[House Report 110-281]
[From the U.S. Government Publishing Office]





110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    110-281

======================================================================



 
               TAX COLLECTION RESPONSIBILITY ACT OF 2007

                                _______
                                

 July 31, 2007.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Rangel, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 3056]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3056) to amend the Internal Revenue Code of 1986 to 
repeal the authority of the Internal Revenue Service to use 
private debt collection companies, to delay implementation of 
withholding taxes on government contractors, to revise the tax 
rules on expatriation, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
  The amendment is 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 ``Tax Collection 
Responsibility Act of 2007''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Repeal of authority to enter into private debt collection 
contracts.
Sec. 3. Delay of application of withholding requirement on certain 
governmental payments for goods and services.
Sec. 4. Clarification of entitlement of Virgin Islands residents to 
protections of limitations on assessment and collection of tax.
Sec. 5. Revision of tax rules on expatriation.
Sec. 6. Repeal of suspension of certain penalties and interest.
Sec. 7. Increase in information return penalties.
Sec. 8. Time for payment of corporate estimated taxes.

SEC. 2. REPEAL OF AUTHORITY TO ENTER INTO PRIVATE DEBT COLLECTION 
                    CONTRACTS.

  (a) In General.--Subchapter A of chapter 64 is amended by striking 
section 6306.
  (b) Conforming Amendments.--
          (1) Subchapter B of chapter 76 is amended by striking section 
        7433A.
          (2) Section 7811 is amended by striking subsection (g).
          (3) Section 1203 of the Internal Revenue Service 
        Restructuring Act of 1998 is amended by striking subsection 
        (e).
          (4) The table of sections for subchapter A of chapter 64 is 
        amended by striking the item relating to section 6306.
          (5) The table of sections for subchapter B of chapter 76 is 
        amended by striking the item relating to section 7433A.
  (c) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall take 
        effect on the date of the enactment of this Act.
          (2) Exception for existing contracts, etc.--The amendments 
        made by this section shall not apply to any contract which was 
        entered into before July 18, 2007, and is not renewed or 
        extended on or after such date.
          (3) Unauthorized contracts and extensions treated as void.--
        Any qualified tax collection contract (as defined in section 
        6306 of the Internal Revenue Code of 1986, as in effect before 
        its repeal) which is entered into on or after July 18, 2007, 
        and any extension or renewal on or after such date of any 
        qualified tax collection contract (as so defined) shall be 
        void.

SEC. 3. DELAY OF APPLICATION OF WITHHOLDING REQUIREMENT ON CERTAIN 
                    GOVERNMENTAL PAYMENTS FOR GOODS AND SERVICES.

  (a) In General.--Subsection (b) of section 511 of the Tax Increase 
Prevention and Reconciliation Act of 2005 is amended by striking 
``December 31, 2010'' and inserting ``December 31, 2011''.
  (b) Report to Congress.--Not later than 6 months after the date of 
the enactment of this Act, the Secretary of the Treasury shall submit 
to the Committee on Ways and Means of the House of Representatives and 
the Committee on Finance of the Senate a report with respect to the 
withholding requirements of section 3402(t) of the Internal Revenue 
Code of 1986, including a detailed analysis of--
          (1) the problems, if any, which are anticipated in 
        administering and complying with such requirements,
          (2) the burdens, if any, that such requirements will place on 
        governments and businesses (taking into account such mechanisms 
        as may be necessary to administer such requirements), and
          (3) the application of such requirements to small 
        expenditures for services and goods by governments.

SEC. 4. CLARIFICATION OF ENTITLEMENT OF VIRGIN ISLANDS RESIDENTS TO 
                    PROTECTIONS OF LIMITATIONS ON ASSESSMENT AND 
                    COLLECTION OF TAX.

  (a) In General.--Subsection (c) of section 932 (relating to treatment 
of Virgin Islands residents) is amended by adding at the end the 
following new paragraph:
          ``(5) Treatment of income tax return filed with virgin 
        islands.--An income tax return filed with the Virgin Islands by 
        an individual claiming to be described in paragraph (1) for the 
        taxable year shall be treated for purposes of subtitle F in the 
        same manner as if such return were an income tax return filed 
        with the United States for such taxable year. The preceding 
        sentence shall not apply where such return is false or 
        fraudulent with the intent to avoid tax or otherwise is a 
        willful attempt in any manner to defeat or evade tax.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after 1986.

SEC. 5. REVISION OF TAX RULES ON EXPATRIATION.

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

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

  ``(a) General Rules.--For purposes of this subtitle--
          ``(1) Mark to market.--All property of a covered expatriate 
        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, determined without regard to 
        paragraph (3).
          ``(3) Exclusion for certain gain.--
                  ``(A) In general.--The amount which would (but for 
                this paragraph) be includible in the gross income of 
                any individual by reason of paragraph (1) shall be 
                reduced (but not below zero) by $600,000.
                  ``(B) Adjustment for inflation.--
                          ``(i) In general.--In the case of any taxable 
                        year beginning in a calendar year after 2008, 
                        the dollar amount in subparagraph (A) shall be 
                        increased by an amount equal to--
                                  ``(I) such dollar amount, multiplied 
                                by
                                  ``(II) the cost-of-living adjustment 
                                determined under section 1(f)(3) for 
                                the calendar year in which the taxable 
                                year begins, by substituting `calendar 
                                year 2007' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                          ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $1,000, 
                        such amount shall be rounded to the nearest 
                        multiple of $1,000.
  ``(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 time for payment of the 
        additional tax attributable to such property shall be extended 
        until the due date of the return for the taxable year in which 
        such property is disposed of (or, in the case of property 
        disposed of in a transaction in which gain is not recognized in 
        whole or in part, until such other date as the Secretary may 
        prescribe).
          ``(2) Determination of tax with respect to property.--For 
        purposes of paragraph (1), the additional tax attributable to 
        any property is an amount which bears the same ratio to the 
        additional tax imposed by this chapter for the taxable year 
        solely by reason of subsection (a) as the gain taken into 
        account under subsection (a) with respect to such property 
        bears to the total gain taken into account under subsection (a) 
        with respect to all property to which subsection (a) applies.
          ``(3) Termination of extension.--The due date for payment of 
        tax may not be extended 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 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 which is furnished to, and 
                        accepted by, the Secretary, which is 
                        conditioned on the payment of tax (and interest 
                        thereon), and which meets the requirements of 
                        section 6325, or
                          ``(ii) it is another form of security for 
                        such payment (including letters of credit) that 
                        meets such requirements as the Secretary may 
                        prescribe.
          ``(5) Waiver of certain rights.--No election may be made 
        under paragraph (1) unless the taxpayer makes an irrevocable 
        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.
          ``(7) Interest.--For purposes of section 6601, the last date 
        for the payment of tax shall be determined without regard to 
        the election under this subsection.
  ``(c) Exception for Certain Property.--Subsection (a) shall not apply 
to--
          ``(1) any deferred compensation item (as defined in 
        subsection (d)(4)),
          ``(2) any specified tax deferred account (as defined in 
        subsection (e)(2)), and
          ``(3) any interest in a nongrantor trust (as defined in 
        subsection (f)(3)).
  ``(d) Treatment of Deferred Compensation Items.--
          ``(1) Withholding on eligible deferred compensation items.--
                  ``(A) In general.--In the case of any eligible 
                deferred compensation item, the payor shall deduct and 
                withhold from any taxable payment to a covered 
                expatriate with respect to such item a tax equal to 30 
                percent thereof.
                  ``(B) Taxable payment.--For purposes of subparagraph 
                (A), the term `taxable payment' means with respect to a 
                covered expatriate any payment to the extent it would 
                be includible in the gross income of the covered 
                expatriate if such expatriate continued to be subject 
                to tax as a citizen or resident of the United States. A 
                deferred compensation item shall be taken into account 
                as a payment under the preceding sentence when such 
                item would be so includible.
          ``(2) Other deferred compensation items.--In the case of any 
        deferred compensation item which is not an eligible deferred 
        compensation item--
                  ``(A)(i) with respect to any deferred compensation 
                item to which clause (ii) does not apply, an amount 
                equal to the present value of the covered expatriate's 
                accrued benefit shall be treated as having been 
                received by such individual on the day before the 
                expatriation date as a distribution under the plan, and
                  ``(ii) with respect to any deferred compensation item 
                referred to in paragraph (4)(D), the rights of the 
                covered expatriate to such item shall be treated as 
                becoming transferable and not subject to a substantial 
                risk of forfeiture on the day before the expatriation 
                date,
                  ``(B) no early distribution tax shall apply by reason 
                of such treatment, and
                  ``(C) appropriate adjustments shall be made to 
                subsequent distributions from the plan to reflect such 
                treatment.
          ``(3) Eligible deferred compensation items.--For purposes of 
        this subsection, the term `eligible deferred compensation item' 
        means any deferred compensation item with respect to which--
                  ``(A) the payor of such item is--
                          ``(i) a United States person, or
                          ``(ii) a person who is not a United States 
                        person but who elects to be treated as a United 
                        States person for purposes of paragraph (1) and 
                        meets such requirements as the Secretary may 
                        provide to ensure that the payor will meet the 
                        requirements of paragraph (1), and
                  ``(B) the covered expatriate--
                          ``(i) notifies the payor of his status as a 
                        covered expatriate, and
                          ``(ii) makes an irrevocable waiver of any 
                        right to claim any reduction under any treaty 
                        with the United States in withholding on such 
                        item.
          ``(4) Deferred compensation item.--For purposes of this 
        subsection, the term `deferred compensation item' means--
                  ``(A) any interest in a plan or arrangement described 
                in section 219(g)(5),
                  ``(B) any interest in a foreign pension plan or 
                similar retirement arrangement or program,
                  ``(C) any item of deferred compensation, and
                  ``(D) any property, or right to property, which the 
                individual is entitled to receive in connection with 
                the performance of services to the extent not 
                previously taken into account under section 83 or in 
                accordance with section 83.
          ``(5) Exception.--Paragraphs (1) and (2) shall not apply to 
        any deferred compensation item which is attributable to 
        services performed outside the United States while the covered 
        expatriate was not a citizen or resident of the United States.
          ``(6) Special rules.--
                  ``(A) Application of withholding rules.--Rules 
                similar to the rules of subchapter B of chapter 3 shall 
                apply for purposes of this subsection.
                  ``(B) Application of tax.--Any item subject to the 
                withholding tax imposed under paragraph (1) shall be 
                subject to tax under section 871.
                  ``(C) Coordination with other withholding 
                requirements.--Any item subject to withholding under 
                paragraph (1) shall not be subject to withholding under 
                section 1441 or chapter 24.
  ``(e) Treatment of Specified Tax Deferred Accounts.--
          ``(1) Account treated as distributed.--In the case of any 
        interest in a specified tax deferred account held by a covered 
        expatriate on the day before the expatriation date--
                  ``(A) the covered expatriate shall be treated as 
                receiving a distribution of his entire interest in such 
                account on the day before the expatriation date,
                  ``(B) no early distribution tax shall apply by reason 
                of such treatment, and
                  ``(C) appropriate adjustments shall be made to 
                subsequent distributions from the account to reflect 
                such treatment.
          ``(2) Specified tax deferred account.--For purposes of 
        paragraph (1), the term `specified tax deferred account' means 
        an individual retirement plan (as defined in section 
        7701(a)(37)) other than any arrangement described in subsection 
        (k) or (p) of section 408, a qualified tuition program (as 
        defined in section 529), a Coverdell education savings account 
        (as defined in section 530), a health savings account (as 
        defined in section 223), and an Archer MSA (as defined in 
        section 220).
  ``(f) Special Rules for Nongrantor Trusts.--
          ``(1) In general.--In the case of a distribution (directly or 
        indirectly) of any property from a nongrantor trust to a 
        covered expatriate--
                  ``(A) the trustee shall deduct and withhold from such 
                distribution an amount equal to 30 percent of the 
                taxable portion of the distribution, and
                  ``(B) if the fair market value of such property 
                exceeds its adjusted basis in the hands of the trust, 
                gain shall be recognized to the trust as if such 
                property were sold to the expatriate at its fair market 
                value.
          ``(2) Taxable portion.--For purposes of this subsection, the 
        term `taxable portion' means, with respect to any distribution, 
        that portion of the distribution which would be includible in 
        the gross income of the covered expatriate if such expatriate 
        continued to be subject to tax as a citizen or resident of the 
        United States.
          ``(3) Nongrantor trust.--For purposes of this subsection, the 
        term `nongrantor trust' means the portion of any trust that the 
        individual is not considered the owner of under subpart E of 
        part I of subchapter J. The determination under the preceding 
        sentence shall be made immediately before the expatriation 
        date.
          ``(4) Special rules relating to withholding.--For purposes of 
        this subsection--
                  ``(A) rules similar to the rules of subsection (d)(6) 
                shall apply, and
                  ``(B) the covered expatriate shall be treated as 
                having waived any right to claim any reduction under 
                any treaty with the United States in withholding on any 
                distribution to which paragraph (1)(A) applies.
  ``(g) Definitions and Special Rules Relating to Expatriation.--For 
purposes of this section--
          ``(1) Covered expatriate.--
                  ``(A) In general.--The term `covered expatriate' 
                means an expatriate who meets the requirements of 
                subparagraph (A), (B), or (C) of section 877(a)(2).
                  ``(B) Exceptions.--An individual shall not be treated 
                as meeting the requirements of subparagraph (A) or (B) 
                of section 877(a)(2) if--
                          ``(i) 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 been a resident of the 
                                United States (as defined in section 
                                7701(b)(1)(A)(ii)) for not more than 10 
                                taxable years during the 15-taxable 
                                year period ending with the taxable 
                                year during which the expatriation date 
                                occurs, or
                          ``(ii)(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 10 taxable years before the date of 
                        relinquishment.
                  ``(C) Covered expatriates also subject to tax as 
                citizens or residents.--In the case of any covered 
                expatriate who is subject to tax as a citizen or 
                resident of the United States for any period beginning 
                after the expatriation date, such individual shall not 
                be treated as a covered expatriate during such period 
                for purposes of subsections (d)(1) and (f) and section 
                2801.
          ``(2) Expatriate.--The term `expatriate' means--
                  ``(A) any United States citizen who relinquishes his 
                citizenship, and
                  ``(B) any long-term resident of the United States who 
                ceases to be a lawful permanent resident of the United 
                States (within the meaning of section 7701(b)(6)).
          ``(3) 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 on which the individual ceases 
                to be a lawful permanent resident of the United States 
                (within the meaning of section 7701(b)(6)).
          ``(4) Relinquishment of citizenship.--A citizen shall be 
        treated as relinquishing his United States citizenship on the 
        earliest of--
                  ``(A) the date the individual renounces his 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.
          ``(5) Long-term resident.--The term `long-term resident' has 
        the meaning given to such term by section 877(e)(2).
          ``(6) Early distribution tax.--The term `early distribution 
        tax' means any increase in tax imposed under section 72(t), 
        220(e)(4), 223(f)(4), 409A(a)(1)(B), 529(c)(6), or 530(d)(4).
  ``(h) Other Rules.--
          ``(1) Termination of deferrals, etc.--In the case of any 
        covered expatriate, notwithstanding any other provision of this 
        title--
                  ``(A) any time period for acquiring property which 
                would result in the reduction in the amount of gain 
                recognized with respect to property disposed of by the 
                taxpayer shall terminate on the day before the 
                expatriation date, and
                  ``(B) 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.
          ``(2) Step-up in basis.--Solely for purposes of determining 
        any tax imposed by reason of subsection (a), property which was 
        held by an individual on the date the individual first became a 
        resident of the United States (within the meaning of section 
        7701(b)) shall be treated as having a basis on such date of not 
        less than the fair market value of such property on such date. 
        The preceding sentence shall not apply if the individual elects 
        not to have such sentence apply. Such an election, once made, 
        shall be irrevocable.
          ``(3) Coordination with section 684.--If the expatriation of 
        any individual would result in the recognition of gain under 
        section 684, this section shall be applied after the 
        application of section 684.
  ``(i) Regulations.--The Secretary shall prescribe such regulations as 
may be necessary or appropriate to carry out the purposes of this 
section.''.
  (b) Tax on Gifts and Bequests Received by United States Citizens and 
Residents From Expatriates.--
          (1) In general.--Subtitle B (relating to estate and gift 
        taxes) is amended by inserting after chapter 14 the following 
        new chapter:

           ``CHAPTER 15--GIFTS AND BEQUESTS FROM EXPATRIATES

``Sec. 2801. Imposition of tax

``SEC. 2801. IMPOSITION OF TAX.

  ``(a) In General.--If, during any calendar year, any United States 
citizen or resident receives any covered gift or bequest, there is 
hereby imposed a tax equal to the product of--
          ``(1) the highest rate of tax specified in the table 
        contained in section 2001(c) as in effect on the date of such 
        receipt (or, if greater, the highest rate of tax specified in 
        the table applicable under section 2502(a) as in effect on the 
        date), and
          ``(2) the value of such covered gift or bequest.
  ``(b) Tax To Be Paid by Recipient.--The tax imposed by subsection (a) 
on any covered gift or bequest shall be paid by the person receiving 
such gift or bequest.
  ``(c) Exception for Certain Gifts.--Subsection (a) shall apply only 
to the extent that the value of covered gifts and bequests received by 
any person during the calendar year exceeds $10,000.
  ``(d) Tax Reduced by Foreign Gift or Estate Tax.--The tax imposed by 
subsection (a) on any covered gift or bequest shall be reduced by the 
amount of any gift or estate tax paid to a foreign country with respect 
to such covered gift or bequest.
  ``(e) Covered Gift or Bequest.--
          ``(1) In general.--For purposes of this chapter, the term 
        `covered gift or bequest' means--
                  ``(A) any property acquired by gift directly or 
                indirectly from an individual who, at the time of such 
                acquisition, is a covered expatriate, and
                  ``(B) any property acquired directly or indirectly by 
                reason of the death of an individual who, immediately 
                before such death, was a covered expatriate.
          ``(2) Exceptions for transfers otherwise subject to estate or 
        gift tax.--Such term shall not include--
                  ``(A) any property shown on a timely filed return of 
                tax imposed by chapter 12 which is a taxable gift by 
                the covered expatriate, and
                  ``(B) any property 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.
          ``(3) Transfers in trust.--
                  ``(A) Domestic trusts.--In the case of a covered gift 
                or bequest made to a domestic trust--
                          ``(i) subsection (a) shall apply in the same 
                        manner as if such trust were a United States 
                        citizen, and
                          ``(ii) the tax imposed by subsection (a) on 
                        such gift or bequest shall be paid by such 
                        trust.
                  ``(B) Foreign trusts.--
                          ``(i) In general.--In the case of a covered 
                        gift or bequest made to a foreign trust, 
                        subsection (a) shall apply to any distribution 
                        attributable to such gift or bequest from such 
                        trust (whether from income or corpus) to a 
                        United States citizen or resident in the same 
                        manner as if such distribution were a covered 
                        gift or bequest.
                          ``(ii) Deduction for tax paid by recipient.--
                        There shall be allowed as a deduction under 
                        section 164 the amount of tax imposed by this 
                        section which is paid or accrued by a United 
                        States citizen or resident by reason of a 
                        distribution from a foreign trust, but only to 
                        the extent such tax is imposed on the portion 
                        of such distribution which is included in the 
                        gross income of such citizen or resident.
                          ``(iii) Election to be treated as domestic 
                        trust.--Solely for purposes of this section, a 
                        foreign trust may elect to be treated as a 
                        domestic trust. Such an election may be revoked 
                        with the consent of the Secretary.
  ``(f) Covered Expatriate.--For purposes of this section, the term 
`covered expatriate' has the meaning given to such term by section 
877A(g)(1).''.
          (2) Clerical amendment.--The table of chapters for subtitle B 
        is amended by inserting after the item relating to chapter 14 
        the following new item:

         ``Chapter 15. Gifts and Bequests From Expatriates.''.

  (c) Definition of Termination of United States Citizenship.--
          (1) In general.--Section 7701(a) is amended by adding at the 
        end the following new paragraph:
          ``(50) 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(g)(4).
                  ``(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.''.
          (2) Conforming amendments.--
                  (A) Paragraph (1) of section 877(e) is amended to 
                read as follows:
          ``(1) In general.--Any long-term resident of the United 
        States who ceases to be a lawful permanent resident of the 
        United States (within the meaning of section 7701(b)(6)) shall 
        be treated for purposes of this section and sections 2107, 
        2501, and 6039G in the same manner as if such resident were a 
        citizen of the United States who lost United States citizenship 
        on the date of such cessation or commencement.''.
                  (B) Paragraph (6) of section 7701(b) is amended by 
                adding at the end the following flush sentence:
        ``An individual shall cease to be treated as a lawful permanent 
        resident of the United States if such individual 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, does not waive the benefits of such treaty 
        applicable to residents of the foreign country, and notifies 
        the Secretary of the commencement of such treatment.''.
                  (C) Section 7701 is amended by striking subsection 
                (n) and by redesignating subsections (o) and (p) as 
                subsections (n) and (o), respectively.
  (d) Information Returns.--Section 6039G is amended--
          (1) by inserting ``or 877A'' after ``section 877(b)'' in 
        subsection (a), and
          (2) by inserting ``or 877A'' after ``section 877(a)'' in 
        subsection (d).
  (e) Clerical Amendment.--The table of sections for subpart A of part 
II of subchapter N of chapter 1 is amended by inserting after the item 
relating to section 877 the following new item:

``Sec. 877A. Tax responsibilities of expatriation.''.
  (f) Effective Date.--
          (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall apply to expatriates (as 
        defined in section 877A(g) of the Internal Revenue Code of 
        1986, as added by this section) whose expatriation date (as so 
        defined) is on or after the date of the enactment of this Act.
          (2) Gifts and bequests.--Chapter 15 of the Internal Revenue 
        Code of 1986 (as added by subsection (b)) shall apply to 
        covered gifts and bequests (as defined in section 2801 of such 
        Code, as so added) received on or after the date of the 
        enactment of this Act, regardless of when the transferor 
        expatriated.

SEC. 6. REPEAL OF SUSPENSION OF CERTAIN PENALTIES AND INTEREST.

  (a) In General.--Section 6404 is amended by striking subsection (g) 
and by redesignating subsection (h) as subsection (g).
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to notices provided by the Secretary of the Treasury, or his delegate, 
after the date which is 6 months after the date of the enactment of the 
Small Business and Work Opportunity Tax Act of 2007.

SEC. 7. INCREASE IN INFORMATION RETURN PENALTIES.

  (a) Failure To File Correct Information Returns.--
          (1) In general.--Subsections (a)(1), (b)(1)(A), and (b)(2)(A) 
        of section 6721 are each amended by striking ``$50'' and 
        inserting ``$100''.
          (2) Aggregate annual limitation.--Subsections (a)(1), 
        (d)(1)(A), and (e)(3)(A) of section 6721 are each amended by 
        striking ``$250,000'' and inserting ``$600,000''.
  (b) Reduction Where Correction Within 30 Days.--
          (1) In general.--Subparagraph (A) of section 6721(b)(1) is 
        amended by striking ``$15'' and inserting ``$25''.
          (2) Aggregate annual limitation.--Subsections (b)(1)(B) and 
        (d)(1)(B) of section 6721 are each amended by striking 
        ``$75,000'' and inserting ``$200,000''.
  (c) Reduction Where Correction on or Before August 1.--
          (1) In general.--Subparagraph (A) of section 6721(b)(2) is 
        amended by striking ``$30'' and inserting ``$60''.
          (2) Aggregate annual limitation.--Subsections (b)(2)(B) and 
        (d)(1)(C) of section 6721 are each amended by striking 
        ``$150,000'' and inserting ``$400,000''.
  (d) Aggregate Annual Limitations for Persons With Gross Receipts of 
Not More Than $5,000,000.--Paragraph (1) of section 6721(d) is 
amended--
          (1) by striking ``$100,000'' in subparagraph (A) and 
        inserting ``$250,000'',
          (2) by striking ``$25,000'' in subparagraph (B) and inserting 
        ``$75,000'', and
          (3) by striking ``$50,000'' in subparagraph (C) and inserting 
        ``$150,000''.
  (e) Penalty in Case of Intentional Disregard.--Paragraph (2) of 
section 6721(e) is amended by striking ``$100'' and inserting ``$250''.
  (f) Failure To Furnish Correct Payee Statements.--
          (1) In general.--Subsection (a) of section 6722 is amended by 
        striking ``$50'' and inserting ``$100''.
          (2) Aggregate annual limitation.--Subsections (a) and 
        (c)(2)(A) of section 6722 are each amended by striking 
        ``$100,000'' and inserting ``$600,000''.
          (3) Penalty in case of intentional disregard.--Paragraph (1) 
        of section 6722(c) is amended by striking ``$100'' and 
        inserting ``$250''.
  (g) Failure To Comply With Other Information Reporting 
Requirements.--Section 6723 is amended--
          (1) by striking ``$50'' and inserting ``$100'', and
          (2) by striking ``$100,000'' and inserting ``$600,000''.
  (h) Effective Date.--The amendments made by this section shall apply 
with respect to information returns required to be filed on or after 
January 1, 2008.

SEC. 8. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

  Subparagraph (B) of section 401(1) of the Tax Increase Prevention and 
Reconciliation Act of 2005 is amended by striking ``114.50 percent'' 
and inserting ``114.75 percent''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary


                                PURPOSE

    The bill, H.R. 3056 (the ``Tax Collection Responsibility 
Act of 2007''), repeals the authority of the Internal Revenue 
Service (``IRS'') to use private debt collection companies, 
delays implementation of withholding taxes on government 
payments, and revises rules on expatriation, among other 
purposes.

                                SUMMARY

    The bill repeals the authority for the IRS to enter into, 
renew, or extend any private debt collection contract, except 
that existing contracts may continue through their current term 
without renewal. The bill delays until January 1, 2012 the 
effective date of section 511 of the Tax Increase Prevention 
and Reconciliation Act of 2005, which imposes withholding at 
the rate of three percent on certain government payments. 
Effective for taxable years beginning after December 31, 1986, 
the bill provides generally that an income tax return filed 
with the United States Virgin Islands by an individual claiming 
to be a bona fide resident of the United States Virgin Islands 
during the entire taxable year will be treated as if the return 
were an income tax return filed with the United States for that 
year. The bill subjects certain U.S. citizens who relinquish 
their U.S. citizenship and certain long-term U.S. residents who 
terminate their U.S. residence to tax on the net unrealized 
gain on their property as if the property had been sold for its 
fair market value on the day before the expatriation or 
residency termination. The bill repeals the provision requiring 
the IRS to suspend the accrual of interest and penalties on 
certain liabilities if the IRS fails to notify the taxpayer 
regarding the basis for such liability within a specified 
period. The bill generally increases the penalties for failing 
to file correct information returns, for failing to furnish 
correct payee statements, and for failing to comply with other 
information reporting requirements, effective for information 
returns required to be filed on or after January 1, 2008. 
Finally, the bill modifies the July, August, and September 2012 
estimated tax payments requirements for corporations with 
assets of at least $1 billion.

                 B. Background and Need for Legislation

    The collection of Federal income taxes is a core 
governmental function that should be restricted to IRS 
employees. The bill protects taxpayers and confidential tax 
information by repealing the authorization for the IRS to use 
private contractors to collect Federal income taxes. The bill 
delays withholding requirements regarding government payments 
to address concerns and difficulties in implementing such 
requirements. The bill imposes a tax on items of income and 
gain which are properly subject to United States taxation when 
a citizen or resident ceases to be subject to U.S. taxation. 
The bill improves tax administration through reforms in the 
areas of interest and penalty suspension, information return 
penalties, the statute of limitations for persons claiming to 
be Virgin Islands residents, and corporate estimated taxes.

                         C. Legislative History


Background

    H.R. 3056 was introduced in the House of Representatives on 
July 17, 2007, and was referred to the Committee on Ways and 
Means.

Committee action

    In response to an announcement by Chairman Rangel on March 
22, 2007, the Committee undertook an investigation into the 
IRS's use of private debt collection companies to collect 
Federal income tax debts. On May 23, 2007, the Committee on 
Ways and Means conducted a hearing on the matter and took 
testimony from the IRS Commissioner, the IRS Taxpayer Advocate, 
the Government Accountability Office, and a representative of a 
private debt collection company under contract with the IRS to 
collect income tax debts.
    The Committee on Ways and Means marked up H.R. 3056 on July 
18, 2007, and ordered the bill, as amended, favorably reported.

                      II. EXPLANATION OF THE BILL


             A. Repeal of Private Tax Collection Contracts


(Sec. 2 of the bill and sec. 6306 of the Code)

                              PRESENT LAW

    The Secretary has general authority to administer and 
enforce the tax laws. Present law also provides specific 
authority for the collection of taxes. Under present law, the 
IRS may use private debt collection companies to locate and 
contact taxpayers owing outstanding tax liabilities of any type 
and to arrange payment of those taxes by the taxpayers.\1\
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    \1\Sec. 6306. Except where otherwise stated, all section references 
are to the Internal Revenue Code of 1986, as amended (the ``Code'').
---------------------------------------------------------------------------
    Present law provides for payments to private debt 
collection companies to be made from the amount collected 
pursuant to a private debt collection contract, but not in 
excess of 25 percent of the amount collected. Present law also 
permits the IRS to retain an amount not in excess of 25 percent 
from the amount collected pursuant to a private debt collection 
contract for additional enforcement activities.

                           REASONS FOR CHANGE

    Over 130 years ago, this Committee stated that ``any system 
of farming the collection of any portion of the revenue of the 
Government is fundamentally wrong * * * No necessity for such 
laws exist * * * the Secretary of the Treasury and the head of 
the Internal Revenue Bureau are empowered by law to make all 
collections of taxes * * * The Internal Revenue Bureau is 
possessed of full knowledge of the laws relating to the 
collection of the revenue * * * and has all the machinery 
necessary for their full and complete enforcement.''\2\ The 
Committee believes these words remain true today.
---------------------------------------------------------------------------
    \2\H.R. Rep. No. 43-559, 1st Sess. (1874).
---------------------------------------------------------------------------
    The Committee believes that the collection of Federal 
income taxes is an inherently governmental function that should 
be restricted to IRS employees. The Committee believes that the 
use of private contractors to collect Federal tax debt violates 
the special and confidential relationship between taxpayers and 
the Federal government. The Committee believes that the use of 
private contractors jeopardizes the privacy of taxpayers and 
undermines long-term taxpayer compliance.
    The IRS Commissioner has stated on numerous times before 
the Committee that IRS employees can collect Federal taxes more 
efficiently than private debt collection companies. IRS 
employees have access to a taxpayer's complete file and 
history, including the most recent information relating to tax 
filings and compliance data. Access to the taxpayer's complete 
file allows IRS employees to collect outstanding tax debt more 
efficiently and in a manner that ensures long-term compliance 
with the tax laws. The Committee believes that only IRS 
employees should be allowed to perform tax collection 
activities. It is the Committee's view that the IRS take 
immediate and appropriate action to ensure that IRS employees 
being laid-off at IRS processing centers be provided training 
and employment opportunities at IRS Automated Collection System 
(ACS) sites, including out-bound call collection activities, 
and that the IRS expand ACS activities as appropriate to ensure 
proper levels of collection activities.

                        EXPLANATION OF PROVISION

    The provision repeals the authority for the IRS to enter 
into, renew, or extend any private debt collection contract.

                             EFFECTIVE DATE

    The provision generally is effective on the date of 
enactment, except for any contract which was entered into 
before July 18, 2007, and is not renewed or extended after such 
date. The provision also provides that any private debt 
collection contract which is entered into on or after July 18, 
2007, and any extension or renewal on or after such date of any 
private debt collection contract shall be void.

          B. Delayed Implementation of Government Withholding


(Sec. 3 of the bill and sec. 3402(t) of the Code)

                              PRESENT LAW

    For payments made after December 31, 2010, the Code 
requires withholding at a three-percent rate on certain 
payments to persons providing property or services made by the 
Government of the United States, every State, every political 
subdivision thereof, and every instrumentality of the foregoing 
(including multi-State agencies). The withholding requirement 
applies regardless of whether the government entity making such 
payment is the recipient of the property or services. Political 
subdivisions of States (or any instrumentality thereof) with 
less than $100 million of annual expenditures for property or 
services that would otherwise be subject to withholding under 
this provision are exempt from the withholding requirement.
    Payments subject to the three-percent withholding include 
any payment made in connection with a government voucher or 
certificate program which functions as a payment for property 
or services. For example, payments to a commodity producer 
under a government commodity support program are subject to the 
withholding requirement. The provision imposes information 
reporting requirements on payments subject to withholding under 
the provision.
    The three-percent withholding requirement does not apply to 
any payments made through a Federal, State, or local government 
public assistance or public welfare program for which 
eligibility is determined by a needs or income test. The three-
percent withholding requirement also does not apply to payments 
of wages or to any other payment with respect to which 
mandatory (e.g., U.S.-source income of foreign taxpayers) or 
voluntary (e.g., unemployment benefits) withholding applies 
under present law. The provision does not exclude payments that 
are potentially subject to backup withholding under section 
3406. If, however, payments are actually being withheld under 
backup withholding, the three-percent withholding requirement 
does not apply.
    The three-percent withholding requirement also does not 
apply to the following: payments of interest; payments for real 
property; payments to tax-exempt entities or foreign 
governments; intra-governmental payments; payments made 
pursuant to a classified or confidential contract (as defined 
in section 6050M(e)(3)); and payments to a government employee 
that are not otherwise excludable from the new withholding 
provision with respect to the employee's services as an 
employee.

                           REASONS FOR CHANGE

    The Committee understands that the three-percent 
withholding requirement presents a number of challenges for the 
government entities and taxpayers subject to the requirement. 
The Committee believes the Treasury should conduct a study of 
the issues confronting both businesses and governments in 
complying with the three-percent requirement, as well as the 
issues confronting Treasury and the IRS in administering such 
requirement. Thus, the Committee believes it is appropriate to 
delay the effective date of the three-percent withholding 
requirement by one year to allow the Secretary further time to 
study issues associated with the requirement and to provide 
Congress with time to review and respond to the results of such 
study.

                        EXPLANATION OF PROVISION

    The provision delays the effective date for the three-
percent withholding requirement. Under the provision, the 
requirement applies to payments made after December 31, 2011.
    The provision directs the Secretary to study issues 
associated with the three-percent withholding requirement, 
including (1) the problems, if any, which are anticipated in 
administering and complying with such requirement, (2) the 
burdens, if any, that such requirements will place on small 
businesses (taking into account such mechanisms as may be 
necessary to administer such requirements), and (3) the 
application of such requirements to small expenditures for 
services and goods by governments.
    The Secretary is to submit his report to the House 
Committee on Ways and Means and the Senate Committee on Finance 
no later than six months after the date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

C. Application of Statute of Limitations Rules to Persons Claiming U.S. 
                        Virgin Islands Residency


(Sec. 4 of the bill and sec. 932 of the Code)

                              PRESENT LAW

Return filing rules for Virgin Islands residents

    An individual who is a bona fide resident of the U.S. 
Virgin Islands (``USVI'') during the entire taxable year or who 
files a joint return for the taxable year with a person who is 
a bona fide USVI resident during that entire year must file an 
income tax return for the taxable year with the USVI.\3\
---------------------------------------------------------------------------
    \3\Sec. 932(c)(1), (2).
---------------------------------------------------------------------------
    For an individual (1) who is a bona fide resident of the 
USVI during the entire taxable year, (2) who, on the income tax 
return filed with the USVI, reports income from all sources and 
identifies the source of each item shown on the return, and (3) 
who fully pays the tax liability resulting from the income 
shown on the return, for purposes of calculating income tax 
liability to the United States, gross income does not include 
any amount included in gross income on the USVI return, and 
allocable deductions and credits are not taken into account.\4\ 
Accordingly, an individual who is a bona fide USVI resident 
generally may satisfy the individual's U.S. return-filing and 
income tax payment obligations by filing an income tax return 
with the USVI and paying income tax to the USVI.
---------------------------------------------------------------------------
    \4\Sec.932(c)(4).
---------------------------------------------------------------------------

Statute of limitations

    The IRS generally must assess tax within three years after 
the due date for the return to which the assessment relates.\5\
---------------------------------------------------------------------------
    \5\Sec. 6501(a), (b)(1).
---------------------------------------------------------------------------
    In certain circumstances, the three-year statute of 
limitations does not apply, and the IRS may assess tax at any 
time. These circumstances include the filing of a false or 
fraudulent return with the intent to evade tax; a willful 
attempt to defeat or evade tax; and the failure to file a 
return.

Statute of limitations for USVI residents

    In guidance published in 1999, the IRS concluded that when 
a U.S. citizen who was a bona fide resident of the USVI timely 
filed a USVI income tax return but failed to report on that 
return a U.S.-source dividend, the three-year statute of 
limitations period began to run with the filing of the USVI 
return and the IRS was precluded from assessing tax after 
expiration of the three-year period.\6\ In 2006 guidance, the 
IRS concluded that when a U.S. citizen who timely files a USVI 
income tax return fails to satisfy a requirement of section 
932(c)(4) (because, for example, the individual is not a bona 
fide USVI resident or does not report all income on the USVI 
return), the three-year statute of limitations period does not 
begin to run until the individual also files a return with the 
IRS.\7\
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    \6\Field Service Advice Memorandum 199906031 (Feb. 12, 1999).
    \7\Chief Counsel Advice Memorandum 200624002 (June 16, 2006).
---------------------------------------------------------------------------
    In 2007 guidance, the IRS provided rules for the 
application of the three-year statute of limitations period and 
the section 932(c) return filing requirements to a U.S. citizen 
or resident who claims status as a bona fide USVI resident.\8\ 
As a result of this guidance, for taxable years ending on or 
after December 31, 2006, the three-year statute of limitations 
period for every U.S. citizen or resident claiming to be a bona 
fide USVI resident generally begins when the individual files 
an income tax return with the USVI.
---------------------------------------------------------------------------
    \8\Notice 2007-19, 2007-11 I.R.B. 689 (Mar. 12, 2007); Notice 2007-
31, 2007-16 I.R.B. 971 (Apr. 16, 2007).
---------------------------------------------------------------------------
    The rules in the 2007 guidance for an individual who claims 
bona fide USVI residence for a taxable year ending before 
December 31, 2006 differ based on whether the individual is a 
``covered person'' or a non-covered person. A covered person is 
a U.S. citizen or resident alien who takes the position that he 
or she is a bona fide USVI resident, files a USVI income tax 
return, and has less than $75,000 of gross income for the 
taxable year. A covered person generally may claim application 
of the three-year statute of limitations period for a taxable 
year ending before December 31, 2006 based on that person's 
filing of a USVI income tax return for that year. A non-covered 
person may start the running of the three-year limitations 
period for a taxable year ending before December 31, 2006 by 
filing an income tax return for that year with the IRS and 
reporting on that return no gross income and no taxable income. 
The three-year limitations period starts with the filing of the 
return with the IRS.

                           REASONS FOR CHANGE

    The Committee believes it is unfair to apply different 
statute of limitations rules to U.S. citizens who claim to be 
bona fide USVI residents and who file USVI income tax returns 
than to other U.S. citizens who file income tax returns with 
the IRS. The 1986 Tax Reform Act provided that residents of the 
USVI are required to file income tax returns only with the 
USVI. The Committee believes that the guidance issued by the 
IRS in 2006 and 2007 represents a misapplication of present 
Iaw. In particular, the Committee objects to the retroactive 
denial of statute of limitations protections caused by the 2006 
IRS guidance. The IRS notices issued in 2007 ameliorate but do 
not eliminate this retroactive effect because, for taxable 
years ending before December 31, 2006, the notices 
differentiate among taxpayers based on income.

                        EXPLANATION OF PROVISION

    The provision provides generally that an income tax return 
filed with the USVI by an individual claiming to be a bona fide 
USVI resident during the entire taxable year (or to be a person 
filing a joint return for the taxable year with an individual 
who is a bona fide USVI resident during the entire year) will 
be treated for purposes of subtitle F of the Code (Procedure 
and Administration) in the same manner as if the return were an 
income tax return filed with the United States for that year. 
Consequently, under the provision the filing of a USVI income 
tax return by any individual claiming status as a bona fide 
USVI resident generally starts the three-year limitations 
period. This rule does not, however, apply if the return filed 
with the USVI is false or fraudulent with the intent to avoid 
tax or otherwise is a willful attempt in any manner to defeat 
or evade tax.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
1986.

        D. Revision of Tax Rules on Expatriation of Individuals


(Sec. 5 of the bill and new secs. 877A and 2801 of the Code)

                              PRESENT LAW

In general

            Income tax
    U.S. citizens and residents generally are subject to U.S 
income taxation on their worldwide income. The U.S. tax may be 
reduced or offset by a credit allowed for foreign income taxes 
paid with respect to foreign source income. Nonresident aliens 
are taxed at a flat rate of 30 percent (or a lower treaty rate) 
on certain types of passive income derived from U.S. sources, 
and at regular graduated rates on net profits derived from a 
U.S. trade or business.
    Certain special rules (sections 671-679) apply to certain 
trust interests deemed to be owned by the grantor or other 
person (a ``grantor trust''). In that case, the deemed owner 
must include in income the items of income and deduction (and 
credits against tax) of the portion of such trust deemed to be 
owned by such person.
    Except to the extent a trust is a grantor trust, a transfer 
of property by a U.S. person to a foreign estate or trust is 
treated (under section 684) by the transferor as if the 
property had been sold to such estate or trust. The same rule 
applies if a domestic trust becomes a foreign trust.
            Estate tax
    The estates of U.S. citizens and residents are subject to 
estate tax on all property, wherever located. The estates of 
nonresident aliens generally are subject to estate tax on U.S.-
situated property (e.g., real estate and tangible property 
located within the United States and stock in a U.S. 
corporation).
            Gift tax
    U.S. citizens and residents generally are subject to gift 
tax on transfers by gift of any property, wherever situated. 
Nonresident aliens generally are subject to gift tax on 
transfers by gift of U.S.-situated property (e.g., real estate 
and tangible property located within the United States), but 
excluding intangibles, such as stock, regardless of where they 
are located.

Income tax rules with respect to expatriates

    For the 10 taxable years after an individual relinquishes 
his or her U.S. citizenship or terminates his or her U.S. long-
term residency, unless certain conditions are met, the 
individual is subject to an alternative method of income 
taxation than that generally applicable to nonresident aliens 
(the ``alternative tax regime''). Generally, the individual is 
subject to income tax for the 10-year period at the rates 
applicable to U.S. citizens, but only on U.S.-source income.\9\
---------------------------------------------------------------------------
    \9\For this purpose, however, U.S.-source income has a broader 
scope than it does typically in the Code.
---------------------------------------------------------------------------
    A ``long-tern resident'' is a noncitizen who is a Lawful 
permanent resident of the United States for at least eight 
taxable years during the period of 15 taxable years ending with 
the taxable year during which the individual either ceases to 
be a lawful permanent resident of the United States or 
commences to be treated as a resident of a foreign country 
under a tax treaty between such foreign country and the United 
States (and does not waive such benefits).
    A former citizen or former long-term resident is subject to 
the alternative tax regime for a 10-year period following 
citizenship relinquishment or residency termination, unless the 
former citizen or former long-term resident: (1) establishes 
that his or her average annual net income tax liability for the 
five preceding years does not exceed $124,000 (adjusted for 
inflation after 2004) and his or her net worth is less than $2 
million, or alternatively satisfies limited, objective 
exceptions for certain dual citizens and minors who have had no 
substantial contacts with the United States; and (2) certifies 
under penalties of perjury that he or she has complied with all 
U.S. Federal tax obligations for the preceding five years and 
provides such evidence of compliance as the Secretary may 
require.
    Anti-abuse rules are provided to prevent the circumvention 
of the alternative tax regime.

Estate tax rules with respect to expatriates

    Special estate tax rules apply to individuals who die 
during a taxable year in which they are subject to the 
alternative tax regime. Under these special rules, certain 
closely-held foreign stock owned by the former citizen or 
former long-term resident is includible in his or her gross 
estate to the extent that the foreign corporation owns U.S.-
situated assets. The special rules apply if, at the time of 
death, the former citizen or former long-term resident: (1) 
owns, directly or indirectly, 10 percent or more of the total 
combined voting power of all classes of stock of the foreign 
corporation entitled to vote; and (2) is considered to own, 
directly or indirectly, more than 50 percent of (a) the total 
combined voting power of all classes of stock of the foreign 
corporation entitled to vote, or (b) the total value of the 
stock of such corporation. If this stock ownership test is met, 
then the gross estate of the former citizen or former long-term 
resident includes that proportion of the fair market value of 
the foreign stock owned by the individual at the time of death, 
which the fair market value of any assets owned by such foreign 
corporation and situated in the United States (at the time of 
death) bears to the total fair market value of all assets owned 
by such foreign corporation (at the time of death).

Gift tax rules with respect to expatriates

    Special gift tax rules apply to individuals who make gifts 
during a taxable year in which they are subject to the 
alternative tax regime. The individual is subject to gift tax 
on gifts of U.S.-situated intangibles made during the 10 years 
following citizenship relinquishment or residency termination. 
In addition, gifts of stock of certain closely-held foreign 
corporations by a former citizen or former long-term resident 
are subject to gift tax, if the gift is made during the time 
that such person is subject to the alternative tax regime. The 
operative rules with respect to these gifts of closely-held 
foreign stock are the same as described above relating to the 
estate tax, except that the relevant testing and valuation date 
is the date of gift rather than the date of death.

Termination of U.S. citizenship or long-term resident status for U.S. 
        Federal income tax purposes

    An individual continues to be treated as a U.S. citizen or 
long-term resident for U.S. Federal tax purposes, including for 
purposes of section 7701(b)(10), until the individual: (1) 
gives notice of an expatriating act or termination of residency 
(with the requisite intent to relinquish citizenship or 
terminate residency) to the Secretary of State or the Secretary 
of Homeland Security, respectively; and (2) provides a 
statement to the Secretary of the Treasury in accordance with 
section 6039G.

Sanction for individuals subject to the individual tax regime who 
        return to the United States for extended periods

    The alternative tax regime does not apply to any individual 
for any taxable year during the 10-year period following 
citizenship relinquishment or residency termination if such 
individual is present in the United States for more than 30 
days in the calendar year ending in such taxable year. Such 
individual is treated as a U.S. citizen or resident for such 
taxable year and, therefore, is taxed on his or her worldwide 
income.
    Similarly, if an individual subject to the alternative tax 
regime is present in the United States for more than 30 days in 
any calendar year ending during the 10-year period following 
citizenship relinquishment or residency termination, and the 
individual dies during that year, he or she is treated as a 
U.S. resident, and the individual's worldwide estate is subject 
to U.S. estate tax. Likewise, if an individual subject to the 
alternative tax regime is present in the United States for more 
than 30 days in any year during the 10-year period following 
citizenship relinquishment or residency termination, the 
individual is subject to U.S. gift tax on any transfer of his 
or her worldwide assets by gift during that taxable year.
    For purposes of these rules, an individual is treated as 
present in the United States on any day if such individual is 
physically present in the United States at any time during that 
day. The present-law exceptions to the U.S. presence rules for 
residency purposes\10\ generally do not apply. However, for 
individuals with certain ties to countries other than the 
United States\11\ and individuals with minimal prior physical 
presence in the United States,\12\ a day of physical presence 
in the United States is disregarded if the individual is 
performing services in the United States on such day for an 
unrelated employer (within the meaning of sections 267 and 
707(b)), that meets such requirements as the Secretary may 
prescribe in regulations. No more than 30 days may be 
disregarded during any calendar year under this rule.
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    \10\Secs. 7701(b)(3)(D), 7701(b)(5), and 7701(b)(7)(B)-(D).
    \11\An individual has such a relationship to a foreign country if 
(1) the individual becomes a citizen or resident of the country in 
which the individual was born, such individual's spouse was born, or 
either of the individual's parents was born, and (2) the individual 
becomes fully liable for income tax in such country.
    \12\An individual has a minimal prior physical presence in the 
United States if the individual was physically present for no more than 
30 days during each year in the ten-year period ending on the date of 
loss of United States citizenship or termination of residency. However, 
for purposes of this test, an individual is not treated as being 
present in the United States on a day if the individual remained in the 
United States because of a medical condition that arose while the 
individual was in the United States. Sec. 7701(b)(3)(D)(ii).
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Annual return

    Former citizens and former long-term residents are required 
to file an annual return for each year in which they are 
subject to the alternative tax regime. The annual return is 
required even if no U.S. Federal income tax is due. The annual 
return requires certain information, including information on 
the permanent home of the individual, the individual's country 
of residence, the number of days the individual was present in 
the United States for the year, and detailed information about 
the individual's income and assets that are subject to the 
alternative tax regime. This requirement includes information 
relating to foreign stock potentially subject to the. special 
estate and gift tax rules.
    If the individual fails to file the statement in a timely 
manner or fails correctly to include all the required 
information, the individual is required to pay a penalty of 
$10,000. The $10,000 penalty does not apply if it is shown that 
the failure is due to reasonable cause and not to willful 
neglect.

                           REASONS FOR CHANGE

    The Committee is aware that each year some individuals 
relinquish their U.S. citizenship or terminate their long-term 
U.S. residency for the purpose of avoiding U.S. income, estate, 
and gift taxes. By so doing, such individuals may reduce their 
annual U.S. income tax liability and may reduce or eliminate 
their future U.S. estate or gift tax liability.
    The Committee recognizes that citizens and long-term 
residents of the United States have a right not only to 
physically leave the United States to live elsewhere, but also 
to relinquish their citizenship or terminate their residency. 
The Committee does not believe that the Internal Revenue Code 
should be used to stop U.S. citizens and long-term residents 
from relinquishing citizenship or terminating residency; 
however, the Committee also does not believe that the Code 
should provide a tax incentive for doing so. In other words, to 
the extent possible, an individual's decision to relinquish 
citizenship or terminate long-term residency should be tax-
neutral.
    The Committee recognizes that the American Jobs Creation 
Act of 2004 altered prior law regarding expatriation in a 
number of respects, including replacing the subjective 
``principal purpose of tax avoidance test'' with objective 
rules. Notwithstanding these changes, the Committee remains 
concerned that the present-law expatriation tax rules (as 
modified in 2004) could be made more effective. In addition, 
the Committee is concerned that the alternative method of 
taxation under section 877 can be avoided by postponing the 
realization of U.S.-source income for 10 years.
    Consequently, the Committee believes that the present-law 
expatriation tax rules should be augmented by a new tax regime 
applicable to former citizens and long-term residents. Because 
U.S. citizens and residents who retain their citizenship or 
residency generally are subject to income tax on accrued 
appreciation when they dispose of their assets, as well as 
estate tax on the full value of assets that are held until 
death, the Committee believes it fair to tax individuals on the 
appreciation in their assets when they relinquish their 
citizenship or terminate their long-term residency. The 
Committee believes that an exception from such a tax should be 
provided for individuals with a relatively modest amount of 
income and net worth, or appreciated assets. The Committee also 
believes that, where U.S. estate or gift taxes are avoided with 
respect to a transfer of property to a U.S. person by reason of 
the expatriation of the donor, it is appropriate for the 
recipient to be subject to a transfer tax similar to the 
avoided transfer taxes.

                        EXPLANATION OF PROVISION

In general

    In general, the provision imposes tax on certain U.S. 
citizens who relinquish their U.S. citizenship and certain 
long-term U.S. residents who terminate their U.S. residency. 
Such individuals are subject to income tax on the net 
unrealized gain in their property as if the property had been 
sold for its fair market value on the day before the 
expatriation or residency termination (``mark-to-market tax''). 
Gain from the deemed sale is taken into account at that time 
without regard to other Code provisions. Any loss from the 
deemed sale generally is taken into account to the extent 
otherwise provided in the Code, except that the wash sale rules 
of section 1091 do not apply. Any net gain on the deemed sale 
is recognized to the extent it exceeds $600,000. The $600,000 
amount is increased by a cost of living adjustment factor for 
calendar years after 2008. Any gains or losses subsequently 
realized are to be adjusted for gains and losses taken into 
account under the deemed sale rules, without regard to the 
$600,000 exemption.
    The mark-to-market tax described above applies to most 
types of property interests held by the individual on the date 
of relinquishment of citizenship or termination of residency, 
with certain exceptions. Deferred compensation items, interests 
in nongrantor trusts, and specified tax deferred accounts are 
excepted from the mark-to-market tax but are subject to the 
special rules described below.
    In addition, the provision imposes a transfer tax on 
certain transfers to U.S. persons from certain U.S. citizens 
who relinquished their U.S. citizenship and certain long-term 
U.S. residents who terminated their U.S. residency, or from 
their estates.

Individuals covered

    The provision applies to any U.S. citizen who relinquishes 
citizenship and any long-term resident who terminates U.S. 
residency, if such individual (``covered expatriate'') (1) has 
an average annual net income tax liability for the five 
preceding years ending before the date of the loss of U.S. 
citizenship or residency termination that exceeds $124,000 (as 
adjusted for inflation after 2004--$136,000 in 2007\13\); (2) 
has a net worth of $2 million or more on such date; or (3) 
fails to certify under penalties of perjury that he or she has 
complied with all U.S. Federal tax obligations for the 
preceding five years or fails to submit such evidence of 
compliance as the Secretary may require.
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    \13\Rev. Proc. 2006-53, sec. 3.29, 2006-48 I.R.B. 996.
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    Exceptions to an individual's classification as a covered 
expatriate due to (1) or (2) above (but not (3)) are provided 
in two situations. The first exception applies to an individual 
who was born with citizenship both in the United States and in 
another country; provided that (1) as of the expatriation date 
the individual continues to be a citizen of, and is taxed as a 
resident of, such other country, and (2) the individual has 
been a resident of the United States (under the substantial 
presence test of section 7701(b)(1)(A)(ii)) for not more than 
10 taxable years during the 15-year taxable year period ending 
with the taxable year of expatriation. The second exception 
applies to a U.S. citizen who relinquishes U.S. citizenship 
before reaching age 18\1/2\ provided that the individual was a 
resident of the United States (under the substantial presence 
test of section 7701(b)(1)(A)(ii)) for no more than 10 taxable 
years before such relinquishment.
    The definition of ``long-term resident'' under the 
provision is generally the same as that under present law. As 
under present law, an individual is considered to terminate 
long-term U.S. residency when the individual ceases to be a 
lawful permanent resident of the United States (i.e., loses his 
or her green card status through revocation or has been 
administratively or judicially determined to have abandoned 
such status). Under the provision, however, an individual 
ceases to be treated as a lawful permanent resident of the 
United States for all tax purposes (including for purposes of 
section 877) if such individual commences to be treated as a 
resident of a foreign country under a tax treaty between the 
United States and such foreign country, does not waive the 
benefits of the treaty applicable to residents of such foreign 
country, and notifies the Secretary of the commencement of such 
treatment.
    The provision provides that, for all tax purposes 
(including for purposes of section 877), a U.S. citizen 
continues to be treated as a U.S. citizen for tax purposes 
until that individual's citizenship is treated as relinquished 
under the rules of the immediately preceding paragraph. 
However, under Treasury regulations, relinquishment may occur 
earlier with respect to an individual who became at birth a 
citizen of the United States and of another country. For 
purposes of the provision, an individual is treated as having 
relinquished U.S. citizenship on the earliest of four possible 
dates: (1) the date that the individual renounces U.S. 
nationality before a diplomatic or consular officer of the 
United States (provided that the voluntary relinquishment is 
later confirmed by the issuance of a certificate of loss of 
nationality); (2) the date that the individual furnishes to the 
State Department a signed statement of voluntary relinquishment 
of U.S. nationality confirming the performance of an 
expatriating act (again, provided that the voluntary 
relinquishment is later confirmed by the issuance of a 
certificate of loss of nationality); (3) the date that the 
State Department issues a certificate of loss of nationality; 
or (4) the date that a U.S. court cancels a naturalized 
citizen's certificate of naturalization.
    In the case of a long-term resident, the date that long-
term residency is terminated is the ``expatriation date.'' In 
the case of a citizen, the date that the individual 
relinquishes citizenship is the ``expatriation date.''
    The foregoing rules replace the present-law rules that 
provide that an individual continues to be treated as a U.S. 
citizen or long-term resident for U.S. Federal tax purposes 
until the individual gives notice of an expatriating act or 
termination of residency.
    If an individual who is a covered expatriate becomes 
subject to tax as a citizen or resident of the United States 
for any period beginning after the expatriation date, the 
individual is not treated as a covered expatriate during that 
period for purposes of applying the withholding rules relating 
to deferred compensation items, the rules relating to interests 
in nongrantor trusts, and the rules relating to gifts and 
bequests from covered expatriates. If the individual again 
relinquishes citizenship or terminates long-term residency 
(after meeting anew the requirements to become a long-term 
resident), the mark-to-market tax and other provisions are re-
triggered with the new expatriation date.

Deferral of payment of mark-to-market tax

    Under the provision, an individual may elect to defer 
payment of the mark-to-market tax imposed on the deemed sale of 
property. Interest is charged for the period the tax is 
deferred at the rate normally applicable to individual 
underpayments. The election is irrevocable and is made on a 
property-by-property basis. Under the election, the deferred 
tax attributable to a particular property is due when the 
return is due for the taxable year in which the property is 
disposed (or, if the property is disposed of in a transaction 
in which gain is not recognized in whole or in part, at such 
other time as the Secretary may prescribe). The deferred tax 
attributable to a particular property is an amount which bears 
the same ratio to the total mark-to-market tax as the gain 
taken into account with respect to such property bears to the 
total gain taken into account for the mark-to-market tax. The 
deferral of the mark-to-market tax may not be extended beyond 
the due date of the return for the taxable year which includes 
the individual's death.
    In order to elect deferral of the mark-to-market tax, the 
individual is required to furnish a bond to the Secretary. The 
bond must be conditioned upon payment of the amount of tax due, 
plus interest thereon, and must be in accordance with such 
requirements relating to terms, conditions, form of the bond, 
and sureties, as may be specified by regulations. The bond must 
be accepted by the Secretary. Other security mechanisms, 
including letters of credit, are permitted provided that they 
meet such requirements as the Secretary may prescribe. In the 
event that the security provided with respect to a particular 
property subsequently fails to meet the requirements of these 
rules and the individual fails to correct such failure, the 
deferred tax and the interest with respect to such property 
will become due. As a further condition to making the election, 
the individual is required to consent to the waiver of any 
treaty rights that would preclude the assessment or collection 
of the tax.

Deferred compensation items

    The provision contains special rules for interests in 
deferred compensation items. For purposes of the provision, a 
``deferred compensation item'' means any interest in a plan or 
arrangement described in section 219(g)(5), any interest in a 
foreign pension plan or similar retirement arrangement or 
program, any item of deferred compensation, and any property, 
or right to property, which the individual is entitled to 
receive in connection with the performance of services to the 
extent not previously taken into account under section 83 or in 
accordance with section 83.
    The plans and arrangements described in section 219(g)(5) 
are (i) a plan described in section 401(a), which includes a 
trust exempt from tax under section 501(a); (ii) an annuity 
plan described in section 403(a); (iii) a plan established for 
its employees by the United States, by a State or political 
subdivision thereof, or by an agency or instrumentality of any 
of the foregoing, but excluding an eligible deferred 
compensation plan (within the meaning of section 457(b)); (iv) 
an annuity contract described in section 403(b); (v) a 
simplified employee pension (within the meaning of section 
408(k)); (vi) a simplified retirement account (within the 
meaning of section 408(p)); and (vii) a trust described in 
section 501(c)(18).
    If a deferred compensation item is an eligible deferred 
compensation item, the payor must deduct and withhold from a 
``taxable payment'' to the covered expatriate a tax equal to 30 
percent of such taxable payment. This withholding requirement 
is in lieu of any withholding requirement under present law. A 
taxable payment is subject to withholding to the extent it 
would be included in gross income of the covered expatriate if 
such person were subject to tax as a citizen or resident of the 
United States. A deferred compensation item is taken into 
account as a payment when such item would be so includible. A 
deferred compensation item that is subject to the 30 percent 
withholding requirement is subject to tax under section 871.
    If a deferred compensation item is not an eligible deferred 
compensation item, an amount equal to the present value of the 
covered expatriate's deferred compensation item is treated as 
having been received on the day before the expatriation date. 
In the case of a deferred compensation item that is subject to 
section 83, the item is treated as becoming transferable and no 
longer subject to a substantial risk of forfeiture on the day 
before the expatriation date. Appropriate adjustments shall be 
made to subsequent distributions to take into account the 
foregoing treatment. In addition, these deemed distributions 
are not subject to early distribution tax. For this purpose, 
``early distribution tax'' means any increase in tax imposed 
under section 72(t), 220(e)(4), 223(f)(4), 409A(a)(1)(B), 
529(c)(6), or 530(d)(4).
    An ``eligible deferred compensation item'' means any 
deferred compensation item with respect to which (i) the payor 
is either a U.S. person or a non-U.S. person who elects to be 
treated as a U.S. person for purposes of withholding and who 
meet the requirements prescribed by the Secretary to ensure 
compliance with the withholding requirements, and (ii) the 
covered expatriate notifies the payor of his status as a 
covered expatriate and irrevocably waives any claim of 
withholding reduction under any treaty with the United States.
    The foregoing taxing rules regarding eligible deferred 
compensation items and items that are not eligible deferred 
compensation items do not apply to deferred compensation items 
that are attributable to services performed outside the United 
States while the covered expatriate was not a citizen or 
resident of the United States.

Specified tax deferred accounts

    There are special rules for interests in specified tax 
deferred accounts. If a covered expatriate holds any interest 
in a specified tax deferred account on the day before the 
expatriation date, such covered expatriate is treated as 
receiving a distribution of his entire interest in such account 
on the day before the expatriation date. Appropriate 
adjustments are made for subsequent distributions to take into 
account this treatment. As with deferred compensation items, 
these deemed distributions are not subject to early 
distribution tax.
    The term ``specified tax deferred account'' means an 
individual retirement plan (as defined in section 7701(a)(37)), 
a qualified tuition plan (as defined in section 529), a 
Coverdell education savings account (as defined in section 
530), a health savings account (as defined in section 223), and 
an Archer MSA (as defined in section 220). However, simplified 
employee pensions (within the meaning of section 408(k)) and 
simplified retirement accounts (within the meaning of section 
408(p)) of a covered expatriate are treated as deferred 
compensation items and not as specified tax deferred accounts.

Interests in trusts

            Grantor trusts
    In the case of the portion of any trust for which the 
covered expatriate is treated as the owner under the grantor 
trust provisions of the Code, as determined immediately before 
the expatriation date, the assets held by that portion of the 
trust are subject to the mark-to-market tax. If a trust that is 
a grantor trust immediately before the expatriation date 
subsequently becomes a nongrantor trust, such trust remains a 
grantor trust for purposes of the provision.
            Nongrantor trusts
    Special rules apply to interests in trusts that are not 
grantor trusts (``nongrantor trusts''). The mark-to-market tax 
does not apply with respect to the portion of any trust not 
treated (under the grantor trust provisions of the Code) as 
owned by a covered expatriate immediately before the 
expatriation date. Instead, in the case of any direct or 
indirect distribution from such a portion of a trust to a 
covered expatriate, the trustee must deduct and withhold from 
the distribution an amount equal to 30 percent of the portion 
of the distribution which would be includible in the gross 
income of the covered expatriate if the covered expatriate 
continued to be subject to tax as a citizen or resident of the 
United States. Such portion of such distribution (that is 
subject to the 30 percent withholding requirement) is subject 
to tax under section 871. The covered expatriate is treated as 
having waived any right to claim any reduction in withholding 
under any treaty with the United States.
    In addition, if the nongrantor trust distributes 
appreciated property to a covered expatriate, the trust must 
recognize gain as if the property were sold to the covered 
expatriate at its fair market value.
    If a trust that is a nongrantor trust immediately before 
the expatriation date subsequently becomes a grantor trust of 
which a covered expatriate is treated as the owner, directly or 
indirectly, such conversion is treated under the provision as a 
distribution to such covered expatriate to the extent of the 
portion of the trust of which the covered expatriate is treated 
as the owner.

Special rules

    Notwithstanding any other provision of the Code, any period 
for acquiring property which results in the reduction of gain 
recognized with respect to property disposed of by the taxpayer 
terminates on the day before the expatriation date. This rule 
applies to certain incomplete transactions such as deferred 
like-kind exchanges and involuntary conversions. In addition, 
notwithstanding any other provision of the Code, any extension 
of time for payment of tax ceases to apply on the day before 
relinquishment of citizenship or termination of residency, and 
the unpaid portion of such tax becomes due and payable at the 
time and in the manner prescribed by the Secretary.
    For purposes of determining the tax imposed under the mark-
to-market tax, property that was held by an individual on the 
date that such individual first became a resident of the United 
States (within the meaning of section 7701(b)) is treated as 
having a basis on such date of not less than the fair market 
value of such property on such date. An individual may make an 
irrevocable election not to have this rule apply.
    In the case of a domestic trust that becomes a foreign 
trust due to the expatriation of an individual, the general 
income tax rules pertaining to transfers by U.S. persons to 
foreign trusts (i.e., section 684) apply before the rules of 
the provision.

Regulatory authority

    The provision authorizes the Secretary to prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of the income tax rules of the provision.

Treatment of gifts and bequests from a former citizen or former long-
        term resident

    Under the provision, a special transfer tax applies to 
certain ``covered gifts or bequests'' received by a U.S. 
citizen or resident. A covered gift or bequest is any property 
acquired (i) by gift directly or indirectly from an individual 
who is a covered expatriate at the time of such acquisition, or 
(ii) directly or indirectly by reason of the death of an 
individual who was a covered expatriate. A covered gift or 
bequest, however, does not include (i) any property shown as a 
taxable gift on a timely filed gift tax return by the covered 
expatriate, and (ii) any property included in the gross estate 
of the covered expatriate for estate tax purposes and shown on 
a timely filed estate tax return of the estate of the covered 
expatriate.
    The tax is calculated as the product of (i) the highest 
marginal rate of tax specified in the table applicable to 
estate tax (i.e., section 2001(c)) or, if greater, the highest 
marginal rate of tax specified in the table applicable to gift 
tax (i.e., section 2502(a)), both as in effect on the date of 
receipt of the covered gift or bequest; and (ii) the value of 
the covered gift or bequest.
    The tax is imposed upon the recipient of the covered gift 
or bequest and is imposed on a calendar-year basis. The tax 
applies to a recipient of a covered gift or bequest only to the 
extent that the total value of covered gifts and bequests 
received by such recipient during a calendar year exceeds 
$10,000. The tax on covered gifts and bequests is reduced by 
the amount of any gift or estate tax paid to a foreign country 
with respect to such covered gift or bequest.
    Special rules apply to the tax on covered gifts or bequests 
made to domestic or foreign trusts. In the case of a covered 
gift or bequest made to a domestic trust, the tax applies as if 
the trust is a U.S. citizen, and the trust is required to pay 
the tax. In the case of a covered gift or bequest made to a 
foreign trust, the tax applies to any distribution from such 
trust (whether from income or corpus) attributable to such 
covered gift or bequest to a recipient that is a U.S. citizen 
or resident, in the same manner as if such distribution were a 
covered gift or bequest. Such a recipient is entitled to deduct 
the amount of such tax for income tax purposes to the extent 
such tax is imposed on the portion of such distribution that is 
included in the gross income of the recipient. For purposes of 
these rules, a foreign trust may elect to be treated as a 
domestic trust. The election may not be revoked without the 
Secretary's consent.

Coordination with present-law alternative tax regime

    Under the provision, the present-law expatriation income 
tax rules under section 877 generally continue to apply to a 
covered expatriate whose expatriation or residency termination 
occurs before, on, or after the date of enactment.

Information reporting

    Certain information reporting requirements under the law 
presently applicable to former citizens and former long-term 
residents (sec. 6039G) also apply for purposes of the 
provision.

                             EFFECTIVE DATE

    The provision generally is effective for U.S. citizens who 
relinquish citizenship or long-term residents who terminate 
their residency on or after the date of enactment. However, the 
portion of the provision relating to covered gifts and bequests 
is effective for gifts and bequests received from former 
citizens or former long-term residents (or their estates) on or 
after the date of enactment, regardless of when the transferor 
expatriated.

 E. Repeal of Provision Regarding Suspension of Interest and Penalties


(Sec. 6 of the bill and sec. 6404(g) of the Code)

                              PRESENT LAW

    In general, interest and penalties accrue during periods 
for which taxes were unpaid without regard to whether the 
taxpayer was aware that there was tax due. Prior to amendment 
by the Small Business and Work Opportunity Tax Act of 2007, the 
accrual of certain penalties and interest is suspended starting 
18 months after the filing of the tax return if the IRS has not 
sent the taxpayer a notice specifically stating the taxpayer's 
liability and the basis for the liability within the specified 
period. If a tax return is filed before the due date, for 
purposes of interest suspension it is considered to have been 
filed on the due date. Interest and penalties resume 21 days 
after the IRS sends the required notice to the taxpayer. The 
provision is applied separately with respect to each item or 
adjustment. The provision does not apply where a taxpayer has 
self-assessed the tax. The suspension only applies to 
individuals who file a timely tax return. The provision does 
not apply to the following: the penalty for failing to pay; any 
interest, penalty, addition to tax, or additional amount in a 
case involving fraud; any interest, penalty, addition to tax, 
or additional amount with respect to any gross misstatement; 
and any criminal penalty. Generally, the suspension of interest 
also does not apply to interest accruing with respect to 
underpayments resulting from listed transactions or undisclosed 
reportable transactions.
    For IRS notices issued after November 25, 2007, the Small 
Business and Work Opportunity Tax Act of 2007 provides that the 
accrual of penalties and interest is suspended starting 36 
months after the filing of the tax return.\14\ Because the 
general statute of limitations on assessment of tax is 36 
months after the filing of a tax return, the effect of the 
provision in the Small Business and Work Opportunity Tax Act of 
2007 is that interest suspension only applies to tax 
liabilities eligible for suspension which may be assessed more 
than three years after the filing of the tax return to which 
the liability relates.
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    \14\Pub. L. No. 110-28, sec. 7542 (2007).
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                           REASONS FOR CHANGE

    As a result of the provision in the Small Business and Work 
Opportunity Tax Act of 2007, interest suspension only applies 
in the small number of cases in which the IRS may assess an 
additional tax more than three years after the filing of the 
tax return to which such additional tax liability relates. The 
Committee believes that the rules regarding the accrual of 
interest on underpayments of tax should be applied, to the 
extent possible, in a consistent manner. Thus, the Committee 
believes the suspension of interest and penalties provision 
should be repealed. The Committee believes this change is 
appropriate for effective administration of the tax system.

                        EXPLANATION OF PROVISION

    The proposal repeals the suspension of interest and certain 
penalties provision. The Small Business and Work Opportunity 
Tax Act of 2007 provides that the accrual of penalties and 
interest is suspended starting 36 months after the filing of a 
tax return. Thus, the effect of the proposal is to eliminate 
interest suspension for liabilities which may be assessed more 
than three years after the filing of a tax return.

                             EFFECTIVE DATE

    The provision is effective for IRS notices issued after the 
date which is 6 months after the date of the enactment of the 
Small Business and Work Opportunity Tax Act of 2007 (November 
25, 2007).

              F. Increase in Information Return Penalties


(Sec. 7 of the bill and secs. 6721, 6722, and 6723 of the Code)

                              PRESENT LAW

    Present law imposes information reporting requirements on 
participants in certain transactions. Under section 6721 of the 
Code, any person required to file a correct information return 
who fails to do so on or before the prescribed filing date is 
subject to a penalty that varies based on when, if at all, the 
correct information return is filed. If a person files a 
correct information return after the prescribed filing date but 
on or before the date that is 30 days after the prescribed 
filing date, the amount of the penalty is $15 per return (the 
``first-tier penalty''), with a maximum penalty of $75,000 per 
calendar year. If a person files a correct information return 
more than 30 days after the prescribed filing date but on or 
before August 1, the amount of the penalty is $30 per return 
(the ``second-tier penalty''), with a maximum penalty of 
$150,000 per calendar year. If a correct information return is 
not filed on or before August 1, of any year, the amount of the 
penalty is $50 per return (the ``third-tier penalty''), with a 
maximum penalty of $250,000 per calendar year.
    Special lower maximum levels for this penalty apply to 
small businesses. Small businesses are defined as firms having 
average annual gross receipts for the most recent three taxable 
years that do not exceed $5 million. The maximum penalties for 
small businesses are: $25,000 (instead of $75,000) if the 
failures are corrected on or before 30 days after the 
prescribed filing date; $50,000 (instead of $150,000) if the 
failures are corrected on or before August 1; and $100,000 
(instead of $250,000) if the failures are not corrected on or 
before August 1.
    Section 6722 of the Code also imposes penalties for failing 
to furnish correct payee statements to taxpayers. In addition, 
section 6723 imposes a penalty for failing to comply with other 
information reporting requirements. Under both section 6722 and 
section 6723, the penalty amount is $50 for each failure, up to 
a maximum of $100,000.
    If the failure to file a correct information return is due 
to intentional disregard, the penalty is $100 per information 
return or, if greater, 10 percent\15\ of the amount required to 
be shown on the information return, with no limitation on the 
maximum penalty per calendar year. Similar rules apply in the 
case of a failure to furnish correct payee statements.\16\
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    \15\Different rules are specified for certain types of payments. 
For example, with respect to gross proceeds information reports, the 
percentage is five percent instead of 10 percent.
    \16\Sec. 6722.
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                           REASONS FOR CHANGE

    The Committee believes the present law penalties for 
failing to file accurate information returns do not adequately 
discourage noncompliance. The Committee notes that these 
penalties have not been increased in many years. The Committee 
believes that increasing the information return penalties will 
encourage the filing of timely and accurate information returns 
which, in turn, will improve overall tax administration.\17\
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    \17\A similar proposal was included in the President's fiscal year 
2008 budget proposal.
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                        EXPLANATION OF PROVISION

    The provision increases the penalties for failing to file 
correct information returns, for failing to furnish correct 
payee statements, and for failing to comply with other 
information reporting requirements. Specifically, the provision 
increases the penalties for failing to file correct information 
returns as follows: the first-tier penalty would be increased 
from $15 to $25, with a maximum penalty of $200,000 per 
calendar year; the second-tier penalty would be increased from 
$30 to $60, with a maximum penalty of $400,000 per calendar 
year; and the third-tier penalty would be increased from $50 to 
$100, with a maximum penalty of $600,000 per calendar year. The 
maximum penalties for small businesses would be: $75,000 if the 
failures are corrected on or before 30 days after the 
prescribed filing date; $150,000 if the failures are corrected 
on or before August 1; and $250,000 if the failures are not 
corrected on or before August 1.
    The provision increases both the penalty for failing to 
furnish correct payee statements to taxpayers and the penalty 
for failing to comply with other information reporting 
requirements penalties to $100 for each such failure, up to a 
maximum of $600,000 in a calendar year.
    The provision also increases the minimum penalty for 
intentional disregard of the information reporting requirements 
to $250 per return.

                             EFFECTIVE DATE

    The provision is effective with respect to information 
returns required to be filed on or after January 1, 2008.

          G. Modifications to Corporate Estimated Tax Payments


(Sec. 8 of the bill)

                              PRESENT LAW

    In general, corporations are required to make quarterly 
estimated tax payments of their income tax liability. For a 
corporation whose taxable year is a calendar year, these 
estimated tax payments must be made by April 15, June 15, 
September 15, and December 15. Fiscal year taxpayers make 
quarterly payments on corresponding dates.
    Under present law, in the case of a corporation with assets 
of at least $1 billion, the payments due in July, August, and 
September, 2012, (for fiscal and calendar year taxpayers, 
respectively) shall be increased to 114.50 percent of the 
payment otherwise due and the next required payment shall be 
reduced accordingly.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to adjust the 
corporate estimated tax payments.

                        EXPLANATION OF PROVISION

    For corporate estimated tax payments due in July, August, 
and September, 2012, the provision increases the percentage 
from 114.50 percent to 114.75 percent. As under present law, 
the next payment is reduced accordingly.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.
    
    
                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 3056 as reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2008-2017:


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided:

                                     U.S. Congress,
                              Congressional Budget Office, 
                                     Washington, DC, July 24, 2007.
Hon. Charles B. Rangel,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3056, the Tax 
Collection Responsibility Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Emily 
Schlect.
            Sincerely,
                                           Peter R. Orszag,
                                                          Director.
    Enclosure.

H.R. 3056--Tax Collection Responsibility Act of 2007

    Summary: H.R. 3056 would make several changes to tax law. 
Some would reduce revenue and others would raise revenue. The 
legislation would reduce revenue by repealing the private debt 
collection program and making other changes in tax rules. It 
would increase revenue by altering tax rules for expatriates 
and making other tax-related changes.
    The Joint Committee on Taxation (JCT) and the Congressional 
Budget Office (CBO) estimate that enacting H.R. 3056 would 
increase revenues by $34 million in 2008 and by $26 million 
over the 2008-2012 period, and reduce revenues by $252 million 
over the 2008-2017 period. CBO estimates that H.R. 3056 would 
reduce direct spending by $25 million in 2008, by $306 million 
over the 2008-2012 period, and by $676 million over the 2008-
2017 period. CBO also estimates that the bill would not 
significantly affect spending subject to appropriation.
    JCT has determined that the tax provisions of the bill 
contain no private-sector or intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). CBO has 
reviewed the non-tax provisions of H.R. 3056 (sections 2 and 3) 
and has determined that they contain no private-sector or 
intergovernmental mandates as defined in QMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill over the 2008-2017 period is shown 
in the following table.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               By fiscal year, in millions of dollars--
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
                                          2008         2009         2010         2011         2012         2013         2014         2015         2016         2017      2008-2012    2008-2017
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Repeal of Private Debt Collection             -49         -129         -135         -147         -147         -147         -147         -141         -147         -147         -607       -1,342
 Contract Authority.................
Delayed Implementation of Government            0            0            0       -6,079       -6,057          -11           -6           -3           -1            0          -23          -44
 Withholding........................
U.S. Virgin Islands Residency Tax               *           -1           -3           -5          -10          -10           -5          -93           -1            *          -19          -38
 Rules..............................
Tax Rules for Expatriates...........           74           78           74           75           75           76           77           78           78           79          376          764
Repeal Suspension of Interest and               9           13           13           13           13           13           13           13           13           14           61          128
 Penalties..........................
Increase Information Return                     0            0           12           35           36           37           38           39           41           42           83          280
 Penalties..........................
Increase the Corporate Estimated Tax            0            0            0            0          155         -155            0            0            0            0          155            0
 Payments...........................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Changes in Revenues.......           34          -39          -39       -6,108        6,179         -197          -30          -23          -17          -12           26         -252

                                                                                   CHANGES IN DIRECT SPENDING

IRS Contracting for Debt Collection:
    Estimated Budget Authority......          -25          -65          -68          -74          -74          -74          -74          -74          -74          -74         -306         -676
    Estimated Outlays...............          -25          -65          -68          -74          -74          -74          -74          -74          -74          -74         -306        -676
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes.--Numbers may not add to totals due to rounding. * = Loss of less than $500,000.
Sources: Congressional Budget Office and Joint Committee on Taxation.

    Basis of estimate: JCT and CBO assume that the bill will be 
enacted by October 1, 2007.

Revenues

    The legislation would reduce and raise revenues through 
multiple tax provisions. All in all, JCT and CBO estimate that 
the bill would increase revenues by $26 million over the 2008-
2012 period and decrease revenues by $252 million over the 
2008-2017 period.
    Revenue Reductions. Several provisions would reduce 
revenues over the 2008-2012 and 2008-2017 periods. First, the 
bill would repeal the Internal Revenue Service's (IRS's) 
authority to enter into qualified tax collection contracts with 
private collection agencies to collect delinquent tax 
liabilities. The repeal would not apply to contracts entered 
into before July 18, 2007. JCT estimates that this change would 
reduce revenues by $49 million in 2008, by $607 million over 
the 2008-2012 period, and by $1.3 billion over the 2008-2017 
period. (JCT has indicated that CBO should reduce the estimated 
revenue loss that JCT initially estimated for the provision by 
$39 million in 2008 to reflect the exclusion of certain 
existing contracts.) The provision also would affect direct 
spending (see ``Direct Spending'' section).
    Second, the bill would delay implementation of certain 
withholding requirements. Under current law, federal, state, 
and local governments must withhold taxes at a 3 percent rate 
on any payments for goods or services made after December 31, 
2010. This bill would make the requirement applicable instead 
to payments made after December 31, 2011. JCT estimates that 
this provision would decrease revenues by $23 million over the 
2008-2012 period and by $44 million over the 2008-2017 period.
    Third, the bill would apply a statute of limitations on the 
collection of taxes from residents of the U.S. Virgin Islands 
(USVI). Residents must file income tax returns with the USVI, 
and certain residents do not also need to file returns with the 
U.S. government. In general, the IRS must levy taxes within 
three years after a return's due date. For certain residents of 
the USVI, this three-year period currently begins upon filing a 
return with the USVI. For others, it begins upon filing a 
return with the IRS. This bill would start the limitations 
period for all USVI residents when they file their returns with 
the USVI. JCT estimates that this provision would reduce 
revenues by less than $500,000 in 2008, by $19 million over the 
2008-2012 period, and by $38 million over the 2008-2017 period.
    Revenue Increases. Three other provisions would increase 
revenues. First, the bill would change tax rules related to 
U.S. expatriates. Under the bill, for tax purposes, 
expatriates' property would be treated as sold for its market 
value on the day before the expatriation. It would also subject 
expatriates to tax immediately rather than treating them as 
U.S. citizens or long-term residents until they give certain 
notice of expatriation. JCT estimates that this provision would 
increase revenues by $74 million in. 2008, by $376 million over 
the 2008-2012 period, and by $764 million over the 2008-2017 
period.
    Second, the bill would change the rules for accrual of 
interest and penalties on unpaid taxes. Currently, individuals 
must pay interest and penalties for unpaid taxes, but their 
accrual is suspended starting 36 months after filing the tax 
return for those tax liabilities that may be assessed after 
that time. This bill would repeal that suspension. JCT 
estimates that this change would increase revenues by $9 
million in 2008, by $61 million over the 2008-2012 period and 
by $128 million over the 2008-2017 period.
    Third, under current law, certain individuals and 
businesses are penalized for filing incorrect information 
returns. For returns filed after January 1, 2008, H.R. 3056 
would increase those penalties. JCT estimates that this 
provision would increase revenues by $83 million over the 2010-
2012 period and by $280 million over the 2010-2017 period.
    Other Revenue Effects. One provision would shift revenues 
between 2012 and 2013. For corporations with at least $1 
billion in assets in 2012, the bill would increase the portion 
of corporate estimated tax payments due in July through 
September of that year. This change would increase revenues by 
$155 million in 2012 and decrease revenues by $155 million in 
2013. This provision was also passed by the House of 
Representatives as part of H.J. Res 44 on July 23, 2007. If 
that legislation is enacted, this provision of H.R. 3056 would 
no longer have any budgetary effect.

Direct spending

    As discussed above (under ``Revenues''), section 2 would 
repeal the authority for the IRS to enter into any new or 
extended contracts for private debt collection after July 18, 
2007. All current contracts would continue until they expire in 
March 2008. Under current law, the IRS enters into contracts 
with private collection agencies to collect delinquent tax 
liabilities owed to the government. Under those contracts, the 
IRS may allow those agencies to retain up to 25 percent of the 
amounts they collect. Another 25 percent of amounts collected 
is available to the IRS to spend on collection enforcement 
activities. Based on revenue estimates from JCT and using 
information from the IRS, CBO estimates that repealing the 
private debt collection authority and allowing the current 
contracts to expire would reduce direct spending by $25 million 
in 2008, $306 million over the 2008-2012 period, and $676 
million over the 2008-2017 period.
    Intergovernmental and private-sector impact: JCT has 
determined that the tax provisions of the bill contain no 
private-sector or intergovernmental mandates as defined in the 
Unfunded Mandates Reform Act (UMRA). CBO has reviewed the non-
tax provisions of H.R. 3056 (sections 2 and 3) and has 
determined that they contain no private-sector or 
intergovernmental mandates as defined in UMRA. Enactment of 
section 3 would benefit state and local governments by delaying 
for one year the application of a requirement to withhold taxes 
on certain payments for goods and services.
    Estimate prepared by: Federal Revenues: Emily Schlect; 
Federal Spending: Matthew Pickford; Impact on State, Local, and 
Tribal Governments: Teri Gullo; Impact on the Private Sector: 
Paige Piper/Bach.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

                             E. PAY-GO Rule

    In compliance with clause 10 of rule XXI of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the revenue provisions 
of the bill, H.R. 3056, as reported: the provisions of the bill 
affecting revenues have the net effect of not increasing the 
deficit or reducing the surplus for either: (1) the period 
comprising the current fiscal year and the five fiscal years 
beginning with the fiscal year that ends in the following 
calendar year; and (2) the period comprising the current fiscal 
year and the ten fiscal years beginning with the fiscal year 
that ends in the following calendar year.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it is appropriate and timely to 
enact the revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have Power To lay 
and collect Taxes, Duties, Imposts and Excises * * * ''), and 
from the 16th Amendment to the Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
    The Committee has determined that the revenue provisions of 
the bill contain no Federal private sector mandates or Federal 
intergovernmental mandates on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Clause 5 of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``A bill or joint 
resolution, amendment, or conference report carrying a Federal 
income tax rate increase may not be considered as passed or 
agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting, a quorum being present.'' 
The Committee has carefully reviewed the provisions of the 
bill, and states that the provisions of the bill do not involve 
any Federal income tax rate increases within the meaning of the 
rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses.

                        G. Limited Tax Benefits

    Pursuant to clause 9 of rule XXI of the Rules of the House 
of Representatives, the Ways and Means Committee has determined 
that the bill as reported contains no congressional earmarks, 
limited tax benefits, or limited tariff benefits within the 
meaning of that rule.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE ACT OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


 Subchapter N--Tax Based on Income From Sources Within or Without the 
United States

           *       *       *       *       *       *       *


PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

           *       *       *       *       *       *       *



                Subpart A--Nonresident Alien Individuals

Sec. 871. Tax on nonresident alien individuals.
     * * * * * * *
Sec. 877A. Tax responsibilities of expatriation.
     * * * * * * *

SEC. 877. EXPATRIATION TO AVOID TAX.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Comparable Treatment of Lawful Permanent Residents who 
Cease to be Taxed as Residents.--
          [(1) In general.--Any long-term resident of the 
        United States who--
                  [(A) ceases to be a lawful permanent resident 
                of the United States (within the meaning of 
                section 7701(b)(6)), or
                  [(B) 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,shall be treated for 
                purposes of this section and sections 2107, 
                2501, and 6039G in the same manner as if such 
                resident were a citizen of the United States 
                who lost United States citizenship on the date 
                of such cessation or commencement.]
          (1) In general.--Any long-term resident of the United 
        States who ceases to be a lawful permanent resident of 
        the United States (within the meaning of section 
        7701(b)(6)) shall be treated for purposes of this 
        section and sections 2107, 2501, and 6039G in the same 
        manner as if such resident were a citizen of the United 
        States who lost United States citizenship on the date 
        of such cessation or commencement.

           *       *       *       *       *       *       *


SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

  (a) General Rules.--For purposes of this subtitle--
          (1) Mark to market.--All property of a covered 
        expatriate 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, 
        determined without regard to paragraph (3).
          (3) Exclusion for certain gain.--
                  (A) In general.--The amount which would (but 
                for this paragraph) be includible in the gross 
                income of any individual by reason of paragraph 
                (1) shall be reduced (but not below zero) by 
                $600,000.
                  (B) Adjustment for inflation.--
                          (i) In general.--In the case of any 
                        taxable year beginning in a calendar 
                        year after 2008, the dollar amount in 
                        subparagraph (A) shall be increased by 
                        an amount equal to--
                                  (I) such dollar amount, 
                                multiplied by
                                  (II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, by 
                                substituting ``calendar year 
                                2007'' for ``calendar year 
                                1992'' in subparagraph (B) 
                                thereof.
                          (ii) Rounding.--If any amount as 
                        adjusted under clause (i) is not a 
                        multiple of $1,000, such amount shall 
                        be rounded to the nearest multiple of 
                        $1,000.
  (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 time for payment of the additional tax attributable 
        to such property shall be extended until the due date 
        of the return for the taxable year in which such 
        property is disposed of (or, in the case of property 
        disposed of in a transaction in which gain is not 
        recognized in whole or in part, until such other date 
        as the Secretary may prescribe).
          (2) Determination of tax with respect to property.--
        For purposes of paragraph (1), the additional tax 
        attributable to any property is an amount which bears 
        the same ratio to the additional tax imposed by this 
        chapter for the taxable year solely by reason of 
        subsection (a) as the gain taken into account under 
        subsection (a) with respect to such property bears to 
        the total gain taken into account under subsection (a) 
        with respect to all property to which subsection (a) 
        applies.
          (3) Termination of extension.--The due date for 
        payment of tax may not be extended 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 
                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 which is furnished 
                        to, and accepted by, the Secretary, 
                        which is conditioned on the payment of 
                        tax (and interest thereon), and which 
                        meets the requirements of section 6325, 
                        or
                          (ii) it is another form of security 
                        for such payment (including letters of 
                        credit) that meets such requirements as 
                        the Secretary may prescribe.
          (5) Waiver of certain rights.--No election may be 
        made under paragraph (1) unless the taxpayer makes an 
        irrevocable 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.
          (7) Interest.--For purposes of section 6601, the last 
        date for the payment of tax shall be determined without 
        regard to the election under this subsection.
  (c) Exception for Certain Property.--Subsection (a) shall not 
apply to--
          (1) any deferred compensation item (as defined in 
        subsection (d)(4)),
          (2) any specified tax deferred account (as defined in 
        subsection (e)(2)), and
          (3) any interest in a nongrantor trust (as defined in 
        subsection (f)(3)).
  (d) Treatment of Deferred Compensation Items.--
          (1) Withholding on eligible deferred compensation 
        items.--
                  (A) In general.--In the case of any eligible 
                deferred compensation item, the payor shall 
                deduct and withhold from any taxable payment to 
                a covered expatriate with respect to such item 
                a tax equal to 30 percent thereof.
                  (B) Taxable payment.--For purposes of 
                subparagraph (A), the term ``taxable payment'' 
                means with respect to a covered expatriate any 
                payment to the extent it would be includible in 
                the gross income of the covered expatriate if 
                such expatriate continued to be subject to tax 
                as a citizen or resident of the United States. 
                A deferred compensation item shall be taken 
                into account as a payment under the preceding 
                sentence when such item would be so includible.
          (2) Other deferred compensation items.--In the case 
        of any deferred compensation item which is not an 
        eligible deferred compensation item--
                  (A)(i) with respect to any deferred 
                compensation item to which clause (ii) does not 
                apply, an amount equal to the present value of 
                the covered expatriate's accrued benefit shall 
                be treated as having been received by such 
                individual on the day before the expatriation 
                date as a distribution under the plan, and
                  (ii) with respect to any deferred 
                compensation item referred to in paragraph 
                (4)(D), the rights of the covered expatriate to 
                such item shall be treated as becoming 
                transferable and not subject to a substantial 
                risk of forfeiture on the day before the 
                expatriation date,
                  (B) no early distribution tax shall apply by 
                reason of such treatment, and
                  (C) appropriate adjustments shall be made to 
                subsequent distributions from the plan to 
                reflect such treatment.
          (3) Eligible deferred compensation items.--For 
        purposes of this subsection, the term ``eligible 
        deferred compensation item'' means any deferred 
        compensation item with respect to which--
                  (A) the payor of such item is--
                          (i) a United States person, or
                          (ii) a person who is not a United 
                        States person but who elects to be 
                        treated as a United States person for 
                        purposes of paragraph (1) and meets 
                        such requirements as the Secretary may 
                        provide to ensure that the payor will 
                        meet the requirements of paragraph (1), 
                        and
                  (B) the covered expatriate--
                          (i) notifies the payor of his status 
                        as a covered expatriate, and
                          (ii) makes an irrevocable waiver of 
                        any right to claim any reduction under 
                        any treaty with the United States in 
                        withholding on such item.
          (4) Deferred compensation item.--For purposes of this 
        subsection, the term ``deferred compensation item'' 
        means--
                  (A) any interest in a plan or arrangement 
                described in section 219(g)(5),
                  (B) any interest in a foreign pension plan or 
                similar retirement arrangement or program,
                  (C) any item of deferred compensation, and
                  (D) any property, or right to property, which 
                the individual is entitled to receive in 
                connection with the performance of services to 
                the extent not previously taken into account 
                under section 83 or in accordance with section 
                83.
          (5) Exception.--Paragraphs (1) and (2) shall not 
        apply to any deferred compensation item which is 
        attributable to services performed outside the United 
        States while the covered expatriate was not a citizen 
        or resident of the United States.
          (6) Special rules.--
                  (A) Application of withholding rules.--Rules 
                similar to the rules of subchapter B of chapter 
                3 shall apply for purposes of this subsection.
                  (B) Application of tax.--Any item subject to 
                the withholding tax imposed under paragraph (1) 
                shall be subject to tax under section 871.
                  (C) Coordination with other withholding 
                requirements.--Any item subject to withholding 
                under paragraph (1) shall not be subject to 
                withholding under section 1441 or chapter 24.
  (e) Treatment of Specified Tax Deferred Accounts.--
          (1) Account treated as distributed.--In the case of 
        any interest in a specified tax deferred account held 
        by a covered expatriate on the day before the 
        expatriation date--
                  (A) the covered expatriate shall be treated 
                as receiving a distribution of his entire 
                interest in such account on the day before the 
                expatriation date,
                  (B) no early distribution tax shall apply by 
                reason of such treatment, and
                  (C) appropriate adjustments shall be made to 
                subsequent distributions from the account to 
                reflect such treatment.
          (2) Specified tax deferred account.--For purposes of 
        paragraph (1), the term ``specified tax deferred 
        account'' means an individual retirement plan (as 
        defined in section 7701(a)(37)) other than any 
        arrangement described in subsection (k) or (p) of 
        section 408, a qualified tuition program (as defined in 
        section 529), a Coverdell education savings account (as 
        defined in section 530), a health savings account (as 
        defined in section 223), and an Archer MSA (as defined 
        in section 220).
  (f) Special Rules for Nongrantor Trusts.--
          (1) In general.--In the case of a distribution 
        (directly or indirectly) of any property from a 
        nongrantor trust to a covered expatriate--
                  (A) the trustee shall deduct and withhold 
                from such distribution an amount equal to 30 
                percent of the taxable portion of the 
                distribution, and
                  (B) if the fair market value of such property 
                exceeds its adjusted basis in the hands of the 
                trust, gain shall be recognized to the trust as 
                if such property were sold to the expatriate at 
                its fair market value.
          (2) Taxable portion.--For purposes of this 
        subsection, the term ``taxable portion'' means, with 
        respect to any distribution, that portion of the 
        distribution which would be includible in the gross 
        income of the covered expatriate if such expatriate 
        continued to be subject to tax as a citizen or resident 
        of the United States.
          (3) Nongrantor trust.--For purposes of this 
        subsection, the term ``nongrantor trust'' means the 
        portion of any trust that the individual is not 
        considered the owner of under subpart E of part I of 
        subchapter J. The determination under the preceding 
        sentence shall be made immediately before the 
        expatriation date.
          (4) Special rules relating to withholding.--For 
        purposes of this subsection--
                  (A) rules similar to the rules of subsection 
                (d)(6) shall apply, and
                  (B) the covered expatriate shall be treated 
                as having waived any right to claim any 
                reduction under any treaty with the United 
                States in withholding on any distribution to 
                which paragraph (1)(A) applies.
  (g) Definitions and Special Rules Relating to Expatriation.--
For purposes of this section--
          (1) Covered expatriate.--
                  (A) In general.--The term ``covered 
                expatriate'' means an expatriate who meets the 
                requirements of subparagraph (A), (B), or (C) 
                of section 877(a)(2).
                  (B) Exceptions.--An individual shall not be 
                treated as meeting the requirements of 
                subparagraph (A) or (B) of section 877(a)(2) 
                if--
                          (i) 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 been a resident of 
                                the United States (as defined 
                                in section 7701(b)(1)(A)(ii)) 
                                for not more than 10 taxable 
                                years during the 15-taxable 
                                year period ending with the 
                                taxable year during which the 
                                expatriation date occurs, or
                          (ii)(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 10 taxable 
                        years before the date of 
                        relinquishment.
                  (C) Covered expatriates also subject to tax 
                as citizens or residents.--In the case of any 
                covered expatriate who is subject to tax as a 
                citizen or resident of the United States for 
                any period beginning after the expatriation 
                date, such individual shall not be treated as a 
                covered expatriate during such period for 
                purposes of subsections (d)(1) and (f) and 
                section 2801.
          (2) Expatriate.--The term ``expatriate'' means--
                  (A) any United States citizen who 
                relinquishes his citizenship, and
                  (B) any long-term resident of the United 
                States who ceases to be a lawful permanent 
                resident of the United States (within the 
                meaning of section 7701(b)(6)).
          (3) 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 on which the 
                individual ceases to be a lawful permanent 
                resident of the United States (within the 
                meaning of section 7701(b)(6)).
          (4) Relinquishment of citizenship.--A citizen shall 
        be treated as relinquishing his United States 
        citizenship on the earliest of--
                  (A) the date the individual renounces his 
                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.
          (5) Long-term resident.--The term ``long-term 
        resident'' has the meaning given to such term by 
        section 877(e)(2).
          (6) Early distribution tax.--The term ``early 
        distribution tax'' means any increase in tax imposed 
        under section 72(t), 220(e)(4), 223(f)(4), 
        409A(a)(1)(B), 529(c)(6), or 530(d)(4).
  (h) Other Rules.--
          (1) Termination of deferrals, etc.--In the case of 
        any covered expatriate, notwithstanding any other 
        provision of this title--
                  (A) any time period for acquiring property 
                which would result in the reduction in the 
                amount of gain recognized with respect to 
                property disposed of by the taxpayer shall 
                terminate on the day before the expatriation 
                date, and
                  (B) 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.
          (2) Step-up in basis.--Solely for purposes of 
        determining any tax imposed by reason of subsection 
        (a), property which was held by an individual on the 
        date the individual first became a resident of the 
        United States (within the meaning of section 7701(b)) 
        shall be treated as having a basis on such date of not 
        less than the fair market value of such property on 
        such date. The preceding sentence shall not apply if 
        the individual elects not to have such sentence apply. 
        Such an election, once made, shall be irrevocable.
          (3) Coordination with section 684.--If the 
        expatriation of any individual would result in the 
        recognition of gain under section 684, this section 
        shall be applied after the application of section 684.
  (i) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.

           *       *       *       *       *       *       *


PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

           *       *       *       *       *       *       *


Subpart D--Possessions of the United States

           *       *       *       *       *       *       *


SEC. 932. COORDINATION OF UNITED STATES AND VIRGIN ISLANDS INCOME 
                    TAXES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Treatment of Virgin Islands Residents.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Treatment of income tax return filed with virgin 
        islands.--An income tax return filed with the Virgin 
        Islands by an individual claiming to be described in 
        paragraph (1) for the taxable year shall be treated for 
        purposes of subtitle F in the same manner as if such 
        return were an income tax return filed with the United 
        States for such taxable year. The preceding sentence 
        shall not apply where such return is false or 
        fraudulent with the intent to avoid tax or otherwise is 
        a willful attempt in any manner to defeat or evade tax.

           *       *       *       *       *       *       *


                   Subtitle B--Estate and Gift Taxes

                         Chapter 11. Estate Tax.

     * * * * * * *

Chapter 15. Gifts and Bequests From Expatriates.

           *       *       *       *       *       *       *


            CHAPTER 15--GIFTS AND BEQUESTS FROM EXPATRIATES

Sec. 2801. Imposition of tax.

SEC. 2801. IMPOSITION OF TAX.

  (a) In General.--If, during any calendar year, any United 
States citizen or resident receives any covered gift or 
bequest, there is hereby imposed a tax equal to the product 
of--
          (1) the highest rate of tax specified in the table 
        contained in section 2001(c) as in effect on the date 
        of such receipt (or, if greater, the highest rate of 
        tax specified in the table applicable under section 
        2502(a) as in effect on the date), and
          (2) the value of such covered gift or bequest.
  (b) Tax To Be Paid by Recipient.--The tax imposed by 
subsection (a) on any covered gift or bequest shall be paid by 
the person receiving such gift or bequest.
  (c) Exception for Certain Gifts.--Subsection (a) shall apply 
only to the extent that the value of covered gifts and bequests 
received by any person during the calendar year exceeds 
$10,000.
  (d) Tax Reduced by Foreign Gift or Estate Tax.--The tax 
imposed by subsection (a) on any covered gift or bequest shall 
be reduced by the amount of any gift or estate tax paid to a 
foreign country with respect to such covered gift or bequest.
  (e) Covered Gift or Bequest.--
          (1) In general.--For purposes of this chapter, the 
        term ``covered gift or bequest'' means--
                  (A) any property acquired by gift directly or 
                indirectly from an individual who, at the time 
                of such acquisition, is a covered expatriate, 
                and
                  (B) any property acquired directly or 
                indirectly by reason of the death of an 
                individual who, immediately before such death, 
                was a covered expatriate.
          (2) Exceptions for transfers otherwise subject to 
        estate or gift tax.--Such term shall not include--
                  (A) any property shown on a timely filed 
                return of tax imposed by chapter 12 which is a 
                taxable gift by the covered expatriate, and
                  (B) any property 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.
          (3) Transfers in trust.--
                  (A) Domestic trusts.--In the case of a 
                covered gift or bequest made to a domestic 
                trust--
                          (i) subsection (a) shall apply in the 
                        same manner as if such trust were a 
                        United States citizen, and
                          (ii) the tax imposed by subsection 
                        (a) on such gift or bequest shall be 
                        paid by such trust.
                  (B) Foreign trusts.--
                          (i) In general.--In the case of a 
                        covered gift or bequest made to a 
                        foreign trust, subsection (a) shall 
                        apply to any distribution attributable 
                        to such gift or bequest from such trust 
                        (whether from income or corpus) to a 
                        United States citizen or resident in 
                        the same manner as if such distribution 
                        were a covered gift or bequest.
                          (ii) Deduction for tax paid by 
                        recipient.--There shall be allowed as a 
                        deduction under section 164 the amount 
                        of tax imposed by this section which is 
                        paid or accrued by a United States 
                        citizen or resident by reason of a 
                        distribution from a foreign trust, but 
                        only to the extent such tax is imposed 
                        on the portion of such distribution 
                        which is included in the gross income 
                        of such citizen or resident.
                          (iii) Election to be treated as 
                        domestic trust.--Solely for purposes of 
                        this section, a foreign trust may elect 
                        to be treated as a domestic trust. Such 
                        an election may be revoked with the 
                        consent of the Secretary.
  (f) Covered Expatriate.--For purposes of this section, the 
term ``covered expatriate'' has the meaning given to such term 
by section 877A(g)(1).

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


Subpart A--Information Concerning Persons Subject to Special Provisions

           *       *       *       *       *       *       *


SEC. 6039G. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                    CITIZENSHIP.

  (a) In General.--Notwithstanding any other provision of law, 
any individual to whom section 877(b) or 877A applies for any 
taxable year shall provide a statement for such taxable year 
which includes the information described in subsection (b).

           *       *       *       *       *       *       *

  (d) Information to be provided to Secretary.--Notwithstanding 
any other provision of law--
          (1) * * *

           *       *       *       *       *       *       *

Notwithstanding any other provision of law, not later than 30 
days after the close of each calendar quarter, the Secretary 
shall publish in the Federal Register the name of each 
individual losing United States citizenship (within the meaning 
of section 877(a) or 877A) with respect to whom the Secretary 
receives information under the preceding sentence during such 
quarter.

           *       *       *       *       *       *       *


CHAPTER 64--COLLECTION

           *       *       *       *       *       *       *


                    Subchapter A--General Provisions

Sec. 6301. Collection authority.
     * * * * * * *
[Sec. 6306. Qualified tax collection contracts.]

           *       *       *       *       *       *       *


[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 5 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--
          [(1) 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, and
          [(2) an amount not in excess of 25 percent of such 
        amount collected for collection enforcement activities 
        of the Internal Revenue Service.
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(g).]

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


Subchapter A--Procedure in General

           *       *       *       *       *       *       *


SEC. 6404. ABATEMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  [(g) Suspension of Interest and Certain Penalties Where 
Secretary Fails To Contact Taxpayer.--
          [(1) Suspension.--
                  [(A) In general.--In the case of an 
                individual who files a return of tax imposed by 
                subtitle A for a taxable year on or before the 
                due date for the return (including extensions), 
                if the Secretary does not provide a notice to 
                the taxpayer specifically stating the 
                taxpayer's liability and the basis for the 
                liability before the close of the 36-month 
                period beginning on the later of--
                          [(i) the date on which the return is 
                        filed; or
                          [(ii) the due date of the return 
                        without regard to extensions, the 
                        Secretary shall suspend the imposition 
                        of any interest, penalty, addition to 
                        tax, or additional amount with respect 
                        to any failure relating to the return 
                        which is computed by reference to the 
                        period of time the failure continues to 
                        exist and which is properly allocable 
                        to the suspension period. If, after the 
                        return for a taxable year is filed, the 
                        taxpayer provides to the Secretary 1 or 
                        more signed written documents showing 
                        that the taxpayer owes an additional 
                        amount of tax for the taxable year, 
                        clause (i) shall be applied by 
                        substituting the date the last of the 
                        documents was provided for the date on 
                        which the return is filed.
                  [(B) Separate application.--This paragraph 
                shall be applied separately with respect to 
                each item or adjustment.
          [(2) Exceptions.--Paragraph (1) shall not apply to--
                  [(A) any penalty imposed by section 6651;
                  [(B) any interest, penalty, addition to tax, 
                or additional amount in a case involving fraud;
                  [(C) any interest, penalty, addition to tax, 
                or additional amount with respect to any tax 
                liability shown on the return;
                  [(D) any interest, penalty, addition to tax, 
                or additional amount with respect to any gross 
                misstatement;
                  [(E) any interest, penalty, addition to tax, 
                or additional amount with respect to any 
                reportable transaction with respect to which 
                the requirement of section 6664(d)(2)(A) is not 
                met and any listed transaction (as defined in 
                6707A(c)); or
                  [(F) any criminal penalty.
          [(3) Suspension period.--For purposes of this 
        subsection, the term ``suspension period'' means the 
        period--
                  [(A) beginning on the day after the close of 
                the 36-month period under paragraph (1); and
                  [(B) ending on the date which is 21 days 
                after the date on which notice described in 
                paragraph (1)(A) is provided by the Secretary.]
  [(h)] (g) Review of Denial of Request for Abatement of 
Interest.--
          (1) * * *

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter B--Assessable Penalties

           *       *       *       *       *       *       *


     PART II--FAILURE TO COMPLY WITH CERTAIN INFORMATION REPORTING 
REQUIREMENTS

           *       *       *       *       *       *       *


SEC. 6721. FAILURE TO FILE CORRECT INFORMATION RETURNS/

  (a) Imposition of Penalty.--
          (1) In general.--In the case of a failure described 
        in paragraph (2) by any person with respect to an 
        information return, such person shall pay a penalty of 
        [$50] $100 for each return with respect to which such a 
        failure occurs, but the total amount imposed on such 
        person for all such failures during any calendar year 
        shall not exceed [$250,000] $600,000.

           *       *       *       *       *       *       *

  (b) Reduction Where Correction in Specified Period.--
          (1) Correction within 30 days.--If any failure 
        described in subsection (a)(2) is corrected on or 
        before the day 30 days after the required filing date--
                  (A) the penalty imposed by subsection (a) 
                shall be [$15] $25 in lieu of [$50] $100, and
                  (B) the total amount imposed on the person 
                for all such failures during any calendar year 
                which are so corrected shall not exceed 
                [$75,000] $200,000.
          (2) Failures corrected on or before August 1.--If any 
        failure described in subsection (a)(2) is corrected 
        after the 30th day referred to in paragraph (1) but on 
        or before August 1 of the calendar year in which the 
        required filing date occurs--
                  (A) the penalty imposed by subsection (a) 
                shall be [$30] $60 in lieu of [$50] $100, and
                  (B) the total amount imposed on the person 
                for all such failures during the calendar year 
                which are so corrected shall not exceed 
                [$150,000] $400,000.

           *       *       *       *       *       *       *

  (d) Lower Limitations for Persons with Gross Receipts of Not 
More Than $5,000,000.--
          (1) In general.--If any person meets the gross 
        receipts test of paragraph (2) with respect to any 
        calendar year, with respect to failures during such 
        taxable year--
                  (A) subsection (a)(1) shall be applied by 
                substituting ``[$100,000] $250,000'' for 
                ``[$250,000] $600,000'',
                  (B) subsection (b)(1)(B) shall be applied by 
                substituting ``[$25,000] $75,000'' for 
                ``[$75,000] $200,000'', and
                  (C) subsection (b)(2)(B) shall be applied by 
                substituting ``[$50,000] $150,000'' for 
                ``[$150,000] $400,000''.

           *       *       *       *       *       *       *

  (e) Penalty in Case of Intentional Disregard.--If 1 or more 
failures described in subsection (a)(2) are due to intentional 
disregard of the filing requirement (or the correct information 
reporting requirement), then, with respect to each such 
failure--
          (1) * * *
          (2) the penalty imposed under subsection (a) shall be 
        [$100] $250, or, if greater--
                  (A) * * *

           *       *       *       *       *       *       *

          (3) in the case of any penalty determined under 
        paragraph (2)--
                  (A) the [$250,000] $600,000 limitation under 
                subsection (a) shall not apply, and

           *       *       *       *       *       *       *


SEC. 6722. FAILURE TO FURNISH CORRECT PAYEE STATEMENTS.

  (a) General Rule.--In the case of each failure described in 
subsection (b) by any person with respect to a payee statement, 
such person shall pay a penalty of [$50] $100 for each 
statement with respect to which such a failure occurs, but the 
total amount imposed on such person for all such failures 
during any calendar year shall not exceed [$100,000] $600,000.

           *       *       *       *       *       *       *

  (c) Penalty in Case of Intentional Disregard.--If 1 or more 
failures to which subsection (a) applies are due to intentional 
disregard of the requirement to furnish a payee statement (or 
the correct information reporting requirement), then, with 
respect to each failure--
          (1) the penalty imposed under subsection (a) shall be 
        [$100] $250, or, if greater--
                  (A) * * *

           *       *       *       *       *       *       *

          (2) in the case of any penalty determined under 
        paragraph (1)--
                  (A) the [$100,000] $600,000 limitation under 
                subsection (a) shall not apply, and

           *       *       *       *       *       *       *


SEC. 6723. FAILURE TO COMPLY WITH OTHER INFORMATION REPORTING 
                    REQUIREMENTS.

  In the case of a failure by any person to comply with a 
specified information reporting requirement on or before the 
time prescribed therefor, such person shall pay a penalty of 
[$50] $100 for each such failure, but the total amount imposed 
on such person for all such failures during any calendar year 
shall not exceed [$100,000] $600,000.

           *       *       *       *       *       *       *


CHAPTER 76--JUDICIAL PROCEEDINGS

           *       *       *       *       *       *       *


Subchapter B--Proceedings by Taxpayers and Third Parties

           *       *       *       *       *       *       *


Sec. 7421. Prohibition of suits to restrain assessment or collection.
     * * * * * * *
[Sec. 7433A.Civil damages for certain unauthorized collection actions by 
          persons performing services under qualified tax collection 
          contracts.]

           *       *       *       *       *       *       *


[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.]

           *       *       *       *       *       *       *


CHAPTER 79--DEFINITIONS

           *       *       *       *       *       *       *


SEC. 7701. DEFINITIONS.

  (a) When used in this title, where not otherwise distinctly 
expressed or manifestly incompatible with the intent thereof--
          (1) * * *

           *       *       *       *       *       *       *

          (50) 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(g)(4).
                  (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.
  (b) Definition of Resident Alien and Nonresident Alien.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Lawful permanent resident.--For purposes of this 
        subsection, an individual is a lawful permanent 
        resident of the United States at any time if--
                  (A) * * *

           *       *       *       *       *       *       *

        An individual shall cease to be treated as a lawful 
        permanent resident of the United States if such 
        individual 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, does 
        not waive the benefits of such treaty applicable to 
        residents of the foreign country, and notifies the 
        Secretary of the commencement of such treatment.

           *       *       *       *       *       *       *

  [(n) Special Rules for Determining When an Individual is No 
Longer a United States Citizen or Long-Term Resident.--For 
purposes of this chapter--
          [(1) United States citizens.--An individual who would 
        (but for this paragraph) cease to be treated as a 
        citizen of the United States shall continue to be 
        treated as a citizen of the United States until such 
        individual--
                  [(A) gives notice of an expatriating act 
                (with the requisite intent to relinquish 
                citizenship) to the Secretary of State, and
                  [(B) provides a statement in accordance with 
                section 6039G (if such a statement is otherwise 
                required).
          [(2) Long-term residents.--A long-term resident (as 
        defined in section 877(e)(2)) who would (but for this 
        paragraph) be described in section 877(e)(1) shall be 
        treated as a lawful permanent resident of the United 
        States and as not described in section 877(e)(1) until 
        such individual--
                  [(A) gives notice of termination of residency 
                (with the requisite intent to terminate 
                residency) to the Secretary of Homeland 
                Security, and
                  [(B) provides a statement in accordance with 
                section 6039G (if such a statement is otherwise 
                required).]
  [(o)] (n) Convention or Association of Churches.--For 
purposes of this title, any organization which is otherwise a 
convention or association of churches shall not fail to so 
qualify merely because the membership of such organization 
includes individuals as well as churches or because individuals 
have voting rights in such organization.
  [(p)] (o) Cross References.--
          (1) * * *

           *       *       *       *       *       *       *


CHAPTER 80--GENERAL RULES

           *       *       *       *       *       *       *


Subchapter A--Application of Internal Revenue Laws

           *       *       *       *       *       *       *


SEC. 7811. TAXPAYER ASSISTANCE ORDERS.

  (a) * * *

           *       *       *       *       *       *       *

  [(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.]

           *       *       *       *       *       *       *

                              ----------                              


     SECTION 1203 INTERNAL REVENUE SERVICE RESTRUCTING ACT OF 1998

SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.

  (a) * * *

           *       *       *       *       *       *       *

  [(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.]
                              ----------                              


TAX INCREASE PREVENTION AND RECONCILIATION ACT OF 2005

           *       *       *       *       *       *       *


              TITLE IV--CORPORATE ESTIMATED TAX PROVISIONS

SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

  Notwithstanding section 6655 of the Internal Revenue Code of 
1986--
          (1) in the case of a corporation with assets of not 
        less than $1,000,000,000 (determined as of the end of 
        the preceding taxable year)--
                  (A) * * *
                  (B) the amount of any required installment of 
                corporate estimated tax which is otherwise due 
                in July, August, or September of 2012 shall be 
                [114.50] 114.75 percent of such amount,

           *       *       *       *       *       *       *


TITLE V--REVENUE OFFSET PROVISIONS

           *       *       *       *       *       *       *


SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE BY 
                    GOVERNMENT ENTITIES.

  (a) * * *
  (b) Effective Date.--The amendment made by this section shall 
apply to payments made after December 31, [2010] 2011.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    On Wednesday, May 23, 2007, the Ways and Means Committee 
held a hearing on the Internal Revenue Service's use of private 
collection agencies (PCAs) to collect Federal income taxes. 
During the hearing we heard repeated assurances from the IRS 
that the tax liabilities assigned to PCAs for collection would 
otherwise go uncollected even if the IRS had a greater 
enforcement budget. Turning a deaf ear, the Democrats have put 
forth H.R. 3056 with repeal of the IRS's authority to use PCAs 
as the bill's centerpiece. This bill raises revenue from the 
wrong places while reducing tax receipts in some ways that are 
questionable at best. We oppose passage of this bill.

                         Private Tax Collection

    We strongly oppose the provision killing the private 
collection agency program. The hearing we held earlier this 
year showed the skill and patience PCA employees employ to 
avoid disclosing any confidential taxpayer information. Even 
though the PCAs lack many of the enforcement-enhancing tools of 
the IRS, such as lien and levy, they are successfully 
collecting millions of dollars in unpaid taxes that the IRS 
would not otherwise pursue.
    These are liabilities which are not in dispute. The 
taxpayer simply chose not to pay-even after the IRS sent 
multiple notices reminding the affected taxpayers of their 
unpaid obligation. During consideration of the bill, Members of 
the Majority spoke of the ``special relationship'' between 
taxpayers and the IRS. Most taxpayers we talk to would hardly 
consider that relationship special. And for those who have 
ignored the IRS's multiple notices about the delinquent 
liabilities, it is even harder to characterize the relationship 
that way.
    The Majority attempted to argue the cost to taxpayers would 
be even less if the IRS went after these obligations. This is 
not true. The IRS is presently ill-equipped to engage in the 
massive outbound call operations the PCAs use to collect these 
obligations. The Majority cited poorly designed estimates that 
compared the efficiency of the IRS with PCAs on an apples-to-
oranges basis which fail to account for the large costs the IRS 
would have to incur to tackle these cases and other factors. In 
fact, a GAO report (GAO-04-492) did an apples-to-apples 
analysis `` * * * under which the IRS would hire additional 
staff to work on the same volume for selected types of cases on 
which the PCAs would work. According to the analysis, PCAs 
would generate $4.6 in revenue for every dollar in cost and IRS 
employees would generate $4.1.''
    As of June 30, 2007, 77,400 cases have been placed with the 
PCAs. Full payment has been received in 5,381 of these cases. 
In addition, 1,855 taxpayers have entered into installment 
agreements. The PCAs have already collected $24 million in 
gross revenue that would not have been collected otherwise, 
making this a tax-gap closing program with a proven track 
record.
    According to the Joint Committee on Taxation, killing the 
program will reduce Federal budget receipts by $1.1 billion 
during the 2007 to 2017 period. The Majority is willing to 
raise taxes to pay for killing this tax gap closing program.

              Additional Tax on Individuals Who Expatriate

    One such offset in the bill imposes a new tax on 
individuals who attempt to renounce their U.S. citizenship or 
terminate long-term residency. In addition to the present 
rules--which subject them to most U.S. taxes for 10 years after 
they expatriate--the bill imposes an exit tax on the 
expatriate's assets, essentially requiring these individuals to 
pay the amount of tax that would be due if those assets were 
sold at the time of expatriation.
    This seems like a substantial change in policy and is 
something the Committee ought to explore fully before acting. 
As part of an investigation into the issue, perhaps the 
Committee can also explore the relationship between our high 
tax rates that provide for the underlying incentive for 
individuals and corporations to move overseas and our declining 
competitiveness in the global marketplace.

                         Penalties and Interest

    H.R. 3056 would substantially increase penalties on 
businesses for failing to file information returns, such as 
1099s on a timely basis. We certainly recognize that such 
third-party information reporting contributes to substantially 
higher compliance rates.
    In this case, however, increasing penalties on those who 
fail to file timely information returns does not induce better 
compliance by third parties whose information is being 
reported.
    Rather, the added revenue comes from assessing fees on 
businesses that may be fully compliant with respect to their 
own tax obligations but for some reason are late in filing 1099 
returns about the income of others.
    That is not a way to close the tax gap; it is a way to 
collect more money from already compliant taxpayers. Why stop 
at penalties of $50 or $100 per violation? If the Majority sets 
the fees for late filing high enough, perhaps they can 
eliminate the deficit without ``raising taxes'' on anyone.

                       Inaction on Broader Issues

    The Majority's interest in protecting tax deadbeats and in 
raising penalties can be put into perspective by examining 
their inaction on extending relief from the Alternative Minimum 
Tax (AMT). Since the Republicans initiated such relief in 2001, 
an extension was always done in a timely fashion. The Democrats 
have not extended this relief yet and are permitting 19 million 
more taxpayers to fall prey to the AMT for tax year 2007. Since 
it is unlikely the majority of these taxpayers have adjusted 
their withholdings and estimated payments to account for this 
tax-increase surprise, the Majority will be raising additional 
revenue through interest and penalties on taxpayers with 
insufficient withholdings and estimated payments due to this 
AMT surprise.
    In response, we voted for an amendment offered by Mr. 
English to exempt taxpayers from interest and penalties, 
resulting from failures to make sufficient withholding and 
estimated tax payments to account for increased tax liabilities 
as a result the Majority's inaction on AMT. In the end, the 
Majority voted down the amendment. It seems protecting tax 
deadbeats is more important to the Majority than shielding 
unsuspecting taxpayers from interest and penalties resulting 
from Congressional inaction on the AMT.
    Similarly, Mr. Herger offered an amendment that would have 
restored the PCA program and used some of the revenues it will 
generate over the next decade to add an additional delay in 
implementing the 3-percent withholding rules for government 
contractors. This amendment would have improved the bill 
substantially, but it was rejected on a similar party-line 
vote.

                               Conclusion

    The tax gap, estimated at nearly $300 billion per year, 
can't be closed by waving a magic wand. Rather, ensuring that 
all taxes owed are actually paid requires many small steps to 
target facets of the problem. By terminating a proven method of 
ensuring all Americans pay their fair share, H.R. 3056 takes a 
giant step in the opposite direction. We urge our colleagues to 
vote against it.

                                   Jim McCrery.
                                   Wally Herger.
                                   Dave Camp.
                                   Jim Ramstad.
                                   Sam Johnson.
                                   Phil English.
                                   Jerry Weller.
                                   Kenny Hulshof.
                                   Ron Lewis.
                                   Kevin Brady.
                                   Thomas M. Reynolds.
                                   Paul Ryan.
                                   Eric Cantor.
                                   John Linder.
                                   Devin Nunes.
                                   Pat Tiberi.
                                   Jon C. Porter.

                                  
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