[Congressional Record (Bound Edition), Volume 153 (2007), Part 27]
[Senate]
[Pages 36427-36431]
[From the U.S. Government Publishing Office, www.gpo.gov]




       MAKING TECHNICAL CORRECTIONS TO THE INTERNAL REVENUE CODE

  Mr. REID. Mr. President, I ask unanimous consent that the Senate 
proceed to the consideration of H.R. 4839.
  The ACTING PRESIDENT pro tempore. The clerk will report the bill by 
title.
  The legislative clerk read as follows:

       A bill (H.R. 4839) to amend the Internal Revenue Code of 
     1986 to make technical corrections, and for other purposes.

  There being no objection, the Senate proceeded to consider the bill.
  Mr. BAUCUS. Mr. President, in connection with H.R. 4839, the Tax 
Technical Corrections Act of 2007, the nonpartisan Joint Committee on 
Taxation is making available to the public a document that contains a 
technical explanation of the bill. This technical explanation expresses 
the Senate Finance Committee's understanding of the tax and other 
provisions of the bill and serves as a useful reference in 
understanding the legislative intent behind this important legislation.

[[Page 36428]]

  I ask unanimous consent to have this technical explanation printed in 
the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                I. Tax Technical Corrections Act of 2007

       The bill includes technical corrections to recently enacted 
     tax legislation. Except as otherwise provided, the amendments 
     made by the technical corrections contained in the bill take 
     effect as if included in the original legislation to which 
     each amendment relates.
     Amendment Related to the Tax Relief and Health Care Act of 
         2006
       Individuals with long-term unused credits under the 
     alternative minimum tax (Act sec. 402 of Division A).--Under 
     present law, an individual's minimum tax credit allowable for 
     any taxable year beginning after December 20, 2006, and 
     before January 1, 2013, is not less than the ``AMT refundable 
     credit amount.'' The AMT refundable credit amount is the 
     greater of (1) the lesser of $5,000 or the long-term unused 
     minimum tax credit, or (2) 20 percent of the long-term unused 
     minimum tax credit. The long-term unused minimum tax credit 
     for any taxable year means the portion of the minimum tax 
     credit attributable to the adjusted net minimum tax for 
     taxable years before the 3rd taxable year immediately 
     preceding the taxable year (assuming the credits are used on 
     a first-in, first-out basis). In the case of an individual 
     whose adjusted gross income for a taxable year exceeds the 
     threshold amount (within the meaning of section 
     151(d)(3)(C)), the AMT refundable credit amount is reduced by 
     the applicable percentage (within the meaning of section 
     151(d)(3)(B)). The additional credit allowable by reason of 
     this provision is refundable.
       The provision amends the definition of the AMT refundable 
     credit amount. The provision provides that the AMT refundable 
     credit amount (before any reduction by reason of adjusted 
     gross income) is an amount (not in excess of the long-term 
     unused minimum tax credit) equal to the greater of (1) 
     $5,000, (2) 20 percent of the long-term unused minimum tax 
     credit, or (3) the AMT refundable credit amount (if any) for 
     the prior taxable year (before any reduction by reason of 
     adjusted gross income).
       The provision may be illustrated by the following example: 
     Assume an individual, whose adjusted gross income for all 
     taxable years is less than the threshold amount, has a long-
     term unused minimum tax credit for 2007 of $100,000 and has 
     no other minimum tax credits. The individual's AMT refundable 
     credit amount under present law is $20,000 in 2007, $16,000 
     in 2008, $10,240 in 2009, $8,192 in 2010, $6,554 in 2011, and 
     $5,243 in 2012. Under the provision, the individual's AMT 
     refundable credit amount is $20,000 for 2007 (as under 
     present law), and in each of the taxable years 2008 thru 2011 
     the AMT refundable credit amount is also $20,000. The minimum 
     tax credit in 2012 is zero.
     Amendments Related to Title XII of the Pension Protection Act 
         of 2006 (Provisions Relating to Exempt Organizations)
       Tax-free distributions from individual retirement plans for 
     charitable purposes (Act sec. 1201).--Under the provision, 
     when determining the portion of a distribution that would 
     otherwise be includible in income, the otherwise includible 
     amount is determined as if all amounts were distributed from 
     all of the individual's IRAs.
       Contributions of appreciated property by S corporations 
     (Act sec. 1203).--Under present law (sec. 1366(d)), the 
     amount of losses and deductions which a shareholder of an S 
     corporation may take into account in any taxable year is 
     limited to the shareholder's adjusted basis in his stock and 
     indebtedness of the corporation. The provision provides that 
     this basis limitation does not apply to a contribution of 
     appreciated property to the extent the shareholder's pro rata 
     share of the contribution exceeds the shareholder's pro rata 
     share of the adjusted basis of the property. Thus, the basis 
     limitation of section 1366(d) does not apply to the amount of 
     deductible appreciation in the contributed property. The 
     provision does not apply to contributions made in taxable 
     years beginning after December 31, 2007.
       For example, assume that in taxable year 2007, an S 
     corporation with one shareholder makes a charitable 
     contribution of a capital asset held more than one year with 
     an adjusted basis of $200 and a fair market value of $500. 
     Assume the shareholder's adjusted basis of the stock (as 
     determined under section 1366(d)(1)(A)) is $300. For purposes 
     of applying the limitation under section 1366(d) to the 
     contribution, the limitation does not apply to the $300 of 
     appreciation and since the $300 adjusted basis of the stock 
     exceeds the $200 adjusted basis of the contributed property, 
     the limitation does not apply at all to the contribution. 
     Thus, the shareholder is treated as making a $500 charitable 
     contribution. The shareholder reduces the basis of the S 
     corporation stock by $200 to $100 (pursuant to section 
     1367(a)(2)).
       Recapture of tax benefit for charitable contributions of 
     exempt use property not used for an exempt use (Act sec. 
     1215).--The Act permits a charitable deduction in the amount 
     of the fair market value (not the donor's basis) for tangible 
     personal property if an officer of the donee organization 
     certifies upon disposition of the donated property that the 
     use of the property was related to the purpose or function 
     constituting the basis of the donee's tax-exempt status. It 
     was not intended that the donee's use, though so related, not 
     also be substantial. The provision adds to the certification 
     requirement that the officer certify that use of the property 
     by the donee was substantial.
       Contributions of fractional interests in tangible personal 
     property (Act sec. 1218).--The Act added an income tax 
     provision providing for treatment of contributions of 
     fractional interests in tangible personal property. A special 
     valuation rule is provided under this rule that creates 
     unintended consequences under the estate and gift tax. The 
     provision therefore strikes the special valuation rule for 
     estate and gift tax purposes.
       Time for assessment of penalty relating to substantial and 
     gross valuation misstatements attributable to incorrect 
     appraisals (Act section 1219).--Section 1219 of the Act added 
     a penalty for substantial and gross valuation misstatements 
     attributable to incorrect appraisals (Code sec. 6695A). 
     First, the Act omitted to apply the penalty with respect to 
     substantial valuation misstatements for estate and gift tax 
     purposes, and the provision clarifies that the penalty 
     applies for such purposes. Second, in the cross references 
     for the penalty, the language of Code section 6696(d)(1), 
     relating to the time period for assessment of the penalty, 
     was not properly described. The provision adds a cross 
     reference to section 6695A in section 6696(d).
       Expansion of the base of tax on private foundation net 
     investment income (Act sec. 1221).--The Act expands the base 
     of the tax on net investment income of private foundations.
       The provision clarifies that capital gains from 
     appreciation are included in this tax base. This 
     clarification conforms the statutory language to the 
     technical explanation.
       Public disclosure of information relating to unrelated 
     business income tax returns (Act sec. 1225).--The Act added a 
     provision requiring that section 501(c)(3) organizations make 
     publicly available their unrelated business income tax 
     returns. However, as drafted, the requirement that, with 
     respect to a Form 990, an organization make publicly 
     available only the last three years of returns (sec. 
     6104(d)(2)) does not apply to disclosure of Form 990-T, 
     because Form 990-T is required by section 6011, not by 
     section 6033. The provision clarifies that the 3-year 
     limitation on making returns publicly available applies to 
     Form 990-T. The provision clarifies that the IRS is required 
     to make Form 990-T publicly available, subject to redaction 
     procedures applicable to Form 990 under section 6104(b).
       Donor advised funds (Act 1231).--The Act imposed excise 
     taxes in the event of certain taxable distributions (Code 
     sec. 4966) and on the provision of certain prohibited 
     benefits (sec. 4967), but does not cross refer to these 
     provisions in the section 4962 definition of qualified first 
     tier taxes for purposes of tax abatement (though a cross 
     reference to them is included in section 4963). The provision 
     adds a cross reference to them in Code section 4962 (relating 
     to abatement).
       Excess benefit transactions involving supporting 
     organizations (Act sec. 1242).--New Code section 4958(c)(3) 
     provides that certain transactions involving supporting 
     organizations are treated as excess benefit transactions for 
     purposes of the intermediate sanctions rules. Under the Code, 
     certain organizations described in Code sections 501(c)(4), 
     (5) or (6) are treated as supported organizations, although 
     they are not public charities or safety organizations. The 
     provision provides that the excess benefit transaction rules 
     of the Act generally do not apply to transactions between a 
     supporting organization and its supported organization that 
     is described in section 501(c)(4), (5), or (6).
     Amendments Related to the Tax Increase Prevention and 
         Reconciliation Act of 2005
       Look-through treatment and regulatory authority (Act sec. 
     103(b)).--Under the Act, for taxable years beginning after 
     2005 and before 2009, dividends, interest (including 
     factoring income which is treated as equivalent to interest 
     under sec. 954(c)(1)(E)), rents, and royalties received by 
     one controlled foreign corporation (``CFC'') from a related 
     CFC are not treated as foreign personal holding company 
     income to the extent attributable or properly allocable to 
     non-subpart F income of the payor (the ``TIPRA look-through 
     rule'').
       The provision clarifies the treatment of deficits in 
     earnings and profits. Under the provision, the TIPRA look-
     through rule does not apply to any interest, rent, or royalty 
     to the extent that such interest, rent, or royalty creates 
     (or increases) a deficit which under section 952(c) may 
     reduce the subpart F income of the payor or another CFC. The 
     provision parallels the rule applicable to interest, rents, 
     or royalties that would otherwise qualify for exclusion from 
     foreign personal holding company income under the ``same 
     country'' exception (sec. 954(c)(3)(B)). Thus interest, 
     rents, and royalties will be treated as subpart F income, 
     notwithstanding the general TIPRA look-through

[[Page 36429]]

     rule, if the payment creates or increases a deficit of the 
     payor corporation and that deficit is from an activity that 
     could reduce the payor's subpart F income under the 
     accumulated deficit rule (sec. 952(c)(1)(B)), or could reduce 
     the income of a qualified chain member under the chain 
     deficit rule (sec. 952(c)(1)(C)). For example, under the 
     provision, items that do not qualify for the ``same country'' 
     exception because they meet the terms of section 954(c)(3)(B) 
     will also not qualify under the TIPRA look-through rule.
       Modification of active business definition under section 
     355 (Act sec. 202).--The provision revises Code sections 
     355(b)(2)(A) and 355(b)(3) to reflect that the provision 
     modifying the active business definition that was enacted by 
     section 202 of the Act was made permanent by section 410 of 
     the Tax Relief and Health Care Act of 2006. Conforming 
     amendments are made as a result of this change.
       The provision clarifies that if a corporation became a 
     member of a separate affiliated group as a result of one or 
     more transactions in which gain or loss was recognized in 
     whole or in part, any trade or business conducted by such 
     corporation (at the time that such corporation became such a 
     member) is treated for purposes of section 355(b)(2) as 
     acquired in a transaction in which gain or loss was 
     recognized in whole or in part. Accordingly, such an 
     acquisition is subject to the provisions of section 
     355(b)(2)(C), and may qualify as an expansion of an existing 
     active trade or business conducted by the distributing 
     corporation or the controlled corporation, as the case may 
     be.
       The provision clarifies that the Treasury Department shall 
     prescribe regulations that provide for the proper application 
     of sections 355(b)(2)(B), (C), and (D) in the case of any 
     corporation that is tested for active business under the 
     separate affiliated group rule, and that modify the 
     application of section 355(a)(3)(B) in the case of such a 
     corporation in a manner consistent with the purposes of the 
     provision.
       The provision further clarifies that the rule regarding the 
     application of the new rules to determine the continued 
     qualification under section 355 of a distribution that 
     occurred before the effective date of the new rules, shall 
     apply only if such application results in continued 
     qualification and is not intended to require application of 
     the new rules in a manner that would disqualify any 
     distribution that satisfied the active business requirements 
     of section 355 under prior law that was applicable to the 
     distribution.
       Computation of tax for individuals with income excluded 
     under the foreign earned income exclusion (Act sec. 515).--
     The provision clarifies that in computing the tentative 
     minimum tax on nonexcluded income, the computation of tax is 
     made before reduction for the alternative minimum tax foreign 
     tax credit. This conforms the computation of the tentative 
     minimum tax to the computation of the regular tax, so that 
     both computations are made before the application of the 
     foreign tax credit.
       The provision also corrects an error in present law in the 
     case where a taxpayer has net capital gain in excess of 
     taxable income. Under the provision, if a taxpayer's net 
     capital gain (within the meaning of section 1(h)) exceeds 
     taxable income, in computing the tax on the taxable income as 
     increased by the excluded income, the amount of net capital 
     gain which otherwise be taken into account is reduced by the 
     amount of that excess. The excess first reduces the amount of 
     net capital gain without regard to qualified dividend income, 
     and then qualified dividend income. Also, in computing 
     adjusted net capital gain, unrecaptured section 1250 gain, 
     and 28-percent rate gain, the amount of the excess is treated 
     in the same manner as an increase in the long-term capital 
     loss carried to the taxable year.
       Similar rules apply in computing the tentative minimum tax 
     where a taxpayer's net capital gain exceeds the taxable 
     excess.
       The provision is effective for taxable years beginning 
     after December 31, 2006.
       The following examples illustrate the provision:
       Example 1.--For taxable year 2007, an unmarried individual 
     has $80,000 excluded from gross income under section 911(a), 
     $30,000 gain from the sale of a capital asset held more than 
     one year, and $20,000 deductions. The taxpayer's taxable 
     income is $10,000. Under the provision, the regular tax is 
     the excess of (i) the amount of tax computed under section 
     911(f)(1)(A)(i) on taxable income of $90,000 ($10,000 taxable 
     income plus $80,000 excluded income), over (ii) the amount of 
     tax computed under section 911(f)(1)(A)(ii) on taxable income 
     of $80,000 (excluded income). In applying section 1(h) to 
     determine the tax under section 911(f)(1)(A)(i), the net 
     capital gain and the adjusted net capital gain are each 
     $10,000. The regular tax is $1,500, which is equal to a tax 
     at the rate of 15 percent on $10,000 of adjusted net capital 
     gain.
       Example 2.--For taxable year 2007, an unmarried individual 
     has $90,000 excluded from gross income under section 911(a), 
     $5,000 gain from the sale of a capital asset held more than 
     one year, $25,000 unrecaptured section 1250 gain, and $20,000 
     deductions. The taxpayer's taxable income is $10,000. Under 
     the provision, the regular tax is the excess of (i) the 
     amount of tax computed under section 911(f)(1)(A)(i) on 
     taxable income of $100,000 ($10,000 taxable income plus 
     $90,000 excluded income), over (ii) the amount of tax 
     computed under section 911(f)(1)(A)(ii) on taxable income of 
     $90,000 (excluded income). In applying section 1(h) to 
     determine the tax under section 911(f)(1)(A)(i), the net 
     capital gain is $10,000. $5,000 is unrecaptured section 1250 
     gain ($25,000 less $20,000) and $5,000 is adjusted net 
     capital gain. The regular tax is $2,000, which is equal to a 
     tax at the rate of 15 percent on $5,000 of adjusted net 
     capital gain and a tax at the rate of 25 percent on $5,000 of 
     unrecaptured section 1250 gain.
     Amendments Related to the Safe, Accountable, Flexible, 
         Efficient Transportation Equity Act: A Legacy for Users
       Timing of claims for excess alternative fuel (not in a 
     mixture) credit (Act sec. 11113).--Present law provides that 
     the alternative fuel (not in a mixture) credit is refundable. 
     Code section 6427(i)(3) permits claims to be filed on a 
     weekly basis with respect to alcohol, biodiesel, and 
     alternative fuel mixtures if certain requirements are met. 
     This rule, however, does not refer to the alternative fuel 
     credit (for alternative fuel not in a mixture). The provision 
     clarifies that the same rules for filing claims with respect 
     to fuel mixtures apply to the alternative fuel credit.
       Definition of alternative fuel (Act sec. 11113).--Code 
     section 6426(d)(2) defines alternative fuel to include 
     ``liquid hydrocarbons from biomass'' for purposes of the 
     alternative fuel excise tax credit and payment provisions 
     under sections 6426 and 6427. The statute does not define 
     liquid hydrocarbons, which has led to questions as to whether 
     it is permissible for such a fuel to contain other elements, 
     such as oxygen, or whether the fuel must consist exclusively 
     of hydrogen and carbon. It was intended that biomass fuels 
     such as fish oil, which is not exclusively made of hydrogen 
     and carbon, qualify for the credit. The provision changes the 
     reference in section 6426 from ``liquid hydrocarbons'' to 
     ``liquid fuel'' for purposes of the alternative fuel excise 
     tax credit and payment provisions.
     Amendments Related to the Energy Policy Act of 2005
       Credit for production from advanced nuclear power 
     facilities (Act sec. 1306).--The provision clarifies that the 
     national capacity limitation of 6,000 megawatts represents 
     the total number of megawatts that the Secretary has 
     authority to allocate under section 45J.
       Clarify limitation on the credit of installing alternative 
     fuel refueling property (Act sec. 1342).--The present-law 
     credit for qualified alternative fuel vehicle refueling 
     property for a taxable year is limited to $30,000 per 
     property subject to depreciation, and $1,000 for other 
     property (sec. 30C(b)). The provision clarifies that the 
     $30,000 and $1,000 limitations apply to all alternative fuel 
     vehicle refueling property placed in service by the taxpayer 
     at a location. The provision is consistent with similar 
     deduction limitations imposed under section 179A(b)(2)(A) 
     (relating to the deduction for clean-fuel vehicles and 
     certain refueling property).
       In addition, Code section 30C(c)(1) provides that qualified 
     alternative fuel vehicle refueling property has the meaning 
     given to the term by section 179A(d). However, section 
     179A(d) defines a different term. The provision modifies the 
     language of section 30C(c)(1) to refer to the correct term.
       Clarify that research eligible for the energy research 
     credit is qualified research (Act sec. 1351).--The energy 
     research credit is available with respect to certain amounts 
     paid or incurred to an energy research consortium. The 
     provision clarifies that the credit is available with respect 
     to such amounts paid or incurred to an energy research 
     consortium provided they are used for energy research that is 
     qualified research.
       Double taxation of rail and inland waterway fuel resulting 
     from the use of dyed fuel on which the Leaking Underground 
     Storage Tank Trust Fund tax has already been imposed; off-
     highway business use (Act sec. 1362).--Section 4081(a)(2)(B) 
     of the Code imposes tax at the Leaking Underground Storage 
     Tank Trust Fund financing tax rate of 0.1 cent per gallon on 
     diesel fuel at the time it is removed from a terminal. 
     Section 4082(a) provides that none of the generally 
     applicable exemptions other than the exemption for export 
     apply to this removal even if the fuel is dyed. When dyed 
     fuel is used or sold for use in a diesel powered highway 
     vehicle or train (sec. 4041), or such fuel is subject to the 
     inland waterway tax (sec. 4042), the Code inadvertently 
     imposes the Leaking Underground Storage Tank Trust Fund tax a 
     second time. Section 6430 prohibits the refund of taxes 
     imposed at the Leaking Underground Storage Tank Trust Fund 
     financing rate, except in the case of fuel destined for 
     export. The provision eliminates the imposition of the 0.1 
     cent tax a second time if the Leaking Underground Storage 
     Tank Trust Fund financing tax rate previously was imposed 
     under section 4081. The provision permits a refund in the 
     amount of the Leaking Underground Storage Tank Trust Fund 
     financing rate if such tax was imposed a second time under 
     4041 or 4042 from October 1,

[[Page 36430]]

     2005 through the date of enactment. The provision also 
     clarifies that off-highway business use is not exempt from 
     the Leaking Underground Storage Tank Trust Fund Financing 
     rate. For administrative reasons associated with collecting 
     the tax, the off-highway business use clarification is 
     effective for fuel sold for use or used after the date of 
     enactment.
       Exemption from the Leaking Underground Storage Tank Trust 
     Fund financing rate for aircraft and vessels engaged in 
     foreign trade (Act sec. 1362).--Fuel supplied in the United 
     States for use in aircraft engaged in foreign trade is exempt 
     from U.S. customs duties and internal revenue taxes, so long 
     as, where the aircraft is registered in a foreign State, the 
     State of registry provides substantially reciprocal 
     privileges for U.S.-registered aircraft. However, the Energy 
     Policy Act of 2005 imposed, without exemption, the Leaking 
     Underground Storage Tank Trust Fund financing rate on all 
     taxable fuels, except in the case of export. As a result, 
     aviation fuel is no longer exempt from the Leaking 
     Underground Storage Tank Trust Fund financing rate. According 
     to the State Department, almost all of the United States' 
     bilateral air services agreements contain provisions 
     exempting from taxation all fuel supplied in the territory of 
     one party for use in the aircraft of the other party. The 
     United States has interpreted these provisions to prohibit 
     the taxation, in any form, of aviation fuel supplied in the 
     United States to the aircraft of airlines of the foreign 
     countries that are parties to these air services agreements. 
     The amendment provides that fuel for use in vessels 
     (including civil aircraft) employed in foreign trade or trade 
     between the United States and any of its possessions is 
     exempt from the Leaking Underground Storage Tank Trust Fund 
     financing rate.
     Amendments Related to the American Jobs Creation Act of 2004
       Interaction of rules relating to credit for low sulfur 
     diesel fuel (Act sec. 339).--Section 45H of the Code allows a 
     credit at the rate of 5 cents per gallon for low sulfur 
     diesel fuel produced at certain small business refineries. 
     The aggregate credit with respect to any refinery is limited 
     to 25 percent of the costs of the type deductible under 
     section 179B of the Code. Section 179B allows a deduction for 
     75 percent of certain costs paid or incurred with respect to 
     these refineries. The basis of the property is reduced by the 
     amount of any credit determined with respect to any 
     expenditure (sec. 45H(d)). Further, no deduction is allowed 
     for the expenses otherwise allowable as a deduction in an 
     amount equal to the amount of the credit under section 45H 
     (sec. 280C(d)). The interaction of these provisions is 
     unclear, and the basis reduction and deduction denial rules 
     may have an unintentionally duplicative effect. Under the 
     provision, deductions are denied in an amount equal to the 
     amount of the credit under section 45H, and the provisions of 
     present law reducing basis and denying a deduction are 
     repealed.
       Eliminate the open-loop biomass segregation requirement in 
     section 45(c)(3)(A)(ii) (Act sec. 710).--For purposes of the 
     credit for electricity produced from certain renewable 
     resources, section 45(c)(3)(A)(ii) defines open-loop biomass 
     to include any solid, nonhazardous, cellulosic waste material 
     or any lignin material that is segregated from other waste 
     materials, and that meets other requirements. The Act added 
     municipal solid waste to the category of qualified energy 
     resources giving rise to the credit. Thus, both open-loop 
     biomass and municipal solid waste can be treated as qualified 
     energy resources. The provision therefore strikes the 
     requirement that open-loop biomass be segregated from other 
     waste materials in order to be treated as qualified energy 
     resources.
       Clarification of proportionate limitation applicable to 
     closed-loop biomass (Act sec. 710).--Section 45(d)(2)(B)(ii) 
     provides that when closed-loop biomass is co-fired with other 
     fuels, the credit is limited to the otherwise allowable 
     credit multiplied by the ratio of the thermal content of the 
     closed-loop biomass to the thermal content of all fuel used. 
     This limitation duplicates a similar limitation in section 
     45(a), which provides that the credit is equal to 1.5 cents 
     multiplied by the kilowatt hours of electricity produced by 
     the taxpayer from qualified energy resources (and meeting 
     other criteria). The present-law section 45(a) rule has the 
     effect of limiting the credit (or duration of the credit) to 
     the appropriate portion of the fuel that constitutes 
     qualified energy resources, in the situations in which 
     qualified energy resources are permitted to be co-fired with 
     each other, or are permitted to be co-fired with other fuels. 
     The provision clarifies that the limitation applies only 
     once, not twice, to closed-loop biomass co-fired with other 
     fuels, by striking the duplicate limitation in section 
     45(d)(2)(B)(ii).
       Treatment of partnerships under the limitation on 
     deductions allocable to property used by governments or other 
     tax-exempt entities (Act sec. 848).--Code section 470 
     generally applies loss deferral rules in the case of property 
     leased to tax-exempt entities. This rule applies with respect 
     to tax-exempt use property, which for this purpose generally 
     has the meaning given to the term by section 168(h) (with 
     exceptions specified in section 470(c)(2)). The manner of 
     application of section 470 in the case of property owned by a 
     partnership in which a tax-exempt entity is a partner is 
     unclear.
       The provision provides that tax-exempt use property does 
     not include any property that would be tax-exempt use 
     property solely by reason of section 168(h)(6). The provision 
     refers to section 7701(e) for circumstances in which a 
     partnership is treated as a lease to which section 168(h) 
     applies. Thus, if a partnership is recharacterized as a lease 
     pursuant to section 7701(e), and a provision of section 
     168(h) (other than section 168(h)(6)) applies to cause the 
     property characterized as leased to be treated as tax-exempt 
     use property, then the loss deferral rules of section 470 
     apply.
       Under section 7701(e)(2), a partnership may be treated as a 
     lease, taking into account all relevant factors, including 
     factors similar to those set forth in section 7701(e)(1) 
     (relating to service contracts treated as leases). In the 
     case of property of a partnership in which a tax-exempt 
     entity is a partner, factors similar to those in section 
     7701(e)(1) (and in the legislative history of that section) 
     that are relevant in determining whether a partnership is 
     properly treated as a lease of property held by the 
     partnership include (1) a tax-exempt partner maintains 
     physical possession or control or holds the benefits and 
     burdens of ownership with respect to such property, (2) there 
     is insignificant equity investment by any taxable partner, 
     (3) the transfer of such property to the partnership does not 
     result in a change in use of such property, (4) such property 
     is necessary for the provision of government services, (5) a 
     disproportionately large portion of the deductions for 
     depreciation with respect to such property are allocated to 
     one or more taxable partners relative to such partner's risk 
     of loss with respect to such property or to such partner's 
     allocation of other partnership items, and (6) amounts 
     payable on behalf of the tax-exempt partner relating to the 
     property are defeased or funded by set-asides or expected 
     set-asides. It is intended that Treasury regulations or 
     guidance may provide additional factors that can be taken 
     into account in determining whether a partnership with 
     taxable and tax-exempt partners is an arrangement that 
     resembles a lease of property under which section 470 defers 
     the allowance of losses.
       The provision is effective as if included in the provision 
     of the American Jobs Creation Act of 2004 to which it 
     relates. It is not intended that the provision supercede the 
     rules set forth by the Treasury Department in Notice 2005-29, 
     2005-13 I.R.B. 796, Notice 2006-2, 2006-2 I.R.B. 1, and 
     Notice 2007-4, 2007-1 I.R.B. 260, with respect to the 
     application of section 470 in the case of partnerships for 
     taxable years of partnerships beginning in 2004, 2005, and 
     2006. These notices state that the Internal Revenue Service 
     will not apply section 470 to disallow losses associated with 
     property that is treated as tax-exempt use property solely as 
     a result of the application of section 168(h)(6), and that 
     abusive transactions involving partnerships an other pass-
     through entities remain subject to challenge by the Internal 
     Revenue Service under other provisions of the tax law. 
     Accordingly, for partnership taxable years beginning in 2004, 
     2005, and 2006, the Internal Revenue Service may apply 
     section 470 to a partnership that would be treated as a lease 
     under section 7701(e)(2).
       Treatment of losses on positions in identified straddles 
     (Act sec. 888).--Under Code section 1092, the term 
     ``straddle'' means offsetting positions in actively traded 
     personal property. Generally, a loss on a position in a 
     straddle may be recognized only to the extent the amount of 
     the loss exceeds the unrecognized gain (if any) in offsetting 
     positions in the straddle (sec. 1092(a)(1)(A)). Special rules 
     for identified straddles provide a different treatment of 
     losses and also provide that any position that is not part of 
     an identified straddle is not treated as offsetting with 
     respect to any position that is part of the identified 
     straddle. A taxpayer is permitted to treat a straddle as an 
     identified straddle only if, among other requirements, the 
     straddle is not part of a larger straddle.
       Before the enactment of the Act, the rules for treating a 
     straddle as an identified straddle required that all the 
     positions of the straddle were acquired on the same day and 
     either that all of the positions were disposed of on the same 
     day in a taxable year or that none of the positions were 
     disposed of as of the close of the taxable year. A loss on a 
     position in an identified straddle was not subject to the 
     loss deferral rule described above but instead was taken into 
     account when all the positions making up the straddle were 
     disposed of.
       The Act changed the rules for identified straddles by 
     providing, among other things, that if there is a loss on a 
     position in an identified straddle, the loss is applied to 
     increase the basis of the offsetting positions in that 
     identified straddle. Under section 1092(a)(2)(A)(ii), the 
     basis of each offsetting position in an identified straddle 
     is increased by an amount that equals the product of the 
     amount of the loss multiplied by the ratio of the amount of 
     unrecognized straddle period gain in that offsetting position 
     to the aggregate amount of unrecognized straddle period gain 
     in all offsetting positions. The Act also provided that any 
     loss described in section

[[Page 36431]]

     1092(a)(2)(A)(ii) is not otherwise taken into account for 
     Federal tax purposes.
       The Act left unclear the treatment of a loss on a position 
     in an identified straddle in at least two circumstances: 
     first, when there are no offsetting positions in the 
     identified straddle with unrecognized straddle period gain, 
     and, second, when an offsetting position in the identified 
     straddle is or has been a liability to the taxpayer.
       The provision addresses the treatment of losses in these 
     two circumstances. In general, the provision reaffirms that a 
     loss on a position in an identified straddle is not permitted 
     to be recognized currently and also is not permanently 
     disallowed.
       The provision provides that if the application of section 
     1092(a)(2)(A)(ii) does not result in a basis increase in any 
     offsetting position in the identified straddle (because there 
     is no unrecognized straddle period gain in any offsetting 
     position), the basis of each offsetting position in the 
     identified straddle must be increased in a manner that (1) is 
     reasonable, is consistent with the purposes of the identified 
     straddle rules, and is consistently applied by the taxpayer, 
     and (2) allocates to offsetting positions the full amount of 
     the loss (but no more than the full amount of the loss). At 
     the time a taxpayer adopts an allocation method under this 
     rule, the taxpayer is expected to describe that method in its 
     books and records.
       Under the provision, unless the Secretary of the Treasury 
     provides otherwise, similar rules apply for purposes of the 
     identified straddle rules when there is a loss on a position 
     in an identified straddle and an offsetting position in the 
     identified straddle is or has been a liability or an 
     obligation (including, for instance, a debt obligation issued 
     by the taxpayer, a written option, or a notional principal 
     contract entered into by the taxpayer). Under this rule, if a 
     taxpayer, for example, receives $1 to enter into a five-year 
     short forward contract and the next day $100 of loss is 
     allocated to that position, the resulting basis of the 
     contract is $99.
       Under present law, a straddle is treated as an identified 
     straddle only if, among other requirements, it is clearly 
     identified on the taxpayer's records as an identified 
     straddle before the earlier of (1) the close of the day on 
     which the straddle is acquired, or (2) a time that the 
     Secretary of the Treasury may prescribe by regulations. The 
     provision clarifies that for purposes of this identification 
     requirement, a straddle is clearly identified only if the 
     identification includes an identification of the positions in 
     the straddle that are offsetting with respect to other 
     positions in the straddle. Consequently, taxpayers are 
     required to identify not only the positions that make up an 
     identified straddle but also which positions in that 
     identified straddle are offsetting with respect to one 
     another. The offsetting positions identification requirement 
     added by the provision is effective for straddles acquired 
     after the date of enactment.
       The provision provides that regulations or other guidance 
     prescribed by the Secretary for carrying out the purposes of 
     the identified straddle rules may include the rules for the 
     application of section 1092 to a position that is or has been 
     a liability or an obligation. Regulations or other guidance 
     also may include safe harbor basis allocation methods that 
     satisfy the requirements that an allocation other than under 
     section 1092(a)(2)(A)(ii) must be reasonable, consistent with 
     the purposes of the identified straddle rules, and 
     consistently applied by the taxpayer.
     Amendments Related to the Economic Growth Tax Relief 
         Reconciliation Act of 2001
       Application of special elective deferral limit to 
     designated Roth contributions (Act sec. 617).--Code section 
     402(g)(7) provides a special rule allowing certain employees 
     to make additional elective deferrals to a tax-sheltered 
     annuity, subject to (1) an annual limit of $3,000, and (2) a 
     cumulative limit of $15,000 minus the amount of additional 
     elective deferrals made in previous years under the special 
     rule. Present law provides a rule to coordinate the 
     cumulative limit with the ability to make designated Roth 
     contributions, but inadvertently reduces the $15,000 amount 
     by all designated Roth contributions made in previous years. 
     The provision clarifies that the $15,000 amount is reduced 
     only by additional designated Roth contributions made under 
     the special rule.
       Application of FICA taxes to designated Roth contributions 
     (Act sec. 617).--Under Code section 3121(v)(1)(A), elective 
     deferrals are included in wages for purposes of social 
     security and Medicare taxes. The provision clarifies that 
     wage treatment applies also to elective deferrals that are 
     designated as Roth contributions.
     Amendments Related to the Tax Relief Extension Act of 1999
       Renewable electricity sold to utilities under certain 
     contracts (Act sec. 507).--Code section 45(e)(7) provides 
     that a wind energy facility placed in service by the taxpayer 
     after June 30, 1999, does not qualify for the section 45 
     production tax credit if the electricity generated at the 
     facility is sold to a utility pursuant to certain pre-1987 
     contracts. The provision clarifies that facilities placed in 
     service prior to June 30, 1999, that sell electricity under 
     applicable pre-1987 contracts are not denied the section 45 
     production tax credit solely by reason of a change in 
     ownership after June 30, 1999.
       Treatment of income and services provided by taxable REIT 
     subsidiaries (Act sec. 542).--The provision clarifies that 
     the transient basis language in the definition of a lodging 
     facility applies only in determining whether an establishment 
     other than a hotel or motel qualifies as a lodging facility.
     Amendment Related to the Internal Revenue Service 
         Restructuring and Reform Act of 1998
       Redactions for background documents related to Chief 
     Counsel Advice documents (Act sec. 3509).--The Internal 
     Revenue Service Restructuring and Reform Act of 1998 
     established a structured process by which the IRS makes 
     certain work products, designated Chief Counsel advice 
     (``CCA''), open to public inspection. To afford additional 
     protection for certain governmental interests implicated by 
     CCAs, section 6110(i)(3) governs redactions that may be made 
     to CCAs, including the exemptions or exclusions available 
     under the Freedom of Information Act, 5 U.S.C. 552(b) and (c) 
     (except that the provision for redaction under a Federal 
     statute excludes Title 26), as well as the exemptions 
     pertaining to taxpayer identity information described in 
     section 6110(c)(1). Section 6110(i)(3) does not expressly 
     address redactions to the ``background file documents'' 
     related to a CCA. The provision clarifies that the CCA 
     background file documents are governed by the same redactions 
     as CCAs.
     Clerical corrections
       The bill includes a number of clerical and conforming 
     amendments, including amendments correcting typographical 
     errors.

  Mr. REID. Mr. President, I ask unanimous consent that the bill be 
read three times, the motion to reconsider be laid upon the table, and 
that any statements be printed in the Record.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  The bill (H.R. 4839) was ordered to be read a third, was read the 
third time, and passed.

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