting after subsection (e) the following new 
     subsection:
       ``(f) Election To Allocate Interest, etc. on Worldwide 
     Basis.--For purposes of this subchapter, at the election of 
     the worldwide affiliated group--
       ``(1) Allocation and apportionment of interest expense.--
       ``(A) In general.--The taxable income of each domestic 
     corporation which is a member of a worldwide affiliated group 
     shall be determined by allocating and apportioning interest 
     expense of each member as if all members of such group were a 
     single corporation.
       ``(B) Treatment of worldwide affiliated group.--The taxable 
     income of the domestic members of a worldwide affiliated 
     group from sources outside the United States shall be 
     determined by allocating and apportioning the interest 
     expense of such domestic members to such income in an amount 
     equal to the excess (if any) of--
       ``(i) the total interest expense of the worldwide 
     affiliated group multiplied by the ratio which the foreign 
     assets of the worldwide affiliated group bears to all the 
     assets of the worldwide affiliated group, over
       ``(ii) the interest expense of all foreign corporations 
     which are members of the worldwide affiliated group to the 
     extent such interest expense of such foreign corporations 
     would have been allocated and apportioned to foreign source 
     income if this subsection were applied to a group consisting 
     of all the foreign corporations in such worldwide affiliated 
     group.
       ``(C) Worldwide affiliated group.--For purposes of this 
     paragraph, the term `worldwide affiliated group' means a 
     group consisting of--
       ``(i) the includible members of an affiliated group (as 
     defined in section 1504(a), determined without regard to 
     paragraphs (2) and (4) of section 1504(b)), and
       ``(ii) all controlled foreign corporations in which such 
     members in the aggregate meet the ownership requirements of 
     section 1504(a)(2) either directly or indirectly through 
     applying paragraph (2) of section 958(a) or through applying 
     rules similar to the rules of such paragraph to stock owned 
     directly or indirectly by domestic partnerships, trusts, or 
     estates.
       ``(2) Allocation and apportionment of other expenses.--
     Expenses other than interest which are not directly allocable 
     or apportioned to any specific income producing activity 
     shall be allocated and apportioned as if all members of the 
     affiliated group were a single corporation. For purposes of 
     the preceding sentence, the term `affiliated group' has the 
     meaning given such term by section 1504 (determined without 
     regard to paragraph (4) of section 1504(b)).
       ``(3) Treatment of tax-exempt assets; basis of stock in 
     nonaffiliated 10-percent owned corporations.--The rules of 
     paragraphs (3) and (4) of subsection (e) shall apply for 
     purposes of this subsection, except that paragraph (4) shall 
     be applied on a worldwide affiliated group basis.
       ``(4) Treatment of certain financial institutions.--
       ``(A) In general.--For purposes of paragraph (1), any 
     corporation described in subparagraph (B) shall be treated as 
     an includible corporation for purposes of section 1504 only 
     for purposes of applying this subsection separately to 
     corporations so described.
       ``(B) Description.--A corporation is described in this 
     subparagraph if--
       ``(i) such corporation is a financial institution described 
     in section 581 or 591,
       ``(ii) the business of such financial institution is 
     predominantly with persons other than related persons (within 
     the meaning of subsection (d)(4)) or their customers, and
       ``(iii) such financial institution is required by State or 
     Federal law to be operated separately from any other entity 
     which is not such an institution.
       ``(C) Treatment of bank and financial holding companies.--
     To the extent provided in regulations--
       ``(i) 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)),
       ``(ii) a financial holding company (within the meaning of 
     section 2(p) of the Bank Holding Company Act of 1956 (12 
     U.S.C. 1841(p)), and
       ``(iii) any subsidiary of a financial institution described 
     in section 581 or 591, or of any such bank or financial 
     holding company, if such subsidiary is predominantly engaged 
     (directly or indirectly) in the active conduct of a banking, 
     financing, or similar business,

     shall be treated as a corporation described in subparagraph 
     (B).
       ``(5) Election to expand financial institution group of 
     worldwide group.--
       ``(A) In general.--If a worldwide affiliated group elects 
     the application of this subsection, all financial 
     corporations which--
       ``(i) are members of such worldwide affiliated group, but
       ``(ii) are not corporations described in paragraph (4)(B),
     shall be treated as described in paragraph (4)(B) for 
     purposes of applying paragraph (4)(A). This subsection (other 
     than this paragraph) shall apply to any such group in the 
     same manner as this subsection (other than this paragraph) 
     applies to the pre-election worldwide affiliated group of 
     which such group is a part.
       ``(B) Financial corporation.--For purposes of this 
     paragraph, the term `financial corporation' means any 
     corporation if at least 80 percent of its gross income is 
     income described in section 904(d)(2)(C)(ii) and the 
     regulations thereunder which is derived from transactions 
     with persons who are not related (within the meaning of 
     section 267(b) or 707(b)(1)) to the corporation. For purposes 
     of the preceding sentence, there shall be disregarded any 
     item of income or gain from a transaction or series of 
     transactions a principal purpose of which is the 
     qualification of any corporation as a financial corporation.
       ``(C) Antiabuse rules.--In the case of a corporation which 
     is a member of an electing financial institution group, to 
     the extent that such corporation--
       ``(i) distributes dividends or makes other distributions 
     with respect to its stock after the date of the enactment of 
     this paragraph to any member of the pre-election worldwide 
     affiliated group (other than to a member of the electing 
     financial institution group) in excess of the greater of--

       ``(I) its average annual dividend (expressed as a 
     percentage of current earnings and profits) during the 5-
     taxable-year period ending with the taxable year preceding 
     the taxable year, or
       ``(II) 25 percent of its average annual earnings and 
     profits for such 5-taxable-year period, or

       ``(ii) deals with any person in any manner not clearly 
     reflecting the income of the corporation (as determined under 
     principles similar to the principles of section 482),
     an amount of indebtedness of the electing financial 
     institution group equal to the excess distribution or the 
     understatement or overstatement of income, as the case may 
     be, shall be recharacterized (for the taxable year and 
     subsequent taxable years) for purposes of this paragraph as 
     indebtedness of the worldwide affiliated group (excluding the 
     electing financial institution group). If a corporation has 
     not been in existence for 5 taxable years, this subparagraph 
     shall be applied with respect to the period it was in 
     existence.
       ``(D) Election.--An election under this paragraph with 
     respect to any financial institution group may be made only 
     by the common parent of the pre-election worldwide affiliated 
     group and may be made only for the first taxable year 
     beginning after December 31, 2008, in which such affiliated 
     group includes 1 or more financial corporations. Such an 
     election, once made, shall apply to all financial 
     corporations which are members of the electing financial 
     institution

[[Page 4732]]

     group for such taxable year and all subsequent years unless 
     revoked with the consent of the Secretary.
       ``(E) Definitions relating to groups.--For purposes of this 
     paragraph--
       ``(i) Pre-election worldwide affiliated group.--The term 
     `pre-election worldwide affiliated group' means, with respect 
     to a corporation, the worldwide affiliated group of which 
     such corporation would (but for an election under this 
     paragraph) be a member for purposes of applying paragraph 
     (1).
       ``(ii) Electing financial institution group.--The term 
     `electing financial institution group' means the group of 
     corporations to which this subsection applies separately by 
     reason of the application of paragraph (4)(A) and which 
     includes financial corporations by reason of an election 
     under subparagraph (A).
       ``(F) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this 
     subsection, including regulations--
       ``(i) providing for the direct allocation of interest 
     expense in other circumstances where such allocation would be 
     appropriate to carry out the purposes of this subsection,
       ``(ii) preventing assets or interest expense from being 
     taken into account more than once, and
       ``(iii) dealing with changes in members of any group 
     (through acquisitions or otherwise) treated under this 
     paragraph as an affiliated group for purposes of this 
     subsection.
       ``(6) Election.--An election to have this subsection apply 
     with respect to any worldwide affiliated group may be made 
     only by the common parent of the domestic affiliated group 
     referred to in paragraph (1)(C) and may be made only for the 
     first taxable year beginning after December 31, 2008, in 
     which a worldwide affiliated group exists which includes such 
     affiliated group and at least 1 foreign corporation. Such an 
     election, once made, shall apply to such common parent and 
     all other corporations which are members of such worldwide 
     affiliated group for such taxable year and all subsequent 
     years unless revoked with the consent of the Secretary.''.
       (b) Expansion of Regulatory Authority.--Paragraph (7) of 
     section 864(e) is amended--
       (1) by inserting before the comma at the end of 
     subparagraph (B) ``and in other circumstances where such 
     allocation would be appropriate to carry out the purposes of 
     this subsection'', and
       (2) by striking ``and'' at the end of subparagraph (E), by 
     redesignating subparagraph (F) as subparagraph (G), and by 
     inserting after subparagraph (E) the following new 
     subparagraph:
       ``(F) preventing assets or interest expense from being 
     taken into account more than once, and''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2008.

     SEC. 206. DETERMINATION OF FOREIGN PERSONAL HOLDING COMPANY 
                   INCOME WITH RESPECT TO TRANSACTIONS IN 
                   COMMODITIES.

       (a) In General.--Clauses (i) and (ii) of section 
     954(c)(1)(C) (relating to commodity transactions) are amended 
     to read as follows:
       ``(i) arise out of commodity hedging transactions (as 
     defined in paragraph (4)(A)),
       ``(ii) are active business gains or losses from the sale of 
     commodities, but only if substantially all of the controlled 
     foreign corporation's commodities are property described in 
     paragraph (1), (2), or (8) of section 1221(a), or''.
       (b) Definition and Special Rules.--Subsection (c) of 
     section 954 is amended by adding after paragraph (3) the 
     following new paragraph:
       ``(4) Definition and special rules relating to commodity 
     transactions.--
       ``(A) Commodity hedging transactions.--For purposes of 
     paragraph (1)(C)(i), the term `commodity hedging transaction' 
     means any transaction with respect to a commodity if such 
     transaction--
       ``(i) is a hedging transaction as defined in section 
     1221(b)(2), determined--

       ``(I) without regard to subparagraph (A)(ii) thereof,
       ``(II) by applying subparagraph (A)(i) thereof by 
     substituting `ordinary property or property described in 
     section 1231(b)' for `ordinary property', and
       ``(III) by substituting `controlled foreign corporation' 
     for `taxpayer' each place it appears, and

       ``(ii) is clearly identified as such in accordance with 
     section 1221(a)(7).
       ``(B) Treatment of dealer activities under paragraph 
     (1)(C).--Commodities with respect to which gains and losses 
     are not taken into account under paragraph (2)(C) in 
     computing a controlled foreign corporation's foreign personal 
     holding company income shall not be taken into account in 
     applying the substantially all test under paragraph 
     (1)(C)(ii) to such corporation.
       ``(C) Regulations.--The Secretary shall prescribe such 
     regulations as are appropriate to carry out the purposes of 
     paragraph (1)(C) in the case of transactions involving 
     related parties.''.
       (c) Modification of Exception for Dealers.--Clause (i) of 
     section 954(c)(2)(C) is amended by inserting ``and 
     transactions involving physical settlement'' after 
     ``(including hedging transactions''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after December 31, 
     2004.

              Subtitle B--International Tax Simplification

     SEC. 211. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES 
                   AND FOREIGN INVESTMENT COMPANY RULES.

       (a) General Rule.--The following provisions are hereby 
     repealed:
       (1) Part III of subchapter G of chapter 1 (relating to 
     foreign personal holding companies).
       (2) Section 1246 (relating to gain on foreign investment 
     company stock).
       (3) Section 1247 (relating to election by foreign 
     investment companies to distribute income currently).
       (b) Exemption of Foreign Corporations From Personal Holding 
     Company Rules.--
       (1) In general.--Subsection (c) of section 542 (relating to 
     exceptions) is amended--
       (A) by striking paragraph (5) and inserting the following:
       ``(5) a foreign corporation,'',
       (B) by striking paragraphs (7) and (10) and by 
     redesignating paragraphs (8) and (9) as paragraphs (7) and 
     (8), respectively,
       (C) by inserting ``and'' at the end of paragraph (7) (as so 
     redesignated), and
       (D) by striking ``; and'' at the end of paragraph (8) (as 
     so redesignated) and inserting a period.
       (2) Treatment of income from personal service contracts.--
     Paragraph (1) of section 954(c) is amended by adding at the 
     end the following new subparagraph:
       ``(I) Personal service contracts.--
       ``(i) Amounts received under a contract under which the 
     corporation is to furnish personal services if--

       ``(I) some person other than the corporation has the right 
     to designate (by name or by description) the individual who 
     is to perform the services, or
       ``(II) the individual who is to perform the services is 
     designated (by name or by description) in the contract, and

       ``(ii) amounts received from the sale or other disposition 
     of such a contract.

     This subparagraph shall apply with respect to amounts 
     received for services under a particular contract only if at 
     some time during the taxable year 25 percent or more in value 
     of the outstanding stock of the corporation is owned, 
     directly or indirectly, by or for the individual who has 
     performed, is to perform, or may be designated (by name or by 
     description) as the one to perform, such services.''.
       (c) Conforming Amendments.--
       (1) Section 1(h) is amended--
       (A) in paragraph (10), by inserting ``and'' at the end of 
     subparagraph (F), by striking subparagraph (G), and by 
     redesignating subparagraph (H) as subparagraph (G), and
       (B) by striking ``a foreign personal holding company (as 
     defined in section 552), a foreign investment company (as 
     defined in section 1246(b)), or'' in paragraph (11)(C)(iii).
       (2) Section 163(e)(3)(B), as amended by this Act, is 
     amended by striking ``which is a foreign personal holding 
     company (as defined in section 552), a controlled foreign 
     corporation (as defined in section 957), or'' and inserting 
     ``which is a controlled foreign corporation (as defined in 
     section 957) or''.
       (3) Paragraph (2) of section 171(c) is amended--
       (A) by striking ``, or by a foreign personal holding 
     company, as defined in section 552'', and
       (B) by striking ``, or foreign personal holding company''.
       (4) Paragraph (2) of section 245(a) is amended by striking 
     ``foreign personal holding company or''.
       (5) Section 267(a)(3)(B), as amended by this Act, is 
     amended by striking ``to a foreign personal holding company 
     (as defined in section 552), a controlled foreign corporation 
     (as defined in section 957), or'' and inserting ``to a 
     controlled foreign corporation (as defined in section 957) 
     or''.
       (6) Section 312 is amended by striking subsection (j).
       (7) Subsection (m) of section 312 is amended by striking 
     ``, a foreign investment company (within the meaning of 
     section 1246(b)), or a foreign personal holding company 
     (within the meaning of section 552)''.
       (8) Subsection (e) of section 443 is amended by striking 
     paragraph (3) and by redesignating paragraphs (4) and (5) as 
     paragraphs (3) and (4), respectively.
       (9) Subparagraph (B) of section 465(c)(7) is amended by 
     adding ``or'' at the end of clause (i), by striking clause 
     (ii), and by redesignating clause (iii) as clause (ii).
       (10) Paragraph (1) of section 543(b) is amended by 
     inserting ``and'' at the end of subparagraph (A), by striking 
     ``, and'' at the end of subparagraph (B) and inserting a 
     period, and by striking subparagraph (C).
       (11) Paragraph (1) of section 562(b) is amended by striking 
     ``or a foreign personal holding company described in section 
     552''.
       (12) Section 563 is amended--
       (A) by striking subsection (c),
       (B) by redesignating subsection (d) as subsection (c), and
       (C) by striking ``subsection (a), (b), or (c)'' in 
     subsection (c) (as so redesignated) and inserting 
     ``subsection (a) or (b)''.
       (13) Subsection (d) of section 751 is amended by adding 
     ``and'' at the end of paragraph (2), by striking paragraph 
     (3), by redesignating paragraph (4) as paragraph (3), and by

[[Page 4733]]

     striking ``paragraph (1), (2), or (3)'' in paragraph (3) (as 
     so redesignated) and inserting ``paragraph (1) or (2)''.
       (14) Paragraph (2) of section 864(d) is amended by striking 
     subparagraph (A) and by redesignating subparagraphs (B) and 
     (C) as subparagraphs (A) and (B), respectively.
       (15)(A) Subparagraph (A) of section 898(b)(1) is amended to 
     read as follows:
       ``(A) which is treated as a controlled foreign corporation 
     for any purpose under subpart F of part III of this 
     subchapter, and''.
       (B) Subparagraph (B) of section 898(b)(2) is amended by 
     striking ``and sections 551(f) and 554, whichever are 
     applicable,''.
       (C) Paragraph (3) of section 898(b) is amended to read as 
     follows:
       ``(3) United states shareholder.--The term `United States 
     shareholder' has the meaning given to such term by section 
     951(b), except that, in the case of a foreign corporation 
     having related person insurance income (as defined in section 
     953(c)(2)), the Secretary may treat any person as a United 
     States shareholder for purposes of this section if such 
     person is treated as a United States shareholder under 
     section 953(c)(1).''.
       (D) Subsection (c) of section 898 is amended to read as 
     follows:
       ``(c) Determination of Required Year.--
       ``(1) In general.--The required year is--
       ``(A) the majority U.S. shareholder year, or
       ``(B) if there is no majority U.S. shareholder year, the 
     taxable year prescribed under regulations.
       ``(2) 1-month deferral allowed.--A specified foreign 
     corporation may elect, in lieu of the taxable year under 
     paragraph (1)(A), a taxable year beginning 1 month earlier 
     than the majority U.S. shareholder year.
       ``(3) Majority u.s. shareholder year.--
       ``(A) In general.--For purposes of this subsection, the 
     term `majority U.S. shareholder year' means the taxable year 
     (if any) which, on each testing day, constituted the taxable 
     year of--
       ``(i) each United States shareholder described in 
     subsection (b)(2)(A), and
       ``(ii) each United States shareholder not described in 
     clause (i) whose stock was treated as owned under subsection 
     (b)(2)(B) by any shareholder described in such clause.
       ``(B) Testing day.--The testing days shall be--
       ``(i) the first day of the corporation's taxable year 
     (determined without regard to this section), or
       ``(ii) the days during such representative period as the 
     Secretary may prescribe.''.
       (16) Clause (ii) of section 904(d)(2)(A) is amended to read 
     as follows:
       ``(ii) Certain amounts included.--Except as provided in 
     clause (iii), the term `passive income' includes, except as 
     provided in subparagraph (E)(iii) or paragraph (3)(I), any 
     amount includible in gross income under section 1293 
     (relating to certain passive foreign investment 
     companies).''.
       (17)(A) Subparagraph (A) of section 904(g)(1), as 
     redesignated by section 204, is amended by adding ``or'' at 
     the end of clause (i), by striking clause (ii), and by 
     redesignating clause (iii) as clause (ii).
       (B) The paragraph heading of paragraph (2) of section 
     904(g), as so redesignated, is amended by striking ``foreign 
     personal holding or''.
       (18) Section 951 is amended by striking subsections (c) and 
     (d) and by redesignating subsections (e) and (f) as 
     subsections (c) and (d), respectively.
       (19) Paragraph (3) of section 989(b) is amended by striking 
     ``, 551(a),''.
       (20) Paragraph (5) of section 1014(b) is amended by 
     inserting ``and before January 1, 2005,'' after ``August 26, 
     1937,''.
       (21) Subsection (a) of section 1016 is amended by striking 
     paragraph (13).
       (22)(A) Paragraph (3) of section 1212(a) is amended to read 
     as follows:
       ``(3) Special rules on carrybacks.--A net capital loss of a 
     corporation shall not be carried back under paragraph (1)(A) 
     to a taxable year--
       ``(A) for which it is a regulated investment company (as 
     defined in section 851), or
       ``(B) for which it is a real estate investment trust (as 
     defined in section 856).''.
       (B) The amendment made by subparagraph (A) shall apply to 
     taxable years beginning after December 31, 2004.
       (23) Section 1223 is amended by striking paragraph (10) and 
     by redesignating the following paragraphs accordingly.
       (24) Subsection (d) of section 1248 is amended by striking 
     paragraph (5) and by redesignating paragraphs (6) and (7) as 
     paragraphs (5) and (6), respectively.
       (25) Paragraph (2) of section 1260(c) is amended by 
     striking subparagraphs (H) and (I) and by redesignating 
     subparagraph (J) as subparagraph (H).
       (26)(A) Subparagraph (F) of section 1291(b)(3) is amended 
     by striking ``551(d), 959(a),'' and inserting ``959(a)''.
       (B) Subsection (e) of section 1291 is amended by inserting 
     ``(as in effect on the day before the date of the enactment 
     of the Jumpstart Our Business Strength (JOBS) Act)'' after 
     ``section 1246''.
       (27) Paragraph (2) of section 1294(a) is amended to read as 
     follows:
       ``(2) Election not permitted where amounts otherwise 
     includible under section 951.--The taxpayer may not make an 
     election under paragraph (1) with respect to the 
     undistributed PFIC earnings tax liability attributable to a 
     qualified electing fund for the taxable year if any amount is 
     includible in the gross income of the taxpayer under section 
     951 with respect to such fund for such taxable year.''.
       (28) Section 6035 is hereby repealed.
       (29) Subparagraph (D) of section 6103(e)(1) is amended by 
     striking clause (iv) and redesignating clauses (v) and (vi) 
     as clauses (iv) and (v), respectively.
       (30) Subparagraph (B) of section 6501(e)(1) is amended to 
     read as follows:
       ``(B) Constructive dividends.--If the taxpayer omits from 
     gross income an amount properly includible therein under 
     section 951(a), the tax may be assessed, or a proceeding in 
     court for the collection of such tax may be done without 
     assessing, at any time within 6 years after the return was 
     filed.''.
       (31) Subsection (a) of section 6679 is amended--
       (A) by striking ``6035, 6046, and 6046A'' in paragraph (1) 
     and inserting ``6046 and 6046A'', and
       (B) by striking paragraph (3).
       (32) Sections 170(f)(10)(A), 508(d), 4947, and 4948(c)(4) 
     are each amended by striking ``556(b)(2),'' each place it 
     appears.
       (33) The table of parts for subchapter G of chapter 1 is 
     amended by striking the item relating to part III.
       (34) The table of sections for part IV of subchapter P of 
     chapter 1 is amended by striking the items relating to 
     sections 1246 and 1247.
       (35) The table of sections for subpart A of part III of 
     subchapter A of chapter 61 is amended by striking the item 
     relating to section 6035.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 212. EXPANSION OF DE MINIMIS RULE UNDER SUBPART F.

       (a) In General.--Clause (ii) of section 954(b)(3)(A) 
     (relating to de minimis, etc., rules) is amended by striking 
     ``$1,000,000'' and inserting ``$5,000,000''.
       (b) Technical Amendments.--
       (1) Clause (ii) of section 864(d)(5)(A) is amended by 
     striking ``$1,000,000'' and inserting ``$5,000,000''.
       (2) Clause (i) of section 881(c)(5)(A) is amended by 
     striking ``$1,000,000'' and inserting ``$5,000,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 213. ATTRIBUTION OF STOCK OWNERSHIP THROUGH PARTNERSHIPS 
                   TO APPLY IN DETERMINING SECTION 902 AND 960 
                   CREDITS.

       (a) In General.--Subsection (c) of section 902 is amended 
     by redesignating paragraph (7) as paragraph (8) and by 
     inserting after paragraph (6) the following new paragraph:
       ``(7) Constructive ownership through partnerships.--Stock 
     owned, directly or indirectly, by or for a partnership shall 
     be considered as being owned proportionately by its partners. 
     Stock considered to be owned by a person by reason of the 
     preceding sentence shall, for purposes of applying such 
     sentence, be treated as actually owned by such person. The 
     Secretary may prescribe such regulations as may be necessary 
     to carry out the purposes of this paragraph, including rules 
     to account for special partnership allocations of dividends, 
     credits, and other incidents of ownership of stock in 
     determining proportionate ownership.''.
       (b) Clarification of Comparable Attribution Under Section 
     901(b)(5).--Paragraph (5) of section 901(b) is amended by 
     striking ``any individual'' and inserting ``any person''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxes of foreign corporations for taxable 
     years of such corporations beginning after the date of the 
     enactment of this Act.

     SEC. 214. APPLICATION OF UNIFORM CAPITALIZATION RULES TO 
                   FOREIGN PERSONS.

       (a) In General.--Section 263A(c) (relating to exceptions) 
     is amended by adding at the end the following new paragraph:
       ``(7) Foreign persons.--Except for purposes of applying 
     sections 871(b)(1) and 882(a)(1), this section shall not 
     apply to any taxpayer who is not a United States person if 
     such taxpayer capitalizes costs of produced property or 
     property acquired for resale by applying the method used to 
     ascertain the income, profit, or loss for purposes of reports 
     or statements to shareholders, partners, other proprietors, 
     or beneficiaries, or for credit purposes.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     apply to taxable years beginning after December 31, 2004.
       (2) Change in method of accounting.--In the case of any 
     taxpayer required by the amendment made by this section to 
     change its method of accounting for its first taxable year 
     beginning after December 31, 2004--

[[Page 4734]]

       (A) such change shall be treated as initiated by the 
     taxpayer,
       (B) such change shall be treated as made with the consent 
     of the Secretary of the Treasury, and
       (C) the net amount of the adjustments required to be taken 
     into account by the taxpayer under section 481 of the 
     Internal Revenue Code of 1986 shall be taken into account in 
     such first year.

     SEC. 215. REPEAL OF WITHHOLDING TAX ON DIVIDENDS FROM CERTAIN 
                   FOREIGN CORPORATIONS.

       (a) In General.--Paragraph (2) of section 871(i) (relating 
     to tax not to apply to certain interest and dividends) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Dividends paid by a foreign corporation which are 
     treated under section 861(a)(2)(B) as income from sources 
     within the United States.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 2004.

     SEC. 216. REPEAL OF SPECIAL CAPITAL GAINS TAX ON ALIENS 
                   PRESENT IN THE UNITED STATES FOR 183 DAYS OR 
                   MORE.

       (a) In General.--Subsection (a) of section 871 is amended 
     by striking paragraph (2) and by redesignating paragraph (3) 
     as paragraph (2).
       (b) Conforming Amendment.--Section 1441(g) is amended is 
     amended by striking ``section 871(a)(3)'' and inserting 
     ``section 871(a)(2)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

          Subtitle C--Additional International Tax Provisions

     SEC. 221. ACTIVE LEASING INCOME FROM AIRCRAFT AND VESSELS.

       (a) In General.--Section 954(c)(2) is amended by adding at 
     the end the following new subparagraph:
       ``(D) Certain rents, etc.--
       ``(i) In general.--Foreign personal holding company income 
     shall not include qualified leasing income derived from or in 
     connection with the leasing or rental of any aircraft or 
     vessel.
       ``(ii) Qualified leasing income.--For purposes of this 
     subparagraph, the term `qualified leasing income' means rents 
     and gains derived in the active conduct of a trade or 
     business of leasing with respect to which the controlled 
     foreign corporation conducts substantial activity, but only 
     if--

       ``(I) the leased property is used by the lessee or other 
     end-user in foreign commerce and predominantly outside the 
     United States, and
       ``(II) the lessee or other end-user is not a related person 
     (as defined in subsection (d)(3)).

     Any amount not treated as foreign personal holding income 
     under this subparagraph shall not be treated as foreign base 
     company shipping income.''.
       (b) Conforming Amendment.--Section 954(c)(1)(B) is amended 
     by inserting ``or (2)(D)'' after ``paragraph (2)(A)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2006, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 222. LOOK-THRU TREATMENT OF PAYMENTS BETWEEN RELATED 
                   CONTROLLED FOREIGN CORPORATIONS UNDER FOREIGN 
                   PERSONAL HOLDING COMPANY INCOME RULES.

       (a) In General.--Subsection (c) of section 954, as amended 
     by this Act, is amended by adding after paragraph (4) the 
     following new paragraph:
       ``(5) Look-thru in the case of related controlled foreign 
     corporations.--For purposes of this subsection, dividends, 
     interest, rents, and royalties received or accrued from a 
     controlled foreign corporation which is a related person (as 
     defined in subsection (b)(9)) shall not be treated as foreign 
     personal holding company income to the extent attributable or 
     properly allocable (determined under rules similar to the 
     rules of subparagraphs (C) and (D) of section 904(d)(3)) to 
     income of the related person which is not subpart F income 
     (as defined in section 952). For purposes of this paragraph, 
     interest shall include factoring income which is treated as 
     income equivalent to interest for purposes of paragraph 
     (1)(E). The Secretary shall prescribe such regulations as may 
     be appropriate to prevent the abuse of the purposes of this 
     paragraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 223. LOOK-THRU TREATMENT FOR SALES OF PARTNERSHIP 
                   INTERESTS.

       (a) In General.--Section 954(c) (defining foreign personal 
     holding company income), as amended by this Act, is amended 
     by adding after paragraph (5) the following new paragraph:
       ``(6) Look-thru rule for certain partnership sales.--
       ``(A) In general.--In the case of any sale by a controlled 
     foreign corporation of an interest in a partnership with 
     respect to which such corporation is a 25-percent owner, such 
     corporation shall be treated for purposes of this subsection 
     as selling the proportionate share of the assets of the 
     partnership attributable to such interest. The Secretary 
     shall prescribe such regulations as may be appropriate to 
     prevent abuse of the purposes of this paragraph, including 
     regulations providing for coordination of this paragraph with 
     the provisions of subchapter K.
       ``(B) 25-percent owner.--For purposes of this paragraph, 
     the term `25-percent owner' means a controlled foreign 
     corporation which owns directly 25 percent or more of the 
     capital or profits interest in a partnership. For purposes of 
     the preceding sentence, if a controlled foreign corporation 
     is a shareholder or partner of a corporation or partnership, 
     the controlled foreign corporation shall be treated as owning 
     directly its proportionate share of any such capital or 
     profits interest held directly or indirectly by such 
     corporation or partnership''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 224. ELECTION NOT TO USE AVERAGE EXCHANGE RATE FOR 
                   FOREIGN TAX PAID OTHER THAN IN FUNCTIONAL 
                   CURRENCY.

       (a) In General.--Paragraph (1) of section 986(a) (relating 
     to determination of foreign taxes and foreign corporation's 
     earnings and profits) is amended by redesignating 
     subparagraph (D) as subparagraph (E) and by inserting after 
     subparagraph (C) the following new subparagraph:
       ``(D) Elective exception for taxes paid other than in 
     functional currency.--
       ``(i) In general.--At the election of the taxpayer, 
     subparagraph (A) shall not apply to any foreign income taxes 
     the liability for which is denominated in any currency other 
     than in the taxpayer's functional currency.
       ``(ii) Application to qualified business units.--An 
     election under this subparagraph may apply to foreign income 
     taxes attributable to a qualified business unit in accordance 
     with regulations prescribed by the Secretary.
       ``(iii) Election.--Any such election shall apply to the 
     taxable year for which made and all subsequent taxable years 
     unless revoked with the consent of the Secretary.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 225. TREATMENT OF INCOME TAX BASE DIFFERENCES.

       (a) In General.--Paragraph (2) of section 904(d) is amended 
     by redesignating subparagraphs (H) and (I) as subparagraphs 
     (I) and (J), respectively, and by inserting after 
     subparagraph (G) the following new subparagraph:
       ``(H) Treatment of income tax base differences.--
       ``(i) In general.--A taxpayer may elect to treat tax 
     imposed under the law of a foreign country or possession of 
     the United States on an amount which does not constitute 
     income under United States tax principles as tax imposed on 
     income described in subparagraph (C) or (I) of paragraph (1).
       ``(ii) Election irrevocable.--Any such election shall apply 
     to the taxable year for which made and all subsequent taxable 
     years unless revoked with the consent of the Secretary.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 226. MODIFICATION OF EXCEPTIONS UNDER SUBPART F FOR 
                   ACTIVE FINANCING.

       (a) In General.--Section 954(h)(3) is amended by adding at 
     the end the following:
       ``(E) Direct conduct of activities.--For purposes of 
     subparagraph (A)(ii)(II), an activity shall be treated as 
     conducted directly by an eligible controlled foreign 
     corporation or qualified business unit in its home country if 
     the activity is performed by employees of a related person 
     and--
       ``(i) the related person is an eligible controlled foreign 
     corporation the home country of which is the same as the home 
     country of the corporation or unit to which subparagraph 
     (A)(ii)(II) is being applied,
       ``(ii) the activity is performed in the home country of the 
     related person, and
       ``(iii) the related person is compensated on an arm's-
     length basis for the performance of the activity by its 
     employees and such compensation is treated as earned by such 
     person in its home country for purposes of the home country's 
     tax laws.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of such foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of such foreign corporations end.

[[Page 4735]]



     SEC. 227. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN 
                   ASSETS OF CONTROLLED FOREIGN CORPORATION.

       (a) In General.--Section 956(c)(2) (relating to exceptions 
     from property treated as United States property) is amended 
     by striking ``and'' at the end of subparagraph (J), by 
     striking the period at the end of subparagraph (K) and 
     inserting a semicolon, and by adding at the end the following 
     new subparagraphs:
       ``(L) securities acquired and held by a controlled foreign 
     corporation in the ordinary course of its business as a 
     dealer in securities if--
       ``(i) the dealer accounts for the securities as securities 
     held primarily for sale to customers in the ordinary course 
     of business, and
       ``(ii) the dealer disposes of the securities (or such 
     securities mature while held by the dealer) within a period 
     consistent with the holding of securities for sale to 
     customers in the ordinary course of business; and
       ``(M) an obligation of a United States person which--
       ``(i) is not a domestic corporation, and
       ``(ii) is not--

       ``(I) a United States shareholder (as defined in section 
     951(b)) of the controlled foreign corporation, or
       ``(II) a partnership, estate, or trust in which the 
     controlled foreign corporation, or any related person (as 
     defined in section 954(d)(3)), is a partner, beneficiary, or 
     trustee immediately after the acquisition of any obligation 
     of such partnership, estate, or trust by the controlled 
     foreign corporation.''.

       (b) Conforming Amendment.--Section 956(c)(2) is amended by 
     striking ``and (K)'' in the last sentence and inserting ``, 
     (K), and (L)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 2004, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 228. PROVIDE EQUAL TREATMENT FOR INTEREST PAID BY 
                   FOREIGN PARTNERSHIPS AND FOREIGN CORPORATIONS.

       (a) In General.--Paragraph (1) of section 861(a) is amended 
     by striking ``and'' at the end of subparagraph (A), by 
     striking the period at the end of subparagraph (B) and 
     inserting ``, and'', and by adding at the end the following 
     new subparagraph:
       ``(C) in the case of a foreign partnership, which is 
     predominantly engaged in the active conduct of a trade or 
     business outside the United States, any interest not paid by 
     a trade or business engaged in by the partnership in the 
     United States and not allocable to income which is 
     effectively connected (or treated as effectively connected) 
     with the conduct of a trade or business in the United 
     States.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 229. CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS OF 
                   INTANGIBLE PROPERTY.

       (a) In General.--Subparagraph (C) of section 367(d)(2) is 
     amended by adding at the end the following new sentence: 
     ``For purposes of applying section 904(d), any such amount 
     shall be treated in the same manner as if such amount were a 
     royalty.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts treated as received pursuant to 
     section 367(d)(2) of the Internal Revenue Code of 1986 on or 
     after August 5, 1997.

     SEC. 230. MODIFICATION OF THE TREATMENT OF CERTAIN REIT 
                   DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM SALES 
                   OR EXCHANGES OF UNITED STATES REAL PROPERTY 
                   INTERESTS.

       (a) In General.--Paragraph (1) of section 897(h) (relating 
     to look-through of distributions) is amended by adding at the 
     end the following new sentence: ``Notwithstanding the 
     preceding sentence, any distribution by a REIT with respect 
     to any class of stock which is regularly traded on an 
     established securities market located in the United States 
     shall not be treated as gain recognized from the sale or 
     exchange of a United States real property interest if the 
     shareholder did not own more than 5 percent of such class of 
     stock at any time during the taxable year.''.
       (b) Conforming Amendment.--Paragraph (3) of section 857(b) 
     (relating to capital gains) is amended by adding at the end 
     the following new subparagraph:
       ``(F) Certain distributions.--In the case of a shareholder 
     of a real estate investment trust to whom section 897 does 
     not apply by reason of the second sentence of section 
     897(h)(1), the amount which would be included in computing 
     long-term capital gains for such shareholder under 
     subparagraph (B) or (D) (without regard to this 
     subparagraph)--
       ``(i) shall not be included in computing such shareholder's 
     long-term capital gains, and
       ``(ii) shall be included in such shareholder's gross income 
     as a dividend from the real estate investment trust.''.
       (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. 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 such taxable year.
       ``(b) Excess Qualified Foreign Distribution Amount.--For 
     purposes of this section--
       ``(1) In general.--The term `excess qualified foreign 
     distribution amount' means the excess (if any) of--
       ``(A) 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.


[[Page 4736]]


     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)).
       ``(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.

     SEC. 232. EXCLUSION OF INCOME DERIVED FROM CERTAIN WAGERS ON 
                   HORSE RACES AND DOG RACES FROM GROSS INCOME OF 
                   NONRESIDENT ALIEN INDIVIDUALS.

       (a) In General.--Subsection (b) of section 872 (relating to 
     exclusions) is amended by redesignating paragraphs (5), (6), 
     and (7) as paragraphs (6), (7), and (8), respectively, and 
     inserting after paragraph (4) the following new paragraph:
       ``(5) Income derived from wagering transactions in certain 
     parimutuel pools.--Gross income derived by a nonresident 
     alien individual from a legal wagering transaction initiated 
     outside the United States in a parimutuel pool with respect 
     to a live horse race or dog race in the United States.''.
       (b) Conforming Amendment.--Section 883(a)(4) is amended by 
     striking ``(5), (6), and (7)'' and inserting ``(6), (7), and 
     (8)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to wagers made after the date of the enactment of 
     this Act.

     SEC. 233. LIMITATION OF WITHHOLDING TAX FOR PUERTO RICO 
                   CORPORATIONS.

       (a) In General.--Subsection (b) of section 881 is amended 
     by redesignating paragraph (2) as paragraph (3) and by 
     inserting after paragraph (1) the following new paragraph:
       ``(2) Commonwealth of puerto rico.--If dividends are 
     received during a taxable year by a corporation--
       ``(A) created or organized in, or under the law of, the 
     Commonwealth of Puerto Rico, and
       ``(B) with respect to which the requirements of 
     subparagraphs (A), (B), and (C) of paragraph (1) are met for 
     the taxable year,

     subsection (a) shall be applied for such taxable year by 
     substituting `10 percent' for `30 percent'.''.
       (b) Withholding.--Subsection (c) of section 1442 (relating 
     to withholding of tax on foreign corporations) is amended--
       (1) by striking ``For purposes'' and inserting the 
     following:
       ``(1) Guam, american samoa, the northern mariana islands, 
     and the virgin islands.--For purposes'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Commonwealth of puerto rico.--If dividends are 
     received during a taxable year by a corporation--
       ``(A) created or organized in, or under the law of, the 
     Commonwealth of Puerto Rico, and
       ``(B) with respect to which the requirements of 
     subparagraphs (A), (B), and (C) of section 881(b)(1) are met 
     for the taxable year,

     subsection (a) shall be applied for such taxable year by 
     substituting `10 percent' for `30 percent'.''.
       (b) Conforming Amendments.--
       (1) Subsection (b) of section 881 is amended by striking 
     ``Guam and Virgin Islands Corporations'' in the heading and 
     inserting ``Possessions''.
       (2) Paragraph (1) of section 881(b) is amended by striking 
     ``In general'' in the heading and inserting ``Guam, american 
     samoa, the northern mariana islands, and the virgin 
     islands''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to dividends paid after the date of the enactment 
     of this Act.

     SEC. 234. REPORT ON WTO DISPUTE SETTLEMENT PANELS AND THE 
                   APPELLATE BODY.

       Not later than March 31, 2004, the Secretary of Commerce, 
     in consultation with the United States Trade Representative, 
     shall transmit a report to the Committee on Finance of the 
     Senate and the Committee on Ways and Means of the House of 
     Representatives, regarding whether dispute settlement panels 
     and the Appellate Body of the World Trade Organization have--
       (1) added to or diminished the rights of the United States 
     by imposing obligations or restrictions on the use of 
     antidumping, countervailing, and safeguard measures not 
     agreed to under the Agreement on Implementation of Article VI 
     of the General Agreement on Tariffs and Trade of 1994, the 
     Agreement on Subsidies and Countervailing Measures, and the 
     Agreement on Safeguards;
       (2) appropriately applied the standard of review contained 
     in Article 17.6 of the Agreement on Implementation of Article 
     VI of the General Agreement on Tariffs and Trade of 1994; or
       (3) exceeded their authority or terms of reference under 
     the Agreements referred to in paragraph (1).

     SEC. 235. STUDY OF IMPACT OF INTERNATIONAL TAX LAWS ON 
                   TAXPAYERS OTHER THAN LARGE CORPORATIONS.

       (a) Study.--The Secretary of the Treasury or the 
     Secretary's delegate shall conduct a study of the impact of 
     Federal international tax rules on taxpayers other than large 
     corporations, including the burdens placed on such taxpayers 
     in complying with such rules.
       (b) Report.--Not later than 180 days after the date of the 
     enactment of this Act, the Secretary shall report to the 
     Committee on Finance of the Senate and the Committee on Ways 
     and Means of the House of Representatives the results of the 
     study conducted under subsection (a), including any 
     recommendations for legislative or administrative changes to 
     reduce the compliance burden on taxpayers other than large 
     corporations and for such other purposes as the Secretary 
     determines appropriate.

       TITLE III--DOMESTIC MANUFACTURING AND BUSINESS PROVISIONS

                     Subtitle A--General Provisions

     SEC. 301. EXPANSION OF QUALIFIED SMALL-ISSUE BOND PROGRAM.

       (a) In General.--Subparagraph (F) of section 144(a)(4) 
     (relating to $10,000,000 limit in certain cases) is amended 
     to read as follows:
       ``(F) Additional capital expenditures not taken into 
     account.--With respect to any issue, in addition to any 
     capital expenditure described in subparagraph (C), capital 
     expenditures of not to exceed $10,000,000 shall not be taken 
     into account for purposes of applying subparagraph 
     (A)(ii).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 302. EXPENSING OF BROADBAND INTERNET ACCESS 
                   EXPENDITURES.

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

     ``SEC. 191. BROADBAND EXPENDITURES.

       ``(a) Treatment of Expenditures.--
       ``(1) In general.--A taxpayer may elect to treat any 
     qualified broadband expenditure which is paid or incurred by 
     the taxpayer as an expense which is not chargeable to capital 
     account. Any expenditure which is so treated shall be allowed 
     as a deduction.
       ``(2) Election.--An election under paragraph (1) shall be 
     made at such time and in such manner as the Secretary may 
     prescribe by regulation.
       ``(b) Qualified Broadband Expenditures.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified broadband 
     expenditure' means, with respect to any taxable year, any 
     direct or indirect costs incurred during 2004 and properly 
     taken into account for such taxable year with respect to--

[[Page 4737]]

       ``(A) the purchase or installation of qualified equipment 
     (including any upgrades thereto), and
       ``(B) the connection of such qualified equipment to any 
     qualified subscriber.
       ``(2) Certain satellite expenditures excluded.--Such term 
     shall not include any costs incurred with respect to the 
     launching of any satellite equipment.
       ``(3) Leased equipment.--Such term shall include so much of 
     the purchase price paid by the lessor of qualified equipment 
     subject to a lease described in subsection (c)(2)(B) as is 
     attributable to expenditures incurred by the lessee which 
     would otherwise be described in paragraph (1).
       ``(c) When Expenditures Taken Into Account.--For purposes 
     of this section--
       ``(1) In general.--Qualified broadband expenditures with 
     respect to qualified equipment shall be taken into account 
     with respect to the first taxable year in which--
       ``(A) current generation broadband services are provided 
     through such equipment to qualified subscribers, or
       ``(B) next generation broadband services are provided 
     through such equipment to qualified subscribers.
       ``(2) Limitation.--
       ``(A) In general.--Qualified expenditures shall be taken 
     into account under paragraph (1) only with respect to 
     qualified equipment--
       ``(i) the original use of which commences with the 
     taxpayer, and
       ``(ii) which is placed in service, after December 31, 2003.
       ``(B) Sale-leasebacks.--For purposes of subparagraph (A), 
     if property--
       ``(i) is originally placed in service after December 31, 
     2003, by any person, and
       ``(ii) sold and leased back by such person within 3 months 
     after the date such property was originally placed in 
     service,

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

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

     providing current generation broadband services or next 
     generation broadband services to subscribers through such 
     qualified equipment.
       ``(12) Provision of services.--A provider shall be treated 
     as providing services to 1 or more subscribers if--
       ``(A) such a subscriber has been passed by the provider's 
     equipment and can be connected to such equipment for a 
     standard connection fee,
       ``(B) the provider is physically able to deliver current 
     generation broadband services or next generation broadband 
     services, as applicable, to such a subscriber without making 
     more than an insignificant investment with respect to such 
     subscriber,
       ``(C) the provider has made reasonable efforts to make such 
     subscribers aware of the availability of such services,
       ``(D) such services have been purchased by 1 or more such 
     subscribers, and
       ``(E) such services are made available to such subscribers 
     at average prices comparable to those at which the provider 
     makes available similar services in any areas in which the 
     provider makes available such services.
       ``(13) Qualified equipment.--
       ``(A) In general.--The term `qualified equipment' means 
     equipment which provides current generation broadband 
     services or next generation broadband services--
       ``(i) at least a majority of the time during periods of 
     maximum demand to each subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no deduction is allowed under 
     subsection (a)(1).
       ``(B) Only certain investment taken into account.--Except 
     as provided in subparagraph (C) or (D), equipment shall be 
     taken into account under subparagraph (A) only to the extent 
     it--
       ``(i) extends from the last point of switching to the 
     outside of the unit, building, dwelling, or office owned or 
     leased by a subscriber in the case of a telecommunications 
     carrier,
       ``(ii) extends from the customer side of the mobile 
     telephone switching office to a transmission/receive antenna 
     (including such antenna) owned or leased by a subscriber in 
     the case of a commercial mobile service carrier,
       ``(iii) extends from the customer side of the headend to 
     the outside of the unit, building, dwelling, or office owned 
     or leased by a subscriber in the case of a cable operator or 
     open video system operator, or
       ``(iv) extends from a transmission/receive antenna 
     (including such antenna) which transmits and receives signals 
     to or from multiple subscribers, to a transmission/receive 
     antenna (including such antenna) on the outside of the unit, 
     building, dwelling, or office owned or leased by a subscriber 
     in the case of a satellite carrier or other wireless carrier, 
     unless such other wireless carrier is also a 
     telecommunications carrier.
       ``(C) Packet switching equipment.--Packet switching 
     equipment, regardless of location, shall be taken into 
     account under subparagraph (A) only if it is deployed in 
     connection with equipment described in subparagraph (B) and 
     is uniquely designed to perform the function of packet 
     switching for current generation broadband services or next 
     generation broadband services, but only if such packet 
     switching is the last in a series of such functions performed 
     in the transmission of a signal to a subscriber or the first 
     in a series of such functions performed in the transmission 
     of a signal from a subscriber.
       ``(D) Multiplexing and demultiplexing equipment.--
     Multiplexing and demultiplexing equipment shall be taken into 
     account under subparagraph (A) only to the extent it is 
     deployed in connection with

[[Page 4738]]

     equipment described in subparagraph (B) and is uniquely 
     designed to perform the function of multiplexing and 
     demultiplexing packets or cells of data and making associated 
     application adaptions, but only if such multiplexing or 
     demultiplexing equipment is located between packet switching 
     equipment described in subparagraph (C) and the subscriber's 
     premises.
       ``(14) Qualified subscriber.--The term `qualified 
     subscriber' means--
       ``(A) with respect to the provision of current generation 
     broadband services--
       ``(i) any nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) any residential subscriber residing in a dwelling 
     located in a rural area or underserved area which is not a 
     saturated market, and
       ``(B) with respect to the provision of next generation 
     broadband services--
       ``(i) any nonresidential subscriber maintaining a permanent 
     place of business in a rural area or underserved area, or
       ``(ii) any residential subscriber.
       ``(15) Residential subscriber.--The term `residential 
     subscriber' means any individual who purchases broadband 
     services which are delivered to such individual's dwelling.
       ``(16) Rural area.--The term `rural area' means any census 
     tract which--
       ``(A) is not within 10 miles of any incorporated or census 
     designated place containing more than 25,000 people, and
       ``(B) is not within a county or county equivalent which has 
     an overall population density of more than 500 people per 
     square mile of land.
       ``(17) Rural subscriber.--The term `rural subscriber' means 
     any residential subscriber residing in a dwelling located in 
     a rural area or nonresidential subscriber maintaining a 
     permanent place of business located in a rural area.
       ``(18) Satellite carrier.--The term `satellite carrier' 
     means any person using the facilities of a satellite or 
     satellite service licensed by the Federal Communications 
     Commission and operating in the Fixed-Satellite Service under 
     part 25 of title 47 of the Code of Federal Regulations or the 
     Direct Broadcast Satellite Service under part 100 of title 47 
     of such Code to establish and operate a channel of 
     communications for distribution of signals, and owning or 
     leasing a capacity or service on a satellite in order to 
     provide such point-to-multipoint distribution.
       ``(19) Saturated market.--The term `saturated market' means 
     any census tract in which, as of the date of the enactment of 
     this section--
       ``(A) current generation broadband services have been 
     provided by a single provider to 85 percent or more of the 
     total number of potential residential subscribers residing in 
     dwellings located within such census tract, and
       ``(B) such services can be utilized--
       ``(i) at least a majority of the time during periods of 
     maximum demand by each such subscriber who is utilizing such 
     services, and
       ``(ii) in a manner substantially the same as such services 
     are provided by the provider to subscribers through equipment 
     with respect to which no deduction is allowed under 
     subsection (a)(1).
       ``(20) Subscriber.--The term `subscriber' means any person 
     who purchases current generation broadband services or next 
     generation broadband services.
       ``(21) Telecommunications carrier.--The term 
     `telecommunications carrier' has the meaning given such term 
     by section 3(44) of the Communications Act of 1934 (47 U.S.C. 
     153(44)), but--
       ``(A) includes all members of an affiliated group of which 
     a telecommunications carrier is a member, and
       ``(B) does not include a commercial mobile service carrier.
       ``(22) Total potential subscriber population.--The term 
     `total potential subscriber population' means, with respect 
     to any area and based on the most recent census data, the 
     total number of potential residential subscribers residing in 
     dwellings located in such area and potential nonresidential 
     subscribers maintaining permanent places of business located 
     in such area.
       ``(23) Underserved area.--The term `underserved area' 
     means--
       ``(A) any census tract which is located in--
       ``(i) an empowerment zone or enterprise community 
     designated under section 1391, or
       ``(ii) the District of Columbia Enterprise Zone established 
     under section 1400, or
       ``(B) any census tract--
       ``(i) the poverty level of which is at least 30 percent 
     (based on the most recent census data), and
       ``(ii) the median family income of which does not exceed--

       ``(I) in the case of a census tract located in a 
     metropolitan statistical area, 70 percent of the greater of 
     the metropolitan area median family income or the statewide 
     median family income, and
       ``(II) in the case of a census tract located in a 
     nonmetropolitan statistical area, 70 percent of the 
     nonmetropolitan statewide median family income.

       ``(24) Underserved subscriber.--The term `underserved 
     subscriber' means any residential subscriber residing in a 
     dwelling located in an underserved area or nonresidential 
     subscriber maintaining a permanent place of business located 
     in an underserved area.
       ``(f) Special Rules.--
       ``(1) Property used outside the united states, etc., not 
     qualified.--No expenditures shall be taken into account under 
     subsection (a)(1) with respect to the portion of the cost of 
     any property referred to in section 50(b) or with respect to 
     the portion of the cost of any property specified in an 
     election under section 179.
       ``(2) Basis reduction.--
       ``(A) In general.--For purposes of this title, the basis of 
     any property shall be reduced by the portion of the cost of 
     such property taken into account under subsection (a)(1).
       ``(B) Ordinary income recapture.--For purposes of section 
     1245, the amount of the deduction allowable under subsection 
     (a)(1) with respect to any property which is of a character 
     subject to the allowance for depreciation shall be treated as 
     a deduction allowed for depreciation under section 167.
       ``(3) Coordination with section 38.--No credit shall be 
     allowed under section 38 with respect to any amount for which 
     a deduction is allowed under subsection (a)(1).''.
       (b) Special Rule for Mutual or Cooperative Telephone 
     Companies.--Section 512(b) (relating to modifications) is 
     amended by adding at the end the following new paragraph:
       ``(18) Special rule for mutual or cooperative telephone 
     companies.--A mutual or cooperative telephone company which 
     for the taxable year satisfies the requirements of section 
     501(c)(12)(A) may elect to reduce its unrelated business 
     taxable income for such year, if any, by an amount that does 
     not exceed the qualified broadband expenditures which would 
     be taken into account under section 191 for such year by such 
     company if such company was not exempt from taxation. Any 
     amount which is allowed as a deduction under this paragraph 
     shall not be allowed as a deduction under section 191 and the 
     basis of any property to which this paragraph applies shall 
     be reduced under section 1016(a)(29).''.
       (c) Conforming Amendments.--
       (1) Section 263(a)(1) (relating to capital expenditures) is 
     amended by striking ``or'' at the end of subparagraph (G), by 
     striking the period at the end of subparagraph (H) and 
     inserting ``, or'', and by adding at the end the following 
     new subparagraph:
       ``(I) expenditures for which a deduction is allowed under 
     section 191.''.
       (2) Section 1016(a) of such Code is amended by striking 
     ``and'' at the end of paragraph (27), by striking the period 
     at the end of paragraph (28) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(29) to the extent provided in section 191(f)(2).''.
       (3) The table of sections for part VI of subchapter A of 
     chapter 1 of such Code is amended by inserting after the item 
     relating to section 190 the following new item:

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

       (d) Designation of Census Tracts.--
       (1) In general.--The Secretary of the Treasury shall, not 
     later than 90 days after the date of the enactment of this 
     Act, designate and publish those census tracts meeting the 
     criteria described in paragraphs (16), (22), and (23) of 
     section 191(e) of the Internal Revenue Code of 1986 (as added 
     by this section). In making such designations, the Secretary 
     of the Treasury shall consult with such other departments and 
     agencies as the Secretary determines appropriate.
       (2) Saturated market.--
       (A) In general.--For purposes of designating and publishing 
     those census tracts meeting the criteria described in 
     subsection (e)(19) of such section 191--
       (i) the Secretary of the Treasury shall prescribe not later 
     than 30 days after the date of the enactment of this Act the 
     form upon which any provider which takes the position that it 
     meets such criteria with respect to any census tract shall 
     submit a list of such census tracts (and any other 
     information required by the Secretary) not later than 60 days 
     after the date of the publication of such form, and
       (ii) the Secretary of the Treasury shall publish an 
     aggregate list of such census tracts and the applicable 
     providers not later than 30 days after the last date such 
     submissions are allowed under clause (i).
       (B) No subsequent lists required.--The Secretary of the 
     Treasury shall not be required to publish any list of census 
     tracts meeting such criteria subsequent to the list described 
     in subparagraph (A)(ii).
       (e) Other Regulatory Matters.--
       (1) Prohibition.--No Federal or State agency or 
     instrumentality shall adopt regulations or ratemaking 
     procedures that would have the effect of eliminating or 
     reducing any deduction or portion thereof allowed under 
     section 191 of the Internal Revenue Code of 1986 (as added by 
     this section) or otherwise subverting the purpose of this 
     section.
       (2) Treasury regulatory authority.--It is the intent of 
     Congress in providing the election to deduct qualified 
     broadband expenditures under section 191 of the Internal 
     Revenue Code of 1986 (as added by this section) to provide 
     incentives for the purchase, installation, and connection of 
     equipment and facilities offering expanded broadband

[[Page 4739]]

     access to the Internet for users in certain low income and 
     rural areas of the United States, as well as to residential 
     users nationwide, in a manner that maintains competitive 
     neutrality among the various classes of providers of 
     broadband services. Accordingly, the Secretary of the 
     Treasury shall prescribe such regulations as may be necessary 
     or appropriate to carry out the purposes of section 191 of 
     such Code, including--
       (A) regulations to determine how and when a taxpayer that 
     incurs qualified broadband expenditures satisfies the 
     requirements of section 191 of such Code to provide broadband 
     services, and
       (B) regulations describing the information, records, and 
     data taxpayers are required to provide the Secretary to 
     substantiate compliance with the requirements of section 191 
     of such Code.
       (f) Effective Date.--The amendments made by this section 
     shall apply to expenditures incurred after the date of the 
     enactment of this Act and before the date which is 12 months 
     after the date of the enactment of this Act.

     SEC. 303. EXEMPTION OF NATURAL AGING PROCESS IN DETERMINATION 
                   OF PRODUCTION PERIOD FOR DISTILLED SPIRITS 
                   UNDER SECTION 263A.

       (a) In General.--Section 263A(f) of the Internal Revenue 
     Code of 1986 (relating to general exceptions) is amended by 
     adding at the end the following new paragraph:
       ``(5) Exemption of natural aging process in determination 
     of production period for distilled spirits.--For purposes of 
     this subsection, the production period for distilled spirits 
     shall be determined without regard to any period allocated to 
     the natural aging process.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to production periods beginning after the date of 
     the enactment of this Act.

     SEC. 304. MODIFICATION OF ACTIVE BUSINESS DEFINITION UNDER 
                   SECTION 355.

       (a) In General.--Section 355(b) (defining active conduct of 
     a trade or business) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rules relating to active business 
     requirement.--
       ``(A) In general.--For purposes of determining whether a 
     corporation meets the requirement of paragraph (2)(A), all 
     members of such corporation's separate affiliated group shall 
     be treated as one corporation. For purposes of the preceding 
     sentence, a corporation's separate affiliated group is the 
     affiliated group which would be determined under section 
     1504(a) if such corporation were the common parent and 
     section 1504(b) did not apply.
       ``(B) Control.--For purposes of paragraph (2)(D), all 
     distributee corporations which are members of the same 
     affiliated group (as defined in section 1504(a) without 
     regard to section 1504(b)) shall be treated as one 
     distributee corporation.''.
       (b) Conforming Amendments.--
       (1) Subparagraph (A) of section 355(b)(2) is amended to 
     read as follows:
       ``(A) it is engaged in the active conduct of a trade or 
     business,''.
       (2) Section 355(b)(2) is amended by striking the last 
     sentence.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply--
       (A) to distributions after the date of the enactment of 
     this Act, and
       (B) for purposes of determining the continued qualification 
     under section 355(b)(2)(A) of the Internal Revenue Code of 
     1986 (as amended by subsection (b)(1)) of distributions made 
     before such date, as a result of an acquisition, disposition, 
     or other restructuring after such date.
       (2) Transition rule.--The amendments made by this section 
     shall not apply to any distribution pursuant to a transaction 
     which is--
       (A) made pursuant to an agreement which was binding on such 
     date of enactment and at all times thereafter,
       (B) described in a ruling request submitted to the Internal 
     Revenue Service on or before such date, or
       (C) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission.
       (3) Election to have amendments apply.--Paragraph (2) shall 
     not apply if the distributing corporation elects not to have 
     such paragraph apply to distributions of such corporation. 
     Any such election, once made, shall be irrevocable.

     SEC. 305. EXCLUSION OF CERTAIN INDEBTEDNESS OF SMALL BUSINESS 
                   INVESTMENT COMPANIES FROM ACQUISITION 
                   INDEBTEDNESS.

       (a) In General.--Section 514(c) (relating to acquisition 
     indebtedness) is amended by adding at the end the following 
     new paragraph:
       ``(10) Certain indebtedness of small business investment 
     companies.--For purposes of this section, the term 
     `acquisition indebtedness' does not include any indebtedness 
     incurred by a small business investment company licensed 
     under the Small Business Investment Act of 1958 which is 
     evidenced by a debenture--
       ``(A) issued by such company under section 303(a) of such 
     Act, and
       ``(B) held or guaranteed by the Small Business 
     Administration.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to any indebtedness incurred after December 31, 
     2003, by a small business investment company described in 
     section 514(c)(10) of the Internal Revenue Code of 1986 (as 
     added by this section) with respect to property acquired by 
     such company after such date.

     SEC. 306. MODIFIED TAXATION OF IMPORTED ARCHERY PRODUCTS.

       (a) Bows.--Paragraph (1) of section 4161(b) (relating to 
     bows) is amended to read as follows:
       ``(1) Bows.--
       ``(A) In general.--There is hereby imposed on the sale by 
     the manufacturer, producer, or importer of any bow which has 
     a peak draw weight of 30 pounds or more, a tax equal to 11 
     percent of the price for which so sold.
       ``(B) Archery equipment.--There is hereby imposed on the 
     sale by the manufacturer, producer, or importer--
       ``(i) of any part or accessory suitable for inclusion in or 
     attachment to a bow described in subparagraph (A), and
       ``(ii) of any quiver or broadhead suitable for use with an 
     arrow described in paragraph (2),

     a tax equal to 11 percent of the price for which so sold.''.
       (b) Arrows.--Subsection (b) of section 4161 (relating to 
     bows and arrows, etc.) is amended by redesignating paragraph 
     (3) as paragraph (4) and inserting after paragraph (2) the 
     following:
       ``(3) Arrows.--
       ``(A) In general.--There is hereby imposed on the sale by 
     the manufacturer, producer, or importer of any arrow, a tax 
     equal to 12 percent of the price for which so sold.
       ``(B) Exception.--In the case of any arrow of which the 
     shaft or any other component has been previously taxed under 
     paragraph (1) or (2)--
       ``(i) section 6416(b)(3) shall not apply, and
       ``(ii) the tax imposed by subparagraph (A) shall be an 
     amount equal to the excess (if any) of--

       ``(I) the amount of tax imposed by this paragraph 
     (determined without regard to this subparagraph), over
       ``(II) the amount of tax paid with respect to the tax 
     imposed under paragraph (1) or (2) on such shaft or 
     component.

       ``(C) Arrow.--For purposes of this paragraph, the term 
     `arrow' means any shaft described in paragraph (2) to which 
     additional components are attached.''.
       (c) Conforming Amendments.--Section 4161(b)(2) is amended--
       (1) by inserting ``(other than broadheads)'' after 
     ``point'', and
       (2) by striking ``Arrows.--'' in the heading and inserting 
     ``Arrow components.--''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer after December 31, 2003.

     SEC. 307. MODIFICATION TO COOPERATIVE MARKETING RULES TO 
                   INCLUDE VALUE ADDED PROCESSING INVOLVING 
                   ANIMALS.

       (a) In General.--Section 1388 (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new subsection:
       ``(k) Cooperative Marketing Includes Value-Added Processing 
     Involving Animals.--For purposes of section 521 and this 
     subchapter, the marketing of the products of members or other 
     producers shall include the feeding of such products to 
     cattle, hogs, fish, chickens, or other animals and the sale 
     of the resulting animals or animal products.''.
       (b) Conforming Amendment.--Section 521(b) is amended by 
     adding at the end the following new paragraph:
       ``(7) Cross Reference.--

  ``For treatment of value-added processing involving animals, see 
section 1388(k).''.

       (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. 308. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO 
                   FARMERS' COOPERATIVE ORGANIZATIONS.

       (a) In General.--Section 7428(a)(1) (relating to 
     declaratory judgments of tax exempt organizations) is amended 
     by striking ``or'' at the end of subparagraph (B) and by 
     adding at the end the following new subparagraph:
       ``(D) with respect to the initial classification or 
     continuing classification of a cooperative as an organization 
     described in section 521(b) which is exempt from tax under 
     section 521(a), or''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to pleadings filed after the date of 
     the enactment of this Act.

     SEC. 309. TEMPORARY SUSPENSION OF PERSONAL HOLDING COMPANY 
                   TAX.

       (a) In General.--Section 541 (relating to imposition of 
     personal holding company tax) is amended by adding at the end 
     the following new sentence: ``The preceding sentence shall 
     not apply with respect to any taxable year to which section 
     1(h)(11) (as in effect on the date of the enactment of this 
     sentence) applies.''.
       (b) Coordination With Accumulated Earnings Tax.--Section 
     532(b) is amended by adding at the end the following flush 
     sentence:

[[Page 4740]]

     ``Paragraph (1) shall not apply to any taxable year to which 
     section 541 does not apply.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 310. INCREASE IN SECTION 179 EXPENSING.

       (a) In General.--Section 179(b)(2) (relating to reduction 
     in limitation) is amended by inserting ``50 percent of'' 
     before ``the amount''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2002.

     SEC. 311. FIVE-YEAR CARRYBACK OF NET OPERATING LOSSES.

       (a) In General.--Subparagraph (H) of section 172(b)(1) is 
     amended--
       (1) by inserting ``5-year carryback of certain losses.--'' 
     after ``(H)'', and
       (2) by striking ``or 2002'' and inserting ``, 2002, or 
     2003''.
       (b) Rules Relating to Certain Extended Net Operating 
     Losses.--Section 172 is amended by redesignating subsection 
     (k) as subsection (l) and by inserting after subsection (j) 
     the following new subsection:
       ``(k) Rules Relating to Certain Extended Net Operating 
     Losses.--For purposes of this section, in the case of a 
     taxpayer which has a net operating loss for any taxable year 
     ending during 2003 and does not make an election under 
     subsection (j), such taxpayer shall be deemed to have made an 
     election under paragraphs (4)(E) and (2)(C)(iii) of section 
     168(k) with respect to all classes of property for such 
     taxable year.
       (c) Temporary Suspension of 90 Percent Limit on Certain NOL 
     Carryovers.--Section 56(d)(1)(A)(ii)(I) (relating to general 
     rule defining alternative tax net operating loss deduction) 
     is amended--
       (1) by striking ``or 2002'' and inserting ``, 2002, or 
     2003'', and
       (2) by striking ``and 2002'' and inserting ``, 2002, and 
     2003''.
       (d) Technical Corrections.--
       (1) Subparagraph (H) of section 172(b)(1) is amended by 
     striking ``a taxpayer which has''.
       (2) Section 102(c)(2) of the Job Creation and Worker 
     Assistance Act of 2002 (Public Law 107-147) is amended by 
     striking ``before January 1, 2003'' and inserting ``after 
     December 31, 1990''.
       (3)(A) Subclause (I) of section 56(d)(1)(A)(i) is amended 
     by striking ``attributable to carryovers''.
       (B) Subclause (I) of section 56(d)(1)(A)(ii) is amended--
       (i) by striking ``for taxable years'' and inserting ``from 
     taxable years'', and
       (ii) by striking ``carryforwards'' and inserting 
     ``carryovers''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to net operating 
     losses for taxable years ending after December 31, 2002.
       (2) Technical corrections.--The amendments made by 
     subsection (d) shall take effect as if included in the 
     amendments made by section 102 of the Job Creation and Worker 
     Assistance Act of 2002.
       (3) Election.--In the case of a net operating loss for a 
     taxable year ending during 2003--
       (A) any election made under section 172(b)(3) of such Code 
     may (notwithstanding such section) be revoked before April 
     15, 2004, and
       (B) any election made under section 172(j) of such Code 
     shall (notwithstanding such section) be treated as timely 
     made if made before April 15, 2004.
       (4) Special rule for taxpayers with taxable years ending 
     during january.--Any taxpayer which has a taxable year ending 
     during January may elect under this paragraph to apply 
     section 172(b)(1)(H) of the Internal Revenue Code of 1986 (as 
     amended by this section) to its taxable year ending in 2004 
     rather than its taxable year ending in 2003. If such election 
     is made, then section 172(k) of such Code (as added by this 
     section) shall be applied to the taxpayer's taxable year 
     ending in 2004. Such election shall be made in such manner 
     and at such time as may be prescribed by the Secretary of the 
     Treasury. Such election, once made, shall be irrevocable.

     SEC. 312. EXTENSION AND MODIFICATION 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) Increase in Rates of Alternative Incremental Credit.--
     Subparagraph (A) of section 41(c)(4) (relating to election of 
     alternative incremental credit) is amended--
       (1) by striking ``2.65 percent'' and inserting ``3 
     percent'',
       (2) by striking ``3.2 percent'' and inserting ``4 
     percent'', and
       (3) by striking ``3.75 percent'' and inserting ``5 
     percent''.
       (c) Alternative Simplified Credit for Qualified Research 
     Expenses.--
       (1) In general.--Subsection (c) of section 41 (relating to 
     base amount) is amended by redesignating paragraphs (5) and 
     (6) as paragraphs (6) and (7), respectively, and by inserting 
     after paragraph (4) the following new paragraph:
       ``(5) Election of alternative simplified credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     12 percent of so much of the qualified research expenses for 
     the taxable year as exceeds 50 percent of the average 
     qualified research expenses for the 3 taxable years preceding 
     the taxable year for which the credit is being determined.
       ``(B) Special rule in case of no qualified research 
     expenses in any of 3 preceding taxable years.--
       ``(i) Taxpayers to which subparagraph applies.--The credit 
     under this paragraph shall be determined under this 
     subparagraph if the taxpayer has no qualified research 
     expenses in any 1 of the 3 taxable years preceding the 
     taxable year for which the credit is being determined.
       ``(ii) Credit rate.--The credit determined under this 
     subparagraph shall be equal to 6 percent of the qualified 
     research expenses for the taxable year.
       ``(C) Election.--An election under this paragraph shall 
     apply to the taxable year for which made and all succeeding 
     taxable years unless revoked with the consent of the 
     Secretary. An election under this paragraph may not be made 
     for any taxable year to which an election under paragraph (4) 
     applies.''
       (2) Coordination with election of alternative incremental 
     credit.--
       (A) In general.--Section 41(c)(4)(B) (relating to election) 
     is amended by adding at the end the following: ``An election 
     under this paragraph may not be made for any taxable year to 
     which an election under paragraph (5) applies.''
       (B) Transition rule.--In the case of an election under 
     section 41(c)(4) of the Internal Revenue Code of 1986 which 
     applies to the taxable year which includes the date of the 
     enactment of this Act, such election shall be treated as 
     revoked with the consent of the Secretary of the Treasury if 
     the taxpayer makes an election under section 41(c)(5) of such 
     Code (as added by paragraph (1)) for such year.
       (f) Effective Dates.--
       (1) Subsection (a).--The amendments made by subsection (a) 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.
       (2) Subsections (b) and (c).--The amendments made by 
     subsections (b) and (c) shall apply to taxable years 
     beginning after December 31, 2004.

     SEC. 313. EXPANSION OF RESEARCH CREDIT.

       (a) Credit for Expenses Attributable to Certain 
     Collaborative Research Consortia.--
       (1) In general.--Section 41(a) (relating to credit for 
     increasing research activities) is amended by striking 
     ``and'' at the end of paragraph (1), by striking the period 
     at the end of paragraph (2) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(3) 20 percent of the amounts paid or incurred by the 
     taxpayer in carrying on any trade or business of the taxpayer 
     during the taxable year (including as contributions) to a 
     research consortium.''.
       (2) Research consortium defined.--Section 41(f) (relating 
     to special rules) is amended by adding at the end the 
     following new paragraph:
       ``(6) Research consortium.--
       ``(A) In general.--The term `research consortium' means any 
     organization--
       ``(i) which is--

       ``(I) described in section 501(c)(3) and is exempt from tax 
     under section 501(a) and is organized and operated primarily 
     to conduct energy research, or
       ``(II) organized and operated primarily to conduct research 
     in the public interest (within the meaning of section 
     501(c)(3)),

       ``(ii) which is not a private foundation,
       ``(iii) to which at least 5 unrelated persons paid or 
     incurred during the calendar year in which the taxable year 
     of the organization begins amounts (including as 
     contributions) to such organization for research, and
       ``(iv) to which no single person paid or incurred 
     (including as contributions) during such calendar year an 
     amount equal to more than 50 percent of the total amounts 
     received by such organization during such calendar year for 
     research.
       ``(B) Treatment of persons.--All persons treated as a 
     single employer under subsection (a) or (b) of section 52 
     shall be treated as related persons for purposes of 
     subparagraph (A)(iii) and as a single person for purposes of 
     subparagraph (A)(iv).''.
       (3) Conforming amendment.--Section 41(b)(3)(C) is amended 
     by inserting ``(other than a research consortium)'' after 
     ``organization''.
       (b) Repeal of Limitation on Contract Research Expenses Paid 
     to Small Businesses, Universities, and Federal 
     Laboratories.--Section 41(b)(3) (relating to contract 
     research expenses) is amended by adding at the end the 
     following new subparagraph:
       ``(D) Amounts paid to eligible small businesses, 
     universities, and federal laboratories.--
       ``(i) In general.--In the case of amounts paid by the 
     taxpayer to--

[[Page 4741]]

       ``(I) an eligible small business,
       ``(II) an institution of higher education (as defined in 
     section 3304(f)), or
       ``(III) an organization which is a Federal laboratory,

     for qualified research which is energy research, subparagraph 
     (A) shall be applied by substituting `100 percent' for `65 
     percent'.
       ``(ii) Eligible small business.--For purposes of this 
     subparagraph, the term `eligible small business' means a 
     small business with respect to which the taxpayer does not 
     own (within the meaning of section 318) 50 percent or more 
     of--

       ``(I) in the case of a corporation, the outstanding stock 
     of the corporation (either by vote or value), and
       ``(II) in the case of a small business which is not a 
     corporation, the capital and profits interests of the small 
     business.

       ``(iii) Small business.--For purposes of this 
     subparagraph--

       ``(I) In general.--The term `small business' means, with 
     respect to any calendar year, any person if the annual 
     average number of employees employed by such person during 
     either of the 2 preceding calendar years was 500 or fewer. 
     For purposes of the preceding sentence, a preceding calendar 
     year may be taken into account only if the person was in 
     existence throughout the year.
       ``(II) Startups, controlled groups, and predecessors.--
     Rules similar to the rules of subparagraphs (B) and (D) of 
     section 220(c)(4) shall apply for purposes of this clause.

       ``(iv) Federal laboratory.--For purposes of this 
     subparagraph, the term `Federal laboratory' has the meaning 
     given such term by section 4(6) of the Stevenson-Wydler 
     Technology Innovation Act of 1980 (15 U.S.C. 3703(6)), as in 
     effect on the date of the enactment of the Energy Tax 
     Incentives Act of 2003.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after December 31, 
     2004.

              Subtitle B--Manufacturing Relating to Films

     SEC. 321. SPECIAL RULES FOR CERTAIN FILM AND TELEVISION 
                   PRODUCTIONS.

       (a) In General.--Part VI of subchapter B of chapter 1 is 
     amended by inserting after section 180 the following new 
     section:

     ``SEC. 181. TREATMENT OF QUALIFIED FILM AND TELEVISION 
                   PRODUCTIONS.

       ``(a) Election To Treat Certain Costs of Qualified Film and 
     Television Productions as Expenses.--
       ``(1) In general.--A taxpayer may elect to treat the cost 
     of any qualified film or television production as an expense 
     which is not chargeable to capital account. Any cost so 
     treated shall be allowed as a deduction.
       ``(2) Dollar limitation.--
       ``(A) In general.--The aggregate cost which may be taken 
     into account under paragraph (1) with respect to each 
     qualified film or television production shall not exceed 
     $15,000,000.
       ``(B) Higher dollar limitation for productions in certain 
     areas.--In the case of any qualified film or television 
     production the aggregate cost of which is significantly 
     incurred in an area eligible for designation as--
       ``(i) a low-income community under section 45D, or
       ``(ii) a distressed county or isolated area of distress by 
     the Delta Regional Authority established under section 
     2009aa-1 of title 7, United States Code,

     subparagraph (A) shall be applied by substituting 
     `$20,000,000' for `$15,000,000'.
       ``(b) Amortization of Remaining Costs.--
       ``(1) In general.--If an election is made under subsection 
     (a) with respect to any qualified film or television 
     production, that portion of the basis of such production in 
     excess of the amount taken into account under subsection (a) 
     shall be allowed as a deduction ratably over the 36-month 
     period beginning with the month in which such production is 
     placed in service.
       ``(2) No other deduction or amortization deduction 
     allowable.--With respect to the basis of any qualified film 
     or television production described in paragraph (1), no other 
     depreciation or amortization deduction shall be allowable.
       ``(c) Election.--
       ``(1) In general.--An election under subsection (a) with 
     respect to any qualified film or television production shall 
     be made in such manner as prescribed by the Secretary and by 
     the due date (including extensions) for filing the taxpayer's 
     return of tax under this chapter for the taxable year in 
     which costs of the production are first incurred.
       ``(2) Revocation of election.--Any election made under 
     subsection (a) may not be revoked without the consent of the 
     Secretary.
       ``(d) Qualified Film or Television Production.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified film or television 
     production' means any production described in paragraph (2) 
     if 75 percent of the total compensation of the production is 
     qualified compensation.
       ``(2) Production.--
       ``(A) In general.--A production is described in this 
     paragraph if such production is property described in section 
     168(f)(3). For purposes of a television series, only the 
     first 44 episodes of such series may be taken into account.
       ``(B) Exception.--A production is not described in this 
     paragraph if records are required under section 2257 of title 
     18, United States Code, to be maintained with respect to any 
     performer in such production.
       ``(3) Qualified compensation.--For purposes of paragraph 
     (1)--
       ``(A) In general.--The term `qualified compensation' means 
     compensation for services performed in the United States by 
     actors, directors, producers, and other relevant production 
     personnel.
       ``(B) Participations and residuals excluded.--The term 
     `compensation' does not include participations and residuals 
     (as defined in section 167(g)(7)(B)).
       ``(e) Application of Certain Other Rules.--For purposes of 
     this section, rules similar to the rules of subsections 
     (b)(2) and (c)(4) of section 194 shall apply.
       ``(f) Termination.--This section shall not apply to 
     qualified film and television productions commencing after 
     December 31, 2008.''.
       (b) Conforming Amendment.--The table of sections for part 
     VI of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 180 the following new item:

``Sec. 181. Treatment of qualified film and television productions.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to qualified film and television productions (as 
     defined in section 181(d)(1) of the Internal Revenue Code of 
     1986, as added by this section) commencing after the date of 
     the enactment of this Act.

     SEC. 322. MODIFICATION OF APPLICATION OF INCOME FORECAST 
                   METHOD OF DEPRECIATION.

       (a) In General.--Section 167(g) (relating to depreciation 
     under income forecast method) is amended by adding at the end 
     the following new paragraph:
       ``(7) Treatment of participations and residuals.--
       ``(A) In general.--For purposes of determining the 
     depreciation deduction allowable with respect to a property 
     under this subsection, the taxpayer may include 
     participations and residuals with respect to such property in 
     the adjusted basis of such property for the taxable year in 
     which the property is placed in service, but only to the 
     extent that such participations and residuals relate to 
     income estimated (for purposes of this subsection) to be 
     earned in connection with the property before the close of 
     the 10th taxable year referred to in paragraph (1)(A).
       ``(B) Participations and residuals.--For purposes of this 
     paragraph, the term `participations and residuals' means, 
     with respect to any property, costs the amount of which by 
     contract varies with the amount of income earned in 
     connection with such property.
       ``(C) Special rules relating to recomputation years.--If 
     the adjusted basis of any property is determined under this 
     paragraph, paragraph (4) shall be applied by substituting 
     `for each taxable year in such period' for `for such period'.
       ``(D) Other special rules.--
       ``(i) Participations and residuals.--Notwithstanding 
     subparagraph (A), the taxpayer may exclude participations and 
     residuals from the adjusted basis of such property and deduct 
     such participations and residuals in the taxable year that 
     such participations and residuals are paid.
       ``(ii) Coordination with other rules.--Deductions computed 
     in accordance with this paragraph shall be allowable 
     notwithstanding paragraph (1)(B) or sections 263, 263A, 404, 
     419, or 461(h).
       ``(E) Authority to make adjustments.--The Secretary shall 
     prescribe appropriate adjustments to the basis of property 
     and to the look-back method for the additional amounts 
     allowable as a deduction solely by reason of this 
     paragraph.''.
       (b) Determination of Income.--Section 167(g)(5) (relating 
     to special rules) is amended by redesignating subparagraphs 
     (E) and (F) as subparagraphs (F) and (G), respectively, and 
     inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) Treatment of distribution costs.--For purposes of 
     this subsection, the income with respect to any property 
     shall be the taxpayer's gross income from such property.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

              Subtitle C--Manufacturing Relating to Timber

     SEC. 331. EXPENSING OF CERTAIN REFORESTATION EXPENDITURES.

       (a) In General.--So much of subsection (b) of section 194 
     (relating to amortization of reforestation expenditures) as 
     precedes paragraph (2) is amended to read as follows:
       ``(b) Treatment as Expenses.--
       ``(1) Election to treat certain reforestation expenditures 
     as expenses.--
       ``(A) In general.--In the case of any qualified timber 
     property with respect to which the taxpayer has made (in 
     accordance with regulations prescribed by the Secretary) an 
     election under this subsection, the taxpayer shall treat 
     reforestation expenditures which are paid or incurred during 
     the taxable year with respect to such property as an expense 
     which is not chargeable to capital account. The reforestation 
     expenditures so treated shall be allowed as a deduction.

[[Page 4742]]

       ``(B) Dollar limitation.--The aggregate amount of 
     reforestation expenditures which may be taken into account 
     under subparagraph (A) with respect to each qualified timber 
     property for any taxable year shall not exceed $10,000 
     ($5,000 in the case of a separate return by a married 
     individual (as defined in section 7703)).''.
       (b) Net Amortizable Basis.--Section 194(c)(2) (defining 
     amortizable basis) is amended by inserting ``which have not 
     been taken into account under subsection (b)'' after 
     ``expenditures''.
       (c) Conforming Amendments.--
       (1) Section 194(b) is amended by striking paragraphs (3) 
     and (4).
       (2) Section 194(b)(2) is amended by striking ``paragraph 
     (1)'' both places it appears and inserting ``paragraph 
     (1)(B)''.
       (3) Section 194(c) is amended by striking paragraph (4) and 
     inserting the following new paragraphs:
       ``(4) Treatment of trusts and estates.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     this section shall not apply to trusts and estates.
       ``(B) Amortization deduction allowed to estates.--The 
     benefit of the deduction for amortization provided by 
     subsection (a) shall be allowed to estates in the same manner 
     as in the case of an individual. The allowable deduction 
     shall be apportioned between the income beneficiary and the 
     fiduciary under regulations prescribed by the Secretary. Any 
     amount so apportioned to a beneficiary shall be taken into 
     account for purposes of determining the amount allowable as a 
     deduction under subsection (a) to such beneficiary.
       ``(5) Application with other deductions.--No deduction 
     shall be allowed under any other provision of this chapter 
     with respect to any expenditure with respect to which a 
     deduction is allowed or allowable under this section to the 
     taxpayer .''.
       (4) The heading for section 194 is amended by striking 
     ``AMORTIZATION'' and inserting ``TREATMENT''.
       (5) The item relating to section 194 in the table of 
     sections for part VI of subchapter B of chapter 1 is amended 
     by striking ``Amortization'' and inserting ``Treatment''.
       (d) Repeal of Reforestation Credit.--
       (1) In general.--Section 46 (relating to amount of credit) 
     is amended--
       (A) by adding ``and'' at the end of paragraph (1),
       (B) by striking ``, and'' at the end of paragraph (2) and 
     inserting a period, and
       (C) by striking paragraph (3).
       (2) Conforming amendments.--
       (A) Section 48 is amended--
       (i) by striking subsection (b),
       (ii) by striking ``this subsection'' in paragraph (5) of 
     subsection (a) and inserting ``subsection (a)'', and
       (iii) by redesignating such paragraph (5) as subsection 
     (b).
       (B) The heading for section 48 is amended by striking ``; 
     REFORESTATION CREDIT''.
       (C) The item relating to section 48 in the table of 
     sections for subpart E of part IV of subchapter A of chapter 
     1 is amended by striking ``, reforestation credit''.
       (D) Section 50(c)(3) is amended by striking ``or 
     reforestation credit''.
       (e) Effective Date.--The amendments made by this section 
     shall apply with respect to expenditures paid or incurred 
     after the date of the enactment of this Act.

     SEC. 332. ELECTION TO TREAT CUTTING OF TIMBER AS A SALE OR 
                   EXCHANGE.

       Any election under section 631(a) of the Internal Revenue 
     Code of 1986 made for a taxable year ending on or before the 
     date of the enactment of this Act may be revoked by the 
     taxpayer for any taxable year ending after such date. For 
     purposes of determining whether the taxpayer may make a 
     further election under such section, such election (and any 
     revocation under this section) shall not be taken into 
     account.

     SEC. 333. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO 
                   APPLY TO OUTRIGHT SALES BY LANDOWNERS.

       (a) In General.--The first sentence of section 631(b) 
     (relating to disposal of timber with a retained economic 
     interest) is amended by striking ``retains an economic 
     interest in such timber'' and inserting ``either retains an 
     economic interest in such timber or makes an outright sale of 
     such timber''.
       (b) Conforming Amendments.--
       (1) The third sentence of section 631(b) is amended by 
     striking ``The date of disposal'' and inserting ``In the case 
     of disposal of timber with a retained economic interest, the 
     date of disposal''.
       (2) The heading for section 631(b) is amended by striking 
     ``With a Retained Economic Interest''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales after the date of the enactment of this 
     Act.

     SEC. 334. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITS.

       (a) Expansion of Prohibited Transaction Safe Harbor.--
     Section 857(b)(6) (relating to income from prohibited 
     transactions) is amended by redesignating subparagraphs (D) 
     and (E) as subparagraphs (E) and (F), respectively, and by 
     inserting after subparagraph (C) the following new 
     subparagraph:
       ``(D) Certain sales not to constitute prohibited 
     transactions.--For purposes of this part, the term 
     `prohibited transaction' does not include a sale of property 
     which is a real estate asset (as defined in section 
     856(c)(5)(B)) if--
       ``(i) the trust held the property for not less than 4 years 
     in connection with the trade or business of producing timber,
       ``(ii) the aggregate expenditures made by the trust, or a 
     partner of the trust, during the 4-year period preceding the 
     date of sale which--

       ``(I) are includible in the basis of the property (other 
     than timberland acquisition expenditures), and
       ``(II) are directly related to operation of the property 
     for the production of timber or for the preservation of the 
     property for use as timberland,

     do not exceed 30 percent of the net selling price of the 
     property,
       ``(iii) the aggregate expenditures made by the trust, or a 
     partner of the trust, during the 4-year period preceding the 
     date of sale which--

       ``(I) are includible in the basis of the property (other 
     than timberland acquisition expenditures), and
       ``(II) are not directly related to operation of the 
     property for the production of timber, or for the 
     preservation of the property for use as timberland,

     do not exceed 5 percent of the net selling price of the 
     property,
       ``(iv)(I) during the taxable year the trust does not make 
     more than 7 sales of property (other than sales of 
     foreclosure property or sales to which section 1033 applies), 
     or
       ``(II) the aggregate adjusted bases (as determined for 
     purposes of computing earnings and profits) of property 
     (other than sales of foreclosure property or sales to which 
     section 1033 applies) sold during the taxable year does not 
     exceed 10 percent of the aggregate bases (as so determined) 
     of all of the assets of the trust as of the beginning of the 
     taxable year,
       ``(v) in the case that the requirement of clause (iv)(I) is 
     not satisfied, substantially all of the marketing 
     expenditures with respect to the property were made through 
     an independent contractor (as defined in section 856(d)(3)) 
     from whom the trust itself does not derive or receive any 
     income, and
       ``(vi) the sales price of the property sold by the trust is 
     not based in whole or in part on income or profits, including 
     income or profits derived from the sale or operation of such 
     property.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

                    TITLE IV--ADDITIONAL PROVISIONS

        Subtitle A--Provisions Designed To Curtail Tax Shelters

     SEC. 401. 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).
       ``(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

[[Page 4743]]

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

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

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

     SEC. 402. PENALTY FOR 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:

``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.

[[Page 4744]]



     SEC. 403. 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
       ``(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.--

[[Page 4745]]

       (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. 404. 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. 405. 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. 406. 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. 407. 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, or carrying out any reportable transaction, and
       ``(ii) who directly or indirectly derives gross income in 
     excess of the threshold amount for such aid, assistance, or 
     advice.
       ``(B) Threshold amount.--For purposes of subparagraph (A), 
     the threshold amount is--
       ``(i) $50,000 in the case of a reportable transaction 
     substantially all of the tax benefits from which are provided 
     to natural persons, and
       ``(ii) $250,000 in any other case.
       ``(2) Reportable transaction.--The term `reportable 
     transaction' has the meaning given to such term by section 
     6707A(c).
       ``(c) Regulations.--The Secretary may prescribe regulations 
     which provide--
       ``(1) that only 1 person shall be required to meet the 
     requirements of subsection (a) in

[[Page 4746]]

     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. 408. 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. 409. 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. 410. 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. 411. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME 
                   TAX RETURN PREPARER.

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

[[Page 4747]]



     SEC. 412. 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. 413. 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. 414. 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.''.

     SEC. 415. PENALTY ON PROMOTERS OF TAX SHELTERS.

       (a) Penalty on Promoting Abusive Tax Shelters.--Section 
     6700(a) is amended by adding at the end the following new 
     sentence: ``Notwithstanding the first sentence, if an 
     activity with respect to which a penalty imposed under this 
     subsection involves

[[Page 4748]]

     a statement described in paragraph (2)(A), the amount of the 
     penalty shall be equal to 50 percent of the gross income 
     derived (or to be derived) from such activity by the person 
     on which the penalty is imposed.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

     SEC. 416. 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. 417. 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. 418. 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. 419. INCREASES IN PENALTIES FOR AIDING AND ABETTING 
                   UNDERSTATEMENTS.

       (a) In General.--Section 6701(b) is amended to read as 
     follows:
       ``(b) Amount of Penalty.--
       ``(1) In general.--The amount of the penalty imposed by 
     subsection (a) shall be the greater of--
       ``(A) $2,000, or
       ``(B) 50 percent of the gross income derived (or to be 
     derived) from the activity giving rise to the penalty.
       ``(2) Corporations.--If the return, affidavit, claim, or 
     other document relates to the tax liability of a corporation, 
     paragraph (1)(A) shall be applied by substituting `$20,000' 
     for `$2,000'.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to activities after the date of the enactment of 
     this Act.

     SEC. 420. 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--Other Corporate Governance Provisions

     SEC. 421. AFFIRMATION OF CONSOLIDATED RETURN REGULATION 
                   AUTHORITY.

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

     SEC. 422. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO 
                   FEDERAL ANNUAL INCOME TAX RETURN OF A 
                   CORPORATION.

       (a) In General.--The Federal annual tax return of a 
     corporation with respect to income shall also include a 
     declaration signed by the chief executive officer of such 
     corporation (or other such officer of the corporation as the 
     Secretary of the Treasury may designate if the corporation 
     does not have a chief executive officer), under penalties of 
     perjury, that the corporation has in place processes and 
     procedures to ensure that such return complies with the 
     Internal Revenue Code of 1986 and that the chief executive 
     officer was provided reasonable assurance of the accuracy of 
     all material aspects of such return. The preceding sentence 
     shall not apply to any return of a regulated investment 
     company (within the meaning of section 851 of such Code).
       (b) Effective Date.--This section shall apply to the 
     Federal annual tax return of a corporation with respect to 
     income for taxable years ending after the date of the 
     enactment of this Act.

     SEC. 423. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, 
                   AND OTHER AMOUNTS.

       (a) In General.--Subsection (f) of section 162 (relating to 
     trade or business expenses) is amended to read as follows:
       ``(f) Fines, Penalties, and Other Amounts.--
       ``(1) In general.--Except as provided in paragraph (2), no 
     deduction otherwise allowable shall be allowed under this 
     chapter for any amount paid or incurred (whether by suit, 
     agreement, or otherwise) to, or at the direction of, a 
     government or entity described in paragraph (4) in relation 
     to the violation of any law or the investigation or inquiry 
     by such government or entity into the potential violation of 
     any law.
       ``(2) Exception for amounts constituting restitution.--
     Paragraph (1) shall not apply to any amount which the 
     taxpayer establishes constitutes restitution (including 
     remediation of property) for damage or harm caused by or 
     which may be caused by the violation of any law or the 
     potential violation of any law. This paragraph shall not 
     apply to any amount paid or incurred as reimbursement to the 
     government or entity for the costs of any investigation or 
     litigation.
       ``(3) Exception for amounts paid or incurred as the result 
     of certain court orders.--Paragraph (1) shall not apply to 
     any amount paid or incurred by order of a court in a suit in 
     which no government or entity described in paragraph (4) is a 
     party.
       ``(4) Certain nongovernmental regulatory entities.--An 
     entity is described in this paragraph if it is--
       ``(A) a nongovernmental entity which exercises self-
     regulatory powers (including imposing sanctions) in 
     connection with a qualified board or exchange (as defined in 
     section 1256(g)(7)), or
       ``(B) to the extent provided in regulations, a 
     nongovernmental entity which exercises self-regulatory powers 
     (including imposing sanctions) as part of performing an 
     essential governmental function.
       ``(5) Exception for taxes due.--Paragraph (1) shall not 
     apply to any amount paid or incurred as taxes due.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts paid or incurred after April 27, 2003, 
     except that such amendment shall not apply to amounts paid or 
     incurred under any binding order or agreement entered into on 
     or before April 27, 2003. Such exception shall not apply to 
     an order or agreement requiring court approval unless the 
     approval was obtained on or before April 27, 2003.

     SEC. 424. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.

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

[[Page 4749]]

       (b) Inclusion in Income of Punitive Damages Paid by Insurer 
     or Otherwise.--
       (1) In general.--Part II of subchapter B of chapter 1 
     (relating to items specifically included in gross income) is 
     amended by adding at the end the following new section:

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

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

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

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

     SEC. 425. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION 
                   FOR THE UNDERPAYMENT OR OVERPAYMENT OF TAX DUE 
                   TO FRAUD.

       (a) In General.--Section 7206 (relating to fraud and false 
     statements) is amended--
       (1) by striking ``Any person who--'' and inserting ``(a) In 
     General.--Any person who--'', and
       (2) by adding at the end the following new subsection:
       ``(b) Increase in Monetary Limitation for Underpayment or 
     Overpayment of Tax Due to Fraud.--If any portion of any 
     underpayment (as defined in section 6664(a)) or overpayment 
     (as defined in section 6401(a)) of tax required to be shown 
     on a return is attributable to fraudulent action described in 
     subsection (a), the applicable dollar amount under subsection 
     (a) shall in no event be less than an amount equal to such 
     portion. A rule similar to the rule under section 6663(b) 
     shall apply for purposes of determining the portion so 
     attributable.''.
       (b) Increase in Penalties.--
       (1) Attempt to evade or defeat tax.--Section 7201 is 
     amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``5 years'' and inserting ``10 years''.
       (2) Willful failure to file return, supply information, or 
     pay tax.--Section 7203 is amended--
       (A) in the first sentence--
       (i) by striking ``misdemeanor'' and inserting ``felony'', 
     and
       (ii) by striking ``1 year'' and inserting ``10 years'', and
       (B) by striking the third sentence.
       (3) Fraud and false statements.--Section 7206(a) (as 
     redesignated by subsection (a)) is amended--
       (A) by striking ``$100,000'' and inserting ``$250,000'',
       (B) by striking ``$500,000'' and inserting ``$1,000,000'', 
     and
       (C) by striking ``3 years'' and inserting ``5 years''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to underpayments and overpayments attributable to 
     actions occurring after the date of the enactment of this 
     Act.

            Subtitle C--Enron-Related Tax Shelter Provisions

     SEC. 431. LIMITATION ON TRANSFER OR IMPORTATION OF BUILT-IN 
                   LOSSES.

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

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

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

     SEC. 432. 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. 433. 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,''.

[[Page 4750]]

       (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 paragraph 
     (3)(A).''.
       (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. 434. 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.''.
       (c) 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.
       (d) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after February 13, 
     2003.

     SEC. 435. 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. 436. 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 D--Provisions to Discourage Expatriation

     SEC. 441. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

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

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

       ``(a) Inverted Corporations Treated as Domestic 
     Corporations.--
       ``(1) In general.--If a foreign incorporated entity is 
     treated as an inverted domestic corporation, then, 
     notwithstanding section 7701(a)(4), such entity shall be 
     treated for purposes of this title as a domestic corporation.
       ``(2) Inverted domestic corporation.--For purposes of this 
     section, a foreign incorporated entity shall be treated as an 
     inverted domestic corporation if, pursuant to a plan (or a 
     series of related transactions)--
       ``(A) the entity completes after March 20, 2002, the direct 
     or indirect acquisition of substantially all of the 
     properties held directly or indirectly by a domestic 
     corporation or substantially all of the properties 
     constituting a trade or business of a domestic partnership,
       ``(B) after the acquisition at least 80 percent of the 
     stock (by vote or value) of the entity is held--
       ``(i) in the case of an acquisition with respect to a 
     domestic corporation, by former shareholders of the domestic 
     corporation by reason of holding stock in the domestic 
     corporation, or
       ``(ii) in the case of an acquisition with respect to a 
     domestic partnership, by former

[[Page 4751]]

     partners of the domestic partnership by reason of holding a 
     capital or profits interest in the domestic partnership, and
       ``(C) the expanded affiliated group which after the 
     acquisition includes the entity does not have substantial 
     business activities in the foreign country in which or under 
     the law of which the entity is created or organized when 
     compared to the total business activities of such expanded 
     affiliated group.

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

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

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

     The Secretary may provide that income or gain from the sale 
     of inventories or other transactions in the ordinary course 
     of a trade or business shall not be treated as inversion gain 
     under subparagraph (B) to the extent the Secretary determines 
     such treatment would not be inconsistent with the purposes of 
     this section.
       ``(5) Coordination with section 172 and minimum tax.--Rules 
     similar to the rules of paragraphs (3) and (4) of section 
     860E(a) shall apply for purposes of this section.
       ``(6) Statute of limitations.--
       ``(A) In general.--The statutory period for the assessment 
     of any deficiency attributable to the inversion gain of any 
     taxpayer for any pre-inversion year shall not expire before 
     the expiration of 3 years from the date the Secretary is 
     notified by the taxpayer (in such manner as the Secretary may 
     prescribe) of the acquisition described in subsection 
     (a)(2)(A) to which such gain relates and such deficiency may 
     be assessed before the expiration of such 3-year period 
     notwithstanding the provisions of any other law or rule of 
     law which would otherwise prevent such assessment.
       ``(B) Pre-inversion year.--For purposes of subparagraph 
     (A), the term `pre-inversion year' means any taxable year 
     if--
       ``(i) any portion of the applicable period is included in 
     such taxable year, and
       ``(ii) such year ends before the taxable year in which the 
     acquisition described in subsection (a)(2)(A) is completed.
       ``(d) Special Rules Applicable to Acquired Entities to 
     Which Subsection (b) Applies.--
       ``(1) Increases in accuracy-related penalties.--In the case 
     of any underpayment of tax of an acquired entity to which 
     subsection (b) applies--
       ``(A) section 6662(a) shall be applied with respect to such 
     underpayment by substituting `30 percent' for `20 percent', 
     and
       ``(B) if such underpayment is attributable to one or more 
     gross valuation understatements, the increase in the rate of 
     penalty under section 6662(h) shall be to 50 percent rather 
     than 40 percent.
       ``(2) Modifications of limitation on interest deduction.--
     In the case of an acquired entity to which subsection (b) 
     applies, section 163(j) shall be applied--
       ``(A) without regard to paragraph (2)(A)(ii) thereof, and
       ``(B) by substituting `25 percent' for `50 percent' each 
     place it appears in paragraph (2)(B) thereof.
       ``(e) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Rules for application of subsection (a)(2).--In 
     applying subsection (a)(2) for purposes of subsections (a) 
     and (b), the following rules shall apply:
       ``(A) Certain stock disregarded.--There shall not be taken 
     into account in determining ownership for purposes of 
     subsection (a)(2)(B)--
       ``(i) stock held by members of the expanded affiliated 
     group which includes the foreign incorporated entity, or
       ``(ii) stock of such entity which is sold in a public 
     offering or private placement related to the acquisition 
     described in subsection (a)(2)(A).
       ``(B) Plan deemed in certain cases.--If a foreign 
     incorporated entity acquires directly or indirectly 
     substantially all of the properties of a domestic corporation 
     or partnership during the 4-year period beginning on the date 
     which is 2 years before the ownership requirements of 
     subsection (a)(2)(B) are met with respect to such domestic 
     corporation or partnership, such actions shall be treated as 
     pursuant to a plan.
       ``(C) Certain transfers disregarded.--The transfer of 
     properties or liabilities (including by contribution or 
     distribution) shall be disregarded if such transfers are part 
     of a plan a principal purpose of which is to avoid the 
     purposes of this section.
       ``(D) Special rule for related partnerships.--For purposes 
     of applying subsection (a)(2) to the acquisition of a 
     domestic partnership, except as provided in regulations, all 
     partnerships which are under common control (within the 
     meaning of section 482) shall be treated as 1 partnership.
       ``(E) Treatment of certain rights.--The Secretary shall 
     prescribe such regulations as may be necessary--
       ``(i) to treat warrants, options, contracts to acquire 
     stock, convertible debt instruments, and other similar 
     interests as stock, and
       ``(ii) to treat stock as not stock.
       ``(2) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a) but without regard to section 1504(b)(3), 
     except that section 1504(a) shall be applied by substituting 
     `more than 50 percent' for `at least 80 percent' each place 
     it appears.
       ``(3) Foreign incorporated entity.--The term `foreign 
     incorporated entity' means any entity which is, or but for 
     subsection (a)(1) would be, treated as a foreign corporation 
     for purposes of this title.

[[Page 4752]]

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

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

       ``(f) Regulations.--The Secretary shall provide such 
     regulations as are necessary to carry out this section, 
     including regulations providing for such adjustments to the 
     application of this section as are necessary to prevent the 
     avoidance of the purposes of this section, including the 
     avoidance of such purposes through--
       ``(1) the use of related persons, pass-thru or other 
     noncorporate entities, or other intermediaries, or
       ``(2) transactions designed to have persons cease to be (or 
     not become) members of expanded affiliated groups or related 
     persons.''.
       (b) Information Reporting.--The Secretary of the Treasury 
     shall exercise the Secretary's authority under the Internal 
     Revenue Code of 1986 to require entities involved in 
     transactions to which section 7874 of such Code (as added by 
     subsection (a)) applies to report to the Secretary, 
     shareholders, partners, and such other persons as the 
     Secretary may prescribe such information as is necessary to 
     ensure the proper tax treatment of such transactions.
       (c) Conforming Amendment.--The table of sections for 
     subchapter C of chapter 80 is amended by adding at the end 
     the following new item:

``Sec. 7874. Rules relating to inverted corporate entities.''.
       (d) Transition Rule for Certain Regulated Investment 
     Companies and Unit Investment Trusts.--Notwithstanding 
     section 7874 of the Internal Revenue Code of 1986 (as added 
     by subsection (a)), a regulated investment company, or other 
     pooled fund or trust specified by the Secretary of the 
     Treasury, may elect to recognize gain by reason of section 
     367(a) of such Code with respect to a transaction under which 
     a foreign incorporated entity is treated as an inverted 
     domestic corporation under section 7874(a) of such Code by 
     reason of an acquisition completed after March 20, 2002, and 
     before January 1, 2004.
       (e) Disclosure of Corporate Expatriation Transactions.--
       (1) In general.--Section 14 of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78n) is amended by adding at the end the 
     following new subsection:
       ``(i) Proxy Solicitations in Connection With Corporate 
     Expatriation Transactions.--
       ``(1) Disclosure to shareholders of effects of corporate 
     expatriation transaction.--The Commission shall, by rule, 
     require that each domestic issuer shall prominently disclose, 
     not later than 5 business days before any shareholder vote 
     relating to a corporate expatriation transaction, as a 
     separate and distinct document accompanying each proxy 
     statement relating to the transaction--
       ``(A) the number of employees of the domestic issuer that 
     would be located in the new foreign jurisdiction of 
     incorporation or organization of that issuer upon completion 
     of the corporate expatriation transaction;
       ``(B) how the rights of holders of the securities of the 
     domestic issuer would be impacted by a completed corporate 
     expatriation transaction, and any differences in such rights 
     before and after a completed corporate expatriation 
     transaction; and
       ``(C) that, as a result of a completed corporate 
     expatriation transaction, any taxable holder of the 
     securities of the domestic issuer shall be subject to the 
     taxation of any capital gains realized with respect to such 
     securities, and the amount of any such capital gains tax that 
     would apply as a result of the transaction.
       ``(2) Definitions.--In this subsection, the following 
     definitions shall apply:
       ``(A) Corporate expatriation transaction.--The term 
     `corporate expatriation transaction' means any transaction, 
     or series of related transactions, described in subsection 
     (a) or (b) of section 7874 of the Internal Revenue Code of 
     1986.
       ``(A) Domestic issuer.--The term `domestic issuer' means an 
     issuer created or organized in the United States or under the 
     law of the United States or of any State.''
       (2) Effective date.--Section 14(i) of the Securities 
     Exchange Act of 1934 (as added by this subsection) shall 
     apply with respect to corporate expatriation transactions (as 
     defined in that section 14(i)) proposed on and after the date 
     of enactment of this Act.

     SEC. 442. 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
       ``(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),

[[Page 4753]]

     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.
       ``(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

[[Page 4754]]

     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 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.''.

[[Page 4755]]

       (c) Definition of Termination of United States 
     Citizenship.--Section 7701(a) is amended by adding at the end 
     the following new paragraph:
       ``(48) Termination of united states citizenship.--
       ``(A) In general.--An individual shall not cease to be 
     treated as a United States citizen before the date on which 
     the individual's citizenship is treated as relinquished under 
     section 877A(e)(3).
       ``(B) Dual citizens.--Under regulations prescribed by the 
     Secretary, subparagraph (A) shall not apply to an individual 
     who became at birth a citizen of the United States and a 
     citizen of another country.''.
       (d) Ineligibility for Visa or Admission to United States.--
       (1) In general.--Section 212(a)(10)(E) of the Immigration 
     and Nationality Act (8 U.S.C. 1182(a)(10)(E)) is amended to 
     read as follows:
       ``(E) Former citizens not in compliance with expatriation 
     revenue provisions.--Any alien who is a former citizen of the 
     United States who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3) of the Internal 
     Revenue Code of 1986) and who is not in compliance with 
     section 877A of such Code (relating to expatriation).''.
       (2) Availability of information.--
       (A) In general.--Section 6103(l) (relating to disclosure of 
     returns and return information for purposes other than tax 
     administration) is amended by adding at the end the following 
     new paragraph:
       ``(19) Disclosure to deny visa or admission to certain 
     expatriates.--Upon written request of the Attorney General or 
     the Attorney General's delegate, the Secretary shall disclose 
     whether an individual is in compliance with section 877A (and 
     if not in compliance, any items of noncompliance) to officers 
     and employees of the Federal agency responsible for 
     administering section 212(a)(10)(E) of the Immigration and 
     Nationality Act solely for the purpose of, and to the extent 
     necessary in, administering such section 212(a)(10)(E).''.
       (B) Safeguards.--
       (i) Technical amendments.--Paragraph (4) of section 6103(p) 
     of the Internal Revenue Code of 1986, as amended by section 
     202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 
     116 Stat. 961), is amended by striking ``or (17)'' after 
     ``any other person described in subsection (l)(16)'' each 
     place it appears and inserting ``or (18)''.
       (ii) Conforming amendments.--Section 6103(p)(4) (relating 
     to safeguards), as amended by clause (i), is amended by 
     striking ``or (18)'' after ``any other person described in 
     subsection (l)(16)'' each place it appears and inserting 
     ``(18), or (19)''.
       (3) Effective dates.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendments made by this subsection shall apply to 
     individuals who relinquish United States citizenship on or 
     after the date of the enactment of this Act.
       (B) Technical amendments.--The amendments made by paragraph 
     (2)(B)(i) shall take effect as if included in the amendments 
     made by section 202(b)(2)(B) of the Trade Act of 2002 (Public 
     Law 107-210; 116 Stat. 961).
       (e) Conforming Amendments.--
       (1) Section 877 is amended by adding at the end the 
     following new subsection:
       ``(g) Application.--This section shall not apply to an 
     expatriate (as defined in section 877A(e)) whose expatriation 
     date (as so defined) occurs on or after January 1, 2004.''.
       (2) Section 2107 is amended by adding at the end the 
     following new subsection:
       ``(f) Application.--This section shall not apply to any 
     expatriate subject to section 877A.''.
       (3) Section 2501(a)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(F) Application.--This paragraph shall not apply to any 
     expatriate subject to section 877A.''.
       (4)(A) Paragraph (1) of section 6039G(d) is amended by 
     inserting ``or 877A'' after ``section 877''.
       (B) The second sentence of section 6039G(e) is amended by 
     inserting ``or who relinquishes United States citizenship 
     (within the meaning of section 877A(e)(3))'' after 
     ``877(a))''.
       (C) Section 6039G(f) is amended by inserting ``or 
     877A(e)(2)(B)'' after ``877(e)(1)''.
       (f) Clerical Amendment.--The table of sections for subpart 
     A of part II of subchapter N of chapter 1 is amended by 
     inserting after the item relating to section 877 the 
     following new item:

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

       (g) Effective Date.--
       (1) In general.--Except as provided in this subsection, the 
     amendments made by this section shall apply to expatriates 
     (within the meaning of section 877A(e) of the Internal 
     Revenue Code of 1986, as added by this section) whose 
     expatriation date (as so defined) occurs on or after January 
     1, 2004.
       (2) Gifts and bequests.--Section 102(d) of the Internal 
     Revenue Code of 1986 (as added by subsection (b)) shall apply 
     to gifts and bequests received on or after January 1, 2004, 
     from an individual or the estate of an individual whose 
     expatriation date (as so defined) occurs after such date.
       (3) Due date for tentative tax.--The due date under section 
     877A(h)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall in no event occur before the 90th day 
     after the date of the enactment of this Act.

     SEC. 443. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN 
                   INVERTED CORPORATIONS.

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

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

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

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

       ``(a) Imposition of Tax.--In the case of an individual who 
     is a disqualified individual with respect to any inverted 
     corporation, there is hereby imposed on such person a tax 
     equal to 20 percent of the value (determined under subsection 
     (b)) of the specified stock compensation held (directly or 
     indirectly) by or for the benefit of such individual or a 
     member of such individual's family (as defined in section 
     267) at any time during the 12-month period beginning on the 
     date which is 6 months before the inversion date.
       ``(b) Value.--For purposes of subsection (a)--
       ``(1) In general.--The value of specified stock 
     compensation shall be--
       ``(A) in the case of a stock option (or other similar 
     right) or any stock appreciation right, the fair value of 
     such option or right, and
       ``(B) in any other case, the fair market value of such 
     compensation.
       ``(2) Date for determining value.--The determination of 
     value shall be made--
       ``(A) in the case of specified stock compensation held on 
     the inversion date, on such date,
       ``(B) in the case of such compensation which is canceled 
     during the 6 months before the inversion date, on the day 
     before such cancellation, and
       ``(C) in the case of such compensation which is granted 
     after the inversion date, on the date such compensation is 
     granted.
       ``(c) Tax To Apply Only if Shareholder Gain Recognized.--
     Subsection (a) shall apply to any disqualified individual 
     with respect to an inverted corporation only if gain (if any) 
     on any stock in such corporation is recognized in whole or 
     part by any shareholder by reason of the acquisition referred 
     to in section 7874(a)(2)(A) (determined by substituting `July 
     10, 2002' for `March 20, 2002') with respect to such 
     corporation.
       ``(d) Exception Where Gain Recognized on Compensation.--
     Subsection (a) shall not apply to--
       ``(1) any stock option which is exercised on the inversion 
     date or during the 6-month period before such date and to the 
     stock acquired in such exercise, if income is recognized 
     under section 83 on or before the inversion date with respect 
     to the stock acquired pursuant to such exercise, and
       ``(2) any specified stock compensation which is exercised, 
     sold, exchanged, distributed, cashed out, or otherwise paid 
     during such period in a transaction in which gain or loss is 
     recognized in full.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Disqualified individual.--The term `disqualified 
     individual' means, with respect to a corporation, any 
     individual who, at any time during the 12-month period 
     beginning on the date which is 6 months before the inversion 
     date--
       ``(A) is subject to the requirements of section 16(a) of 
     the Securities Exchange Act of 1934 with respect to such 
     corporation, or
       ``(B) would be subject to such requirements if such 
     corporation were an issuer of equity securities referred to 
     in such section.
       ``(2) Inverted corporation; inversion date.--
       ``(A) Inverted corporation.--The term `inverted 
     corporation' means any corporation to which subsection (a) or 
     (b) of section 7874 applies determined--
       ``(i) by substituting `July 10, 2002' for `March 20, 2002' 
     in section 7874(a)(2)(A), and
       ``(ii) without regard to subsection (b)(1)(A).
     Such term includes any predecessor or successor of such a 
     corporation.
       ``(B) Inversion date.--The term `inversion date' means, 
     with respect to a corporation, the date on which the 
     corporation first becomes an inverted corporation.
       ``(3) Specified stock compensation.--
       ``(A) In general.--The term `specified stock compensation' 
     means payment (or right to payment) granted by the inverted 
     corporation (or by any member of the expanded affiliated 
     group which includes such corporation) to any person in 
     connection with the performance of services by a disqualified 
     individual for such corporation or member if the value of 
     such payment or right is based on (or determined by reference 
     to) the value (or change in value) of stock in such 
     corporation (or any such member).
       ``(B) Exceptions.--Such term shall not include--
       ``(i) any option to which part II of subchapter D of 
     chapter 1 applies, or
       ``(ii) any payment or right to payment from a plan referred 
     to in section 280G(b)(6).
       ``(4) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group (as defined in 
     section 1504(a) without regard to section 1504(b)(3)); except

[[Page 4756]]

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

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

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

     SEC. 444. REINSURANCE OF UNITED STATES RISKS IN FOREIGN 
                   JURISDICTIONS.

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

     SEC. 445. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 61 is amended by inserting after section 6043 the 
     following new section:

     ``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.

       ``(a) In General.--The acquiring corporation in any taxable 
     acquisition shall make a return (according to the forms or 
     regulations prescribed by the Secretary) setting forth--
       ``(1) a description of the acquisition,
       ``(2) the name and address of each shareholder of the 
     acquired corporation who is required to recognize gain (if 
     any) as a result of the acquisition,
       ``(3) the amount of money and the fair market value of 
     other property transferred to each such shareholder as part 
     of such acquisition, and
       ``(4) such other information as the Secretary may 
     prescribe.

     To the extent provided by the Secretary, the requirements of 
     this section applicable to the acquiring corporation shall be 
     applicable to the acquired corporation and not to the 
     acquiring corporation.
       ``(b) Nominee Reporting.--Any person who holds stock as a 
     nominee for another person shall furnish in the manner 
     prescribed by the Secretary to such other person the 
     information provided by the corporation under subsection (d).
       ``(c) Taxable Acquisition.--For purposes of this section, 
     the term `taxable acquisition' means any acquisition by a 
     corporation of stock in or property of another corporation if 
     any shareholder of the acquired corporation is required to 
     recognize gain (if any) as a result of such acquisition.
       ``(d) Statements To Be Furnished to Shareholders.--Every 
     person required to make a return under subsection (a) shall 
     furnish to each shareholder whose name is required to be set 
     forth in such return a written statement showing--
       ``(1) the name, address, and phone number of the 
     information contact of the person required to make such 
     return,
       ``(2) the information required to be shown on such return 
     with respect to such shareholder, and
       ``(3) such other information as the Secretary may 
     prescribe.

     The written statement required under the preceding sentence 
     shall be furnished to the shareholder on or before January 31 
     of the year following the calendar year during which the 
     taxable acquisition occurred.''.
       (b) Assessable Penalties.--
       (1) Subparagraph (B) of section 6724(d)(1) (relating to 
     definitions) is amended by redesignating clauses (ii) through 
     (xvii) as clauses (iii) through (xviii), respectively, and by 
     inserting after clause (i) the following new clause:
       ``(ii) section 6043A(a) (relating to returns relating to 
     taxable mergers and acquisitions),''.
       (2) Paragraph (2) of section 6724(d) is amended by 
     redesignating subparagraphs (F) through (AA) as subparagraphs 
     (G) through (BB), respectively, and by inserting after 
     subparagraph (E) the following new subparagraph:
       ``(F) subsections (b) and (d) of section 6043A (relating to 
     returns relating to taxable mergers and acquisitions).''.
       (c) Clerical Amendment.--The table of sections for subpart 
     B of part III of subchapter A of chapter 61 is amended by 
     inserting after the item relating to section 6043 the 
     following new item:

``Sec. 6043A. Returns relating to taxable mergers and acquisitions.''.

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

                     Subtitle E--International Tax

     SEC. 451. CLARIFICATION OF BANKING BUSINESS FOR PURPOSES OF 
                   DETERMINING INVESTMENT OF EARNINGS IN UNITED 
                   STATES PROPERTY.

       (a) In General.--Subparagraph (A) of section 956(c)(2) is 
     amended to read as follows:
       ``(A) obligations of the United States, money, or deposits 
     with--
       ``(i) any bank (as defined by section 2(c) of the Bank 
     Holding Company Act of 1956 (12 U.S.C. 1841(c)), without 
     regard to subparagraphs (C) and (G) of paragraph (2) of such 
     section), or
       ``(ii) any corporation not described in clause (i) with 
     respect to which a bank holding company (as defined by 
     section 2(a) of such Act) or financial holding company (as 
     defined by section 2(p) of such Act) owns directly or 
     indirectly more than 80 percent by vote or value of the stock 
     of such corporation;''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 452. PROHIBITION ON NONRECOGNITION OF GAIN THROUGH 
                   COMPLETE LIQUIDATION OF HOLDING COMPANY.

       (a) In General.--Section 332 is amended by adding at the 
     end the following new subsection:
       ``(d) Recognition of Gain on Liquidation of Certain Holding 
     Companies.--
       ``(1) In general.--In the case of any distribution to a 
     foreign corporation in complete liquidation of an applicable 
     holding company--
       ``(A) subsection (a) and section 331 shall not apply to 
     such distribution, and
       ``(B) such distribution shall be treated as a distribution 
     to which section 301 applies.
       ``(2) Applicable holding company.--For purposes of this 
     subsection--
       ``(A) In general.--The term `applicable holding company' 
     means any domestic corporation--
       ``(i) which is a common parent of an affiliated group,
       ``(ii) stock of which is directly owned by the distributee 
     foreign corporation,
       ``(iii) substantially all of the assets of which consist of 
     stock in other members of such affiliated group, and
       ``(iv) which has not been in existence at all times during 
     the 5 years immediately preceding the date of the 
     liquidation.
       ``(B) Affiliated group.--For purposes of this subsection, 
     the term `affiliated group' has the meaning given such term 
     by section 1504(a) (without regard to paragraphs (2) and (4) 
     0f section 1504(b)).
       ``(3) Coordination with subpart f.--If the distributee of a 
     distribution described in paragraph (1) is a controlled 
     foreign corporation (as defined in section 957), then 
     notwithstanding paragraph (1) or subsection (a), such 
     distribution shall be treated as a distribution to which 
     section 331 applies.
       ``(4) Regulations.--The Secretary shall provide such 
     regulations as appropriate to prevent the abuse of this 
     subsection, including regulations which provide, for the 
     purposes of clause (iv) of paragraph (2)(A), that

[[Page 4757]]

     a corporation is not in existence for any period unless it is 
     engaged in the active conduct of a trade or business or owns 
     a significant ownership interest in another corporation so 
     engaged.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in complete liquidation 
     occurring on or after the date of the enactment of this Act.

     SEC. 453. PREVENTION OF MISMATCHING OF INTEREST AND ORIGINAL 
                   ISSUE DISCOUNT DEDUCTIONS AND INCOME INCLUSIONS 
                   IN TRANSACTIONS WITH RELATED FOREIGN PERSONS.

       (a) Original Issue Discount.--Section 163(e)(3) (relating 
     to special rule for original issue discount on obligation 
     held by related foreign person) is amended by redesignating 
     subparagraph (B) as subparagraph (C) and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
       ``(i) In general.--In the case of any debt instrument 
     having original issue discount which is held by a related 
     foreign person which is a foreign personal holding company 
     (as defined in section 552), a controlled foreign corporation 
     (as defined in section 957), or a passive foreign investment 
     company (as defined in section 1297), a deduction shall be 
     allowable to the issuer with respect to such original issue 
     discount for any taxable year before the taxable year in 
     which paid only to the extent such original issue discount 
     (reduced by properly allowable deductions and qualified 
     deficits under section 952(c)(1)(B)) is includible during 
     such prior taxable year in the gross income of a United 
     States person who owns (within the meaning of section 958(a)) 
     stock in such corporation.
       ``(ii) Secretarial authority.--The Secretary may by 
     regulation exempt transactions from the application of clause 
     (i), including any transaction which is entered into by a 
     payor in the ordinary course of a trade or business in which 
     the payor is predominantly engaged.''.
       (b) Interest and Other Deductible Amounts.--Section 
     267(a)(3) is amended--
       (1) by striking ``The Secretary'' and inserting:
       ``(A) In general.--The Secretary'', and
       (2) by adding at the end the following new subparagraph:
       ``(B) Special rule for certain foreign entities.--
       ``(i) In general.--Notwithstanding subparagraph (A), in the 
     case of any item payable to a foreign personal holding 
     company (as defined in section 552), a controlled foreign 
     corporation (as defined in section 957), or a passive foreign 
     investment company (as defined in section 1297), a deduction 
     shall be allowable to the payor with respect to such amount 
     for any taxable year before the taxable year in which paid 
     only to the extent that an amount attributable to such item 
     (reduced by properly allowable deductions and qualified 
     deficits under section 952(c)(1)(B)) is includible during 
     such prior taxable year in the gross income of a United 
     States person who owns (within the meaning of section 958(a)) 
     stock in such corporation.
       ``(ii) Secretarial authority.--The Secretary may by 
     regulation exempt transactions from the application of clause 
     (i), including any transaction which is entered into by a 
     payor in the ordinary course of a trade or business in which 
     the payor is predominantly engaged and in which the payment 
     of the accrued amounts occurs within 8\1/2\ months after 
     accrual or within such other period as the Secretary may 
     prescribe.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments accrued on or after the date of the 
     enactment of this Act.

     SEC. 454. EFFECTIVELY CONNECTED INCOME TO INCLUDE CERTAIN 
                   FOREIGN SOURCE INCOME.

       (a) In General.--Section 864(c)(4)(B) (relating to 
     treatment of income from sources without the United States as 
     effectively connected income) is amended by adding at the end 
     the following new flush sentence:

     ``Any income or gain which is equivalent to any item of 
     income or gain described in clause (i), (ii), or (iii) shall 
     be treated in the same manner as such item for purposes of 
     this subparagraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 455. RECAPTURE OF OVERALL FOREIGN LOSSES ON SALE OF 
                   CONTROLLED FOREIGN CORPORATION.

       (a) In General.--Section 904(f)(3) (relating to 
     dispositions) is amending by adding at the end the following 
     new subparagraph:
       ``(D) Application to certain dispositions of stock in 
     controlled foreign corporation.--
       ``(i) In general.--This paragraph shall apply to an 
     applicable disposition in the same manner as if it were a 
     disposition of property described in subparagraph (A), except 
     that the exception contained in subparagraph (C)(i) shall not 
     apply.
       ``(ii) Applicable disposition.--For purposes of clause (i), 
     the term `applicable disposition' means any disposition of 
     any share of stock in a controlled foreign corporation in a 
     transaction or series of transactions if, immediately before 
     such transaction or series of transactions, the taxpayer 
     owned more than 50 percent (by vote or value) of the stock of 
     the controlled foreign corporation.
       ``(iii) Exception.--A disposition shall not be treated as 
     an applicable disposition under clause (ii) if it is part of 
     a transaction or series of transactions--

       ``(I) to which section 351 or 721 applies, or under which 
     the transferor receives stock in a foreign corporation in 
     exchange for the stock in the controlled foreign corporation 
     and the stock received is exchanged basis property (as 
     defined in section 7701(a)(44)), and
       ``(II) immediately after which, the transferor owns (by 
     vote or value) at least the same percentage of stock in the 
     controlled foreign corporation (or, if the controlled foreign 
     corporation is not in existence after such transaction or 
     series of transactions, in another foreign corporation stock 
     in which was received by the transferor in exchange for stock 
     in the controlled foreign corporation) as the percentage of 
     stock in the controlled foreign corporation which the 
     taxpayer owned immediately before such transaction or series 
     of transactions.

     Clause (i) shall apply to any gain recognized on any 
     disposition to which this clause applies.
       ``(iv) Controlled foreign corporation.--For purposes of 
     this subparagraph, the term `controlled foreign corporation' 
     has the meaning given such term by section 957.
       ``(v) Stock ownership.--For purposes of this subparagraph, 
     ownership of stock shall be determined under the rules of 
     subsections (a) and (b) of section 958.
       (b) Effective Date.--The amendment made by this section 
     shall apply to dispositions after the date of the enactment 
     of this Act.

     SEC. 456. MINIMUM HOLDING PERIOD FOR FOREIGN TAX CREDIT ON 
                   WITHHOLDING TAXES ON INCOME OTHER THAN 
                   DIVIDENDS.

       (a) In General.--Section 901 is amended by redesignating 
     subsection (l) as subsection (m) and by inserting after 
     subsection (k) the following new subsection:
       ``(l) Minimum Holding Period for Withholding Taxes on Gain 
     and Income Other Than Dividends etc.--
       ``(1) In general.--In no event shall a credit be allowed 
     under subsection (a) for any withholding tax (as defined in 
     subsection (k)) on any item of income or gain with respect to 
     any property if--
       ``(A) such property is held by the recipient of the item 
     for 15 days or less during the 30-day period beginning on the 
     date which is 15 days before the date on which the right to 
     receive payment of such item arises, or
       ``(B) to the extent that the recipient of the item is under 
     an obligation (whether pursuant to a short sale or otherwise) 
     to make related payments with respect to positions in 
     substantially similar or related property.

     This paragraph shall not apply to any dividend to which 
     subsection (k) applies.
       ``(2) Exception for taxes paid by dealers.--
       ``(A) In general.--Paragraph (1) shall not apply to any 
     qualified tax with respect to any property held in the active 
     conduct in a foreign country of a business as a dealer in 
     such property.
       ``(B) Qualified tax.--For purposes of subparagraph (A), the 
     term `qualified tax' means a tax paid to a foreign country 
     (other than the foreign country referred to in subparagraph 
     (A)) if--
       ``(i) the item to which such tax is attributable is subject 
     to taxation on a net basis by the country referred to in 
     subparagraph (A), and
       ``(ii) such country allows a credit against its net basis 
     tax for the full amount of the tax paid to such other foreign 
     country.
       ``(C) Dealer.--For purposes of subparagraph (A), the term 
     `dealer' means--
       ``(i) with respect to a security, any person to whom 
     paragraphs (1) and (2) of subsection (k) would not apply by 
     reason of paragraph (4) thereof if such security were stock, 
     and
       ``(ii) with respect to any other property, any person with 
     respect to whom such property is described in section 
     1221(a)(1).
       ``(D) Regulations.--The Secretary may prescribe such 
     regulations as may be appropriate to carry out this 
     paragraph, including regulations to prevent the abuse of the 
     exception provided by this paragraph and to treat other taxes 
     as qualified taxes.
       ``(3) Exceptions.--The Secretary may by regulation provide 
     that paragraph (1) shall not apply to property where the 
     Secretary determines that the application of paragraph (1) to 
     such property is not necessary to carry out the purposes of 
     this subsection.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (5), (6), and (7) of subsection (k) shall apply 
     for purposes of this subsection.
       ``(5) Determination of holding period.--Holding periods 
     shall be determined for purposes of this subsection without 
     regard to section 1235 or any similar rule.''.
       (b) Conforming Amendment.--The heading of subsection (k) of 
     section 901 is amended by inserting ``on Dividends'' after 
     ``Taxes''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued more than 30 days 
     after the date of the enactment of this Act.

[[Page 4758]]



                  Subtitle F--Other Revenue Provisions

                     PART I--FINANCIAL INSTRUMENTS

     SEC. 461. TREATMENT OF STRIPPED INTERESTS IN BOND AND 
                   PREFERRED STOCK FUNDS, ETC.

       (a) In General.--Section 1286 (relating to tax treatment of 
     stripped bonds) is amended by redesignating subsection (f) as 
     subsection (g) and by inserting after subsection (e) the 
     following new subsection:
       ``(f) Treatment of Stripped Interests in Bond and Preferred 
     Stock Funds, etc.--In the case of an account or entity 
     substantially all of the assets of which consist of bonds, 
     preferred stock, or a combination thereof, the Secretary may 
     by regulations provide that rules similar to the rules of 
     this section and 305(e), as appropriate, shall apply to 
     interests in such account or entity to which (but for this 
     subsection) this section or section 305(e), as the case may 
     be, would not apply.''.
       (b) Cross Reference.--Subsection (e) of section 305 is 
     amended by adding at the end the following new paragraph:
       ``(7) Cross reference.--

  ``For treatment of stripped interests in certain accounts or entities 
holding preferred stock, see section 1286(f).''.

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

     SEC. 462. APPLICATION OF EARNINGS STRIPPING RULES TO 
                   PARTNERSHIPS AND S CORPORATIONS.

       (a) In General.--Section 168(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     redesignating paragraph (8) as paragraph (9) and by inserting 
     after paragraph (7) the following new paragraph:
       ``(8) Application to partnerships and s corporations.--
       ``(A) In general.--This subsection shall apply to 
     partnerships and S corporations in the same manner as it 
     applies to C corporations.
       ``(B) Allocations to certain corporate partners.--If a C 
     corporation is a partner in a partnership--
       ``(i) the corporation's allocable share of indebtedness and 
     interest income of the partnership shall be taken into 
     account in applying this subsection to the corporation, and
       ``(ii) if a deduction is not disallowed under this 
     subsection with respect to any interest expense of the 
     partnership, this subsection shall be applied separately in 
     determining whether a deduction is allowable to the 
     corporation with respect to the corporation's allocable share 
     of such interest expense.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 463. RECOGNITION OF CANCELLATION OF INDEBTEDNESS INCOME 
                   REALIZED ON SATISFACTION OF DEBT WITH 
                   PARTNERSHIP INTEREST.

       (a) In General.--Paragraph (8) of section 108(e) (relating 
     to general rules for discharge of indebtedness (including 
     discharges not in title 11 cases or insolvency)) is amended 
     to read as follows:
       ``(8) Indebtedness satisfied by corporate stock or 
     partnership interest.--For purposes of determining income of 
     a debtor from discharge of indebtedness, if--
       ``(A) a debtor corporation transfers stock, or
       ``(B) a debtor partnership transfers a capital or profits 
     interest in such partnership,

     to a creditor in satisfaction of its recourse or nonrecourse 
     indebtedness, such corporation or partnership shall be 
     treated as having satisfied the indebtedness with an amount 
     of money equal to the fair market value of the stock or 
     interest. In the case of any partnership, any discharge of 
     indebtedness income recognized under this paragraph shall be 
     included in the distributive shares of taxpayers which were 
     the partners in the partnership immediately before such 
     discharge.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to cancellations of indebtedness 
     occurring on or after the date of the enactment of this Act.

     SEC. 464. MODIFICATION OF STRADDLE RULES.

       (a) Rules Relating to Identified Straddles.--
       (1) In general.--Subparagraph (A) of section 1092(a)(2) 
     (relating to special rule for identified straddles) is 
     amended to read as follows:
       ``(A) In general.--In the case of any straddle which is an 
     identified straddle--
       ``(i) paragraph (1) shall not apply with respect to 
     identified positions comprising the identified straddle,
       ``(ii) if there is any loss with respect to any identified 
     position of the identified straddle, the basis of each of the 
     identified offsetting positions in the identified straddle 
     shall be increased by an amount which bears the same ratio to 
     the loss as the unrecognized gain with respect to such 
     offsetting position bears to the aggregate unrecognized gain 
     with respect to all such offsetting positions, and
       ``(iii) any loss described in clause (ii) shall not 
     otherwise be taken into account for purposes of this 
     title.''.
       (2) Identified straddle.--Section 1092(a)(2)(B) (defining 
     identified straddle) is amended--
       (A) by striking clause (ii) and inserting the following:
       ``(ii) to the extent provided by regulations, the value of 
     each position of which (in the hands of the taxpayer 
     immediately before the creation of the straddle) is not less 
     than the basis of such position in the hands of the taxpayer 
     at the time the straddle is created, and'', and
       (B) by adding at the end the following new flush sentence:

     ``The Secretary shall prescribe regulations which specify the 
     proper methods for clearly identifying a straddle as an 
     identified straddle (and the positions comprising such 
     straddle), which specify the rules for the application of 
     this section for a taxpayer which fails to properly identify 
     the positions of an identified straddle, and which specify 
     the ordering rules in cases where a taxpayer disposes of less 
     than an entire position which is part of an identified 
     straddle.''.
       (3) Unrecognized gain.--Section 1092(a)(3) (defining 
     unrecognized gain) is amended by redesignating subparagraph 
     (B) as subparagraph (C) and by inserting after subparagraph 
     (A) the following new subparagraph:
       ``(B) Special rule for identified straddles.--For purposes 
     of paragraph (2)(A)(ii), the unrecognized gain with respect 
     to any identified offsetting position shall be the excess of 
     the fair market value of the position at the time of the 
     determination over the fair market value of the position at 
     the time the taxpayer identified the position as a position 
     in an identified straddle.''.
       (4) Conforming amendment.--Section 1092(c)(2) is amended by 
     striking subparagraph (B) and by redesignating subparagraph 
     (C) as subparagraph (B).
       (b) Physically Settled Positions.--Section 1092(d) 
     (relating to definitions and special rules) is amended by 
     adding at the end the following new paragraph:
       ``(8) Special rules for physically settled positions.--For 
     purposes of subsection (a), if a taxpayer settles a position 
     which is part of a straddle by delivering property to which 
     the position relates (and such position, if terminated, would 
     result in a realization of a loss), then such taxpayer shall 
     be treated as if such taxpayer--
       ``(A) terminated the position for its fair market value 
     immediately before the settlement, and
       ``(B) sold the property so delivered by the taxpayer at its 
     fair market value.''.
       (c) Repeal of Stock Exception.--
       (1) In general.--Paragraph (3) of section 1092(d) (relating 
     to definitions and special rules) is amended to read as 
     follows:
       ``(3) Special rules for stock.--For purposes of paragraph 
     (1)--
       ``(A) In general.--The term `personal property' includes--
       ``(i) any stock which is a part of a straddle at least 1 of 
     the offsetting positions of which is a position with respect 
     to such stock or substantially similar or related property, 
     or
       ``(ii) any stock of a corporation formed or availed of to 
     take positions in personal property which offset positions 
     taken by any shareholder.
       ``(B) Rule for application.--For purposes of determining 
     whether subsection (e) applies to any transaction with 
     respect to stock described in subparagraph (A)(ii), all 
     includible corporations of an affiliated group (within the 
     meaning of section 1504(a)) shall be treated as 1 
     taxpayer.''.
       (2) Conforming amendment.--Section 1258(d)(1) is amended by 
     striking ``; except that the term `personal property' shall 
     include stock''.
       (d) Modifications of Qualified Covered Call Exception.--
       (1) Markets on which options may be traded.--
       (A) In general.--Section 1092(c)(4)(B)(i) is amended by 
     striking ``or other market which the Secretary determines has 
     rules adequate to carry out the purposes of this paragraph''.
       (B) Regulations.--Section 1092(c)(4)(H) is amended by 
     adding at the end the following new sentence: ``Such 
     regulations shall not add any exchange or market not 
     described in subparagraph (B)(i) to the exchanges or markets 
     on which qualified covered call options may be traded.''
       (2) Holding period for dividend exclusion.--The last 
     sentence of section 246(c) is amended by inserting: ``, other 
     than a qualified covered call option to which section 1092(f) 
     applies'' before the period at the end.
       (e) Effective Date.--The amendments made by this section 
     shall apply to positions established on or after the date of 
     the enactment of this Act.

     SEC. 465. DENIAL OF INSTALLMENT SALE TREATMENT FOR ALL 
                   READILY TRADEABLE DEBT.

       (a) In General.--Section 453(f)(4)(B) (relating to 
     purchaser evidences of indebtedness payable on demand or 
     readily tradeable) is amended by striking ``is issued by a 
     corporation or a government or political subdivision thereof 
     and''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales occurring on or after the date of the 
     enactment of this Act.

[[Page 4759]]



                 PART II--CORPORATIONS AND PARTNERSHIPS

     SEC. 466. MODIFICATION OF TREATMENT OF TRANSFERS TO CREDITORS 
                   IN DIVISIVE REORGANIZATIONS.

       (a) In General.--Section 361(b)(3) (relating to treatment 
     of transfers to creditors) is amended by adding at the end 
     the following new sentence: ``In the case of a reorganization 
     described in section 368(a)(1)(D) with respect to which stock 
     or securities of the corporation to which the assets are 
     transferred are distributed in a transaction which qualifies 
     under section 355, this paragraph shall apply only to the 
     extent that the sum of the money and the fair market value of 
     other property transferred to such creditors does not exceed 
     the adjusted bases of such assets transferred.''.
       (b) Liabilities in Excess of Basis.--Section 357(c)(1)(B) 
     is amended by inserting ``with respect to which stock or 
     securities of the corporation to which the assets are 
     transferred are distributed in a transaction which qualifies 
     under section 355'' after ``section 368(a)(1)(D)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transfers of money or other property, or 
     liabilities assumed, in connection with a reorganization 
     occurring on or after the date of the enactment of this Act.

     SEC. 467. CLARIFICATION OF DEFINITION OF NONQUALIFIED 
                   PREFERRED STOCK.

       (a) In General.--Section 351(g)(3)(A) is amended by adding 
     at the end the following: ``Stock shall not be treated as 
     participating in corporate growth to any significant extent 
     unless there is a real and meaningful likelihood of the 
     shareholder actually participating in the earnings and growth 
     of the corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to transactions after May 14, 2003.

     SEC. 468. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF 
                   CORPORATIONS.

       (a) In General.--Section 1563(a)(2) (relating to brother-
     sister controlled group) is amended by striking 
     ``possessing--'' and all that follows through ``(B)'' and 
     inserting ``possessing''.
       (b) Application of Existing Rules to Other Code 
     Provisions.--Section 1563(f) (relating to other definitions 
     and rules) is amended by adding at the end the following new 
     paragraph:
       ``(5) Brother-sister controlled group definition for 
     provisions other than this part.--
       ``(A) In general.--Except as specifically provided in an 
     applicable provision, subsection (a)(2) shall be applied to 
     an applicable provision as if it read as follows:
       `(2) Brother-sister controlled group.--Two or more 
     corporations if 5 or fewer persons who are individuals, 
     estates, or trusts own (within the meaning of subsection 
     (d)(2) stock possessing--
       `(A) at least 80 percent of the total combined voting power 
     of all classes of stock entitled to vote, or at least 80 
     percent of the total value of shares of all classes of stock, 
     of each corporation, and
       `(B) more than 50 percent of the total combined voting 
     power of all classes of stock entitled to vote or more than 
     50 percent of the total value of shares of all classes of 
     stock of each corporation, taking into account the stock 
     ownership of each such person only to the extent such stock 
     ownership is identical with respect to each such 
     corporation.'
       ``(B) Applicable provision.--For purposes of this 
     paragraph, an applicable provision is any provision of law 
     (other than this part) which incorporates the definition of 
     controlled group of corporations under subsection (a).''.
       (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. 469. MANDATORY BASIS ADJUSTMENTS IN CONNECTION WITH 
                   PARTNERSHIP DISTRIBUTIONS AND TRANSFERS OF 
                   PARTNERSHIP INTERESTS.

       (a) In General.--Section 754 is repealed.
       (b) Adjustment to Basis of Undistributed Partnership 
     Property.--Section 734 is amended--
       (1) by striking ``, with respect to which the election 
     provided in section 754 is in effect,'' in the matter 
     preceding paragraph (1) of subsection (b),
       (2) by striking ``(as adjusted by section 732(d))'' both 
     places it appears in subsection (b),
       (3) by striking the last sentence of subsection (b),
       (4) by striking subsection (a) and by redesignating 
     subsections (b) and (c) as subsections (a) and (b), 
     respectively, and
       (5) by striking ``optional'' in the heading.
       (c) Adjustment to Basis of Partnership Property.--Section 
     743 is amended--
       (1) by striking ``with respect to which the election 
     provided in section 754 is in effect'' in the matter 
     preceding paragraph (1) of subsection (b),
       (2) by striking subsection (a) and by redesignating 
     subsections (b) and (c) as subsections (a) and (b), 
     respectively,
       (3) by adding at the end the following new subsection:
       ``(c) Election To Adjust Basis for Transfers Upon Death of 
     Partner.--Subsection (a) shall not apply and no adjustments 
     shall be made in the case of any transfer of an interest in a 
     partnership upon the death of a partner unless an election to 
     do so is made by the partnership. Such an election shall 
     apply with respect to all such transfers of interests in the 
     partnership. Any election under section 754 in effect on the 
     date of the enactment of this subsection shall constitute an 
     election made under this subsection. Such election may be 
     revoked by the partnership, subject to such limitations as 
     may be provided by regulations prescribed by the 
     Secretary.'', and
       (4) by striking ``optional'' in the heading.
       (d) Conforming Amendments.--
       (1) Subsection (d) of section 732 is repealed.
       (2) Section 755(a) is amended--
       (A) by striking ``section 734(b) (relating to the optional 
     adjustment'' and inserting ``section 734(a) (relating to the 
     adjustment'', and
       (B) by striking ``section 743(b) (relating to the optional 
     adjustment'' and inserting ``section 743(a) (relating to the 
     adjustment''.
       (3) Section 755(c), as added by this Act, is amended by 
     striking ``section 734(b)'' and inserting ``section 734(a)''.
       (4) Section 761(e)(2) is amended by striking ``optional''.
       (5) Section 774(a) is amended by striking ``743(b)'' both 
     places it appears and inserting ``743(a)''.
       (6) The item relating to section 734 in the table of 
     sections for subpart B of part II of subchapter K of chapter 
     1 is amended by striking ``Optional''.
       (7) The item relating to section 743 in the table of 
     sections for subpart C of part II of subchapter K of chapter 
     1 is amended by striking ``Optional''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to transfers and 
     distributions made after the date of the enactment of this 
     Act.
       (2) Repeal of section 732(d).--The amendments made by 
     subsections (b)(2) and (d)(1) shall apply to--
       (A) except as provided in subparagraph (B), transfers made 
     after the date of the enactment of this Act, and
       (B) in the case of any transfer made on or before such date 
     to which section 732(d) applies, distributions made after the 
     date which is 2 years after such date of enactment.

                PART III--DEPRECIATION AND AMORTIZATION

     SEC. 471. EXTENSION OF AMORTIZATION OF INTANGIBLES TO SPORTS 
                   FRANCHISES.

       (a) In General.--Section 197(e) (relating to exceptions to 
     definition of section 197 intangible) is amended by striking 
     paragraph (6) and by redesignating paragraphs (7) and (8) as 
     paragraphs (6) and (7), respectively.
       (b) Conforming Amendments.--
       (1)(A) Section 1056 (relating to basis limitation for 
     player contracts transferred in connection with the sale of a 
     franchise) is repealed.
       (B) The table of sections for part IV of subchapter O of 
     chapter 1 is amended by striking the item relating to section 
     1056.
       (2) Section 1245(a) (relating to gain from disposition of 
     certain depreciable property) is amended by striking 
     paragraph (4).
       (3) Section 1253 (relating to transfers of franchises, 
     trademarks, and trade names) is amended by striking 
     subsection (e).
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to property 
     acquired after the date of the enactment of this Act.
       (2) Section 1245.--The amendment made by subsection (b)(2) 
     shall apply to franchises acquired after the date of the 
     enactment of this Act.

     SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.

       (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 
     15-year property) 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) initial clearing and grading land improvements with 
     respect to gas utility property.''.
       (b) Electric Utility Property.--Section 168(e)(3) is 
     amended by adding at the end the following new subparagraph:
       ``(F) 20-year property.--The term `20-year property' means 
     initial clearing and grading land improvements with respect 
     to any electric utility transmission and distribution 
     plant.''.
       (c) Conforming Amendments.--The table contained in section 
     168(g)(3)(B) is amended--
       (1) by inserting ``or (E)(iv)'' after ``(E)(iii)'', and
       (2) by adding at the end the following new item:

  ``(F).......................................................25''.....

       (d) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 473. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN 
                   PASSENGER AUTOMOBILES.

       (a) In General.--Section 179(b) of the Internal Revenue 
     Code of 1986 (relating to limitations) is amended by adding 
     at the end the following new paragraph:

[[Page 4760]]

       ``(6) Limitation on cost taken into account for certain 
     passenger vehicles.--
       ``(A) In general.--The cost of any sport utility vehicle 
     for any taxable year which may be taken into account under 
     this section shall not exceed $25,000.
       ``(B) Sport utility vehicle.--For purposes of subparagraph 
     (A)--
       ``(i) In general.--The term `sport utility vehicle' means 
     any 4-wheeled vehicle--

       ``(I) which is primarily designed or which can be used to 
     carry passengers over public streets, roads, or highways 
     (except any vehicle operated exclusively on a rail or rails),
       ``(II) which is not subject to section 280F, and
       ``(III) which is rated at not more than 14,000 pounds gross 
     vehicle weight.

       ``(ii) Certain vehicles excluded.--Such term does not 
     include any vehicle which--

       ``(I) is designed to have a seating capacity of more than 9 
     persons behind the driver's seat,
       ``(II) is equipped with a cargo area of at least 6 feet in 
     interior length which is an open area or is designed for use 
     as an open area but is enclosed by a cap and is not readily 
     accessible directly from the passenger compartment, or
       ``(III) has an integral enclosure, fully enclosing the 
     driver compartment and load carrying device, does not have 
     seating rearward of the driver's seat, and has no body 
     section protruding more than 30 inches ahead of the leading 
     edge of the windshield.''.

       (b) Effective Date.--The amendment made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 474. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

       (a) Start-Up Expenditures.--
       (1) Allowance of deduction.--Paragraph (1) of section 
     195(b) (relating to start-up expenditures) is amended to read 
     as follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection with respect to any start-up 
     expenditures--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the active trade or business begins in 
     an amount equal to the lesser of--
       ``(i) the amount of start-up expenditures with respect to 
     the active trade or business, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such start-up expenditures exceed $50,000, and
       ``(B) the remainder of such start-up expenditures shall be 
     allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the active trade or 
     business begins.''.
       (2) Conforming amendment.--Subsection (b) of section 195 is 
     amended by striking ``Amortize'' and inserting ``Deduct'' in 
     the heading.
       (b) Organizational Expenditures.--Subsection (a) of section 
     248 (relating to organizational expenditures) is amended to 
     read as follows:
       ``(a) Election to Deduct.--If a corporation elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenditures--
       ``(1) the corporation shall be allowed a deduction for the 
     taxable year in which the corporation begins business in an 
     amount equal to the lesser of--
       ``(A) the amount of organizational expenditures with 
     respect to the taxpayer, or
       ``(B) $5,000, reduced (but not below zero) by the amount by 
     which such organizational expenditures exceed $50,000, and
       ``(2) the remainder of such organizational expenditures 
     shall be allowed as a deduction ratably over the 180-month 
     period beginning with the month in which the corporation 
     begins business.''.
       (c) Treatment of Organizational and Syndication Fees or 
     Partnerships.--
       (1) In general.--Section 709(b) (relating to amortization 
     of organization fees) is amended by redesignating paragraph 
     (2) as paragraph (3) and by amending paragraph (1) to read as 
     follows:
       ``(1) Allowance of deduction.--If a taxpayer elects the 
     application of this subsection (in accordance with 
     regulations prescribed by the Secretary) with respect to any 
     organizational expenses--
       ``(A) the taxpayer shall be allowed a deduction for the 
     taxable year in which the partnership begins business in an 
     amount equal to the lesser of--
       ``(i) the amount of organizational expenses with respect to 
     the partnership, or
       ``(ii) $5,000, reduced (but not below zero) by the amount 
     by which such organizational expenses exceed $50,000, and
       ``(B) the remainder of such organizational expenses shall 
     be allowed as a deduction ratably over the 180-month period 
     beginning with the month in which the partnership begins 
     business.
       ``(2) Dispositions before close of amortization period.--In 
     any case in which a partnership is liquidated before the end 
     of the period to which paragraph (1)(B) applies, any deferred 
     expenses attributable to the partnership which were not 
     allowed as a deduction by reason of this section may be 
     deducted to the extent allowable under section 165.''.
       (2) Conforming amendment.--Subsection (b) of section 709 is 
     amended by striking ``Amortization'' and inserting 
     ``Deduction'' in the heading.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.

     SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPERATIONS.

       (a) Clarification of Recovery Period for Tax-Exempt Use 
     Property Subject to Lease.--Subparagraph (A) of section 
     168(g)(3) (relating to special rules for determining class 
     life) is amended by inserting ``(notwithstanding any other 
     subparagraph of this paragraph)'' after ``shall''.
       (b) Limitation on Depreciation Period for Software Leased 
     to Tax-Exempt Entity.--Paragraph (1) of section 167(f) is 
     amended by adding at the end the following new subparagraph:
       ``(C) Tax-exempt use property subject to lease.--In the 
     case of computer software which would be tax-exempt use 
     property as defined in subsection (h) of section 168 if such 
     section applied to computer software, the useful life under 
     subparagraph (A) shall not be less than 125 percent of the 
     lease term (within the meaning of section 168(i)(3)).''
       (c) Lease Term To Include Related Service Contracts.--
     Subparagraph (A) of section 168(i)(3) (relating to lease 
     term) is amended by striking ``and'' at the end of clause 
     (i), by redesignating clause (ii) as clause (iii), and by 
     inserting after clause (i) the following new clause:
       ``(ii) the term of a lease shall include the term of any 
     service contract or similar arrangement (whether or not 
     treated as a lease under section 7701(e))--

       ``(I) which is part of the same transaction (or series of 
     related transactions) which includes the lease, and
       ``(II) which is with respect to the property subject to the 
     lease or substantially similar property, and''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to leases entered into after December 31, 2003.

     SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED 
                   BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 (relating to taxable year for which deductions 
     taken) is amended by adding at the end the following new 
     section:

     ``SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE 
                   PROPERTY.

       ``(a) Limitation on Losses.--Except as otherwise provided 
     in this section, a tax-exempt use loss for any taxable year 
     shall not be allowed.
       ``(b) Disallowed Loss Carried to Next Year.--Any tax-exempt 
     use loss with respect to any tax-exempt use property which is 
     disallowed under subsection (a) for any taxable year shall be 
     treated as a deduction with respect to such property in the 
     next taxable year.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Tax-exempt use loss.--The term `tax-exempt use loss' 
     means, with respect to any taxable year, the amount (if any) 
     by which--
       ``(A) the sum of--
       ``(i) the aggregate deductions (other than interest) 
     directly allocable to a tax-exempt use property, plus
       ``(ii) the aggregate deductions for interest properly 
     allocable to such property, exceed
       ``(B) the aggregate income from such property.
       ``(2) Tax-exempt use property.--The term `tax-exempt use 
     property' has the meaning given to such term by section 
     168(h) (without regard to paragraph (1)(C) or (3) thereof and 
     determined as if property described in section 167(f)(1)(B) 
     were tangible property). Such term shall not include property 
     with respect to which the credit under section 42 is allowed 
     and which, but for this sentence, would be tax-exempt 
     property solely by reason of section 168(h)(6).
       ``(d) Exception for Certain Leases.--This section shall not 
     apply to any lease of property which meets the requirements 
     of all of the following paragraphs:
       ``(1) Property not financed with tax-exempt bonds or 
     federal funds.--A lease of property meets the requirements of 
     this paragraph if no part of the property was financed 
     (directly or indirectly) from--
       ``(A) the proceeds of an obligation the interest on which 
     is exempt from tax under section 103(a) and which (or any 
     refunding bond of which) is outstanding when the lease is 
     entered into, or
       ``(B) Federal funds.
     The Secretary may by regulations provide for a de minimis 
     exception from this paragraph.
       ``(2) Availability of funds.--
       ``(A) In general.--A lease of property meets the 
     requirements of this paragraph if (at any time during the 
     lease term) not more than an allowable amount of funds are--
       ``(i) subject to any arrangement referred to in 
     subparagraph (B), or
       ``(ii) set aside or expected to be set aside,

     to or for the benefit of the lessor or a lender, or to or for 
     the benefit of the lessee to satisfy the lessee's obligations 
     or options under

[[Page 4761]]

     the lease. Funds shall be treated as described in clause (ii) 
     only if a reasonable person would conclude, based on the 
     facts and circumstances, that such funds are so described.
       ``(B) Arrangements.--The arrangements referred to in this 
     subparagraph are--
       ``(i) a defeasance arrangement, a loan by the lessee to the 
     lessor or a lender, a deposit arrangement, a letter of credit 
     collateralized with cash or cash equivalents, a payment 
     undertaking agreement, a lease prepayment, a sinking fund 
     arrangement, or any similar arrangement (whether or not such 
     arrangement provides credit support), and
       ``(ii) any other arrangement identified by the Secretary in 
     regulations.
       ``(C) Allowable amount.--
       ``(i) In general.--Except as otherwise provided in this 
     subparagraph, the term `allowable amount' means an amount 
     equal to 20 percent of the lessor's adjusted basis in the 
     property at the time the lease is entered into.
       ``(ii) Higher amount permitted in certain cases.--To the 
     extent provided in regulations, a higher percentage shall be 
     permitted under clause (i) where necessary because of the 
     credit-worthiness of the lessee. In no event may such 
     regulations permit a percentage of more than 50 percent.
       ``(iii) Option to purchase.--If under the lease the lessee 
     has the option to purchase the property for a fixed price or 
     for other than the fair market value of the property 
     (determined at the time of exercise), the allowable amount at 
     the time such option may be exercised may not exceed 50 
     percent of the price at which such option may be exercised.
       ``(iv) No allowable amount for certain arrangements.--The 
     allowable amount shall be zero in the case of any arrangement 
     which involves--

       ``(I) a loan from the lessee to the lessor or a lender,
       ``(II) any deposit, letter of credit, or payment 
     undertaking agreement involving a lender, or
       ``(III) any credit support made available to the lessor in 
     which a lender (if any) does not have a claim which is senior 
     to the lessor.

     For purposes of subclause (I), the term `loan' shall not 
     include any amount treated as a loan under section 467 with 
     respect to a section 467 rental agreement.
       ``(3) Lessor must make substantial equity investment.--A 
     lease of property meets the requirements of this paragraph 
     if--
       ``(A) the lessor--
       ``(i) has at the time the lease is entered into an 
     unconditional at-risk equity investment (as determined by the 
     Secretary) in the property of at least 20 percent of the 
     lessor's adjusted basis in the property as of that time, and
       ``(ii) maintains such investment throughout the term of the 
     lease, and
       ``(B) the fair market value of the property at the end of 
     the lease term is reasonably expected to be equal to at least 
     20 percent of such basis.

     Subparagraphs (A)(ii) and (B) shall not apply if the lease 
     term is described in section 168(h)(1)(C)(ii), or in the case 
     of qualified technological equipment, is described in section 
     168(h)(3). For purposes of subparagraph (B), the fair market 
     value at the end of the lease term shall be reduced to the 
     extent that a person other than the lessor bears a risk of 
     loss in the value of the property.
       ``(4) Lessee may not bear more than minimal risk of loss.--
       ``(A) In general.--A lease of property meets the 
     requirements of this paragraph if there is no arrangement 
     under which more than a minimal risk of loss (as determined 
     under regulations) in the value of the property is borne by 
     the lessee.
       ``(B) Certain arrangements fail requirement.--In no event 
     will the requirements of this paragraph be met if there is 
     any arrangement under which the lessee bears--
       ``(i) any portion of the loss that would occur if the fair 
     market value of the leased property were 25 percent less than 
     its reasonably expected fair market value at the end of the 
     lease term, or
       ``(ii) more than 50 percent of the loss that would occur if 
     the fair market value of the leased property at the time the 
     lease is terminated were zero.
       ``(5) Property with more than 7-year class life.--In the 
     case of a lease--
       ``(A) of property with a class life (as defined in section 
     168(i)(1)) of more than 7 years, and
       ``(B) under which the lessee has the option to purchase the 
     property,

     the lease meets the requirements of this paragraph only if 
     the purchase price under the option equals the fair market 
     value of the property (determined at the time of exercise).
       ``(6) Regulatory requirements.--A lease of property meets 
     the requirements of this paragraph if such lease of property 
     meets such requirements as the Secretary may prescribe by 
     regulations.
       ``(e) Special Rules.--
       ``(1) Treatment of former tax-exempt use property.--
       ``(A) In general.--In the case of any former tax-exempt use 
     property--
       ``(i) any deduction allowable under subsection (b) with 
     respect to such property for any taxable year shall be 
     allowed only to the extent of any net income (without regard 
     to such deduction) from such property for such taxable year, 
     and
       ``(ii) any portion of such unused deduction remaining after 
     application of clause (i) shall be treated as allowable under 
     subsection (b) with respect to such property in the next 
     taxable year.
       ``(B) Former tax-exempt use property.--For purposes of this 
     subsection, the term `former tax-exempt use property' means 
     any property which--
       ``(i) is not tax-exempt use property for the taxable year, 
     but
       ``(ii) was tax-exempt use property for any prior taxable 
     year.
       ``(2) Disposition of entire interest in property.--If 
     during the taxable year a taxpayer disposes of the taxpayer's 
     entire interest in tax-exempt use property (or former tax-
     exempt use property), rules similar to the rules of section 
     469(g) shall apply for purposes of this section.
       ``(3) Coordination with section 469.--This section shall be 
     applied before the application of section 469.
       ``(f) Other Definitions.--For purposes of this section--
       ``(1) Related parties.--The terms `lessor', `lessee', and 
     `lender' include any related party (within the meaning of 
     section 197(f)(9)(C)(i)).
       ``(2) Lease term.--The term `lease term' has the meaning 
     given to such term by section 168(i)(3).
       ``(3) Lender.--The term `lender' means, with respect to any 
     lease, a person that makes a loan to the lessor which is 
     secured (or economically similar to being secured) by the 
     lease or the leased property.
       ``(4) Loan.--The term `loan' includes any similar 
     arrangement.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the provisions of this section, including regulation which--
       ``(1) allow in appropriate cases the aggregation of 
     property subject to the same lease, and
       ``(2) provide for the determination of the allocation of 
     interest expense for purposes of this section.''
       (b) Conforming Amendment.--The table of sections for 
     subpart C of part II of subchapter E of chapter 1 is amended 
     by adding at the end the following new item:

``Sec. 470. Limitations on losses from tax-exempt use property.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to leases entered into after November 18, 2003.

                   PART IV--ADMINISTRATIVE PROVISIONS

     SEC. 481. CLARIFICATION OF RULES FOR PAYMENT OF ESTIMATED TAX 
                   FOR CERTAIN DEEMED ASSET SALES.

       (a) In General.--Paragraph (13) of section 338(h) (relating 
     to tax on deemed sale not taken into account for estimated 
     tax purposes) is amended by adding at the end the following: 
     ``The preceding sentence shall not apply with respect to a 
     qualified stock purchase for which an election is made under 
     paragraph (10).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 482. EXTENSION OF IRS USER FEES.

       (a) In General.--Section 7528(c) (relating to termination) 
     is amended by striking ``December 31, 2004'' and inserting 
     ``September 30, 2013''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to requests after the date of the enactment of 
     this Act.

     SEC. 483. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST 
                   ON UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE 
                   FINANCIAL ARRANGEMENT.

       (a) Determination of Penalty.--
       (1) In general.--Notwithstanding any other provision of 
     law, in the case of an applicable taxpayer--
       (A) the determination as to whether any interest or 
     applicable penalty is to be imposed with respect to any 
     arrangement to which any initiative described in paragraph 
     (2) applied, or to any underpayment of Federal income tax 
     attributable to items arising in connection with any 
     arrangement described in paragraph (2), shall be made without 
     regard to section 6664 of the Internal Revenue Code of 1986, 
     and
       (B) if any such interest or applicable penalty is imposed, 
     the amount of such interest or penalty shall be equal to 
     twice that determined without regard to this section.
       (2) Applicable taxpayer.--For purposes of this subsection, 
     the term ``applicable taxpayer'' means a taxpayer eligible to 
     participate in--
       (A) the Department of the Treasury's Offshore Voluntary 
     Compliance Initiative, or
       (B) the Department of the Treasury's voluntary disclosure 
     initiative which applies to the taxpayer by reason of the 
     taxpayer's underreporting of United States income tax 
     liability through financial arrangements which rely on the 
     use of offshore arrangements which were the subject of the 
     initiative described in subparagraph (A).
       (b) Definitions and Rules.--For purposes of this section--
       (1) Applicable penalty.--The term ``applicable penalty'' 
     means any penalty, addition

[[Page 4762]]

     to tax, or fine imposed under chapter 68 of the Internal 
     Revenue Code of 1986.
       (2) Voluntary offshore compliance initiative.--The term 
     ``Voluntary Offshore Compliance Initiative'' means the 
     program established by the Department of the Treasury in 
     January of 2003 under which any taxpayer was eligible to 
     voluntarily disclose previously undisclosed income on assets 
     placed in offshore accounts and accessed through credit card 
     and other financial arrangements.
       (3) Participation.--A taxpayer shall be treated as having 
     participated in the Voluntary Offshore Compliance Initiative 
     if the taxpayer submitted the request in a timely manner and 
     all information requested by the Secretary of the Treasury or 
     his delegate within a reasonable period of time following the 
     request.
       (c) Effective Date.--The provisions of this section shall 
     apply to interest, penalties, additions to tax, and fines 
     with respect to any taxable year if as of the date of the 
     enactment of this Act, the assessment of any tax, penalty, or 
     interest with respect to such taxable year is not prevented 
     by the operation of any law or rule of law.

     SEC. 484. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALLMENT 
                   AGREEMENTS.

       (a) In General.--
       (1) Section 6159(a) (relating to authorization of 
     agreements) is amended--
       (A) by striking ``satisfy liability for payment of'' and 
     inserting ``make payment on'', and
       (B) by inserting ``full or partial'' after ``facilitate''.
       (2) Section 6159(c) (relating to Secretary required to 
     enter into installment agreements in certain cases) is 
     amended in the matter preceding paragraph (1) by inserting 
     ``full'' before ``payment''.
       (b) Requirement To Review Partial Payment Agreements Every 
     Two Years.--Section 6159, as amended by this Act, is amended 
     by redesignating subsections (d), (e), and (f) as subsections 
     (e), (f), and (g), respectively, and inserting after 
     subsection (c) the following new subsection:
       ``(d) Secretary Required To Review Installment Agreements 
     for Partial Collection Every Two Years.--In the case of an 
     agreement entered into by the Secretary under subsection (a) 
     for partial collection of a tax liability, the Secretary 
     shall review the agreement at least once every 2 years.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to agreements entered into on or after the date 
     of the enactment of this Act.

     SEC. 485. EXTENSION OF CUSTOMS USER FEES.

       Section 13031(j)(3) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended 
     by striking ``March 31, 2004'' and inserting ``September 30, 
     2013''.

     SEC. 486. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS.

       (a) In General.--Subchapter A of chapter 67 (relating to 
     interest on underpayments) is amended by adding at the end 
     the following new section:

     ``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON 
                   POTENTIAL UNDERPAYMENTS, ETC.

       ``(a) Authority To Make Deposits Other Than As Payment of 
     Tax.--A taxpayer may make a cash deposit with the Secretary 
     which may be used by the Secretary to pay any tax imposed 
     under subtitle A or B or chapter 41, 42, 43, or 44 which has 
     not been assessed at the time of the deposit. Such a deposit 
     shall be made in such manner as the Secretary shall 
     prescribe.
       ``(b) No Interest Imposed.--To the extent that such deposit 
     is used by the Secretary to pay tax, for purposes of section 
     6601 (relating to interest on underpayments), the tax shall 
     be treated as paid when the deposit is made.
       ``(c) Return of Deposit.--Except in a case where the 
     Secretary determines that collection of tax is in jeopardy, 
     the Secretary shall return to the taxpayer any amount of the 
     deposit (to the extent not used for a payment of tax) which 
     the taxpayer requests in writing.
       ``(d) Payment of Interest.--
       ``(1) In general.--For purposes of section 6611 (relating 
     to interest on overpayments), a deposit which is returned to 
     a taxpayer shall be treated as a payment of tax for any 
     period to the extent (and only to the extent) attributable to 
     a disputable tax for such period. Under regulations 
     prescribed by the Secretary, rules similar to the rules of 
     section 6611(b)(2) shall apply.
       ``(2) Disputable tax.--
       ``(A) In general.--For purposes of this section, the term 
     `disputable tax' means the amount of tax specified at the 
     time of the deposit as the taxpayer's reasonable estimate of 
     the maximum amount of any tax attributable to disputable 
     items.
       ``(B) Safe harbor based on 30-day letter.--In the case of a 
     taxpayer who has been issued a 30-day letter, the maximum 
     amount of tax under subparagraph (A) shall not be less than 
     the amount of the proposed deficiency specified in such 
     letter.
       ``(3) Other definitions.--For purposes of paragraph (2)--
       ``(A) Disputable item.--The term `disputable item' means 
     any item of income, gain, loss, deduction, or credit if the 
     taxpayer--
       ``(i) has a reasonable basis for its treatment of such 
     item, and
       ``(ii) reasonably believes that the Secretary also has a 
     reasonable basis for disallowing the taxpayer's treatment of 
     such item.
       ``(B) 30-day letter.--The term `30-day letter' means the 
     first letter of proposed deficiency which allows the taxpayer 
     an opportunity for administrative review in the Internal 
     Revenue Service Office of Appeals.
       ``(4) Rate of interest.--The rate of interest allowable 
     under this subsection shall be the Federal short-term rate 
     determined under section 6621(b), compounded daily.
       ``(e) Use of Deposits.--
       ``(1) Payment of tax.--Except as otherwise provided by the 
     taxpayer, deposits shall be treated as used for the payment 
     of tax in the order deposited.
       ``(2) Returns of deposits.--Deposits shall be treated as 
     returned to the taxpayer on a last-in, first-out basis.''.
       (b) Clerical Amendment.--The table of sections for 
     subchapter A of chapter 67 is amended by adding at the end 
     the following new item:

``Sec. 6603. Deposits made to suspend running of interest on potential 
              underpayments, etc.''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to deposits made after the date of the enactment of 
     this Act.
       (2) Coordination with deposits made under revenue procedure 
     84-58.--In the case of an amount held by the Secretary of the 
     Treasury or his delegate on the date of the enactment of this 
     Act as a deposit in the nature of a cash bond deposit 
     pursuant to Revenue Procedure 84-58, the date that the 
     taxpayer identifies such amount as a deposit made pursuant to 
     section 6603 of the Internal Revenue Code (as added by this 
     Act) shall be treated as the date such amount is deposited 
     for purposes of such section 6603.

     SEC. 487. QUALIFIED TAX COLLECTION CONTRACTS.

       (a) Contract Requirements.--
       (1) In general.--Subchapter A of chapter 64 (relating to 
     collection) is amended by adding at the end the following new 
     section:

     ``SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

       ``(a) In General.--Nothing in any provision of law shall be 
     construed to prevent the Secretary from entering into a 
     qualified tax collection contract.
       ``(b) Qualified Tax Collection Contract.--For purposes of 
     this section, the term `qualified tax collection contract' 
     means any contract which--
       ``(1) is for the services of any person (other than an 
     officer or employee of the Treasury Department)--
       ``(A) to locate and contact any taxpayer specified by the 
     Secretary,
       ``(B) to request full payment from such taxpayer of an 
     amount of Federal tax specified by the Secretary and, if such 
     request cannot be met by the taxpayer, to offer the taxpayer 
     an installment agreement providing for full payment of such 
     amount during a period not to exceed 3 years, and
       ``(C) to obtain financial information specified by the 
     Secretary with respect to such taxpayer,
       ``(2) prohibits each person providing such services under 
     such contract from committing any act or omission which 
     employees of the Internal Revenue Service are prohibited from 
     committing in the performance of similar services,
       ``(3) prohibits subcontractors from--
       ``(A) having contacts with taxpayers,
       ``(B) providing quality assurance services, and
       ``(C) composing debt collection notices, and
       ``(4) permits subcontractors to perform other services only 
     with the approval of the Secretary.
       ``(c) Fees.--The Secretary may retain and use an amount not 
     in excess of 25 percent of the amount collected under any 
     qualified tax collection contract for the costs of services 
     performed under such contract. The Secretary shall keep 
     adequate records regarding amounts so retained and used. The 
     amount credited as paid by any taxpayer shall be determined 
     without regard to this subsection.
       ``(d) No Federal Liability.--The United States shall not be 
     liable for any act or omission of any person performing 
     services under a qualified tax collection contract.
       ``(e) Application of Fair Debt Collection Practices Act.--
     The provisions of the Fair Debt Collection Practices Act (15 
     U.S.C. 1692 et seq.) shall apply to any qualified tax 
     collection contract, except to the extent superseded by 
     section 6304, section 7602(c), or by any other provision of 
     this title.
       ``(f) Cross References.--
       ``(1) For damages for certain unauthorized collection 
     actions by persons performing services under a qualified tax 
     collection contract, see section 7433A.
       ``(2) For application of Taxpayer Assistance Orders to 
     persons performing services under a qualified tax collection 
     contract, see section 7811(a)(4).''.
       (2) Conforming amendments.--
       (A) Section 7809(a) is amended by inserting ``6306,'' 
     before ``7651''.
       (B) The table of sections for subchapter A of chapter 64 is 
     amended by adding at the end the following new item:


[[Page 4763]]


``Sec. 6306. Qualified Tax Collection Contracts.''.

       (b) Civil Damages for Certain Unauthorized Collection 
     Actions by Persons Performing Services Under Qualified Tax 
     Collection Contracts.--
       (1) In general.--Subchapter B of chapter 76 (relating to 
     proceedings by taxpayers and third parties) is amended by 
     inserting after section 7433 the following new section:

     ``SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED 
                   COLLECTION ACTIONS BY PERSONS PERFORMING 
                   SERVICES UNDER QUALIFIED TAX COLLECTION 
                   CONTRACTS.

       ``(a) In General.--Subject to the modifications provided by 
     subsection (b), section 7433 shall apply to the acts and 
     omissions of any person performing services under a qualified 
     tax collection contract (as defined in section 6306(b)) to 
     the same extent and in the same manner as if such person were 
     an employee of the Internal Revenue Service.
       ``(b) Modifications.--For purposes of subsection (a)--
       ``(1) Any civil action brought under section 7433 by reason 
     of this section shall be brought against the person who 
     entered into the qualified tax collection contract with the 
     Secretary and shall not be brought against the United States.
       ``(2) Such person and not the United States shall be liable 
     for any damages and costs determined in such civil action.
       ``(3) Such civil action shall not be an exclusive remedy 
     with respect to such person.
       ``(4) Subsections (c), (d)(1), and (e) of section 7433 
     shall not apply.''.
       (2) Clerical amendment.--The table of sections for 
     subchapter B of chapter 76 is amended by inserting after the 
     item relating to section 7433 the following new item:

``Sec. 7433A. Civil damages for certain unauthorized collection actions 
              by persons performing services under a qualified tax 
              collection contract.''.

       (c) Application of Taxpayer Assistance Orders to Persons 
     Performing Services Under a Qualified Tax Collection 
     Contract.--Section 7811 (relating to taxpayer assistance 
     orders) is amended by adding at the end the following new 
     subsection:
       ``(g) Application to Persons Performing Services Under a 
     Qualified Tax Collection Contract.--Any order issued or 
     action taken by the National Taxpayer Advocate pursuant to 
     this section shall apply to persons performing services under 
     a qualified tax collection contract (as defined in section 
     6306(b)) to the same extent and in the same manner as such 
     order or action applies to the Secretary.''.
       (d) Ineligibility of Individuals Who Commit Misconduct To 
     Perform Under Contract.--Section 1203 of the Internal Revenue 
     Service Restructuring Act of 1998 (relating to termination of 
     employment for misconduct) is amended by adding at the end 
     the following new subsection:
       ``(e) Individuals Performing Services Under a Qualified Tax 
     Collection Contract.--An individual shall cease to be 
     permitted to perform any services under any qualified tax 
     collection contract (as defined in section 6306(b) of the 
     Internal Revenue Code of 1986) if there is a final 
     determination by the Secretary of the Treasury under such 
     contract that such individual committed any act or omission 
     described under subsection (b) in connection with the 
     performance of such services.''.
       (e) Effective Date.--The amendments made to this section 
     shall take effect on the date of the enactment of this Act.

                    PART V--MISCELLANEOUS PROVISIONS

     SEC. 491. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF 
                   TAXABLE VACCINES.

       (a) In General.--Section 4132(a)(1) (defining taxable 
     vaccine) is amended by redesignating subparagraphs (I), (J), 
     (K), and (L) as subparagraphs (J), (K), (L), and (M), 
     respectively, and by inserting after subparagraph (H) the 
     following new subparagraph:
       ``(I) Any vaccine against hepatitis A.''.
       (b) Conforming Amendment.--Section 9510(c)(1)(A) is amended 
     by striking ``October 18, 2000'' and inserting ``May 8, 
     2003''.
       (c) Effective Date.--
       (1) Sales, etc.--The amendments made by this section shall 
     apply to sales and uses on or after the first day of the 
     first month which begins more than 4 weeks after the date of 
     the enactment of this Act.
       (2) Deliveries.--For purposes of paragraph (1) and section 
     4131 of the Internal Revenue Code of 1986, in the case of 
     sales on or before the effective date described in such 
     paragraph for which delivery is made after such date, the 
     delivery date shall be considered the sale date.

     SEC. 492. RECOGNITION OF GAIN FROM THE SALE OF A PRINCIPAL 
                   RESIDENCE ACQUIRED IN A LIKE-KIND EXCHANGE 
                   WITHIN 5 YEARS OF SALE.

       (a) In General.--Section 121(d) (relating to special rules 
     for exclusion of gain from sale of principal residence) is 
     amended by adding at the end the following new paragraph:
       ``(10) Property acquired in like-kind exchange.--If a 
     taxpayer acquired property in an exchange to which section 
     1031 applied, subsection (a) shall not apply to the sale or 
     exchange of such property if it occurs during the 5-year 
     period beginning with the date of the acquisition of such 
     property.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales or exchanges after the date of the 
     enactment of this Act.

     SEC. 493. CLARIFICATION OF EXEMPTION FROM TAX FOR SMALL 
                   PROPERTY AND CASUALTY INSURANCE COMPANIES.

       (a) In General.--Section 501(c)(15)(A) is amended to read 
     as follows:
       ``(A) Insurance companies (as defined in section 816(a)) 
     other than life (including interinsurers and reciprocal 
     underwriters) if--
       ``(i) the gross receipts for the taxable year do not exceed 
     $600,000, and
       ``(ii) more than 50 percent of such gross receipts consist 
     of premiums.''.
       (b) Controlled Group Rule.--Section 501(c)(15)(C) is 
     amended by inserting ``, except that in applying section 1563 
     for purposes of section 831(b)(2)(B)(ii), subparagraphs (B) 
     and (C) of section 1563(b)(2) shall be disregarded'' before 
     the period at the end.
       (c) Conforming Amendment.--Clause (i) of section 
     831(b)(2)(A) is amended by striking ``exceed $350,000 but''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 494. DEFINITION OF INSURANCE COMPANY FOR SECTION 831.

       (a) In General.--Section 831 is amended by redesignating 
     subsection (c) as subsection (d) and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Insurance Company Defined.--For purposes of this 
     section, the term `insurance company' has the meaning given 
     to such term by section 816(a)).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 495. LIMITATIONS ON DEDUCTION FOR CHARITABLE 
                   CONTRIBUTIONS OF PATENTS AND SIMILAR PROPERTY.

       (a) Deduction Allowed Only to the Extent of Basis.--Section 
     170(e)(1)(B) (relating to certain contributions of ordinary 
     income and capital gain property) is amended by striking 
     ``or'' at the end of clause (i), by adding ``or'' at the end 
     of clause (ii), and by inserting after clause (ii) the 
     following new clause:
       ``(iii) of any patent, copyright, trademark, trade name, 
     trade secret, know-how, software, or similar property, or 
     applications or registrations of such property,''.
       (b) Treatment of Contributions Where Donor Receives 
     Interest.--Section 170(e) is amended by adding at the end the 
     following new paragraph:
       ``(7) Special rules for contributions of patents and 
     similar property where donor receives interest.--
       ``(A) Disallowance of deduction.--No deduction shall be 
     allowed under this section with respect to a contribution of 
     property described in paragraph (1)(B)(iii) if the taxpayer 
     after the contribution has any interest in the property other 
     than a qualified interest.
       ``(B) Contributions with qualified interest.--If a taxpayer 
     after a contribution of property described in paragraph 
     (1)(B)(iii) has a qualified interest in the property--
       ``(i) any payment pursuant to the qualified interest shall 
     be treated as ordinary income and shall be includible in 
     gross income of the taxpayer for the taxable year in which 
     the payment is received by the taxpayer, and
       ``(ii) subsection (f)(3) and section 1011(b) shall not 
     apply to the transfer of the property from the taxpayer to 
     the donee.
       ``(C) Qualified interest.--For purposes of this paragraph--
       ``(i) In general.--The term `qualified interest' means, 
     with respect to any taxpayer, a right to receive from the 
     donee a percentage (not greater than 50 percent) of any 
     royalty payment received by the donee with respect to 
     property described in paragraph (1)(B)(iii) (other than 
     copyrights which are described in section 1221(a)(3) or 
     1231(b)(1)(C)) contributed by the taxpayer to the donee.
       ``(ii) Secretarial authority.--

       ``(I) In general.--Except as provided in subclause (II), 
     the Secretary may by regulation or other administrative 
     guidance treat as a qualified interest the right to receive 
     other payments from the donee, but only if the donee does not 
     possess a right to receive any payment (whether royalties or 
     otherwise) from a third party with respect to the contributed 
     property.
       ``(II) Exceptions.--The Secretary may not treat as a 
     qualified interest the right to receive any payment which 
     provides a benefit to the donor which is greater than the 
     benefit retained by the donee or the right to receive any 
     portion of the proceeds from the sale of the property 
     contributed.

       ``(iii) Limitation.--An interest shall be treated as a 
     qualified interest under this subparagraph only if the 
     taxpayer has no right to receive any payment described in 
     clause (i) or (ii)(I) after the earlier of the date on which 
     the legal life of the contributed property expires or the 
     date which is 20 years after the date of the contribution.''.
       (c) Reporting Requirements.--
       (1) In general.--Section 6050L(a) (relating to returns 
     regarding certain dispositions of donated property) is 
     amended--
       (A) by striking ``If'' and inserting:
       ``(1) Dispositions of donated property.--If'',

[[Page 4764]]

       (B) by redesignating paragraphs (1) through (5) as 
     subparagraphs (A) through (E), respectively, and
       (C) by adding at the end the following new paragraph:
       ``(2) Payments of qualified interests.--Each donee of 
     property described in section 170(e)(1)(B)(iii) which makes a 
     payment to a donor pursuant to a qualified interest (as 
     defined in section 170(e)(7)) during any calendar year shall 
     make a return (in accordance with forms and regulations 
     prescribed by the Secretary) showing--
       ``(A) the name, address, and TIN of the payor and the payee 
     with respect to such a payment,
       ``(B) a description, and date of contribution, of the 
     property to which the qualified interest relates,
       ``(C) the dates and amounts of any royalty payments 
     received by the donee with respect to such property,
       ``(D) the date and the amount of the payment pursuant to 
     the qualified interest, and
       ``(E) a description of the terms of the qualified 
     interest.''.
       (2) Conforming amendments.--
       (A) The heading for section 6050L is amended by striking 
     ``certain dispositions of''.
       (B) The item relating to section 6050L in the table of 
     sections for subpart B of part III of subchapter A of chapter 
     61 is amended by striking ``certain dispositions of''.
       (d) Anti-Abuse Rules.--The Secretary of the Treasury may 
     prescribe such regulations or other administrative guidance 
     as may be necessary or appropriate to prevent the avoidance 
     of the purposes of section 170(e)(1)(B)(iii) of the Internal 
     Revenue Code of 1986 (as added by subsection (a)), including 
     preventing--
       (1) the circumvention of the reduction of the charitable 
     deduction by embedding or bundling the patent or similar 
     property as part of a charitable contribution of property 
     that includes the patent or similar property,
       (2) the manipulation of the basis of the property to 
     increase the amount of the charitable deduction through the 
     use of related persons, pass-thru entities, or other 
     intermediaries, or through the use of any provision of law or 
     regulation (including the consolidated return regulations), 
     and
       (3) a donor from changing the form of the patent or similar 
     property to property of a form for which different deduction 
     rules would apply.
       (e) Effective Date.--The amendments made by this section 
     shall apply to contributions made after October 1, 2003.

     SEC. 496. REPEAL OF 10-PERCENT REHABILITATION TAX CREDIT.

       Section 47 is amended by adding at the end the following 
     new subsection:
       ``(e) Termination.--This section shall not apply to 
     expenditures described in subsection (a)(1) incurred in 
     taxable years beginning after December 31, 2003.''.

     SEC. 497. INCREASE IN AGE OF MINOR CHILDREN WHOSE UNEARNED 
                   INCOME IS TAXED AS IF PARENT'S INCOME.

       (a) In General.--Section 1(g)(2)(A) (relating to child to 
     whom subsection applies) is amended by striking ``age 14'' 
     and inserting ``age 18''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 498. HOLDING PERIOD FOR PREFERRED STOCK.

       (a) In General.--Section 1(h)(11)(B)(iii)(I) is amended to 
     read as follows:

       ``(I) with respect to which the holding period requirements 
     of section 246(c) are not met, determined by substituting `60 
     days' for `45' days each place it appears, by substituting 
     `120-day' for `90-day' each place it appears, and by 
     substituting `120 days' for `90 days' and `240-day' for `180-
     day' in paragraph (2).''

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

   TITLE V--PROTECTION OF UNITED STATES WORKERS FROM COMPETITION OF 
                           FOREIGN WORKFORCES

     SEC. 501. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.

       (a) Limitations.--
       (1) In general.--The Office of Federal Procurement Policy 
     Act (41 U.S.C. 403 et seq.) is amended by adding at the end 
     the following new section:

     ``SEC. 42. LIMITATIONS ON OFF-SHORE PERFORMANCE OF CONTRACTS.

       ``(a) Conversions to Contractor Performance of Federal 
     Activities.--An activity or function of an executive agency 
     that is converted to contractor performance under Office of 
     Management and Budget Circular A-76 may not be performed by 
     the contractor or any subcontractor at a location outside the 
     United States except to the extent that such activity or 
     function was previously performed by Federal Government 
     employees outside the United States.
       ``(b) Other Federal Contracts.--(1) A contract that is 
     entered into by the head of an executive agency may not be 
     performed outside the United States except to meet a 
     requirement of the executive agency for the contract to be 
     performed specifically at a location outside the United 
     States.
       ``(2) The prohibition in paragraph (1) does not apply in 
     the case of a contract of an executive agency if--
       ``(A) the President determines in writing that it is 
     necessary in the national security interests of the United 
     States for the contract to be performed outside the United 
     States; or
       ``(B) the head of such executive agency makes a 
     determination and reports such determination on a timely 
     basis to the Director of the Office of Management and Budget 
     that--
       ``(i) the property or services needed by the executive 
     agency are available only by means of performance of the 
     contract outside the United States; and
       ``(ii) no property or services available by means of 
     performance of the contract inside the United States would 
     satisfy the executive agency's need.
       ``(3) Paragraph (1) does not apply to the performance of a 
     contract outside the United States under the exception 
     provided in subsection (a).
       ``(c) State Contracts.--(1) Except as provided in paragraph 
     (2), funds appropriated for financial assistance for a State 
     may not be disbursed to or for such State during a fiscal 
     year unless the chief executive of that State has transmitted 
     to the Administrator for Federal Procurement Policy, not 
     later than April 1 of the preceding fiscal year, a written 
     certification that none of such funds will be expended for 
     the performance outside the United States of contracts 
     entered into by such State.
       ``(2) The prohibition on disbursement of funds to or for a 
     State under paragraph (1) does not apply with respect to the 
     performance of a State contract outside the United States 
     if--
       ``(A) the chief executive of such State--
       ``(i) determines that the property or services needed by 
     the State are available only by means of performance of the 
     contract outside the United States and no property or 
     services available by means of performance of the contract 
     inside the United States would satisfy the State's need; and
       ``(ii) transmits a notification of such determination to 
     the head of the executive agency of the United States that 
     administers the authority under which such funds are 
     disbursed to or for the State; and
       ``(B) the head of the executive agency receiving the 
     notification of such determination--
       ``(i) confirms that the facts warrant the determination;
       ``(ii) approves the determination; and
       ``(iii) transmits a notification of the approval of the 
     determination to the Director of the Office of Management and 
     Budget.
       ``(3) In this subsection, the term `State' means each of 
     the several States of the United States, the District of 
     Columbia, the Commonwealth of Puerto Rico, the Commonwealth 
     of the Northern Mariana Islands, the Virgin Islands, Guam, 
     American Samoa, and the Trust Territory of the Pacific 
     Islands.
       ``(d) Subsections (b) and (c) shall not apply to 
     procurement covered by the World Trade Organization 
     Government Procurement Agreement.
       ``(e) National Security Exemption.--Subsection (b) shall 
     not apply to any procurement for national security purposes 
     entered into by--
       ``(1) the Department of Defense or any agency or entity 
     thereof;
       ``(2) the Department of the Army, the Department of the 
     Navy, the Department of the Air Force, or any agency or 
     entity of any of the military departments;
       ``(3) the Department of Homeland Security;
       ``(4) the Department of Energy or any agency or entity 
     thereof, with respect to the national security programs of 
     that Department; or
       ``(5) any element of the intelligence community.
       ``(f) Responsibilities of OMB.--The Director of the Office 
     of Management and Budget shall--
       ``(1) maintain--
       ``(A) the waivers granted under subsection (b)(2), together 
     with the determinations and certifications on which such 
     waivers were based; and
       ``(B) the notifications received under subsection 
     (c)(2)(B)(iii); and
       ``(2) submit to Congress promptly after the end of each 
     quarter of each fiscal year a report that sets forth--
       ``(A) the waivers that were granted under subsection (b)(2) 
     during such quarter; and
       ``(B) the notifications that were received under subsection 
     (c)(2)(B)(iii) during such quarter.
       ``(g) Annual GAO Review.--The Comptroller General shall--
       ``(1) review, each fiscal year, the waivers granted during 
     such fiscal year under subsection (b)(2) and the 
     disbursements of funds authorized pursuant to the exceptions 
     in subsections (c)(2) and (e); and
       ``(2) promptly after the end of such fiscal year, transmit 
     to Congress a report containing a list of the contracts 
     covered by such waivers and exception together with a brief 
     description of the performance of each such contract to the 
     maximum extent feasible outside the United States.''.
       (2) Clerical amendment.--The table of sections in section 
     1(b) of such Act is amended by adding at the end the 
     following new item:


[[Page 4765]]


``Sec. 42. Limitations on off-shore performance of contracts.''.

       (b) Inapplicability to States During First Two Fiscal 
     Years.--Section 42(c) of the Office of Federal Procurement 
     Policy Act (as added by subsection (a)) shall not apply to 
     disbursements of funds to a State during the fiscal year in 
     which this Act is enacted and the next fiscal year.

     SEC. 502. REPEAL OF SUPERSEDED LAW.

       Section 647 of the Transportation, Treasury, and 
     Independent Agencies Appropriations Act, 2004 (division F of 
     Public Law 108-199) is amended by striking subsection (e).

     SEC. 503. EFFECTIVE DATE AND APPLICABILITY.

       (a) In General.--This title and the amendments made by this 
     title shall take effect 30 days after the Secretary of 
     Commerce certifies that the amendments made by this title 
     will not result in the loss of more jobs than it will protect 
     and will not cause harm to the United States economy. The 
     initial certification shall be made by the Secretary of 
     Commerce no later than 90 days after the enactment of this 
     Act. Such certification must be renewed on or before January 
     1 of each year in order for the amendments made by this title 
     to be in effect for that year.
       (b) Consistency With International Agreements.--The 
     provisions of this title shall not apply to the extent that 
     they may be inconsistent with obligations under international 
     agreements. Within 90 days of this legislation, the Office of 
     Management and Budget, in consultation with the Office of the 
     United States Trade Representative, shall develop guidelines 
     for the implementation of this provision.

                       TITLE VI--OTHER PROVISIONS

               Subtitle A--Provisions Relating to Housing

     SEC. 601. TREATMENT OF QUALIFIED MORTGAGE BONDS.

       (a) Year Holiday.--Section 143(a)(2)(iv) of the Internal 
     Revenue Code of 1986 shall not apply to amounts received 
     during the 1-year period beginning on the date of the 
     enactment of this Act with respect to any bond outstanding on 
     such date.
       (b) Repeal of Required Use of Certain Principal Repayments 
     on Mortgage Subsidy Bond Financings To Redeem Bonds.--
       (1) In general.--Subparagraph (A) of section 143(a)(2) 
     (defining qualified mortgage issue) is amended by adding 
     ``and'' at the end of clause (ii), by striking ``, and'' at 
     the end of clause (iii) and inserting a period, and by 
     striking clause (iv) and the last sentence.
       (2) Conforming amendment.--Clause (ii) of section 
     143(a)(2)(D) is amended by striking ``(and clause (iv) of 
     subparagraph (A))''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 602. PREMIUMS FOR MORTGAGE INSURANCE.

       (a) In General.--Paragraph (3) of section 163(h) (relating 
     to qualified residence interest) is amended by adding after 
     subparagraph (D) the following new subparagraph:
       ``(E) Mortgage insurance premiums treated as interest.--
       ``(i) In general.--Premiums paid or accrued for qualified 
     mortgage insurance by a taxpayer during the taxable year in 
     connection with acquisition indebtedness with respect to a 
     qualified residence of the taxpayer shall be treated for 
     purposes of this subsection as qualified residence interest.
       ``(ii) Phaseout.--The amount otherwise allowable as a 
     deduction under clause (i) shall be reduced (but not below 
     zero) by 10 percent of such amount for each $1,000 ($500 in 
     the case of a married individual filing a separate return) 
     (or fraction thereof) that the taxpayer's adjusted gross 
     income for the taxable year exceeds $100,000 ($50,000 in the 
     case of a married individual filing a separate return).''.
       (b) Definition and Special Rules.--Paragraph (4) of section 
     163(h) (relating to other definitions and special rules) is 
     amended by adding at the end the following new subparagraphs:
       ``(E) Qualified mortgage insurance.--The term `qualified 
     mortgage insurance' means--
       ``(i) mortgage insurance provided by the Home Loan Guaranty 
     Program of the Department of Veterans Affairs, the Federal 
     Housing Administration, or the Rural Housing Administration, 
     and
       ``(ii) private mortgage insurance (as defined by section 2 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as 
     in effect on the date of the enactment of this subparagraph).
       ``(F) Special rules for prepaid qualified mortgage 
     insurance.--Any amount paid by the taxpayer for qualified 
     mortgage insurance that is properly allocable to any mortgage 
     the payment of which extends to periods that are after the 
     close of the taxable year in which such amount is paid shall 
     be chargeable to capital account and shall be treated as paid 
     in such periods to which so allocated. No deduction shall be 
     allowed for the unamortized balance of such account if such 
     mortgage is satisfied before the end of its term. The 
     preceding sentences shall not apply to amounts paid for 
     qualified mortgage insurance provided by the Department of 
     Veterans Affairs or the Rural Housing Administration.''.
       (c) Information Returns Relating to Mortgage Insurance.--
     Section 6050H (relating to returns relating to mortgage 
     interest received in trade or business from individuals) is 
     amended by adding at the end the following new subsection:
       ``(h) Returns Relating to Mortgage Insurance Premiums.--
       ``(1) In general.--The Secretary may prescribe, by 
     regulations, that any person who, in the course of a trade or 
     business, receives from any individual premiums for mortgage 
     insurance aggregating $600 or more for any calendar year, 
     shall make a return with respect to each such individual. 
     Such return shall be in such form, shall be made at such 
     time, and shall contain such information as the Secretary may 
     prescribe.
       ``(2) Statement to be furnished to individuals with respect 
     to whom information is required.--Every person required to 
     make a return under paragraph (1) shall furnish to each 
     individual with respect to whom a return is made a written 
     statement showing such information as the Secretary may 
     prescribe. Such written statement shall be furnished on or 
     before January 31 of the year following the calendar year for 
     which the return under paragraph (1) was required to be made.
       ``(3) Special rules.--For purposes of this subsection--
       ``(A) rules similar to the rules of subsection (c) shall 
     apply, and
       ``(B) the term `mortgage insurance' means--
       ``(i) the Home Loan Guaranty Program of the Department of 
     Veterans Affairs, and mortgage insurance provided by the 
     Federal Housing Administration or the Rural Housing 
     Administration, and
       ``(ii) private mortgage insurance (as defined by section 2 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as 
     in effect on the date of the enactment of this 
     subparagraph).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or accrued in taxable years 
     beginning after December 31, 2004, and ending before January 
     1, 2006.

     SEC. 603. INCREASE IN HISTORIC REHABILITATION CREDIT FOR 
                   CERTAIN LOW-INCOME HOUSING FOR THE ELDERLY.

       (a) In General.--Section 47 (relating to rehabilitation 
     credit) is amended by adding at the end the following new 
     subsection:
       ``(e) Special Rule Regarding Certain Historic Structures.--
     In the case of any qualified rehabilitation expenditure with 
     respect to any certified historic structure--
       ``(1) which is placed in service after the date of the 
     enactment of this subsection,
       ``(2) which is part of a qualified low-income building with 
     respect to which a credit under section 42 is allowed, and
       ``(3) substantially all of the residential rental units of 
     which are used for tenants who have attained the age of 65,

     subsection (a)(2) shall be applied by substituting `25 
     percent' for `20 percent'.''.
       (b) Application of MACRS.--The Internal Revenue Code of 
     1986 shall be applied and administered as if paragraph (4)(X) 
     of section 251(d) of the Tax Reform Act of 1986 as applied to 
     the amendments made by section 201 of such Act had not been 
     enacted with respect to any property described in such 
     paragraph and placed in service after the date of the 
     enactment of this Act.
       (c) Effective Date.--The amendment made by subsection (a) 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

                Subtitle B--Provisions Relating to Bonds

     SEC. 611. EXPANSION OF NEW YORK LIBERTY ZONE TAX BENEFITS.

       (a) Additional Extension of Tax-Exempt Bond Financing.--
     Section 1400L(d)(2)(D), as amended by this Act, is amended by 
     striking ``2006'' and inserting ``2010''.
       (b) Extension of Advance Refundings.--Section 1400L(e)(1) 
     is amended by striking ``2005'' and inserting ``2006''.

     SEC. 612. MODIFICATIONS OF TREATMENT OF QUALIFIED ZONE 
                   ACADEMY BONDS.

       (a) Proceeds of Bonds May Be Used for Construction and Land 
     Acquisition.--Paragraph (5) of section 1397E(d) (defining 
     qualified purpose) is amended--
       (1) by striking ``rehabilitating or repairing'' in 
     subparagraph (A) and inserting ``constructing, 
     rehabilitating, or repairing'', and
       (2) by redesignating subparagraphs (B), (C), and (D) as 
     subparagraphs (C), (D), and (E), respectively, and by 
     inserting after subparagraph (A) the following:
       ``(B) acquiring the land on which the facility is to be 
     constructed,''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after December 31, 2003.

     SEC. 613. MODIFICATIONS OF AUTHORITY OF INDIAN TRIBAL 
                   GOVERNMENTS TO ISSUE TAX-EXEMPT BONDS.

       (a) In General.--Paragraph (1) of section 7871(c) (relating 
     to Indian tribal governments treated as States for certain 
     purposes) is amended to read as follows:
       ``(1) In general.--Subsection (a) of section 103 shall 
     apply to any obligation issued by an Indian tribal government 
     (or subdivision thereof) only if--
       ``(A) such obligation--
       ``(i) is part of an issue 95 percent or more of the net 
     proceeds of which are to be used to finance any facility 
     located on an Indian reservation, and

[[Page 4766]]

       ``(ii) is issued before January 1, 2006, or
       ``(B) such obligation is part of an issue substantially all 
     of the proceeds of which are to be used in the exercise of 
     any essential governmental function.''.
       (b) Special Rules and Definitions.--Subsection (c) of 
     section 7871 is amended by inserting at the end the following 
     new paragraph:
       ``(4) Special rules and definitions.--
       ``(A) Exclusion of gaming.--An obligation described in 
     subparagraph (A) or (B) of paragraph (1) may not be used to 
     finance any portion of a building in which class II or III 
     gaming (as defined in section 4 of the Indian Gaming 
     Regulatory Act (25 U.S.C. 2702)) is conducted or housed.
       ``(B) Indian reservation.--For purposes of paragraph (1), 
     the term `Indian reservation' means--
       ``(i) a reservation, as defined in section 4(10) of the 
     Indian Child Welfare Act of 1978 (25 U.S.C. 1903(10)), and
       ``(ii) lands held under the provisions of the Alaska Native 
     Claims Settlement Act (43 U.S.C. 1601 et seq.) by a Native 
     corporation as defined in section 3(m) of such Act (43 U.S.C. 
     1602(m)).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after the date of the 
     enactment of this Act.

     SEC. 614. DEFINITION OF MANUFACTURING FACILITY FOR SMALL 
                   ISSUE BONDS.

       (a) In General.--Section 144(a)(12) (relating to 
     termination dates) is amended by striking subparagraph (C) 
     and inserting the following new subparagraphs:
       ``(C) Manufacturing facility.--For purposes of this 
     paragraph, the term `manufacturing facility' means any 
     facility which is used in--
       ``(i) the manufacture of tangible personal property 
     (including processing which results in a change in the 
     condition of such property),
       ``(ii) the manufacture or development of any software 
     product or process if--

       ``(I) it takes more than 6 months to manufacture or develop 
     such product,
       ``(II) the manufacture or development could not with due 
     diligence be reasonably expected to occur in less than 6 
     months, and
       ``(III) the software product or process comprises programs, 
     routines, and attendant documentation developed and 
     maintained for use in computer and telecommunications 
     technology, or

       ``(iii) the manufacture or development of any biobased 
     product or bioenergy if--

       ``(I) it takes more than 6 months to manufacture or 
     develop, and
       ``(II) the manufacture or development could not with due 
     diligence be reasonably expected to occur in less than 6 
     months.

       ``(D) Related facilities.--For purposes of subparagraph 
     (C), the term `manufacturing facility' includes a facility 
     which is directly and functionally related to a manufacturing 
     facility (determined without regard to subparagraph (C)) if--
       ``(i) such facility, including an office facility and a 
     research and development facility, is located on the same 
     site as the manufacturing facility, and
       ``(ii) not more than 40 percent of the net proceeds of the 
     issue are used to provide such facility.
       ``(E) Other definitions.--For purposes of subparagraph 
     (C)(iii)--
       ``(i) Biobased product.--The term `biobased product' means 
     a commercial or industrial product (other than food or feed) 
     which utilizes biological products or renewable domestic 
     agricultural (plant, animal, and marine) or forestry 
     materials.
       ``(ii) Bioenergy.--The term `bioenergy' means biomass used 
     in the production of energy, including liquid, solid, or 
     gaseous fuels, electricity, and heat.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to obligations issued after the date of the 
     enactment of this Act.

     SEC. 615. CONSERVATION BONDS.

       (a) Tax-Exempt Bond Financing.--
       (1) In general.--For purposes of the Internal Revenue Code 
     of 1986, any qualified forest conservation bond shall be 
     treated as an exempt facility bond under section 142 of such 
     Code.
       (2) Qualified forest conservation bond.--For purposes of 
     this section, the term ``qualified forest conservation bond'' 
     means any bond issued as part of an issue if--
       (A) 95 percent or more of the net proceeds (as defined in 
     section 150(a)(3) of such Code) of such issue are to be used 
     for qualified project costs,
       (B) such bond is issued for a qualified organization, and
       (C) such bond is issued before December 31, 2006.
       (3) Limitation on aggregate amount issued.--
       (A) In general.--The maximum aggregate face amount of bonds 
     which may be issued under this subsection shall not exceed 
     $1,500,000,000 for all projects (excluding refunding bonds).
       (B) Allocation of limitation.--The limitation described in 
     subparagraph (A) shall be allocated by the Secretary of the 
     Treasury among qualified organizations based on criteria 
     established by the Secretary not later than 180 days after 
     the date of the enactment of this section, after consultation 
     with the Chief of the Forest Service.
       (4) Qualified project costs.--For purposes of this 
     subsection, the term ``qualified project costs'' means the 
     sum of--
       (A) the cost of acquisition by the qualified organization 
     from an unrelated person of forests and forest land which at 
     the time of acquisition or immediately thereafter are subject 
     to a conservation restriction described in subsection (c)(2),
       (B) capitalized interest on the qualified forest 
     conservation bonds for the 3-year period beginning on the 
     date of issuance of such bonds, and
       (C) credit enhancement fees which constitute qualified 
     guarantee fees (within the meaning of section 148 of such 
     Code).
       (5) Special rules.--In applying the Internal Revenue Code 
     of 1986 to any qualified forest conservation bond, the 
     following modifications shall apply:
       (A) Section 146 of such Code (relating to volume cap) shall 
     not apply.
       (B) For purposes of section 147(b) of such Code (relating 
     to maturity may not exceed 120 percent of economic life), the 
     land and standing timber acquired with proceeds of qualified 
     forest conservation bonds shall have an economic life of 35 
     years.
       (C) Subsections (c) and (d) of section 147 of such Code 
     (relating to limitations on acquisition of land and existing 
     property) shall not apply.
       (D) Section 57(a)(5) of such Code (relating to tax-exempt 
     interest) shall not apply to interest on qualified forest 
     conservation bonds.
       (6) Treatment of current refunding bonds.--Paragraphs 
     (2)(C) and (3) shall not apply to any bond (or series of 
     bonds) issued to refund a qualified forest conservation bond 
     issued before December 31, 2006, if--
       (A) the average maturity date of the issue of which the 
     refunding bond is a part is not later than the average 
     maturity date of the bonds to be refunded by such issue,
       (B) the amount of the refunding bond does not exceed the 
     outstanding amount of the refunded bond, and
       (C) the net proceeds of the refunding bond are used to 
     redeem the refunded bond not later than 90 days after the 
     date of the issuance of the refunding bond.

     For purposes of subparagraph (A), average maturity shall be 
     determined in accordance with section 147(b)(2)(A) of such 
     Code.
       (7) Effective date.--This subsection shall apply to 
     obligations issued on or after the date which is 180 days 
     after the enactment of this Act.
       (b) Items From Qualified Harvesting Activities Not Subject 
     to Tax or Taken Into Account.--
       (1) In general.--Income, gains, deductions, losses, or 
     credits from a qualified harvesting activity conducted by a 
     qualified organization shall not be subject to tax or taken 
     into account under subtitle A of the Internal Revenue Code of 
     1986.
       (2) Limitation.--The amount of income excluded from gross 
     income under paragraph (1) for any taxable year shall not 
     exceed the amount used by the qualified organization to make 
     debt service payments during such taxable year for qualified 
     forest conservation bonds.
       (3) Qualified harvesting activity.--For purposes of 
     paragraph (1)--
       (A) In general.--The term ``qualified harvesting activity'' 
     means the sale, lease, or harvesting, of standing timber--
       (i) on land owned by a qualified organization which was 
     acquired with proceeds of qualified forest conservation 
     bonds,
       (ii) with respect to which a written acknowledgement has 
     been obtained by the qualified organization from the State or 
     local governments with jurisdiction over such land that the 
     acquisition lessens the burdens of such government with 
     respect to such land, and
       (iii) pursuant to a qualified conservation plan adopted by 
     the qualified organization.
       (B) Exceptions.--
       (i) Cessation as qualified organization.--The term 
     ``qualified harvesting activity'' shall not include any sale, 
     lease, or harvesting for any period during which the 
     organization ceases to qualify as a qualified organization.
       (ii) Exceeding limits on harvesting.--The term ``qualified 
     harvesting activity'' shall not include any sale, lease, or 
     harvesting of standing timber on land acquired with proceeds 
     of qualified forest conservation bonds to the extent that--

       (I) the average annual area of timber harvested from such 
     land exceeds 2.5 percent of the total area of such land or,
       (II) the quantity of timber removed from such land exceeds 
     the quantity which can be removed from such land annually in 
     perpetuity on a sustained-yield basis with respect to such 
     land.

     The limitations under subclauses (I) and (II) shall not apply 
     to post-fire restoration and rehabilitation or sanitation 
     harvesting of timber stands which are substantially damaged 
     by fire, windthrow, or other catastrophes, or which are in 
     imminent danger from insect or disease attack.
       (4) Termination.--This subsection shall not apply to any 
     qualified harvesting activity of a qualified organization 
     occurring after the date on which there is no outstanding 
     qualified forest conservation bond

[[Page 4767]]

     with respect to such qualified organization or any such bond 
     ceases to be a tax-exempt bond.
       (5) Partial recapture of benefits if harvesting limit 
     exceeded.--If, as of the date that this subsection ceases to 
     apply under paragraph (3), the average annual area of timber 
     harvested from the land exceeds the requirement of paragraph 
     (3)(B)(ii)(I), the tax imposed by chapter 1 of the Internal 
     Revenue Code of 1986 shall be increased, under rules 
     prescribed by the Secretary of the Treasury, by the sum of 
     the tax benefits attributable to such excess and interest at 
     the underpayment rate under section 6621 of such Code for the 
     period of the underpayment.
       (c) Definitions.--For purposes of this section--
       (1) Qualified conservation plan.--The term ``qualified 
     conservation plan'' means a multiple land use program or plan 
     which--
       (A) is designed and administered primarily for the purposes 
     of protecting and enhancing wildlife and fish, timber, scenic 
     attributes, recreation, and soil and water quality of the 
     forest and forest land,
       (B) mandates that conservation of forest and forest land is 
     the single-most significant use of the forest and forest 
     land, and
       (C) requires that timber harvesting be consistent with--
       (i) restoring and maintaining reference conditions for the 
     region's ecotype,
       (ii) restoring and maintaining a representative sample of 
     young, mid, and late successional forest age classes,
       (iii) maintaining or restoring the resources' ecological 
     health for purposes of preventing damage from fire, insect, 
     or disease,
       (iv) maintaining or enhancing wildlife or fish habitat, or
       (v) enhancing research opportunities in sustainable 
     renewable resource uses.
       (2) Conservation restriction.--The conservation restriction 
     described in this paragraph is a restriction which--
       (A) is granted in perpetuity to an unrelated person which 
     is described in section 170(h)(3) of such Code and which, in 
     the case of a nongovernmental unit, is organized and operated 
     for conservation purposes,
       (B) meets the requirements of clause (ii) or (iii)(II) of 
     section 170(h)(4)(A) of such Code,
       (C) obligates the qualified organization to pay the costs 
     incurred by the holder of the conservation restriction in 
     monitoring compliance with such restriction, and
       (D) requires an increasing level of conservation benefits 
     to be provided whenever circumstances allow it.
       (3) Qualified organization.--The term ``qualified 
     organization'' means an organization--
       (A) which is a nonprofit organization substantially all the 
     activities of which are charitable, scientific, or 
     educational, including acquiring, protecting, restoring, 
     managing, and developing forest lands and other renewable 
     resources for the long-term charitable, educational, 
     scientific and public benefit,
       (B) more than half of the value of the property of which 
     consists of forests and forest land acquired with the 
     proceeds from qualified forest conservation bonds,
       (C) which periodically conducts educational programs 
     designed to inform the public of environmentally sensitive 
     forestry management and conservation techniques,
       (D) which has at all times a board of directors--
       (i) at least 20 percent of the members of which represent 
     the holders of the conservation restriction described in 
     paragraph (2),
       (ii) at least 20 percent of the members of which are public 
     officials, and
       (iii) not more than one-third of the members of which are 
     individuals who are or were at any time within 5 years before 
     the beginning of a term of membership on the board, an 
     employee of, independent contractor with respect to, officer 
     of, director of, or held a material financial interest in, a 
     commercial forest products enterprise with which the 
     qualified organization has a contractual or other financial 
     arrangement,
       (E) the bylaws of which require at least two-thirds of the 
     members of the board of directors to vote affirmatively to 
     approve the qualified conservation plan and any change 
     thereto, and
       (F) upon dissolution, is required to dedicate its assets 
     to--
       (i) an organization described in section 501(c)(3) of such 
     Code which is organized and operated for conservation 
     purposes, or
       (ii) a governmental unit described in section 170(c)(1) of 
     such Code.
       (4) Unrelated person.--The term ``unrelated person'' means 
     a person who is not a related person.
       (5) Related person.--A person shall be treated as related 
     to another person if--
       (A) such person bears a relationship to such other person 
     described in section 267(b) (determined without regard to 
     paragraph (9) thereof), or 707(b)(1), of such Code, 
     determined by substituting ``25 percent'' for ``50 percent'' 
     each place it appears therein, and
       (B) in the case such other person is a non-profit 
     organization, if such person controls directly or indirectly 
     more than 25 percent of the governing body of such 
     organization.

            Subtitle C--Provisions Relating to Depreciation

     SEC. 621. SPECIAL PLACED IN SERVICE RULE FOR BONUS 
                   DEPRECIATION PROPERTY.

       (a) In General.--Section 168(k)(2)(D) (relating to special 
     rules) is amended by adding at the end the following new 
     clause:
       ``(iii) Syndication.--For purposes of subparagraph (A)(ii), 
     if--

       ``(I) property is originally placed in service after 
     September 10, 2001, by the lessor of such property,
       ``(II) such property is sold by such lessor or any 
     subsequent purchaser within 3 months after the date so placed 
     in service (or, in the case of multiple units of property 
     subject to the same lease, within 3 months after the date the 
     final unit is placed in service, so long as the period 
     between the time the first unit is placed in service and the 
     time the last unit is placed in service does not exceed 12 
     months), and
       ``(III) the user of such property after the last sale 
     during such 3-month period remains the same as when such 
     property was originally placed in service,

     such property shall be treated as originally placed in 
     service not earlier than the date of such last sale, so long 
     as no previous owner of such property elects the application 
     of this subsection with respect to such property.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales after the date of the enactment of this 
     Act.

     SEC. 622. MODIFICATION OF DEPRECIATION ALLOWANCE FOR 
                   AIRCRAFT.

       (a) Aircraft Treated as Qualified Property.--
       (1) In general.--Paragraph (2) of section 168(k) is amended 
     by redesignating subparagraphs (C) through (F) as 
     subparagraphs (D) through (G), respectively, and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) Certain aircraft.--The term `qualified property' 
     includes property--
       ``(i) which meets the requirements of clauses (ii) and 
     (iii) of subparagraph (A),
       ``(ii) which is an aircraft which is not a transportation 
     property (as defined in subparagraph (B)(iii)) other than for 
     agricultural or firefighting purposes,
       ``(iii) which is purchased and on which such purchaser, at 
     the time of the contract for purchase, has made a 
     nonrefundable deposit of the lesser of--

       ``(I) 10 percent of the cost, or
       ``(II) $100,000, and

       ``(iv) which has--

       ``(I) an estimated production period exceeding 4 months, 
     and
       ``(II) a cost exceeding $200,000.''.

       (2) Placed in service date.--Clause (iv) of section 
     168(k)(2)(A) is amended by striking ``subparagraph (B)'' and 
     inserting ``subparagraphs (B) and (C)''.
       (b) Conforming Amendments.--
       (1) Section 168(k)(2)(B) is amended by adding at the end 
     the following new clause:
       ``(iv) Application of subparagraph.--This subparagraph 
     shall not apply to any property which is described in 
     subparagraph (C).''.
       (2) Section 168(k)(4)(A)(ii) is amended by striking 
     ``paragraph (2)(C)'' and inserting ``paragraph (2)(D)''.
       (3) Section 168(k)(4)(B)(iii) is amended by inserting ``and 
     paragraph (2)(C)'' after ``of this paragraph)''.
       (4) Section 168(k)(4)(C) is amended by striking 
     ``subparagraphs (B) and (D)'' and inserting ``subparagraphs 
     (B), (C), and (E)''.
       (5) Section 168(k)(4)(D) is amended by striking ``Paragraph 
     (2)(E)'' and inserting ``Paragraph (2)(F)''.
       (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. 623. MODIFICATION OF CLASS LIFE FOR CERTAIN TRACK 
                   FACILITIES.

       (a) 7-Year Property.--Subparagraph (C) of section 168(e)(3) 
     (relating to classification of certain property) is amended 
     by redesignating clause (ii) as clause (iii) and by inserting 
     after clause (i) the following new clause:
       ``(ii) any motorsports entertainment complex, and''.
       (b) Definition.--Section 168(i) (relating to definitions 
     and special rules) is amended by adding at the end the 
     following new paragraph:
       ``(15) Motorsports entertainment complex.--
       ``(A) In general.--The term `motorsports entertainment 
     complex' means a racing track facility that is permanently 
     situated on land and which during the applicable period is 
     scheduled to host one or more racing events for automobiles 
     (of any type), trucks, or motorcycles that are open to the 
     public for the price of admission.
       ``(B) Ancillary and support facilities.--Such term shall 
     include, if owned by the complex and provided for the benefit 
     of patrons of the complex--
       ``(i) ancillary grounds and facilities and land 
     improvements in support of the complex's activities 
     (including parking lots, sidewalks, waterways, bridges, 
     fences, and landscaping),
       ``(ii) support facilities (including food and beverage 
     retailing, souvenir vending, and other nonlodging 
     accommodations), and

[[Page 4768]]

       ``(iii) appurtenances associated with such facilities and 
     related attractions and amusements (including ticket booths, 
     race track surfaces, suites and hospitality facilities, 
     grandstands and viewing structures, props, walls, facilities 
     that support the delivery of entertainment services, other 
     special purpose structures, facades, shop interiors, and 
     buildings).
       ``(C) Exception.--Such term shall not include any 
     transportation equipment, administrative services assets, 
     warehouses, administrative buildings, hotels, or motels.
       ``(D) Applicable period.--For purposes of subparagraph (A), 
     the term `applicable period' means the period ending the 
     later of the last day of--
       ``(i) the 24 month period following the first day of the 
     month in which the asset is or was placed in service, or
       ``(ii) the 24 month period ending December 31, 2003, to the 
     extent that the asset remains in service during such 
     period.''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to any property placed in service after the date of the 
     enactment of this Act.
       (2) No inference.--Nothing in the amendments made by this 
     section shall be construed to affect the treatment of 
     expenses incurred on or before the date of the enactment of 
     this Act.

     SEC. 624. MINIMUM TAX RELIEF FOR CERTAIN TAXPAYERS.

       (a) Election to Increase Minimum Tax Credit Limitation in 
     Lieu of Bonus Depreciation.--
       (1) In general.--Section 53 (relating to credit for prior 
     year minimum tax liability) is amended by adding at the end 
     the following new subsection:
       ``(e) Additional Credit in Lieu of Bonus Depreciation.--
       ``(1) In general.--In the case of a corporation making an 
     election under this subsection for a taxable year, the 
     limitation under subsection (c) shall be increased by an 
     amount equal to 50 percent of the bonus depreciation amount.
       ``(2) Bonus depreciation amount.--For purposes of paragraph 
     (1), the bonus depreciation amount for any taxable year is an 
     amount (not in excess of $10,000,000) equal to the product 
     of--
       ``(A) 30 percent, and
       ``(B) the excess (if any) of--
       ``(i) the aggregate amount of depreciation which would be 
     determined under section 168 for property placed in service 
     during such taxable year if no election under this subsection 
     were made, over
       ``(ii) the aggregate allowance for depreciation allowable 
     with respect to such property placed in service for such 
     taxable year.
       ``(3) Aggregation rule.--All members of the same controlled 
     group of corporations shall be treated as 1 corporation for 
     purposes of this subsection.
       ``(4) Election.--Sections 168(k) (other than paragraph 
     (2)(F) thereof) shall not apply to any property placed in 
     service during a taxable year by a corporation making an 
     election under this subsection for such taxable year. An 
     election under this subsection may only be revoked with the 
     consent of the Secretary.
       ``(5) Credit refundable.--The aggregate increase in the 
     credit allowed by this section for any taxable year by reason 
     of this subsection shall for purposes of this title (other 
     than subsection (b)(2) of this section) be treated as a 
     credit allowed to the taxpayer under subpart C.''.
       (2) Conforming amendments.--Subsection (k) of section 168 
     is amended by adding at the end the following new paragraph:
       ``(5) Cross reference.--For an election to claim certain 
     minimum tax credits in lieu of the allowance determined under 
     this subsection, see section 53(e).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years ending after December 31, 2003.
       (b) Use of General Business Credits Against Alternative 
     Minimum Tax.--
       (1) In general.--Section 38(c) (relating to limitations 
     based on amount of tax) is amended by redesignating paragraph 
     (4) as paragraph (5) and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) Special rule for 2004.--Notwithstanding the preceding 
     provisions of this paragraph, in the case of any taxable year 
     beginning in 2004, the credit allowed under subsection (a) 
     shall not exceed the greater of--
       ``(A) the amount determined under this subsection without 
     regard to this paragraph, or
       ``(B) 50 percent of the lesser of--
       ``(i) the amount which would be determined under this 
     subsection if the tentative minimum tax were treated as being 
     zero in applying paragraph (1) to such credit, or
       ``(ii) the amount of the current year business credit.''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning in 2004.

                Subtitle D--Expansion of Business Credit

     SEC. 631. NEW MARKETS TAX CREDIT FOR NATIVE AMERICAN 
                   RESERVATIONS.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business related credits) is amended 
     by redesignating sections 45E and 45F as sections 45F and 
     45G, respectively, and by inserting after section 45E the 
     following new section:

     ``SEC. 45D. NEW MARKETS TAX CREDIT FOR NATIVE AMERICAN 
                   RESERVATIONS.

       ``(a) Allowance of Credit.--
       ``(1) In general.--For purposes of section 38, in the case 
     of a taxpayer who holds a qualified equity investment on a 
     credit allowance date of such investment which occurs during 
     the taxable year, the Native American new markets tax credit 
     determined under this section for such taxable year is an 
     amount equal to the applicable percentage of the amount paid 
     to the reservation development entity for such investment at 
     its original issue.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage is--
       ``(A) 5 percent with respect to the first 3 credit 
     allowance dates, and
       ``(B) 6 percent with respect to the remainder of the credit 
     allowance dates.
       ``(3) Credit allowance date.--For purposes of paragraph 
     (1), the term `credit allowance date' means, with respect to 
     any qualified equity investment--
       ``(A) the date on which such investment is initially made, 
     and
       ``(B) each of the 6 anniversary dates of such date 
     thereafter.
       ``(b) Qualified Equity Investment.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified equity investment' 
     means any equity investment in a reservation development 
     entity if--
       ``(A) such investment is acquired by the taxpayer at its 
     original issue (directly or through an underwriter) solely in 
     exchange for cash,
       ``(B) substantially all of such cash is used by the 
     reservation development entity to make qualified low-income 
     reservation investments, and
       ``(C) such investment is designated for purposes of this 
     section by the reservation development entity.

     Such term shall not include any equity investment issued by a 
     reservation development entity more than 5 years after the 
     date that such entity receives an allocation under subsection 
     (f). Any allocation not used within such 5-year period may be 
     reallocated by the Secretary under subsection (f).
       ``(2) Limitation.--The maximum amount of equity investments 
     issued by a reservation development entity which may be 
     designated under paragraph (1)(C) by such entity shall not 
     exceed the portion of the limitation amount allocated under 
     subsection (f) to such entity.
       ``(3) Safe harbor for determining use of cash.--The 
     requirement of paragraph (1)(B) shall be treated as met if at 
     least 85 percent of the aggregate gross assets of the 
     reservation development entity are invested in qualified low-
     income reservation investments.
       ``(4) Treatment of subsequent purchasers.--The term 
     `qualified equity investment' includes any equity investment 
     which would (but for paragraph (1)(A)) be a qualified equity 
     investment in the hands of the taxpayer if such investment 
     was a qualified equity investment in the hands of a prior 
     holder.
       ``(5) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this subsection.
       ``(6) Equity investment.--The term `equity investment' 
     means--
       ``(A) any stock (other than nonqualified preferred stock as 
     defined in section 351(g)(2)) in an entity which is a 
     corporation, and
       ``(B) any capital interest in an entity which is a 
     partnership.
       ``(c) Reservation Development Entity.--For purposes of this 
     section--
       ``(1) In general.--The term `reservation development 
     entity' means any domestic corporation or partnership if--
       ``(A) the primary mission of the entity is serving, or 
     providing investment capital for, low-income reservations,
       ``(B) the entity maintains accountability to residents of 
     low-income reservations through their representation on any 
     governing board of the entity or on any advisory board to the 
     entity, and
       ``(C) the entity is certified by the Secretary for purposes 
     of this section as being a reservation development entity.
       ``(2) Exception.--For purposes of subparagraph (C) of 
     paragraph (1), the Secretary shall not certify an entity as a 
     reservation development entity if such entity is also 
     certified as a qualified community development entity under 
     section 45D(c).
       ``(d) Qualified Low-Income Reservation Investments.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified low-income 
     reservation investment' means--
       ``(A) any capital or equity investment in, or loan to, any 
     qualified active low-income reservation business,
       ``(B) the purchase from another reservation development 
     entity of any loan made by such entity which is a qualified 
     low-income reservation investment,
       ``(C) financial counseling and other services specified in 
     regulations prescribed by the Secretary to businesses located 
     in, and residents of, low-income reservations, and

[[Page 4769]]

       ``(D) any equity investment in, or loan to, any reservation 
     development entity.
       ``(2) Qualified active low-income reservation business.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `qualified active low-income reservation business' means, 
     with respect to any taxable year, any corporation (including 
     a nonprofit corporation) or partnership if for such year--
       ``(i) at least 50 percent of the total gross income of such 
     entity is derived from the active conduct of a qualified 
     business within any low-income reservation,
       ``(ii) a substantial portion of the use of the tangible 
     property of such entity (whether owned or leased) is within 
     any low-income reservation,
       ``(iii) a substantial portion of the services performed for 
     such entity by its employees are performed in any low-income 
     reservation,
       ``(iv) less than 5 percent of the average of the aggregate 
     unadjusted bases of the property of such entity is 
     attributable to collectibles (as defined in section 
     408(m)(2)) other than collectibles that are held primarily 
     for sale to customers in the ordinary course of such 
     business, and
       ``(v) less than 5 percent of the average of the aggregate 
     unadjusted bases of the property of such entity is 
     attributable to nonqualified financial property (as defined 
     in section 1397C(e)).
       ``(B) Proprietorship.--Such term shall include any business 
     carried on by an individual as a proprietor if such business 
     would meet the requirements of subparagraph (A) were it 
     incorporated.
       ``(C) Portions of business may be qualified active low-
     income reservation business.--The term `qualified active low-
     income reservation business' includes any trades or 
     businesses which would qualify as a qualified active low-
     income reservation business if such trades or businesses were 
     separately incorporated.
       ``(3) Qualified business.--For purposes of this subsection, 
     the term `qualified business' has the meaning given to such 
     term by section 45D(d)(3).
       ``(e) Low-Income Reservation.--For purposes of this 
     section, the term `low-income reservation' means any Indian 
     reservation (as defined in section 168(j)(6)) which has a 
     poverty rate of at least 40 percent.
       ``(f) National Limitation on Amount of Investments 
     Designated.--
       ``(1) In general.--There is a Native American new markets 
     tax credit limitation of $50,000,000 for each of calendar 
     years 2004 through 2007.
       ``(2) Allocation of limitation.--The limitation under 
     paragraph (1) shall be allocated by the Secretary among 
     reservation development entities selected by the Secretary. 
     In making allocations under the preceding sentence, the 
     Secretary shall give priority to any entity--
       ``(A) with a record of having successfully provided capital 
     or technical assistance to disadvantaged businesses or 
     communities, or
       ``(B) which intends to satisfy the requirement under 
     subsection (b)(1)(B) by making qualified low-income 
     reservation investments in 1 or more businesses in which 
     persons unrelated to such entity (within the meaning of 
     section 267(b) or 707(b)(1)) hold the majority equity 
     interest.
       ``(3) Carryover of unused limitation.--If the Native 
     American new markets tax credit limitation for any calendar 
     year exceeds the aggregate amount allocated under paragraph 
     (2) for such year, such limitation for the succeeding 
     calendar year shall be increased by the amount of such 
     excess. No amount may be carried under the preceding sentence 
     to any calendar year after 2014.
       ``(g) Recapture of Credit in Certain Cases.--
       ``(1) In general.--If, at any time during the 7-year period 
     beginning on the date of the original issue of a qualified 
     equity investment in a reservation development entity, there 
     is a recapture event with respect to such investment, then 
     the tax imposed by this chapter for the taxable year in which 
     such event occurs shall be increased by the credit recapture 
     amount.
       ``(2) Credit recapture amount.--For purposes of paragraph 
     (1), the credit recapture amount is an amount equal to the 
     sum of--
       ``(A) the aggregate decrease in the credits allowed to the 
     taxpayer under section 38 for all prior taxable years which 
     would have resulted if no credit had been determined under 
     this section with respect to such investment, plus
       ``(B) interest at the underpayment rate established under 
     section 6621 on the amount determined under subparagraph (A) 
     for each prior taxable year for the period beginning on the 
     due date for filing the return for the prior taxable year 
     involved.

     No deduction shall be allowed under this chapter for interest 
     described in subparagraph (B).
       ``(3) Recapture event.--For purposes of paragraph (1), 
     there is a recapture event with respect to an equity 
     investment in a reservation development entity if--
       ``(A) such entity ceases to be a reservation development 
     entity,
       ``(B) the proceeds of the investment cease to be used as 
     required of subsection (b)(1)(B), or
       ``(C) such investment is redeemed by such entity.
       ``(4) Special rules.--
       ``(A) Tax benefit rule.--The tax for the taxable year shall 
     be increased under paragraph (1) only with respect to credits 
     allowed by reason of this section which were used to reduce 
     tax liability. In the case of credits not so used to reduce 
     tax liability, the carryforwards and carrybacks under section 
     39 shall be appropriately adjusted.
       ``(B) No credits against tax.--Any increase in tax under 
     this subsection shall not be treated as a tax imposed by this 
     chapter for purposes of determining the amount of any credit 
     under this chapter or for purposes of section 55.
       ``(h) Basis Reduction.--The basis of any qualified equity 
     investment shall be reduced by the amount of any credit 
     determined under this section with respect to such 
     investment. This subsection shall not apply for purposes of 
     sections 1202, 1400B, and 1400F.
       ``(i) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section, 
     including regulations--
       ``(1) which limit the credit for investments which are 
     directly or indirectly subsidized by other Federal tax 
     benefits (including the credit under section 42 and the 
     exclusion from gross income under section 103),
       ``(2) which prevent the abuse of the purposes of this 
     section,
       ``(3) which provide rules for determining whether the 
     requirement of subsection (b)(1)(B) is treated as met,
       ``(4) which impose appropriate reporting requirements, and
       ``(5) which apply the provisions of this section to newly 
     formed entities.''.
       (b) Credit Made Part of General Business Credit.--
       (1) In general.--Subsection (b) of section 38 is amended by 
     redesignating paragraphs (14) and (15) as paragraphs (15) and 
     (16), respectively, and by inserting after paragraph (13) the 
     following new paragraph:
       ``(14) the Native American new markets tax credit 
     determined under section 45E(a),''.
       (2) Limitation on carryback.--Subsection (d) of section 39 
     is amended by redesignating paragraph (10) as paragraph (11) 
     and by inserting after paragraph (9) the following new 
     paragraph:
       ``(10) No carryback of native american new markets tax 
     credit before january 1, 2004.--No portion of the unused 
     business credit for any taxable year which is attributable to 
     the credit under section 45E may be carried back to a taxable 
     year ending before January 1, 2004.''.
       (c) Deduction for Unused Credit.--Subsection (c) of section 
     196 is amended by redesignating paragraph (10) as paragraph 
     (11), by striking ``and'' at the end of paragraph (9), and by 
     inserting after paragraph (9) the following new paragraph:
       ``(10) the Native American new markets tax credit 
     determined under section 45E(a), and''.
       (d) Conforming Amendments.--
       (1) Section 38(b)(15), as redesignated by subsection 
     (b)(1), is amended--
       (A) by striking ``45E(c)'' and inserting ``45F(c)'', and
       (B) by striking ``45E(a)'' and inserting ``45F(a)''.
       (2) Section 38(b)(16), as redesignated by subsection 
     (b)(1), is amended by striking ``45F(a)'' and inserting 
     ``45G(a)''.
       (3) Section 39(d)(11), as redesignated by subsection 
     (b)(2), is amended by striking ``section 45E'' and inserting 
     ``section 45F''.
       (4) Section 196(c)(11), as redesignated by subsection (c), 
     is amended by striking ``45E(a)'' and inserting ``45F(a)''.
       (5) Section 1016(a)(28) is amended--
       (A) by striking ``under section 45F'' and inserting ``under 
     section 45G'', and
       (B) by striking ``section 45F(f)(1)'' and inserting 
     ``section 45G(f)(1)''.
       (e) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     striking the items relating to sections 45E and 45F and 
     inserting the following:

``Sec. 45E. Native American new markets tax credit.
``Sec. 45F. Small employer pension plan startup costs.
``Sec. 45G. Employer-provided child care credit.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to investments made after December 31, 2003.
       (f) Guidance on Allocation of National Limitation.--Not 
     later than 120 days after the date of the enactment of this 
     Act, the Secretary of the Treasury or the Secretary's 
     delegate shall issue guidance which specifies--
       (1) how entities shall apply for an allocation under 
     section 45E(f)(2) of the Internal Revenue Code of 1986, as 
     added by this section;
       (2) the competitive procedure through which such 
     allocations are made; and
       (3) the actions that such Secretary or delegate shall take 
     to ensure that such allocations are properly made to 
     appropriate entities.
       (g) Audit and Report.--Not later than January 31 of 2007 
     and 2010, the Comptroller General of the United States shall, 
     pursuant to an audit of the Native American new markets tax 
     credit program established under

[[Page 4770]]

     section 45E of the Internal Revenue Code of 1986 (as added by 
     subsection (a)), report to Congress on such program, 
     including all reservation development entities that receive 
     an allocation under the Native American new markets credit 
     under such section.
       (f) Grants in Coordination With Credit.--
       (1) In general.--The Secretary of the Treasury is 
     authorized to award a grant of not more than $1,000,000 to 
     the First Nations Oweesta Corporation.
       (2) Use of funds.--The grant awarded under paragraph (1) 
     may be used--
       (A) to enhance the capacity of people living on low-income 
     reservations (within the meaning of section 45E(e) of the 
     Internal Revenue Code of 1986, as added by this section) to 
     access, apply, control, create, leverage, utilize, and retain 
     the financial benefits to such low-income reservations which 
     are attributable to qualified low-income reservation 
     investments (within the meaning of section 45E(d) of such 
     Code), and
       (B) to provide access to appropriate financial capital for 
     the development of such low-income reservations.
       (3) Authorization of appropriations.--There are authorized 
     to be appropriated $1,000,000 for fiscal years 2004 through 
     2014 to carry out the provisions of this subsection.

     SEC. 632. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT ADDED 
                   TO GENERAL BUSINESS CREDIT.

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

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

       ``(a) General Rule.--For purposes of section 38, the Ready 
     Reserve-National Guard employee credit determined under this 
     section for any taxable year with respect to each Ready 
     Reserve-National Guard employee of an employer is an amount 
     equal to 50 percent of the lesser of--
       ``(1) the actual compensation amount with respect to such 
     employee for such taxable year, or
       ``(2) $15,000.
       ``(b) Definition of Actual Compensation Amount.--For 
     purposes of this section, the term `actual compensation 
     amount' means the amount of compensation paid or incurred by 
     an employer with respect to a Ready Reserve-National Guard 
     employee on any day when the employee was absent from 
     employment for the purpose of performing qualified active 
     duty.
       ``(c) Limitations.--
       ``(1) Maximum period for credit per employee.--The maximum 
     period with respect to which the credit may be allowed with 
     respect to any Ready Reserve-National Guard employee shall 
     not exceed the 12-month period beginning on the first day 
     such credit is so allowed with respect to such employee.
       ``(2) Days other than work days.--No credit shall be 
     allowed with respect to any day that a Ready Reserve-National 
     Guard employee who performs qualified active duty was not 
     scheduled to work (for reason other than to participate in 
     qualified active duty).
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified active duty.--The term `qualified active 
     duty' means--
       ``(A) active duty, other than the training duty specified 
     in section 10147 of title 10, United States Code (relating to 
     training requirements for the Ready Reserve), or section 
     502(a) of title 32, United States Code (relating to required 
     drills and field exercises for the National Guard), in 
     connection with which an employee is entitled to reemployment 
     rights and other benefits or to a leave of absence from 
     employment under chapter 43 of title 38, United States Code, 
     and
       ``(B) hospitalization incident to such duty.
       ``(2) Compensation.--The term `compensation' means any 
     remuneration for employment, whether in cash or in kind, 
     which is paid or incurred by a taxpayer and which is 
     deductible from the taxpayer's gross income under section 
     162(a)(1).
       ``(3) Ready reserve-national guard employee.--The term 
     `Ready Reserve-National Guard employee' means an employee who 
     is a member of the Ready Reserve of a reserve component of an 
     Armed Force of the United States as described in sections 
     10142 and 10101 of title 10, United States Code.
       ``(4) Certain rules to apply.--Rules similar to the rules 
     of section 52 shall apply.''.
       (b) Credit To Be Part of General Business Credit.--
     Subsection (b) of section 38 (relating to general business 
     credit), as amended by this Act, is amended by striking 
     ``plus'' at the end of paragraph (15), by striking the period 
     at the end of paragraph (16) and inserting ``, plus'', and by 
     adding at the end the following:
       ``(17) the Ready Reserve-National Guard employee credit 
     determined under section 45H(a).''.
       (c) Denial of Double Benefit.--Section 280C(a) (relating to 
     rule for employment credits) is amended by inserting 
     ``45H(a),'' after ``45A(a),''.
       (d) Conforming Amendment.--The table of sections for 
     subpart D of part IV of subchapter A of chapter 1, as amended 
     by this Act, is amended by inserting after the item relating 
     to section 45G the following:

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

       (e) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act, in taxable years ending after such 
     date.

     SEC. 633. RURAL INVESTMENT TAX CREDIT.

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

     ``SEC. 42A. RURAL INVESTMENT CREDIT.

       ``(a) In General.--For purposes of section 38, the amount 
     of the rural investment credit determined under this section 
     for any taxable year in the credit period shall be an amount 
     equal to the applicable percentage of the eligible basis of 
     each qualified rural investment building.
       ``(b) Applicable Percentage: 70 Percent Present Value 
     Credit for New Buildings; 30 Percent Present Value Credit for 
     Existing Buildings.--For purposes of this section--
       ``(1) In general.--The term `applicable percentage' means 
     the appropriate percentage prescribed by the Secretary for 
     the earlier of--
       ``(A) the first month of the credit period with respect to 
     a rural investment building, or
       ``(B) at the election of the taxpayer, the month in which 
     the taxpayer and the rural investment credit agency enter 
     into an agreement with respect to such building (which is 
     binding on such agency, the taxpayer, and all successors in 
     interest) as to the rural investment credit dollar amount to 
     be allocated to such building.

     A month may be elected under subparagraph (B) only if the 
     election is made not later than the 5th day after the close 
     of such month. Such an election, once made, shall be 
     irrevocable.
       ``(2) Method of prescribing percentages.--The percentages 
     prescribed by the Secretary for any month shall be 
     percentages which will yield over a 10-year period amounts of 
     credit under subsection (a) which have a present value equal 
     to--
       ``(A) 70 percent of the eligible basis of a new building, 
     and
       ``(B) 30 percent of the eligible basis of an existing 
     building.
       ``(3) Method of discounting.--The present value under 
     paragraph (2) shall be determined--
       ``(A) as of the last day of the 1st year of the 10-year 
     period referred to in paragraph (2),
       ``(B) by using a discount rate equal to 72 percent of the 
     average of the annual Federal mid-term rate and the annual 
     Federal long-term rate applicable under section 1274(d)(1) to 
     the month applicable under subparagraph (A) or (B) of 
     paragraph (1) and compounded annually, and
       ``(C) by assuming that the credit allowable under this 
     section for any year is received on the last day of such 
     year.
       ``(c) Eligible Basis; Qualified Rural Investment 
     Building.--For purposes of this section--
       ``(1) Eligible basis.--
       ``(A) In general.--The eligible basis of any qualified 
     rural investment building for any taxable year shall be 
     determined under rules similar to the rules under section 
     42(d), except that--
       ``(i) the determination of the adjusted basis of any 
     building shall be made as of the beginning of the credit 
     period, and
       ``(ii) such basis shall include development costs properly 
     attributable to such building.
       ``(B) Development costs.--For purposes of subparagraph 
     (A)(ii), the term `development costs' includes--
       ``(i) site preparation costs,
       ``(ii) State and local impact fees,
       ``(iii) reasonable development costs,
       ``(iv) professional fees related to basis items,
       ``(v) construction financing costs related to basis items 
     other than land, and
       ``(vi) on-site and adjacent improvements required by State 
     and local governments.
       ``(2) Qualified rural investment building.--The term 
     `qualified rural investment building' means any building 
     which is part of a qualified rural investment project at all 
     times during the period--
       ``(A) beginning on the 1st day in the compliance period on 
     which such building is part of such an investment project, 
     and
       ``(B) ending on the last day of the compliance period with 
     respect to such building.
       ``(d) Rehabilitation Expenditures Treated as Separate New 
     Building.--Rehabilitation expenditures paid or incurred by 
     the taxpayer with respect to any building shall be treated 
     for purposes of this section as a separate new building under 
     the rules of section 42(e).
       ``(e) Definition and Special Rules Relating to Credit 
     Period.--
       ``(1) Credit period defined.--For purposes of this section, 
     the term `credit period' means, with respect to any building, 
     the period of 10 taxable years beginning with the taxable 
     year in which the building is first placed in service.
       ``(2) Special rule for 1st year of credit period.--
       ``(A) In general.--The credit allowable under subsection 
     (a) with respect to any building for the 1st taxable year of 
     the credit

[[Page 4771]]

     period shall be determined by multiplying such credit by the 
     fraction--
       ``(i) the numerator of which is the number of full months 
     of such year during which such building was in service, and
       ``(ii) the denominator of which is 12.
       ``(B) Disallowed 1st year credit allowed in 11th year.--Any 
     reduction by reason of subparagraph (A) in the credit 
     allowable (without regard to subparagraph (A)) for the 1st 
     taxable year of the credit period shall be allowable under 
     subsection (a) for the 1st taxable year following the credit 
     period.
       ``(3) Credit period for existing buildings not to begin 
     before rehabilitation credit allowed.--The credit period for 
     an existing building shall not begin before the 1st taxable 
     year of the credit period for rehabilitation expenditures 
     with respect to the building.
       ``(f) Qualified Rural Investment Project; Qualifying 
     County.--For purposes of this section--
       ``(1) Qualified rural investment project.--The term 
     `qualified rural investment project' means any investment 
     project of 1 or more qualified rural investment buildings 
     located in a qualifying county (and, if necessary to the 
     project, any contiguous county) and selected by the State 
     according to its qualified rural investment plan.
       ``(2) Qualifying county.--The term `qualifying county' 
     means any county which--
       ``(A) is outside a metropolitan statistical area (defined 
     as such by the Office of Management and Budget), and
       ``(B) during the 20-year period ending with the calendar 
     year preceding the date of the enactment of this section, has 
     a net out-migration of inhabitants from the county of at 
     least 10 percent of the population of the county at the 
     beginning of such period.
       ``(g) Limitation on Aggregate Credit Allowable With Respect 
     to Investment Projects Located in a State.--
       ``(1) Credit may not exceed credit amount allocated to 
     building.--The amount of the credit determined under this 
     section for any taxable year with respect to any building 
     shall not exceed the rural investment credit dollar amount 
     allocated to such building under rules similar to the rules 
     of section 42(h)(1).
       ``(2) Allocated credit amount to apply to all taxable years 
     ending during or after credit allocation year.--Any rural 
     investment credit dollar amount allocated to any building for 
     any calendar year--
       ``(A) shall apply to such building for all taxable years in 
     the credit period ending during or after such calendar year, 
     and
       ``(B) shall reduce the aggregate rural investment credit 
     dollar amount of the allocating agency only for such calendar 
     year.
       ``(3) Rural investment credit dollar amount for agencies.--
       ``(A) In general.--The aggregate rural investment credit 
     dollar amount which a rural investment credit agency may 
     allocate for any calendar year is the portion of the State 
     rural investment credit ceiling allocated under this 
     paragraph for such calendar year to such agency.
       ``(B) State ceiling initially allocated to state rural 
     investment credit agencies.--Except as provided in 
     subparagraphs (D) and (E), the State rural investment credit 
     ceiling for each calendar year shall be allocated to the 
     rural investment credit agency of such State. If there is 
     more than 1 rural investment credit agency of a State, all 
     such agencies shall be treated as a single agency.
       ``(C) State rural investment credit ceiling.--The State 
     rural investment credit ceiling applicable to any State and 
     any calendar year shall be an amount equal to the sum of--
       ``(i) the unused State rural investment credit ceiling (if 
     any) of such State for the preceding calendar year,
       ``(ii) $185,000 for each qualifying county in the State,
       ``(iii) the amount of State rural investment credit ceiling 
     returned in the calendar year, plus
       ``(iv) the amount (if any) allocated under subparagraph (D) 
     to such State by the Secretary.

     For purposes of clause (i), the unused State rural investment 
     credit ceiling for any calendar year is the excess (if any) 
     of the sum of the amounts described in clauses (ii) through 
     (iv) over the aggregate rural investment credit dollar amount 
     allocated for such year. For purposes of clause (iii), the 
     amount of State rural investment credit ceiling returned in 
     the calendar year equals the rural investment credit dollar 
     amount previously allocated within the State to any 
     investment project which fails to meet the 10 percent test 
     under section 42(h)(1)(E)(ii) on a date after the close of 
     the calendar year in which the allocation was made or which 
     does not become a qualified rural investment project within 
     the period required by this section or the terms of the 
     allocation or to any investment project with respect to which 
     an allocation is canceled by mutual consent of the rural 
     investment credit agency and the allocation recipient.
       ``(D) Unused rural investment credit carryovers allocated 
     among certain states.--
       ``(i) In general.--The unused rural investment credit 
     carryover of a State for any calendar year shall be assigned 
     to the Secretary for allocation among qualified States for 
     the succeeding calendar year.
       ``(ii) Unused rural investment credit carryover.--For 
     purposes of this subparagraph, the unused rural investment 
     credit carryover of a State for any calendar year is the 
     excess (if any) of the unused State rural investment credit 
     ceiling for such year (as defined in subparagraph (C)(i)) 
     over the excess (if any) of--

       ``(I) the unused State rural investment credit ceiling for 
     the year preceding such year, over
       ``(II) the aggregate rural investment credit dollar amount 
     allocated for such year.

       ``(iii) Formula for allocation of unused rural investment 
     credit carryovers among qualified states.--The amount 
     allocated under this subparagraph to a qualified State for 
     any calendar year shall be the amount determined by the 
     Secretary to bear the same ratio to the aggregate unused 
     rural investment credit carryovers of all States for the 
     preceding calendar year as such State's population for the 
     calendar year bears to the population of all qualified States 
     for the calendar year. For purposes of the preceding 
     sentence, population shall be determined in accordance with 
     section 146(j).
       ``(iv) Qualified state.--For purposes of this subparagraph, 
     the term `qualified State' means, with respect to a calendar 
     year, any State--

       ``(I) which allocated its entire State rural investment 
     credit ceiling for the preceding calendar year, and
       ``(II) for which a request is made (not later than May 1 of 
     the calendar year) to receive an allocation under clause 
     (iii).

       ``(E) State may provide for different allocation.--Rules 
     similar to the rules of section 146(e) (other than paragraph 
     (2)(B) thereof) shall apply for purposes of this paragraph.
       ``(F) Population.--For purposes of this paragraph, 
     population shall be determined in accordance with section 
     146(j).
       ``(G) Cost-of-living adjustment.--
       ``(i) In general.--In the case of a calendar year after 
     2005, the $185,000 amount in subparagraph (C) shall be 
     increased by an amount equal to--

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

       ``(ii) Rounding.--Any increase under clause (i) which is 
     not a multiple of $5,000 shall be rounded to the next lowest 
     multiple of $5,000.
       ``(4) Portion of state ceiling set-aside for certain 
     investment projects involving qualified nonprofit 
     organizations.--
       ``(A) In general.--At least 10 percent of the State rural 
     investment credit ceiling for any State for any calendar year 
     shall be allocated to qualified rural investment projects 
     described in subparagraph (B).
       ``(B) Investment projects involving qualified nonprofit 
     organizations.--For purposes of subparagraph (A), a qualified 
     rural investment project is described in this subparagraph if 
     a qualified nonprofit organization is to materially 
     participate (within the meaning of section 469(h)) in the 
     development and operation of the investment project 
     throughout the compliance period.
       ``(C) Qualified nonprofit organization.--For purposes of 
     this paragraph, the term `qualified nonprofit organization' 
     means any organization if--
       ``(i) such organization is described in any paragraph of 
     section 501(c) and is exempt from tax under section 501(a),
       ``(ii) such organization is determined by the State rural 
     investment credit agency not to be affiliated with or 
     controlled by a for-profit organization; and
       ``(iii) 1 of the exempt purposes of such organization 
     includes the fostering of rural investment.
       ``(D) Treatment of certain subsidiaries.--
       ``(i) In general.--For purposes of this paragraph, a 
     qualified nonprofit organization shall be treated as 
     satisfying the ownership and material participation test of 
     subparagraph (B) if any qualified corporation in which such 
     organization holds stock satisfies such test.
       ``(ii) Qualified corporation.--For purposes of clause (i), 
     the term `qualified corporation' means any corporation if 100 
     percent of the stock of such corporation is held by 1 or more 
     qualified nonprofit organizations at all times during the 
     period such corporation is in existence.
       ``(E) State may not override set-aside.--Nothing in 
     subparagraph (F) of paragraph (3) shall be construed to 
     permit a State not to comply with subparagraph (A) of this 
     paragraph.
       ``(F) Credits for qualified nonprofit organizations.--
       ``(i) Allowance of credit.--Any credit which would be 
     allowable under subsection (a) with respect to a qualified 
     rural investment building of a qualified nonprofit 
     organization if such organization were not exempt from tax 
     under this chapter shall be treated as a credit allowable 
     under subpart C to such organization.
       ``(ii) Use of credit.--A qualified nonprofit organization 
     may assign, trade, sell, or otherwise transfer any credit 
     allowable to such

[[Page 4772]]

     organization under subparagraph (A) to any taxpayer.
       ``(iii) Credit not income.--A transfer under subparagraph 
     (B) of any credit allowable under subparagraph (A) shall not 
     result in income for purposes of section 511.
       ``(5) Special rules.--
       ``(A) Building must be located within jurisdiction of 
     credit agency.--A rural investment credit agency may allocate 
     its aggregate rural investment credit dollar amount only to 
     buildings located in the jurisdiction of the governmental 
     unit of which such agency is a part.
       ``(B) Agency allocations in excess of limit.--If the 
     aggregate rural investment credit dollar amounts allocated by 
     a rural investment credit agency for any calendar year exceed 
     the portion of the State rural investment credit ceiling 
     allocated to such agency for such calendar year, the rural 
     investment credit dollar amounts so allocated shall be 
     reduced (to the extent of such excess) for buildings in the 
     reverse of the order in which the allocations of such amounts 
     were made.
       ``(C) Credit reduced if allocated credit dollar amount is 
     less than credit which would be allowable without regard to 
     sales convention, etc.--
       ``(i) In general.--The amount of the credit determined 
     under this section with respect to any building shall not 
     exceed the clause (ii) percentage of the amount of the credit 
     which would (but for this subparagraph) be determined under 
     this section with respect to such building.
       ``(ii) Determination of percentage.--For purposes of clause 
     (i), the clause (ii) percentage with respect to any building 
     is the percentage which--

       ``(I) the rural investment credit dollar amount allocated 
     to such building bears to
       ``(II) the credit amount determined in accordance with 
     clause (iii).

       ``(iii) Determination of credit amount.--The credit amount 
     determined in accordance with this clause is the amount of 
     the credit which would (but for this subparagraph) be 
     determined under this section with respect to the building if 
     this section were applied without regard to paragraph (2)(A) 
     of subsection (e).
       ``(D) Rural investment credit agency to specify applicable 
     percentage and maximum eligible basis.--In allocating a rural 
     investment credit dollar amount to any building, the rural 
     investment credit agency shall specify the applicable 
     percentage and the maximum eligible basis which may be taken 
     into account under this section with respect to such 
     building. The applicable percentage and maximum eligible 
     basis so specified shall not exceed the applicable percentage 
     and eligible basis determined under this section without 
     regard to this subsection.
       ``(6) Other definitions.--For purposes of this subsection--
       ``(A) Rural investment credit agency.--The term `rural 
     investment credit agency' means any agency authorized to 
     carry out this subsection.
       ``(B) Possessions treated as states.--The term `State' 
     includes a possession of the United States.
       ``(7) Portion of state ceiling set-aside for qualified 
     rural small business investment credits.--Not more than 10 
     percent of the State rural investment credit ceiling for any 
     State for any calendar year may be allocated to qualified 
     rural small business investment credits under section 42B.
       ``(h) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Compliance period.--The term `compliance period' 
     means, with respect to any building, the period of 10 taxable 
     years beginning with the 1st taxable year of the credit 
     period with respect thereto.
       ``(2) New building.--The term `new building' means a 
     building the original use of which begins with the taxpayer.
       ``(3) Existing building.--The term `existing building' 
     means any building which is not a new building.
       ``(4) Application to estates and trusts.--In the case of an 
     estate or trust, the amount of the credit determined under 
     subsection (a) and any increase in tax under subsection (i) 
     shall be apportioned between the estate or trust and the 
     beneficiaries on the basis of the income of the estate or 
     trust allocable to each.
       ``(i) Recapture of Credit.--If--
       ``(1) as of the close of any taxable year in the compliance 
     period, the amount of the eligible basis of any building with 
     respect to the taxpayer is less than
       ``(2) the amount of such basis as of the close of the 
     preceding taxable year,

     then the taxpayer's tax under this chapter for the taxable 
     year shall be increased by the credit recapture amount 
     determined under rules similar to the rules of section 42(j).
       ``(j) Certifications and Other Reports to Secretary.--
       ``(1) Certification with respect to 1st year of credit 
     period.--Following the close of the 1st taxable year in the 
     credit period with respect to any qualified rural investment 
     building, the taxpayer shall certify to the Secretary (at 
     such time and in such form and in such manner as the 
     Secretary prescribes)--
       ``(A) the taxable year, and calendar year, in which such 
     building was first placed in service,
       ``(B) the eligible basis of such building as of the 
     beginning of the credit period,
       ``(C) the maximum applicable percentage and eligible basis 
     permitted to be taken into account by the appropriate rural 
     investment credit agency under subsection (g),
       ``(D) the election made under subsection (f) with respect 
     to the qualified rural investment project of which such 
     building is a part, and
       ``(E) such other information as the Secretary may require.

     In the case of a failure to make the certification required 
     by the preceding sentence on the date prescribed therefor, 
     unless it is shown that such failure is due to reasonable 
     cause and not to willful neglect, no credit shall be 
     allowable by reason of subsection (a) with respect to such 
     building for any taxable year ending before such 
     certification is made.
       ``(2) Annual reports to the secretary.--The Secretary may 
     require taxpayers to submit an information return (at such 
     time and in such form and manner as the Secretary prescribes) 
     for each taxable year setting forth--
       ``(A) the eligible basis for the taxable year of each 
     qualified rural investment building of the taxpayer,
       ``(B) the information described in paragraph (1)(C) for the 
     taxable year, and
       ``(C) such other information as the Secretary may require.

     The penalty under section 6652(j) shall apply to any failure 
     to submit the return required by the Secretary under the 
     preceding sentence on the date prescribed therefor.
       ``(3) Annual reports from rural investment credit 
     agencies.--Each agency which allocates any rural investment 
     credit amount to any building for any calendar year shall 
     submit to the Secretary (at such time and in such manner as 
     the Secretary shall prescribe) an annual report specifying--
       ``(A) the amount of rural investment credit amount 
     allocated to each building for such year,
       ``(B) sufficient information to identify each such building 
     and the taxpayer with respect thereto, and
       ``(C) such other information as the Secretary may require.

     The penalty under section 6652(j) shall apply to any failure 
     to submit the report required by the preceding sentence on 
     the date prescribed therefor.
       ``(k) Responsibilities of Rural Investment Credit 
     Agencies.--
       ``(1) Plans for allocation of credit among investment 
     projects.--
       ``(A) In general.--Notwithstanding any other provision of 
     this section, the rural investment credit dollar amount with 
     respect to any building shall be zero unless--
       ``(i) such amount was allocated pursuant to a qualified 
     rural investment plan of the agency which is approved by the 
     governmental unit (in accordance with rules similar to the 
     rules of section 147(f)(2) (other than subparagraph (B)(ii) 
     thereof)) of which such agency is a part,
       ``(ii) such agency notifies the chief executive officer (or 
     the equivalent) of the local jurisdiction within which the 
     building is located of such investment project and provides 
     such individual a reasonable opportunity to comment on the 
     investment project,
       ``(iii) a comprehensive market study of the development 
     needs of individuals in the qualifying county to be served by 
     the investment project is conducted before the credit 
     allocation is made and at the developer's expense by a 
     disinterested party who is approved by such agency, and
       ``(iv) a written explanation is available to the general 
     public for any allocation of a rural investment credit dollar 
     amount which is not made in accordance with established 
     priorities and selection criteria of the rural investment 
     credit agency.
       ``(B) Qualified rural investment plan.--For purposes of 
     this section, the term `qualified rural investment plan' 
     means any plan--
       ``(i) which sets forth selection criteria to be used to 
     determine priorities of the rural investment credit agency 
     which are appropriate to qualifying counties,
       ``(ii) which also gives preference in allocating rural 
     investment credit dollar amounts among selected investment 
     projects to--

       ``(I) investment projects that target those small rural 
     counties with consistently high rates of net out-migration,
       ``(II) investment projects that link the economic 
     development and job creation efforts of 2 or more small rural 
     counties with high rates of net out-migration, and
       ``(III) investment projects that link the economic 
     development and job creation efforts of 1 or more small rural 
     counties in the State with high rates of net out-migration to 
     related efforts in regions of such State experiencing 
     economic growth, and

       ``(iii) which provides a procedure that the agency (or an 
     agent or other private contractor of such agency) will follow 
     in monitoring for noncompliance with the provisions of this 
     section and in notifying the Internal Revenue Service of such 
     noncompliance which such agency becomes aware of and in 
     monitoring for noncompliance through regular site visits.

[[Page 4773]]

       ``(C) Certain selection criteria must be used.--The 
     selection criteria set forth in a qualified rural investment 
     plan must include--
       ``(i) investment project location,
       ``(ii) technology and transportation infrastructure needs, 
     and
       ``(iii) private development trends.
       ``(2) Credit allocated to building not to exceed amount 
     necessary to assure investment project feasibility.--
       ``(A) In general.--The rural investment credit dollar 
     amount allocated to an investment project shall not exceed 
     the amount the rural investment credit agency determines is 
     necessary for the financial feasibility of the investment 
     project and its viability as a qualified rural investment 
     project throughout the compliance period.
       ``(B) Agency evaluation.--In making the determination under 
     subparagraph (A), the rural investment credit agency shall 
     consider--
       ``(i) the sources and uses of funds and the total financing 
     planned for the investment project,
       ``(ii) any proceeds or receipts expected to be generated by 
     reason of tax benefits,
       ``(iii) the percentage of the rural investment credit 
     dollar amount used for investment project costs other than 
     the cost of intermediaries, and
       ``(iv) the reasonableness of the developmental and 
     operational costs of the investment project.

     Clause (iii) shall not be applied so as to impede the 
     development of investment projects in hard-to-develop areas.
       ``(C) Determination made when credit amount applied for and 
     when building placed in service.--
       ``(i) In general.--A determination under subparagraph (A) 
     shall be made as of each of the following times:

       ``(I) The application for the rural investment credit 
     dollar amount.
       ``(II) The allocation of the rural investment credit dollar 
     amount.
       ``(III) The date the building is first placed in service.

       ``(ii) Certification as to amount of other subsidies.--
     Prior to each determination under clause (i), the taxpayer 
     shall certify to the rural investment credit agency the full 
     extent of all Federal, State, and local subsidies which apply 
     (or which the taxpayer expects to apply) with respect to the 
     building.
       ``(l) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section, including regulations--
       ``(1) dealing with--
       ``(A) investment projects which include more than 1 
     building or only a portion of a building,
       ``(B) buildings which are sold in portions,
       ``(2) providing for the application of this section to 
     short taxable years,
       ``(3) preventing the avoidance of the rules of this 
     section, and
       ``(4) providing the opportunity for rural investment credit 
     agencies to correct administrative errors and omissions with 
     respect to allocations and record keeping within a reasonable 
     period after their discovery, taking into account the 
     availability of regulations and other administrative guidance 
     from the Secretary.''.
       (b) Current Year Business Credit Calculation.--Section 
     38(b) (relating to current year business credit), as amended 
     by this Act, is amended by striking ``plus'' at the end of 
     paragraph (16), by striking the period at the end of 
     paragraph (17) and inserting ``, plus'', and by adding at the 
     end the following:
       ``(18) the rural investment credit determined under section 
     42A(a).''.
       (c) Limitation on Carryback.--Subsection (d) of section 39 
     (relating to carryback and carryforward of unused credits), 
     as amended by this Act, is amended by adding at the end the 
     following:
       ``(12) No carryback of rural investment credit before 
     effective date.--No portion of the unused business credit for 
     any taxable year which is attributable to the rural 
     investment credit determined under section 42A may be carried 
     back to a taxable year beginning before the date of the 
     enactment of the Jumpstart Our Business Strength (JOBS) 
     Act.''.
       (d) Conforming Amendments.--
       (1) Section 55(c)(1) is amended by inserting ``or 
     subsection (i) or (j) of section 42A'' after ``section 42''.
       (2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and (k)(1) of 
     section 469 are each amended by inserting ``or 42A'' after 
     ``section 42''.
       (3) Section 772(a) is amended by striking ``and'' at the 
     end of paragraph (10), by redesignating paragraph (11) as 
     paragraph (12), and by inserting after paragraph (10) the 
     following:
       ``(11) the rural investment credit determined under section 
     42A, and''.
       (4) Section 774(b)(4) is amended by inserting ``, 42A(i),'' 
     after ``section 42(j)''.
       (e) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     inserting after the item relating to section 42 the 
     following:

``Sec. 42A. Rural investment credit.''.

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

     SEC. 634. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.

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

     ``SEC. 42B. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.

       ``(a) In General.--For purposes of section 38, in the case 
     of a qualified rural small business, the amount of the 
     qualified rural small business investment credit determined 
     under this section for any taxable year is equal to 30 
     percent of the qualified expenditures for the taxable year of 
     such business.
       ``(b) Dollar Limitation.--
       ``(1) In general.--The credit allowable under subsection 
     (a) for any taxable year shall not exceed the lesser of--
       ``(A) $5,000, or
       ``(B) the amount when added to the aggregate credits 
     allowable to the taxpayer under subsection (a) for all 
     preceding taxable years does not exceed $25,000.
       ``(2) No double credit allowed.--In the case of any 
     qualified rural small business which places in service a 
     qualified rural investment building with respect to which a 
     rural investment credit is allowed under section 42A for any 
     taxable year, paragraph (1)(A) shall be applied with respect 
     to such taxable year by substituting `zero' for `$5,000'.
       ``(c) Qualified Rural Small Business.--For purposes of this 
     section, the term `qualified rural small business' means any 
     person if such person--
       ``(1) employed not more than 5 full-time employees during 
     the taxable year,
       ``(2) materially and substantially participates in 
     management,
       ``(3) is located is a qualifying county, and

       ``(4) submitted a qualified business plan with respect to 
     which the rural investment credit agency with jurisdiction 
     over such qualifying county has allocated a portion of the 
     State rural investment ceiling for such taxable year under 
     section 42A(g)(7).
     For purposes of paragraph (1), an employee shall be 
     considered full-time if such employee is employed at least 30 
     hours per week for 20 or more calendar weeks in the taxable 
     year.
       ``(d) Qualified Expenditures.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified expenditures' means 
     expenditures normally associated with starting or expanding a 
     business and included in a qualified business plan, including 
     costs for capital, plant and equipment, inventory expenses, 
     and wages, but not including interest costs.
       ``(2) Only certain expenditures included for existing 
     businesses.--In the case of a qualified rural small business 
     with respect to which a credit under subsection (a) was 
     allowed for a preceding taxable year, such term shall include 
     only so much of the expenditures described in paragraph (1) 
     for the taxable year as exceed the aggregate of such 
     expenditures for the preceding taxable year.
       ``(e) Qualified Business Plan.--For purposes of this 
     section, the term `qualified business plan' means a business 
     plan which--
       ``(1) has been approved by the rural investment credit 
     agency with jurisdiction over the qualifying county in which 
     the qualified rural small business is located pursuant to 
     such agency's rural investment plan, and
       ``(2) meets such requirements as the agency may specify.
       ``(f) Denial of Double Benefit.--In the case of the amount 
     of the credit determined under this section--
       ``(1) no deduction or credit shall be allowed for such 
     amount under any other provision of this chapter, and
       ``(2) no increase in the adjusted basis of any property 
     shall result from such amount.
       ``(g) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) any term which is used in this section which is used 
     in section 42A shall have the meaning given such term by 
     section 42A, and
       ``(2) rules similar to the rules under subsections (j)(2), 
     (j)(3), and (k) of section 42A shall apply.''.
       (b) Current Year Business Credit Calculation.--Section 
     38(b) (relating to current year business credit), as amended 
     by this Act, is amended by striking ``plus'' at the end of 
     paragraph (17), by striking the period at the end of 
     paragraph (18) and inserting ``, plus'', and by adding at the 
     end the following:
       ``(19) the qualified rural small business investment credit 
     determined under section 42B(a).''.
       (c) Limitation on Carryback.--Subsection (d) of section 39 
     (relating to carryback and carryforward of unused credits), 
     as amended by this Act, is amended by adding at the end the 
     following:
       ``(13) No carryback of qualified rural small business 
     investment credit before effective date.--No portion of the 
     unused business credit for any taxable year which is 
     attributable to the qualified rural small business investment 
     credit determined under section 42B may be carried back to a 
     taxable year beginning before the date of the enactment of 
     the Jumpstart Our Business Strength (JOBS) Act.''.

[[Page 4774]]

       (d) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1, as amended by this 
     Act, is amended by inserting after the item relating to 
     section 42A the following:

``Sec. 42B. Qualified rural small business investment credit.''.

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

     SEC. 635. CREDIT FOR MAINTENANCE OF RAILROAD TRACK.

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

     ``SEC. 45I. RAILROAD TRACK MAINTENANCE CREDIT.

       ``(a) General Rule.--For purposes of section 38, the 
     railroad track maintenance credit determined under this 
     section for the taxable year is an amount equal to 15 percent 
     of the qualified railroad track maintenance expenditures paid 
     or incurred by an eligible taxpayer during the taxable year.
       ``(b) Limitation.--The credit allowed under subsection (a) 
     for any taxable year shall not exceed the product of--
       ``(1) $10,000, and
       ``(2) the number of miles of railroad track owned or leased 
     by the eligible taxpayer as of the close of the taxable year.
       ``(c) Eligible taxpayer.--For purposes of this section, the 
     term `eligible taxpayer' means--
       ``(1) any Class II or Class III railroad, and
       ``(2) any person who transports property using the rail 
     facilities of a person described in paragraph (1) or who 
     furnishes railroad-related property or services to such a 
     person.
       ``(d) Qualified Railroad Track Maintenance Expenditures.--
     For purposes of this section, the term `qualified railroad 
     track maintenance expenditures' means expenditures (whether 
     or not otherwise chargeable to capital account) for 
     maintaining railroad track (including roadbed, bridges, and 
     related track structures) owned or leased as of January 1, 
     2005, by a Class II or Class III railroad.
       ``(e) Other Definitions and Special Rules.--
       ``(1) Class ii or Class iii railroad.--For purposes of this 
     section, the terms `Class II railroad' and `Class III 
     railroad' have the meanings given such terms by the Surface 
     Transportation Board.
       ``(2) Controlled groups.--Rules similar to the rules of 
     paragraph (1) of section 41(f) shall apply for purposes of 
     this section.
       ``(3) Basis adjustment.--For purposes of this subtitle, if 
     a credit is allowed under this section with respect to any 
     railroad track, the basis of such track shall be reduced by 
     the amount of the credit so allowed.
       ``(f) Application of Section.--This section shall apply to 
     qualified railroad track maintenance expenditures paid or 
     incurred during taxable years beginning after December 31, 
     2004, and before January 1, 2008.''.
       (b) Limitation on Carryback.--Section 39(d) (relating to 
     transition rules), as amended by this Act, is amended by 
     adding at the end the following new paragraph:
       ``(14) No carryback of railroad track maintenance credit 
     before effective date.--No portion of the unused business 
     credit for any taxable year which is attributable to the 
     railroad track maintenance credit determined under section 
     45I may be carried to a taxable year beginning before January 
     1, 2005.''.
       (c) Conforming Amendments.--
       (1) Section 38(b) (relating to general business credit), as 
     amended by this Act, is amended by striking ``plus'' at the 
     end of paragraph (18), by striking the period at the end of 
     paragraph (19) and inserting ``, plus'', and by adding at the 
     end the following new paragraph:
       ``(20) the railroad track maintenance credit determined 
     under section 45I(a).''.
       (2) Subsection (a) of section 1016, as amended by this Act, 
     is amended by striking ``and'' at the end of paragraph (28), 
     by striking the period at the end of paragraph (29) and 
     inserting ``, and'', and by adding at the end the following 
     new paragraph:
       ``(30) in the case of railroad track with respect to which 
     a credit was allowed under section 45I, to the extent 
     provided in section 45I(e)(3).''.
       (d) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1, as amended by this 
     Act, is amended by inserting after the item relating to 
     section 45F the following new item:

``Sec. 45I. Railroad track maintenance credit.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 636. RAILROAD REVITALIZATION AND SECURITY INVESTMENT 
                   CREDIT.

       (a) Railroad Revitalization and Security Investment 
     Credit.--
       (1) In general.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business-related credits), as amended 
     by this Act, is amended by adding at the end the following 
     new section:

     ``SEC. 45J. RAILROAD REVITALIZATION AND SECURITY INVESTMENT 
                   CREDIT.

       ``(a) General Rule.--For purposes of section 38, the 
     railroad revitalization and security investment credit 
     determined under this section for the taxable year is the 
     amount equal to 50 percent of the qualified project 
     expenditures paid or incurred by the taxpayer during the 
     taxable year.
       ``(b) Qualified Project Expenditures.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified project expenditures' means, with respect to any 
     project for intercity passenger rail transportation (as 
     defined under section 24102 of title 49, United States Code) 
     which is included in a State rail plan, expenditures (whether 
     or not otherwise chargeable to capital account) for--
       ``(A) planning,
       ``(B) environmental review and environmental impact 
     mitigation,
       ``(C) track and track structure rehabilitation, relocation, 
     improvement, and development,
       ``(D) railroad safety and security improvements,
       ``(E) communications and signaling improvements,
       ``(F) intercity passenger rail equipment acquisition, and
       ``(G) rail station and intermodal facilities development.
       ``(2) Exceptions.--An expenditure shall not be treated as a 
     qualified project expenditure unless all persons which 
     conduct rail operations over the infrastructure with respect 
     to which such an expenditure is made--
       ``(A) are employers for purposes of the Railroad Retirement 
     Act of 1974 and are carriers for purposes of the Railway 
     Labor Act (unless such a person is an operator with respect 
     to commuter rail passenger transportation (as defined in 
     section 24102(4) of title 49, United States Code) of a State 
     or local government authority (as such terms are defined in 
     section 5302 of such title) eligible to receive financial 
     assistance under section 5307 of such title, a contractor 
     performing services in connection with the operations with 
     respect to commuter rail passenger transportation (as so 
     defined), or the Alaska Railroad or its contractors),
       ``(B) provide assurances to the State that any collective 
     bargaining agreements with such a person's employees 
     (including terms regulating the contracting of work) will 
     remain in full force and effect according to the terms of the 
     agreements for work performed for such a person on the 
     railroad transportation corridor, and
       ``(C) comply with the protective agreements established 
     under section 504 of the Railroad Revitalization and 
     Regulatory Reform Act of 1976 with respect to employees 
     affected by actions taken in connection with the project.
       ``(c) Limitation.--
       ``(1) In general.--The amount of the credit allowed under 
     subsection (a) for any taxable year with respect to any 
     project for which qualified project expenditures are made 
     shall not exceed the limitation allocated to such project 
     under this subsection for the calendar year in which the 
     taxable year begins.
       ``(2) State limitation.--
       ``(A) In general.--There is a State railroad revitalization 
     and security investment credit limitation for each calendar 
     year. Such limitation is the amount which bears the same 
     ratio to $165,000,000 as the allocation number for such State 
     bears to the allocation number for all States.
       ``(B) Allocation number.--For purposes of subparagraph (A), 
     the allocation number is, with respect to any State, the sum 
     of the following:
       ``(i) The number of railroad and public road grade 
     crossings on intercity passenger rail routes within the 
     State.
       ``(ii) The number of intercity passenger rail miles within 
     the State.
       ``(iii) The number of intercity embarkations and 
     disembarkations for each passenger within the State.
       ``(3) Unused credit carryovers allocated among certain 
     states.--
       ``(A) In general.--The unused credit carryover for all 
     States for any calendar year shall be reallocated to each 
     qualified State in an amount which bears the same ratio to 
     the unused credit carryover for all States for the calendar 
     as the allocation number for such qualified State bears to 
     the allocation number for all qualified States.
       ``(B) Unused credit carryover.--For purposes of this 
     paragraph, the term `unused credit carryover' means, with 
     respect to any State, the excess of the State limitation 
     (determined under paragraph (2)) for the calendar year over 
     the amount allocated by the State under paragraph (4) for 
     such calendar year.
       ``(C) Qualified states.--For purposes of this paragraph, 
     the term `qualified State' means any State--
       ``(i) which allocated its entire State limitation amount 
     under paragraph (4) for the calendar year, and
       ``(ii) for which a request is made to receive an allocation 
     under this paragraph.
       ``(4) Allocation within states.--Each State shall allocate 
     the limitation amount allocated to such State under 
     paragraphs (2) and (3) to projects for intercity passenger 
     rail transportation which are included in the State rail plan 
     of such State.

[[Page 4775]]

       ``(5) New york city rail projects.--In addition to the 
     amounts allocated under paragraph (2), the Secretary shall 
     allocate a limitation of $100,000,000 for each calendar year 
     to New York City for qualified project expenditures within 
     such city.
       ``(d) State rail plan.--For purposes of this section, the 
     term `State rail plan' means a plan prepared and maintained 
     in accordance with chapter 225 of title 49, United States 
     Code.
       ``(e) Basis Adjustment.--For purposes of this subtitle, if 
     a credit is allowed under this section with respect to any 
     property, the basis of such property shall be reduced by the 
     amount of the credit so allowed.
       ``(f) No Double Benefit.--No credit shall be allowed under 
     this section with respect to any expenditures for which a 
     credit is allowed under section 45I.
       ``(g) Credit Transferability.--Any credit allowable under 
     this section may be transferred (but not more than once) if--
       ``(1) the credit exceeds the tax liability of the taxpayer 
     for the taxable year, or
       ``(2) the taxpayer is not subject to any tax imposed by 
     this chapter by reason of having a tax-exempt status.
       ``(h) Application of Section.--This section shall apply to 
     qualified project expenditures paid or incurred during 
     taxable years beginning after December 31, 2004, and before 
     January 1, 2008.''.
       (2) Limitation on carryback.--Section 39(d) (relating to 
     transition rules), as amended by this Act, is amended by 
     adding at the end the following new paragraph:
       ``(15) No carryback of section 45j credit before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the credit determined 
     under section 45J(a) may be carried back to any taxable year 
     beginning before January 1, 2005.''.
       (3) Conforming amendments.--
       (A) Section 38(b) (relating to general business credit), as 
     amended by this Act, is amended by striking ``plus'' at the 
     end of paragraph (19), by striking the period at the end of 
     paragraph (20) and inserting ``, plus'', and by adding at the 
     end the following new paragraph:
       ``(21) the railroad revitalization and security investment 
     credit determined under section 45J(a).''.
       (B) Subsection (a) of section 1016, as amended by this Act, 
     is amended by striking ``and'' at the end of paragraph (29), 
     by striking the period at the end of paragraph (30) and 
     inserting ``, and'', and by adding at the end the following 
     new paragraph:
       ``(31) in the case of property with respect to which a 
     credit was allowed under section 45J, to the extent provided 
     in section 45J(e).''.
       (4) Clerical amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1, as amended by this 
     Act, is amended by inserting after the item relating to 
     section 45I the following new item:

``Sec. 45J. Railroad revitalization and security investment credit.''.

       (5) Effective date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.
       (b) State Rail Plans.--
       (1) In general.--Part B of subtitle V of title 49, United 
     States Code, is amended by adding at the end the following:

                    ``CHAPTER 225--STATE RAIL PLANS

``Sec.
``22501. Authority.
``22502. Purposes.
``22503. Transparency; coordination.
``22504. Content.
``22505. Approval.
``22506. Definitions.

     ``Sec. 22501. Authority

       ``(a) In General.--Each State may prepare and maintain a 
     State rail plan in accordance with the provisions of this 
     chapter.
       ``(b) Requirements.--For the preparation and periodic 
     revision of a State rail plan, a State shall--
       ``(1) establish or designate a State rail transportation 
     authority to prepare, maintain, coordinate, and administer 
     the plan;
       ``(2) establish or designate a State rail plan approval 
     authority to approve the plan;
       ``(3) make the State's approved plan available to the 
     public and transmit a copy to the Secretary of 
     Transportation; and
       ``(4) revise the plan no less frequently than once every 5 
     years.

     ``Sec. 22502. Purposes

       ``(a) Purposes.--The purposes of a State rail plan are as 
     follows:
       ``(1) To set forth State policy involving freight and 
     passenger rail transportation, including commuter rail 
     operations, in the State.
       ``(2) To present priorities and strategies to enhance rail 
     service in the State that benefits the public.
       ``(3) To serve as the basis for Federal and State rail 
     investments within the State.
       ``(b) Content.--The State rail plan shall establish the 
     period covered by such plan.
       ``(c) Consistency With State Transportation Efforts.--A 
     State rail plan shall be consistent with the State 
     transportation planning goals and programs and shall set 
     forth rail transportation's role within the State 
     transportation system.

     ``Sec. 22503. Transparency; coordination

       ``(a) Preparation.--A State shall provide adequate and 
     reasonable notice and opportunity for comment and other input 
     on a proposed State rail plan under this chapter to the 
     following:
       ``(1) The public.
       ``(2) Rail carriers.
       ``(3) Commuter and transit authorities operating in, or 
     affected by rail operations within, the State.
       ``(4) Units of local government.
       ``(5) Other parties interested in the preparation and 
     review of the State rail plan.
       ``(b) Intergovernmental Coordination.--A State shall review 
     the freight and passenger rail service activities and 
     initiatives of regional planning agencies, regional 
     transportation authorities, and municipalities within the 
     State, or in the region in which the State is located, while 
     preparing the plan, and shall include any recommendations 
     made by such agencies, authorities, and municipalities as 
     deemed appropriate by the State.

     ``Sec. 22504. Content

       ``(a) In General.--Each State rail plan shall contain the 
     following:
       ``(1) An inventory of the existing overall rail 
     transportation system and rail services and facilities within 
     the State and an analysis of the role of rail transportation 
     within the State's surface transportation system.
       ``(2) A comprehensive review of all rail lines within the 
     State, including proposed high speed rail corridors and 
     significant rail line segments not currently in service.
       ``(3) A statement of the State's passenger rail service 
     objectives, including minimum service levels, for intercity 
     passenger rail transportation routes in the State.
       ``(4) A general analysis of rail's transportation, 
     economic, and environmental impacts in the State, including 
     congestion mitigation, trade and economic development, air 
     quality, land-use, energy-use, and community impacts.
       ``(5) A long-range rail investment program for current and 
     future freight and passenger infrastructure in the State that 
     meets the requirements of subsection (b).
       ``(6) A statement of public financing issues for rail 
     projects and service in the State, including a list of 
     current and prospective public capital and operating funding 
     resources, public subsidies, State taxation, and other 
     financial policies relating to rail infrastructure 
     development.
       ``(7) An identification of rail infrastructure issues 
     within the State that reflects consultation with all relevant 
     stake holders.
       ``(8) A review of major passenger and freight intermodal 
     rail connections and facilities within the State, including 
     seaports, and prioritized options to maximize service 
     integration and efficiency between rail and other modes of 
     transportation within the State.
       ``(9) A review of publicly funded projects within the State 
     to improve rail transportation safety and security, including 
     all major projects funded under section 130 of title 23.
       ``(10) A performance evaluation of passenger rail services 
     operating in the State, including possible improvements in 
     those services, and a description of strategies to achieve 
     those improvements.
       ``(11) A compilation of studies and reports on high-speed 
     rail corridor development within the State not included in a 
     previous plan under this chapter, and a plan for funding any 
     recommended development of such corridors in the State.
       ``(12) A statement that the State satisfies the conditions 
     set forth in section 22102.
       ``(b) Long-Range Service and Investment Program.--
       ``(1) Program content.--A long-range rail investment 
     program included in a State rail plan under subsection (a)(5) 
     shall include the following matters:
       ``(A) Two lists for rail capital projects, 1 list for 
     freight rail capital projects and 1 list for intercity 
     passenger rail capital projects.
       ``(B) A detailed funding plan for the projects.
       ``(2) Project list content.--The lists of freight and 
     intercity passenger rail capital projects shall contain--
       ``(A) a description of the anticipated public and private 
     benefits of each such project; and
       ``(B) a statement of the correlation between--
       ``(i) public funding contributions for the projects; and
       ``(ii) the public benefits.
       ``(3) Considerations for project list.--In preparing the 
     list of freight and intercity passenger rail capital 
     projects, a State rail transportation authority shall take 
     into consideration the following matters:
       ``(A) Contributions made by non-Federal and non-State 
     sources through user fees, matching funds, or other private 
     capital involvement.
       ``(B) Rail capacity and congestion effects.
       ``(C) Effects to highway, aviation, and maritime capacity, 
     congestion, or safety.
       ``(D) Regional balance.
       ``(E) Environmental impact.
       ``(F) Economic and employment impacts.
       ``(G) Projected ridership and other service measures for 
     passenger rail projects.

[[Page 4776]]



     ``Sec. 22505. Approval

       ``The State rail plan approval authority established or 
     designated under section 22501(b)(2) may approve a State rail 
     plan for the purposes of this chapter if--
       ``(1) the plan meets all of the requirements applicable to 
     State plans under this chapter;
       ``(2) for each ready-to-commence project listed on the 
     ranked list of freight and intercity passenger rail capital 
     improvement projects under the plan--
       ``(A) the project meets all safety and environmental 
     requirements, including those prescribed under the National 
     Environmental Policy Act of 1969 (42 U.S.C. 4331 et seq.) 
     that are applicable to the project under law; and
       ``(B) the State has entered into an agreement with any 
     owner of rail infrastructure or right-of-way directly 
     affected by the project that provides for the State to 
     proceed with the project and includes assurances regarding 
     capacity and compensation for use of such infrastructure or 
     right-of-way, if applicable; and
       ``(3) the content of the plan is coordinated with State 
     transportation plans developed pursuant to section 135 of 
     title 23.

     ``Sec. 22506. Definitions

       ``In this chapter:
       ``(1) Private benefit.--The term `private benefit'--
       ``(A) means a benefit accrued to a person or private 
     entity, other than the National Railroad Passenger 
     Corporation, that directly improves the economic and 
     competitive condition of that person or entity through 
     improved assets, cost reductions, service improvements, or 
     other means; and
       ``(B) shall be determined on a project-by-project basis, 
     based upon an agreement between the State and the affected 
     persons or private entities.
       ``(2) Public benefit.--The term `public benefit'--
       ``(A) means a benefit accrued to the public in the form of 
     enhanced mobility of people or goods, environmental 
     protection or enhancement, congestion mitigation, enhanced 
     trade and economic development, improved air quality or land 
     use, more efficient energy use, enhanced public safety or 
     security, reduction of public expenditures due to improved 
     transportation efficiency or infrastructure preservation, and 
     other positive community effects; and
       ``(B) shall be determined on a project-by-project basis, 
     based upon an agreement between the State and the persons or 
     private entities involved in the project.
       ``(3) State.--The term `State' means any of the 50 States 
     and the District of Columbia.
       ``(4) State rail transportation authority.--The term `State 
     rail transportation authority' means the State agency or 
     official responsible under the direction of the Chief 
     Executive of the State or a State law for preparation, 
     maintenance, coordination, and administration of the State 
     rail plan under this chapter.''.
       (2) Clerical amendment.--The table of chapters at the 
     beginning of subtitle V of title 49, United States Code, is 
     amended by inserting after the item relating to chapter 223 
     the following:

``225. STATE RAIL PLANS.......................................22501.''.

                  Subtitle E--Miscellaneous Provisions

     SEC. 641. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF 
                   CERTAIN BROWNFIELD SITES FROM UNRELATED 
                   BUSINESS TAXABLE INCOME.

       (a) In General.--Subsection (b) of section 512 (relating to 
     unrelated business taxable income) is amended by adding at 
     the end the following new paragraph:
       ``(18) Treatment of gain or loss on sale or exchange of 
     certain brownfield sites.--
       ``(A) In general.--Notwithstanding paragraph (5)(B), there 
     shall be excluded any gain or loss from the qualified sale, 
     exchange, or other disposition of any qualifying brownfield 
     property by an eligible taxpayer.
       ``(B) Eligible taxpayer.--For purposes of this paragraph--
       ``(i) In general.--The term `eligible taxpayer' means, with 
     respect to a property, any organization exempt from tax under 
     section 501(a) which--

       ``(I) acquires from an unrelated person a qualifying 
     brownfield property, and
       ``(II) pays or incurs eligible remediation expenditures 
     with respect to such property in an amount which exceeds the 
     greater of $550,000 or 12 percent of the fair market value of 
     the property at the time such property was acquired by the 
     eligible taxpayer, determined as if there was not a presence 
     of a hazardous substance, pollutant, or contaminant on the 
     property which is complicating the expansion, redevelopment, 
     or reuse of the property.

       ``(ii) Exception.--Such term shall not include any 
     organization which is--

       ``(I) potentially liable under section 107 of the 
     Comprehensive Environmental Response, Compensation, and 
     Liability Act of 1980 with respect to the qualifying 
     brownfield property,
       ``(II) affiliated with any other person which is so 
     potentially liable through any direct or indirect familial 
     relationship or any contractual, corporate, or financial 
     relationship (other than a contractual, corporate, or 
     financial relationship which is created by the instruments by 
     which title to any qualifying brownfield property is conveyed 
     or financed or by a contract of sale of goods or services), 
     or
       ``(III) the result of a reorganization of a business entity 
     which was so potentially liable.

       ``(C) Qualifying brownfield property.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `qualifying brownfield 
     property' means any real property which is certified, before 
     the taxpayer incurs any eligible remediation expenditures 
     (other than to obtain a Phase I environmental site 
     assessment), by an appropriate State agency (within the 
     meaning of section 198(c)(4)) in the State in which such 
     property is located as a brownfield site within the meaning 
     of section 101(39) of the Comprehensive Environmental 
     Response, Compensation, and Liability Act of 1980 (as in 
     effect on the date of the enactment of this paragraph).
       ``(ii) Request for certification.--Any request by an 
     eligible taxpayer for a certification described in clause (i) 
     shall include a sworn statement by the eligible taxpayer and 
     supporting documentation of the presence of a hazardous 
     substance, pollutant, or contaminant on the property which is 
     complicating the expansion, redevelopment, or reuse of the 
     property given the property's reasonably anticipated future 
     land uses or capacity for uses of the property (including a 
     Phase I environmental site assessment and, if applicable, 
     evidence of the property's presence on a local, State, or 
     Federal list of brownfields or contaminated property) and 
     other environmental assessments prepared or obtained by the 
     taxpayer.
       ``(D) Qualified sale, exchange, or other disposition.--For 
     purposes of this paragraph--
       ``(i) In general.--A sale, exchange, or other disposition 
     of property shall be considered as qualified if--

       ``(I) such property is transferred by the eligible taxpayer 
     to an unrelated person, and
       ``(II) within 1 year of such transfer the eligible taxpayer 
     has received a certification from the Environmental 
     Protection Agency or an appropriate State agency (within the 
     meaning of section 198(c)(4)) in the State in which such 
     property is located that, as a result of the eligible 
     taxpayer's remediation actions, such property would not be 
     treated as a qualifying brownfield property in the hands of 
     the transferee.

     For purposes of subclause (II), before issuing such 
     certification, the Environmental Protection Agency or 
     appropriate State agency shall respond to comments received 
     pursuant to clause (ii)(V) in the same form and manner as 
     required under section 117(b) of the Comprehensive 
     Environmental Response, Compensation, and Liability Act of 
     1980 (as in effect on the date of the enactment of this 
     paragraph).
       ``(ii) Request for certification.--Any request by an 
     eligible taxpayer for a certification described in clause (i) 
     shall be made not later than the date of the transfer and 
     shall include a sworn statement by the eligible taxpayer 
     certifying the following:

       ``(I) Remedial actions which comply with all applicable or 
     relevant and appropriate requirements (consistent with 
     section 121(d) of the Comprehensive Environmental Response, 
     Compensation, and Liability Act of 1980) have been 
     substantially completed, such that there are no hazardous 
     substances, pollutants, or contaminants which complicate the 
     expansion, redevelopment, or reuse of the property given the 
     property's reasonably anticipated future land uses or 
     capacity for uses of the property.
       ``(II) The reasonably anticipated future land uses or 
     capacity for uses of the property are more economically 
     productive or environmentally beneficial than the uses of the 
     property in existence on the date of the certification 
     described in subparagraph (C)(i). For purposes of the 
     preceding sentence, use of property as a landfill or other 
     hazardous waste facility shall not be considered more 
     economically productive or environmentally beneficial.
       ``(III) A remediation plan has been implemented to bring 
     the property into compliance with all applicable local, 
     State, and Federal environmental laws, regulations, and 
     standards and to ensure that the remediation protects human 
     health and the environment.
       ``(IV) The remediation plan described in subclause (III), 
     including any physical improvements required to remediate the 
     property, is either complete or substantially complete, and, 
     if substantially complete, sufficient monitoring, funding, 
     institutional controls, and financial assurances have been 
     put in place to ensure the complete remediation of the 
     property in accordance with the remediation plan as soon as 
     is reasonably practicable after the sale, exchange, or other 
     disposition of such property.
       ``(V) Public notice and the opportunity for comment on the 
     request for certification was completed before the date of 
     such request. Such notice and opportunity for comment shall 
     be in the same form and manner as required for public 
     participation required under section 117(a) of the 
     Comprehensive Environmental Response, Compensation, and 
     Liability Act of 1980 (as in effect on the date of the 
     enactment of this paragraph). For purposes of this subclause, 
     public notice shall

[[Page 4777]]

     include, at a minimum, publication in a major local newspaper 
     of general circulation.

       ``(iii) Attachment to tax returns.--A copy of each of the 
     requests for certification described in clause (ii) of 
     subparagraph (C) and this subparagraph shall be included in 
     the tax return of the eligible taxpayer (and, where 
     applicable, of the qualifying partnership) for the taxable 
     year during which the transfer occurs.
       ``(iv) Substantial completion.--For purposes of this 
     subparagraph, a remedial action is substantially complete 
     when any necessary physical construction is complete, all 
     immediate threats have been eliminated, and all long-term 
     threats are under control.
       ``(E) Eligible remediation expenditures.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `eligible remediation 
     expenditures' means, with respect to any qualifying 
     brownfield property, any amount paid or incurred by the 
     eligible taxpayer to an unrelated third person to obtain a 
     Phase I environmental site assessment of the property, and 
     any amount so paid or incurred after the date of the 
     certification described in subparagraph (C)(i) for goods and 
     services necessary to obtain a certification described in 
     subparagraph (D)(i) with respect to such property, including 
     expenditures--

       ``(I) to manage, remove, control, contain, abate, or 
     otherwise remediate a hazardous substance, pollutant, or 
     contaminant on the property,
       ``(II) to obtain a Phase II environmental site assessment 
     of the property, including any expenditure to monitor, 
     sample, study, assess, or otherwise evaluate the release, 
     threat of release, or presence of a hazardous substance, 
     pollutant, or contaminant on the property,
       ``(III) to obtain environmental regulatory certifications 
     and approvals required to manage the remediation and 
     monitoring of the hazardous substance, pollutant, or 
     contaminant on the property, and
       ``(IV) regardless of whether it is necessary to obtain a 
     certification described in subparagraph (D)(i)(II), to obtain 
     remediation cost-cap or stop-loss coverage, re-opener or 
     regulatory action coverage, or similar coverage under 
     environmental insurance policies, or financial guarantees 
     required to manage such remediation and monitoring.

       ``(ii) Exceptions.--Such term shall not include--

       ``(I) any portion of the purchase price paid or incurred by 
     the eligible taxpayer to acquire the qualifying brownfield 
     property,
       ``(II) environmental insurance costs paid or incurred to 
     obtain legal defense coverage, owner/operator liability 
     coverage, lender liability coverage, professional liability 
     coverage, or similar types of coverage,
       ``(III) any amount paid or incurred to the extent such 
     amount is reimbursed, funded, or otherwise subsidized by 
     grants provided by the United States, a State, or a political 
     subdivision of a State for use in connection with the 
     property, proceeds of an issue of State or local government 
     obligations used to provide financing for the property the 
     interest of which is exempt from tax under section 103, or 
     subsidized financing provided (directly or indirectly) under 
     a Federal, State, or local program provided in connection 
     with the property, or
       ``(IV) any expenditure paid or incurred before the date of 
     the enactment of this paragraph.

     For purposes of subclause (III), the Secretary may issue 
     guidance regarding the treatment of government-provided funds 
     for purposes of determining eligible remediation 
     expenditures.
       ``(F) Determination of gain or loss.--For purposes of this 
     paragraph, the determination of gain or loss shall not 
     include an amount treated as gain which is ordinary income 
     with respect to section 1245 or section 1250 property, 
     including amounts deducted as section 198 expenses which are 
     subject to the recapture rules of section 198(e), if the 
     taxpayer had deducted such amounts in the computation of its 
     unrelated business taxable income.
       ``(G) Special rules for partnerships.--
       ``(i) In general.--In the case of an eligible taxpayer 
     which is a partner of a qualifying partnership which 
     acquires, remediates, and sells, exchanges, or otherwise 
     disposes of a qualifying brownfield property, this paragraph 
     shall apply to the eligible taxpayer's distributive share of 
     the qualifying partnership's gain or loss from the sale, 
     exchange, or other disposition of such property.
       ``(ii) Qualifying partnership.--The term `qualifying 
     partnership' means a partnership which--

       ``(I) has a partnership agreement which satisfies the 
     requirements of section 514(c)(9)(B)(vi) at all times 
     beginning on the date of the first certification received by 
     the partnership under subparagraph (C)(i),
       ``(II) satisfies the requirements of subparagraphs (B)(i), 
     (C), (D), and (E), if `qualified partnership' is substituted 
     for `eligible taxpayer' each place it appears therein (except 
     subparagraph (D)(iii)), and
       ``(III) is not an organization which would be prevented 
     from constituting an eligible taxpayer by reason of 
     subparagraph (B)(ii).

       ``(iii) Requirement that tax-exempt partner be a partner 
     since first certification.--This paragraph shall apply with 
     respect to any eligible taxpayer which is a partner of a 
     partnership which acquires, remediates, and sells, exchanges, 
     or otherwise disposes of a qualifying brownfield property 
     only if such eligible taxpayer was a partner of the 
     qualifying partnership at all times beginning on the date of 
     the first certification received by the partnership under 
     subparagraph (C)(i) and ending on the date of the sale, 
     exchange, or other disposition of the property by the 
     partnership.
       ``(iv) Regulations.--The Secretary shall prescribe such 
     regulations as are necessary to prevent abuse of the 
     requirements of this subparagraph, including abuse through--

       ``(I) the use of special allocations of gains or losses, or
       ``(II) changes in ownership of partnership interests held 
     by eligible taxpayers.

       ``(H) Special rules for multiple properties.--
       ``(i) In general.--An eligible taxpayer or a qualifying 
     partnership of which the eligible taxpayer is a partner may 
     make a 1-time election to apply this paragraph to more than 1 
     qualifying brownfield property by averaging the eligible 
     remediation expenditures for all such properties acquired 
     during the election period. If the eligible taxpayer or 
     qualifying partnership makes such an election, the election 
     shall apply to all qualified sales, exchanges, or other 
     dispositions of qualifying brownfield properties the 
     acquisition and transfer of which occur during the period for 
     which the election remains in effect.
       ``(ii) Election.--An election under clause (i) shall be 
     made with the eligible taxpayer's or qualifying partnership's 
     timely filed tax return (including extensions) for the first 
     taxable year for which the taxpayer or qualifying partnership 
     intends to have the election apply. An election under clause 
     (i) is effective for the period--

       ``(I) beginning on the date which is the first day of the 
     taxable year of the return in which the election is included 
     or a later day in such taxable year selected by the eligible 
     taxpayer or qualifying partnership, and
       ``(II) ending on the date which is the earliest of a date 
     of revocation selected by the eligible taxpayer or qualifying 
     partnership, the date which is 8 years after the date 
     described in subclause (I), or, in the case of an election by 
     a qualifying partnership of which the eligible taxpayer is a 
     partner, the date of the termination of the qualifying 
     partnership.

       ``(iii) Revocation.--An eligible taxpayer or qualifying 
     partnership may revoke an election under clause (i)(II) by 
     filing a statement of revocation with a timely filed tax 
     return (including extensions). A revocation is effective as 
     of the first day of the taxable year of the return in which 
     the revocation is included or a later day in such taxable 
     year selected by the eligible taxpayer or qualifying 
     partnership. Once an eligible taxpayer or qualifying 
     partnership revokes the election, the eligible taxpayer or 
     qualifying partnership is ineligible to make another election 
     under clause (i) with respect to any qualifying brownfield 
     property subject to the revoked election.
       ``(I) Recapture.--If an eligible taxpayer excludes gain or 
     loss from a sale, exchange, or other disposition of property 
     to which an election under subparagraph (H) applies, and such 
     property fails to satisfy the requirements of this paragraph, 
     the unrelated business taxable income of the eligible 
     taxpayer for the taxable year in which such failure occurs 
     shall be determined by including any previously excluded gain 
     or loss from such sale, exchange, or other disposition 
     allocable to such taxpayer, and interest shall be determined 
     at the overpayment rate established under section 6621 on any 
     resulting tax for the period beginning with the due date of 
     the return for the taxable year during which such sale, 
     exchange, or other disposition occurred, and ending on the 
     date of payment of the tax.
       ``(J) Related persons.--For purposes of this paragraph, a 
     person shall be treated as related to another person if--
       ``(i) such person bears a relationship to such other person 
     described in section 267(b) (determined without regard to 
     paragraph (9) thereof), or section 707(b)(1), determined by 
     substituting `25 percent' for `50 percent' each place it 
     appears therein, and
       ``(ii) in the case such other person is a nonprofit 
     organization, if such person controls directly or indirectly 
     more than 25 percent of the governing body of such 
     organization.''
       (b) Exclusion From Definition of Debt-Financed Property.--
     Section 514(b)(1) (defining debt-financed property) is 
     amended by striking ``or'' at the end of subparagraph (C), by 
     striking the period at the end of subparagraph (D) and 
     inserting ``; or'', and by inserting after subparagraph (D) 
     the following new subparagraph:
       ``(E) any property the gain or loss from the sale, 
     exchange, or other disposition of which would be excluded by 
     reason of the provisions of section 512(b)(18) in computing 
     the gross income of any unrelated trade or business.''.
       (c) Savings Clause.--Nothing in the amendments made by this 
     section shall affect any duty, liability, or other 
     requirement imposed under any other Federal or State law. 
     Notwithstanding section 128(b) of the Comprehensive 
     Environmental Response,

[[Page 4778]]

     Compensation, and Liability Act of 1980, a certification 
     provided by the Environmental Protection Agency or an 
     appropriate State agency (within the meaning of section 
     198(c)(4) of the Internal Revenue Code of 1986) shall not 
     affect the liability of any person under section 107(a) of 
     such Act.
       (d) Effective Date.--The amendments made by this section 
     shall apply to any gain or loss on the sale, exchange, or 
     other disposition of any property acquired by the taxpayer 
     after December 31, 2004.

     SEC. 642. MODIFICATION OF UNRELATED BUSINESS INCOME 
                   LIMITATION ON INVESTMENT IN CERTAIN DEBT-
                   FINANCED PROPERTIES.

       (a) In General.--Section 514(c)(6) (relating to acquisition 
     indebtedness) is amended--
       (1) by striking ``include an obligation'' and inserting 
     ``include--
       ``(A) an obligation'',
       (2) by striking the period at the end and inserting ``, 
     or'', and
       (3) by adding at the end the following:
       ``(B) indebtedness incurred by a small business investment 
     company licensed under the Small Business Investment Act of 
     1958 which is evidenced by a debenture--
       ``(i) issued by such company under section 303(a) of such 
     Act, and
       ``(ii) held or guaranteed by the Small Business 
     Administration.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to acquisitions made on or after the date of the 
     enactment of this Act.

     SEC. 643. CIVIL RIGHTS TAX RELIEF.

       (a) Deduction Allowed Whether or Not Taxpayer Itemizes 
     Other Deductions.--Subsection (a) of section 62 (defining 
     adjusted gross income) is amended by inserting after 
     paragraph (18) the following new item:
       ``(19) Costs involving discrimination suits, etc.--Any 
     deduction allowable under this chapter for attorney fees and 
     court costs paid by, or on behalf of, the taxpayer in 
     connection with any action involving a claim of unlawful 
     discrimination (as defined in subsection (e)) or a claim of a 
     violation of subchapter III of chapter 37 of title 31, United 
     States Code. The preceding sentence shall not apply to any 
     deduction in excess of the amount includible in the 
     taxpayer's gross income for the taxable year on account of a 
     judgment or settlement (whether by suit or agreement and 
     whether as lump sum or periodic payments) resulting from such 
     claim.''.
       (b) Unlawful Discrimination Defined.--Section 62 is amended 
     by adding at the end the following new subsection:
       ``(e) Unlawful Discrimination Defined.--For purposes of 
     subsection (a)(19), the term `unlawful discrimination' means 
     an act that is unlawful under any of the following:
       ``(1) Section 302 of the Civil Rights Act of 1991 (2 U.S.C. 
     1202).
       ``(2) Section 201, 202, 203, 204, 205, 206, or 207 of the 
     Congressional Accountability Act of 1995 (2 U.S.C. 1311, 
     1312, 1313, 1314, 1315, 1316, or 1317).
       ``(3) The National Labor Relations Act (29 U.S.C. 151 et 
     seq.).
       ``(4) The Fair Labor Standards Act of 1938 (29 U.S.C. 201 
     et seq.).
       ``(5) Section 4 or 15 of the Age Discrimination in 
     Employment Act of 1967 (29 U.S.C. 623 or 633a).
       ``(6) Section 501 or 504 of the Rehabilitation Act of 1973 
     (29 U.S.C. 791 or 794).
       ``(7) Section 510 of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1140).
       ``(8) Title IX of the Education Amendments of 1972 (29 
     U.S.C. 1681 et seq.).
       ``(9) The Employee Polygraph Protection Act of 1988 (29 
     U.S.C. 201 et seq.).
       ``(10) The Worker Adjustment and Retraining Notification 
     Act (29 U.S.C. 2102 et seq.).
       ``(11) Section 105 of the Family and Medical Leave Act of 
     1993 (29 U.S.C. 2615).
       ``(12) Chapter 43 of title 38, United States Code (relating 
     to employment and reemployment rights of members of the 
     uniformed services).
       ``(13) Section 1977, 1979, or 1980 of the Revised Statutes 
     (42 U.S.C. 1981, 1983, or 1985).
       ``(14) Section 703, 704, or 717 of the Civil Rights Act of 
     1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
       ``(15) Section 804, 805, 806, 808, or 818 of the Fair 
     Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
       ``(16) Section 102, 202, 302, or 503 of the Americans with 
     Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or 
     12203).
       ``(17) Any provision of Federal law (popularly known as 
     whistleblower protection provisions) prohibiting the 
     discharge of an employee, the discrimination against an 
     employee, or any other form of retaliation or reprisal 
     against an employee for asserting rights or taking other 
     actions permitted under Federal law.
       ``(18) Any provision of State or local law, or common law 
     claims permitted under Federal, State, or local law--
       ``(i) providing for the enforcement of civil rights, or
       ``(ii) regulating any aspect of the employment 
     relationship, including claims for wages, compensation, or 
     benefits, or prohibiting the discharge of an employee, the 
     discrimination against an employee, or any other form of 
     retaliation or reprisal against an employee for asserting 
     rights or taking other actions permitted by law.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to fees and costs paid after December 31, 2002, 
     with respect to any judgment or settlement occurring after 
     such date.

     SEC. 644. EXCLUSION FOR PAYMENTS TO INDIVIDUALS UNDER 
                   NATIONAL HEALTH SERVICE CORPS LOAN REPAYMENT 
                   PROGRAM AND CERTAIN STATE LOAN REPAYMENT 
                   PROGRAMS.

       (a) In General.--Section 108(f) (relating to student loans) 
     is amended by adding at the end the following new paragraph:
       ``(4) Payments under national health service corps loan 
     repayment program and certain state loan repayment 
     programs.--In the case of an individual, gross income shall 
     not include any amount received under section 338B(g) of the 
     Public Health Service Act or under a State program described 
     in section 338I of such Act.''.
       (b) Treatment for Purposes of Employment Taxes.--Each of 
     the following provisions is amended by inserting 
     ``108(f)(4),'' after ``74(c),'':
       (1) Section 3121(a)(20).
       (2) Section 3231(e)(5).
       (3) Section 3306(b)(16).
       (4) Section 3401(a)(19).
       (5) Section 209(a)(17) of the Social Security Act.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received by an individual in taxable 
     years beginning after December 31, 2003.

     SEC. 645. CERTAIN EXPENSES OF RURAL LETTER CARRIERS.

       (a) In General.--Section 162(o) (relating to treatment of 
     certain reimbursed expenses of rural mail carriers) is 
     amended by redesignating paragraph (2) as paragraph (3) and 
     by inserting after paragraph (1) the following:
       ``(2) Special rule where expenses exceed reimbursements.--
     Notwithstanding paragraph (1)(A), if the expenses incurred by 
     an employee for the use of a vehicle in performing services 
     described in paragraph (1) exceed the qualified 
     reimbursements for such expenses, such excess shall be taken 
     into account in computing the miscellaneous itemized 
     deductions of the employee under section 67.''.
       (b) Conforming Amendment.--The heading for section 162(o) 
     is amended by striking ``Reimbursed''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 646. METHOD OF ACCOUNTING FOR NAVAL SHIPBUILDERS.

       (a) In General.--In the case of a qualified naval ship 
     contract, the taxable income of such contract during the 5-
     taxable year period beginning with the taxable year in which 
     the contract commencement date occurs shall be determined 
     under a method identical to the method used in the case of a 
     qualified ship contract (as defined in section 10203(b)(2)(B) 
     of the Revenue Act of 1987).
       (b) Recapture of Tax Benefit.--In the case of a qualified 
     naval ship contract to which subsection (a) applies, the 
     taxpayer's tax imposed by chapter 1 of the Internal Revenue 
     Code of 1986 for the first taxable year following the 5-
     taxable year period described in subsection (a) shall be 
     increased by the excess (if any) of--
       (1) the amount of tax which would have been imposed during 
     such period if this section had not been enacted, over
       (2) the amount of tax so imposed during such period.
       (c) Qualified Naval Ship Contract.--For purposes of this 
     section--
       (1) In general.--The term ``qualified naval ship contract'' 
     means any contract or portion thereof that is for the 
     construction in the United States of 1 ship or submarine for 
     the Federal Government if the taxpayer reasonably expects the 
     acceptance date will occur no later than 9 years after the 
     construction commencement date.
       (2) Acceptance date.--The term ``acceptance date'' means 
     the date 1 year after the date on which the Federal 
     Government issues a letter of acceptance or other similar 
     document for the ship or submarine.
       (3) Construction commencement date.--The term 
     ``construction commencement date'' means the date on which 
     the physical fabrication of any section or component of the 
     ship or submarine begins.
       (d) Effective Date.--This section shall apply to contracts 
     for ships or submarines with respect to which the 
     construction commencement date occurs after the date of the 
     enactment of this Act.

     SEC. 647. SUSPENSION OF POLICYHOLDERS SURPLUS ACCOUNT 
                   PROVISIONS.

       (a) In General.--Section 815 (relating to distributions to 
     shareholders from pre-1984 policyholders surplus account) is 
     amended by adding at the end the following new subsection:
       ``(g) Application of Section.--This section shall not apply 
     to stock life insurance companies for taxable years beginning 
     after December 31, 2003, and beginning before January 1, 
     2006.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 648. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES 
                   WITHOUT REDUCING PATRONAGE DIVIDENDS.

       (a) In General.--Subsection (a) of section 1388 (relating 
     to patronage dividend defined) is amended by adding at the 
     end the following new sentence: ``For purposes of paragraph 
     (3), net earnings shall not be reduced

[[Page 4779]]

     by amounts paid during the year as dividends on capital stock 
     or other proprietary capital interests of the organization to 
     the extent that the articles of incorporation or bylaws of 
     such organization or other contract with patrons provide that 
     such dividends are in addition to amounts otherwise payable 
     to patrons which are derived from business done with or for 
     patrons during the taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in taxable years beginning after 
     the date of the enactment of this Act.

     SEC. 649. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF 
                   WEATHER-RELATED CONDITIONS.

       (a) Replacement of Livestock With Other Farm Property.--
     Subsection (f) of section 1033 (relating to involuntary 
     conversions) is amended--
       (1) by inserting ``drought, flood, or other weather-related 
     conditions, or'' after ``because of'',
       (2) by inserting ``in the case of soil contamination or 
     other environmental contamination'' after ``including real 
     property'', and
       (3) by striking ``Where There Has Been Environmental 
     Contamination'' in the heading and inserting ``in Certain 
     Cases''.
       (b) Extension of Replacement Period of Involuntarily 
     Converted Livestock.--Subsection (e) of section 1033 
     (relating to involuntary conversions) is amended--
       (1) by striking ``Conditions.--For purposes'' and inserting 
     ``Conditions.--
       ``(1) In general.--For purposes'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Extension of replacement period.--
       ``(A) In general.--In the case of drought, flood, or other 
     weather-related conditions described in paragraph (1) which 
     result in the area being designated as eligible for 
     assistance by the Federal Government, subsection (a)(2)(B) 
     shall be applied with respect to any converted property by 
     substituting `4 years' for `2 years'.
       ``(B) Further extension by secretary.--The Secretary may 
     extend on a regional basis the period for replacement under 
     this section (after the application of subparagraph (A)) for 
     such additional time as the Secretary determines appropriate 
     if the weather-related conditions which resulted in such 
     application continue for more than 3 years.''.
       (c) Income Inclusion Rules.--Section 451(e) (relating to 
     special rule for proceeds from livestock sold on account of 
     drought, flood, or other weather-related conditions) is 
     amended by adding at the end the following new paragraph:
       ``(3) Special election rules.--If section 1033(e)(2) 
     applies to a sale or exchange of livestock described in 
     paragraph (1), the election under paragraph (1) shall be 
     deemed valid if made during the replacement period described 
     in such section.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 650. MOTOR VEHICLE DEALER TRANSITIONAL ASSISTANCE.

       (a) In General.--For purposes of subtitle A of the Internal 
     Revenue Code of 1986, in the case of a taxpayer who elects 
     the application of this section and who was a party to a 
     motor vehicle sales and service agreement with a motor 
     vehicle manufacturer who announced in December 2000 that it 
     would phase-out the motor vehicle brand to which such 
     agreement relates--
       (1) amounts received by such taxpayer from such 
     manufacturer on account of the termination of such agreement 
     (hereafter in this section referred to as ``termination 
     payment'') are considered to be received for property used in 
     the trade or business of a motor vehicle retail sales and 
     service dealership, and
       (2) to the extent such termination payment is reinvested in 
     property used in a motor vehicle retail sales and service 
     dealership located within the United States, such property 
     shall qualify as like-kind replacement property to which 
     section 1031 of the Internal Revenue Code of 1986 shall apply 
     with the following modifications:
       (A) Such section shall be applied without regard to 
     subparagraphs (A) and (B)(ii) of subsection (a)(3).
       (B) The period described in section 1031(a)(3)(B) of such 
     Code shall be applied by substituting ``2 years'' for ``180 
     days''.
       (b) Rules for Election.--
       (1) Form of election.--The taxpayer shall make an election 
     under this section in such form and manner as the Secretary 
     of the Treasury may prescribe and shall include in such 
     election the amount of the termination payment received, the 
     identification of the replacement property purchased, and 
     such other information as the Secretary may prescribe.
       (2) Election on amended return.--The Secretary of the 
     Treasury shall permit an election under this section on an 
     amended tax return for taxable years beginning before the 
     date of the enactment of this Act.
       (c) Statute of Limitations.--Notwithstanding the provisions 
     of any other law or rule of law, the statutory period for the 
     assessment for any deficiency attributable to any termination 
     payment gain shall be extended until 3 years after the date 
     the Secretary of the Treasury is notified by the taxpayer of 
     the like-kind replacement property or an intention not to 
     replace.
       (d) Effective Date.--This section shall apply to amounts 
     received after December 12, 2000, in taxable years ending 
     after such date.

     SEC. 651. EXPANSION OF DESIGNATED RENEWAL COMMUNITY AREA 
                   BASED ON 2000 CENSUS DATA.

       (a) Renewal Communities.--Section 1400E (relating to 
     designation of renewal communities) is amended by adding at 
     the end the following new subsection:
       ``(g) Expansion of Designated Areas.--
       ``(1) Expansion based on 2000 census.--At the request of 
     the nominating entity with respect to a renewal community, 
     the Secretary of Housing and Urban Development may expand the 
     area of a renewal community to include any census tract--
       ``(A) which, at the time such community was nominated, met 
     the requirements of this section for inclusion in such 
     community but for the failure of such tract to meet 1 or more 
     of the population and poverty rate requirements of this 
     section using 1990 census data, and
       ``(B) which meets all failed population and poverty rate 
     requirements of this section using 2000 census data.
       ``(2) Expansion to certain areas which do not meet 
     population requirements.--
       ``(A) In general.--At the request of 1 or more local 
     governments and the State or States in which an area 
     described in subparagraph (B) is located, the Secretary of 
     Housing and Urban Development may expand a designated area to 
     include such area.
       ``(B) Area.--An area is described in this subparagraph if--
       ``(i) the area is adjacent to at least 1 other area 
     designated as a renewal community,
       ``(ii) the area has a population less than the population 
     required under subsection (c)(2)(C), and
       ``(iii)(I) the area meets the requirements of subparagraphs 
     (A) and (B) of subsection (c)(2) and subparagraph (A) of 
     subsection (c)(3), or
       ``(II) the area contains a population of less than 100 
     people.
       ``(3) Applicability.--Any expansion of a renewal community 
     under this section shall take effect as provided in 
     subsection (b).''.
       (b) Effective Date.--The amendment made by this subsection 
     shall take effect as if included in the amendments made by 
     section 101 of the Community Renewal Tax Relief Act of 2000.

     SEC. 652. REDUCTION OF HOLDING PERIOD TO 12 MONTHS FOR 
                   PURPOSES OF DETERMINING WHETHER HORSES ARE 
                   SECTION 1231 ASSETS.

       (a) In General.--Subparagraph (A) of section 1231(b)(3) 
     (relating to definition of property used in the trade or 
     business) is amended by striking ``and horses''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 653. BLUE RIBBON COMMISSION ON COMPREHENSIVE TAX REFORM.

       (a) Establishment.--
       (1) In general.--There is established the ``Blue Ribbon 
     Commission on Comprehensive Tax Reform'' (in this section 
     referred to as the ``Commission'').
       (2) Membership.--
       (A) Composition.--The Commission shall be composed of 17 
     members of whom--
       (i) 3 shall be appointed by the majority leader of the 
     Senate;
       (ii) 3 shall be appointed by the minority leader of the 
     Senate;
       (iii) 3 shall be appointed by the Speaker of the House of 
     Representatives;
       (iv) 3 shall be appointed by the minority leader of the 
     House of Representatives; and
       (v) 5 shall be appointed by the President, of which no more 
     than 3 shall be of the same party as the President.
       (B) Federal employees.--The members of the Commission may 
     be employees or former employees of the Federal Government.
       (C) Date.--The appointments of the members of the 
     Commission shall be made not later than October 30, 2004.
       (3) Period of appointment; vacancies.--Members shall be 
     appointed for the life of the Commission. Any vacancy in the 
     Commission shall not affect its powers, but shall be filled 
     in the same manner as the original appointment.
       (4) Initial meeting.--Not later than 30 days after the date 
     on which all members of the Commission have been appointed, 
     the Commission shall hold its first meeting.
       (5) Meetings.--The Commission shall meet at the call of the 
     Chairman.
       (6) Quorum.--A majority of the members of the Commission 
     shall constitute a quorum, but a lesser number of members may 
     hold hearings.
       (7) Chairman and vice chairman.--The President shall select 
     a Chairman and Vice Chairman from among its members.
       (b) Duties of the Commission.--
       (1) Study.--The Commission shall conduct a thorough study 
     of all matters relating to a comprehensive reform of the 
     Federal tax system, including the reform of the Internal 
     Revenue Code of 1986 and the implementation (if appropriate) 
     of other types of tax systems.
       (2) Recommendations.--The Commission shall develop 
     recommendations on how to

[[Page 4780]]

     comprehensively reform the Federal tax system in a manner 
     that generates appropriate revenue for the Federal 
     Government.
       (3) Report.--Not later than 18 months after the date on 
     which all initial members of the commission have been 
     appointed pursuant to subsection (a)(2), the Commission shall 
     submit a report to the President and Congress which shall 
     contain a detailed statement of the findings and conclusions 
     of the Commission, together with its recommendations for such 
     legislation and administrative actions as it considers 
     appropriate.
       (c) Powers of the Commission.--
       (1) Hearings.--The Commission may hold such hearings, sit 
     and act at such times and places, take such testimony, and 
     receive such evidence as the Commission considers advisable 
     to carry out this Act.
       (2) Information from federal agencies.--The Commission may 
     secure directly from any Federal department or agency such 
     information as the Commission considers necessary to carry 
     out this Act. Upon request of the Chairman of the Commission, 
     the head of such department or agency shall furnish such 
     information to the Commission.
       (3) Postal services.--The Commission may use the United 
     States mails in the same manner and under the same conditions 
     as other departments and agencies of the Federal Government.
       (4) Gifts.--The Commission may accept, use, and dispose of 
     gifts or donations of services or property.
       (d) Commission Personnel Matters.--
       (1) Compensation of members.--Each member of the Commission 
     who is not an officer or employee of the Federal Government 
     shall be compensated at a rate equal to the daily equivalent 
     of the annual rate of basic pay prescribed for level IV of 
     the Executive Schedule under section 5315 of title 5, United 
     States Code, for each day (including travel time) during 
     which such member is engaged in the performance of the duties 
     of the Commission. All members of the Commission who are 
     officers or employees of the United States shall serve 
     without compensation in addition to that received for their 
     services as officers or employees of the United States.
       (2) Travel expenses.--The members of the Commission shall 
     be allowed travel expenses, including per diem in lieu of 
     subsistence, at rates authorized for employees of agencies 
     under subchapter I of chapter 57 of title 5, United States 
     Code, while away from their homes or regular places of 
     business in the performance of services for the Commission.
       (3) Staff.--
       (A) In general.--The Chairman of the Commission may, 
     without regard to the civil service laws and regulations, 
     appoint and terminate an executive director and such other 
     additional personnel as may be necessary to enable the 
     Commission to perform its duties. The employment of an 
     executive director shall be subject to confirmation by the 
     Commission.
       (B) Compensation.--The Chairman of the Commission may fix 
     the compensation of the executive director and other 
     personnel without regard to chapter 51 and subchapter III of 
     chapter 53 of title 5, United States Code, relating to 
     classification of positions and General Schedule pay rates, 
     except that the rate of pay for the executive director and 
     other personnel may not exceed the rate payable for level V 
     of the Executive Schedule under section 5316 of such title.
       (4) Detail of government employees.--Any Federal Government 
     employee may be detailed to the Commission without 
     reimbursement, and such detail shall be without interruption 
     or loss of civil service status or privilege.
       (5) Procurement of temporary and intermittent services.--
     The Chairman of the Commission may procure temporary and 
     intermittent services under section 3109(b) of title 5, 
     United States Code, at rates for individuals which do not 
     exceed the daily equivalent of the annual rate of basic pay 
     prescribed for level V of the Executive Schedule under 
     section 5316 of such title.
       (e) Termination of the Commission.--The Commission shall 
     terminate 90 days after the date on which the Commission 
     submits its report under subsection (b).
       (f) Authorization of Appropriations.--There are authorized 
     to be appropriated such sums as are necessary to the 
     Commission to carry out this section.

     SEC. 654. TREATMENT OF DISTRIBUTIONS BY ESOPS WITH RESPECT TO 
                   S CORPORATION STOCK.

       (a) In General.--Section 4975(d) of the Internal Revenue 
     Code of 1986 is amended by adding at the end the following 
     new flush sentences:

     ``A plan shall not be treated as violating the requirements 
     of section 401, 409, or subsection (e)(7), or as engaging in 
     a prohibited transaction for purposes of paragraph (3), 
     merely by reason of any distribution described in section 
     1368(a) with respect to S corporation stock which constitutes 
     qualifying employer securities if the distribution is, in 
     accordance with the plan provisions, used to make payments on 
     a loan described in paragraph (3) the proceeds of which were 
     used to acquire the 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 take effect on January 1, 1998.

     SEC. 655. CLARIFICATION OF WORKING CAPITAL FOR REASONABLY 
                   ANTICIPATED NEEDS OF A BUSINESS FOR PURPOSES OF 
                   ACCUMULATED EARNINGS TAX.

       (a) In General.--Section 537(b) (relating to special rules) 
     is amended by adding at the end the following new paragraph:
       ``(6) Working capital.--The reasonably anticipated needs of 
     a business for any taxable year shall include working capital 
     for the business in an amount which is not less than the sum 
     of the cost of goods, operating expenses, taxes, and interest 
     expense which the business incurred during the preceding 
     taxable year. Any amounts incurred as part of a plan a 
     principal purpose of which is to increase the limitation 
     under this subsection shall not be taken into account.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003, and before January 1, 2009.

                     Subtitle F--Revenue Provisions

                   PART I--GENERAL REVENUE PROVISIONS

     SEC. 661. TREASURY REGULATIONS ON FOREIGN TAX CREDIT.

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

     SEC. 662. NONATTRIBUTION OF CERTAIN MANUFACTURING BY PERSONS 
                   OTHER THAN CONTROLLED FOREIGN CORPORATION.

       (a) In General.--Section 954(d) (defining foreign base 
     company sales income) is amended by adding at the end the 
     following new paragraph:
       ``(5) Nonattribution of certain manufacturing activities.--
     For purposes of this subsection, in determining whether 
     income of a controlled foreign corporation is foreign base 
     company sales income, any manufacturing, production, or 
     construction by a person other than an individual who is an 
     employee of the corporation shall not be attributed to the 
     corporation.''
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to taxable years of controlled foreign corporations 
     beginning on or after the date of the enactment of this Act, 
     and to taxable years of United States shareholders with or 
     within which such taxable years of foreign corporations end.
       (2) No inference.--Nothing in the amendment made by this 
     section shall be construed to infer the proper treatment of 
     manufacturing, production, or construction for taxable years 
     beginning before the date of the enactment of this Act.

     SEC. 663. FREEZE OF PROVISIONS REGARDING SUSPENSION OF 
                   INTEREST WHERE SECRETARY FAILS TO CONTACT 
                   TAXPAYER.

       (a) In General.--Section 6404(g) (relating to suspension of 
     interest and certain penalties where secretary fails to 
     contact taxpayer) is amended by striking ``1-year period (18-
     month period in the case of taxable years beginning before 
     January 1, 2004)'' both places it appears and inserting ``18-
     month period''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

               PART II--PENSION AND DEFERRED COMPENSATION

     SEC. 671. TREATMENT OF NONQUALIFIED DEFERRED COMPENSATION 
                   PLANS.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED 
                   COMPENSATION UNDER NONQUALIFIED DEFERRED 
                   COMPENSATION PLANS.

       ``(a) Rules Relating to Constructive Receipt.--
       ``(1) In general.--
       ``(A) Gross income inclusion.--If at any time during a 
     taxable year a nonqualified deferred compensation plan--
       ``(i) fails to meet the requirements of paragraphs (2), 
     (3), (4), and (5), or
       ``(ii) is not operated in accordance with such 
     requirements,

     all compensation deferred under the plan for the taxable year 
     and all preceding taxable years shall be includible in gross 
     income for the taxable year to the extent not subject to a 
     substantial risk of forfeiture and not previously included in 
     gross income.

[[Page 4781]]

       ``(B) Interest and additional tax payable with respect to 
     previously deferred compensation.--
       ``(i) In general.--If compensation is required to be 
     included in gross income under subparagraph (A) for a taxable 
     year, the tax imposed by this chapter for the taxable year of 
     inclusion shall be increased by the sum of--

       ``(I) the amount of interest determined under clause (ii), 
     and
       ``(II) an amount equal to 10 percent of the compensation 
     which is required to be included in gross income.

       ``(ii) Interest.--For purposes of clause (i), the interest 
     determined under this clause for any taxable year is the 
     amount of interest at the underpayment rate on the 
     underpayments that would have occurred had the deferred 
     compensation been includible in gross income for the taxable 
     year in which first deferred or, if later, the first taxable 
     in which such deferred compensation is not subject to a 
     substantial risk of forfeiture.
       ``(2) Distributions.--
       ``(A) In general.--The requirements of this paragraph are 
     met if the plan provides that compensation deferred under the 
     plan may not be distributed earlier than--
       ``(i) except as provided in subparagraph (B)(i), separation 
     from service (as determined by the Secretary),
       ``(ii) the date the participant becomes disabled (within 
     the meaning of subparagraph (C)),
       ``(iii) death,
       ``(iv) a specified time (or pursuant to a fixed schedule) 
     specified under the plan as of the date of the deferral of 
     such compensation,
       ``(v) to the extent provided by the Secretary, a change in 
     the ownership or effective control of the corporation, or in 
     the ownership of a substantial portion of the assets of the 
     corporation, or
       ``(vi) the occurrence of an unforeseeable emergency.
       ``(B) Special rules.--
       ``(i) Separation from service of specified employees.--In 
     the case of specified employees, the requirement of 
     subparagraph (A)(i) is met only if distributions may not be 
     made earlier than 6 months after the date of separation from 
     service. For purposes of the preceding sentence, a specified 
     employee is a key employee (as defined in section 416(i)) of 
     a corporation the stock in which is publicly traded on an 
     established securities market or otherwise.
       ``(ii) Changes in ownership or control.--In the case of a 
     participant who is subject to the requirements of section 
     16(a) of the Securities Exchange Act of 1934, the requirement 
     of subparagraph (A)(v) is met only if distributions may not 
     be made earlier than 1 year after the date of the change in 
     ownership or effective control.
       ``(iii) Unforeseeable emergency.--For purposes of 
     subparagraph (A)(vi)--

       ``(I) In general.--The term `unforeseeable emergency' means 
     a severe financial hardship to the participant or beneficiary 
     resulting from a sudden and unexpected illness or accident of 
     the participant or beneficiary, the participant's or 
     beneficiary's spouse, or the participant's or beneficiary's 
     dependent (as defined in section 152(a)), loss of the 
     participant's or beneficiary's property due to casualty, or 
     other similar extraordinary and unforeseeable circumstances 
     arising as a result of events beyond the control of the 
     participant or beneficiary.
       ``(II) Limitation on distributions.--The requirement of 
     subparagraph (A)(vi) is met only if, as determined under 
     regulations of the Secretary, the amounts distributed with 
     respect to an emergency do not exceed the amounts necessary 
     to satisfy such emergency plus amounts necessary to pay taxes 
     reasonably anticipated as a result of the distribution, after 
     taking into account the extent to which such hardship is or 
     may be relieved through reimbursement or compensation by 
     insurance or otherwise or by liquidation of the participant's 
     or beneficiary's assets (to the extent the liquidation of 
     such assets would not itself cause severe financial 
     hardship).

       ``(C) Disabled.--For purposes of subparagraph (A)(ii), a 
     participant shall be considered disabled if the participant--
       ``(i) is unable to engage in any substantial gainful 
     activity by reason of any medically determinable physical or 
     mental impairment which can be expected to result in death or 
     can be expected to last for a continuous period of not less 
     than 12 months, or
       ``(ii) is, by reason of any medically determinable physical 
     or mental impairment which can be expected to result in death 
     or can be expected to last for a continuous period of not 
     less than 12 months, receiving income replacement benefits 
     for a period of not less than 3 months under an accident and 
     health plan covering employees of the participant's employer 
     .
       ``(3) Investment options.--The requirements of this 
     paragraph are met if the plan provides that the investment 
     options a participant may elect under the plan--
       ``(A) are comparable to the investment options which a 
     participant may elect under the qualified employer plan of 
     the employer which has the fewest investment options, or
       ``(B) if there is no such qualified employer plan, meet 
     such requirements as the Secretary may prescribe (including 
     requirements limiting such options to permissible investment 
     options specified by the Secretary).
       ``(4) Acceleration of benefits.--The requirements of this 
     paragraph are met if the plan does not permit the 
     acceleration of the time or schedule of any payment under the 
     plan, except as provided by the Secretary.
       ``(5) Elections.--
       ``(A) In general.--The requirements of this paragraph are 
     met if the requirements of subparagraphs (B) and (C) are met.
       ``(B) Initial deferral decision.--The requirements of this 
     subparagraph are met if the plan provides that compensation 
     earned during a taxable year may be deferred at the 
     participant's election only if the election to defer such 
     compensation is made during the preceding taxable year or at 
     such other time as provided in regulations. In the case of 
     the first year in which a participant becomes eligible to 
     participate in the plan, such election may be made with 
     respect to services to be performed subsequent to the 
     election within 30 days after the date the participant 
     becomes eligible to participate in such plan.
       ``(C) Changes in time and form of distribution.--The 
     requirements of this subparagraph are met if, in the case of 
     a plan which permits under a subsequent election a delay in a 
     payment or a change in the form of payment--
       ``(i) the plan requires that such election may not take 
     effect until at least 12 months after the date on which the 
     election is made,
       ``(ii) in the case an election related to a payment not 
     described in clause (ii), (iii), or (vi) of paragraph (2)(A), 
     the plan requires that the first payment with respect to 
     which such election is made be deferred for a period of not 
     less than 5 years from the date such payment would otherwise 
     have been made, and
       ``(iii) the plan requires that any election related to a 
     payment described in paragraph (2)(A)(iv) may not be made 
     less than 12 months prior to the date of the first scheduled 
     payment under such paragraph.

     A plan shall be treated as failing to meet the requirements 
     of this subparagraph if the plan permits more than 1 
     subsequent election to delay any payment.
       ``(b) Rules Relating to Funding.--
       ``(1) Offshore property in a trust.--In the case of assets 
     set aside (directly or indirectly) in a trust (or other 
     arrangement determined by the Secretary) for purposes of 
     paying deferred compensation under a nonqualified deferred 
     compensation plan, such assets shall be treated for purposes 
     of section 83 as property transferred in connection with the 
     performance of services whether or not such assets are 
     available to satisfy claims of general creditors--
       ``(A) at the time set aside if such assets are located 
     outside of the United States, or
       ``(B) at the time transferred if such assets are 
     subsequently transferred outside of the United States.

     This paragraph shall not apply to assets located in a foreign 
     jurisdiction if substantially all of the services to which 
     the nonqualified deferred compensation relates are performed 
     in such jurisdiction.
       ``(2) Employer's financial health.--In the case of a 
     nonqualified deferred compensation plan, there is a transfer 
     of property within the meaning of section 83 as of the 
     earlier of--
       ``(A) the date on which the plan first provides that assets 
     will become restricted to the provision of benefits under the 
     plan in connection with a change in the employer's financial 
     health, or
       ``(B) the date on which assets are so restricted.
       ``(3) Income inclusion for offshore trusts and employer's 
     financial health.--For each taxable year that assets treated 
     as transferred under this subsection remain set aside in a 
     trust or other arrangement subject to paragraph (1) or (2), 
     any increase in value in, or earnings with respect to, such 
     assets shall be treated as an additional transfer of property 
     under this subsection (to the extent not previously included 
     in income).
       ``(4) Interest on tax liability payable with respect to 
     transferred property.--
       ``(A) In general.--If amounts are required to be included 
     in gross income by reason of paragraph (1) or (2) for a 
     taxable year, the tax imposed by this chapter for such 
     taxable year shall be increased by the sum of--
       ``(i) the amount of interest determined under subparagraph 
     (B), and
       ``(ii) an amount equal to 10 percent of the amounts 
     required to be included in gross income.
       ``(B) Interest.--For purposes of subparagraph (A), the 
     interest determined under this subparagraph for any taxable 
     year is the amount of interest at the underpayment rate on 
     the underpayments that would have occurred had the amounts 
     been includible in gross income for the taxable year in which 
     first deferred or, if later, the first taxable in which such 
     amounts is not subject to a substantial risk of forfeiture.
       ``(c) No Inference on Earlier Income Inclusion.--Nothing in 
     this section shall be construed to prevent the inclusion of 
     amounts in gross income under any other provision of this 
     chapter or any other rule of law earlier than the time 
     provided in this

[[Page 4782]]

     section. Any amount included in gross income under this 
     section shall not be required to be included in gross income 
     under any other provision of this chapter or any other rule 
     of law later than the time provided in this section.
       ``(d) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Nonqualified deferred compensation plan.--The term 
     `nonqualified deferred compensation plan' means any plan that 
     provides for the deferral of compensation, other than--
       ``(A) a qualified employer plan, and
       ``(B) any bona fide vacation leave, sick leave, 
     compensatory time, disability pay, or death benefit plan.
       ``(2) Qualified employer plan.--The term `qualified 
     employer plan' means--
       ``(A) any plan, contract, pension, account, or trust 
     described in subparagraph (A) or (B) of section 219(g)(5), 
     and
       ``(B) any eligible deferred compensation plan (within the 
     meaning of section 457(b)) of an employer described in 
     section 457(e)(1)(A).
       ``(3) Plan includes arrangements, etc.--The term `plan' 
     includes any agreement or arrangement, including an agreement 
     or arrangement that includes one person.
       ``(4) Substantial risk of forfeiture.--The rights of a 
     person to compensation are subject to a substantial risk of 
     forfeiture if such person's rights to such compensation are 
     conditioned upon the future performance of substantial 
     services by any individual.
       ``(5) Treatment of earnings.--References to deferred 
     compensation shall be treated as including references to 
     income (whether actual or notional) attributable to such 
     compensation or such income.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section, including regulations--
       ``(1) providing for the determination of amounts of 
     deferral in the case of a nonqualified deferred compensation 
     plan which is a defined benefit plan,
       ``(2) relating to changes in the ownership and control of a 
     corporation or assets of a corporation for purposes of 
     subsection (a)(2)(A)(v),
       ``(3) exempting arrangements from the application of 
     subsection (b) if such arrangements will not result in an 
     improper deferral of United States tax and will not result in 
     assets being effectively beyond the reach of creditors,
       ``(4) defining financial health for purposes of subsection 
     (b)(2), and
       ``(5) disregarding a substantial risk of forfeiture in 
     cases where necessary to carry out the purposes of this 
     section.''
       (b) Application of Golden Parachute Payment Provisions.--
     Section 280G(b) of such Code (defining excess parachute 
     payment) is amended by adding at the end the following new 
     paragraph:
       ``(7) Special rules for certain payments from nonqualified 
     deferred compensation plans.--
       ``(A) In general.--In the case of any applicable payment--
       ``(i) such payment shall be treated as a parachute payment 
     without regard to any exception otherwise applicable under 
     this subsection, and
       ``(ii) notwithstanding paragraph (1), the entire amount of 
     the payment shall be treated as an excess parachute payment.
       ``(B) Coordination with other payments.--An applicable 
     payment shall be taken into account in determining whether 
     any payment other than an applicable payment is a parachute 
     payment under paragraph (2) or an excess parachute payment 
     under paragraph (1).
       ``(C) Applicable payment.--For purposes of this paragraph, 
     the term `applicable payment' means any distribution from a 
     nonqualified deferred compensation plan (as defined in 
     section 409A(d)) which is made--
       ``(i) to a participant who is subject to the requirements 
     of section 16(a) of the Securities Exchange Act of 1934, and
       ``(ii) during the 1-year period following a change in the 
     ownership or effective control of the corporation or in the 
     ownership of a substantial portion of the assets of the 
     corporation.''
       (c) W-2 Forms.--
       (1) In general.--Subsection (a) of section 6051 (relating 
     to receipts for employees) is amended by striking ``and'', by 
     striking the period at the end of paragraph (12) and 
     inserting ``, and'', and by inserting after paragraph (12) 
     the following new paragraph:
       ``(13) the total amount of deferrals under a nonqualified 
     deferred compensation plan (within the meaning of section 
     409A(d)).''
       (2) Threshold.--Subsection (a) of section 6051 is amended 
     by adding at the end the following: ``In the case of the 
     amounts required to be shown by paragraph (13), the Secretary 
     may (by regulation) establish a minimum amount of deferrals 
     below which paragraph (13) does not apply.''
       (d) Conforming and Clerical Amendments.--
       (1) Section 414(b) is amended by inserting ``409A,'' after 
     ``408(p),''.
       (2) Section 414(c) is amended by inserting ``409A,'' after 
     ``408(p),''.
       (3) The table of sections for such subpart A is amended by 
     adding at the end the following new item:

``Sec. 409A. Inclusion in gross income of deferred compensation under 
              nonqualified deferred compensation plans.''

       (e) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to amounts deferred in taxable years beginning after 
     December 31, 2004.
       (2) Earnings attributable to amount previously deferred.--
     The amendments made by this section shall apply to earnings 
     on deferred compensation only to the extent that such 
     amendments apply to such compensation.
       (f) Guidance Relating to Change of Ownership or Control.--
     Not later than 90 days after the date of the enactment of 
     this Act, the Secretary of the Treasury shall issue guidance 
     on what constitutes a change in ownership or effective 
     control for purposes of section 409A of the Internal Revenue 
     Code of 1986, as added by this section.
       (g) Guidance Relating to Termination of Certain Existing 
     Arrangements.--Not later than 90 days after the date of the 
     enactment of this Act, the Secretary of the Treasury shall 
     issue guidance providing a limited period during which an 
     individual participating in a nonqualified deferred 
     compensation plan adopted on or before December 31, 2004, 
     may, without violating the requirements of paragraphs (2), 
     (3), (4), and (5) of section 409A(a)(2) of the Internal 
     Revenue Code of 1986 (as added by this section), terminate 
     participation or cancel an outstanding deferral election with 
     regard to amounts earned after December 31, 2004, if such 
     amounts are includible in income as earned.

     SEC. 672. PROHIBITION ON DEFERRAL OF GAIN FROM THE EXERCISE 
                   OF STOCK OPTIONS AND RESTRICTED STOCK GAINS 
                   THROUGH DEFERRED COMPENSATION ARRANGEMENTS.

       (a) In General.--Section 83 (relating to property 
     transferred in connection with performance of services) is 
     amending by adding at the end the following new subsection:
       ``(i) Prohibition on Additional Deferral Through Deferred 
     Compensation Arrangements.--If a taxpayer elects to exchange 
     an option to purchase employer securities--
       ``(1) to which subsection (a) applies, or
       ``(2) which is described in subsection (e)(3),
     or any other property based on employer securities 
     transferred to the taxpayer, for a right to receive future 
     payments, then, notwithstanding any other provision of this 
     title, there shall be included in gross income for the 
     taxable year of the exchange an amount equal to the present 
     value of such right (or such other amount as the Secretary 
     may by regulations specify). For purposes of this subsection, 
     the term `employer securities' includes any security issued 
     by the employer.''
       (b) Controlled Group Rules.--Section 414(t)(2) is amended 
     by inserting ``83(i),'' after ``79,''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any exchange after December 31, 2004.

     SEC. 673. INCREASE IN WITHHOLDING FROM SUPPLEMENTAL WAGE 
                   PAYMENTS IN EXCESS OF $1,000,000.

       (a) In General.--If an employer elects under Treasury 
     Regulation 31.3402(g)-1 to determine the amount to be 
     deducted and withheld from any supplemental wage payment by 
     using a flat percentage rate, the rate to be used in 
     determining the amount to be so deducted and withheld shall 
     not be less than 28 percent (or the corresponding rate in 
     effect under section 1(i)(2) of the Internal Revenue Code of 
     1986 for taxable years beginning in the calendar year in 
     which the payment is made).
       (b) Special Rule for Large Payments.--
       (1) In general.--Notwithstanding subsection (a), if the 
     supplemental wage payment, when added to all such payments 
     previously made by the employer to the employee during the 
     calendar year, exceeds $1,000,000, the rate used with respect 
     to such excess shall be equal to the maximum rate of tax in 
     effect under section 1 of such Code for taxable years 
     beginning in such calendar year.
       (2) Aggregation.--All persons treated as a single employer 
     under subsection (a) or (b) of section 52 of the Internal 
     Revenue Code of 1986 shall be treated as a single employer 
     for purposes of this subsection.
       (c) Conforming Amendment.--Section 13273 of the Revenue 
     Reconciliation Act of 1993 (Public Law 103-66) is repealed.
       (d) Effective Date.--The provisions of, and the amendment 
     made by, this section shall apply to payments made after 
     December 31, 2003.

     SEC. 674. TREATMENT OF SALE OF STOCK ACQUIRED PURSUANT TO 
                   EXERCISE OF STOCK OPTIONS TO COMPLY WITH 
                   CONFLICT-OF-INTEREST REQUIREMENTS.

       (a) In General.--Section 421 of the Internal Revenue Code 
     of 1986 (relating to general rules for certain stock options) 
     is amended by adding at the end the following new subsection:
       ``(d) Certain Sales To Comply With Conflict-of-Interest 
     Requirements.--If--
       ``(1) a share of stock is transferred to an eligible person 
     (as defined in section 1043(b)(1))

[[Page 4783]]

     pursuant to such person's exercise of an option to which this 
     part applies, and
       ``(2) such share is disposed of by such person pursuant to 
     a certificate of divestiture (as defined in section 
     1043(b)(2)),

     such disposition shall be treated as meeting the requirements 
     of section 422(a)(1) or 423(a)(1), whichever is applicable.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales after the date of the enactment of this 
     Act.

     SEC. 675. DETERMINATION OF BASIS OF AMOUNTS PAID FROM FOREIGN 
                   PENSION PLANS.

       (a) In General.--Section 72 of the Internal Revenue Code of 
     1986 (relating to annuities and certain proceeds of endowment 
     and life insurance contracts) is amended by redesignating 
     subsection (w) as subsection (x) by inserting subsection (v) 
     the following new subsection:
       ``(w) Determination of Basis of Foreign Pension Plans.--
     Notwithstanding any other provision of this section, for 
     purposes of determining the portion of any distribution from 
     a foreign pension plan which is includible in gross income of 
     the distributee, the investment in the contract with respect 
     to the plan shall not include employer or employee 
     contributions to the plan (or any earnings on such 
     contributions) unless such contributions or earnings were 
     subject to taxation by the United States or any foreign 
     government.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to distributions on or after the date of the 
     enactment of this Act.

          TITLE VII--EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

                         Subtitle A--Extensions

     SEC. 701. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO 
                   MENTAL HEALTH BENEFITS.

       (a) In General.--Section 9812(f) is amended--
       (1) by striking ``and'' at the end of paragraph (1), and
       (2) by striking paragraph (2) and inserting the following 
     new paragraphs:
       ``(2) on or after January 1, 2004, and before the date of 
     the enactment of the Jumpstart Our Business Strength (JOBS) 
     Act, and
       ``(3) after December 31, 2005.''.
       (b) ERISA.--Section 712(f) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1185a(f)) is amended 
     by striking ``on or after December 31, 2004'' and inserting 
     ``after December 31, 2005''.
       (c) PHSA.--Section 2705(f) of the Public Health Service Act 
     (42 U.S.C. 300gg-5(f)) is amended by striking ``on or after 
     December 31, 2004'' and inserting ``after December 31, 
     2005''.
       (d) Effective Dates.--
       (1) Subsection (a).--The amendments made by subsection (a) 
     shall apply to benefits for services furnished on or after 
     December 31, 2003.
       (2) Subsections (b) and (c).--The amendments made by 
     subsections (b) and (c) shall apply to benefits for services 
     furnished on or after December 31, 2004.

     SEC. 702. MODIFICATIONS TO WORK OPPORTUNITY CREDIT AND 
                   WELFARE-TO-WORK CREDIT.

       (a) Extension of Credit.--
       (1) Subparagraph (B) of section 51(c)(4) is amended by 
     striking ``December 31, 2003'' and inserting ``December 31, 
     2005''.
       (2) Subsection (f) of section 51A is amended by striking by 
     striking ``December 31, 2003'' and inserting ``December 31, 
     2005''.
       (b) Eligibility of Ex-Felons Determined Without Regard to 
     Family Income.--Paragraph (4) of section 51(d) is amended by 
     adding ``and'' at the end of subparagraph (A), by striking 
     ``, and'' at the end of subparagraph (B) and inserting a 
     period, and by striking all that follows subparagraph (B).
       (c) Increase in Maximum Age for Eligibility of Food Stamp 
     Recipients.--Clause (i) of section 51(d)(8)(A) is amended by 
     striking ``25'' and inserting ``40''.
       (d) Increase in Maximum Age for Designated Community 
     residents.--
       (1) In general.--Paragraph (5) of section 51(d) is amended 
     to read as follows:
       ``(5) Designated community residents.--
       ``(A) In general.--The term `designated community resident' 
     means any individual who is certified by the designated local 
     agency--
       ``(i) as having attained age 18 but not age 40 on the 
     hiring date, and
       ``(ii) as having his principal place of abode within an 
     empowerment zone, enterprise community, or renewal community.
       ``(B) Individual must continue to reside in zone or 
     community.--In the case of a designated community resident, 
     the term `qualified wages' shall not include wages paid or 
     incurred for services performed while the individual's 
     principal place of abode is outside an empowerment zone, 
     enterprise community, or renewal community.''
       (2) Conforming amendment.--Subparagraph (D) of section 
     51(d)(1) is amended to read as follows:
       ``(D) a designated community resident,''.
       (e) Clarification of Treatment of Individuals Under 
     Individual Work Plans.--Subparagraph (B) of section 51(d)(6) 
     (relating to vocational rehabilitation referral) is amended 
     by striking ``or'' at the end of clause (i), by striking the 
     period at the end of clause (ii) and inserting ``, or'', and 
     by adding at the end the following new clause:
       ``(iii) an individual work plan developed and implemented 
     by an employment network pursuant to subsection (g) of 
     section 1148 of the Social Security Act with respect to which 
     the requirements of such subsection are met.''
       (f) Effective Dates.--
       (1) Extension of credits.--The amendments made by 
     subsection (a) shall apply to individuals who begin work for 
     the employer after December 31, 2003.
       (2) Modifications.--The amendments made by subsections (b), 
     (c), (d), and (e) shall apply to individuals who begin work 
     for the employer after December 31, 2004.

     SEC. 703. CONSOLIDATION OF WORK OPPORTUNITY CREDIT WITH 
                   WELFARE-TO-WORK CREDIT.

       (a) In General.--Paragraph (1) of section 51(d) is amended 
     by striking ``or'' at the end of subparagraph (G), by 
     striking the period at the end of subparagraph (H) and 
     inserting ``, or'', and by adding at the end the following 
     new subparagraph:
       ``(I) a long-term family assistance recipient.''
       (b) Long-Term Family Assistance Recipient.--Subsection (d) 
     of section 51 is amended by redesignating paragraphs (10) 
     through (12) as paragraphs (11) through (13), respectively, 
     and by inserting after paragraph (9) the following new 
     paragraph:
       ``(10) Long-term family assistance recipient.--The term 
     `long-term family assistance recipient' means any individual 
     who is certified by the designated local agency--
       ``(A) as being a member of a family receiving assistance 
     under a IV-A program (as defined in paragraph (2)(B)) for at 
     least the 18-month period ending on the hiring date,
       ``(B)(i) as being a member of a family receiving such 
     assistance for 18 months beginning after August 5, 1997, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the end of the earliest such 18-month period, or
       ``(C)(i) as being a member of a family which ceased to be 
     eligible for such assistance by reason of any limitation 
     imposed by Federal or State law on the maximum period such 
     assistance is payable to a family, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the date of such cessation.''
       (c) Increased Credit for Employment of Long-Term Family 
     Assistance Recipients.--Section 51 is amended by inserting 
     after subsection (d) the following new subsection:
       ``(e) Credit for Employment of Long-Term Family Assistance 
     Recipients.--
       ``(1) In general.--With respect to the employment of a 
     long-term family assistance recipient--
       ``(A) the amount of the work opportunity credit determined 
     under this section for the taxable year shall include 50 
     percent of the qualified second-year wages for such year, and
       ``(B) in lieu of applying subsection (b)(3), the amount of 
     the qualified first-year wages, and the amount of qualified 
     second-year wages, which may be taken into account with 
     respect to such a recipient shall not exceed $10,000 per 
     year.
       ``(2) Qualified second-year wages.--For purposes of this 
     subsection, the term `qualified second-year wages' means 
     qualified wages--
       ``(A) which are paid to a long-term family assistance 
     recipient, and
       ``(B) which are attributable to service rendered during the 
     1-year period beginning on the day after the last day of the 
     1-year period with respect to such recipient determined under 
     subsection (b)(2).
       ``(3) Special rules for agricultural and railway labor.--If 
     such recipient is an employee to whom subparagraph (A) or (B) 
     of subsection (h)(1) applies, rules similar to the rules of 
     such subparagraphs shall apply except that--
       ``(A) such subparagraph (A) shall be applied by 
     substituting `$10,000' for `$6,000', and
       ``(B) such subparagraph (B) shall be applied by 
     substituting `$833.33' for `$500'.''
       (d) Repeal of Separate Welfare-to-Work Credit.--
       (1) In general.--Section 51A is hereby repealed.
       (2) Clerical amendment.--The table of sections for subpart 
     F of part IV of subchapter A of chapter 1 is amended by 
     striking the item relating to section 51A.
       (e) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 2004.

     SEC. 704. 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 December 31, 2003.

     SEC. 705. 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.

[[Page 4784]]



     SEC. 706. DEDUCTION FOR CORPORATE DONATIONS OF SCIENTIFIC 
                   PROPERTY AND COMPUTER TECHNOLOGY.

       (a) Scientific Property Used for Research.--
       (1) In general.--Clause (ii) of section 170(e)(4)(B) 
     (defining qualified research contributions) is amended by 
     inserting ``or assembled'' after ``constructed''.
       (2) Conforming amendment.--Clause (iii) of section 
     170(e)(4)(B) is amended by inserting ``or assembling'' after 
     ``construction''.
       (b) Computer Technology and Equipment for Educational 
     Purposes.--
       (1) In general.--Clause (ii) of section 170(e)(6)(B) is 
     amended by inserting ``or assembled'' after ``constructed'' 
     and ``or assembling'' after ``construction''.
       (2) Special rule extended.--Section 170(e)(6)(G) is amended 
     by striking ``2003'' and inserting ``2005''.
       (3) Conforming amendments.--Subparagraph (D) of section 
     170(e)(6) is amended by inserting ``or assembled'' after 
     ``constructed'' and ``or assembling'' after ``construction''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions made in taxable years beginning 
     after December 31, 2003.

     SEC. 707. DEDUCTION FOR CERTAIN EXPENSES OF SCHOOL TEACHERS.

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

     SEC. 708. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

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

     SEC. 709. EXPANSION OF CERTAIN NEW YORK LIBERTY ZONE 
                   BENEFITS.

       (a) Extension of Tax-Exempt Bond Financing.--Subparagraph 
     (D) of section 1400L(d)(2) is amended by striking ``2005'' 
     and inserting ``2006''.
       (b) Clarification of Bonds Eligible for Advance 
     Refunding.--Section 1400L(e)(2)(B) (relating to bonds 
     described) is amended by striking ``, or'' and inserting ``or 
     the Municipal Assistance Corporation, or''.
       (c) Election Out Technical Amendment.--Subsection (c) of 
     section 1400L is amended by adding at the end the following 
     new paragraph:
       ``(5) Election out.--For purposes of this subsection, rules 
     similar to the rules of section 168(k)(2)(C)(iii) shall 
     apply.''.
       (d) Effective date.--The amendments made by subsections (b) 
     and (c) shall take effect as if included in the amendments 
     made by section 301 of the Job Creation and Worker Assistance 
     Act of 2002.

     SEC. 710. TEMPORARY SPECIAL RULES FOR TAXATION OF LIFE 
                   INSURANCE COMPANIES.

       (a) In General.--Subsection (j) of section 809 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. 711. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF 
                   COLUMBIA.

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

     SEC. 712. DISCLOSURE OF TAX INFORMATION TO FACILITATE 
                   COMBINED EMPLOYMENT TAX REPORTING.

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

     SEC. 713. 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 2004.--
     '', and
       (2) by striking ``or 2003'' and inserting ``2003, or 
     2004''.
       (b) Conforming Provisions.--
       (1) Section 904(h) is amended by striking ``or 2003'' and 
     inserting ``2003, or 2004''.
       (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.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 714. CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN 
                   RENEWABLE RESOURCES.

       (a) In General.--Subparagraphs (A), (B), and (C) of section 
     45(c)(3) are each amended by striking ``January 1, 2004'' and 
     inserting ``January 1, 2005''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to facilities placed in service after December 
     31, 2003.

     SEC. 715. 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, 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 716. INDIAN EMPLOYMENT TAX CREDIT.

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

     SEC. 717. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON 
                   INDIAN RESERVATION.

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

     SEC. 718. 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. 719. EXTENSION OF TRANSFERS OF EXCESS PENSION ASSETS TO 
                   RETIREE HEALTH ACCOUNTS.

       (a) Amendment of Internal Revenue Code of 1986.--Paragraph 
     (5) of section 420(b) (relating to expiration) is amended by 
     striking ``December 31, 2005'' and inserting ``December 31, 
     2013''.
       (b) Amendments of ERISA.--
       (1) Section 101(e)(3) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by 
     striking ``Tax Relief Extension Act of 1999'' and inserting 
     ``Jumpstart Our Business Strength (JOBS) Act''.
       (2) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is 
     amended by striking ``Tax Relief Extension Act of 1999'' and 
     inserting ``Jumpstart Our Business Strength (JOBS) Act''.
       (3) Paragraph (13) of section 408(b) of such Act (29 U.S.C. 
     1108(b)(3)) is amended--
       (A) by striking ``January 1, 2006'' and inserting ``January 
     1, 2014'', and
       (B) by striking ``Tax Relief Extension Act of 1999'' and 
     inserting ``Jumpstart Our Business Strength (JOBS) Act''.
       (c) Minimum Cost Requirements.--
       (1) In general.--Section 420(c)(3)(E) is amended by adding 
     at the end the following new clause:
       ``(ii) Insignificant cost reductions permitted.--

       ``(I) In general.--An eligible employer shall not be 
     treated as failing to meet the requirements of this paragraph 
     for any taxable year if, in lieu of any reduction of retiree 
     health coverage permitted under the regulations prescribed 
     under clause (i), the employer reduces applicable employer 
     cost by an amount not in excess of the reduction in costs 
     which would have occurred if the employer had made the 
     maximum permissible reduction in retiree health coverage 
     under such regulations. In applying such regulations to any 
     subsequent taxable year, any reduction in applicable employer 
     cost under this clause shall be treated as if it were an 
     equivalent reduction in retiree health coverage.
       ``(II) Eligible employer.--For purposes of subclause (I), 
     an employer shall be treated as an eligible employer for any 
     taxable year if, for the preceding taxable year, the 
     qualified current retiree health liabilities of the employer 
     were at least 5 percent of the gross receipts of the 
     employer. For purposes of this

[[Page 4785]]

     subclause, the rules of paragraphs (2), (3)(B), and (3)(C) of 
     section 448(c) shall apply in determining the amount of an 
     employer's gross receipts.''

       (2) Conforming amendment.--Section 420(c)(3)(E) is amended 
     by striking ``The Secretary'' and inserting:
       ``(i) In general.--The Secretary''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 720. ELIMINATION OF PHASEOUT OF CREDIT FOR QUALIFIED 
                   ELECTRIC VEHICLES.

       (a) In General.--Section 30(b) is amended by striking 
     paragraph (2) and by redesignating paragraph (3) as paragraph 
     (2).
       (b) Conforming Amendments.--
       (1) Section 53(d)(1)(B)(iii) is amended by striking 
     ``section 30(b)(3)(B)'' and inserting ``section 
     30(b)(2)(B)''.
       (2) Section 55(c)(2) is amended by striking ``30(b)(3)'' 
     and inserting ``30(b)(2)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after December 31, 
     2003.

     SEC. 721. ELIMINATION OF PHASEOUT FOR DEDUCTION FOR CLEAN-
                   FUEL VEHICLE PROPERTY.

       (a) In General.--Paragraph (1) of section 179A(b) is 
     amended to read as follows:
       ``(1) Qualified clean-fuel vehicle property.--The cost 
     which may be taken into account under subsection (a)(1)(A) 
     with respect to any motor vehicle shall not exceed--
       ``(A) in the case of a motor vehicle not described in 
     subparagraph (B) or (C), $2,000,
       ``(B) in the case of any truck or van with a gross vehicle 
     weight rating greater than 10,000 pounds but not greater than 
     26,000 pounds, $5,000, or
       ``(C) $50,000 in the case of--
       ``(i) a truck or van with a gross vehicle weight rating 
     greater than 26,000 pounds, or
       ``(ii) any bus which has a seating capacity of at least 20 
     adults (not including the driver).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to property placed in service after December 31, 
     2003.

                     Subtitle B--Revenue Provisions

     SEC. 731. DONATIONS OF MOTOR VEHICLES, BOATS, AND AIRPLANES.

       (a) In General.--Subsection (f) of section 170 (relating to 
     disallowance of deduction in certain cases and special rules) 
     is amended by adding at the end the following new paragraph:
       ``(11) Contributions of used motor vehicles, boats, and 
     airplanes.--
       ``(A) In general.--In the case of a contribution of a 
     qualified vehicle in excess of $500--
       ``(i) paragraph (8) shall not apply and no deduction shall 
     be allowed under subsection (a) for such contribution unless 
     the taxpayer substantiates the contribution by a 
     contemporaneous written acknowledgement of the contribution 
     by the donee organization that meets the requirements of 
     subparagraph (B) and includes the acknowledgement with the 
     taxpayer's return of tax which includes the deduction, and
       ``(ii) if the organization sells the vehicle without any 
     significant intervening use or material improvement of such 
     vehicle by the organization, the amount of the deduction 
     allowed under subsection (a) shall not exceed the gross 
     proceeds received from such sale.
       ``(B) Content of acknowledgement.--An acknowledgement meets 
     the requirements of this subparagraph if it includes the 
     following information:
       ``(i) The name and taxpayer identification number of the 
     donor.
       ``(ii) The vehicle identification number or similar number.
       ``(iii) In the case of a qualified vehicle to which 
     subparagraph (A)(ii) does not apply and which is sold by the 
     donee organization--

       ``(I) a certification that the vehicle was sold in an arm's 
     length transaction between unrelated parties,
       ``(II) the gross proceeds from the sale, and
       ``(III) the amount of such gross proceeds is the deductible 
     amount.

       ``(iv) In the case of a qualified vehicle to which 
     subparagraph (A)(ii) does not apply--

       ``(I) a certification of the intended use or material 
     improvement of the vehicle and the intended duration of such 
     use, and
       ``(II) a certification that the vehicle would not be 
     transferred in exchange for money, other property, or 
     services before completion of such use or improvement.

       ``(C) Contemporaneous.--For purposes of subparagraph (A), 
     an acknowledgement shall be considered to be contemporaneous 
     if the donee organization provides it within 30 days of--
       ``(i) the sale of the qualified vehicle, or
       ``(ii) in the case of an acknowledgement including a 
     certification described in subparagraph (B)(iv), the 
     contribution of the qualified vehicle.
       ``(D) Information to secretary.--A donee organization 
     required to provide an acknowledgement under this paragraph 
     shall provide to the Secretary the information contained in 
     the acknowledgement. Such information shall be provided at 
     such time and in such manner as the Secretary may prescribe.
       ``(E) Qualified vehicle.--For purposes of this paragraph, 
     the term `qualified vehicle' means any--
       ``(i) self-propelled vehicle manufactured primarily for use 
     on public streets, roads, and highways,
       ``(ii) boat, or
       ``(iii) airplane.

     Such term shall not include any property which is described 
     in section 1221(a)(1).
       ``(F) Regulations or other guidance.--The Secretary shall 
     prescribe such regulations or other guidance as may be 
     necessary to carry out the purposes of this paragraph.''.
       (b) Penalty for Fraudulent Acknowledgments.--
       (1) In general.--Part I of subchapter B of chapter 68 
     (relating to assessable penalties) is amended adding at the 
     end the following new section:

     ``SEC. 6717. FRAUDULENT ACKNOWLEDGMENTS WITH RESPECT TO 
                   DONATIONS OF MOTOR VEHICLES, BOATS, AND 
                   AIRPLANES.

       ``Any donee organization required under section 
     170(f)(11)(A) to furnish a contemporaneous written 
     acknowledgment to a donor which knowingly furnishes a false 
     or fraudulent acknowledgment, or which knowingly fails to 
     furnish such acknowledgment in the manner, at the time, and 
     showing the information required under section 170(f)(11), or 
     regulations prescribed thereunder, shall for each such act, 
     or for each such failure, be subject to a penalty equal to--
       ``(1) in the case of an acknowledgment with respect to a 
     qualified vehicle to which section 170(f)(11)(A)(ii) applies, 
     the greater of the value of the tax benefit to the donor or 
     the gross proceeds from the sale of such vehicle, and
       ``(2) in the case of an acknowledgment with respect to any 
     other qualified vehicle to which section 170(f)(11) applies, 
     the greater of the value of the tax benefit to the donor or 
     $5,000.''.
       (2) Conforming amendment.--The table of sections for part I 
     of subchapter B of chapter 68 is amended by adding at the end 
     the following new item:

``Sec. 6717. Fraudulent acknowledgments with respect to donations of 
              motor vehicles, boats, and airplanes.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions after June 30, 2004.

     SEC. 732. ADDITION OF VACCINES AGAINST INFLUENZA TO LIST OF 
                   TAXABLE VACCINES.

       (a) In General.--Section 4132(a)(1) (defining taxable 
     vaccine) is amended adding at the end the following new 
     subparagraph:
       ``(M) Any trivalent vaccine against influenza.''.
       (b) Conforming Amendment.--Section 9510(c)(1)(A) is amended 
     by striking ``October 18, 2000'' and inserting ``the date of 
     the enactment of the Jumpstart Our Business Strength (JOBS) 
     Act''.
       (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.

     SEC. 733. TREATMENT OF CONTINGENT PAYMENT CONVERTIBLE DEBT 
                   INSTRUMENTS.

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

       ``(ii) provides for contingent payments,
     any regulations which require original issue discount to be 
     determined by reference to the comparable yield of a 
     noncontingent fixed rate debt instrument shall be applied as 
     requiring that such comparable yield be determined by 
     reference to a noncontingent fixed rate debt instrument which 
     is convertible into stock.
       ``(B) Special rule.--For purposes of subparagraph (A), the 
     comparable yield shall be determined without taking into 
     account the yield resulting from the conversion of a debt 
     instrument into stock.''.
       (b) Cross Reference.--Section 163(e)(6) (relating to cross 
     references) is amended by adding at the end the following:

[[Page 4786]]

       ``For the treatment of contingent payment convertible debt, 
     see section 175(d)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after the date of the 
     enactment of this Act.

     SEC. 734. MODIFICATION OF CONTINUING LEVY ON PAYMENTS TO 
                   FEDERAL VENDERS.

       (a) In General.--Section 6331(h) (relating to continuing 
     levy on certain payments) is amended by adding at the end the 
     following new paragraph:
       ``(3) Increase in levy for certain payments.--Paragraph (1) 
     shall be applied by substituting `100 percent' for `15 
     percent' in the case of any specified payment due to a vendor 
     of goods or services sold or leased to the Federal 
     Government.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.
                                 ______
                                 
  SA 2887. Ms. COLLINS submitted an amendment intended to be proposed 
by her to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the end of title I, insert:

     SEC. __. MANUFACTURER'S JOBS CREDIT.

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

     ``SEC. 45G. MANUFACTURER'S JOBS CREDIT.

       ``(a) General Rule.--For purposes of section 38, in the 
     case of an eligible taxpayer, the manufacturer's jobs credit 
     determined under this section is an amount equal to the 
     lesser of the following:
       ``(1) The excess of the W-2 wages paid by the taxpayer 
     during the taxable year over the W-2 wages paid by the 
     taxpayer during the preceding taxable year.
       ``(2) The W-2 wages paid by the taxpayer during the taxable 
     year to any employee who is an eligible TAA recipient (as 
     defined in section 35(c)(2)) for any month during such 
     taxable year.
       ``(3) 22.4 percent of the W-2 wages paid by the taxpayer 
     during the taxable year.
       ``(b) Limitation.--
       ``(1) In general.--If there is an excess described in 
     paragraph (2)(A) for any taxable year, the amount of credit 
     determined under subsection (a) (without regard to this 
     subsection)--
       ``(A) if the value of domestic production determined under 
     subsection (g)(2) for the taxable year does not exceed such 
     value for the preceding taxable year, shall be zero, and
       ``(B) if subparagraph (A) does not apply, shall be reduced 
     (but not below zero) by the applicable percentage of such 
     amount.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the term `applicable percentage' means, with respect to 
     any taxable year, the percentage equal to a fraction--
       ``(A) the numerator of which is the excess (if any) of the 
     modified value of worldwide production of the taxpayer for 
     the taxable year over such modified value for the preceding 
     taxable year, and
       ``(B) the denominator of which is the excess (if any) of 
     the value of worldwide production of the taxpayer for the 
     taxable year over such value for the preceding taxable year.
       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Value of worldwide production.--The value of 
     worldwide production for any taxable year shall be determined 
     under subsection (g)(4).
       ``(B) Modified value.--The term `modified value of 
     worldwide production' means the value of worldwide production 
     determined by not taking into account any item taken into 
     account in determining the value of domestic production under 
     subsection (g)(2).
       ``(c) Eligible Taxpayer.--For purposes of this section, the 
     term `eligible taxpayer' means any taxpayer--
       ``(1) which has domestic production gross receipts for the 
     taxable year and the preceding taxable year, and
       ``(2) which is not treated at any time during the taxable 
     year as an inverted domestic corporation under section 7874.
       ``(d) Definitions.--For purposes of this section--
       ``(1) In general.--Any term used in this section which is 
     also used in section 199 shall have the meaning given such 
     term by section 199.
       ``(2) Special rule for w-2 wages.--Notwithstanding 
     paragraph (1), the amount of W-2 wages taken into account 
     with respect to any employee for any taxable year shall not 
     exceed $50,000.
       ``(e) Certain Rules Made Applicable.--For purposes of this 
     section, rules similar to the rules of section 52 shall 
     apply.
       ``(f) Termination.--This section shall not apply to any 
     taxable year beginning after December 31, 2005.''
       (b) Credit To Be Part of General Business Credit.--Section 
     38(b) (relating to current year business credit) is amended 
     by striking ``plus'' at the end of paragraph (14), by 
     striking the period at the end of paragraph (15) and 
     inserting ``, plus'', and by adding at the end the following:
       ``(16) the manufacturer's jobs credit determined under 
     section 45G.''
       (c) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following:

``Sec. 45G. Manufacturer's jobs credit.''

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.
                                 ______
                                 
  SA 2888. Mrs. HUTCHISON (for herself, Mr. Frist, Ms. Cantwell, and 
Mr. Alexander) submitted an amendment intended to be proposed by her to 
the bill S. 1637, to amend the Internal Revenue Code of 1986 to comply 
with the World Trade Organization rulings on the FSC/ETI benefit in a 
manner that preserves jobs and production activities in the United 
States, to reform and simplify the international taxation rules of the 
United States, and for other purposes; which was ordered to lie on the 
table; as follows:

       At the appropriate place, insert the following:

     SEC. __. 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 new paragraph:
       ``(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,
       ``(II) as if State and local general sales taxes were 
     referred to in a paragraph thereof, and
       ``(III) without regard to the last sentence.

       ``(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.
       ``(H) Amount of deduction to be determined under tables.--
       ``(i) In general.--The amount of the deduction allowed 
     under this paragraph shall be determined under tables 
     prescribed by the Secretary.
       ``(ii) Requirements for tables.--The tables prescribed 
     under clause (i) shall reflect the provisions of this 
     paragraph and shall be based on the average consumption by 
     taxpayers on a State-by-State basis, as determined by the 
     Secretary, taking into account filing status, number of 
     dependents, adjusted gross income, and rates of State and 
     local general sales taxation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

[[Page 4787]]


                                 ______
                                 
  SA 2889. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       On page 179, after line 25, add the following:

     SEC. __. EXTENSION OF CREDIT FOR PRODUCING FUEL FROM A 
                   NONCONVENTIONAL SOURCE.

       (a) In General.--Section 29 (relating to credit for 
     producing fuel from a nonconventional source) is amended by 
     adding at the end the following new subsection:
       ``(h) Extension for Other Facilities.--Notwithstanding 
     subsection (f), in the case of a facility for producing coke 
     or coke gas which was placed in service before January 1, 
     1993, or after June 30, 1998, and before January 1, 2007, 
     this section shall apply with respect to coke and coke gas 
     produced in such facility and sold during the during the 
     period--
       ``(1) beginning on the later of January 1, 2004, or the 
     date that such facility is placed in service, and
       ``(2) ending on the earlier of the date which is 4 years 
     after the date such period began or December 31, 2009.
                                 ______
                                 
  SA 2890. Mr. SANTORUM submitted an amendment intended to be proposed 
by him to the bill S. 1637, to amend the Internal Revenue Code of 1986 
to comply with the World Trade Organization rulings on the FSC/ETI 
benefit in a manner that preserves jobs and production activities in 
the United States, to reform and simplify the international taxation 
rules of the United States, and for other purposes; which was ordered 
to lie on the table; as follows:

       At the appropriate place insert the following:

     SEC. __. TAXATION OF CERTAIN SETTLEMENT FUNDS.

       (a) In General.--Subsection (g) of section 468B (relating 
     to clarification of taxation of certain funds) is amended to 
     read as follows:
       ``(g) Clarification of Taxation of Certain Funds.--
       ``(1) In general.--Except as provided in paragraph (2), 
     nothing in any provision of law shall be construed as 
     providing that an escrow account, settlement fund, or similar 
     fund is not subject to current income tax. The Secretary 
     shall prescribe regulations providing for the taxation of any 
     such account or fund whether as a grantor trust or otherwise.
       ``(2) Exemption from tax for certain settlement funds.--An 
     escrow account, settlement fund, or similar fund shall be 
     treated as beneficially owned by the United States and shall 
     be exempt from taxation under this subtitle if--
       ``(A) it is established pursuant to a consent decree 
     entered by a judge of a United States District Court,
       ``(B) it is created for the receipt of settlement payments 
     as directed by a government entity for the sole purpose of 
     resolving or satisfying one or more claims asserting 
     liability under the Comprehensive Environmental Response, 
     Compensation, and Liability Act of 1980,
       ``(C) the authority and control over the expenditure of 
     funds therein (including the expenditure of contributions 
     thereto and any net earnings thereon) is with such government 
     entity, and
       ``(D) upon termination, any remaining funds will be 
     disbursed upon instructions by such government entity in 
     accordance with applicable law.

     For purposes of this paragraph, the term `government entity' 
     means the United States, any State or political subdivision 
     thereof, the District of Columbia, any possession of the 
     United States, and any agency or instrumentality of any of 
     the foregoing.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

                          ____________________