[House Report 110-606]
[From the U.S. Government Publishing Office]





110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-606

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



 
                   HOUSING ASSISTANCE TAX ACT OF 2008

                                _______
                                

 April 24, 2008.--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

                        [To accompany H.R. 5720]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 5720) to amend the Internal Revenue Code of 1986 to 
provide assistance for housing, 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; ETC.

  (a) Short Title.--This Act may be cited as the ``Housing Assistance 
Tax Act of 2008''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; etc.

                    TITLE I--HOUSING TAX INCENTIVES

                    Subtitle A--Multi-Family Housing

                 Part 1--Low-Income Housing Tax Credit

Sec. 101. Temporary increase in volume cap for low-income housing tax 
credit.
Sec. 102. Determination of credit rate.
Sec. 103. Modifications to definition of eligible basis.
Sec. 104. Other simplification and reform of low-income housing tax 
incentives.

         Part 2--Modifications to Tax-Exempt Housing Bond Rules

Sec. 111. Recycling of tax-exempt debt for financing residential rental 
projects.
Sec. 112. Coordination of certain rules applicable to low-income 
housing credit and qualified residential rental project exempt facility 
bonds.

Part 3--Reforms Related to the Low-Income Housing Credit and Tax-Exempt 
                             Housing Bonds

Sec. 121. Hold harmless for reductions in area median gross income.
Sec. 122. Exception to annual current income determination requirement 
where determination not relevant.

                   Subtitle B--Single Family Housing

Sec. 131. First-time homebuyer credit.
Sec. 132. Additional standard deduction for real property taxes for 
nonitemizers.

                     Subtitle C--General Provisions

Sec. 141. Temporary liberalization of tax-exempt housing bond rules.
Sec. 142. Repeal of alternative minimum tax limitations on tax-exempt 
housing bonds, low-income housing tax credit, and rehabilitation 
credit.
Sec. 143. Bonds guaranteed by Federal home loan banks eligible for 
treatment as tax-exempt bonds.
Sec. 144. Modification of rules pertaining to FIRPTA nonforeign 
affidavits.
Sec. 145. Modification of definition of tax-exempt use property for 
purposes of the rehabilitation credit.

       TITLE II--REFORMS RELATED TO REAL ESTATE INVESTMENT TRUSTS

      Subtitle A--Foreign Currency and Other Qualified Activities

Sec. 201. Revisions to REIT income tests.
Sec. 202. Revisions to REIT asset tests.
Sec. 203. Conforming foreign currency revisions.

                 Subtitle B--Taxable REIT Subsidiaries

Sec. 211. Conforming taxable REIT subsidiary asset test.

                        Subtitle C--Dealer Sales

Sec. 221. Holding period under safe harbor.
Sec. 222. Determining value of sales under safe harbor.

                     Subtitle D--Health Care REITs

Sec. 231. Conformity for health care facilities.

                      Subtitle E--Effective Dates

Sec. 241. Effective dates.

                     TITLE III--REVENUE PROVISIONS

Sec. 301. Broker reporting of customer's basis in securities 
transactions.
Sec. 302. Delay in application of worldwide allocation of interest.
Sec. 303. Time for payment of corporate estimated taxes.

                    TITLE I--HOUSING TAX INCENTIVES

                    Subtitle A--Multi-Family Housing

                 PART 1--LOW-INCOME HOUSING TAX CREDIT

SEC. 101. TEMPORARY INCREASE IN VOLUME CAP FOR LOW-INCOME HOUSING TAX 
                    CREDIT.

  Paragraph (3) of section 42(h) is amended by adding at the end the 
following new subparagraph:
                  ``(I) Increase in state housing credit ceiling for 
                2008 and 2009.--In the case of calendar years 2008 and 
                2009, the dollar amount in effect under subparagraph 
                (C)(ii)(I) for such calendar year (after any increase 
                under subparagraph (H)) shall be increased by $0.20.''.

SEC. 102. DETERMINATION OF CREDIT RATE.

  (a) Elimination of Distinction Between New and Existing Buildings; 
Minimum Credit Rate for Non-Federally Subsidized Buildings.--
          (1) In general.--Subsection (b) section 42 is amended to read 
        as follows:
  ``(b) Applicable Percentage.--For purposes of this section--
          ``(1) In general.--The term `applicable percentage' means, 
        with respect to any building, the appropriate percentage 
        prescribed by the Secretary for the earlier of--
                  ``(A) the month in which such building is placed in 
                service, or
                  ``(B) at the election of the taxpayer--
                          ``(i) the month in which the taxpayer and the 
                        housing credit agency enter into an agreement 
                        with respect to such building (which is binding 
                        on such agency, the taxpayer, and all 
                        successors in interest) as to the housing 
                        credit dollar amount to be allocated to such 
                        building, or
                          ``(ii) in the case of any building to which 
                        subsection (h)(4)(B) applies, the month in 
                        which the tax-exempt obligations are issued.
        A month may be elected under clause (ii) only if the election 
        is made not later than the 5th day after the close of such 
        month. Such an election, once made, shall be irrevocable.
          ``(2) Method of prescribing percentages.--
                  ``(A) In general.--For purposes of paragraph (1), the 
                percentages prescribed by the Secretary for any month 
                shall be--
                          ``(i) in the case of any building which is 
                        not federally subsidized for the taxable year, 
                        the greater of--
                                  ``(I) the average percentage 
                                determined under subclause (II) for 
                                months in the preceding calendar year, 
                                or
                                  ``(II) the percentage which will 
                                yield over a 10-year period amounts of 
                                credit under subsection (a) which have 
                                a present value equal to 70 percent of 
                                the qualified basis of such building, 
                                and
                          ``(ii) in the case of any other building, the 
                        percentage which will yield over a 10-year 
                        period amounts of credit under subsection (a) 
                        which have a present value equal to 30 percent 
                        of the qualified basis of such building.
                  ``(B) Method of discounting.--The present value under 
                subparagraph (A) shall be determined--
                          ``(i) as of the last day of the 1st year of 
                        the 10-year period referred to in subparagraph 
                        (A),
                          ``(ii) by using a discount rate equal to 72 
                        percent of the average of the annual Federal 
                        mid-term rate and the annual Federal long-term 
                        rate applicable under section 1274(d)(1) to the 
                        month applicable under subparagraph (A) and 
                        compounded annually, and
                          ``(iii) by assuming that the credit allowable 
                        under this section for any year is received on 
                        the last day of such year.
          ``(3) Cross references.--
                  ``(A) For treatment of certain rehabilitation 
                expenditures as separate buildings, see subsection (e).
                  ``(B) For determination of applicable percentage for 
                increases in qualified basis after the 1st year of the 
                credit period, see subsection (f)(3).
                  ``(C) For authority of housing credit agency to limit 
                applicable percentage and qualified basis which may be 
                taken into account under this section with respect to 
                any building, see subsection (h)(7).''.
          (2) Conforming amendments.--
                  (A) Subparagraph (B) of section 42(e)(3) is amended 
                by striking ``subsection (b)(2)(B)(ii)'' and inserting 
                ``subsection (b)(2)(A)(ii)''.
                  (B) Subparagraph (A) of section 42(i)(2) is amended 
                by striking ``new building'' and inserting 
                ``building''.
  (b) Modifications to Definition of Federally Subsidized Building.--
          (1) In general.--Subparagraph (A) of section 42(i)(2) is 
        amended by striking ``, or any below market Federal loan,''.
          (2) Conforming amendments.--
                  (A) Subparagraph (B) of section 42(i)(2) is amended--
                          (i) by striking ``balance of loan or'' in the 
                        heading thereof,
                          (ii) by striking ``loan or'' in the matter 
                        preceding clause (i), and
                          (iii) by striking ``subsection (d)--'' and 
                        all that follows and inserting ``subsection (d) 
                        the proceeds of such obligation.''.
                  (B) Subparagraph (C) of section 42(i)(2) is amended--
                          (i) by striking ``or below market Federal 
                        loan'' in the matter preceding clause (i),
                          (ii) in clause (i)--
                                  (I) by striking ``or loan (when 
                                issued or made)'' and inserting ``(when 
                                issued)'', and
                                  (II) by striking ``the proceeds of 
                                such obligation or loan'' and inserting 
                                ``the proceeds of such obligation'', 
                                and
                          (iii) by striking ``, and such loan is 
                        repaid,'' in clause (ii).
                  (C) Paragraph (2) of section 42(i) is amended by 
                striking subparagraphs (D) and (E).
  (c) Effective Date.--The amendments made by this subsection shall 
apply to buildings placed in service after the date of the enactment of 
this Act.

SEC. 103. MODIFICATIONS TO DEFINITION OF ELIGIBLE BASIS.

  (a) Increase in Credit for Certain State Designated Buildings.--
Subparagraph (C) of section 42(d)(5) (relating to increase in credit 
for buildings in high cost areas), before redesignation under 
subsection (f), is amended by adding at the end the following new 
clause:
                          ``(v) Buildings designated by state housing 
                        credit agency.--Any building which is 
                        designated by the State housing credit agency 
                        as requiring the increase in credit under this 
                        subparagraph in order for such building to be 
                        financially feasible as part of a qualified 
                        low-income housing project shall be treated for 
                        purposes of this subparagraph as located in a 
                        difficult development area which is designated 
                        for purposes of this subparagraph. The 
                        preceding sentence shall not apply to any 
                        building if paragraph (1) of subsection (h) 
                        does not apply to any portion of the eligible 
                        basis of such building by reason of paragraph 
                        (4) of such subsection.''.
  (b) Modification to Rehabilitation Requirements.--
          (1) In general.--Clause (ii) of section 42(e)(3)(A) is 
        amended--
                  (A) by striking ``10 percent'' in subclause (I) and 
                inserting ``20 percent'', and
                  (B) by striking ``$3,000'' in subclause (II) and 
                inserting ``$6,000''.
          (2) Inflation adjustment.--Paragraph (3) of section 42(e) is 
        amended by adding at the end the following new subparagraph:
                  ``(D) Inflation adjustment.--In the case of any 
                expenditures which are treated under paragraph (4) as 
                placed in service during any calendar year after 2009, 
                the $6,000 amount in subparagraph (A)(ii)(II) shall be 
                increased by an amount equal to--
                          ``(i) such dollar amount, multiplied by
                          ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        2008' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                Any increase under the preceding sentence which is not 
                a multiple of $100 shall be rounded to the nearest 
                multiple of $100.''.
          (3) Conforming amendment.--Subclause (II) of section 
        42(f)(5)(B)(ii) is amended by striking ``if subsection 
        (e)(3)(A)(ii)(II)'' and all that follows and inserting ``if the 
        dollar amount in effect under subsection (e)(3)(A)(ii)(II) were 
        two-thirds of such amount.''.
  (c) Increase in Allowable Community Service Facility Space for Small 
Projects.--Clause (ii) of section 42(d)(4)(C) (relating to limitation) 
is amended by striking ``10 percent of the eligible basis of the 
qualified low-income housing project of which it is a part. For 
purposes of'' and inserting ``the sum of--
                                  ``(I) 15 percent of so much of the 
                                eligible basis of the qualified low-
                                income housing project of which it is a 
                                part as does not exceed $5,000,000, 
                                plus
                                  ``(II) 10 percent of so much of the 
                                eligible basis of such project as is 
                                not taken into account under subclause 
                                (I).
                        For purposes of''.
  (d) Clarification of Treatment of Federal Grants.--Subparagraph (A) 
of section 42(d)(5) is amended to read as follows:
                  ``(A) Federal grants not taken into account in 
                determining eligible basis.--The eligible basis of a 
                building shall not include any costs financed with the 
                proceeds of a Federally funded grant.''.
  (e) Simplification of Related Party Rules.--Clause (iii) of section 
42(d)(2)(D), before redesignation under subsection (f)(2), is amended--
          (1) by striking all that precedes subclause (II),
          (2) by redesignating subclause (II) as clause (iii) and 
        moving such clause two ems to the left, and
          (3) by striking the last sentence thereof.
  (f) Repeal of Deadwood.--
          (1) Clause (ii) of section 42(d)(2)(B) is amended by striking 
        ``the later of--'' and all that follows and inserting ``the 
        date the building was last placed in service,''.
          (2) Subparagraph (D) of section 42(d)(2) is amended by 
        striking clause (i) and by redesignating clauses (ii) and (iii) 
        as clauses (i) and (ii), respectively.
          (3) Paragraph (5) of section 42(d) is amended by striking 
        subparagraph (B) and by redesignating subparagraph (C) as 
        subparagraph (B).
  (g) Effective Date.--The amendments made by this subsection shall 
apply to buildings placed in service after the date of the enactment of 
this Act.

SEC. 104. OTHER SIMPLIFICATION AND REFORM OF LOW-INCOME HOUSING TAX 
                    INCENTIVES.

  (a) Repeal Prohibition on Moderate Rehabilitation Assistance.--
Paragraph (2) of section 42(c) (defining qualified low-income building) 
is amended by striking the flush sentence at the end.
  (b) Modification of Time Limit for Incurring 10 Percent of Project's 
Cost.--Clause (ii) of section 42(h)(1)(E) is amended by striking ``(as 
of the later of the date which is 6 months after the date that the 
allocation was made or the close of the calendar year in which the 
allocation is made)'' and inserting ``(as of the date which is 1 year 
after the date that the allocation was made)''.
  (c) Repeal of Bonding Requirement on Disposition of Building.--
Paragraph (6) of section 42(j) (relating to no recapture on disposition 
of building (or interest therein) where bond posted) is amended to read 
as follows:
          ``(6) No recapture on disposition of building which continues 
        in qualified use.--
                  ``(A) In general.--The increase in tax under this 
                subsection shall not apply solely by reason of the 
                disposition of a building (or an interest therein) if 
                it is reasonably expected that such building will 
                continue to be operated as a qualified low-income 
                building for the remaining compliance period with 
                respect to such building.
                  ``(B) Statute of limitations.--If a building (or an 
                interest therein) is disposed of during any taxable 
                year and there is any reduction in the qualified basis 
                of such building which results in an increase in tax 
                under this subsection for such taxable or any 
                subsequent taxable year, then--
                          ``(i) the statutory period for the assessment 
                        of any deficiency with respect to such increase 
                        in tax shall not expire before the expiration 
                        of 3 years from the date the Secretary is 
                        notified by the taxpayer (in such manner as the 
                        Secretary may prescribe) of such reduction in 
                        qualified basis, and
                          ``(ii) such deficiency may be assessed before 
                        the expiration of such 3-year period 
                        notwithstanding the provisions of any other law 
                        or rule of law which would otherwise prevent 
                        such assessment.''.
  (d) Energy Efficiency and Historic Nature Taken Into Account in 
Making Allocations.--Subparagraph (C) of section 42(m)(1) (relating to 
plans for allocation of credit among projects) is amended by striking 
``and'' at the end of clause (vii), by striking the period at the end 
of clause (viii) and inserting a comma, and by adding at the end the 
following new clauses:
                          ``(ix) the energy efficiency of the project, 
                        and
                          ``(x) the historic nature of the project.''.
  (e) Continued Eligibility for Students Who Received Foster Care 
Assistance.--Clause (i) of section 42(i)(3)(D) is amended by striking 
``or'' at the end of subclause (I), by redesignating subclause (II) as 
subclause (III), and by inserting after subclause (I) the following new 
subclause:
                                  ``(II) a student who was previously 
                                under the care and placement 
                                responsibility of the State agency 
                                responsible for administering a plan 
                                under part B or part E of title IV of 
                                the Social Security Act, or''.
  (f) Treatment of Rural Projects.--Section 42(i) (relating to 
definitions and special rules) is amended by adding at the end the 
following new paragraph:
          ``(8) Treatment of rural projects.--For purposes of this 
        section, in the case of any project for residential rental 
        property located in a rural area (as defined in section 520 of 
        the Housing Act of 1949), any income limitation measured by 
        reference to area median gross income shall be measured by 
        reference to the greater of area median gross income or 
        national non-metropolitan median income. The preceding sentence 
        shall not apply with respect to any building if paragraph (1) 
        of section 42(h) does not apply by reason of paragraph (4) 
        thereof to any portion of the credit determined under this 
        section with respect to such building.''.
  (g) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        buildings placed in service after the date of the enactment of 
        this Act.
          (2) Repeal of bonding requirement on disposition of 
        building.--The amendment made by subsection (c) shall apply 
        to--
                  (A) interests in buildings disposed after the date of 
                the enactment of this Act, and
                  (B) interests in buildings disposed of on or before 
                such date if--
                          (i) it is reasonably expected that such 
                        building will continue to be operated as a 
                        qualified low-income building (within the 
                        meaning of section 42 of the Internal Revenue 
                        Code of 1986) for the remaining compliance 
                        period (within the meaning of such section) 
                        with respect to such building, and
                          (ii) the taxpayer elects the application of 
                        this subparagraph with respect to such 
                        disposition.
        Notwithstanding the preceding sentence, the amendments made by 
        subsection (c) shall not apply to any disposition after the 
        date 5 years after the date of the enactment of this Act.
          (3) Energy efficiency and historic nature taken into account 
        in making allocations.--The amendments made by subsection (d) 
        shall apply to allocations made after December 31, 2008.
          (4) Continued eligibility for students who received foster 
        care assistance.--The amendments made by subsection (e) shall 
        apply to determinations made after the date of the enactment of 
        this Act.
          (5) Treatment of rural projects.--The amendment made by 
        subsection (f) shall apply to determinations made after the 
        date of the enactment of this Act.

         PART 2--MODIFICATIONS TO TAX-EXEMPT HOUSING BOND RULES

SEC. 111. RECYCLING OF TAX-EXEMPT DEBT FOR FINANCING RESIDENTIAL RENTAL 
                    PROJECTS.

  (a) In General.--Subsection (i) of section 146 (relating to treatment 
of refunding issues) is amended by adding at the end the following new 
paragraph:
          ``(6) Treatment of certain residential rental project bonds 
        as refunding bonds irrespective of obligor.--
                  ``(A) In general.--If, during the 6-month period 
                beginning on the date of a repayment of a loan financed 
                by an issue 95 percent or more of the net proceeds of 
                which are used to provide projects described in section 
                142(d), such repayment is used to provide a new loan 
                for any project so described, any bond which is issued 
                to refinance such issue shall be treated as a refunding 
                issue to the extent the principal amount of such 
                refunding issue does not exceed the principal amount of 
                the bonds refunded.
                  ``(B) Limitations.--Subparagraph (A) shall apply to 
                only one refunding of the original issue and only if--
                          ``(i) the refunding issue is issued not later 
                        than 4 years after the date on which the 
                        original issue was issued,
                          ``(ii) the latest maturity date of any bond 
                        of the refunding issue is not later than 34 
                        years after the date on which the refunded bond 
                        was issued, and
                          ``(iii) the refunding issue is approved in 
                        accordance with section 147(f) before the 
                        issuance of the refunding issue.''.
  (b) Low-Income Housing Credit.--Clause (ii) of section 42(h)(4)(A) is 
amended by inserting ``or such financing is refunded as described in 
section 146(i)(6)'' before the period at the end.
  (c) Effective Date.--The amendments made by this section shall apply 
to repayments of loans received after the date of the enactment of this 
Act.

SEC. 112. COORDINATION OF CERTAIN RULES APPLICABLE TO LOW-INCOME 
                    HOUSING CREDIT AND QUALIFIED RESIDENTIAL RENTAL 
                    PROJECT EXEMPT FACILITY BONDS.

  (a) Determination of Next Available Unit.--Paragraph (3) of section 
142(d) (relating to current income determinations) is amended by adding 
at the end the following new subparagraph:
                  ``(C) Exception for projects with respect to which 
                affordable housing credit is allowed.--In the case of a 
                project with respect to which credit is allowed under 
                section 42, the second sentence of subparagraph (B) 
                shall be applied by substituting `building (within the 
                meaning of section 42)' for `project'.''.
  (b) Students.--Paragraph (2) of section 142(d) (relating to 
definitions and special rules) is amended by adding at the end the 
following new subparagraph:
                  ``(C) Students.--Rules similar to the rules of 
                42(i)(3)(D) shall apply for purposes of this 
                subsection.''.
  (c) Single-Room Occupancy Units.--Paragraph (2) of section 142(d) 
(relating to definitions and special rules), as amended by subsection 
(b), is further amended by adding at the end the following new 
subparagraph:
                  ``(D) Single-room occupancy units.--A unit shall not 
                fail to be treated as a residential unit merely because 
                such unit is a single-room occupancy unit (within the 
                meaning of section 42).''.
  (d) Effective Date.--The amendments made by this section shall apply 
to determinations of the status of qualified residential rental 
projects for periods beginning after the date of the enactment of this 
Act, with respect to bonds issued before, on, or after such date.

PART 3--REFORMS RELATED TO THE LOW-INCOME HOUSING CREDIT AND TAX-EXEMPT 
                             HOUSING BONDS

SEC. 121. HOLD HARMLESS FOR REDUCTIONS IN AREA MEDIAN GROSS INCOME.

  (a) In General.--Paragraph (2) of section 142(d), as amended by 
section 112, is further amended by adding at the end the following new 
subparagraph:
                  ``(E) Hold harmless for reductions in area median 
                gross income.--
                          ``(i) In general.--Any determination of area 
                        median gross income under subparagraph (B) with 
                        respect to any project for any calendar year 
                        after 2008 shall not be less than the area 
                        median gross income determined under such 
                        subparagraph with respect to such project for 
                        the calendar year preceding the calendar year 
                        for which such determination is made.
                          ``(ii) Special rule for certain census 
                        changes.--In the case of a HUD hold harmless 
                        impacted project, the area median gross income 
                        with respect to such project for any calendar 
                        year after 2008 (hereafter in this clause 
                        referred to as the current calendar year) shall 
                        be the greater of the amount determined without 
                        regard to this clause or the sum of--
                                  ``(I) the area median gross income 
                                determined under the HUD hold harmless 
                                policy with respect to such project for 
                                calendar year 2008, plus
                                  ``(II) any increase in the area 
                                median gross income determined under 
                                subparagraph (B) (determined without 
                                regard to the HUD hold harmless policy 
                                and this subparagraph) with respect to 
                                such project for the current calendar 
                                year over the area median gross income 
                                (as so determined) with respect to such 
                                project for calendar year 2008.
                          ``(iii) HUD hold harmless policy.--The term 
                        `HUD hold harmless policy' means the 
                        regulations under which a policy similar to the 
                        rules of clause (i) applied to prevent a change 
                        in the method of determining area median gross 
                        income from resulting in a reduction in the 
                        area median gross income determined with 
                        respect to certain projects in calendar years 
                        2007 and 2008.
                          ``(iv) HUD hold harmless impacted project.--
                        The term `HUD hold harmless impacted project' 
                        means any project with respect to which area 
                        median gross income was determined under 
                        subparagraph (B) for calendar year 2007 or 2008 
                        if such determination would have been less but 
                        for the HUD hold harmless policy.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to determinations of area median gross income for calendar years after 
2008.

SEC. 122. EXCEPTION TO ANNUAL CURRENT INCOME DETERMINATION REQUIREMENT 
                    WHERE DETERMINATION NOT RELEVANT.

  (a) In General.--Subparagraph (A) of section 142(d)(3) is amended by 
adding at the end the following new sentence: ``The preceding sentence 
shall not apply with respect to any project for any year if during such 
year no residential unit in the project is occupied by a new resident 
whose income exceeds the applicable income limit.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to years ending after the date of the enactment of this Act.

                   Subtitle B--Single Family Housing

SEC. 131. FIRST-TIME HOMEBUYER CREDIT.

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

``SEC. 36. FIRST-TIME HOMEBUYER CREDIT.

  ``(a) Allowance of Credit.--In the case of an individual who is a 
first-time homebuyer of a principal residence in the United States 
during a taxable year, there shall be allowed as a credit against the 
tax imposed by this subtitle for such taxable year an amount equal to 
10 percent of the purchase price of the residence.
  ``(b) Limitations.--
          ``(1) Dollar limitation.--
                  ``(A) In general.--Except as otherwise provided in 
                this paragraph, the credit allowed under subsection (a) 
                shall not exceed $7,500.
                  ``(B) Married individuals filing separately.--In the 
                case of a married individual filing a separate return, 
                subparagraph (A) shall be applied by substituting 
                `$3,750' for `$7,500'.
                  ``(C) Other individuals.--If two or more individuals 
                who are not married purchase a principal residence, the 
                amount of the credit allowed under subsection (a) shall 
                be allocated among such individuals in such manner as 
                the Secretary may prescribe, except that the total 
                amount of the credits allowed to all such individuals 
                shall not exceed $7,500.
          ``(2) Limitation based on modified adjusted gross income.--
                  ``(A) In general.--The amount allowable as a credit 
                under subsection (a) (determined without regard to this 
                paragraph) for the taxable year shall be reduced (but 
                not below zero) by the amount which bears the same 
                ratio to the amount which is so allowable as--
                          ``(i) the excess (if any) of--
                                  ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                  ``(II) $70,000 ($140,000 in the case 
                                of a joint return), bears to
                          ``(ii) $20,000.
                  ``(B) Modified adjusted gross income.--For purposes 
                of subparagraph (A), the term `modified adjusted gross 
                income' means the adjusted gross income of the taxpayer 
                for the taxable year increased by any amount excluded 
                from gross income under section 911, 931, or 933.
  ``(c) Definitions.--For purposes of this section--
          ``(1) First-time homebuyer.--The term `first-time homebuyer' 
        means any individual if such individual (and if married, such 
        individual's spouse) had no present ownership interest in a 
        principal residence during the 3-year period ending on the date 
        of the purchase of the principal residence to which this 
        section applies.
          ``(2) Principal residence.--The term `principal residence' 
        has the same meaning as when used in section 121.
          ``(3) Purchase.--
                  ``(A) In general.--The term `purchase' means any 
                acquisition, but only if--
                          ``(i) the property is not acquired from a 
                        person related to the person acquiring it, and
                          ``(ii) the basis of the property in the hands 
                        of the person acquiring it is not determined--
                                  ``(I) in whole or in part by 
                                reference to the adjusted basis of such 
                                property in the hands of the person 
                                from whom acquired, or
                                  ``(II) under section 1014(a) 
                                (relating to property acquired from a 
                                decedent).
                  ``(B) Construction.--A residence which is constructed 
                by the taxpayer shall be treated as purchased by the 
                taxpayer on the date the taxpayer first occupies such 
                residence.
          ``(4) Purchase price.--The term `purchase price' means the 
        adjusted basis of the principal residence on the date such 
        residence is purchased.
          ``(5) Related persons.--A person shall be treated as related 
        to another person if the relationship between such persons 
        would result in the disallowance of losses under section 267 or 
        707(b) (but, in applying section 267(b) and (c) for purposes of 
        this section, paragraph (4) of section 267(c) shall be treated 
        as providing that the family of an individual shall include 
        only his spouse, ancestors, and lineal descendants).
  ``(d) Exceptions.--No credit under subsection (a) shall be allowed to 
any taxpayer for any taxable year with respect to the purchase of a 
residence if--
          ``(1) a credit under section 1400C (relating to first-time 
        homebuyer in the District of Columbia) is allowable to the 
        taxpayer (or the taxpayer's spouse) for such taxable year or 
        any prior taxable year,
          ``(2) the residence is financed by the proceeds of a 
        qualified mortgage issue the interest on which is exempt from 
        tax under section 103,
          ``(3) the taxpayer is a nonresident alien, or
          ``(4) the taxpayer disposes of such residence (or such 
        residence ceases to be the principal residence of the taxpayer 
        (and, if married, the taxpayer's spouse)) before the close of 
        such taxable year.
  ``(e) Reporting.--If the Secretary requires information reporting 
under section 6045 by a person described in subsection (e)(2) thereof 
to verify the eligibility of taxpayers for the credit allowable by this 
section, the exception provided by section 6045(e) shall not apply.
  ``(f) Recapture of Credit.--
          ``(1) In general.--Except as otherwise provided in this 
        subsection, if a credit under subsection (a) is allowed to a 
        taxpayer, the tax imposed by this chapter shall be increased by 
        6\2/3\ percent of the amount of such credit for each taxable 
        year in the recapture period.
          ``(2) Acceleration of recapture.--If a taxpayer disposes of 
        the principal residence with respect to which a credit was 
        allowed under subsection (a) (or such residence ceases to be 
        the principal residence of the taxpayer (and, if married, the 
        taxpayer's spouse)) before the end of the recapture period--
                  ``(A) the tax imposed by this chapter for the taxable 
                year of such disposition or cessation, shall be 
                increased by the excess of the amount of the credit 
                allowed over the amounts of tax imposed by paragraph 
                (1) for preceding taxable years, and
                  ``(B) paragraph (1) shall not apply with respect to 
                such credit for such taxable year or any subsequent 
                taxable year .
          ``(3) Limitation based on gain.--In the case of the sale of 
        the principal residence to a person who is not related to the 
        taxpayer, the increase in tax determined under paragraph (2) 
        shall not exceed the amount of gain (if any) on such sale. 
        Solely for purposes of the preceding sentence, the adjusted 
        basis of such residence shall be reduced by the amount of the 
        credit allowed under subsection (a) to the extent not 
        previously recaptured under paragraph (1).
          ``(4) Exceptions.--
                  ``(A) Death of taxpayer.--Paragraphs (1) and (2) 
                shall not apply to any taxable year ending after the 
                date of the taxpayer's death.
                  ``(B) Involuntary conversion.--Paragraph (2) shall 
                not apply in the case of a residence which is 
                compulsorily or involuntarily converted (within the 
                meaning of section 1033(a)) if the taxpayer acquires a 
                new principal residence during the 2-year period 
                beginning on the date of the disposition or cessation 
                referred to in paragraph (2). Paragraph (2) shall apply 
                to such new principal residence during the recapture 
                period in the same manner as if such new principal 
                residence were the converted residence.
                  ``(C) Transfers between spouses or incident to 
                divorce.--In the case of a transfer of a residence to 
                which section 1041(a) applies--
                          ``(i) paragraph (2) shall not apply to such 
                        transfer, and
                          ``(ii) in the case of taxable years ending 
                        after such transfer, paragraphs (1) and (2) 
                        shall apply to the transferee in the same 
                        manner as if such transferee were the 
                        transferor (and shall not apply to the 
                        transferor).
          ``(5) Joint returns.--In the case of a credit allowed under 
        subsection (a) with respect to a joint return, half of such 
        credit shall be treated as having been allowed to each 
        individual filing such return for purposes of this subsection.
          ``(6) Recapture period.--For purposes of this subsection, the 
        term `recapture period' means the 15 taxable years beginning 
        with the second taxable year following the taxable year in 
        which the purchase of the principal residence for which a 
        credit is allowed under subsection (a) was made.
  ``(g) Application of Section.--This section shall only apply to a 
principal residence purchased by the taxpayer on or after April 9, 
2008, and before April 1, 2009.''.
  (b) Conforming Amendments.--
          (1) Section 26(b)(2) is amended by striking ``and'' at the 
        end of subparagraph (U), by striking the period and inserting 
        ``, and'' and the end of subparagraph (V), and by inserting 
        after subparagraph (V) the following new subparagraph:
                  ``(W) section 36(f) (relating to recapture of 
                homebuyer credit).''.
          (2) Section 6211(b)(4)(A) is amended by striking ``34,'' and 
        all that follows through ``6428'' and inserting ``34, 35, 36, 
        53(e), and 6428''.
          (3) Section 1324(b)(2) of title 31, United States Code, is 
        amended by inserting ``, 36,'' after ``section 35''.
          (4) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 is amended by redesignating the item 
        relating to section 36 as an item relating to section 37 and by 
        inserting before such item the following new item:

``Sec. 36. First-time homebuyer credit.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to residences purchased on or after April 9, 2008, in taxable years 
ending on or after such date.

SEC. 132. ADDITIONAL STANDARD DEDUCTION FOR REAL PROPERTY TAXES FOR 
                    NONITEMIZERS.

  (a) In General.--Section 63(c)(1) (defining standard deduction) is 
amended by striking ``and'' at the end of subparagraph (A), by striking 
the period at the end of subparagraph (B) and inserting ``, and'', and 
by adding at the end the following new subparagraph:
                  ``(C) in the case of any taxable year beginning in 
                2008, the real property tax deduction.''.
  (b) Definition.--Section 63(c) is amended by adding at the end the 
following new paragraph:
          ``(7) Real property tax deduction.--For purposes of paragraph 
        (1), the real property tax deduction is the lesser of--
                  ``(A) the amount allowable as a deduction under this 
                chapter for State and local taxes described in section 
                164(a)(1), or
                  ``(B) $350 ($700 in the case of a joint return).
        Any taxes taken into account under section 62(a) shall not be 
        taken into account under this paragraph.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2007.

                     Subtitle C--General Provisions

SEC. 141. TEMPORARY LIBERALIZATION OF TAX-EXEMPT HOUSING BOND RULES.

  (a) Temporary Increase in Volume Cap.--
          (1) In general.--Subsection (d) of section 146 is amended by 
        adding at the end the following new paragraph:
          ``(5) Increase and set aside for housing bonds for 2008.--
                  ``(A) Increase for 2008.--In the case of calendar 
                year 2008, the State ceiling for each State shall be 
                increased by an amount equal to $10,000,000,000 
                multiplied by a fraction--
                          ``(i) the numerator of which is the 
                        population of such State, and
                          ``(ii) the denominator of which is the total 
                        population of all States.
                  ``(B) Set aside.--
                          ``(i) In general.--Any amount of the State 
                        ceiling for any State which is attributable to 
                        an increase under this paragraph shall be 
                        allocated solely for one or more qualified 
                        housing issues.
                          ``(ii) Qualified housing issue.--For purposes 
                        of this paragraph, the term `qualified housing 
                        issue' means--
                                  ``(I) an issue described in section 
                                142(a)(7) (relating to qualified 
                                residential rental projects), or
                                  ``(II) a qualified mortgage issue 
                                (determined by substituting `12-month 
                                period' for `42-month period' each 
                                place it appears in section 
                                143(a)(2)(D)(i)).''.
          (2) Carryforward of unused limitations.--Subsection (f) of 
        section 146 is amended by adding at the end the following new 
        paragraph:
          ``(6) Special rules for increased volume cap under subsection 
        (d)(5).--No amount which is attributable to the increase under 
        subsection (d)(5) may be used--
                  ``(A) for any issue other than a qualified housing 
                issue (as defined in subsection (d)(5)), or
                  ``(B) to issue any bond after calendar year 2010.''.
  (b) Temporary Rule for Use of Qualified Mortgage Bonds Proceeds for 
Subprime Refinancing Loans.--
          (1) In general.--Section 143(k) (relating to other 
        definitions and special rules) is amended by adding at the end 
        the following new paragraph:
          ``(12) Special rules for subprime refinancings.--
                  ``(A) In general.--Notwithstanding the requirements 
                of subsection (i)(1), the proceeds of a qualified 
                mortgage issue may be used to refinance a mortgage on a 
                residence which was originally financed by the 
                mortgagor through a qualified subprime loan.
                  ``(B) Special rules.--In applying subparagraph (A) to 
                any refinancing--
                          ``(i) subsection (a)(2)(D)(i) shall be 
                        applied by substituting `12-month period' for 
                        `42-month period' each place it appears,
                          ``(ii) subsection (d) (relating to 3-year 
                        requirement) shall not apply, and
                          ``(iii) subsection (e) (relating to purchase 
                        price requirement) shall be applied by using 
                        the market value of the residence at the time 
                        of refinancing in lieu of the acquisition cost.
                  ``(C) Qualified subprime loan.--The term `qualified 
                subprime loan' means an adjustable rate single-family 
                residential mortgage loan made after December 31, 2001, 
                and before January 1, 2008, that the bond issuer 
                determines would be reasonably likely to cause 
                financial hardship to the borrower if not refinanced.
                  ``(D) Termination.--This paragraph shall not apply to 
                any bonds issued after December 31, 2010.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to bonds issued after the date of the enactment of this Act.

SEC. 142. REPEAL OF ALTERNATIVE MINIMUM TAX LIMITATIONS ON TAX-EXEMPT 
                    HOUSING BONDS, LOW-INCOME HOUSING TAX CREDIT, AND 
                    REHABILITATION CREDIT.

  (a) Tax-Exempt Interest on Certain Housing Bonds Exempted From 
Alternative Minimum Tax.--
          (1) In general.--Subparagraph (C) of section 57(a)(5) 
        (relating to specified private activity bonds) is amended by 
        redesignating clauses (iii) and (iv) as clauses (iv) and (v), 
        respectively, and by inserting after clause (ii) the following 
        new clause:
                          ``(iii) Exception for certain housing 
                        bonds.--For purposes of clause (i), the term 
                        `private activity bond' shall not include any 
                        bond issued after the date of the enactment of 
                        this clause if such bond is--
                                  ``(I) an exempt facility bond issued 
                                as part of an issue 95 percent or more 
                                of the net proceeds of which are to be 
                                used to provide qualified residential 
                                rental projects (as defined in section 
                                142(d)),
                                  ``(II) a qualified mortgage bond (as 
                                defined in section 143(a)), or
                                  ``(III) a qualified veterans' 
                                mortgage bond (as defined in section 
                                143(b)).
                        The preceding sentence shall not apply to any 
                        refunding bond unless such preceding sentence 
                        applied to the refunded bond (or in the case of 
                        a series of refundings, the original bond).''.
          (2) No adjustment to adjusted current earnings.--Subparagraph 
        (B) of section 56(g)(4) is amended by adding at the end the 
        following new clause:
                          ``(iii) Tax exempt interest on certain 
                        housing bonds.--Clause (i) shall not apply in 
                        the case of any interest on a bond to which 
                        section 57(a)(5)(C)(iii) applies.''.
  (b) Allowance of Low-Income Housing Credit Against Alternative 
Minimum Tax.--Subparagraph (B) of section 38(c)(4) (relating to 
specified credits) is amended by redesignating clauses (ii) through 
(iv) as clauses (iii) through (v) and inserting after clause (i) the 
following new clause:
                          ``(ii) the credit determined under section 42 
                        to the extent attributable to buildings placed 
                        in service after December 31, 2007,''.
  (c) Allowance of Rehabilitation Credit Against Alternative Minimum 
Tax.--Subparagraph (B) of section 38(c)(4), as amended by subsection 
(b), is amended by striking ``and'' at the end of clause (iv), by 
redesignating clause (v) as clause (vi), and by inserting after clause 
(iv) the following new clause:
                          ``(v) the credit determined under section 47 
                        to the extent attributable to qualified 
                        rehabilitation expenditures properly taken into 
                        account for periods after December 31, 2007, 
                        and''.
  (d) Effective Date.--
          (1) Housing bonds.--The amendments made by subsection (a) 
        shall apply to bonds issued after the date of the enactment of 
        this Act.
          (2) Low income housing credit.--The amendments made by 
        subsection (b) shall apply to credits determined under section 
        42 of the Internal Revenue Code of 1986 to the extent 
        attributable to buildings placed in service after December 31, 
        2007.
          (3) Rehabilitation credit.--The amendments made by subsection 
        (c) shall apply to credits determined under section 47 of the 
        Internal Revenue Code of 1986 to the extent attributable to 
        qualified rehabilitation expenditures properly taken into 
        account for periods after December 31, 2007.

SEC. 143. BONDS GUARANTEED BY FEDERAL HOME LOAN BANKS ELIGIBLE FOR 
                    TREATMENT AS TAX-EXEMPT BONDS.

  (a) In General.--Subparagraph (A) of section 149(b)(3) (relating to 
exceptions for certain insurance programs) is amended by striking 
``or'' at the end of clause (ii), by striking the period at the end of 
clause (iii) and inserting ``, or'' and by adding at the end the 
following new clause:
                          ``(iv) any guarantee by a Federal home loan 
                        bank made in connection with the original 
                        issuance of a bond during the period beginning 
                        on the date of the enactment of this Act and 
                        ending on December 31, 2010 (or a renewal or 
                        extension of a guarantee so made).''.
  (b) Safety and Soundness Requirements.--Paragraph (3) of section 
149(b) is amended by adding at the end the following new subparagraph:
                  ``(E) Safety and soundness requirements for federal 
                home loan banks.--Clause (iv) of subparagraph (A) shall 
                not apply to any guarantee by a Federal home loan bank 
                unless such bank meets safety and soundness collateral 
                requirements for such guarantees which are at least as 
                stringent as such requirements which apply under 
                regulations applicable to such guarantees by Federal 
                home loan banks as in effect on April 9, 2008.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to guarantees made after the date of the enactment of this Act.

SEC. 144. MODIFICATION OF RULES PERTAINING TO FIRPTA NONFOREIGN 
                    AFFIDAVITS.

  (a) In General.--Subsection (b) of section 1445 (relating to 
exemptions) is amended by adding at the end the following:
          ``(9) Alternative procedure for furnishing nonforeign 
        affidavit.--For purposes of paragraphs (2) and (7)--
                  ``(A) In general.--Paragraph (2) shall be treated as 
                applying to a transaction if, in connection with a 
                disposition of a United States real property interest--
                          ``(i) the affidavit specified in paragraph 
                        (2) is furnished to a qualified substitute, and
                          ``(ii) the qualified substitute furnishes a 
                        statement to the transferee stating, under 
                        penalty of perjury, that the qualified 
                        substitute has such affidavit in his 
                        possession.
                  ``(B) Regulations.--The Secretary shall prescribe 
                such regulations as may be necessary or appropriate to 
                carry out this paragraph.''.
  (b) Qualified Substitute.--Subsection (f) of section 1445 (relating 
to definitions) is amended by adding at the end the following new 
paragraph:
          ``(6) Qualified substitute.--The term `qualified substitute' 
        means, with respect to a disposition of a United States real 
        property interest--
                  ``(A) the person (including any attorney or title 
                company) responsible for closing the transaction, other 
                than the transferor's agent, and
                  ``(B) the transferee's agent.''.
  (c) Exemption Not to Apply if Knowledge or Notice That Affidavit or 
Statement Is False.--
          (1) In general.--Paragraph (7) of section 1445(b) (relating 
        to special rules for paragraphs (2) and (3)) is amended to read 
        as follows:
          ``(7) Special rules for paragraphs (2), (3), and (9).--
        Paragraph (2), (3), or (9) (as the case may be) shall not apply 
        to any disposition--
                  ``(A) if--
                          ``(i) the transferee or qualified substitute 
                        has actual knowledge that the affidavit 
                        referred to in such paragraph, or the statement 
                        referred to in paragraph (9)(A)(ii), is false, 
                        or
                          ``(ii) the transferee or qualified substitute 
                        receives a notice (as described in subsection 
                        (d)) from a transferor's agent, transferee's 
                        agent, or qualified substitute that such 
                        affidavit or statement is false, or
                  ``(B) if the Secretary by regulations requires the 
                transferee or qualified substitute to furnish a copy of 
                such affidavit or statement to the Secretary and the 
                transferee or qualified substitute fails to furnish a 
                copy of such affidavit or statement to the Secretary at 
                such time and in such manner as required by such 
                regulations.''.
          (2) Liability.--
                  (A) Notice.--Paragraph (1) of section 1445(d) 
                (relating to notice of false affidavit; foreign 
                corporations) is amended to read as follows:
          ``(1) Notice of false affidavit; foreign corporations.--If--
                  ``(A) the transferor furnishes the transferee or 
                qualified substitute an affidavit described in 
                paragraph (2) of subsection (b) or a domestic 
                corporation furnishes the transferee an affidavit 
                described in paragraph (3) of subsection (b), and
                  ``(B) in the case of--
                          ``(i) any transferor's agent--
                                  ``(I) such agent has actual knowledge 
                                that such affidavit is false, or
                                  ``(II) in the case of an affidavit 
                                described in subsection (b)(2) 
                                furnished by a corporation, such 
                                corporation is a foreign corporation, 
                                or
                          ``(ii) any transferee's agent or qualified 
                        substitute, such agent or substitute has actual 
                        knowledge that such affidavit is false,
                such agent or qualified substitute shall so notify the 
                transferee at such time and in such manner as the 
                Secretary shall require by regulations.''.
                  (B) Failure to furnish notice.--Paragraph (2) of 
                section 1445(d) (relating to failure to furnish notice) 
                is amended to read as follows:
          ``(2) Failure to furnish notice.--
                  ``(A) In general.--If any transferor's agent, 
                transferee's agent, or qualified substitute is required 
                by paragraph (1) to furnish notice, but fails to 
                furnish such notice at such time or times and in such 
                manner as may be required by regulations, such agent or 
                substitute shall have the same duty to deduct and 
                withhold that the transferee would have had if such 
                agent or substitute had complied with paragraph (1).
                  ``(B) Liability limited to amount of compensation.--
                An agent's or substitute's liability under subparagraph 
                (A) shall be limited to the amount of compensation the 
                agent or substitute derives from the transaction.''.
                  (C) Conforming amendment.--The heading for section 
                1445(d) is amended by striking ``or Transferee's 
                Agents'' and inserting ``, Transferee's Agents, or 
                Qualified Substitutes''.
  (d) Effective Date.--The amendments made by this section shall apply 
to dispositions of United States real property interests after the date 
of the enactment of this Act.

SEC. 145. MODIFICATION OF DEFINITION OF TAX-EXEMPT USE PROPERTY FOR 
                    PURPOSES OF THE REHABILITATION CREDIT.

  (a) In General.--Subclause (I) of section 47(c)(2)(B)(v) is amended 
by striking ``section 168(h)'' and inserting ``section 168(h), except 
that `50 percent' shall be substituted for `35 percent' in paragraph 
(1)(B)(iii) thereof''.
  (b) Effective Date.--The amendments made by this section shall apply 
to expenditures properly taken into account for periods after December 
31, 2007.

       TITLE II--REFORMS RELATED TO REAL ESTATE INVESTMENT TRUSTS

      Subtitle A--Foreign Currency and Other Qualified Activities

SEC. 201. REVISIONS TO REIT INCOME TESTS.

  (a) Addition of Permissible Income Categories.--Section 856(c) 
(relating to limitations) is amended--
          (1) by striking ``and'' at the end of paragraph (2)(G) and by 
        inserting after paragraph (2)(H) the following new 
        subparagraphs:
                  ``(I) passive foreign exchange gains; and
                  ``(J) any other item of income or gain as determined 
                by the Secretary;'', and
          (2) by striking ``and'' at the end of paragraphs (3)(H) and 
        (3)(I) and by inserting after paragraph (3)(I) the following 
        new subparagraphs:
                  ``(J) real estate foreign exchange gains; and
                  ``(K) any other item of income or gain as determined 
                by the Secretary; and''.
  (b) Rules Regarding Foreign Currency Transactions.--Section 856 
(defining real estate investment trust) is amended by adding at the end 
the following new subsection:
  ``(n) Rules Regarding Foreign Currency Transactions.--With respect to 
any taxable year--
          ``(1) Real estate foreign exchange gains.--For purposes of 
        subsection (c)(3)(J), the term `real estate foreign exchange 
        gains' means--
                  ``(A) foreign currency gains (as defined in section 
                988(b)(1)) which are attributable to--
                          ``(i) any item described in subsection (c)(3) 
                        (other than in subparagraph (J) thereof),
                          ``(ii) the acquisition or ownership of 
                        obligations secured by mortgages on real 
                        property or on interests in real property 
                        (other than foreign currency gains attributable 
                        to any item described in clause (i)), or
                          ``(iii) becoming or being the obligor under 
                        obligations secured by mortgages on real 
                        property or on interests in real property 
                        (other than foreign currency gains attributable 
                        to any item described in clause (i)),
                  ``(B) gains described in section 987 attributable to 
                a qualified business unit (as defined by section 989) 
                of the real estate investment trust, but only if such 
                qualified business unit meets the requirements under--
                          ``(i) subsection (c)(3) (without regard to 
                        subparagraph (J) thereof) for the taxable year, 
                        and
                          ``(ii) subsection (c)(4)(A) at the close of 
                        each quarter that the real estate investment 
                        trust has directly or indirectly held the 
                        qualified business unit, and
                  ``(C) any other foreign currency gains as determined 
                by the Secretary.
          ``(2) Passive foreign exchange gains.--For purposes of 
        subsection (c)(2)(I), the term `passive foreign exchange gains' 
        means--
                  ``(A) real estate foreign exchange gains,
                  ``(B) foreign currency gains (as defined in section 
                988(b)(1)) which are not described in subparagraph (A) 
                and which are attributable to any item described in 
                subsection (c)(2) (other than in subparagraph (I) 
                thereof), and
                  ``(C) any other foreign currency gains as determined 
                by the Secretary.''.
  (c) Addition to REIT Hedging Rule.--Subparagraph (G) of section 
856(c)(5) is amended to read as follows:
                  ``(G) Treatment of certain hedging instruments.--
                Except to the extent as determined by the Secretary--
                          ``(i) any income of a real estate investment 
                        trust from a hedging transaction (as defined in 
                        clause (ii) or (iii) of section 1221(b)(2)(A)) 
                        which is clearly identified pursuant to section 
                        1221(a)(7), including gain from the sale or 
                        disposition of such a transaction, shall not 
                        constitute gross income under paragraphs (2) 
                        and (3) to the extent that the transaction 
                        hedges any indebtedness incurred or to be 
                        incurred by the trust to acquire or carry real 
                        estate assets, and
                          ``(ii) any income of a real estate investment 
                        trust from a transaction entered into by the 
                        trust primarily to manage risk of currency 
                        fluctuations with respect to any item described 
                        in paragraph (2) or (3), including gain from 
                        the termination of such a transaction, shall 
                        not constitute gross income under paragraphs 
                        (2) and (3), but only if such transaction is 
                        clearly identified as such before the close of 
                        the day on which it was acquired, originated, 
                        or entered into (or such other time as the 
                        Secretary may prescribe).''.
  (d) Authority to Exclude Items of Income From REIT Income Tests.--
Section 856(c)(5) is amended by adding at the end the following new 
subparagraph:
                  ``(H) Secretarial authority to exclude other items of 
                income.--The Secretary is authorized to determine 
                whether any item of income or gain which does not 
                otherwise qualify under paragraph (2) or (3) may be 
                considered as not constituting gross income solely for 
                purposes of this part.''.

SEC. 202. REVISIONS TO REIT ASSET TESTS.

  (a) Clarification of Valuation Test.--The first sentence in the 
matter following section 856(c)(4)(B)(iii)(III) is amended by inserting 
``(including a discrepancy caused solely by the change in the foreign 
currency exchange rate used to value a foreign asset)'' after ``such 
requirements''.
  (b) Clarification of Permissible Asset Category.--Section 856(c)(5), 
as amended by section 201(d), is amended by adding at the end the 
following new subparagraph:
                  ``(I) Cash.--The term `cash' includes foreign 
                currency if the real estate investment trust or its 
                qualified business unit (as defined in section 989) 
                uses such foreign currency as its functional currency 
                (as defined in section 985(b)).''.

SEC. 203. CONFORMING FOREIGN CURRENCY REVISIONS.

  (a) Net Income From Foreclosure Property.--Clause (i) of section 
857(b)(4)(B) is amended to read as follows:
                          ``(i) gain (including any foreign currency 
                        gain, as defined in section 988(b)(1)) from the 
                        sale or other disposition of foreclosure 
                        property described in section 1221(a)(1) and 
                        the gross income for the taxable year derived 
                        from foreclosure property (as defined in 
                        section 856(e)), but only to the extent such 
                        gross income is not described in (or, in the 
                        case of foreign currency gain, not attributable 
                        to gross income described in) section 856(c)(3) 
                        other than subparagraph (F) thereof, over''.
  (b) Net Income From Prohibited Transactions.--Clause (i) of section 
857(b)(6)(B) is amended to read as follows:
                          ``(i) the term `net income derived from 
                        prohibited transactions' means the excess of 
                        the gain (including any foreign currency gain, 
                        as defined in section 988(b)(1)) from 
                        prohibited transactions over the deductions 
                        (including any foreign currency loss, as 
                        defined in section 988(b)(2)) allowed by this 
                        chapter which are directly connected with 
                        prohibited transactions;''.

                 Subtitle B--Taxable REIT Subsidiaries

SEC. 211. CONFORMING TAXABLE REIT SUBSIDIARY ASSET TEST.

  Section 856(c)(4)(B)(ii) is amended by striking ``20 percent'' and 
inserting ``25 percent''.

                        Subtitle C--Dealer Sales

SEC. 221. HOLDING PERIOD UNDER SAFE HARBOR.

  Section 857(b)(6) (relating to income from prohibited transactions) 
is amended--
          (1) by striking ``4 years'' in subparagraphs (C)(i), (C)(iv), 
        and (D)(i) and inserting ``2 years'',
          (2) by striking ``4-year period'' in subparagraphs (C)(ii), 
        (D)(ii), and (D)(iii) and inserting ``2-year period'', and
          (3) by striking ``real estate asset''and all that follows 
        through ``if'' in the matter preceding clause (i) of 
        subparagraphs (C) and (D), respectively, and inserting ``real 
        estate asset (as defined in section 856(c)(5)(B)) and which is 
        described in section 1221(a)(1) if''.

SEC. 222. DETERMINING VALUE OF SALES UNDER SAFE HARBOR.

  Section 857(b)(6) is amended--
          (1) by striking the semicolon at the end of subparagraph 
        (C)(iii) and inserting ``, or (III) the fair market value of 
        property (other than sales of foreclosure property or sales to 
        which section 1033 applies) sold during the taxable year does 
        not exceed 10 percent of the fair market value of all of the 
        assets of the trust as of the beginning of the taxable year;'', 
        and
          (2) by adding ``or'' at the end of subclause (II) of 
        subparagraph (D)(iv) and by adding at the end of such 
        subparagraph the following new subclause:
                          ``(III) the fair market value of property 
                        (other than sales of foreclosure property or 
                        sales to which section 1033 applies) sold 
                        during the taxable year does not exceed 10 
                        percent of the fair market value of all of the 
                        assets of the trust as of the beginning of the 
                        taxable year,''.

                     Subtitle D--Health Care REITs

SEC. 231. CONFORMITY FOR HEALTH CARE FACILITIES.

  (a) Related Party Rentals.--Subparagraph (B) of section 856(d)(8) 
(relating to special rule for taxable REIT subsidiaries) is amended to 
read as follows:
                  ``(B) Exception for certain lodging facilities and 
                health care property.--The requirements of this 
                subparagraph are met with respect to an interest in 
                real property which is a qualified lodging facility or 
                a qualified health care property (as defined in 
                subsection (e)(6)(D)(i)) leased by the trust to a 
                taxable REIT subsidiary of the trust if the property is 
                operated on behalf of such subsidiary by a person who 
                is an eligible independent contractor. For purposes of 
                this section, a taxable REIT subsidiary is not 
                considered to be operating or managing a qualified 
                health care property or qualified lodging facility 
                solely because it directly or indirectly possesses a 
                license, permit or similar instrument enabling it to do 
                so.''.
  (b) Eligible Independent Contractor.--Subparagraphs (A) and (B) of 
section 856(d)(9) (relating to eligible independent contractor) are 
amended to read as follows:
                  ``(A) In general.--The term `eligible independent 
                contractor' means, with respect to any qualified 
                lodging facility or qualified health care property (as 
                defined in subsection (e)(6)(D)(i)), any independent 
                contractor if, at the time such contractor enters into 
                a management agreement or other similar service 
                contract with the taxable REIT subsidiary to operate 
                such qualified lodging facility or qualified health 
                care property, such contractor (or any related person) 
                is actively engaged in the trade or business of 
                operating qualified lodging facilities or qualified 
                health care properties, respectively, for any person 
                who is not a related person with respect to the real 
                estate investment trust or the taxable REIT subsidiary.
                  ``(B) Special rules.--Solely for purposes of this 
                paragraph and paragraph (8)(B), a person shall not fail 
                to be treated as an independent contractor with respect 
                to any qualified lodging facility or qualified health 
                care property (as so defined) by reason of the 
                following:
                          ``(i) The taxable REIT subsidiary bears the 
                        expenses for the operation of such qualified 
                        lodging facility or qualified health care 
                        property pursuant to the management agreement 
                        or other similar service contract.
                          ``(ii) The taxable REIT subsidiary receives 
                        the revenues from the operation of such 
                        qualified lodging facility or qualified health 
                        care property, net of expenses for such 
                        operation and fees payable to the operator 
                        pursuant to such agreement or contract.
                          ``(iii) The real estate investment trust 
                        receives income from such person with respect 
                        to another property that is attributable to a 
                        lease of such other property to such person 
                        that was in effect as of the later of--
                                  ``(I) January 1, 1999, or
                                  ``(II) the earliest date that any 
                                taxable REIT subsidiary of such trust 
                                entered into a management agreement or 
                                other similar service contract with 
                                such person with respect to such 
                                qualified lodging facility or qualified 
                                health care property.''.
  (c) Taxable Reit Subsidiaries.--The last sentence of section 
856(l)(3) is amended--
          (1) by inserting ``or a health care facility'' after ``a 
        lodging facility'', and
          (2) by inserting ``or health care facility'' after ``such 
        lodging facility''.

                      Subtitle E--Effective Dates

SEC. 241. EFFECTIVE DATES.

  (a) In General.--Except as otherwise provided in this section, the 
amendments made by this title shall apply to taxable years beginning 
after the date of the enactment of this Act.
  (b) REIT Income Tests.--
          (1) The amendment made by section 201(a) and (b) shall apply 
        to gains and items of income recognized after the date of the 
        enactment of this Act.
          (2) The amendment made by section 201(c) shall apply to 
        transactions entered into after the date of the enactment of 
        this Act.
          (3) The amendment made by section 201(d) shall apply after 
        the date of the enactment of this Act.
  (c) Conforming Foreign Currency Revisions.--
          (1) The amendment made by section 203(a) shall apply to gains 
        recognized after the date of the enactment of this Act.
          (2) The amendment made by section 203(b) shall apply to gains 
        and deductions recognized after the date of the enactment of 
        this Act.
  (d) Dealer Sales.--The amendments made by subtitle C shall apply to 
sales made after the date of the enactment of this Act.

                     TITLE III--REVENUE PROVISIONS

SEC. 301. BROKER REPORTING OF CUSTOMER'S BASIS IN SECURITIES 
                    TRANSACTIONS.

  (a) In General.--
          (1) Broker reporting for securities transactions.--Section 
        6045 (relating to returns of brokers) is amended by adding at 
        the end the following new subsection:
  ``(g) Additional Information Required in the Case of Securities 
Transactions, etc.--
          ``(1) In general.--If a broker is otherwise required to make 
        a return under subsection (a) with respect to the gross 
        proceeds of the sale of a covered security, the broker shall 
        include in such return the information described in paragraph 
        (2).
          ``(2) Additional information required.--
                  ``(A) In general.--The information required under 
                paragraph (1) to be shown on a return with respect to a 
                covered security of a customer shall include the 
                customer's adjusted basis in such security and whether 
                any gain or loss with respect to such security is long-
                term or short-term (within the meaning of section 
                1222).
                  ``(B) Determination of adjusted basis.--For purposes 
                of subparagraph (A)--
                          ``(i) In general.--The customer's adjusted 
                        basis shall be determined--
                                  ``(I) in the case of any security 
                                (other than any stock for which an 
                                average basis method is permissible 
                                under section 1012), in accordance with 
                                the first-in first-out method unless 
                                the customer notifies the broker by 
                                means of making an adequate 
                                identification of the stock sold or 
                                transferred, and
                                  ``(II) in the case of any stock for 
                                which an average basis method is 
                                permissible under section 1012, in 
                                accordance with the broker's default 
                                method unless the customer notifies the 
                                broker that he elects another 
                                acceptable method under section 1012 
                                with respect to the account in which 
                                such stock is held.
                          ``(ii) Exception for wash sales.--Except as 
                        otherwise provided by the Secretary, the 
                        customer's adjusted basis shall be determined 
                        without regard to section 1091 (relating to 
                        loss from wash sales of stock or securities) 
                        unless the transactions occur in the same 
                        account with respect to identical securities.
          ``(3) Covered security.--For purposes of this subsection--
                  ``(A) In general.--The term `covered security' means 
                any specified security acquired on or after the 
                applicable date if such security--
                          ``(i) was acquired through a transaction in 
                        the account in which such security is held, or
                          ``(ii) was transferred to such account from 
                        an account in which such security was a covered 
                        security, but only if the broker received a 
                        statement under section 6045A with respect to 
                        the transfer.
                  ``(B) Specified security.--The term `specified 
                security' means--
                          ``(i) any share of stock in a corporation,
                          ``(ii) any note, bond, debenture, or other 
                        evidence of indebtedness,
                          ``(iii) any commodity, or contract or 
                        derivative with respect to such commodity, if 
                        the Secretary determines that adjusted basis 
                        reporting is appropriate for purposes of this 
                        subsection, and
                          ``(iv) any other financial instrument with 
                        respect to which the Secretary determines that 
                        adjusted basis reporting is appropriate for 
                        purposes of this subsection.
                  ``(C) Applicable date.--The term `applicable date' 
                means--
                          ``(i) January 1, 2010, in the case of any 
                        specified security which is stock in a 
                        corporation (other than any stock described in 
                        clause (ii)),
                          ``(ii) January 1, 2011, in the case of any 
                        stock for which an average basis method is 
                        permissible under section 1012, and
                          ``(iii) January 1, 2012, or such later date 
                        determined by the Secretary in the case of any 
                        other specified security.
          ``(4) Treatment of s corporations.--In the case of the sale 
        of a covered security acquired by an S corporation (other than 
        a financial institution) after December 31, 2011, such S 
        corporation shall be treated in the same manner as a 
        partnership for purposes of this section.
          ``(5) Special rules for short sales.--In the case of a short 
        sale, reporting under this section shall be made for the year 
        in which such sale is closed.''.
          (2) Broker information required with respect to options.--
        Section 6045, as amended by subsection (a), is amended by 
        adding at the end the following new subsection:
  ``(h) Application to Options on Securities.--
          ``(1) Exercise of option.--For purposes of this section, if a 
        covered security is acquired or disposed of pursuant to the 
        exercise of an option that was granted or acquired in the same 
        account as the covered security, the amount received with 
        respect to the grant or paid with respect to the acquisition of 
        such option shall be treated as an adjustment to gross proceeds 
        or as an adjustment to basis, as the case may be.
          ``(2) Lapse or closing transaction.--In the case of the lapse 
        (or closing transaction (as defined in section 1234(b)(2)(A))) 
        of an option on a specified security or the exercise of a cash-
        settled option on a specified security, reporting under 
        subsections (a) and (g) with respect to such option shall be 
        made for the calendar year which includes the date of such 
        lapse, closing transaction, or exercise.
          ``(3) Prospective application.--Paragraphs (1) and (2) shall 
        not apply to any option which is granted or acquired before 
        January 1, 2012.
          ``(4) Definitions.--For purposes of this subsection, the 
        terms `covered security' and `specified security' shall have 
        the meanings given such terms in subsection (g)(3).''.
          (3) Extension of period for statements sent to customers.--
                  (A) In general.--Subsection (b) of section 6045 is 
                amended by striking ``January 31'' and inserting 
                ``February 15''.
                  (B) Statements related to substitute payments.--
                Subsection (d) of section 6045 is amended--
                          (i) by striking ``at such time and'', and
                          (ii) by inserting after ``other item.'' the 
                        following new sentence: ``The written statement 
                        required under the preceding sentence shall be 
                        furnished on or before February 15 of the year 
                        following the calendar year in which the 
                        payment was made.''.
                  (C) Other statements.--Subsection (b) of section 6045 
                is amended by adding at the end the following: ``In the 
                case of a consolidated reporting statement (as defined 
                in regulations) with respect to any account, any 
                statement which would otherwise be required to be 
                furnished on or before January 31 of a calendar year 
                with respect to any item reportable to the taxpayer 
                shall instead be required to be furnished on or before 
                February 15 of such calendar year if furnished with 
                such consolidated reporting statement.''.
  (b) Determination of Basis of Certain Securities on Account by 
Account or Average Basis Method.--Section 1012 (relating to basis of 
property-cost) is amended--
          (1) by striking ``The basis of property'' and inserting the 
        following:
  ``(a) In General.--The basis of property'',
          (2) by striking ``The cost of real property'' and inserting 
        the following:
  ``(b) Special Rule for Apportioned Real Estate Taxes.--The cost of 
real property'', and
          (3) by adding at the end the following new subsections:
  ``(c) Determinations by Account.--
          ``(1) In general.--In the case of the sale, exchange, or 
        other disposition of a specified security on or after the 
        applicable date, the conventions prescribed by regulations 
        under this section shall be applied on an account by account 
        basis.
          ``(2) Application to open-end funds.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), any stock in an open-end fund acquired before 
                January 1, 2011, shall be treated as a separate account 
                from any such stock acquired on or after such date.
                  ``(B) Election by open-end fund for treatment as 
                single account.--If an open-end fund elects to have 
                this subparagraph apply with respect to one or more of 
                its stockholders--
                          ``(i) subparagraph (A) shall not apply with 
                        respect to any stock in such fund held by such 
                        stockholders, and
                          ``(ii) all stock in such fund which is held 
                        by such stockholders shall be treated as 
                        covered securities described in section 
                        6045(g)(3) without regard to the date of the 
                        acquisition of such stock.
                A rule similar to the rule of the preceding sentence 
                shall apply with respect to a broker holding stock in 
                an open-end fund as a nominee.
          ``(3) Definitions.--For purposes of this section--
                  ``(A) Open-end fund.--The term `open-end fund' means 
                a regulated investment company (as defined in section 
                851) which is offering for sale or has outstanding any 
                redeemable security of which it is the issuer. Any 
                stock which is traded on an established securities 
                exchange shall not be treated as stock in an open-end 
                fund.
                  ``(B) Specified security; applicable date.--The terms 
                `specified security' and `applicable date' shall have 
                the meaning given such terms in section 6045(g).
  ``(d) Average Basis for Stock Acquired Pursuant to a Dividend 
Reinvestment Plan.--
          ``(1) In general.--In the case of any stock acquired after 
        December 31, 2010, in connection with a dividend reinvestment 
        plan, the basis of such stock while held as part of such plan 
        shall be determined using one of the methods which may be used 
        for determining the basis of stock in an open-end fund.
          ``(2) Treatment after transfer.--In the case of the transfer 
        to another account of stock to which paragraph (1) applies, 
        such stock shall have a cost basis in such other account equal 
        to its basis in the dividend reinvestment plan immediately 
        before such transfer (properly adjusted for any fees or other 
        charges taken into account in connection with such transfer).
          ``(3) Separate accounts; election for treatment as single 
        account.--Rules similar to the rules of subsection (c)(2) shall 
        apply for purposes of this subsection.
          ``(4) Dividend reinvestment plan.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `dividend reinvestment 
                plan' means any arrangement under which dividends on 
                any stock are reinvested in stock identical to the 
                stock with respect to which the dividends are paid.
                  ``(B) Initial stock acquisition treated as acquired 
                in connection with plan.--Stock shall be treated as 
                acquired in connection with a dividend reinvestment 
                plan if such stock is acquired pursuant to such plan or 
                if the dividends paid on such stock are subject to such 
                plan.''.
  (c) Information by Transferors to Aid Brokers.--
          (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 is amended by inserting after section 6045 the 
        following new section:

``SEC. 6045A. INFORMATION REQUIRED IN CONNECTION WITH TRANSFERS OF 
                    COVERED SECURITIES TO BROKERS.

  ``(a) Furnishing of Information.--Every applicable person which 
transfers to a broker (as defined in section 6045(c)(1)) a security 
which is a covered security (as defined in section 6045(g)(3)) in the 
hands of such applicable person shall furnish to such broker a written 
statement in such manner and setting forth such information as the 
Secretary may by regulations prescribe for purposes of enabling such 
broker to meet the requirements of section 6045(g).
  ``(b) Applicable Person.--For purposes of subsection (a), the term 
`applicable person' means--
          ``(1) any broker (as defined in section 6045(c)(1)), and
          ``(2) any other person as provided by the Secretary in 
        regulations.
  ``(c) Time for Furnishing Statement.--Except as otherwise provided by 
the Secretary, any statement required by subsection (a) shall be 
furnished not later than 15 days after the date of the transfer 
described in such subsection.''.
          (2) Assessable penalties.--Paragraph (2) of section 6724(d) 
        (defining payee statement) is amended by redesignating 
        subparagraphs (I) through (CC) as subparagraphs (J) through 
        (DD), respectively, and by inserting after subparagraph (H) the 
        following new subparagraph:
                  ``(I) section 6045A (relating to information required 
                in connection with transfers of covered securities to 
                brokers),''.
          (3) Clerical amendment.--The table of sections for subpart B 
        of part III of subchapter A of chapter 61 is amended by 
        inserting after the item relating to section 6045 the following 
        new item:

``Sec. 6045A. Information required in connection with transfers of 
covered securities to brokers.''.

  (d) Additional Issuer Information to Aid Brokers.--
          (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61, as amended by subsection (b), is amended by 
        inserting after section 6045A the following new section:

``SEC. 6045B. RETURNS RELATING TO ACTIONS AFFECTING BASIS OF SPECIFIED 
                    SECURITIES.

  ``(a) In General.--According to the forms or regulations prescribed 
by the Secretary, any issuer of a specified security shall make a 
return setting forth--
          ``(1) a description of any organizational action which 
        affects the basis of such specified security of such issuer,
          ``(2) the quantitative effect on the basis of such specified 
        security resulting from such action, and
          ``(3) such other information as the Secretary may prescribe.
  ``(b) Time for Filing Return.--Any return required by subsection (a) 
shall be filed not later than the earlier of--
          ``(1) 45 days after the date of the action described in 
        subsection (a), or
          ``(2) January 15 of the year following the calendar year 
        during which such action occurred.
  ``(c) Statements To Be Furnished to Holders of Specified Securities 
or Their Nominees.--According to the forms or regulations prescribed by 
the Secretary, every person required to make a return under subsection 
(a) with respect to a specified security shall furnish to the nominee 
with respect to the specified security (or certificate holder if there 
is no nominee) a written statement showing--
          ``(1) the name, address, and phone number of the information 
        contact of the person required to make such return,
          ``(2) the information required to be shown on such return 
        with respect to such security, and
          ``(3) such other information as the Secretary may prescribe.
The written statement required under the preceding sentence shall be 
furnished to the holder on or before January 15 of the year following 
the calendar year during which the action described in subsection (a) 
occurred.
  ``(d) Specified Security.--For purposes of this section, the term 
`specified security' has the meaning given such term by section 
6045(g)(3)(B). No return shall be required under this section with 
respect to actions described in subsection (a) with respect to a 
specified security which occur before the applicable date (as defined 
in section 6045(g)(3)(C)) with respect to such security.
  ``(e) Public Reporting in Lieu of Return.--The Secretary may waive 
the requirements under subsections (a) and (c) with respect to a 
specified security, if the person required to make the return under 
subsection (a) makes publicly available, in such form and manner as the 
Secretary determines necessary to carry out the purposes of this 
section--
          ``(1) the name, address, phone number, and email address of 
        the information contact of such person, and
          ``(2) the information described in paragraphs (1), (2), and 
        (3) of subsection (a).''.
          (2) Assessable penalties.--
                  (A) Subparagraph (B) of section 6724(d)(1) of such 
                Code (defining information return) is amended by 
                redesignating clause (iv) and each of the clauses which 
                follow as clauses (v) through (xxii), respectively, and 
                by inserting after clause (iii) the following new 
                clause:
                          ``(iv) section 6045B(a) (relating to returns 
                        relating to actions affecting basis of 
                        specified securities),''.
                  (B) Paragraph (2) of section 6724(d) of such Code 
                (defining payee statement), as amended by subsection 
                (c)(2), is amended by redesignating subparagraphs (J) 
                through (DD) as subparagraphs (K) through (EE), 
                respectively, and by inserting after subparagraph (I) 
                the following new subparagraph:
                  ``(J) subsections (c) and (e) of section 6045B 
                (relating to returns relating to actions affecting 
                basis of specified securities),''.
          (3) Clerical amendment.--The table of sections for subpart B 
        of part III of subchapter A of chapter 61 of such Code, as 
        amended by subsection (b)(3), is amended by inserting after the 
        item relating to section 6045A the following new item:

``Sec. 6045B. Returns relating to actions affecting basis of specified 
securities.''.

  (e) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall take 
        effect on January 1, 2010.
          (2) Extension of period for statements sent to customers.--
        The amendments made by subsection (a)(3) shall apply to 
        statements required to be furnished after December 31, 2008.

SEC. 302. DELAY IN APPLICATION OF WORLDWIDE ALLOCATION OF INTEREST.

  (a) In General.--Paragraphs (5)(D) and (6) of section 864(f) are each 
amended by striking ``December 31, 2008'' and inserting ``December 31, 
2009''.
  (b) Transitional Rule.--Subsection (f) of section 864 is amended by 
adding at the end the following new paragraph:
          ``(7) Transition.--In the case of the first taxable year to 
        which this subsection applies, the increase (if any) in the 
        amount of the interest expense allocable to sources within the 
        United States by reason of the application of this subsection 
        shall be 78 percent of the amount of such increase determined 
        without regard to this paragraph.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2008.

SEC. 303. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

  (a) Repeal of Adjustment for 2012.--Subparagraph (B) of section 
401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 is 
amended by striking the percentage contained therein and inserting 
``100 percent''.
  (b) Modification of Adjustment for 2013.--The percentage under 
subparagraph (C) of section 401(1) of the Tax Increase Prevention and 
Reconciliation Act of 2005 in effect on the date of the enactment of 
this Act is increased by 13 percentage points.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 5720, as amended, (1) provides a temporary 
two-year increase in the volume cap for the low-income housing 
credit, (2) makes various programmatic reforms and 
simplifications to the low-income housing credit and tax-exempt 
bond rules relating to housing, (3) provides a temporary 
increase in the volume cap for tax-exempt housing bonds and 
allows recycling of tax-exempt debt for financing residential 
rental projects, (4) creates a refundable first-time homebuyer 
credit, (5) provides an additional standard deduction for real 
property taxes for non-itemizers, (6) provides AMT relief for 
tax-exempt housing bonds, the low-income housing and 
rehabilitation credits, (7) temporarily modifies the Federal 
guarantee tax-exempt bond restriction for Federal home loan 
banks, (8) modifies the FIRPTA non-foreign affidavit rules, (9) 
amends the definition of tax-exempt use property for the 
rehabilitation credit, (10) reforms the rules for real estate 
investment trusts, (11) establishes broker reporting of 
customers' basis in securities transactions, (12) delays 
application of worldwide allocation of interest expense, and 
(13) adjusts the time for payment of corporate estimated taxes 
for certain large corporations.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reflect the need 
to improve the tax provisions relating to multi-family low-
income housing and respond in a targeted revenue-neutral way to 
temporary housing and credit market imbalances, as well as 
other purposes.

                         C. Legislative History

    The Committee on Ways and Means marked up the Housing 
Assistance Tax Act of 2008 on April 9, 2008, and ordered the 
bill, as amended, favorably reported.

                      II. EXPLANATION OF THE BILL


         TITLE I--BENEFITS FOR MULTI-FAMILY LOW-INCOME HOUSING


                                OVERVIEW

Low-income housing credit

    The low-income housing credit may be claimed over a 10-year 
period for the cost of building rental housing occupied by 
tenants having incomes below specified levels. The amount of 
the credit for any taxable year in the credit period is the 
applicable percentage of the qualified basis of each qualified 
low-income building. The qualified basis of any qualified low-
income building for any taxable year equals the applicable 
fraction of the eligible basis of the building.
    The credit percentage for newly constructed or 
substantially rehabilitated housing that is not Federally 
subsidized is adjusted monthly by the Internal Revenue Service 
so that the 10 annual installments of the credit have a present 
value of 70 percent of the total qualified basis. The credit 
percentage for newly constructed or substantially rehabilitated 
housing that is Federally subsidized and for existing housing 
that is substantially rehabilitated is calculated to have a 
present value of 30 percent of qualified basis. These are 
referred to as the 70-percent credit and 30-percent credit, 
respectively.

Tax-exempt bonds for housing

    Private activity bonds are bonds that nominally are issued 
by State or local governments, but the proceeds of which are 
used (directly or indirectly) by a private person and payment 
of which is derived from funds of such private person. The 
exclusion from income for interest paid on State and local 
bonds does not apply to private activity bonds, unless the 
bonds are issued for certain permitted purposes (``qualified 
private activity bonds''). The definition of a qualified 
private activity bond includes, but is not limited to, 
qualified mortgage bonds, qualified veterans' mortgage bonds, 
and bonds for qualified residential rental projects.
    Residential rental property may be financed with qualified 
private activity bonds if the financed project is a ``qualified 
residential rental project.'' A project is a qualified 
residential rental project if 20 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 50 percent or less of area median gross income 
(the ``20-50 test''). Alternatively, a project is a qualified 
residential rental project if 40 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 60 percent or less of area median gross income 
(the ``40-60 test''). The issuer must elect to apply either the 
20-50 test or the 40-60 test. Operators of qualified 
residential rental projects must annually certify that such 
project meets the requirements for qualification, including 
meeting the 20-50 test or the 40-60 test.

                           REASONS FOR CHANGE

    Safe, affordable housing is a major priority to all 
individual Americans. The temporary increase in the volume 
limit for the low income housing credit is intended to augment 
the supply of rental housing for low-income individuals. The 
various improvements to the low-income housing credit and tax-
exempt bond rules are designed to create new opportunities for 
such housing in situations and geographical areas which have 
not previously benefited from the low-income housing credit and 
tax-exempt bond financing. In the first comprehensive effort to 
improve the technical operation of the credit in over a decade, 
the Committee intends to eliminate outdated requirements, 
unnecessary restrictions, and needless complexity in the 
development and operation of low-income credit projects. The 
Committee also believes that a change to the refunding rules 
for multi-family housing bonds will allow more efficient 
combinations of the credit and tax-exempt bonds in certain 
circumstances. The Committee believes that all the 
modifications described in this title of the bill are necessary 
improvements to the vitally important system of housing tax 
incentives in the Code. In the future, the Committee will 
continue to monitor the operation of the low-income credit and 
tax-exempt housing bonds to ensure that these subsidies for 
affordable housing continue to serve low-income individuals 
efficiently.

                      A. Low-Income Housing Credit


 1. Temporary increase in the low-income housing credit volume limits 
             (Sec. 101 of the bill and Sec. 42 of the Code)


                              PRESENT LAW

In general

    The low-income housing credit may be claimed over a 10-year 
period by owners of certain residential rental property for the 
cost of rental housing occupied by tenants having incomes below 
specified levels (sec. 42). The amount of the credit for any 
taxable year in the credit period is the applicable percentage 
of the qualified basis of each qualified low-income building. 
The qualified basis of any qualified low-income building for 
any taxable year equals the applicable fraction of the eligible 
basis of the building.

Volume limits

    A low-income housing credit is allowable only if the owner 
of a qualified building receives a housing credit allocation 
from the State or local housing credit agency. Generally, the 
aggregate credit authority provided annually to each State for 
calendar year 2008 is $2.00 per resident, with a minimum annual 
cap of $2,325,000 for certain small population States (Rev. 
Proc. 2007-66). These amounts are indexed for inflation. 
Projects that also receive financing with proceeds of tax-
exempt bonds issued subject to the private activity bond volume 
limit do not require an allocation of the low-income housing 
credit.

                        EXPLANATION OF PROVISION

    The provision increases from $2.00 per resident to $2.20 
per resident the allocation authority provided annually to each 
State for calendar years 2008 and 2009. In 2010, the volume 
limit will return to the prescribed levels had this provision 
not been enacted.

                             EFFECTIVE DATE

    The provision is effective for low-income credit 
allocations made for calendar years after 2007.

 2. Determination of credit rate (Sec. 102 of the bill and Sec. 42 of 
                               the Code)


(a) Modifications to the applicable percentage

                              PRESENT LAW

In general

    The low-income housing credit may be claimed over a 10-year 
credit period after each low-income building is placed-in-
service. The amount of the credit for any taxable year in the 4 
credit period is the applicable percentage of the qualified 
basis of each qualified low-income building.

Present value credit

    The calculation of the applicable percentage is designed to 
produce a credit equal to: (1) 70 percent of the present value 
of the building's qualified basis in the case of newly 
constructed or substantially rehabilitated housing that is not 
Federally subsidized (the ``70-percent credit''); or (2) 30 
percent of the present value of the building's qualified basis 
in the case of newly constructed or substantially rehabilitated 
housing that is Federally subsidized and existing housing that 
is substantially rehabilitated (the ``30-percent credit''). 
Where existing housing is substantially rehabilitated, the 
existing housing is eligible for the 30-percent credit and the 
qualified rehabilitation expenses (if not Federally subsidized) 
are eligible for the 70-percent credit.

Calculation of the applicable percentage

    The credit percentage for a low-income building is set for 
the earlier of: (1) the month the building is placed in 
service; or (2) at the election of the taxpayer, (a) the month 
the taxpayer and the housing credit agency enter into a binding 
agreement with respect to such building for a credit 
allocation, or (b) in the case of a tax-exempt bond-financed 
project for which no credit allocation is required, the month 
in which the tax-exempt bonds are issued.
    These credit percentages (used for the 70-percent credit 
and 30-percent credit) are adjusted monthly by the IRS on a 
discounted after-tax basis (assuming a 28-percent tax rate) 
based on the average of the Applicable Federal Rates for mid-
term and long-term obligations for the month the building is 
placed in service. The discounting formula assumes that each 
credit is received on the last day of each year and that the 
present value is computed on the last day of the first year. In 
a project consisting of two or more buildings placed in service 
in different months, a separate credit percentage may apply to 
each building.

                        EXPLANATION OF PROVISION

    The provision expands the class of low-income buildings 
eligible for the 70-percent credit and provides a floor on the 
applicable credit percentages for non-Federally subsidized 
buildings.
    The provision extends the 70-percent credit to non-
Federally subsidized existing housing that is substantially 
rehabilitated (i.e., in the case of an existing building which 
is substantially rehabilitated, both the qualified basis of the 
existing building and the qualified rehabilitation expenses are 
eligible for the 70-percent credit as long as the building is 
not Federally-subsidized.)
    Also, the provision provides a floor on the applicable 
percentage for non-Federally subsidized buildings equal to the 
average percentage for such buildings during the preceding 
calendar year.

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

(b) Modification to the definition of a Federally subsidized building

                              PRESENT LAW

    If any portion of the eligible basis of a building is 
Federally subsidized, then the building is ineligible for the 
70-percent credit. A Federal subsidy is defined as: (1) any 
obligation the interest of which is tax exempt from tax under 
section 103; (2) a direct or indirect Federal loan if the 
interest rate is less than the applicable Federal rate; or (3) 
assistance provided under the HOME Investments Partnership Act 
or the Native American Housing Assistance and Self 
Determination Act of 1996.

                        EXPLANATION OF PROVISION

    The provision limits the definition of a Federal subsidy 
for these purposes to any obligation the interest on which is 
exempt from tax under section 103. Therefore, additional 
buildings may become eligible for the 70-percent credit.

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

3. Modifications to definition of eligible basis (Sec. 103 of the bill 
                        and Sec. 42 of the Code)


(a) Modification to the enhanced credit for buildings in high-cost 
        areas

                              PRESENT LAW

    Generally, buildings located in high-cost areas (i.e., 
qualified census tracts and difficult development areas) are 
eligible for an enhanced credit. Under the enhanced credit, the 
70-percent and 30-percent credits are increased to a 91-percent 
and 39-percent credit, respectively. The mechanism for this 
increase is through an increase from 100 to 130 percent of the 
otherwise applicable eligible basis of a new building or the 
rehabilitation expenditures of an existing building. A further 
requirement for the enhanced credit is that the portions of 
each metropolitan statistical area or nonmetropolitan 
statistical area designated as difficult to develop areas 
cannot exceed an aggregate area having 20 percent of the 
population of such statistical area.

                        EXPLANATION OF PROVISION

    The provision adds a third type of high-cost area eligible 
for an enhanced credit. The third type is defined as any 
building designated by the State housing credit agency as 
requiring the enhanced credit in order for such building to be 
financially feasible. This new type of high-cost area is not 
subject to the present-law limitation limiting high cost areas 
to 20 percent of the population of each metropolitan 
statistical area or nonmetropolitan statistical area.
    It is expected that the State allocating agencies shall set 
standards for determining which areas shall be designated 
difficult development areas and which projects shall be 
allocated additional credits in such areas in the State 
allocating agency's allocation plan. It is also expected that 
the State allocating agency shall publicly express its reasons 
for such area designations and the basis for allocating 
additional credits to a project.

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

(b) Modification to the substantial rehabilitation requirement

                              PRESENT LAW

    Rehabilitation expenditures\1\ paid or incurred by a 
taxpayer with respect to a low-income building are treated as a 
separate building and may be eligible for the 70-percent credit 
if they satisfy the otherwise applicable credit rules.\2\ To 
qualify for the credit, the rehabilitation expenditures must 
equal the greater of an amount that is (1) at least 10 percent 
of the adjusted basis of the building being rehabbed; or (2) at 
least $3,000 per low-income unit in the building being 
rehabbed.
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    \1\Rehabilitation expenditures are amounts chargeable to a capital 
account and incurred for property (or additions or improvements to 
property) of a character subject to the allowance for depreciation in 
connection with the rehabilitation of a building. Such term does not 
include the cost of acquiring the building (or any interest therein). 
Other rules apply.
    \2\The credit period for an existing building does not begin before 
the credit period for the rehabilitation expenditures.
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    At the election of the taxpayer, a special rule applies 
allowing the 30-percent credit to both existing buildings and 
rehabilitation expenditures if the second prong (i.e., at least 
$3,000 of rehabilitation expenditures per low-income unit) of 
the rehabilitation expenditures test is satisfied. This special 
rule applies only in the case where the taxpayer acquired the 
building and immediately prior to that acquisition the building 
was owned by or on behalf of a government unit.

                        EXPLANATION OF PROVISION

    The provision increases the minimum expenditure 
requirements. Under the provision, the rehabilitation 
expenditures must equal the greater of an amount that is (1) at 
least 20 percent of the adjusted basis of the building being 
rehabbed; or (2) at least $6,000 per low-income unit in the 
building being rehabbed. The provision also indexes the $6,000 
amount for inflation. The other present-law rules apply.\3\
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    \3\A present-law rule reduces the $3,000 amount to $2,000 for any 
building substantially assisted, financed, or operated under Housing 
and Urban Development (``HUD'') section 8, section 221(d)(3), or 
section 236 programs, or under the USDA Rural Development section 515 
program where an assignment of the mortgage secured by the property in 
the project to HUD or the USDA Rural Development otherwise would occur 
or when a claim against a Federal mortgage insurance fund would occur. 
A conforming change is made by the provision so that that the $2,000 
amount will be increased to two-thirds of the $6,000 amount as indexed.
---------------------------------------------------------------------------
    The provision retains the taxpayer election allowing the 
30-percent credit to both existing building and the 
rehabilitation expenditures if the second prong (i.e., at least 
$3,000 of rehabilitation expenditures per low-income unit) of 
the rehabilitation expenditures test is satisfied.

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

(c) Community service facility eligibility for the credit

                              PRESENT LAW

    In general, the qualified basis of a low-income building is 
limited to that portion of the building dedicated to qualified 
low-income use (either living space or certain common areas). 
However certain ``community service facilities'' used by non-
tenants of the low-income building may be included in the 
qualified basis of the low-income building if certain 
requirements are satisfied. For this purpose, a community 
service facility: (1) means any facility to serve primarily 
individuals whose income is 60 percent or less of area median 
income; and (2) may not exceed 10 percent of the eligible basis 
of the qualified low-income housing credit project of which it 
is a part.

                        EXPLANATION OF PROVISION

    The provision expands the size of the community service 
facility with respect to which the low-income housing credit 
may be claimed. Under the provision the size of the community 
service facility may not exceed the sum of: (1) 15 percent of 
so much of the eligible basis of the qualified low-income 
housing credit project of which it is a part as does not exceed 
$5,000,000; and (2) 10 percent of any excess over $5,000,000 of 
the eligible basis of the qualified low-income housing credit 
project of which it is a part.

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

(d) Clarification of the treatment of Federal grants

                              PRESENT LAW

    The compliance period for any low-income credit building is 
the period of fifteen taxable years beginning with the taxable 
year in which the building is placed in service, or at the 
election of the taxpayer the succeeding taxable year. If during 
any year of the compliance period, a grant is made with respect 
to any building or the operation thereof and any portion of the 
grant is funded with Federal funds, the eligible basis of the 
building must be reduced by the portion of the grant that is 
Federally-funded. This basis reduction must be made for the 
taxable year in which the grant is made and all succeeding 
taxable years.

                        EXPLANATION OF PROVISION

    The provision clarifies the basis reduction rule to apply 
to Federally-funded grants received before the compliance 
period. It also provides that no basis reduction is required 
for Federally-funded grants to enable the property to be rented 
to low-income tenants received during the compliance period if 
those grants do not otherwise increase the taxpayer's eligible 
basis in the building.
    The provision also directs the modification of section 
1.42-16(b) of the regulations to provide that none of the 
following shall be considered a grant made with respect to a 
building or its operation for purposes of section 42(d)(5)(A) 
of the Internal Revenue Code of 1986: (1) rental assistance 
under section 521 of the Housing Act of 1949 (42 U.S.C. 1490a); 
(2) assistance under section 538(f)(5) of the Housing Act of 
1949 (42 U.S.C. 1490p-2(f)(5)); (3) interest reduction payments 
under section 236 of the National Housing Act (12 U.S.C. 1715z-
1); (4) rental assistance under section 202 of the Housing Act 
of 1959 (12 U.S.C. 1701q); (5) rental assistance under section 
811 of the Cranston-Gonzalez National Affordable Housing Act 
(42 U.S.C. 8013); (6) modernization, operating, and rental 
assistance pursuant to section 202 of the Native American 
Housing Assistance and Self-Determination Act of 1996 (25 
U.S.C. 4132); (7) assistance under title IV of the Stewart B. 
McKinney Homeless Assistance Act (42 U.S.C. 11361 et seq.); (8) 
tenant-based rental assistance under section 212 of the 
Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
12742); (9) assistance under the AIDS Housing Opportunity Act 
(42 U.S.C. 12901 et seq.); (10) per diem payments under section 
2012 of title 38, United States Code; (11) rent supplements 
under section 101 of the Housing and Urban Development Act of 
1965 (12 U.S.C. 1701s); (12) assistance under section 542 of 
the Housing Act of 1949 (42 U.S.C. 1490r); and (13) any other 
ongoing payment used to enable the property to be rented to 
low-income tenants. Further, no basis reduction is required for 
market rate loans made to owners of qualified low-income 
housing projects from the proceeds of Federally-funded grants. 
Nothing contained in this direction to modify the regulations 
is intended to create any inference with respect to the 
consideration of any program specified under subsection (a) as 
a grant made with respect to a building or its operation for 
purposes of section 42(d)(5)(A) of the Internal Revenue Code of 
1986 as in effect on the day before such date of enactment.

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

(e) Modification to the definition of related persons

                              PRESENT LAW

    With certain exceptions,\4\ the eligible basis of an 
existing building is zero for low-income housing credit 
purposes unless: (1) the building was acquired by purchase; (2) 
there has been a period of at least 10 years between the 
acquisition by purchase and the later of the date the building 
was last placed in service or the date of the most recent 
nonqualified substantial improvement of the building (e.g., 
improvements equaling at least 25 percent of the adjusted basis 
of the building before such improvements); and (3) the building 
was not previously placed-in-service by the taxpayer or a 
related person (sec. 42(d)(2)(B)). In order for a building to 
be acquired by purchase, it may not be acquired from a related 
party.
---------------------------------------------------------------------------
    \4\The Internal Revenue Service may waive the 10-year requirement 
for any building substantially assisted, financed, or operated under 
Housing and Urban Development (``HUD'') section 8, section 221(d)(3), 
or section 236 programs, or under the Farmers' Home Administration 
section 515 program where an assignment of the mortgage secured by the 
property in the project to HUD or the Farmers' Home Administration 
otherwise would occur or when a claim against a Federal mortgage 
insurance fund would occur.
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    The definition of related persons for purposes of these 
rules is the same as the definition used in sections 267(b) and 
707(b)(1) (relating to the disallowance of losses) with one 
modification.\5\ Under the modification, in determining whether 
two persons are related, ``10 percent'' is substituted for ``50 
percent'' in determining the threshold level of ownership in 
certain partnerships and corporations. For example, under the 
low-income credit provision, two partnerships are related if 
the same persons own more than ten percent of the capital 
interests or profits interest in each partnership.
---------------------------------------------------------------------------
    \5\In addition, certain businesses under common control are related 
persons for purposes of these rules.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision repeals the ten-percent attribution rule used 
to determine whether parties are related for purposes of 
determining whether an existing building qualifies for the low-
income housing credit. Under the provision, two persons are 
related for this purpose if they bear a relationship to each 
other specified in sections 267(b) or 707(b)(1).

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

4. Other simplification and reform of low-income housing tax incentives 
             (Sec. 104 of the bill and Sec. 42 of the Code)


(a) Repeal prohibition of the credit for buildings receiving HUD 
        moderate rehabilitation assistance

                              PRESENT LAW

    Generally, the low-income housing credit is available to 
otherwise qualifying buildings which also receive direct 
assistance under HUD section 8 programs. No credit is allowed 
to any building with respect to which moderate rehabilitation 
assistance is provided at any time during the compliance 
period, under section 8(e)(2) of the United States Housing Act 
of 1937 (other than assistance under the Stewart B. McKinney 
Homeless Assistance Act).

                        EXPLANATION OF PROVISION

    The provision eliminates the present-law prohibition 
against providing the low-income housing credit to buildings 
receiving moderate rehabilitation assistance under section 
8(e)(2) of the United States Housing Act of 1937.

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

(b) Carryover allocation rule

                              PRESENT LAW

    In general, the allocation of the low-income housing credit 
must be made not later than the close of the calendar year in 
which the building is placed in service. One exception to this 
rule is a carryover allocation. In a carryover allocation, an 
allocation may be made to a building that has not yet been 
placed in service, provided that: (1) more than 10 percent of 
the taxpayer's reasonably expected basis in the project (as of 
the close of the second calendar year following the calendar 
year of the allocation) is incurred as of the later of six 
months after the allocation is made or the end of the calendar 
year in which the allocation is made; and (2) the building is 
placed in service not later than the close of the second 
calendar year following the calendar year of the allocation.

                        EXPLANATION OF PROVISION

    The provision modifies the first prong of the carryover 
allocation rule. Under this modification such an allocation 
will satisfy the first prong provided that more than 10 percent 
of the taxpayer's reasonably expected basis in the project (as 
of the close of the second calendar year following the calendar 
year of the allocation) is incurred as of 12 months after the 
allocation is made. The second prong of the carryover 
allocation rules is unchanged.

                             EFFECTIVE DATE

    The provision is effective for buildings placed in service 
after the date of enactment.

(c) Modification of bond posting requirement

                              PRESENT LAW

    The compliance period for any building is the period 
beginning on the first day of the first taxable year of the 
credit period of such building and ending 15 years from such 
date.
    The penalty for any building subject to the 15-year 
compliance period failing to remain part of a qualified low-
income project (due, for example, to noncompliance with the 
minimum set aside requirement, or the gross rent requirement, 
or other requirements with respect to the units comprising the 
set aside) is recapture of the accelerated portion of the 
credit, with interest, for all prior years.
    Generally, any change in ownership by a taxpayer of a 
building subject to the compliance period is also a recapture 
event. An exception is provided if the seller satisfies certain 
bond posting requirements (in an amount and manner prescribed 
by Treasury), and if it can reasonably be expected that such 
building will continue to be operated as a qualified low-income 
building for the remainder of the compliance period.

                        EXPLANATION OF PROVISION

    The provision eliminates the bond posting requirement. In 
its place the provision extends the otherwise applicable 
statute of limitation until three years after the Secretary of 
the Treasury is notified of noncompliance with the low-income 
housing credit rules. This provision sunsets five years after 
the date of enactment.

                             EFFECTIVE DATE

    The provision applies with respect to dispositions of 
interests in buildings after the date of enactment.
    Also, at the election of the taxpayer, the provision 
applies with respect to dispositions of interests in a building 
on or before the date of enactment if it is reasonably expected 
that such building will continue to be a qualified low-income 
building for the remaining compliance period.

(d) Treatment of individuals who previously received foster care 
        assistance

                              PRESENT LAW

    In general, student housing does not qualify for the low-
income housing credit. Two exceptions are provided from this 
general rule.\6\ These two exceptions are units occupied by an 
individual: (1) who is a student and receiving assistance under 
title IV of the Social Security Act (Temporary Assistance for 
Needy Families); or (2) enrolled in a job training program 
receiving assistance under the Job Training Partnership Act or 
under other similar Federal, State, or local laws.
---------------------------------------------------------------------------
    \6\See also the discussion of the full-time student rule in item 
1.B.2., above.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision adds a third exception to the general rule 
that student housing is not eligible for the low-income housing 
credit. This new exception applies in the case of a student who 
was previously under the care and placement responsibility of a 
foster care program (under part B or E of title IV of the 
Social Security Act).

                             EFFECTIVE DATE

    The provision is effective for determinations made after 
the date of enactment.

(e) Additions to housing credit agency allocation plan criteria

                              PRESENT LAW

    Each State must develop a plan for allocating credits, and 
such plan must include certain allocation criteria including: 
(1) project location; (2) housing needs characteristics; (3) 
project characteristics (including whether the project uses 
existing housing as part of a community revitalization plan); 
(4) sponsor characteristics; (5) tenant populations with 
special needs; (6) tenant populations of individuals with 
children; and (7) projects intended for eventual tenant 
ownership.
    The State allocation plan must also give preference to 
housing projects: (1) that serve the lowest-income tenants; (2) 
that are obligated to serve qualified tenants for the longest 
periods; and (3) that are located in qualified census tracts 
and the development of which contributes to a concerted 
community revitalization plan. For this purpose, a qualified 
census tract is defined as a census tract: (1) designated by 
the Secretary of HUD; and (2) for the most recent year for 
which census data is available for such tract, either 50 
percent or more of the households have an income that is less 
than 60 percent of the area median income for that year or 
which has a poverty rate of at least 25 percent.
    Present law also requires that housing credit agencies 
perform a comprehensive market study of the housing needs of 
the low-income individuals in the area to be served by the 
project and a written explanation, available to the general 
public, for any allocation not made in accordance with the 
established priorities and selection criteria of the housing 
credit agency. It also requires that the housing credit agency 
conduct site visits to monitor for compliance with habitability 
standards.

                        EXPLANATION OF PROVISION

    The provision adds two additional criteria which States 
must use in their allocation of credits among potential low-
income housing projects. The additional criteria are: (1) the 
energy efficiency of the project; (2) the historic nature of 
the project.

                             EFFECTIVE DATE

    The provision is effective for allocations made after 
December 31, 2008.

(f) Measurement of area median gross income for certain projects 
        located in certain nonmetropolitan areas

                              PRESENT LAW

    In order to be eligible for the low-income housing credit, 
a qualified low-income building must be part of a qualified 
low-income housing project. In general, a qualified low-income 
housing project is defined as a project which satisfies one of 
two tests at the election of the taxpayer. The first test is 
met if 20 percent or more of the residential units in the 
project are both rent-restricted and occupied by individuals 
whose income is 50 percent or less of area median gross income 
(the ``20-50 test''). The second test is met if 40 percent or 
more of the residential units in such project are both rent-
restricted and occupied by individuals whose income is 60 
percent or less of area median gross income (the ``40-60 
test'').
    In the case of property placed in service during 2006, 
2007, and 2008 in a nonmetropolitan area within the Gulf 
Opportunity Zone, the income targeting rules of the low-income 
housing credit are applied by replacing the area median gross 
income standard with a national nonmetropolitan median gross 
income standard. These new income targeting rules apply to all 
such buildings in the Gulf Opportunity Zone regardless of 
whether the building receives its credit allocation under the 
otherwise applicable low-income housing credit cap or the 
additional credit cap (described below). The income targeting 
rules are not changed for buildings in metropolitan areas in 
the Gulf Opportunity Zone.

                        EXPLANATION OF PROVISION

    The measurement of area median gross income applied for 
residential rental property located in certain rural areas is 
modified in the case of projects subject to the low-income 
housing volume limits. In the case of such properties located 
in rural areas (as defined in section 520 of the Housing Act of 
1949), the income targeting rules of the low-income housing 
credit are applied by reference to the greater of the otherwise 
applicable area median gross income standard, or the national 
nonmetropolitan median gross income. This new income targeting 
rule applies to all such buildings if the building receives a 
low-income housing credit allocation under the otherwise 
applicable low-income housing credit volume limit. It does not 
apply in the case of buildings which do not require a low-
income housing credit allocation because they are substantially 
bond-financed. The area median gross income rules are not 
changed for buildings in metropolitan areas.

                             EFFECTIVE DATE

    The provision is effective for determinations after the 
date of enactment.

           B. Modifications to Tax-Exempt Housing Bond Rules


1. Refunding treatment for certain multi-family housing bonds (Sec. 111 
                 of the bill and Sec. 146 of the Code)


                              PRESENT LAW

In general

    Private activity bonds are bonds that nominally are issued 
by State or local governments, but the proceeds of which are 
used (directly or indirectly) by a private person and payment 
of which is derived from funds of such private person. The 
exclusion from income for interest paid on State and local 
bonds does not apply to private activity bonds, unless the 
bonds are issued for certain permitted purposes (``qualified 
private activity bonds''). The definition of a qualified 
private activity bond includes, but is not limited to, 
qualified mortgage bonds, qualified veterans' mortgage bonds, 
and bonds for qualified residential rental projects.

Qualified residential rental projects

    Residential rental property may be financed with qualified 
private activity bonds if the financed project is a ``qualified 
residential rental project.'' A project is a qualified 
residential rental project if 20 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 50 percent or less of area median gross income 
(the ``20-50 test''). Alternatively, a project is a qualified 
residential rental project if 40 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 60 percent or less of area median gross income 
(the ``40-60 test''). The issuer must elect to apply either the 
20-50 test or the 40-60 test. Operators of qualified 
residential rental projects must annually certify that such 
project meets the requirements for qualification, including 
meeting the 20-50 test or the 40-60 test.
    As with most qualified private activity bonds, bonds for 
qualified residential rental projects are subject to annual 
State volume limitations (the ``State volume cap''). For 
calendar year 2008, the State volume cap, which is indexed for 
inflation, equals $85 per resident of the State, or $262.09 
million, if greater.
    Bonds issued to finance qualified residential rental 
projects are subject to a term to maturity rule which limits 
the period of time such bonds may remain outstanding. 
Generally, this rule provides that the average maturity of a 
qualified private activity bond cannot exceed 120 percent of 
the economic life of the property being financed.\7\
---------------------------------------------------------------------------
    \7\Sec. 147(b).
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    Under the provision, if within 6 months after receipt of a 
repayment of a conduit loan used to finance a qualified 
residential rental project, such repayment is used to finance a 
second qualified residential rental project, any bond issued to 
refinance the first issue of bonds (i.e., the bond financing 
the original conduit loan) shall be treated as a refunding 
issue. Thus, under the provision, the refinancing bond is 
treated as a refunding notwithstanding a change in obligors 
under the first and second conduit loans. The provision only 
applies to the first refunding of the refunded bond and only if 
such refunding bond is issued within four years of the date of 
issue of the refunded bond. In addition, the final maturity 
date for the refunding bonds cannot be later than 34 years 
after the date of issuance of the refunded bond.

                             EFFECTIVE DATE

    The provision applies to repayments of loans received after 
the date of enactment.

 2. Coordination of certain rules applicable to the low-income housing 
 credit and qualified residential rental project exempt facility bonds 
            (Sec. 112 of the bill and Sec. 142 of the Code)


Next-available-unit rule

                              PRESENT LAW

    In order to be eligible for the low-income housing credit, 
each of the residential units with respect to which the credit 
is claimed must be: (1) occupied by low-income tenants; and (2) 
rent-restricted. If the incomes of any such tenants rise above 
certain levels, then the credit with respect to that unit is 
denied unless the next available unit in the low-income 
building (of a size comparable to or smaller than such unit) is 
rented to a new tenant who satisfies the income and rent-
restriction requirements (the ``next-available-unit rule'').\8\
---------------------------------------------------------------------------
    \8\Sec. 42(g)(2)(D)(ii).
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    Subject to certain requirements, tax-exempt bonds may be 
issued to finance qualified residential rental projects. The 
tax-exempt bond rules for qualified residential projects have 
similar tenant income limitations as the low-income credit, but 
apply the next available unit rule on a project basis rather 
than a building-by-building basis.\9\ Therefore, to avoid 
noncompliance when the income of a tenant rises above certain 
levels, the next available unit (of a size comparable to or 
smaller than such unit) in the entire project (rather than just 
the same building) must be rented to a new tenant who satisfies 
the income and rent-restriction requirements.
---------------------------------------------------------------------------
    \9\Sec. 142(d)(3)(B).
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    In the case of a low-income building which is tax-exempt 
bond financed and eligible for the low-income housing credit, 
the provision provides that both the bond and credit 
restrictions will be satisfied if the next available unit in 
the building is rented to a new tenant who satisfies the income 
and rent-restriction requirements. It therefore conforms the 
tax-exempt bond rule to the low-income housing credit rule.

                             EFFECTIVE DATE

    The provision applies to determinations of the status of 
qualified residential rental projects for periods beginning 
after the date of enactment with respect to bonds issued 
before, on, or after such date.

Students

                              PRESENT LAW

            In general
    The low-income housing credit is not available for any 
residential unit unless it is available for use by the general 
public. For these purposes, a residential unit generally is 
available for use by the general public if the unit is rented 
in a manner consistent with housing policy governing 
nondiscrimination as evidenced by the rules and regulations of 
the Department of Housing and Urban Development (``HUD''). 
Notwithstanding compliance with the HUD rules and regulations, 
a residential rental unit is not available for use by the 
general public if such unit is: (1) provided only for a member 
of a social organization; or (2) provided by an employer for 
its employees. Other rules may apply.
            Rules for full-time students
    For purposes of the low-income housing credit, no credit is 
allowed with respect to an otherwise eligible unit occupied 
entirely by full-time students unless those students are 
comprised entirely of single parents and their children. 
Further, the single parents may not be dependents of another 
individual and the children may not be dependents of another 
individual other than their parents. For purposes of the tax-
exempt bond rules, a slightly different full-time student rule 
applies.

                        EXPLANATION OF PROVISION

    The provision conforms the tax-exempt bond rule with 
respect to students to the low-income housing credit rule.
    The Committee also has become aware of Internal Revenue 
Service (the ``IRS'') efforts to apply the social organization 
prohibition to residential units advertised to members of the 
artist community but effectively open to all otherwise eligible 
low-income applicants. While fully supportive of the IRS 
enforcement efforts with regard to the general public use and 
other related rules, the Committee expresses its understanding 
that the present-law rules were never intended to apply to deny 
otherwise available low-income housing credits with respect to 
any residential units solely because nondiscriminatory 
marketing efforts were made to encourage members of a 
particular category of individuals to reside in such units so 
long as there is no direct or indirect benefit to an employer 
or organization.

                             EFFECTIVE DATE

    The full-time student provision applies to determinations 
of the status of qualified residential rental projects for 
periods beginning after the date of enactment with respect to 
bonds issued before, on, or after such date.

Single-room occupancy units

                              PRESENT LAW

    Unlike the requirements for projects financed with tax-
exempt bonds, certain single-room occupancy housing used on a 
nontransient basis may qualify for the low-income credit, even 
though such housing may provide eating, cooking, and sanitation 
facilities on a shared basis. An example of housing that may 
qualify for the credit is a residential hotel used on a 
nontransient basis that is available to all members of the 
public.
    Among other requirements, qualified residential rental 
projects financed with tax-exempt bonds generally cannot be 
used on a transient basis. Treasury regulations clarify that a 
residential unit will not be treated as used on a transient 
basis if the unit contains complete facilities for living, 
including living, sleeping, eating, cooking, and 
sanitation.\10\
---------------------------------------------------------------------------
    \10\Treas. Reg. sec. 1.103-8(b)(10)(ii).
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision conforms the tax-exempt bond rule to the low-
income housing credit rule.

                             EFFECTIVE DATE

    The provision applies to determinations of the status of 
qualified residential rental projects for periods beginning 
after the date of enactment with respect to bonds issued 
before, on, or after such date.

  C. Reforms Related to the Low-Income Housing Credit and Tax-Exempt 
                             Housing Bonds


 1. Hold harmless for reductions in area median gross income (Sec. 121 
                  of the bill and Sec. 42 of the Code)


                              PRESENT LAW

Tax rules

            Tax-exempt bonds
    Residential rental property may be financed with exempt 
facility bonds if the financed project is a ``qualified 
residential rental project.'' A project is a qualified 
residential rental project if 20 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 50 percent or less of area median gross income 
(the ``20-50 test''). Alternatively, a project is a qualified 
residential rental project if 40 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 60 percent or less of area median gross income 
(the ``40-60 test''). The issuer must elect to apply either the 
20-50 test or the 40-60 test (sec. 142).
            Low-income housing tax credit
    In order to be eligible for the low-income housing credit, 
a qualified low-income building must be part of a qualified 
low-income housing project. In general, a qualified low-income 
housing project is defined as a project that satisfies one of 
two tests at the election of the taxpayer (sec. 42(g)). The 
first test is met if 20 percent or more of the residential 
units in the project are both rent-restricted, and occupied by 
individuals whose income is 50 percent or less of area median 
gross income (the ``20-50 test''). The second test is met if 40 
percent or more of the residential units in such project are 
both rent-restricted, and occupied by individuals whose income 
is 60 percent or less of area median gross income (the ``40-60 
test''). These income figures are adjusted for family size.
            Determination of income and area median gross income
    The income of individuals and area median gross income are 
determined by the Secretary of the Treasury in a manner 
consistent with determinations of lower-income families and 
area median gross income under section 8 of the Housing Act of 
1937 (sec. 142(d)). These determinations under section 8 are 
made by HUD. These determinations also include adjustments for 
family size.
    Therefore such determinations (individual and area median 
gross income) are applicable for purposes of tax-exempt bonds 
and the low-income housing credit.

HUD hold harmless policy

    Generally HUD releases its calculation of area median gross 
income for a calendar year early in that year. Historically HUD 
has used the most recent decennial census data and updated it 
with other data on income, employment and earnings.
    Recently HUD modified its methodology to include additional 
data in its calculation of area median gross income. In some 
instances this change in methodology resulted in significantly 
lower numbers for area median gross income in some areas. In 
response to this result, HUD provided that such areas are not 
treated as having a lower area median gross income for purposes 
of HUD housing programs.

                        EXPLANATION OF PROVISION

In general

    The provision makes two modifications to the determination 
of area median gross income for purposes of tax-exempt bonds 
and the low-income housing credit.

Determination of income and area median gross income

    The provision provides that any determination of area 
median gross income with respect to a project may not be less 
than the determination of area median gross income with respect 
to that project for the preceding calendar year. This 
modification applies to all projects and is not limited to 
projects benefiting from the HUD hold harmless policy.

HUD hold harmless policy

    In the case of a HUD hold harmless impacted project, the 
determination of area median gross income for the project is 
the greater of (i) the amount determined without regard to the 
special rule for HUD hold harmless impacted projects or (ii) 
the sum of the area median gross income determined under the 
HUD hold harmless policy with respect to the project for 2008 
plus any increase in area median gross income after 2008.

                             EFFECTIVE DATE

    The provision applies to determinations of area median 
gross income for calendar years after 2008.

 2. Exception from the annual recertification requirement for projects 
which are entirely low-income use (Sec. 122 of the bill and Sec. 142 of 
                               the Code)


                              PRESENT LAW

Tax rules

            In general
    Tax-exempt bonds
    Residential rental property may be financed with exempt 
facility bonds if the financed project is a ``qualified 
residential rental project.'' A project is a qualified 
residential rental project if 20 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 50 percent or less of area median gross income 
(the ``20-50 test''). Alternatively, a project is a qualified 
residential rental project if 40 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 60 percent or less of area median gross income 
(the ``40-60 test''). The issuer must elect to apply either the 
20-50 test or the 40-60 test (sec. 142).
    Low-income housing tax credits 
    In order to be eligible for the low-income housing credit, 
a qualified low-income building must be part of a qualified 
low-income housing project. In general, a qualified low-income 
housing project is defined as a project that satisfies one of 
two tests at the election of the taxpayer (sec. 42(g)). The 
first test is met if 20 percent or more of the residential 
units in the project are both rent-restricted, and occupied by 
individuals whose income is 50 percent or less of area median 
gross income (the ``20-50 test''). The second test is met if 40 
percent or more of the residential units in such project are 
both rent-restricted, and occupied by individuals whose income 
is 60 percent or less of area median gross income (the ``40-60 
test''). These income figures are adjusted for family size.
            Determination of income and area median gross income
    The income of individuals and area median gross income are 
determined by the Secretary of the Treasury in a manner 
consistent with determinations of lower-income families and 
area median gross income under section 8 of the Housing Act of 
1937 (sec. 142(d)). These determinations also include 
adjustments for family size.
            Certification
    The Code provides that the operator of any qualified 
residential rental project must submit to the Secretary of the 
Treasury (at such time and in such manner as the Secretary 
prescribes) an annual certification that the project continues 
to satisfy the requirements of a qualified residential rental 
project. Any failure to comply with the annual certification to 
the Secretary of the Treasury will subject the operator to 
penalties but will not affect the tax-exempt status of the 
underlying bonds (sec. 142(d)(7)).
    Similar rules apply for the low-income housing credit 
regarding tenant incomes (sec. 42(g)(4)). IRS Revenue Procedure 
1994-64 allows a taxpayer to request a waiver of this 
certification under certain circumstances with the consent of 
the State agency responsible for monitoring the low-income 
credit project.
            Treatment of tenants whose incomes rise above the income 
                    limits
    Generally a low-income unit will continue to be treated as 
such even when the tenant's income rises above the income 
limits provided that the next available unit (of a size 
comparable to or smaller than such unit) in the project is 
occupied by a new resident who satisfies the income limits.

HUD rules

    A family's eligibility for various types of HUD housing 
assistance is based on its income and family composition. The 
HUD Handbook 4350.3 contains the certification and annual 
recertification rules to be followed by project operators. 
Under the HUD program requirements tenants have the 
responsibility to provide timely information to the project 
operators. Operators have the responsibility to review and 
verify the tenant information and to make changes to assistance 
payment and tenant rent to satisfy program requirements.

                        EXPLANATION OF PROVISION

    The provision waives the annual recertification 
requirements under the low-income credit (sec. 42) and tax-
exempt bonds (sec. 142) for any project as long as no 
residential unit in the project is occupied by tenants who fail 
to satisfy the otherwise applicable income limits. The 
provision does not modify the HUD rules; therefore some 
projects must continue annual certification notwithstanding 
this provision.

                             EFFECTIVE DATE

    The provision is effective for years ending after the date 
of enactment.

              TITLE II--BENEFITS FOR SINGLE FAMILY HOUSING


A. First-Time Homebuyer Credit (Sec. 131 of the bill and Sec. 36 of the 
                                 Code)


                              PRESENT LAW

    Qualified mortgage bonds are issued to make mortgage loans 
to qualified mortgagors for owner-occupied residences. The 
subsidy provided for qualified mortgage bonds allows issuers to 
finance mortgages for homebuyers at reduced interest rates. The 
Code imposes several limitations on qualified mortgage bonds, 
including a ``first-time homebuyer'' requirement. The first-
time homebuyer requirement provides that qualified mortgage 
bonds generally cannot be used to finance a mortgage for a 
homebuyer who had an ownership interest in a principal 
residence in the three years preceding the execution of the 
mortgage. In addition, bond proceeds generally only can be used 
for new mortgages, i.e., proceeds cannot be used to acquire or 
refinance existing mortgages.
    In addition, prior to 2008, first-time homebuyers of a 
principal residence in the District of Columbia were eligible 
for a nonrefundable tax credit of up to $5,000 of the amount of 
the purchase price. The $5,000 maximum credit applies both to 
individuals and married couples filing a joint return. A 
married individual filing separately can claim a maximum credit 
of $2,500. The instructions to IRS Form 8859 (District of 
Columbia First-Time Homebuyer Credit) state that if ``two or 
more unmarried individuals buy a main home, they can allocate 
the credit among the individual owners in any manner they 
choose.'' The credit phases out for individual taxpayers with 
modified adjusted gross income between $70,000 and $90,000 
($110,000-$130,000 for joint filers). For purposes of 
eligibility, ``first-time homebuyer'' means any individual if 
such individual did not have a present ownership interest in a 
principal residence in the District of Columbia in the one-year 
period ending on the date of the purchase of the residence to 
which the credit applies. The credit expired for residences 
purchased after December 31, 2007.\11\
---------------------------------------------------------------------------
    \11\Sec. 1400C. The credit was enacted as part of the Taxpayer 
Relief Act of 1997 and was originally scheduled to expire on December 
31, 2000. It has been extended several times, the last extension 
through December 31, 2007.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee wishes to provide temporary alternatives to 
assist first-time homebuyers. The provision is intended to 
provide first-time homebuyers with the equivalent of an 
interest-free loan, effectively reducing the cost incurred by 
first-time homebuyers in borrowing to acquire a home.

                        EXPLANATION OF PROVISION

    Under the proposal, a taxpayer who is a first-time 
homebuyer is allowed a refundable tax credit equal to the 
lesser of $7,500 or 10 percent of the purchase price of a 
principal residence. The $7,500 maximum credit applies both to 
individuals and married couples filing a joint return. A 
married individual filing separately can claim a maximum credit 
of $3,750. The credit is allowed for the tax year in which the 
taxpayer purchases the home.
    The credit phases out for individual taxpayers with 
modified adjusted gross income between $70,000 and $90,000 
($140,000-$160,000 for joint filers) for the year of purchase.
    A taxpayer is considered a first-time homebuyer if such 
individual had no ownership interest in a principal residence 
in the United States during the 3-year period prior to the 
purchase of the home to which the credit applies.
    No credit is allowed if the D.C. homebuyer credit is 
allowable for the taxable year the residence is purchased or a 
prior taxable year. A taxpayer is not permitted to claim the 
credit if the taxpayer's financing is from tax-exempt mortgage 
revenue bonds, if the taxpayer is a nonresident alien, or if 
the taxpayer disposes of the residence (or it ceases to be a 
principal residence) before the close of a taxable year for 
which a credit otherwise would be allowable.
    The credit is recaptured ratably over fifteen years with no 
interest charge beginning in the second taxable year after the 
taxable year in which the home is purchased. For example, if 
the taxpayer purchases a home in 2008, the credit is allowed on 
the 2008 tax return, and repayments commence with the 2010 tax 
return. If the taxpayer sells the home (or the home ceases to 
be used as the principal residence of the taxpayer or the 
taxpayer's spouse) prior to complete repayment of the credit, 
any remaining credit repayment amount is due on the tax return 
for the year in which the home is sold (or ceases to be used as 
the principal residence). However, the credit repayment amount 
may not exceed the amount of gain from the sale of the 
residence to an unrelated person. For this purpose, gain is 
determined by reducing the basis of the residence by the amount 
of the credit to the extent not previously recaptured. No 
amount is recaptured after the death of a taxpayer. In the case 
of an involuntary conversion of the home, recapture is not 
accelerated if a new principal residence is acquired within a 
two year period. In the case of a transfer of the residence to 
a spouse or to a former spouse incident to divorce, the 
transferee spouse (and not the transferor spouse) will be 
responsible for any future recapture.

                             EFFECTIVE DATE

    The provision is effective for qualifying home purchases 
after April 8, 2008 and before April 1, 2009 (without regard to 
whether or not there was a binding contract to purchase prior 
to the date of committee action).

  B. Additional Standard Deduction for State and Local Real Property 
          Taxes (Sec. 132 of the bill and Sec. 63 of the Code)


                              PRESENT LAW

    An individual taxpayer's taxable income is computed by 
reducing adjusted gross income either by a standard deduction 
or, if the taxpayer elects, by the taxpayer's itemized 
deductions. Unless an individual taxpayer elects, no itemized 
deduction is allowed for the taxable year. The deduction for 
certain taxes, including income taxes, real property taxes, and 
personal property taxes, generally is an itemized 
deduction.\12\
---------------------------------------------------------------------------
    \12\If the deduction for State and local taxes is attributable to 
business or rental income, the deduction is allowed in computing 
adjusted gross income and therefore is not an itemized deduction.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes an additional standard deduction for 
real property taxes is appropriate in order to help lessen the 
impact of rising State and local property tax bills on those 
individual taxpayers with insufficient total itemized 
deductions to elect not to take the standard deduction.

                        EXPLANATION OF PROVISION

    The provision increases an individual taxpayer's standard 
deduction for a taxable year beginning in 2008 by the lesser of 
(1) the amount allowable\13\ to the taxpayer as a deduction for 
State and local taxes described in section 164(a)(1) (relating 
to real property taxes), or (2) $350 ($700 in the case of a 
married individual filing jointly). The increased standard 
deduction is determined by taking into account real estate 
taxes for which a deduction is allowable to the taxpayer under 
section 164 and, in the case of a tenant-stockholder in a 
cooperative housing corporation, real estate taxes for which a 
deduction is allowable to the taxpayer under section 216. No 
taxes deductible in computing adjusted gross income are taken 
into account in computing the increased standard deduction.
---------------------------------------------------------------------------
    \13\In the case of an individual taxpayer who does not elect to 
itemize deductions, although no itemized deductions are allowed to the 
taxpayer, itemized deductions are nevertheless treated as 
``allowable.'' See section 63(e).
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to taxable years beginning in 2008.

                 TITLE III--GENERAL HOUSING PROVISIONS


 A. Modifications to Qualified Private Activity Bond Rules for Housing 
     (Sec. 141 of the bill and Secs. 142, 143, and 146 of the Code)


                              PRESENT LAW

In general

    Private activity bonds are bonds that nominally are issued 
by State or local governments, but the proceeds of which are 
used (directly or indirectly) by a private person and payment 
of which is derived from funds of such private person. The 
exclusion from income for interest paid on State and local 
bonds does not apply to private activity bonds, unless the 
bonds are issued for certain permitted purposes (``qualified 
private activity bonds''). The definition of a qualified 
private activity bond includes, but is not limited to, 
qualified mortgage bonds, qualified veterans' mortgage bonds, 
and bonds for qualified residential rental projects.

Qualified private activity bond rules for housing

    Qualified mortgage bonds are issued to make mortgage loans 
to qualified mortgagors for owner-occupied residences. The Code 
imposes several limitations on qualified mortgage bonds, 
including income limitations for homebuyers, purchase price 
limitations for the home financed with bond proceeds, and a 
``first-time homebuyer'' requirement. The income limitations 
are satisfied if all financing provided by an issue is provided 
for mortgagors whose family income does not exceed 115 percent 
of the median family income for the metropolitan area or State, 
whichever is greater, in which the financed residences are 
located. The purchase price limitations provide that a 
residence financed with qualified mortgage bonds may not have a 
purchase price in excess of 90 percent of the average area 
purchase price for that residence. The first-time homebuyer 
requirement provides that qualified mortgage bonds generally 
cannot be used to finance a mortgage for a homebuyer who had an 
ownership interest in a principal residence in the three years 
preceding the execution of the mortgage. In addition, bond 
proceeds generally only can be used for new mortgages, i.e., 
proceeds cannot be used to acquire or refinance existing 
mortgages. Under present law, the proceeds of qualified 
mortgage bonds generally must be used to finance mortgages 
within 42 months from the date of issuance of the bonds.
    Residential rental property may be financed with qualified 
private activity bonds if the financed project is a ``qualified 
residential rental project.'' A project is a qualified 
residential rental project if 20 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 50 percent or less of area median gross income 
(the ``20-50 test''). Alternatively, a project is a qualified 
residential rental project if 40 percent or more of the 
residential units in such project are occupied by individuals 
whose income is 60 percent or less of area median gross income 
(the ``40-60 test'').
    As with most qualified private activity bonds, qualified 
mortgage bonds and bonds for qualified residential rental 
projects are subject to annual State volume limitations (the 
``State volume cap''). For calendar year 2008, the State volume 
cap, which is indexed for inflation, equals $85 per resident of 
the State, or $262.09 million, if greater. The interest income 
from qualified mortgage bonds and bonds for qualified 
residential rental projects is a preference item for purposes 
of calculating the alternative minimum tax (``AMT'').

                           REASONS FOR CHANGE

    The Committee is concerned that the general deterioration 
in the credit markets and decline in housing prices is making 
it difficult for many homeowners to refinance high interest 
rate mortgages. The Committee believes that additional tools 
are needed to alleviate the financial burdens faced by 
homeowners with subprime, adjustable-rate mortgages that are 
due to reset over the next several years. The Committee also 
believes that tax-exempt bonds are an effective way to provide 
these homeowners with lower-cost refinancing options than are 
otherwise available under current market conditions. Thus, the 
Committee believes it is appropriate to temporarily expand the 
purposes for which qualified mortgage bonds may be issued and 
to temporarily increase the volume cap available for housing 
projects.

                        EXPLANATION OF PROVISION

Temporary volume cap increase

    The provision authorizes an additional $10 billion of 
volume cap for 2008 for the purpose of issuing qualified 
mortgage bonds or private activity bonds for qualified 
residential rental projects. The additional volume cap is 
allocated to each State in the same proportion as the 
population of such State bears to the population of all the 
States. Qualified mortgage bonds issued with respect to the 
additional volume cap may be used to finance either mortgages 
permitted under present law (e.g., new mortgages) or qualified 
subprime loans as defined under the bill. However, all proceeds 
of qualified mortgage bonds issued with respect to the 
additional volume cap must be used within 12 months of the date 
of issuance of such bonds. Additional volume cap that remains 
unused at the end of 2008 may be carried forward to 2009 and 
2010, but solely for the purpose of issuing qualified mortgage 
bonds or private activity bonds for qualified residential 
rental projects.

Qualified mortgage bonds for certain refinancings

    The provision creates an exception to the new mortgage 
requirement for qualified mortgage bonds by authorizing the use 
of such bonds to refinance a qualified subprime loan. The 
provision defines a qualified subprime loan as an adjustable 
rate residential mortgage loan originated after December 31, 
2001, and before January 1, 2008, that the issuer determines 
would be reasonably Iikely to cause financial hardship to the 
borrower if not refinanced. Under the provision, proceeds of 
qualified mortgage bonds used to refinance qualified subprime 
loans must be so used within 12 months from the date of 
issuance of the bond. In addition, the provision also provides 
that qualified subprime loans cannot be refinanced by bonds 
issued after December 31, 2010.

                             EFFECTIVE DATE

    The provision applies to bonds issued after the date of 
enactment.

B. Alternative Minimum Tax Treatment of Interest on Certain Bonds, the 
 Low-Income Housing Credit, and the Rehabilitation Credit (Sec. 142 of 
             the bill and Secs. 38, 56 and 57 of the Code)


                              PRESENT LAW

In general

    Present law imposes an alternative minimum tax (``AMT'') on 
individuals and corporations. AMT is the amount by which the 
tentative minimum tax exceeds the regular income tax. The 
tentative minimum tax is computed based upon a taxpayer's 
alternative minimum taxable income (``AMTI''). AMTI is the 
taxpayer's taxable income modified to take into account certain 
preferences and adjustments.

Tax-exempt bonds

    One of the preference items is tax-exempt interest on 
certain tax-exempt bonds issued for private activities (sec. 
57(a)(5)). Also, in the case of a corporation, an adjustment 
based on current earnings is determined, in part, by taking 
into account 75 percent of items, including tax-exempt 
interest, that are excluded from taxable income but included in 
the corporation's earnings and profits (sec. 56(g)(4)(B)).

Low-income housing and rehabilitation credits

    Business tax credits generally may not exceed the excess of 
the taxpayer's income tax liability over the tentative minimum 
tax (or, if greater, 25 percent of the regular tax liability in 
excess of $25,000). Thus, business tax credits generally cannot 
offset the alternative minimum tax liability.\14\
---------------------------------------------------------------------------
    \14\A special rule treats the tentative minimum tax as being zero 
for purposes of determining the tax liability limitation with respect 
to certain energy credits, the work opportunity credit and the credit 
for taxes paid with respect to employee cash tips (sec. 38(c)(4)). 
Thus, the credits listed in the preceding sentence may offset the 
alternative minimum tax liability.
---------------------------------------------------------------------------
    Credits in excess of the limitation may be carried back one 
year and carried forward for up to 20 years.

                           REASONS FOR CHANGE

    The alternative minimum tax limits the intended benefits of 
tax-exempt housing bonds for some taxpayers who invest in these 
bonds. Also, the alternative minimum tax limits the intended 
effects of the low-income housing tax credit and the 
rehabilitation credit for some taxpayers. The Committee 
believes that the tax exemption for interest on these housing 
bonds, the low-income housing tax credit and the rehabilitation 
credit should be available to taxpayers regardless of their 
alternative minimum tax status. Accordingly, the bill 
eliminates the treatment of this interest as a tax preference 
under the alternative minimum tax and provides that these 
credits can be utilized to offset both the regular tax and the 
alternative minimum tax.

                        EXPLANATION OF PROVISION

Tax-exempt bonds

    The bill provides that tax-exempt interest on (i) exempt 
facility bonds issued as part of an issue 95 percent or more of 
the net proceeds of which are used to provide qualified 
residential rental projects (as defined in section 142(d)), 
(ii) qualified mortgage bonds (as defined in section 143(a)), 
and (iii) qualified veterans' mortgage bonds (as defined in 
section 143(b)) is not an item of tax preference for purposes 
of the alternative minimum tax. Also, this interest is not 
included in the corporate adjustment based on current earnings. 
The provision does not apply to interest on any refunding bond 
unless interest on the refunded bond (or in the case of a 
series of refundings, the original bond) was not an item of tax 
preference.

Low-income housing and rehabilitation credits

    The bill treats the tentative minimum tax as being zero for 
purposes of determining the tax liability limitation with 
respect to the low-income housing credit and the rehabilitation 
credit.
    Thus, the low-income housing tax credit and the 
rehabilitation credit may offset the alternative minimum tax 
liability.

                             EFFECTIVE DATE

    The provision applies to interest on bonds issued after the 
date of enactment.
    The provision applies to low-income housing credits 
determined under section 42 attributable to buildings placed in 
service after December 31, 2007 (including any carryback of the 
credits).
    The provision applies to rehabilitation credits determined 
under section 47 attributable to qualified rehabilitation 
expenses properly taken into account for periods after December 
31, 2007 (including any carryback of the credits).

 C. Bonds Guaranteed by Federal Home Loan Banks Eligible for Treatment 
  as Tax-Exempt Bonds (Sec. 143 of the bill and Sec. 149 of the Code)


                              PRESENT LAW

    Interest paid on bonds issued by State and local 
governments generally is excluded from gross income for Federal 
income tax purposes. However, the exclusion generally does not 
apply to State and local bonds that are Federally guaranteed. 
Under present law, a bond is Federally guaranteed if: (1) the 
payment of principal or interest with respect to such bond is 
guaranteed (in whole or in part) by the United States (or any 
agency or instrumentality thereof); (2) such bond is issued as 
part of an issue and five percent or more of the proceeds of 
such issue is to be (a) used in making loans the payment of 
principal or interest with respect to which is guaranteed (in 
whole or in part) by the United States (or any agency or 
instrumentality thereof), or (b) invested directly or 
indirectly in Federally insured deposits or accounts; or (3) 
the payment of principal or interest on such bond is otherwise 
indirectly guaranteed (in whole or in part) by the United 
States (or any agency or instrumentality thereof).
    The Federal guarantee restriction was enacted in 1984 with 
certain exceptions for certain guarantee programs in existence 
at that time. The exceptions include guarantees by: the Federal 
Housing Administration; the Department of Veterans' Affairs; 
the Federal National Mortgage Association; the Federal Home 
Loan Mortgage Association; the Government National Mortgage 
Association; the Student Loan Marketing Association; and the 
Bonneville Power Authority. The exception also includes 
guarantees for certain housing programs. These are: (a) private 
activity bonds for a qualified residential rental project or a 
housing program obligation under section 11(b) of the United 
States Housing Act of 1937; (b) a qualified mortgage bond; or 
(c) a qualified veterans' mortgage bond.

                           REASONS FOR CHANGE

    The Committee is concerned that the recent deterioration in 
the credit markets is increasing the borrowing costs of State 
and local governments for essential governmental projects. The 
Committee believes that additional tools are needed to allow 
State and local governments easier access to the credit 
markets. Thus, the Committee believes it is appropriate to 
provide a temporary exception to the Federal guarantee 
prohibition to reduce the borrowing costs of State and local 
governments.

                        EXPLANATION OF PROVISION

    Under the provision, bonds issued by State and local 
governments are not treated as Federally guaranteed by reason 
of any guarantee provided by any Federal Home Loan Bank of a 
bond issued after the date of enactment and before January 1, 
2011, if such bank made a guarantee of such bond in connection 
with such issuance.
    The exception to the Federal guarantee prohibition does not 
apply to any guarantee by a Federal home loan bank unless such 
bank meets safety and soundness collateral requirements for 
such guarantees which are at least as stringent as the 
regulatory requirements for guarantees by Federal home loan 
banks as in effect on April 9, 2008.

                             EFFECTIVE DATE

    The provision applies to guarantees made after the date of 
enactment.

  D. Modification of Rules Pertaining to FIRPTA Nonforeign Affidavits 
            (Sec. 144 of the bill and Sec. 1445 of the Code)


                              PRESENT LAW

    In general, nonresident aliens and foreign corporations are 
not taxed on capital gains.\15\ However, such foreign persons 
must take into account gains and losses from the disposition of 
an interest in United States real property (``USRPI''), as if 
such persons were engaged in a trade or business in the United 
States during the taxable year, and such gain or loss were 
effectively connected with such trade or business.\16\
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    \15\Nonresident aliens present in the United States for a period or 
period aggregating 183 days or more during a taxable year are taxed at 
a flat 30 percent on their net U.S. source capital gains. Sec. 
871(a)(2).
    \16\Sec. 897(a)(1).
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    Although tax is imposed upon such dispositions on a net 
basis, in the case of any disposition of a USRPI by a foreign 
person, the transferee is generally required to deduct and 
withhold a tax equal to ten percent of the amount realized.\17\ 
The transferee is exempt from this withholding requirement if:
---------------------------------------------------------------------------
    \17\Sec. 1445(a).
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          In general, the transferred interest is not a USRPI;
          The transferee receives a ``qualifying statement'' 
        from the Secretary of the Treasury (or his delegate) 
        that states that the transferor is exempt from the tax 
        on the disposition of the USRPI or has reached 
        agreement with the Secretary for payment of such tax, 
        and that any withholding tax has been satisfied or 
        secured;
          The USRPI is acquired by the transferee for use by 
        him as a residence and the amount realized does not 
        exceed $300,000; or
          The transferor furnishes to the transferee an 
        affidavit by the transferor stating, under penalties of 
        perjury, the transferor's United States taxpayer 
        identification number and that the transferor is not a 
        foreign person. However, this rule does not apply if 
        the transferee has actual knowledge that such affidavit 
        is false or if the transferee receives a notice from a 
        transferor's agent or a transferee's agent that such 
        affidavit is false, or if the transferee fails to meet 
        the Secretary's requirement that the transferee furnish 
        a copy of such affidavit to the Secretary.\18\ 
        Regulations require the transferee to retain the 
        transferor's affidavit until the end of the fifth 
        taxable year following the taxable year in which the 
        transfer takes place.\19\
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    \18\Sec. 1445(b).
    \19\Treas. Reg. sec. 1.1445-2(b)(3).
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    In certain circumstances, agents may be liable for some or 
all of the withholding tax. In general, if the transferor's 
agent or the transferee's agent has actual knowledge that the 
affidavit is false, then such agent is required to notify the 
transferee pursuant to regulations.\20\ An agent that is 
required to notify the transferee pursuant to regulations yet 
fails to do so is under the same duty to deduct and withhold 
that the transferee would have been under if such agent had 
properly given such notice.\21\ However, an agent's liability 
under these circumstances is limited to the amount of the 
agent's compensation from the transaction.\22\
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    \20\Sec. 1445(d)(1).
    \21\Sec. 1445(d)(2)(A).
    \22\Sec. 1445(d)(2)(B).
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    In the case of a real estate transaction, a ``real estate 
reporting person'' is required to file an information return 
and to furnish certain written statements to customers.\23\ A 
real estate reporting person means the person (including any 
attorney or title company) responsible for closing the 
transaction, if there is such a person.\24\
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    \23\Sec. 6045(e)(1). There is an exception to this requirement for 
a sale or exchange of a residence for $250,000 or less ($500,000 if the 
seller is married), if certain conditions are met. Sec. 6045(e)(5).
    \24\If there is no such person, then the real estate reporting 
person with respect to that transaction is either the mortgage lender, 
seller's broker, buyer's broker, or other person designated under 
regulations, in that order. Sec. 6045(e)(2).
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                           REASONS FOR CHANGE

    The Committee believes that U.S. persons generally are 
hesitant to provide their social security numbers to persons 
with whom they do not have an ongoing business relationship. 
The Committee believes that offering transferors of USRPIs the 
option of providing nonforeign affidavits solely to the person 
responsible for closing the transaction should better protect 
the social security numbers of transferors and provide 
assurance to transferors that their private information will be 
secure.

                        EXPLANATION OF PROVISION

    The provision provides an alternate procedure with respect 
to the nonforeign affidavit. Under this procedure, in lieu of 
furnishing a nonforeign affidavit to the transferee, a 
transferor may furnish such affidavit to a ``qualified 
substitute.'' Such qualified substitute is then required to 
furnish a statement to the transferee stating, under penalties 
of perjury, that the qualified substitute has such affidavit in 
his or her possession. With respect to a disposition of a 
USRPI, the term ``qualified substitute'' means (1) the person, 
including any attorney or title company, responsible for 
closing the transaction, other than the transferor's agent, and 
(2) the transferee's agent.
    This exemption does not apply if the transferee or 
qualified substitute has actual knowledge that such affidavit 
or statement is false, if the transferee or qualified 
substitute receives a notice from a transferor's agent, 
transferee's agent, or qualified substitute that such affidavit 
or statement is false, or if the transferee or qualified 
substitute fails to meet a regulatory requirement that the 
transferee or qualified substitute furnish a copy of such 
affidavit or statement to the Secretary.
    Moreover, if the transferor's agent, the transferee's 
agent, or the qualified substitute has actual knowledge that 
the affidavit or statement is false, then such agent or 
qualified substitute is required to notify the transferee. As 
under present law, the time and manner of such notice is to be 
specified by regulations. An agent or qualified substitute that 
is required to notify the transferee pursuant to regulations 
yet fails to do so has the same duty to deduct and withhold 
that the transferee would have had if such agent or qualified 
substitute had properly given such notice. An agent's or 
qualified substitute's liability under these circumstances is 
limited to the amount of the compensation that such agent or 
qualified substitute derives from the transaction.
    The Secretary of the Treasury is required to prescribe such 
regulations as may be necessary or appropriate to carry out 
this provision. It is intended that such rules will require the 
qualified substitute and transferee to retain the documentation 
for a period commensurate with the period required under the 
present-law regulations.

                             EFFECTIVE DATE

    The provision is effective for dispositions after the date 
of enactment.

E. Modify Rehabilitation Credit Tax-Exempt Use Safe Harbor (Sec. 145 of 
                   the bill and Sec. 47 of the Code)


                              PRESENT LAW

    A 10-percent credit is provided for rehabilitation 
expenditures with respect to buildings first placed in service 
before 1936. A 20-percent credit is provided for rehabilitation 
expenditures with respect to a certified historic structure.
    Rehabilitation expenditures eligible for the credit do not 
include any expenditure in connection with the rehabilitation 
of a building that is allocable to the portion of the property 
that is (or may reasonably be expected to be) tax-exempt use 
property. In the case of nonresidential real property, tax-
exempt use property generally means the portion of the property 
leased in a disqualified lease\25\ to tax-exempt entities (sec. 
168(h)(1)). For this purpose, a tax-exempt entity means (1) the 
United States, a State or political subdivision, a U.S. 
possession, or an agency or instrumentality thereof, (2) a tax-
exempt organization, (3) a foreign person or entity, or (4) an 
Indian tribal government.
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    \25\A disqualified lease for this purpose is a lease to a tax-
exempt entity in specified circumstances. These are: (1) part or all of 
the property was financed, directly or indirectly, by tax-exempt bond 
financing and the entity (or a related entity) participated in the 
financing; (2) under the lease there is a fixed or determinable price 
purchase or sale involving the entity or a related entity (or the 
equivalent of such an option); (3) the term of the lease exceeds 20 
years; or (4) there has been a sale and leaseback of the property and 
the entity (or a related entity) used the property before the sale, 
transfer, or lease (sec. 168(h)(1)(B)).
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    A safe harbor provides, however, that in the case of 
nonresidential real property, the property is treated as tax-
exempt use property only if the portion of the property leased 
to tax-exempt entities in disqualified leases is more than 35 
percent of the property.

                           REASONS FOR CHANGE

    The Committee is concerned that the rehabilitation tax 
credit may not be providing an incentive to rehabilitate 
buildings when a tax-exempt entity leases a portion of the 
building in some circumstances. For example, when a 
governmental entity such as a post office uses a portion of the 
building exceeding 35 percent, the amount of the tax credit for 
rehabilitating the building is reduced. The Committee believes 
that increasing the present-law percentage of permitted tax-
exempt use somewhat, from 35 percent to 50 percent, will 
encourage the rehabilitation of more buildings.

                        EXPLANATION OF PROVISION

    The provision increases from 35 percent to 50 percent the 
percentage of the property that may be leased to a tax-exempt 
entity in a disqualified lease without requiring allocation of 
rehabilitation expenditures under the rehabilitation credit. 
Under the provision, for determining rehabilitation 
expenditures eligible for the credit, nonresidential real 
property is treated as ``tax-exempt use'' property only if the 
portion of the property leased to tax-exempt entities in 
disqualified leases is more than 50 percent of the property. 
For this purpose, a tax-exempt entity continues to have the 
same meaning provided by present law.

                             EFFECTIVE DATE

    The provision is effective for expenditures properly taken 
into account for periods after December 31, 2007.

    TITLE IV--REAL ESTATE INVESTMENT TRUST (``REIT'') MODIFICATIONS


     (Secs. 201-241 of the bill and Secs. 856 and 857 of the Code)


                              PRESENT LAW

In general

    A real estate investment trust (``REIT'') is an entity that 
otherwise would be taxed as a U.S. corporation and that elects 
to be taxed under a special REIT tax regime. In order to 
qualify as a REIT, an entity must meet a number of 
requirements. At least 90 percent of REIT income (other than 
net capital gain) must be distributed annually;\26\ the REIT 
must derive most of its income from passive, generally real-
estate-related investments; and REIT assets must be primarily 
real- estate-related. In addition, a REIT must have 
transferable interests and at least 100 shareholders, and no 
more than 50 percent of the REIT interests may be owned by 5 or 
fewer individual shareholders (as determined using specified 
attribution rules). Other requirements also apply.\27\
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    \26\Even if a REIT meets the 90 percent income distribution 
requirement for REIT qualification, more stringent distribution 
requirements must be met in order to avoid an excise tax under section 
4981.
    \27\Secs. 856 and 857.
---------------------------------------------------------------------------
    If an electing entity meets the requirements for REIT 
status, the portion of its income that is distributed to its 
shareholders each year as a dividend is deductible by the REIT 
(unlike the case of a regular subchapter C corporation, which 
cannot deduct dividends). As a result, the distributed income 
of the REIT is not taxed at the entity level; instead, it is 
taxed only at the investor level.\28\
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    \28\A REIT that has net capital gain can either distribute that 
gain as a ``capital gain'' dividend or retain that gain without 
distributing it but cause the shareholders to be treated as if they had 
received and reinvested a capital gain dividend. In either case, the 
gain is in effect taxed only as net capital gain of the shareholders. 
Sec. 857(b)(3).
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Income tests

            In general
    A REIT is restricted to earning certain types of generally 
passive income. Among other requirements, at least 75 percent 
of the gross income of a REIT in a taxable year must consist of 
real-estate-related income. This includes rents from real 
property, income from the sale or exchange of real property 
(including interests in real property) that is not stock in 
trade, inventory, or held by the taxpayer primarily for sale to 
customers in the ordinary course of its trade or business, 
interest on mortgages secured by real property or interests in 
real property, and certain income from foreclosure property 
(the ``75-percent income test'').\29\ Amounts attributable to 
most types of services provided to tenants (other than certain 
``customary services''), or to more than specified amounts of 
personal property, are not qualifying rents.\30\ In addition, 
rents received from any entity in which the REIT owns more than 
10 percent of the vote or value also generally are not 
qualifying income. However, there is an exception for certain 
rents received from taxable REIT subsidiaries (described 
further below), in which a REIT may own more than 10 percent of 
the vote or value.
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    \29\Secs. 856(c)(3) and 1221(a)(1). Income from sales that are not 
prohibited transactions solely by virtue of section 857(b)(6) is also 
qualified REIT income.
    \30\Sec. 856(d). Amounts attributable to the provision of certain 
services by an independent contractor or by a taxable REIT subsidiary 
can be qualified rents. Sec. 856(d)(7).
---------------------------------------------------------------------------
    In addition, 95 percent of REIT gross income for the 
taxable year must be from the 75-percent required sources, plus 
a permitted second category of other, generally passive 
investments such as dividends, capital gains, and interest 
income (the ``95-percent income test'').\31\
---------------------------------------------------------------------------
    \31\Sec. 856(c)(3).
---------------------------------------------------------------------------
            Income from certain hedging transactions
    Except as provided by regulations, income from a hedging 
transaction which is clearly identified,\32\ including gain 
from the sale or disposition of such a transaction, is not 
included as gross income under the 95-percent income test, to 
the extent the transaction hedges any indebtedness incurred or 
to be incurred by the REIT to acquire or carry real estate 
assets.\33\
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    \32\A hedging transaction for this purpose is one defined in clause 
(ii) or (iii) of section 1221(b)(2)(A). The identification requirement 
is defined in section 1221(a)(7).
    \33\Sec. 856(c)(5)(G).
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            Foreign currency exchange gain
    A REIT must be a U.S. domestic entity, but it is permitted 
to hold foreign real estate or other foreign-based assets, 
provided the 75-percent and 95-percent income tests and the 
other requirements for REIT qualification are met.\34\ A REIT 
that holds foreign real estate or other foreign-based assets 
may have foreign currency exchange gain under the foreign 
currency transaction rules of the Code (described below). 
Foreign currency exchange gain is not explicitly included in 
the statutory definitions of qualifying income for purposes of 
the 75-percent and 95-percent income tests, though the IRS has 
issued some guidance that allows foreign currency gain to be 
treated as qualified income in certain circumstances.
---------------------------------------------------------------------------
    \34\See Rev. Rul. 74-191, 1974-1 C.B. 170.
---------------------------------------------------------------------------
    The foreign currency transaction rules of sections 985 
through 989 apply whenever a taxpayer engages in a business or 
investment activity using a currency other than the taxpayer's 
functional currency (a ``nonfunctional currency''). Section 985 
provides in general that all determinations for Federal income 
tax purposes are made in the taxpayer's functional currency. A 
taxpayer's functional currency is the dollar except in the case 
of a qualified business unit (``QBU''), in which case the 
functional currency is ``the currency of the economic 
environment in which a significant part of such unit's 
activities are conducted and which is used by such unit in 
keeping its books and records.''\35\ A QBU is any separate and 
clearly identified unit of a trade or business of a taxpayer if 
the unit maintains separate books and records.\36\
---------------------------------------------------------------------------
    \35\Sec. 985(b)(1).
    \36\Sec. 989(a).
---------------------------------------------------------------------------
    A taxpayer that engages in a business or investment 
activity using a currency other than the U.S. dollar may have 
gain or loss under section 987 or 988, depending on the nature 
of the activity and type of entity (if any) through which the 
activity is conducted.
    A U.S. taxpayer becomes subject to section 988 when it 
enters into a ``section 988 transaction.'' Among other things, 
a ``section 988 transaction'' includes the acquisition of a 
debt instrument, becoming an obligor under a debt instrument, 
the accrual of items of expense or gross income, or the 
disposition of any nonfunctional currency.\37\
---------------------------------------------------------------------------
    \37\Sec. 988(c)(1)(B) and (C).
---------------------------------------------------------------------------
    When a REIT holds a mortgage (or other instrument or 
arrangement described in section 988)\38\ denominated in a 
nonfunctional currency or determined by reference to the value 
of a nonfunctional currency and the applicable foreign currency 
exchange rate changes between the time interest on an 
obligation to (or an obligation of) the REIT accrues and the 
time it is paid, the REIT may have foreign currency gain or 
loss under the rules of section 988. In May 2007, the IRS ruled 
in Rev. Rul. 2007-33 that if section 988 currency gain is 
recognized by a REIT with respect to an item of income, the 
section 988 gain will be qualifying income for purposes of the 
95-percent and 75-percent income tests of sections 856(c)(2) 
and (3), respectively, to the extent the underlying income so 
qualifies. Analogous relief was not provided for section 988 
gain with respect to any items other than income items.\39\
---------------------------------------------------------------------------
    \38\Section 988 applies to (i) the acquisition of a debt instrument 
or becoming the obligor under a debt instrument; (ii) accruing (or 
otherwise taking into account) any item of expense or gross income or 
receipts which is to be paid after the date on which so accrued or 
taken into account, and (iii) entering into or acquiring any forward 
contract, futures contract, option, or similar financial instrument 
(except for any regulated futures contract or nonequity option which 
would be marked to market under section 1256 if held on the last day of 
the taxable year). Section 988 also applies to the disposition of any 
nonfunctional currency. Nonfunctional currency includes ``coin or 
currency, and nonfunctional currency denominated demand or time 
deposits or similar instruments issued by a bank or other financial 
institution.'' Sec. 988(c)(1).
    \39\Rev. Rul. 2007-33, 2007-21 I.R.B. 1281. This ruling does not 
address the treatment of currency gain that might arise with respect to 
the payment of principal on an obligation that would produce qualified 
income. The ruling also does not address the treatment of foreign 
currency gain that might arise in connection with an indebtedness 
denominated in a foreign currency that is incurred to acquire assets 
that produce qualifying income. A private letter ruling concluded that 
section 988 currency gain attributable to fluctuation in the exchange 
rates of currency used to make payments on non-dollar debt obligations 
incurred to acquire investments that produced qualifying non-dollar 
income would be treated as qualifying income, where the borrowings were 
to be used to finance the acquisition of the investments on a cost-
effective basis, and not to speculate in foreign currency. PLR 
200808024. A private letter ruling may be relied upon only by the 
taxpayer to which the ruling is issued.
---------------------------------------------------------------------------
    Section 987 applies when there is a remittance from a 
foreign business or investment activity conducted through a QBU 
that is a branch that keeps its books and records in a 
functional currency other than the dollar. If a REIT has a QBU 
that keeps its books and records in a foreign currency, the 
REIT could have foreign currency exchange gain or loss under 
section 987 with respect to remittances.\40\
---------------------------------------------------------------------------
    \40\Recent proposed regulations under section 987 would replace 
previously proposed rules in an attempt to limit the ability of 
taxpayers to recognize non-economic foreign currency losses that could 
reduce otherwise taxable income, as well as to prevent non-economic 
currency gains that could arise. The 2006 proposed regulations would 
provide certain tracing-type rules. See REG-208270-86 (Sept. 7, 2006). 
See also Notice 2000-20 (March 22, 2000), discussing concerns regarding 
earlier proposed regulations issued in 1991. The 2006 proposed 
regulations when originally issued did not by their terms apply to 
REITs, RICs, or certain other types of entities. Prop. Reg. Sec. 1.987-
1(b)(iii). But see Notice 2007-42, 2007-21 I.R.B. 1288, infra.
---------------------------------------------------------------------------
    The IRS has ruled in several private rulings that a REIT 
may establish a REIT subsidiary that itself qualifies as a 
separate REIT (and, thus, would not be treated as a branch) to 
conduct qualified REIT activity with respect to foreign 
investments in a particular foreign currency, and that 
subsidiary can itself be treated as a QBU whose functional 
currency is that particular foreign currency, if that 
subsidiary keeps its books and records in that particular 
foreign currency.\41\ While this structure provides a method of 
doing business abroad, this structure effectively requires a 
separate REIT subsidiary for each different currency in which 
the REIT may conduct activities.\42\
---------------------------------------------------------------------------
    \41\See, e.g., PLR 200625019 and PLR 200550025. A private letter 
ruling may be relied upon only by the taxpayer to which the ruling was 
issued.
    \42\In this structure, the parent REIT treats the dividends paid by 
the subsidiary REIT as a qualified REIT dividend, minimizing any 
currency gains by exchanging the foreign currency into dollars at the 
time of the dividend distribution.
---------------------------------------------------------------------------
    At the same time that it issued Rev. Rul. 2007-33, the IRS 
also issued a notice regarding the application of section 987 
to a QBU of a REIT. The notice states that until further 
guidance is issued, a REIT that has a QBU that uses a 
functional currency other than the U.S. dollar may apply the 
principles of proposed regulations issued on September 7, 2006, 
to determine whether section 987 currency gain is derived from 
income described in sections 856(c)(2) or (3).\43\
---------------------------------------------------------------------------
    \43\Notice 2007-42, 2007-21 I.R.B. 1288. Compare REG-208270-86 
(Sept. 7, 2006), which by its terms did not apply to REITs.
---------------------------------------------------------------------------
            Certain other items
    Certain private letter rulings issued to particular 
taxpayers have permitted various other types of income to be 
ignored for purposes of the 75-percent or 95-percent income 
tests, due to the relationship of the income to REIT qualifying 
assets or income. A few examples include a settlement payment 
received by a REIT with respect to construction of a mall or a 
payment received as a ``breakup'' fee in a proposed merger.\44\
---------------------------------------------------------------------------
    \44\PLR 200039027 and PLR 200127024. A private letter ruling may be 
relied upon only by the taxpayer to which the ruling was issued.
---------------------------------------------------------------------------

Asset tests

    At least 75 percent of the value of a REIT's assets must be 
real estate assets, cash and cash items (including receivables) 
and Government securities (the ``75-percent asset test''). Real 
estate assets are real property (including interests in real 
property and mortgages on real property) and shares (or 
transferable certificates of beneficial interest) in other 
REITs.\45\ No more than 25 percent of a REIT's assets may be 
securities other than such real estate assets.\46\
---------------------------------------------------------------------------
    \45\Sec. 856(c)(4)(A). Certain stock or debt instruments that are 
temporary investments also qualify if they are temporary investments of 
new capital, but only for the one-year period beginning on the date the 
REIT receives such capital. Sec. 856(c)(5)(B).
    \46\Sec. 856(c)(4)(B)(i).
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    Except with respect to a taxable REIT subsidiary (described 
further below), not more than 5 percent of the value of a 
REIT's assets may be securities of any one issuer, and the REIT 
may not possess securities representing more than 10 percent of 
the outstanding value or voting power of any one issuer.\47\ In 
addition, not more than 20 percent of the value of a REIT's 
assets may be securities of one or more taxable REIT 
subsidiaries.\48\
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    \47\Sec. 856(c)(4)(B)(iii).
    \48\Sec. 856(c)(4)(B)(ii).
---------------------------------------------------------------------------
    The asset tests must be met as of the close of each 
quarter. However, a REIT that has met the asset tests as of the 
close of any quarter does not lose its REIT status solely 
because of a discrepancy during a subsequent quarter between 
the value of the REIT's investments and such requirements, 
unless such discrepancy exists immediately after the 
acquisition of any security or other property and is wholly or 
partly the result of such acquisition.\49\
---------------------------------------------------------------------------
    \49\Sec. 856(c)(4). In the case of such an acquisition, the REIT 
also has a grace period of 30 days after the close of the quarter to 
eliminate the discrepancy.
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Taxable REIT subsidiaries

    A REIT generally cannot own more than 10 percent of the 
vote or value of a single entity; however, there is an 
exception for ownership of a taxable REIT subsidiary (``TRS'') 
that is taxed as a corporation, provided that securities of one 
or more TRSs do not represent more than 20 percent of the value 
of REIT assets.
    A TRS generally can engage in any kind of business activity 
except that it is not permitted directly or indirectly to 
operate either a lodging facility or a health care facility. 
However, a TRS is permitted to rent hotel, motel, or other 
transient lodging facilities from its parent REIT and is 
permitted to hire an independent contractor to operate such 
facilities.\50\
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    \50\An independent contractor will not fail to be treated as such 
for this purpose because the TRS bears the expenses of operation of the 
facility under the contract, or because the TRS receives the revenues 
from the operation of the facility, net of expenses for such operation 
and fees payable to the operator pursuant to the contract, or both. 
Sec. 857(d)(9)(B).
---------------------------------------------------------------------------
    Furthermore, rent paid to the REIT by the TRS with respect 
to hotel, motel, or other transient lodging facilities operated 
by an independent contractor is qualified rent for purposes of 
the REIT's 75-percent and 95-percent income tests. This lodging 
facility rental rule is an exception to the general rule that 
rent paid to a REIT by any corporation (including a TRS) in 
which the REIT owns 10 percent or more of the vote or value is 
not qualified rental income for purposes of the 75-percent or 
95-percent REIT income tests, unless, in the case of a TRS, at 
least 90 percent of the space is rented to unrelated parties 
and the rent paid by the TRS is comparable to the rent paid by 
the unrelated parties.\51\
---------------------------------------------------------------------------
    \51\REITs are also subject to a tax equal to 100 percent of 
redetermined rents, redetermined deductions, and excess interest. These 
are defined generally as the amounts of specified REIT transactions 
with a TRS of the REIT, to the extent such amounts differ from an arm's 
length amount.
---------------------------------------------------------------------------

Prohibited transactions tax

    REITs are subject to a prohibited transactions tax 
(``PTT'') of 100 percent of the net income derived from 
prohibited transactions. For this purpose, a prohibited 
transaction is a sale or other disposition of property that is 
``stock in trade of a taxpayer or other property which would 
properly be included in the inventory of the taxpayer if on 
hand at the close of the taxable year, or property held for 
sale to customers by the taxpayer in the ordinary course of his 
trade or business'' (sec. 1221(a)(1))\52\ and is not 
foreclosure property. The PTT for a REIT does not apply if the 
sale satisfies certain safe harbor requirements in sections 
857(b)(6)(C) or (D), including an asset holding period of at 
least four years.\53\ If the conditions are met, the REIT may 
either i) make no more than 7 sales within a taxable year 
(other than sales of foreclosure property or involuntary 
conversions under section 1033), or ii) sell no more than 10 
percent of the aggregate bases of all its assets as of the 
beginning of the taxable year (computed without regard to sales 
of foreclosure property or involuntary conversions under 
section 1033), without being subject to the PTT tax.
---------------------------------------------------------------------------
    \52\This definition is the same as the definition of certain 
property the sale or other disposition of which would produce ordinary 
income rather than capital gain under section 1221(a)(1).
    \53\Additional requirements for the safe harbor limit the amount of 
expenditures the REIT can make during the four year period prior to the 
sale that are includible in the adjusted basis of the property, require 
marketing to be done by an independent contractor, and forbid a sales 
price that is based on the income or profits of any person.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that present law contains 
undesirable uncertainty and complexity in determining the 
effect of foreign currency gain on REIT qualification when a 
REIT invests in otherwise qualified foreign assets that produce 
otherwise qualified foreign income. If foreign currency gain is 
attributable to otherwise qualifying REIT income from foreign 
investments, such currency gain should not cause 
disqualification of a REIT. The Treasury Department has issued 
some guidance to that effect in the case of certain income 
items.\54\ The Committee wishes to assure that the same result 
will occur with respect to foreign currency gain on a REIT's 
receipt of payments of principal (rather than income) on an 
asset that would produce qualified REIT income (for example, 
the receipt of principal payments on a mortgage that is secured 
by real property and denominated in foreign currency). If a 
REIT borrows in a foreign currency to facilitate the 
acquisition of qualified assets denominated in a foreign 
currency, the Committee wishes to assure that the same result 
will occur with respect to payments of interest and principal 
on such a borrowing.
---------------------------------------------------------------------------
    \54\Rev. Rul. 2007-33, 2007-21 I.R.B. 1281.
---------------------------------------------------------------------------
    Similarly, although the Treasury Department has indicated 
that a REIT may operate in a foreign country with a qualified 
business unit that uses a nonfunctional currency and that the 
REIT may rely on the principles of the 2006 proposed Treasury 
regulations to determine whether currency gain on remittances 
is qualified REIT income,\55\ the Committee wishes to provide a 
simpler method to determine that foreign currency gain on 
remittances from a qualified business unit will not adversely 
affect REIT qualification. The Committee therefore has adopted 
rules that are intended both to assure that appropriate foreign 
currency gain will not disqualify a REIT and to preclude the 
treatment of income from foreign currency speculation as 
qualified income.
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    \55\Notice 2007-42, 2007-21 I.R.B. 1288.
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    The Committee also believes it is desirable to grant 
regulatory authority to the Treasury Department to permit other 
types of income that are not statutorily designated as 
qualified income to be disregarded for purposes of the REIT 
gross income tests in appropriate cases. Under present law, the 
Internal Revenue Service has issued private rulings that have 
reached this result in cases involving income related to the 
conduct of permitted REIT activities, for example, income 
relating to settlement of a lawsuit over construction of a mall 
in which a REIT was investing,\56\ and income from a 
``breakup'' fee related to the termination of a proposed 
acquisition of another REIT.\57\ However, a private ruling may 
be relied upon only by the taxpayer to whom the ruling is 
issued. The Committee believes it is desirable for the Treasury 
Department to be permitted to issue generally applicable 
guidance in appropriate cases.
---------------------------------------------------------------------------
    \56\PLR 200039027.
    \57\PLR 200127024.
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    With respect to taxable REIT subsidiaries (``TRSs''), the 
Committee believes it is appropriate to allow a greater 
percentage of a REIT's assets to consist of stock of such 
subsidiaries. The Committee believes that a 25 percent 
limitation is consistent with the present law rule that at 
least 75 percent of REIT assets must be real estate assets, 
cash, cash items, and Government securities.
    The Committee also believes it is desirable to extend to 
health care facilities the rules that permit a TRS to bear the 
costs and receive the revenues of a qualified lodging facility, 
and to pay qualified arm's length rent to the REIT for such a 
facility, provided the facility is operated by an independent 
contractor and the TRS pays an arm's length fee to the 
independent contractor for such operation. Also, the Committee 
desires to provide that a taxable REIT subsidiary is not 
considered to be directly or indirectly operating a lodging or 
health care facility (i.e., without the required use of an 
independent contractor) merely because it possesses a license 
to do so.
    Finally, the Committee is concerned that the four-year 
holding period for the safe harbor from prohibited transactions 
tax may inappropriately deter REITs from selling their 
properties, and that the present law rule requiring use of 
basis for purposes of the 10-percent safe harbor limitation may 
unfairly affect a REIT that sells more recently acquired, 
higher-basis assets instead of longer-held assets with greater 
appreciation. The Committee thus desires to shorten the 
required holding period for REIT asset sales that can qualify 
for the safe harbor from the prohibited transactions tax 
(``PTT''), and to allow a REIT that makes more than 7 sales in 
a taxable year to make sales under the alternative safe harbor 
equal to 10 percent of the aggregate fair market value of the 
REIT assets, where the basis of property sold during the year 
exceeds the amount permitted under the present law rule (10 
percent of aggregate basis of REIT assets). The Committee 
believes these changes will enable REITs to sell properties 
more readily and thus capture asset values for shareholders 
with more flexibility.

                        EXPLANATION OF PROVISION

Foreign currency gain

    The provision treats certain foreign currency gains 
recognized under section 987 or section 988 as qualifying 
income for purposes of the 75-percent and 95-percent income 
tests. In the case of a section 988 transaction, foreign 
currency gain that is ``attributable to'' income items that 
otherwise are treated as qualifying income for purposes of the 
75-percent and 95-percent income tests respectively (and 
including any other 988 gain attributable to the acquisition or 
ownership of, or to becoming the obligor under, obligations 
secured by mortgages on real property or on interests in real 
property), are treated as qualifying income for those 
tests.\58\ The provision reaches a result similar to that in 
Rev. Rul. 2007-33 in the case of gain attributable to an item 
of REIT income, and in addition provides a similar result in 
the case of currency gain attributable to principal payments 
received on certain REIT assets or to principal or interest 
payments with respect to certain liabilities of a REIT.
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    \58\In the case of a section 988 transaction, it is intended that 
the provision only apply to foreign currency gains that are directly 
attributable to income items that otherwise are treated as qualifying 
income for purposes of the 75-percent and 95-percent income tests, 
respectively, (or directly attributable to the acquisition or ownership 
of, or to becoming the obligor under, obligations secured by mortgages 
on real property or on interests on real property). As one example, 
foreign currency gains attributable to gain arising between the time of 
the accrual of interest income on a foreign-currency denominated 
obligation secured by a mortgage on real property and the time of 
payment, would constitute qualifying income for purposes of both 75-
percent and 95-percent income tests, assuming that the interest 
accruals themselves constitute qualifying income for purposes of such 
tests. However, any additional foreign currency gains arising from 
subsequent disposition of the foreign currency received in payment of 
the accrued interest would be attributable to holding the foreign 
currency after its receipt and would not constitute qualifying income 
under either test.
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    In the case of a QBU with a functional currency other than 
the U.S. dollar, section 987 foreign currency gain is treated 
as qualifying income for purposes of both the 75-percent and 
95-percent income tests if such gain is attributable to a QBU 
that independently meets the 75-percent income and asset tests 
(before application of the provision).\59\ The provision thus 
allows currency gain on remittances to qualify as good REIT 
income without requiring for that purpose the particular 
tracing-type rules of the existing section 987 proposed 
regulations as allowed for REITs under Notice 2007-42. The QBU 
itself does not have to meet the 95-percent income test in 
order for currency gain on its remittances to be treated as 
qualified income. The REIT still is required to meet the 95-
percent income test, as well as all the other REIT 
requirements, on an overall basis that includes the income and 
assets of its QBU. However, for this purpose, any currency 
gains on remittances from a QBU that meets the 75 percent 
income and asset tests are added to qualifying income for 
purposes of both the 75-percent and 95-percent income tests.
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    \59\In the case of a QBU that meets those tests, section 987 
foreign currency gain on remittances as of the time of remittance is 
qualified income. Any currency gain arising from holding the currency 
after remittance is not qualifying income.
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    In addition, any other foreign currency gain may, if so 
determined by the Secretary of the Treasury, be considered 
qualified income.
    The provision makes several changes to other REIT 
provisions. First, the present law rule that excludes certain 
hedging income from the computation of the 95-percent income 
test is extended to exclude such hedging income from the 
computation of the 75-percent income test as well. Second, the 
provision excludes currency hedging income for purposes of the 
75-percent or 95-percent tests, respectively, where the income 
from the hedged item, if any, would be good income under the 
provision for such 75-percent or 95-percent income tests, 
respectively. Third, the rule that if a REIT has met the asset 
tests as of the close of any quarter it will not fail them 
solely because of a discrepancy due to variations in value that 
are not attributable to the acquisition of investments is 
clarified to include a discrepancy caused solely by the change 
in the foreign currency exchange rate used to value a foreign 
asset. Fourth, the term ``cash'' for purposes of the REIT asset 
qualification rules is defined to include foreign currency if 
the REIT or its QBU uses such currency as its functional 
currency. Fifth, permitted foreclosure property income also 
includes foreign currency gain that is attributable to 
otherwise permitted income from foreclosure property. Finally, 
foreign currency gain under section 988(b)(1), or loss under 
section 988(b)(2), that is attributable to any prohibited 
transaction is taken into account in determining the amount of 
prohibited transaction net income subject to the 100 percent 
tax.

Treasury authority regarding other items of income

    The provision authorizes the Treasury Department to issue 
guidance that would allow other items of income to be excluded 
from the computation of qualifying gross income in appropriate 
cases.

Taxable REIT subsidiary limit increase

    The provision increases the percentage of the value of REIT 
assets that can be held in securities of a taxable REIT 
subsidiary to 25 percent from the present 20 percent.

Holding period under safe harbor for prohibited transactions

    The provision shortens from four years to two years the 
minimum holding period under the prohibited transactions tax 
safe harbor. The provision makes clear that the safe harbor is 
an exception from the prohibited transactions tax only and does 
not cause a sale that otherwise does not qualify for capital 
gains treatment (i.e., because it was a sale of property held 
for sale to customers in the ordinary course of business under 
section 1221(a)(1)) to become a capital gain transaction. 
Consequently, capital gain treatment continues to be determined 
based on all the facts and circumstances as under present law, 
without regard to the prohibited transactions tax safe harbor.

Permitted extent of sales under safe harbor for prohibited transactions

    The provision changes the prohibited transactions tax safe 
harbor provisions concerning maximum amount of sales within a 
taxable year that are consistent with the alternative 
prohibited transactions tax safe harbor (that is an alternative 
to the test for no more than 7 sales). Instead of the present 
alternative limit of 10-percent of the aggregate bases of all 
the assets of the REIT as of the beginning of the taxable year, 
the limit under the provision is either 10 percent of such 
basis or 10 percent of the aggregate fair market value of all 
the assets of the REIT as of such time.

Health care facilities held by a taxable REIT subsidiary

    The provision expands the taxable REIT subsidiary exception 
for hotel, motel, and other transient facilities so that it 
also applies to health care facilities. Thus, a taxable REIT 
subsidiary is permitted to rent a health care facility from its 
parent REIT and hire an independent contractor to operate such 
a facility; the rents paid to the parent REIT are qualifying 
rental income for purposes of the 75-percent and 95-percent 
income tests. Under the provision, a taxable REIT subsidiary is 
not be considered to be operating or managing a qualified 
health care property or a qualified lodging facility other than 
through an independent contractor solely because the taxable 
REIT subsidiary directly or indirectly possesses a license, 
permit, or similar instrument enabling it to do so.

                             EFFECTIVE DATE

    The provision generally is effective for taxable years 
beginning after the date of enactment. However, the rules 
treating certain foreign currency gain as qualified income for 
purposes of the income tests apply to gains and items of income 
recognized after the date of enactment. The hedging rules are 
effective for transactions entered into after such date of 
enactment. The Treasury authority to exclude items from income 
for purposes of the income qualification tests applies after 
the date of enactment. The foreign currency amendment relating 
to gain from foreclosure property applies to gains recognized 
after the date of enactment, and the provision relating to net 
prohibited transactions income applies to gains and deductions 
recognized after the date of enactment. The provisions relating 
to the prohibited transactions tax safe harbor apply to sales 
made after the date of enactment.

                      TITLE V--REVENUE PROVISIONS 


  A. Broker Reporting of Customer's Basis in Securities Transactions 
 (Sec. 301 of the bill and Sec. 6045 and New Secs. 6045A and 6045B of 
                               the Code)


                              PRESENT LAW

In general

    Gain or loss generally is recognized for Federal income tax 
purposes on realization of that gain or loss (for example, 
through the sale of property giving rise to the gain or loss). 
The taxpayer's gain or loss on a disposition of property is the 
difference between the amount realized and the adjusted 
basis.\60\
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    \60\Sec. 1001.
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    To compute adjusted basis, a taxpayer must first determine 
the property's unadjusted or original basis and then make 
adjustments prescribed by the Code.\61\ The original basis of 
property is its cost, except as otherwise prescribed by the 
Code (for example, in the case of property acquired by gift or 
bequest or in a tax-free exchange). Once determined, the 
taxpayer's original basis generally is adjusted downward to 
take account of depreciation or amortization, and generally is 
adjusted upward to reflect income and gain inclusions or 
capital outlays with respect to the property.
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    \61\Sec. 1016.
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Basis computation rules

    If a taxpayer has acquired stock in a corporation on 
different dates or at different prices and sells or transfers 
some of the shares of that stock, and the lot from which the 
stock is sold or transferred is not adequately identified, the 
shares deemed sold are the earliest acquired shares (the 
``first-in-first-out rule'').\62\ If a taxpayer makes an 
adequate identification of shares of stock that it sells, the 
shares of stock treated as sold are the shares that have been 
identified.\63\ A taxpayer who owns shares in a regulated 
investment company (``RIC'') generally is permitted to elect, 
in lieu of the specific identification or first-in-first-out 
methods, to determine the basis of RIC shares sold under one of 
two average-cost-basis methods described in Treasury 
regulations.\64\
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    \62\Treas. Reg. sec. 1.1012-1(c)(1).
    \63\Treas. Reg. sec. 1.1012-1(c).
    \64\Treas. Reg. sec. 1.1012-1(e).
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Information reporting

    Present law imposes information reporting requirements on 
participants in certain transactions. Under these requirements, 
information is generally reported to the IRS and furnished to 
taxpayers. These requirements are intended to assist taxpayers 
in preparing their income tax returns and to help the IRS 
determine whether taxpayers' tax returns are correct and 
complete. For example, every person engaged in a trade or 
business generally is required to file information returns for 
each calendar year for payments of $600 or more made in the 
course of the payor's trade or business.\65\
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    \65\Sec. 6041(a).
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    Section 6045(a) requires brokers to file with the IRS 
annual information returns showing the gross proceeds realized 
by customers from various sale transactions. The Secretary is 
authorized to require brokers to report additional information 
related to customers.\66\ Brokers are required to furnish to 
every customer information statements with the same gross 
proceeds information that is included in the returns filed with 
the IRS for that customer.\67\ These information statements are 
required to be furnished by January 31 of the year following 
the calendar year for which the return under section 6045(a) is 
required to be filed.\68\
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    \66\Sec. 6045(a).
    \67\Sec. 6045(b).
    \68\Id.
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    A person who is required to file information returns but 
who fails to do so by the due date for the returns, includes on 
the returns incorrect information, or files incomplete returns 
generally is subject to a penalty of $50 for each return with 
respect to which such a failure occurs, up to a maximum of 
$250,000 in any calendar year.\69\ Similar penalties, with a 
$100,000 calendar year maximum, apply to failures to furnish 
correct information statements to recipients of payments for 
which information reporting is required.\70\
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    \69\Sec. 6721.
    \70\Sec. 6722.
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    Present law does not require broker information reporting 
with respect to a customer's basis in property but does impose 
an obligation to keep records, as described below.

Basis recordkeeping requirements

    Taxpayers are required to ``keep such records . . . as the 
Secretary may from time to time prescribe.''\71\ Treasury 
regulations impose recordkeeping requirements on any person 
required to file information returns.\72\
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    \71\Sec. 6001.
    \72\Treas. Reg. sec. 1.6001-1(a).
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    Treasury regulations provide that donors and donees should 
keep records that are relevant in determining a donee's basis 
in property.\73\ IRS Publication 552 states that a taxpayer 
should keep basis records for property until the period of 
limitations expires for the year in which the taxpayer disposes 
of the property.
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    \73\Treas. Reg. sec. 1.1015-1(g).
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                           REASONS FOR CHANGE

    The Committee believes that there may be significant 
underreporting of capital gain income as a result of 
misreporting of basis. Requiring brokers to report basis to the 
IRS and to their customers may reduce capital gain 
underreporting: When coupled with the present-law requirement 
to report gross proceeds, mandatory basis reporting will give 
both taxpayers and the IRS information needed to compute gain 
(or loss) from securities sales. The provision also includes 
rules--such as mandatory broker-to-broker reporting and issuer 
reporting of certain organizational actions--intended to 
facilitate accurate reporting of tax basis.

                        EXPLANATION OF PROVISION

In general

    Under the provision, every broker that is required to file 
a return under section 6045(a) reporting the gross proceeds 
from the sale of a covered security must include in the return 
(1) the customer's adjusted basis in the security and (2) 
whether any gain or loss with respect to the security is long-
term or short-term (within the meaning of section 1222).

Covered securities

    A covered security is any specified security acquired on or 
after an applicable date if the security was (1) acquired 
through a transaction in the account in which the security is 
held or (2) was transferred to that account from an account in 
which the security was a covered security, but only if the 
transferee broker received a statement under section 6045A 
(described below) with respect to the transfer. Under this 
rule, certain securities acquired by gift or inheritance are 
not covered securities.
    A specified security is any share of stock in a corporation 
(including stock of a regulated investment company); any note, 
bond, debenture, or other evidence of indebtedness; any 
commodity or a contract or a derivative with respect to the 
commodity if the Secretary determines that adjusted basis 
reporting is appropriate; and any other financial instrument 
with respect to which the Secretary determines that adjusted 
basis reporting is appropriate.
    For stock in a corporation (other than stock for which an 
average basis method is permissible under section 1012), the 
applicable date is January 1, 2010. For any stock for which an 
average basis method is permissible under section 1012, the 
applicable date is January 1, 2011. Consequently, the 
applicable date for certain stock acquired through a dividend 
reinvestment plan (for which stock additional rules are 
described below) and for stock in open-end funds (defined 
below) is January 1, 2011. Open-end funds are permitted to 
elect to treat as a covered security any stock in the fund 
acquired before January 1, 2011. This election is described 
below. For any specified security other than stock in a 
corporation or stock for which an average basis method is 
permitted, the applicable date is January 1, 2012, or a later 
date determined by the Secretary.

Computation of adjusted basis

    The customer's adjusted basis required to be reported to 
the IRS is determined under the following rules. The adjusted 
basis of any security other than stock for which an average 
basis method is permissible under section 1012 is determined 
under the first-in, first-out method unless the customer 
notifies the broker by means of making an adequate 
identification (under the rules of section 1012 for specific 
identification) of the stock sold or transferred. The adjusted 
basis of stock for which an average basis method is permissible 
under section 1012 is determined in accordance with the 
broker's default method under section 1012 (that is, the first-
in, first-out method, the average cost method, or the specific 
identification method) unless the customer notifies the broker 
that the customer elects another permitted method. This 
notification is made separately for each account in which stock 
for which the average cost method is permissible is held and, 
once made, applies to all stock held in that account. As a 
result of this rule, a broker's basis computation method used 
for stock held in one account with that broker may differ from 
the basis computation method used for stock held in another 
account with that broker.
    For any sale, exchange, or other disposition of a specified 
security after the applicable date (defined previously), the 
provision modifies section 1012 so that the conventions 
prescribed by regulations under that section for determining 
adjusted basis (the first-in, first-out, specific 
identification, and average cost conventions) apply on an 
account-by-account basis. Under this rule, for example, if a 
customer holds shares of the same specified security in 
accounts with different brokers, each broker makes its adjusted 
basis determinations by reference only to the shares held in 
the account with that broker, and only shares in the account 
from which the sale is made may be identified as the shares 
sold. Unless the election described next applies, stock in an 
open-end fund acquired before January 1, 2011 is treated as a 
separate account. A consequence of this rule is that if 
adjusted basis is being determined using the average cost 
convention, average cost is computed without regard to any 
open-end stock acquired before January 1, 2011. An open-end 
fund, however, may elect (at the time and in the form and 
manner prescribed by the Secretary), on a stockholder-by-
stockholder basis, to treat as covered securities all stock in 
the fund held by the stockholder without regard to when the 
stock was acquired. When this election applies, the average 
cost of a customer's open-end stock is determined by taking 
into account shares of stock acquired before, on, and after 
January 1, 2011. A similar election is allowed for any broker 
holding stock in an open-end fund as a nominee of the 
beneficial owner of the stock.
    An open-end fund generally is a regulated investment 
company (as defined in section 851) that offers for sale or has 
outstanding any redeemable security of which it is the issuer. 
Any stock, however, that is traded on an established securities 
exchange is not treated as stock in an open-end fund. So-called 
exchange traded funds, funds in which there is intra-day 
pricing and in which shares may be purchased on an exchange 
(rather than from the funds directly) therefore are not open-
end funds. If a regulated investment company offers two or more 
classes of shares one or more of which is traded on an 
established securities exchange and one or more of which is not 
traded on such an exchange, the regulated investment company 
will be treated as an open-end fund only with respect to the 
class or classes of shares that are not traded on an 
established securities exchange.
    If stock is acquired on or after January 1, 2011, in 
connection with a dividend reinvestment plan, the basis of that 
stock is determined under one of the basis computation methods 
permissible for stock in an open-end fund. Accordingly, an 
average cost method may be used for determining the basis of 
this stock. In determining basis under this rule, the account-
by-account rules described previously, including the election 
available to open-end funds, apply. The special rule for stock 
acquired through a dividend reinvestment plan, however, applies 
only while the stock is held as part of the dividend 
reinvestment plan. If stock to which this rule applies is 
transferred to another account, the stock will have a cost 
basis in that other account equal to its basis in the dividend 
reinvestment plan immediately before the transfer (with any 
proper adjustment for charges incurred in connection with the 
transfer). After the transfer, however, the transferee broker 
may use the otherwise applicable convention (that is, the 
first-in, first-out method or the specific identification 
method) for determining which shares are sold when a sale is 
made of some but not all shares of a particular security. It is 
expected that when stock acquired through a dividend 
reinvestment plan is transferred to another account, the broker 
executing the transfer will provide information necessary in 
applying an allowable convention for determining which shares 
are sold. Accordingly, the transferor broker will be expected 
to state that shares transferred have a long-term holding 
period or, for shares that have a short-term holding period, 
the dates on which the shares were acquired.
    A dividend reinvestment plan means any arrangement under 
which dividends on stock are reinvested in stock identical to 
the stock with respect to which the dividends are paid. Stock 
is treated as acquired in connection with such a plan if the 
stock is acquired pursuant to the plan or if the dividends paid 
on the stock are subject to the plan.

Exception for wash sales

    Unless the Secretary provides otherwise, a customer's 
adjusted basis in a covered security generally is determined 
without taking into account the effect on basis of the wash 
sale rules of section 1091. If, however, the acquisition and 
sale transactions resulting in a wash sale under section 1091 
occur in the same account and are in identical securities, 
adjusted basis is determined by taking into account the effect 
of the wash sale rules. Securities are identical for this 
purpose only if they have the same Committee on Uniform 
Security Identification Procedures number.

Special rules for short sales

    The provision provides that in the case of a short sale, 
gross proceeds and basis reporting under section 6045 generally 
is required in the year in which the short sale is closed 
(rather than, as under the present law rule for gross proceeds 
reporting, the year in which the short sale is entered into).

Reporting requirements for options

    The provision generally eliminates the present-law 
regulatory exception from section 6045(a) reporting for certain 
options. If a covered security is acquired or disposed of by 
reason of the exercise of an option that was granted or 
acquired in the same account as the covered security, the 
amount of the premium received or paid with respect to the 
acquisition of the option is treated as an adjustment to the 
gross proceeds from the subsequent sale of the covered security 
or as an adjustment to the customer's adjusted basis in that 
security. Gross proceeds and basis reporting also is required 
when there is a lapse of, or a closing transaction with respect 
to, an option on a specified security or an exercise of a cash-
settled option. Reporting is required for the calendar year 
that includes the date of the lapse, closing transaction, or 
exercise. For example, if a taxpayer acquires for $5 a cash 
settlement stock option with a strike price of $100 and settles 
the option when the stock trades at $120, a broker through 
which the acquisition and cash settlement are executed is 
required to report gross proceeds of $20 from the cash 
settlement and a basis in the option of $5. These reporting 
rules related to options transactions apply only to options 
granted or acquired on or after January 1, 2012.

Treatment of S corporations

    The provision provides that for purposes of section 6045, 
an S corporation (other than a financial institution) is 
treated in the same manner as a partnership. This rule applies 
to any sale of a covered security acquired by an S corporation 
(other than a financial institution) after December 31, 2011. 
When this rule takes effect, brokers generally will be required 
to report gross proceeds and basis information to customers 
that are S corporations.

Time for providing statements to customers

    The provision changes to February 15 the present-law 
January 31 deadline for furnishing certain information 
statements to customers. The statements to which the new 
February 15 deadline applies are (1) statements showing gross 
proceeds (under section 6045(b)) or substitute payments (under 
section 6045(d)) and (2) statements with respect to reportable 
items (including, but not limited to, interest, dividends, and 
royalties) that are furnished with consolidated reporting 
statements (as defined in regulations). The term ``consolidated 
reporting statement'' is intended to refer to annual account 
information statements that brokerage firms customarily provide 
to their customers and that include tax-related information. It 
is intended that the February 15 deadline for consolidated 
reporting statements apply in the same manner to statements 
furnished for any account or accounts, taxable and retirement, 
held by a customer with a mutual fund or other broker.

Broker-to-broker and issuer reporting

    Every broker (as defined in section 6045(c)(1)), and any 
other person specified in Treasury regulations, that transfers 
to a broker (as defined in section 6045(c)(l)) a security that 
is a covered security when held by that broker or other person 
must, under new section 6045A, furnish to the transferee broker 
a written statement that allows the transferee broker to 
satisfy the provision's basis and holding period reporting 
requirements. The Secretary may provide regulations that 
prescribe the content of this statement and the manner in which 
it must be furnished. It is contemplated that the Secretary 
will permit this broker-to-broker reporting requirement to be 
satisfied electronically rather than by paper. Unless the 
Secretary provides otherwise, the statement required by this 
rule must be furnished not later than 15 days after the date of 
the transfer of the covered security.
    Present law penalties for failure to furnish correct payee 
statements apply to failures to furnish correct statements in 
connection with the transfer of covered securities.
    New section 6045B requires, according to forms or 
regulations prescribed by the Secretary, any issuer of a 
specified security to file a return setting forth a description 
of any organizational action (such as a stock split or a merger 
or acquisition) that affects the basis of the specified 
security, the quantitative effect on the basis of that 
specified security, and any other information required by the 
Secretary. This return must be filed within 45 days after the 
date of the organizational action or, if earlier, by January 15 
of the year following the calendar year during which the action 
occurred. Every person required to file this return for a 
specified security also must furnish, according to forms or 
regulations prescribed by the Secretary, to the nominee with 
respect to that security (or to a certificate holder if there 
is no nominee) a written statement showing the name, address, 
and phone number of the information contact of the person 
required to file the return, the information required to be 
included on the return with respect to the security, and any 
other information required by the Secretary. This statement 
must be furnished to the nominee or certificate holder on or 
before January 15 of the year following the calendar year in 
which the organizational action took place. No return or 
information statement is required to be provided under new 
section 6045B for any action with respect to a specified 
security if the action occurs before the applicable date (as 
defined previously) for that security.
    The Secretary may waive the return filing and information 
statement requirements if the person to which the requirements 
apply makes publicly available, in the form and manner 
determined by the Secretary, the name, address, phone number, 
and e-mail address of the information contact of that person, 
and the information about the organizational action and its 
effect on basis otherwise required to be included in the 
return.
    The present-law penalties for failure to file correct 
information returns apply to failures to file correct returns 
in connection with organizational actions. Similarly, the 
present-law penalties for failure to furnish correct payee 
statements apply to a failure under new section 6045B to 
furnish correct statements to nominees or holders or to provide 
required publicly-available information in lieu of returns and 
written statements.

                             EFFECTIVE DATE

    The provision generally takes effect on January 1, 2010. 
The change to February 15 of the present-law January 31 
deadline for furnishing certain information statements to 
customers applies to statements required to be furnished after 
December 31, 2008.

 B. Delay Implementation of Worldwide Interest Allocation (Sec. 302 of 
                 the bill and Sec. 864(f) of the Code)


                              PRESENT LAW

In general

    In order to compute the foreign tax credit limitation, a 
taxpayer must determine the amount of its taxable income from 
foreign sources. Thus, the taxpayer must allocate and apportion 
deductions between items of U.S.-source gross income, on the 
one hand, and items of foreign-source gross income, on the 
other.
    In the case of interest expense, the rules generally are 
based on the approach that money is fungible and that interest 
expense is properly attributable to all business activities and 
property of a taxpayer, regardless of any specific purpose for 
incurring an obligation on which interest is paid.\74\ For 
interest allocation purposes, all members of an affiliated 
group of corporations generally are treated as a single 
corporation (the so-called ``one-taxpayer rule'') and 
allocation must be made on the basis of assets rather than 
gross income. The term ``affiliated group'' in this context 
generally is defined by reference to the rules for determining 
whether corporations are eligible to file consolidated returns.
---------------------------------------------------------------------------
    \74\However, exceptions to the fungibility principle are provided 
in particular cases, some of which are described below.
---------------------------------------------------------------------------
    For consolidation purposes, the term ``affiliated group'' 
means one or more chains of includible corporations connected 
through stock ownership with a common parent corporation which 
is an includible corporation, but only if: (1) The common 
parent owns directly stock possessing at least 80 percent of 
the total voting power and at least 80 percent of the total 
value of at least one other includible corporation; and (2) 
stock meeting the same voting power and value standards with 
respect to each includible corporation (excluding the common 
parent) is directly owned by one or more other includible 
corporations.
    Generally, the term ``includible corporation'' means any 
domestic corporation except certain corporations exempt from 
tax under section 501 (for example, corporations organized and 
operated exclusively for charitable or educational purposes), 
certain life insurance companies, corporations electing 
application of the possession tax credit, regulated investment 
companies, real estate investment trusts, and domestic 
international sales corporations. A foreign corporation 
generally is not an includible corporation.
    Subject to exceptions, the consolidated return and interest 
allocation definitions of affiliation generally are consistent 
with each other.\75\ For example, both definitions generally 
exclude all foreign corporations from the affiliated group. 
Thus, while debt generally is considered fungible among the 
assets of a group of domestic affiliated corporations, the same 
rules do not apply as between the domestic and foreign members 
of a group with the same degree of common control as the 
domestic affiliated group.
---------------------------------------------------------------------------
    \75\One such exception is that the affiliated group for interest 
allocation purposes includes section 936 corporations that are excluded 
from the consolidated group.
---------------------------------------------------------------------------
            Banks, savings institutions, and other financial affiliates
    The affiliated group for interest allocation purposes 
generally excludes what are referred to in the Treasury 
regulations as ``financial corporations'' (Treas. Reg. sec. 
1.861-11T(d)(4)). These include any corporation, otherwise a 
member of the affiliated group for consolidation purposes, that 
is a financial institution (described in section 581 or section 
591), the business of which is predominantly with persons other 
than related persons or their customers, and which is required 
by State or Federal law to be operated separately from any 
other entity which is not a financial institution (sec. 
864(e)(5)(C)). The category of financial corporations also 
includes, to the extent provided in regulations, bank holding 
companies (including financial holding companies), subsidiaries 
of banks and bank holding companies (including financial 
holding companies), and savings institutions predominantly 
engaged in the active conduct of a banking, financing, or 
similar business (sec. 864(e)(5)(D)).
    A financial corporation is not treated as a member of the 
regular affiliated group for purposes of applying the one-
taxpayer rule to other non-financial members of that group. 
Instead, all such financial corporations that would be so 
affiliated are treated as a separate single corporation for 
interest allocation purposes.

Worldwide interest allocation

            In general
    The American Jobs Creation Act of 2004 (``AJCA'')\76\ 
modifies the interest expense allocation rules described above 
(which generally apply for purposes of computing the foreign 
tax credit limitation) by providing a one-time election (the 
``worldwide affiliated group election'') under which the 
taxable income of the domestic members of an affiliated group 
from sources outside the United States generally is determined 
by allocating and apportioning interest expense of the domestic 
members of a worldwide affiliated group on a worldwide-group 
basis (i.e., as if all members of the worldwide group were a 
single corporation). If a group makes this election, the 
taxable income of the domestic members of a worldwide 
affiliated group from sources outside the United States is 
determined by allocating and apportioning the third-party 
interest expense of those domestic members to foreign-source 
income in an amount equal to the excess (if any) of (1) the 
worldwide affiliated group's worldwide third-party interest 
expense multiplied by the ratio which the foreign assets of the 
worldwide affiliated group bears to the total assets of the 
worldwide affiliated group,\77\ over (2) the third-party 
interest expense incurred by foreign members of the group to 
the extent such interest would be allocated to foreign sources 
if the principles of worldwide interest allocation were applied 
separately to the foreign members of the group.\78\
---------------------------------------------------------------------------
    \76\Pub. L. No. 108-357, sec. 401 (2004).
    \77\For purposes of determining the assets of the worldwide 
affiliated group, neither stock in corporations within the group nor 
indebtedness (including receivables) between members of the group is 
taken into account.
    \78\Although the interest expense of a foreign subsidiary is taken 
into account for purposes of allocating the interest expense of the 
domestic members of the electing worldwide affiliated group for foreign 
tax credit limitation purposes, the interest expense incurred by a 
foreign subsidiary is not deductible on a U.S. return.
---------------------------------------------------------------------------
    For purposes of the new elective rules based on worldwide 
fungibility, the worldwide affiliated group means all 
corporations in an affiliated group as well as all controlled 
foreign corporations that, in the aggregate, either directly or 
indirectly,\79\ would be members of such an affiliated group if 
section 1504(b)(3) did not apply (i.e., in which at least 80 
percent of the vote and value of the stock of such corporations 
is owned by one or more other corporations included in the 
affiliated group). Thus, if an affiliated group makes this 
election, the taxable income from sources outside the United 
States of domestic group members generally is determined by 
allocating and apportioning interest expense of the domestic 
members of the worldwide affiliated group as if all of the 
interest expense and assets of 80 percent or greater owned 
domestic corporations (i.e., corporations that are part of the 
affiliated group, as modified to include insurance companies) 
and certain controlled foreign corporations were attributable 
to a single corporation.
---------------------------------------------------------------------------
    \79\Indirect ownership is determined under the rules of section 
958(a)(2) or through applying rules similar to those of section 
958(a)(2) to stock owned directly or indirectly by domestic 
partnerships, trusts, or estates.
---------------------------------------------------------------------------
    The common parent of the domestic affiliated group must 
make the worldwide affiliated group election. It must be made 
for the first taxable year beginning after December 31, 2008, 
in which a worldwide affiliated group exists that includes at 
least one foreign corporation that meets the requirements for 
inclusion in a worldwide affiliated group. Once made, the 
election applies to the common parent and all other members of 
the worldwide affiliated group for the taxable year for which 
the election was made and all subsequent taxable years, unless 
revoked with the consent of the Secretary of the Treasury.
            Financial institution group election
    Taxpayers are allowed to apply the bank group rules to 
exclude certain financial institutions from the affiliated 
group for interest allocation purposes under the worldwide 
fungibility approach. The rules also provide a one-time 
``financial institution group'' election that expands the bank 
group. At the election of the common parent of the pre-election 
worldwide affiliated group, the interest expense allocation 
rules are applied separately to a subgroup of the worldwide 
affiliated group that consists of (1) all corporations that are 
part of the bank group, and (2) all ``financial corporations.'' 
For this purpose, a corporation is a financial corporation if 
at least 80 percent of its gross income is financial services 
income (as described in section 904(d)(2)(C)(i) and the 
regulations thereunder) that is derived from transactions with 
unrelated persons.\80\ For these purposes, items of income or 
gain from a transaction or series of transactions are 
disregarded if a principal purpose for the transaction or 
transactions is to qualify any corporation as a financial 
corporation.
---------------------------------------------------------------------------
    \80\See Treas. Reg. sec. 1.904-4(e)(2).
---------------------------------------------------------------------------
    The common parent of the pre-election worldwide affiliated 
group must make the election for the first taxable year 
beginning after December 31, 2008, in which a worldwide 
affiliated group includes a financial corporation. Once made, 
the election applies to the financial institution group for the 
taxable year and all subsequent taxable years. In addition, 
anti-abuse rules are provided under which certain transfers 
from one member of a financial institution group to a member of 
the worldwide affiliated group outside of the financial 
institution group are treated as reducing the amount of 
indebtedness of the separate financial institution group. 
Regulatory authority is provided with respect to the election 
to provide for the direct allocation of interest expense in 
circumstances in which such allocation is appropriate to carry 
out the purposes of these rules, to prevent assets or interest 
expense from being taken into account more than once, or to 
address changes in members of any group (through acquisitions 
or otherwise) treated as affiliated under these rules.
            Effective date of worldwide interest allocation under AJCA
    The worldwide interest allocation rules under AJCA are 
effective for taxable years beginning after December 31, 2008.

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to delay 
implementation of the worldwide interest allocation rules.

                        EXPLANATION OF PROVISION

    The provision delays the effective date of worldwide 
interest allocation rules for one year, until taxable years 
beginning after December 31, 2009. The required dates for 
making the worldwide affiliated group election and the 
financial institution group election are changed accordingly.
    The provision also provides a special phase-in rule in the 
case of the first taxable year to which the worldwide interest 
allocation rules apply. For that year, the amount of the 
taxpayer's taxable income from foreign sources is reduced by 22 
percent of the excess of (i) the amount of its taxable income 
from foreign sources as calculated using the worldwide interest 
allocation rules over (ii) the amount of its taxable income 
from foreign sources as calculated using the present-law 
interest allocation rules. Any foreign tax credits disallowed 
by virtue of this reduction in foreign-source taxable income 
may be carried back or forward under the normal rules for 
carrybacks and carryforwards of excess foreign tax credits.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 C. Modifications to Corporate Estimated Tax Payments (Sec. 303 of the 
                                 bill)


                              PRESENT LAW

In general

    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.

Tax Increase Prevention and Reconciliation Act of 2005 (``TIPRA'')

    TIPRA provided the following special rules:
    In case of a corporation with assets of at least $1 
billion, the payments due in July, August, and September, 20I2, 
shall be increased to 106.25 percent of the payment otherwise 
due and the next required payment shall be reduced accordingly.
    In case of a corporation with assets of at least $1 
billion, the payments due in July, August, and September, 2013, 
shall be increased to 100.75 percent of the payment otherwise 
due and the next required payment shall be reduced accordingly.

Subsequent legislation

    Several public laws have been enacted since TIPRA which 
further increase the percentage of payments due under each of 
the two special rules enacted by TIPRA described above.

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

    The provision makes two modifications to the corporate 
estimated tax payment rules.
    First, in case of a corporation with assets of at least $1 
billion, the payments due in July, August, and September, 2013, 
are increased by 13 percent points of the payment otherwise due 
and the next required payment shall be reduced accordingly.
    Second, in case of a corporation with assets of at least $1 
billion, the increased payments due in July, August, and 
September, 2012 under the special rules in TIPRA and subsequent 
legislation are repealed. In effect the general rule is applied 
(i.e., such corporations are required to make quarterly 
estimated tax payments based on their income tax liability.)

                             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. 5720, as reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2008-2018:


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, April 24, 2008.
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. 5720, the Housing 
Assistance Tax Act of 2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Zachary 
Epstein.
            Sincerely,
                                         Robert A. Sunshine
                                   (For Peter R. Orszag, Director).
    Enclosure.

H.R. 5720--Housing Assistance Tax Act of 2008

    Summary: H.R. 5720 would amend tax law relating to a 
variety of housing matters, such as the low-income housing 
credit, tax-exempt housing bonds, and refundable credits for 
first-time home buyers. The Joint Committee on Taxation (JCT) 
and the Congressional Budget Office estimate that enacting H.R. 
5720 would decrease revenues by $0.6 billion in 2008 and 
increase revenues by $3.9 billion over the 2008-2018 period. 
CBO and JCT estimate that enacting the bill would increase 
direct spending by $3.9 billion over the 2008-2018 period. On 
net, the bill would reduce budget deficits (or increase 
surpluses) by a total of $279 million over the 2008-2013 period 
and $18 million over the 2008-2018 period.
    JCT has reviewed the bill and determined that it contains 
no intergovernmental mandates as defined in the Unfunded 
Mandates Reform Act (UMRA). JCT has also determined that the 
bill contains two private-sector mandates: the adjustment of 
rules governing the reporting of information by brokers and the 
delay in implementing worldwide allocation of interest expense 
until 2010. JCT estimates that the costs required to comply 
with the mandates would exceed the annual threshold established 
by UMRA ($136 million in 2008, adjusted annually for inflation) 
in each of the next five years (2009 through 2013).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 5720 is shown in the following table. 
The costs of this legislation fall within budget functions 600 
(income security) and 900 (net interest).

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      By fiscal year, in millions of dollars--
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                      2008       2009       2010       2011       2012       2013       2014       2015       2016       2017       2018    2008-2013  2008-2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Refundable Credit for First-Time Homebuyers......       -419     -5,241     -1,636      1,147      1,421      1,261      1,101        941        721        354        138     -3,467       -211
Repeal Certain Alternative Minimum Tax                   -68       -137       -206       -207       -206       -203       -203       -204       -206       -208       -210     -1,026     -2,057
 Limitations.....................................
Rules for Mortgage Bonds.........................        -22        -90       -146       -154       -153       -148       -141       -135       -129       -125       -125       -712     -1,368
Increased Cap for LIHTC..........................         -1        -34        -74       -109       -119       -119       -119       -119       -119       -119       -119       -456     -1,051
Brokers' Reporting Rules.........................          0          0          0         34        214        465        794      1,286      1,611      1,737      1,840        713      7,980
Delay in Worldwide Interest Allocation Rules.....          0      1,029      1,774        375          0          0          0          0          0          0          0      3,178      3,178
Corporate Estimated Tax Payment Due in 2013......          0          0          0          0     -9,934     17,296     -7,362          0          0          0          0      7,362          0
Other Provisions.................................        -65     -1,100        -23        -15        -73       -123       -152       -189       -227       -267       -307     -1,403     -2,543
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
    Total Changes in Revenues....................       -575     -5,573       -311      1,071     -8,850     18,429     -6,082      1,580      1,651      1,372      1,217      4,189      3,928

                                                                                   CHANGES IN DIRECT SPENDING

Refundable Credit for First-Time Homebuyers:
    Estimated Budget Authority...................        210      2,621        949          0          0          0          0          0          0          0          0      3,780      3,780
    Estimated Outlays............................        210      2,621        949          0          0          0          0          0          0          0          0      3,780      3,780
Treatment of Guaranteed Bonds:
    Estimated Budget Authority...................          0        -52         91         69         22          0          0          0          0          0          0        130        130
    Estimated Outlays............................          0        -52         83         60         34          5          0          0          0          0          0        130        130
Total Changes in Direct Spending:
    Estimated Budget Authority...................        210      2,569      1,040         69         22          0          0          0          0          0          0      3,910      3,910
    Estimated Outlays............................        210      2,569      1,032         60         34          5          0          0          0          0          0      3,910      3,910

                                                                           NET CHANGE IN THE BUDGET DEFICIT OR SURPLUS

Net Change in the Budget Deficit or Surplus\1\...       -785     -8,142     -1,343      1,011     -8,884     18,424     -6,082      1,580      1,651      1,372      1,217        279        18
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office and Joint Committee on Taxation.
Note: LIHTC = low-income housing tax credit.
\1\Negative numbers indicate increases in deficits (or decreases in surpluses); positive numbers indicate decreases in deficits (or increases in surpluses).

    Basis of the estimate: JCT estimated the effects of H.R. 
5720 on revenues, with the exception of one provision. CBO 
estimated effects on direct spending and revenues from the 
provision that would modify the treatment of certain bonds 
guaranteed by the Federal Home Loan Banks. For this estimate, 
JCT and CBO assume the bill will be enacted by June 1, 2008.

Revenues

    The effects on revenues would be attributable to a number 
of provisions. This section describes several of those 
provisions that have significant effects.
    Refundable Credit for Certain First-Time Homebuyers. For 
certain taxpayers who have not had ownership interest in a 
principal residence within the past three years, H.R. 5720 
would allow such persons, upon purchasing a home, to claim a 
refundable tax credit of up to $7,500. The home must be 
purchased between April 8, 2008, and April 1, 2009, and the 
amount of the credit would be paid back in higher tax liability 
over a 15-year period beginning two years after the home 
purchase. JCT estimates that enacting this provision would 
decrease revenues by $3.5 billion over the 2008-2013 period and 
by $211 million over the 2008-2018 period. The provision also 
would affect direct spending (see the ``Direct Spending'' 
section).
    Repeal of Certain Alternative Minimum Tax Limitations. 
Under current law, the low-income housing credit and the 
rehabilitation credit, which provide incentives for investment 
in low-income housing and reconstruction of certain types of 
buildings, may not be claimed against a taxpayer's alternative 
minimum tax (AMT) liability. H.R. 5720 would allow those 
credits to offset the AMT. In addition, the bill would exclude 
interest on tax-exempt housing bonds from the AMT. JCT 
estimates that this provision would reduce revenues by $2.1 
billion over the 2008-2018 period.
    Mortgage Revenue Bonds and Multifamily Housing Bonds. The 
bill would authorize state housing authorities to issue a total 
of $10 billion in additional private-activity bonds, to be used 
as mortgage revenue bonds and multifamily bonds (which finance 
multifamily housing projects). Those bonds, which would have to 
be issued by the end of 2010, could be used to refinance 
subprime mortgage loans. Additionally, the interest earned on 
such mortgage revenue bonds would be exempt from the 
alternative minimum tax. JCT estimates that enacting those 
provisions would decrease revenues by $1.4 billion over the 
2008-2018 period.
    Increase Volume Cap for Low-Income Housing Credit. Certain 
owners of low-income housing projects may claim a credit 
against their taxable income if they receive a low-income 
housing credit allocation from their state or local housing 
credit agency. Each state is provided with an annual ceiling on 
its authority to allocate such credits. Under the bill, the 
state ceilings would be raised for calendar years 2008 and 
2009. JCT estimates that this provision would decrease revenues 
by $1.1 billion over the 2008-2018 period.
    Broker Reporting of Customers' Basis in Securities 
Transactions. The bill would adjust the rules and requirements 
imposed on brokers for the reporting of their customers' 
adjusted basis in certain financial securities. A customer's 
basis in a security, such as stock in a corporation, is a 
figure used to calculate the gain or loss on the sale of a 
security. For many securities, the adjusted basis is the cost 
incurred to acquire the security. Under H.R. 5720, brokers 
involved in the sale of certain types of securities would be 
required to file information returns with the IRS that include 
their customers' adjusted basis in the applicable security. 
This additional information reporting would be necessary for 
certain types of securities generally acquired after December 
31, 2009. JCT estimates that enacting these provisions would 
increase revenues by $8.0 billion over the 2008-2018 period.
    Delay the Application of Worldwide Interest Allocation. The 
bill would delay until 2010 the effective date of a provision 
enacted in the American Jobs Creation Act of 2004 that, 
starting in 2009, allows businesses to use an alternative 
method for allocating their interest expenses between the 
United States and foreign sources. Additionally, the bill would 
require a phase-in of the alternative allocation in the first 
tax year in which the new rules apply. JCT estimates that the 
changes would increase revenues by $3.2 billion over the 2009-
2011 period.
    Other Provisions. H.R. 5720 would shift revenues out of 
2012 and 2014 and into 2013 by adjusting the portion of 
corporate estimated tax payments due in July through September 
of 2012 and 2013. JCT estimates that this change would reduce 
revenues by $9.9 billion in 2012, increase them by $17.3 
billion in 2013, and reduce them by $7.4 billion in 2014. The 
bill would also modify the tax rules applicable to real estate 
investment trusts. JCT estimates that this and other provisions 
would decrease revenues by $2.5 billion over the 2008-2018 
period.

Direct spending

    Refundable Credit for First-Time Homebuyers. As discussed 
above, the bill would allow certain persons, upon purchasing a 
home, to receive a refundable tax credit for up to $7,500. JCT 
estimates that the provision would increase outlays from the 
refundable credit by $3.8 billion over the 2008-2010 period.
    Modify Treatment of Certain Guaranteed Bonds. Under the 
bill, interest on certain bonds guaranteed by Federal Home Loan 
Banks (FHLBs) before January 1, 2011, would be excluded from 
gross income for purposes of federal income taxes. CBO 
estimates that enacting this provision would increase direct 
spending by $130 million over the 2009-2013 period.
    CBO expects that authorizing the FHLBs to guarantee certain 
tax-exempt debt would increase their profitability by allowing 
them to provide new services on favorable terms. Any additional 
income earned by the FHLBs would be subject to statutory fees 
that are spent for an Affordable Housing Program (AHP) and for 
a portion of the interest due on bonds issued by the Resolution 
Funding Corporation (REFCORP). Based on JCT's projections of 
that additional income, CBO estimates that the FHLBs would have 
to set aside $128 million for the AHP; that amount would appear 
as both a revenue and an outlay on the federal budget over the 
2009-2013 period. (The FHLBs are government sponsored 
enterprises, not government agencies; most of their activities 
are not reflected in the federal budget.)
    Changes in the FHLBs' payments on REFCORP bonds affect 
direct spending because any amounts not paid by the banks are 
paid by the U.S. Treasury. The effect on direct spending for 
the REFCORP bonds is projected to be small--$2 million over the 
five-year period--because CBO's baseline projections anticipate 
that the FHLBs will have satisfied their interest obligation by 
the end of 2010, so any additional payments in 2009 (which 
would reduce the amount paid by the Treasury by an estimated 
$55 million) would be offset by lower contributions in 2010 
(which would increase Treasury payments by $57 million).
    Intergovernmental and private-sector impact: JCT has 
reviewed the bill and determined that it contains no 
intergovernmental mandates as defined in UMRA. JCT has also 
determined that the bill contains two private-sector mandates 
as defined in UMRA. The bill would require that brokers report 
their customers' basis in securities transactions, and it would 
also delay and limit the implementation of worldwide interest 
allocation. JCT estimates the costs required to comply with the 
mandates would exceed the annual threshold established by UMRA 
($136 million in 2008, adjusted annually for inflation) in each 
of the next five years.
    Estimate prepared by: Federal Revenues: Zachary Epstein; 
Federal Spending: Kathleen Gramp.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; Peter H. Fontaine, 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 title X of the bill, 
H.R. 5720, 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 provisions of 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.

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 following tax 
provisions of the reported bill contain Federal private sector 
mandates within the meaning of Public Law No. 104-4, the 
Unfunded Mandates Reform Act of 1995: (1) broker reporting of 
customers' basis in securities transactions (sec. 301 of the 
bill); and (2) delay for one year implementation of worldwide 
interest allocation and apply 22% limitation on the first year 
of worldwide interest allocation (sec. 302 of the bill). The 
costs required to comply with each Federal private sector 
mandate generally are no greater than the aggregate estimated 
budget effects of the provision.
    The Committee has determined that the revenue provisions of 
the bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments.

                D. 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.

                       E. 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.

                        F. 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 title X of 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 OF 1986

Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *


Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *


SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX 
                    LIABILITY.

  (a) * * *
  (b) Regular Tax Liability.--For purposes of this part--
          (1) * * *
          (2) Exception for certain taxes.--For purposes of 
        paragraph (1), any tax imposed by any of the following 
        provisions shall not be treated as tax imposed by this 
        chapter:
                  (A) * * *

           *       *       *       *       *       *       *

                  (U) section 223(f)(4) (relating to additional 
                tax on health savings account distributions not 
                used for qualified medical expenses), [and]
                  (V) subsections (a)(1)(B)(i) and (b)(4)(A) of 
                section 409A (relating to interest and 
                additional tax with respect to certain deferred 
                compensation)[.], and
                  (W) section 36(f) (relating to recapture of 
                homebuyer credit).

           *       *       *       *       *       *       *


                     Subpart C--Refundable Credits

Sec. 31. Tax withheld on wages.
     * * * * * * *
Sec. 36. First-time homebuyer credit.
Sec. [36] 37. Overpayments of tax.

           *       *       *       *       *       *       *


SEC. 36. FIRST-TIME HOMEBUYER CREDIT.

  (a) Allowance of Credit.--In the case of an individual who is 
a first-time homebuyer of a principal residence in the United 
States during a taxable year, there shall be allowed as a 
credit against the tax imposed by this subtitle for such 
taxable year an amount equal to 10 percent of the purchase 
price of the residence.
  (b) Limitations.--
          (1) Dollar limitation.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, the credit allowed under 
                subsection (a) shall not exceed $7,500.
                  (B) Married individuals filing separately.--
                In the case of a married individual filing a 
                separate return, subparagraph (A) shall be 
                applied by substituting ``$3,750'' for 
                ``$7,500''.
                  (C) Other individuals.--If two or more 
                individuals who are not married purchase a 
                principal residence, the amount of the credit 
                allowed under subsection (a) shall be allocated 
                among such individuals in such manner as the 
                Secretary may prescribe, except that the total 
                amount of the credits allowed to all such 
                individuals shall not exceed $7,500.
          (2) Limitation based on modified adjusted gross 
        income.--
                  (A) In general.--The amount allowable as a 
                credit under subsection (a) (determined without 
                regard to this paragraph) for the taxable year 
                shall be reduced (but not below zero) by the 
                amount which bears the same ratio to the amount 
                which is so allowable as--
                          (i) the excess (if any) of--
                                  (I) the taxpayer's modified 
                                adjusted gross income for such 
                                taxable year, over
                                  (II) $70,000 ($140,000 in the 
                                case of a joint return), bears 
                                to
                          (ii) $20,000.
                  (B) Modified adjusted gross income.--For 
                purposes of subparagraph (A), the term 
                ``modified adjusted gross income'' means the 
                adjusted gross income of the taxpayer for the 
                taxable year increased by any amount excluded 
                from gross income under section 911, 931, or 
                933.
  (c) Definitions.--For purposes of this section--
          (1) First-time homebuyer.--The term ``first-time 
        homebuyer'' means any individual if such individual 
        (and if married, such individual's spouse) had no 
        present ownership interest in a principal residence 
        during the 3-year period ending on the date of the 
        purchase of the principal residence to which this 
        section applies.
          (2) Principal residence.--The term ``principal 
        residence'' has the same meaning as when used in 
        section 121.
          (3) Purchase.--
                  (A) In general.--The term ``purchase'' means 
                any acquisition, but only if--
                          (i) the property is not acquired from 
                        a person related to the person 
                        acquiring it, and
                          (ii) the basis of the property in the 
                        hands of the person acquiring it is not 
                        determined--
                                  (I) in whole or in part by 
                                reference to the adjusted basis 
                                of such property in the hands 
                                of the person from whom 
                                acquired, or
                                  (II) under section 1014(a) 
                                (relating to property acquired 
                                from a decedent).
                  (B) Construction.--A residence which is 
                constructed by the taxpayer shall be treated as 
                purchased by the taxpayer on the date the 
                taxpayer first occupies such residence.
          (4) Purchase price.--The term ``purchase price'' 
        means the adjusted basis of the principal residence on 
        the date such residence is purchased.
          (5) Related persons.--A person shall be treated as 
        related to another person if the relationship between 
        such persons would result in the disallowance of losses 
        under section 267 or 707(b) (but, in applying section 
        267(b) and (c) for purposes of this section, paragraph 
        (4) of section 267(c) shall be treated as providing 
        that the family of an individual shall include only his 
        spouse, ancestors, and lineal descendants).
  (d) Exceptions.--No credit under subsection (a) shall be 
allowed to any taxpayer for any taxable year with respect to 
the purchase of a residence if--
          (1) a credit under section 1400C (relating to first-
        time homebuyer in the District of Columbia) is 
        allowable to the taxpayer (or the taxpayer's spouse) 
        for such taxable year or any prior taxable year,
          (2) the residence is financed by the proceeds of a 
        qualified mortgage issue the interest on which is 
        exempt from tax under section 103,
          (3) the taxpayer is a nonresident alien, or
          (4) the taxpayer disposes of such residence (or such 
        residence ceases to be the principal residence of the 
        taxpayer (and, if married, the taxpayer's spouse)) 
        before the close of such taxable year.
  (e) Reporting.--If the Secretary requires information 
reporting under section 6045 by a person described in 
subsection (e)(2) thereof to verify the eligibility of 
taxpayers for the credit allowable by this section, the 
exception provided by section 6045(e) shall not apply.
  (f) Recapture of Credit.--
          (1) In general.--Except as otherwise provided in this 
        subsection, if a credit under subsection (a) is allowed 
        to a taxpayer, the tax imposed by this chapter shall be 
        increased by 6\2/3\ percent of the amount of such 
        credit for each taxable year in the recapture period.
          (2) Acceleration of recapture.--If a taxpayer 
        disposes of the principal residence with respect to 
        which a credit was allowed under subsection (a) (or 
        such residence ceases to be the principal residence of 
        the taxpayer (and, if married, the taxpayer's spouse)) 
        before the end of the recapture period--
                  (A) the tax imposed by this chapter for the 
                taxable year of such disposition or cessation, 
                shall be increased by the excess of the amount 
                of the credit allowed over the amounts of tax 
                imposed by paragraph (1) for preceding taxable 
                years, and
                  (B) paragraph (1) shall not apply with 
                respect to such credit for such taxable year or 
                any subsequent taxable year.
          (3) Limitation based on gain.--In the case of the 
        sale of the principal residence to a person who is not 
        related to the taxpayer, the increase in tax determined 
        under paragraph (2) shall not exceed the amount of gain 
        (if any) on such sale. Solely for purposes of the 
        preceding sentence, the adjusted basis of such 
        residence shall be reduced by the amount of the credit 
        allowed under subsection (a) to the extent not 
        previously recaptured under paragraph (1).
          (4) Exceptions.--
                  (A) Death of taxpayer.--Paragraphs (1) and 
                (2) shall not apply to any taxable year ending 
                after the date of the taxpayer's death.
                  (B) Involuntary conversion.--Paragraph (2) 
                shall not apply in the case of a residence 
                which is compulsorily or involuntarily 
                converted (within the meaning of section 
                1033(a)) if the taxpayer acquires a new 
                principal residence during the 2-year period 
                beginning on the date of the disposition or 
                cessation referred to in paragraph (2). 
                Paragraph (2) shall apply to such new principal 
                residence during the recapture period in the 
                same manner as if such new principal residence 
                were the converted residence.
                  (C) Transfers between spouses or incident to 
                divorce.--In the case of a transfer of a 
                residence to which section 1041(a) applies--
                          (i) paragraph (2) shall not apply to 
                        such transfer, and
                          (ii) in the case of taxable years 
                        ending after such transfer, paragraphs 
                        (1) and (2) shall apply to the 
                        transferee in the same manner as if 
                        such transferee were the transferor 
                        (and shall not apply to the 
                        transferor).
          (5) Joint returns.--In the case of a credit allowed 
        under subsection (a) with respect to a joint return, 
        half of such credit shall be treated as having been 
        allowed to each individual filing such return for 
        purposes of this subsection.
          (6) Recapture period.--For purposes of this 
        subsection, the term ``recapture period'' means the 15 
        taxable years beginning with the second taxable year 
        following the taxable year in which the purchase of the 
        principal residence for which a credit is allowed under 
        subsection (a) was made.
  (g) Application of Section.--This section shall only apply to 
a principal residence purchased by the taxpayer on or after 
April 9, 2008, and before April 1, 2009.

SEC. [36.] 37. OVERPAYMENTS OF TAX.

  For credit against the tax imposed by this subtitle for 
overpayments of tax, see section 6401.

           *       *       *       *       *       *       *


Subpart D--Business Related Credits

           *       *       *       *       *       *       *


SEC. 38. GENERAL BUSINESS CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Limitation Based on Amount of Tax.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Special rules for specified credits.--
                  (A) * * *
                  (B) Specified credits.--For purposes of this 
                subsection, the term ``specified credits'' 
                means--
                          (i) * * *
                          (ii) the credit determined under 
                        section 42 to the extent attributable 
                        to buildings placed in service after 
                        December 31, 2007,
                          [(ii)] (iii) the credit determined 
                        under section 45 to the extent that 
                        such credit is attributable to 
                        electricity or refined coal produced--
                                  (I) * * *

           *       *       *       *       *       *       *

                          [(iii)] (iv) the credit determined 
                        under section 45B, [and]
                          (v) the credit determined under 
                        section 47 to the extent attributable 
                        to qualified rehabilitation 
                        expenditures properly taken into 
                        account for periods after December 31, 
                        2007, and
                          [(iv)] (vi) the credit determined 
                        under section 51.

           *       *       *       *       *       *       *


SEC. 42. LOW-INCOME HOUSING CREDIT.

  (a) * * *
  [(b) Applicable Percentage: 70 Percent Present Value Credit 
for Certain New Buildings; 30 Percent Present Value Credit for 
Certain Other Buildings.--For purposes of this section--
          [(1) Building placed in service during 1987.--In the 
        case of any qualified low-income building placed in 
        service by the taxpayer during 1987, the term 
        ``applicable percentage'' means--
                  [(A) 9 percent for new buildings which are 
                not federally subsidized for the taxable year, 
                or
                  [(B) 4 percent for--
                          [(i) new buildings which are 
                        federally subsidized for the taxable 
                        year, and
                          [(ii) existing buildings.
          [(2) Buildings placed in service after 1987.--
                  [(A) In general.--In the case of any 
                qualified low-income building placed in service 
                by the taxpayer after 1987, the term 
                ``applicable percentage'' means the appropriate 
                percentage prescribed by the Secretary for the 
                earlier of--
                          [(i) the month in which such building 
                        is placed in service, or
                          [(ii) at the election of the 
                        taxpayer--
                                  [(I) the month in which the 
                                taxpayer and the housing credit 
                                agency enter into an agreement 
                                with respect to such building 
                                (which is binding on such 
                                agency, the taxpayer, and all 
                                successors in interest) as to 
                                the housing credit dollar 
                                amount to be allocated to such 
                                building, or
                                  [(II) in the case of any 
                                building to which subsection 
                                (h)(4)(B) applies, the month in 
                                which the tax-exempt 
                                obligations are issued.
                A month may be elected under clause (ii) only 
                if the election is made not later than the 5th 
                day after the close of such month. Such an 
                election, once made, shall be irrevocable.
                  [(B) Method of prescribing percentages.--The 
                percentages prescribed by the Secretary for any 
                month shall be percentages which will yield 
                over a 10-year period amounts of credit under 
                subsection (a) which have a present value equal 
                to--
                          [(i) 70 percent of the qualified 
                        basis of a building described in 
                        paragraph (1)(A), and
                          [(ii) 30 percent of the qualified 
                        basis of a building described in 
                        paragraph (1)(B).
                  [(C) Method of discounting.--The present 
                value under subparagraph (B) shall be 
                determined--
                          [(i) as of the last day of the 1st 
                        year of the 10-year period referred to 
                        in subparagraph (B),
                          [(ii) by using a discount rate equal 
                        to 72 percent of the average of the 
                        annual Federal mid-term rate and the 
                        annual Federal long-term rate 
                        applicable under section 1274(d)(1) to 
                        the month applicable under clause (i) 
                        or (ii) of subparagraph (A) and 
                        compounded annually, and
                          [(iii) by assuming that the credit 
                        allowable under this section for any 
                        year is received on the last day of 
                        such year.
          [(3) Cross references.--
                  [(A) For treatment of certain rehabilitation 
                expenditures as separate new buildings, see 
                subsection (e).
                  [(B) For determination of applicable 
                percentage for increases in qualified basis 
                after the 1st year of the credit period, see 
                subsection (f)(3).
                  [(C) For authority of housing credit agency 
                to limit applicable percentage and qualified 
                basis which may be taken into account under 
                this section with respect to any building, see 
                subsection (h)(7).]
  (b) Applicable Percentage.--For purposes of this section--
          (1) In general.--The term ``applicable percentage'' 
        means, with respect to any building, the appropriate 
        percentage prescribed by the Secretary for the earlier 
        of--
                  (A) the month in which such building is 
                placed in service, or
                  (B) at the election of the taxpayer--
                          (i) the month in which the taxpayer 
                        and the housing credit agency enter 
                        into an agreement with respect to such 
                        building (which is binding on such 
                        agency, the taxpayer, and all 
                        successors in interest) as to the 
                        housing credit dollar amount to be 
                        allocated to such building, or
                          (ii) in the case of any building to 
                        which subsection (h)(4)(B) applies, the 
                        month in which the tax-exempt 
                        obligations are issued.
        A month may be elected under clause (ii) only if the 
        election is made not later than the 5th day after the 
        close of such month. Such an election, once made, shall 
        be irrevocable.
          (2) Method of prescribing percentages.--
                  (A) In general.--For purposes of paragraph 
                (1), the percentages prescribed by the 
                Secretary for any month shall be--
                          (i) in the case of any building which 
                        is not federally subsidized for the 
                        taxable year, the greater of--
                                  (I) the average percentage 
                                determined under subclause (II) 
                                for months in the preceding 
                                calendar year, or
                                  (II) the percentage which 
                                will yield over a 10-year 
                                period amounts of credit under 
                                subsection (a) which have a 
                                present value equal to 70 
                                percent of the qualified basis 
                                of such building, and
                          (ii) in the case of any other 
                        building, the percentage which will 
                        yield over a 10-year period amounts of 
                        credit under subsection (a) which have 
                        a present value equal to 30 percent of 
                        the qualified basis of such building.
                  (B) Method of discounting.--The present value 
                under subparagraph (A) shall be determined--
                          (i) as of the last day of the 1st 
                        year of the 10-year period referred to 
                        in subparagraph (A),
                          (ii) by using a discount rate equal 
                        to 72 percent of the average of the 
                        annual Federal mid-term rate and the 
                        annual Federal long-term rate 
                        applicable under section 1274(d)(1) to 
                        the month applicable under subparagraph 
                        (A) and compounded annually, and
                          (iii) by assuming that the credit 
                        allowable under this section for any 
                        year is received on the last day of 
                        such year.
          (3) Cross references.--
                  (A) For treatment of certain rehabilitation 
                expenditures as separate buildings, see 
                subsection (e).
                  (B) For determination of applicable 
                percentage for increases in qualified basis 
                after the 1st year of the credit period, see 
                subsection (f)(3).
                  (C) For authority of housing credit agency to 
                limit applicable percentage and qualified basis 
                which may be taken into account under this 
                section with respect to any building, see 
                subsection (h)(7).
  (c) Qualified Basis; Qualified Low-Income Building.--For 
purposes of this section--
          (1) * * *
          (2) Qualified low-income building.--The term 
        ``qualified low-income building'' means any building--
                  (A) which is part of a qualified low-income 
                housing project at all times during the 
                period--
                          (i) beginning on the 1st day in the 
                        compliance period on which such 
                        building is part of such a project, and
                          (ii) ending on the last day of the 
                        compliance period with respect to such 
                        building, and
                  (B) to which the amendments made by section 
                201(a) of the Tax Reform Act of 1986 apply.
        [Such term does not include any building with respect 
        to which moderate rehabilitation assistance is 
        provided, at any time during the compliance period, 
        under section 8(e)(2) 1 of the United States Housing 
        Act of 1937 (other than assistance under the McKinney-
        Vento Homeless Assistance Act (as in effect on the date 
        of the enactment of this sentence)).]

           *       *       *       *       *       *       *

  (d) Eligible Basis.--For purposes of this section--
          (1) * * *
          (2) Existing buildings.--
                  (A) * * *
                  (B) Requirements.--A building meets the 
                requirements of this subparagraph if--
                          (i) * * *
                          (ii) there is a period of at least 10 
                        years between the date of its 
                        acquisition by the taxpayer and [the 
                        later of--
                                  [(I) the date the building 
                                was last placed in service, or
                                  [(II) the date of the most 
                                recent nonqualified substantial 
                                improvement of the building,] 
                                the date the building was last 
                                placed in service,

           *       *       *       *       *       *       *

                  (D) Special rules for subparagraph (b).--
                          [(i) Nonqualified substantial 
                        improvement.--For purposes of 
                        subparagraph (B)(ii)--
                                  [(I) In general.--The term 
                                ``nonqualified substantial 
                                improvement'' means any 
                                substantial improvement if 
                                section 167(k) (as in effect on 
                                the day before the date of the 
                                enactment of the Revenue 
                                Reconciliation Act of 1990) was 
                                elected with respect to such 
                                improvement or section 168 (as 
                                in effect on the day before the 
                                date of the enactment of the 
                                Tax Reform Act of 1986) applied 
                                to such improvement.
                                  [(II) Date of substantial 
                                improvement.--The date of a 
                                substantial improvement is the 
                                last day of the 24-month period 
                                referred to in subclause (III).
                                  [(III) Substantial 
                                improvement.--The term 
                                ``substantial improvement'' 
                                means the improvements added to 
                                capital account with respect to 
                                the building during any 24-
                                month period, but only if the 
                                sum of the amounts added to 
                                such account during such period 
                                equals or exceeds 25 percent of 
                                the adjusted basis of the 
                                building (determined without 
                                regard to paragraphs (2) and 
                                (3) of section 1016(a)) as of 
                                the 1st day of such period.]
                          [(ii)] (i) Special rules for certain 
                        transfers.--For purposes of determining 
                        under subparagraph (B)(ii) when a 
                        building was last placed in service, 
                        there shall not be taken into account 
                        any placement in service--
                                  (I) * * *

           *       *       *       *       *       *       *

                          [(iii) Related person, etc.--
                                  [(I) Application of section 
                                179.--For purposes of 
                                subparagraph (B)(i), section 
                                179(d) shall be applied by 
                                substituting ``10 percent'' for 
                                ``50 percent'' in section 
                                2267(b) and 707(b) and in 
                                section 179(d)(7).]
                          [(II)] (ii) Related person.--For 
                        purposes of subparagraph (B)(iii), a 
                        person (hereinafter in this subclause 
                        referred to as the ``related person'') 
                        is related to any person if the related 
                        person bears a relationship to such 
                        person specified in section 267(b) or 
                        707(b)(1), or the related person and 
                        such person are engaged in trades or 
                        businesses under common control (within 
                        the meaning of subsections (a) and (b) 
                        of section 52). [For purposes of the 
                        preceding sentence, in applying section 
                        267(b) or 707(b)(1), ``10 percent'' 
                        shall be substituted for ``50 
                        percent''.]

           *       *       *       *       *       *       *

          (4) Special rules relating to determination of 
        adjusted basis.--For purposes of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Inclusion of basis of property used to 
                provide services for certain nontenants.--
                          (i) * * *
                          (ii) Limitation.--The increase in the 
                        adjusted basis of any building which is 
                        taken into account by reason of clause 
                        (i) shall not exceed [10 percent of the 
                        eligible basis of the qualified low-
                        income housing project of which it is a 
                        part. For purposes of] the sum of--
                                  (I) 15 percent of so much of 
                                the eligible basis of the 
                                qualified low-income housing 
                                project of which it is a part 
                                as does not exceed $5,000,000, 
                                plus
                                  (II) 10 percent of so much of 
                                the eligible basis of such 
                                project as is not taken into 
                                account under subclause (I).
                        For purposes of the preceding sentence, 
                        all community service facilities which 
                        are part of the same qualified low-
                        income housing project shall be treated 
                        as one facility.

           *       *       *       *       *       *       *

          (5) Special rules for determining eligible basis.--
                  [(A) Eligible basis reduced by federal 
                grants.--If, during any taxable year of the 
                compliance period, a grant is made with respect 
                to any building or the operation thereof and 
                any portion of such grant is funded with 
                Federal funds (whether or not includible in 
                gross income), the eligible basis of such 
                building for such taxable year and all 
                succeeding taxable years shall be reduced by 
                the portion of such grant which is so funded.
                  [(B) Eligible basis not to include 
                expenditures where section 167(k) selected.--
                The eligible basis of any building shall not 
                include any portion of its adjusted basis which 
                is attributable to amounts with respect to 
                which an election is made under section 167(k) 
                (as in effect on the day before the date of the 
                enactment of the Revenue Reconciliation Act of 
                1990).]
                  (A) Federal grants not taken into account in 
                determining eligible basis.--The eligible basis 
                of a building shall not include any costs 
                financed with the proceeds of a Federally 
                funded grant.
                  [(C)] (B) Increase in credit for buildings in 
                high cost areas.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (v) Buildings designated by state 
                        housing credit agency.--Any building 
                        which is designated by the State 
                        housing credit agency as requiring the 
                        increase in credit under this 
                        subparagraph in order for such building 
                        to be financially feasible as part of a 
                        qualified low-income housing project 
                        shall be treated for purposes of this 
                        subparagraph as located in a difficult 
                        development area which is designated 
                        for purposes of this subparagraph. The 
                        preceding sentence shall not apply to 
                        any building if paragraph (1) of 
                        subsection (h) does not apply to any 
                        portion of the eligible basis of such 
                        building by reason of paragraph (4) of 
                        such subsection.
  (e) Rehabilitation Expenditures Treated as Separate New 
Building.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Minimum expenditures to qualify.--
                  (A) In general.--Paragraph (1) shall apply to 
                rehabilitation expenditures with respect to any 
                building only if--
                          (i) * * *
                          (ii) the amount of such expenditures 
                        during any 24-month period meets the 
                        requirements of whichever of the 
                        following subclauses requires the 
                        greater amount of such expenditures:
                                  (I) The requirement of this 
                                subclause is met if such amount 
                                is not less than [10 percent] 
                                20 percent of the adjusted 
                                basis of the building 
                                (determined as of the 1st day 
                                of such period and without 
                                regard to paragraphs (2) and 
                                (3) of section 1016(a)).
                                  (II) The requirement of this 
                                subclause is met if the 
                                qualified basis attributable to 
                                such amount, when divided by 
                                the number of low-income units 
                                in the building, is [$3,000] 
                                $6,000 or more.
                  (B) Exception from 10 percent 
                rehabilitation.--In the case of a building 
                acquired by the taxpayer from a governmental 
                unit, at the election of the taxpayer, 
                subparagraph (A)(ii)(I) shall not apply and the 
                credit under this section for such 
                rehabilitation expenditures shall be determined 
                using the percentage applicable under 
                [subsection (b)(2)(B)(ii)] subsection 
                (b)(2)(A)(ii).

           *       *       *       *       *       *       *

                  (D) Inflation adjustment.--In the case of any 
                expenditures which are treated under paragraph 
                (4) as placed in service during any calendar 
                year after 2009, the $6,000 amount in 
                subparagraph (A)(ii)(II) shall be increased by 
                an amount equal to--
                          (i) such dollar amount, multiplied by
                          (ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for 
                        such calendar year by substituting 
                        ``calendar year 2008'' for ``calendar 
                        year 1992'' in subparagraph (B) 
                        thereof.
                Any increase under the preceding sentence which 
                is not a multiple of $100 shall be rounded to 
                the nearest multiple of $100.
  (f) Definition and Special Rules Relating to Credit Period.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Credit period for existing buildings not to begin 
        before rehabilitation credit allowed.--
                  (A) * * *
                  (B) Acquisition credit allowed for certain 
                buildings not allowed a rehabilitation 
                credit.--
                          (i) * * *
                          (ii) Building described.--A building 
                        is described in this clause if--
                                  (I) * * *
                                  (II) a credit would be 
                                allowed for rehabilitation 
                                expenditures with respect to 
                                such building if subsection 
                                (e)(3)(A)(ii)(I) did not apply 
                                and [if subsection 
                                (e)(3)(A)(ii)(II) were applied 
                                by substituting ``$2,000'' for 
                                ``$3,000''.] if the dollar 
                                amount in effect under 
                                subsection (e)(3)(A)(ii)(II) 
                                were two-thirds of such amount.

           *       *       *       *       *       *       *

  (h) Limitation on Aggregate Credit Allowable with Respect to 
Projects Located in a State.--
          (1) Credit may not exceed credit amount allocated to 
        building.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Exception where 10 percent of cost 
                incurred.--
                          (i) * * *
                          (ii) Qualified building.--For 
                        purposes of clause (i), the term 
                        ``qualified building'' means any 
                        building which is part of a project if 
                        the taxpayer's basis in such project 
                        [(as of the later of the date which is 
                        6 months after the date that the 
                        allocation was made or the close of the 
                        calendar year in which the allocation 
                        is made)] (as of the date which is 1 
                        year after the date that the allocation 
                        was made) is more than 10 percent of 
                        the taxpayer's reasonably expected 
                        basis in such project (as of the close 
                        of the second calendar year referred to 
                        in clause (i)). Such term does not 
                        include any existing building unless a 
                        credit is allowable under subsection 
                        (e) for rehabilitation expenditures 
                        paid or incurred by the taxpayer with 
                        respect to such building for a taxable 
                        year ending during the second calendar 
                        year referred to in clause (i) or the 
                        prior taxable year.

           *       *       *       *       *       *       *

          (3) Housing credit dollar amount for agencies.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (I) Increase in state housing credit ceiling 
                for 2008 and 2009.--In the case of calendar 
                years 2008 and 2009, the dollar amount in 
                effect under subparagraph (C)(ii)(I) for such 
                calendar year (after any increase under 
                subparagraph (H)) shall be increased by $0.20.
          (4) Credit for buildings financed by tax-exempt bonds 
        subject to volume cap not taken into account.--
                  (A) In general.--Paragraph (1) shall not 
                apply to the portion of any credit allowable 
                under subsection (a) which is attributable to 
                eligible basis financed by any obligation the 
                interest on which is exempt from tax under 
                section 103 if--
                          (i) * * *
                          (ii) principal payments on such 
                        financing are applied within a 
                        reasonable period to redeem obligations 
                        the proceeds of which were used to 
                        provide such financing or such 
                        financing is refunded as described in 
                        section 146(i)(6).

           *       *       *       *       *       *       *

  (i) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *
          (2) Determination of whether building is federally 
        subsidized.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, for purposes of subsection 
                (b)(1), a [new building] building shall be 
                treated as federally subsidized for any taxable 
                year if, at any time during such taxable year 
                or any prior taxable year, there is or was 
                outstanding any obligation the interest on 
                which is exempt from tax under section 103[, or 
                any below market Federal loan,] the proceeds of 
                which are or were used (directly or indirectly) 
                with respect to such building or the operation 
                thereof.
                  (B) Election to reduce eligible basis by 
                [balance of loan or] proceeds of obligations.--
                A [loan or] tax-exempt obligation shall not be 
                taken into account under subparagraph (A) if 
                the taxpayer elects to exclude from the 
                eligible basis of the building for purposes of 
                [subsection (d)--
                          [(i) in the case of a loan, the 
                        principal amount of such loan, and
                          [(ii) in the case of a tax-exempt 
                        obligation, the proceeds of such 
                        obligation.] subsection (d) the 
                        proceeds of such obligation.
                  (C) Special rule for subsidized construction 
                financing.--Subparagraph (A) shall not apply to 
                any tax-exempt obligation [or below market 
                Federal loan] used to provide construction 
                financing for any building if--
                          (i) such obligation [or loan (when 
                        issued or made)] (when issued) 
                        identified the building for which [the 
                        proceeds of such obligation or loan] 
                        the proceeds of such obligation would 
                        be used, and
                          (ii) such obligation is redeemed[, 
                        and such loan is repaid,] before such 
                        building is placed in service.
                  [(D) Below market federal loan.--For purposes 
                of this paragraph, the term ``below market 
                Federal loan'' means any loan funded in whole 
                or in part with Federal funds if the interest 
                rate payable on such loan is less than the 
                applicable Federal rate in effect under section 
                1274(d)(1) (as of the date on which the loan 
                was made). Such term shall not include any loan 
                which would be a below market Federal loan 
                solely by reason of assistance provided under 
                section 106, 107, or 108 of the Housing and 
                Community Development Act of 1974 (as in effect 
                on the date of the enactment of this sentence).
                  [(E) Buildings receiving home assistance or 
                native american housing assistance.--
                          [(i) In general.--Assistance provided 
                        under the HOME Investment Partnerships 
                        Act (as in effect on the date of the 
                        enactment of this subparagraph or the 
                        Native American Housing Assistance and 
                        Self-Determination Act of 1996 (25 
                        U.S.C. 4101 et seq.) (as in effect on 
                        October 1, 1997)) with respect to any 
                        building shall not be taken into 
                        account under subparagraph (D) if 40 
                        percent or more of the residential 
                        units in the building are occupied by 
                        individuals whose income is 50 percent 
                        or less of area median gross income. 
                        Subsection (d)(5)(C) shall not apply to 
                        any building to which the preceding 
                        sentence applies.
                          [(ii) Special rule for certain high-
                        cost housing areas.--In the case of a 
                        building located in a city described in 
                        section 142(d)(6), clause (i) shall be 
                        applied by substituting ``25 percent'' 
                        for ``40 percent''.]
          (3) Low-income unit.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (D) Certain students not to disqualify 
                unit.--A unit shall not fail to be treated as a 
                low-income unit merely because it is occupied--
                          (i) by an individual who is--
                                  (I) a student and receiving 
                                assistance under title IV of 
                                the Social Security Act, [or]
                                  (II) a student who was 
                                previously under the care and 
                                placement responsibility of the 
                                State agency responsible for 
                                administering a plan under part 
                                B or part E of title IV of the 
                                Social Security Act, or
                                  [(II)] (III) enrolled in a 
                                job training program receiving 
                                assistance under the Job 
                                Training Partnership Act or 
                                under other similar Federal, 
                                State, or local laws, or

           *       *       *       *       *       *       *

          (8) Treatment of rural projects.--For purposes of 
        this section, in the case of any project for 
        residential rental property located in a rural area (as 
        defined in section 520 of the Housing Act of 1949), any 
        income limitation measured by reference to area median 
        gross income shall be measured by reference to the 
        greater of area median gross income or national non-
        metropolitan median income. The preceding sentence 
        shall not apply with respect to any building if 
        paragraph (1) of section 42(h) does not apply by reason 
        of paragraph (4) thereof to any portion of the credit 
        determined under this section with respect to such 
        building.

           *       *       *       *       *       *       *

  (j) Recapture of Credit.--
          (1) * * *

           *       *       *       *       *       *       *

          [(6) No recapture on disposition of building (or 
        interest therein) where bond posted.--In the case of a 
        disposition of a building or an interest therein, the 
        taxpayer shall be discharged from liability for any 
        additional tax under this subsection by reason of such 
        disposition if--
                  [(A) the taxpayer furnishes to the Secretary 
                a bond in an amount satifactory to the 
                Secretary and for the period required by the 
                Secretary, and
                  [(B) it is reasonably expected that such 
                building will continue to be operated as a 
                qualified low-income building for the remaining 
                compliance period with respect to such 
                building.]
          (6) No recapture on disposition of building which 
        continues in qualified use.--
                  (A) In general.--The increase in tax under 
                this subsection shall not apply solely by 
                reason of the disposition of a building (or an 
                interest therein) if it is reasonably expected 
                that such building will continue to be operated 
                as a qualified low-income building for the 
                remaining compliance period with respect to 
                such building.
                  (B) Statute of limitations.--If a building 
                (or an interest therein) is disposed of during 
                any taxable year and there is any reduction in 
                the qualified basis of such building which 
                results in an increase in tax under this 
                subsection for such taxable or any subsequent 
                taxable year, then--
                          (i) the statutory period for the 
                        assessment of any deficiency with 
                        respect to such increase in tax shall 
                        not expire before the expiration of 3 
                        years from the date the Secretary is 
                        notified by the taxpayer (in such 
                        manner as the Secretary may prescribe) 
                        of such reduction in qualified basis, 
                        and
                          (ii) such deficiency may be assessed 
                        before the expiration of such 3-year 
                        period notwithstanding the provisions 
                        of any other law or rule of law which 
                        would otherwise prevent such 
                        assessment.

           *       *       *       *       *       *       *

  (m) Responsibilities of Housing Credit Agencies.--
          (1) Plans for allocation of credit among projects.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Certain selection criteria must be 
                used.--The selection criteria set forth in a 
                qualified allocation plan must include--
                          (i) * * *

           *       *       *       *       *       *       *

                          (vii) tenant populations of 
                        individuals with children, [and]
                          (viii) projects intended for eventual 
                        tenant ownership[.],
                          (ix) the energy efficiency of the 
                        project, and
                          (x) the historic nature of the 
                        project.

           *       *       *       *       *       *       *


Subpart E--Rules for Computing Investment Credit

           *       *       *       *       *       *       *


SEC. 47. REHABILITATION CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section--
          (1) * * *
          (2) Qualified rehabilitation expenditure defined.--
                  (A) * * *
                  (B) Certain expenditures not included.--The 
                term ``qualified rehabilitation expenditure'' 
                does not include--
                          (i) * * *

           *       *       *       *       *       *       *

                          (v) Tax-exempt use property.--
                                  (I) In general.--Any 
                                expenditure in connection with 
                                the rehabilitation of a 
                                building which is allocable to 
                                the portion of such property 
                                which is (or may reasonably be 
                                expected to be) tax-exempt use 
                                property (within the meaning of 
                                [section 168(h)] section 
                                168(h), except that ``50 
                                percent'' shall be substituted 
                                for ``35 percent'' in paragraph 
                                (1)(B)(iii) thereof).

           *       *       *       *       *       *       *


PART VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *


SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Adjustments Based on Adjusted Current Earnings.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Adjustments.--In determining adjusted current 
        earnings, the following adjustments shall apply:
                  (A) * * *
                  (B) Inclusion of items included for purposes 
                of computing earnings and profits.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Tax exempt interest on certain 
                        housing bonds.--Clause (i) shall not 
                        apply in the case of any interest on a 
                        bond to which section 57(a)(5)(C)(iii) 
                        applies.

           *       *       *       *       *       *       *


SEC. 57. ITEMS OF TAX PREFERENCE.

  (a) General Rule.--For purposes of this part, the items of 
tax preference determined under this section are--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Tax-exempt interest.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Specified private activity bonds.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Exception for certain housing 
                        bonds.--For purposes of clause (i), the 
                        term ``private activity bond'' shall 
                        not include any bond issued after the 
                        date of the enactment of this clause if 
                        such bond is--
                                  (I) an exempt facility bond 
                                issued as part of an issue 95 
                                percent or more of the net 
                                proceeds of which are to be 
                                used to provide qualified 
                                residential rental projects (as 
                                defined in section 142(d)),
                                  (II) a qualified mortgage 
                                bond (as defined in section 
                                143(a)), or
                                  (III) a qualified veterans' 
                                mortgage bond (as defined in 
                                section 143(b)).
                        The preceding sentence shall not apply 
                        to any refunding bond unless such 
                        preceding sentence applied to the 
                        refunded bond (or in the case of a 
                        series of refundings, the original 
                        bond).
                          [(iii)] (iv) Exception for 
                        refundings.--For purposes of clause 
                        (i), the term ``private activity bond'' 
                        shall not include any refunding bond 
                        (whether a current or advance 
                        refunding) if the refunded bond (or in 
                        the case of a series of refundings, the 
                        original bond) was issued before August 
                        8, 1986.
                          [(iv)] (v) Certain bonds issued 
                        before september 1, 1986.--For purposes 
                        of this subparagraph, a bond issued 
                        before September 1, 1986, shall be 
                        treated as issued before August 8, 
                        1986, unless such bond would be a 
                        private activity bond if--
                                  (I) * * *

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
INCOME, ETC

           *       *       *       *       *       *       *


SEC. 63. TAXABLE INCOME DEFINED.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Standard Deduction.--For purposes of this subtitle--
          (1) In general.--Except as otherwise provided in this 
        subsection, the term ``standard deduction'' means the 
        sum of--
                  (A) the basic standard deduction, [and]
                  (B) the additional standard deduction[.], and
                  (C) in the case of any taxable year beginning 
                in 2008, the real property tax deduction.

           *       *       *       *       *       *       *

          (7) Real property tax deduction.--For purposes of 
        paragraph (1), the real property tax deduction is the 
        lesser of--
                  (A) the amount allowable as a deduction under 
                this chapter for State and local taxes 
                described in section 164(a)(1), or
                  (B) $350 ($700 in the case of a joint 
                return).
        Any taxes taken into account under section 62(a) shall 
        not be taken into account under this paragraph.

           *       *       *       *       *       *       *


PART IV--TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS

           *       *       *       *       *       *       *


Subpart A--Private Activity Bonds

           *       *       *       *       *       *       *


SEC. 142. EXEMPT FACILITY BOND.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Qualified Residential Rental Project.--For purposes of 
this section--
          (1) * * *
          (2) Definitions and special rules.--For purposes of 
        this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Students.--Rules similar to the rules of 
                42(i)(3)(D) shall apply for purposes of this 
                subsection.
                  (D) Single-room occupancy units.--A unit 
                shall not fail to be treated as a residential 
                unit merely because such unit is a single-room 
                occupancy unit (within the meaning of section 
                42).
                  (E) Hold harmless for reductions in area 
                median gross income.--
                          (i) In general.--Any determination of 
                        area median gross income under 
                        subparagraph (B) with respect to any 
                        project for any calendar year after 
                        2008 shall not be less than the area 
                        median gross income determined under 
                        such subparagraph with respect to such 
                        project for the calendar year preceding 
                        the calendar year for which such 
                        determination is made.
                          (ii) Special rule for certain census 
                        changes.--In the case of a HUD hold 
                        harmless impacted project, the area 
                        median gross income with respect to 
                        such project for any calendar year 
                        after 2008 (hereafter in this clause 
                        referred to as the current calendar 
                        year) shall be the greater of the 
                        amount determined without regard to 
                        this clause or the sum of--
                                  (I) the area median gross 
                                income determined under the HUD 
                                hold harmless policy with 
                                respect to such project for 
                                calendar year 2008, plus
                                  (II) any increase in the area 
                                median gross income determined 
                                under subparagraph (B) 
                                (determined without regard to 
                                the HUD hold harmless policy 
                                and this subparagraph) with 
                                respect to such project for the 
                                current calendar year over the 
                                area median gross income (as so 
                                determined) with respect to 
                                such project for calendar year 
                                2008.
                          (iii) HUD hold harmless policy.--The 
                        term ``HUD hold harmless policy'' means 
                        the regulations under which a policy 
                        similar to the rules of clause (i) 
                        applied to prevent a change in the 
                        method of determining area median gross 
                        income from resulting in a reduction in 
                        the area median gross income determined 
                        with respect to certain projects in 
                        calendar years 2007 and 2008.
                          (iv) HUD hold harmless impacted 
                        project.--The term ``HUD hold harmless 
                        impacted project'' means any project 
                        with respect to which area median gross 
                        income was determined under 
                        subparagraph (B) for calendar year 2007 
                        or 2008 if such determination would 
                        have been less but for the HUD hold 
                        harmless policy.
          (3) Current income determinations.--For purposes of 
        this subsection--
                  (A) In general.--The determination of whether 
                the income of a resident of a unit in a project 
                exceeds the applicable income limit shall be 
                made at least annually on the basis of the 
                current income of the resident. The preceding 
                sentence shall not apply with respect to any 
                project for any year if during such year no 
                residential unit in the project is occupied by 
                a new resident whose income exceeds the 
                applicable income limit.

           *       *       *       *       *       *       *

                  (C) Exception for projects with respect to 
                which affordable housing credit is allowed.--In 
                the case of a project with respect to which 
                credit is allowed under section 42, the second 
                sentence of subparagraph (B) shall be applied 
                by substituting ``building (within the meaning 
                of section 42)'' for ``project''.

           *       *       *       *       *       *       *


SEC. 143. MORTGAGE REVENUE BONDS: QUALIFIED MORTGAGE BOND AND QUALIFIED 
                    VETERANS' MORTGAGE BOND.

  (a) * * *

           *       *       *       *       *       *       *

  (k) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (12) Special rules for subprime refinancings.--
                  (A) In general.--Notwithstanding the 
                requirements of subsection (i)(1), the proceeds 
                of a qualified mortgage issue may be used to 
                refinance a mortgage on a residence which was 
                originally financed by the mortgagor through a 
                qualified subprime loan.
                  (B) Special rules.--In applying subparagraph 
                (A) to any refinancing--
                          (i) subsection (a)(2)(D)(i) shall be 
                        applied by substituting ``12-month 
                        period'' for ``42-month period'' each 
                        place it appears,
                          (ii) subsection (d) (relating to 3-
                        year requirement) shall not apply, and
                          (iii) subsection (e) (relating to 
                        purchase price requirement) shall be 
                        applied by using the market value of 
                        the residence at the time of 
                        refinancing in lieu of the acquisition 
                        cost.
                  (C) Qualified subprime loan.--The term 
                ``qualified subprime loan'' means an adjustable 
                rate single-family residential mortgage loan 
                made after December 31, 2001, and before 
                January 1, 2008, that the bond issuer 
                determines would be reasonably likely to cause 
                financial hardship to the borrower if not 
                refinanced.
                  (D) Termination.--This paragraph shall not 
                apply to any bonds issued after December 31, 
                2010.

           *       *       *       *       *       *       *


SEC. 146. VOLUME CAP.

  (a) * * *

           *       *       *       *       *       *       *

  (d) State Ceiling.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Increase and set aside for housing bonds for 
        2008.--
                  (A) Increase for 2008.--In the case of 
                calendar year 2008, the State ceiling for each 
                State shall be increased by an amount equal to 
                $10,000,000,000 multiplied by a fraction--
                          (i) the numerator of which is the 
                        population of such State, and
                          (ii) the denominator of which is the 
                        total population of all States.
                  (B) Set aside.--
                          (i) In general.--Any amount of the 
                        State ceiling for any State which is 
                        attributable to an increase under this 
                        paragraph shall be allocated solely for 
                        one or more qualified housing issues.
                          (ii) Qualified housing issue.--For 
                        purposes of this paragraph, the term 
                        ``qualified housing issue'' means--
                                  (I) an issue described in 
                                section 142(a)(7) (relating to 
                                qualified residential rental 
                                projects), or
                                  (II) a qualified mortgage 
                                issue (determined by 
                                substituting ``12-month 
                                period'' for ``42-month 
                                period'' each place it appears 
                                in section 143(a)(2)(D)(i)).

           *       *       *       *       *       *       *

  (f) Elective Carryforward of Unused Limitation for Specified 
Purpose.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Special rules for increased volume cap under 
        subsection (d)(5).--No amount which is attributable to 
        the increase under subsection (d)(5) may be used--
                  (A) for any issue other than a qualified 
                housing issue (as defined in subsection 
                (d)(5)), or
                  (B) to issue any bond after calendar year 
                2010.

           *       *       *       *       *       *       *

  (i) Treatment of Refunding Issues.--For purposes of the 
volume cap imposed by this section--
          (1)  * * *

           *       *       *       *       *       *       *

          (6) Treatment of certain residential rental project 
        bonds as refunding bonds irrespective of obligor.--
                  (A) In general.--If, during the 6-month 
                period beginning on the date of a repayment of 
                a loan financed by an issue 95 percent or more 
                of the net proceeds of which are used to 
                provide projects described in section 142(d), 
                such repayment is used to provide a new loan 
                for any project so described, any bond which is 
                issued to refinance such issue shall be treated 
                as a refunding issue to the extent the 
                principal amount of such refunding issue does 
                not exceed the principal amount of the bonds 
                refunded.
                  (B) Limitations.--Subparagraph (A) shall 
                apply to only one refunding of the original 
                issue and only if--
                          (i) the refunding issue is issued not 
                        later than 4 years after the date on 
                        which the original issue was issued,
                          (ii) the latest maturity date of any 
                        bond of the refunding issue is not 
                        later than 34 years after the date on 
                        which the refunded bond was issued, and
                          (iii) the refunding issue is approved 
                        in accordance with section 147(f) 
                        before the issuance of the refunding 
                        issue.

           *       *       *       *       *       *       *


Subpart B--Requirements Applicable to All State and Local Bonds

           *       *       *       *       *       *       *


SEC. 149. BONDS MUST BE REGISTERED TO BE TAX EXEMPT; OTHER 
                    REQUIREMENTS.

  (a) * * *
  (b) Federally Guaranteed Bond Is Not Tax Exempt.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exceptions.--
                  (A) Certain insurance programs.--A bond shall 
                not be treated as federally guaranteed by 
                reason of--
                          (i) * * *
                          (ii) any guarantee of student loans 
                        and any guarantee by the Student Loan 
                        Marketing Association to finance 
                        student loans, [or]
                          (iii) any guarantee by the Bonneville 
                        Power Authority pursuant to the 
                        Northwest Power Act (16 U.S.C. 839d) as 
                        in effect on the date of the enactment 
                        of the Tax Reform Act of 1984[.], or
                          (iv) any guarantee by a Federal home 
                        loan bank made in connection with the 
                        original issuance of a bond during the 
                        period beginning on the date of the 
                        enactment of this Act and ending on 
                        December 31, 2010 (or a renewal or 
                        extension of a guarantee so made).

           *       *       *       *       *       *       *

                  (E) Safety and soundness requirements for 
                federal home loan banks.--Clause (iv) of 
                subparagraph (A) shall not apply to any 
                guarantee by a Federal home loan bank unless 
                such bank meets safety and soundness collateral 
                requirements for such guarantees which are at 
                least as stringent as such requirements which 
                apply under regulations applicable to such 
                guarantees by Federal home loan banks as in 
                effect on April 9, 2008.

           *       *       *       *       *       *       *


Subchapter M--Regulated Investment Companies and Real Estate Investment 
Trusts

           *       *       *       *       *       *       *


PART II--REAL ESTATE INVESTMENT TRUSTS

           *       *       *       *       *       *       *


SEC. 856. DEFINITION OF REAL ESTATE INVESTMENT TRUST.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Limitations.--A corporation, trust, or association shall 
not be considered a real estate investment trust for any 
taxable year unless--
          (1) * * *
          (2) at least 95 percent (90 percent for taxable years 
        beginning before January 1, 1980) of its gross income 
        (excluding gross income from prohibited transactions) 
        is derived from--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) amounts (other than amounts the 
                determination of which depends in whole or in 
                part on the income or profits of any person) 
                received or accrued as consideration for 
                entering into agreements (i) to make loans 
                secured by mortgages on real property or on 
                interests in real property or (ii) to purchase 
                or lease real property (including interests in 
                real property and interests in mortgages on 
                real property); [and]

           *       *       *       *       *       *       *

                  (I) passive foreign exchange gains; and
                  (J) any other item of income or gain as 
                determined by the Secretary;
          (3) at least 75 percent of its gross income 
        (excluding gross income from prohibited transactions) 
        is derived from--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) gain from the sale or other disposition 
                of a real estate asset which is not a 
                prohibited transaction solely by reason of 
                section 857(b)(6); [and]
                  (I) qualified temporary investment income; 
                [and]
                  (J) real estate foreign exchange gains; and
                  (K) any other item of income or gain as 
                determined by the Secretary; and
          (4) at the close of each quarter of the taxable 
        year--
                  (A) * * *
                  (B)(i) * * *
                  (ii) not more than [20 percent] 25 percent of 
                the value of its total assets is represented by 
                securities of one or more taxable REIT 
                subsidiaries, and
                  (iii) except with respect to a taxable REIT 
                subsidiary and securities includible under 
                subparagraph (A)--
                          (I) * * *

           *       *       *       *       *       *       *

                          (III) the trust does not hold 
                        securities having a value of more than 
                        10 percent of the total value of the 
                        outstanding securities of any one 
                        issuer.
A real estate investment trust which meets the requirements of 
this paragraph at the close of any quarter shall not lose its 
status as a real estate investment trust because of a 
discrepancy during a subsequent quarter between the value of 
its various investments and such requirements (including a 
discrepancy caused solely by the change in the foreign currency 
exchange rate used to value a foreign asset) unless such 
discrepancy exists immediately after the acquisition of any 
security or other property and is wholly or partly the result 
of such acquisition. A real estate investment trust which does 
not meet such requirements at the close of any quarter by 
reason of a discrepancy existing immediately after the 
acquisition of any security or other property which is wholly 
or partly the result of such acquisition during such quarter 
shall not lose its status for such quarter as a real estate 
investment trust if such discrepancy is eliminated within 30 
days after the close of such quarter and in such cases it shall 
be considered to have met such requirements at the close of 
such quarter for purposes of applying the preceding sentence.
          (5) For purposes of this part--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(G) Treatment of certain hedging instruments 
                Except to the extent provided by regulations, 
                any income of a real estate investment trust 
                from a hedging transaction (as defined in 
                clause (ii) or (iii) of section 1221(b)(2)(A)) 
                which is clearly identified pursuant to section 
                1221(a)(7), including gain from the sale or 
                disposition of such a transaction, shall not 
                constitute gross income under paragraph (2) to 
                the extent that the transaction hedges any 
                indebtedness incurred or to be incurred by the 
                trust to acquire or carry real estate assets.]
                  (G) Treatment of certain hedging 
                instruments.--Except to the extent as 
                determined by the Secretary--
                          (i) any income of a real estate 
                        investment trust from a hedging 
                        transaction (as defined in clause (ii) 
                        or (iii) of section 1221(b)(2)(A)) 
                        which is clearly identified pursuant to 
                        section 1221(a)(7), including gain from 
                        the sale or disposition of such a 
                        transaction, shall not constitute gross 
                        income under paragraphs (2) and (3) to 
                        the extent that the transaction hedges 
                        any indebtedness incurred or to be 
                        incurred by the trust to acquire or 
                        carry real estate assets, and
                          (ii) any income of a real estate 
                        investment trust from a transaction 
                        entered into by the trust primarily to 
                        manage risk of currency fluctuations 
                        with respect to any item described in 
                        paragraph (2) or (3), including gain 
                        from the termination of such a 
                        transaction, shall not constitute gross 
                        income under paragraphs (2) and (3), 
                        but only if such transaction is clearly 
                        identified as such before the close of 
                        the day on which it was acquired, 
                        originated, or entered into (or such 
                        other time as the Secretary may 
                        prescribe).
                  (H) Secretarial authority to exclude other 
                items of income.--The Secretary is authorized 
                to determine whether any item of income or gain 
                which does not otherwise qualify under 
                paragraph (2) or (3) may be considered as not 
                constituting gross income solely for purposes 
                of this part.
                  (I) Cash.--The term ``cash'' includes foreign 
                currency if the real estate investment trust or 
                its qualified business unit (as defined in 
                section 989) uses such foreign currency as its 
                functional currency (as defined in section 
                985(b)).

           *       *       *       *       *       *       *

  (d) Rents From Real Property Defined.--
          (1) * * *

           *       *       *       *       *       *       *

          (8) Special rule for taxable reit subsidiaries.--For 
        purposes of this subsection, amounts paid to a real 
        estate investment trust by a taxable REIT subsidiary of 
        such trust shall not be excluded from rents from real 
        property by reason of paragraph (2)(B) if the 
        requirements of either of the following subparagraphs 
        are met:
                  (A) * * *
                  [(B) Exception for certain lodging 
                facilities.--The requirements of this 
                subparagraph are met with respect to an 
                interest in real property which is a qualified 
                lodging facility leased by the trust to a 
                taxable REIT subsidiary of the trust if the 
                property is operated on behalf of such 
                subsidiary by a person who is an eligible 
                independent contractor.]
                  (B) Exception for certain lodging facilities 
                and health care property.--The requirements of 
                this subparagraph are met with respect to an 
                interest in real property which is a qualified 
                lodging facility or a qualified health care 
                property (as defined in subsection 
                (e)(6)(D)(i)) leased by the trust to a taxable 
                REIT subsidiary of the trust if the property is 
                operated on behalf of such subsidiary by a 
                person who is an eligible independent 
                contractor. For purposes of this section, a 
                taxable REIT subsidiary is not considered to be 
                operating or managing a qualified health care 
                property or qualified lodging facility solely 
                because it directly or indirectly possesses a 
                license, permit or similar instrument enabling 
                it to do so.
          (9) Eligible independent contractor.--For purposes of 
        paragraph (8)(B)--
                  [(A) In general.--The term ``eligible 
                independent contractor'' means, with respect to 
                any qualified lodging facility, any independent 
                contractor if, at the time such contractor 
                enters into a management agreement or other 
                similar service contract with the taxable REIT 
                subsidiary to operate the facility, such 
                contractor (or any related person) is actively 
                engaged in the trade or business of operating 
                qualified lodging facilities for any person who 
                is not a related person with respect to the 
                real estate investment trust or the taxable 
                REIT subsidiary.
                  [(B) Special rules.--Solely for purposes of 
                this paragraph and paragraph (8)(B), a person 
                shall not fail to be treated as an independent 
                contractor with respect to any qualified 
                lodging facility by reason of any of the 
                following:
                          [(i) The taxable REIT subsidiary 
                        bears the expenses for the operation of 
                        the facility pursuant to the management 
                        agreement or other similar service 
                        contract.
                          [(ii) The taxable REIT subsidiary 
                        receives the revenues from the 
                        operation of such facility, net of 
                        expenses for such operation and fees 
                        payable to the operator pursuant to 
                        such agreement or contract.
                          [(iii) The real estate investment 
                        trust receives income from such person 
                        with respect to another property that 
                        is attributable to a lease of such 
                        other property to such person that was 
                        in effect as of the later of--
                                  [(I) January 1, 1999, or
                                  [(II) the earliest date that 
                                any taxable REIT subsidiary of 
                                such trust entered into a 
                                management agreement or other 
                                similar service contract with 
                                such person with respect to 
                                such qualified lodging 
                                facility.]
                  (A) In general.--The term ``eligible 
                independent contractor'' means, with respect to 
                any qualified lodging facility or qualified 
                health care property (as defined in subsection 
                (e)(6)(D)(i)), any independent contractor if, 
                at the time such contractor enters into a 
                management agreement or other similar service 
                contract with the taxable REIT subsidiary to 
                operate such qualified lodging facility or 
                qualified health care property, such contractor 
                (or any related person) is actively engaged in 
                the trade or business of operating qualified 
                lodging facilities or qualified health care 
                properties, respectively, for any person who is 
                not a related person with respect to the real 
                estate investment trust or the taxable REIT 
                subsidiary.
                  (B) Special rules.--Solely for purposes of 
                this paragraph and paragraph (8)(B), a person 
                shall not fail to be treated as an independent 
                contractor with respect to any qualified 
                lodging facility or qualified health care 
                property (as so defined) by reason of the 
                following:
                          (i) The taxable REIT subsidiary bears 
                        the expenses for the operation of such 
                        qualified lodging facility or qualified 
                        health care property pursuant to the 
                        management agreement or other similar 
                        service contract.
                          (ii) The taxable REIT subsidiary 
                        receives the revenues from the 
                        operation of such qualified lodging 
                        facility or qualified health care 
                        property, net of expenses for such 
                        operation and fees payable to the 
                        operator pursuant to such agreement or 
                        contract.
                          (iii) The real estate investment 
                        trust receives income from such person 
                        with respect to another property that 
                        is attributable to a lease of such 
                        other property to such person that was 
                        in effect as of the later of--
                                  (I) January 1, 1999, or
                                  (II) the earliest date that 
                                any taxable REIT subsidiary of 
                                such trust entered into a 
                                management agreement or other 
                                similar service contract with 
                                such person with respect to 
                                such qualified lodging facility 
                                or qualified health care 
                                property.

           *       *       *       *       *       *       *

  (l) Taxable REIT Subsidiary.--For purposes of this part--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exceptions.--The term ``taxable REIT subsidiary'' 
        shall not include--
                  (A) * * *

           *       *       *       *       *       *       *

        Subparagraph (B) shall not apply to rights provided to 
        an eligible independent contractor to operate or manage 
        a lodging facility or a health care facility if such 
        rights are held by such corporation as a franchisee, 
        licensee, or in a similar capacity and such lodging 
        facility or health care facility is either owned by 
        such corporation or is leased to such corporation from 
        the real estate investment trust.

           *       *       *       *       *       *       *

  (n) Rules Regarding Foreign Currency Transactions.--With 
respect to any taxable year--
          (1) Real estate foreign exchange gains.--For purposes 
        of subsection (c)(3)(J), the term ``real estate foreign 
        exchange gains'' means--
                  (A) foreign currency gains (as defined in 
                section 988(b)(1)) which are attributable to--
                          (i) any item described in subsection 
                        (c)(3) (other than in subparagraph (J) 
                        thereof),
                          (ii) the acquisition or ownership of 
                        obligations secured by mortgages on 
                        real property or on interests in real 
                        property (other than foreign currency 
                        gains attributable to any item 
                        described in clause (i)), or
                          (iii) becoming or being the obligor 
                        under obligations secured by mortgages 
                        on real property or on interests in 
                        real property (other than foreign 
                        currency gains attributable to any item 
                        described in clause (i)),
                  (B) gains described in section 987 
                attributable to a qualified business unit (as 
                defined by section 989) of the real estate 
                investment trust, but only if such qualified 
                business unit meets the requirements under--
                          (i) subsection (c)(3) (without regard 
                        to subparagraph (J) thereof) for the 
                        taxable year, and
                          (ii) subsection (c)(4)(A) at the 
                        close of each quarter that the real 
                        estate investment trust has directly or 
                        indirectly held the qualified business 
                        unit, and
                  (C) any other foreign currency gains as 
                determined by the Secretary.
          (2) Passive foreign exchange gains.--For purposes of 
        subsection (c)(2)(I), the term ``passive foreign 
        exchange gains'' means--
                  (A) real estate foreign exchange gains,
                  (B) foreign currency gains (as defined in 
                section 988(b)(1)) which are not described in 
                subparagraph (A) and which are attributable to 
                any item described in subsection (c)(2) (other 
                than in subparagraph (I) thereof), and
                  (C) any other foreign currency gains as 
                determined by the Secretary.

           *       *       *       *       *       *       *


SEC. 857. TAXATION OF REAL ESTATE INVESTMENT TRUSTS AND THEIR 
                    BENEFICIARIES.

  (a)  * * *
  (b) Method of Taxation of Real Estate Investment Trusts and 
Holders of Shares or Certificates of Beneficial Interest.--
          (1)  * * *

           *       *       *       *       *       *       *

          (4) Income from foreclosure property.--
                  (A)  * * *
                  (B) Net income from foreclosure property.--
                For purposes of this part, the term ``net 
                income from foreclosure property'' means the 
                excess of--
                          [(i) gain from the sale or other 
                        disposition of foreclosure property 
                        described in section 1221(a)(1) and the 
                        gross income for the taxable year 
                        derived from foreclosure property (as 
                        defined in section 856(e)), but only to 
                        the extent such gross income is not 
                        described in subparagraph (A), (B), 
                        (C), (D), (E), or (G) of section 
                        856(c)(3), over]
                          (i) gain (including any foreign 
                        currency gain, as defined in section 
                        988(b)(1)) from the sale or other 
                        disposition of foreclosure property 
                        described in section 1221(a)(1) and the 
                        gross income for the taxable year 
                        derived from foreclosure property (as 
                        defined in section 856(e)), but only to 
                        the extent such gross income is not 
                        described in (or, in the case of 
                        foreign currency gain, not attributable 
                        to gross income described in) section 
                        856(c)(3) other than subparagraph (F) 
                        thereof, over

           *       *       *       *       *       *       *

          (6) Income from prohibited transactions.--
                  (A) Imposition of tax.--There is hereby 
                imposed for each taxable year of every real 
                estate investment trust a tax equal to 100 
                percent of the net income derived from 
                prohibited transactions.
                  (B) Definitions.--For purposes of this part--
                          [(i) the term ``net income derived 
                        from prohibited transactions'' means 
                        the excess of the gain from prohibited 
                        transactions over the deductions 
                        allowed by this chapter which are 
                        directly connected with prohibited 
                        transactions;]
                          (i) the term ``net income derived 
                        from prohibited transactions'' means 
                        the excess of the gain (including any 
                        foreign currency gain, as defined in 
                        section 988(b)(1)) from prohibited 
                        transactions over the deductions 
                        (including any foreign currency loss, 
                        as defined in section 988(b)(2)) 
                        allowed by this chapter which are 
                        directly connected with prohibited 
                        transactions;

           *       *       *       *       *       *       *

                  (C) Certain sales not to constitute 
                prohibited transactions.--For purposes of this 
                part, the term ``prohibited transaction'' does 
                not include a sale of property which is a [real 
                estate asset as defined in section 856(c)(5)(B) 
                if] real estate asset (as defined in section 
                856(c)(5)(B)) and which is described in section 
                1221(a)(1) if--
                          (i) the trust has held the property 
                        for not less than [4 years] 2 years;
                          (ii) aggregate expenditures made by 
                        the trust, or any partner of the trust, 
                        during the [4-year period] 2-year 
                        period preceding the date of sale which 
                        are includible in the basis of the 
                        property do not exceed 30 percent of 
                        the net selling price of the property;
                          (iii) (I) during the taxable year the 
                        trust does not make more than 7 sales 
                        of property (other than sales of 
                        foreclosure property or sales to which 
                        section 1033 applies), or (II) the 
                        aggregate adjusted bases (as determined 
                        for purposes of computing earnings and 
                        profits) of property (other than sales 
                        of foreclosure property or sales to 
                        which section 1033 applies) sold during 
                        the taxable year does not exceed 10 
                        percent of the aggregate bases (as so 
                        determined) of all of the assets of the 
                        trust as of the beginning of the 
                        taxable year[;], or (III) the fair 
                        market value of property (other than 
                        sales of foreclosure property or sales 
                        to which section 1033 applies) sold 
                        during the taxable year does not exceed 
                        10 percent of the fair market value of 
                        all of the assets of the trust as of 
                        the beginning of the taxable year;
                          (iv) in the case of property, which 
                        consists of land or improvements, not 
                        acquired through foreclosure (or deed 
                        in lieu of foreclosure), or lease 
                        termination, the trust has held the 
                        property for not less than [4 years] 2 
                        years for production of rental income; 
                        and

           *       *       *       *       *       *       *

                  (D) Certain sales not to constitute 
                prohibited transactions.--For purposes of this 
                part, the term ``prohibited transaction'' does 
                not include a sale of property which is a [real 
                estate asset (as defined in section 
                856(c)(5)(B)) if] real estate asset (as defined 
                in section 856(c)(5)(B)) and which is described 
                in section 1221(a)(1) if--
                          (i) the trust held the property for 
                        not less than [4 years] 2 years in 
                        connection with the trade or business 
                        of producing timber,
                          (ii) the aggregate expenditures made 
                        by the trust, or a partner of the 
                        trust, during the [4-year period] 2-
                        year period preceding the date of sale 
                        which--
                                  (I)  * * *

           *       *       *       *       *       *       *

                          (iii) the aggregate expenditures made 
                        by the trust, or a partner of the 
                        trust, during the [4-year period] 2-
                        year period preceding the date of sale 
                        which--
                                  (I)  * * *

           *       *       *       *       *       *       *

                          (iv)(I)  * * *
                          (II) the aggregate adjusted bases (as 
                        determined for purposes of computing 
                        earnings and profits) of property 
                        (other than sales of foreclosure 
                        property or sales to which section 1033 
                        applies) sold during the taxable year 
                        does not exceed 10 percent of the 
                        aggregate bases (as so determined) of 
                        all of the assets of the trust as of 
                        the beginning of the taxable year, or
                          (III) the fair market value of 
                        property (other than sales of 
                        foreclosure property or sales to which 
                        section 1033 applies) sold during the 
                        taxable year does not exceed 10 percent 
                        of the fair market value of all of the 
                        assets of the trust as of the beginning 
                        of the taxable year,

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


PART I--SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN INCOME

           *       *       *       *       *       *       *


SEC. 864. DEFINITIONS AND SPECIAL RULES.

  (a)  * * *

           *       *       *       *       *       *       *

  (f) Election To Allocate Interest, etc. on Worldwide Basis.--
For purposes of this subchapter, at the election of the 
worldwide affiliated group--
          (1)  * * *

           *       *       *       *       *       *       *

          (5) Election to expand financial institution group of 
        worldwide group.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (D) Election.--An election under this 
                paragraph with respect to any financial 
                institution group may be made only by the 
                common parent of the pre-election worldwide 
                affiliated group and may be made only for the 
                first taxable year beginning after [December 
                31, 2008] December 31, 2009, in which such 
                affiliated group includes 1 or more financial 
                corporations. Such an election, once made, 
                shall apply to all financial corporations which 
                are members of the electing financial 
                institution group for such taxable year and all 
                subsequent years unless revoked with the 
                consent of the Secretary.

           *       *       *       *       *       *       *

          (6) Election.--An election to have this subsection 
        apply with respect to any worldwide affiliated group 
        may be made only by the common parent of the domestic 
        affiliated group referred to in paragraph (1)(C) and 
        may be made only for the first taxable year beginning 
        after [December 31, 2008] December 31, 2009, in which a 
        worldwide affiliated group exists which includes such 
        affiliated group and at least 1 foreign corporation. 
        Such an election, once made, shall apply to such common 
        parent and all other corporations which are members of 
        such worldwide affiliated group for such taxable year 
        and all subsequent years unless revoked with the 
        consent of the Secretary.

           *       *       *       *       *       *       *

          (7) Transition.--In the case of the first taxable 
        year to which this subsection applies, the increase (if 
        any) in the amount of the interest expense allocable to 
        sources within the United States by reason of the 
        application of this subsection shall be 78 percent of 
        the amount of such increase determined without regard 
        to this paragraph.

           *       *       *       *       *       *       *


Subchapter O--Gain or Loss on Disposition of Property

           *       *       *       *       *       *       *


PART II--BASIS RULES OF GENERAL APPLICATION

           *       *       *       *       *       *       *


SEC. 1012. BASIS OF PROPERTY-COST.

  [The basis of property]
  (a) In General.--The basis of property shall be the cost of 
such property, except as otherwise provided in this subchapter 
and subchapters C (relating to corporate distributions and 
adjustments), K (relating to partners and partnerships), and P 
(relating to capital gains and losses). [The cost of real 
property]
  (b) Special Rule for Apportioned Real Estate Taxes.--The cost 
of real property shall not include any amount in respect of 
real property taxes which are treated under section 164(d) as 
imposed on the taxpayer.
  (c) Determinations by Account.--
          (1) In general.--In the case of the sale, exchange, 
        or other disposition of a specified security on or 
        after the applicable date, the conventions prescribed 
        by regulations under this section shall be applied on 
        an account by account basis.
          (2) Application to open-end funds.--
                  (A) In general.--Except as provided in 
                subparagraph (B), any stock in an open-end fund 
                acquired before January 1, 2011, shall be 
                treated as a separate account from any such 
                stock acquired on or after such date.
                  (B) Election by open-end fund for treatment 
                as single account.--If an open-end fund elects 
                to have this subparagraph apply with respect to 
                one or more of its stockholders--
                          (i) subparagraph (A) shall not apply 
                        with respect to any stock in such fund 
                        held by such stockholders, and
                          (ii) all stock in such fund which is 
                        held by such stockholders shall be 
                        treated as covered securities described 
                        in section 6045(g)(3) without regard to 
                        the date of the acquisition of such 
                        stock.
                A rule similar to the rule of the preceding 
                sentence shall apply with respect to a broker 
                holding stock in an open-end fund as a nominee.
          (3) Definitions.--For purposes of this section--
                  (A) Open-end fund.--The term ``open-end 
                fund'' means a regulated investment company (as 
                defined in section 851) which is offering for 
                sale or has outstanding any redeemable security 
                of which it is the issuer. Any stock which is 
                traded on an established securities exchange 
                shall not be treated as stock in an open-end 
                fund.
                  (B) Specified security; applicable date.--The 
                terms ``specified security'' and ``applicable 
                date'' shall have the meaning given such terms 
                in section 6045(g).
  (d) Average Basis for Stock Acquired Pursuant to a Dividend 
Reinvestment Plan.--
          (1) In general.--In the case of any stock acquired 
        after December 31, 2010, in connection with a dividend 
        reinvestment plan, the basis of such stock while held 
        as part of such plan shall be determined using one of 
        the methods which may be used for determining the basis 
        of stock in an open-end fund.
          (2) Treatment after transfer.--In the case of the 
        transfer to another account of stock to which paragraph 
        (1) applies, such stock shall have a cost basis in such 
        other account equal to its basis in the dividend 
        reinvestment plan immediately before such transfer 
        (properly adjusted for any fees or other charges taken 
        into account in connection with such transfer).
          (3) Separate accounts; election for treatment as 
        single account.--Rules similar to the rules of 
        subsection (c)(2) shall apply for purposes of this 
        subsection.
          (4) Dividend reinvestment plan.--For purposes of this 
        subsection--
                  (A) In general.--The term ``dividend 
                reinvestment plan'' means any arrangement under 
                which dividends on any stock are reinvested in 
                stock identical to the stock with respect to 
                which the dividends are paid.
                  (B) Initial stock acquisition treated as 
                acquired in connection with plan.--Stock shall 
                be treated as acquired in connection with a 
                dividend reinvestment plan if such stock is 
                acquired pursuant to such plan or if the 
                dividends paid on such stock are subject to 
                such plan.

           *       *       *       *       *       *       *


    CHAPTER 3--WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN 
CORPORATIONS

           *       *       *       *       *       *       *


Subchapter A--Nonresident Aliens and Foreign Corporations

           *       *       *       *       *       *       *


SEC. 1445. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES REAL 
                    PROPERTY INTERESTS.

  (a)  * * *
  (b) Exemptions.--
          (1)  * * *

           *       *       *       *       *       *       *

          [(7) Special rules for paragraphs (2) and (3).--
        Paragraph (2) or (3) (as the case may be) shall not 
        apply to any disposition--
                  [(A) if--
                          [(i) the transferee has actual 
                        knowledge that the affidavit referred 
                        to in such paragraph is false, or
                          [(ii) the transferee receives a 
                        notice (as described in subsection (d)) 
                        from a transferor's agent or a 
                        transferee's agent that such affidavit 
                        is false, or
                  [(B) if the Secretary by regulations requires 
                the transferee to furnish a copy of such 
                affidavit to the Secretary and the transferee 
                fails to furnish a copy of such affidavit to 
                the Secretary at such time and in such manner 
                as required by such regulations.]
          (7) Special rules for paragraphs (2), (3), and (9).--
        Paragraph (2), (3), or (9) (as the case may be) shall 
        not apply to any disposition--
                  (A) if--
                          (i) the transferee or qualified 
                        substitute has actual knowledge that 
                        the affidavit referred to in such 
                        paragraph, or the statement referred to 
                        in paragraph (9)(A)(ii), is false, or
                          (ii) the transferee or qualified 
                        substitute receives a notice (as 
                        described in subsection (d)) from a 
                        transferor's agent, transferee's agent, 
                        or qualified substitute that such 
                        affidavit or statement is false, or
                  (B) if the Secretary by regulations requires 
                the transferee or qualified substitute to 
                furnish a copy of such affidavit or statement 
                to the Secretary and the transferee or 
                qualified substitute fails to furnish a copy of 
                such affidavit or statement to the Secretary at 
                such time and in such manner as required by 
                such regulations.

           *       *       *       *       *       *       *

          (9) Alternative procedure for furnishing nonforeign 
        affidavit.--For purposes of paragraphs (2) and (7)--
                  (A) In general.--Paragraph (2) shall be 
                treated as applying to a transaction if, in 
                connection with a disposition of a United 
                States real property interest--
                          (i) the affidavit specified in 
                        paragraph (2) is furnished to a 
                        qualified substitute, and
                          (ii) the qualified substitute 
                        furnishes a statement to the transferee 
                        stating, under penalty of perjury, that 
                        the qualified substitute has such 
                        affidavit in his possession.
                  (B) Regulations.--The Secretary shall 
                prescribe such regulations as may be necessary 
                or appropriate to carry out this paragraph.

           *       *       *       *       *       *       *

    (d) Liability of Transferor's Agents [or Transferee's 
Agents], Transferee's Agents, or Qualified Substitutes.--
          [(1) Notice of false affidavit; foreign 
        corporations.--If--
                  [(A) the transferor furnishes the transferee 
                an affidavit described in paragraph (2) of 
                subsection (b) or a domestic corporation 
                furnishes the transferee an affidavit described 
                in paragraph (3) of subsection (b), and
                  [(B) in the case of--
                          [(i) any transferor's agent--
                                  [(I) such agent has actual 
                                knowledge that such affidavit 
                                is false, or
                                  [(II) in the case of an 
                                affidavit described in 
                                subsection (b)(2) furnished by 
                                a corporation, such corporation 
                                is a foreign corporation, or
                          [(ii) any transferee's agent, such 
                        agent has actual knowledge that such 
                        affidavit is false,such agent shall so 
                        notify the transferee at such time and 
                        in such manner as the Secretary shall 
                        require by regulations.
          [(2) Failure to furnish notice.--
                  [(A) In general.--If any transferor's agent 
                or transferee's agent is required by paragraph 
                (1) to furnish notice, but fails to furnish 
                such notice at such time or times and in such 
                manner as may be required by regulations, such 
                agent shall have the same duty to deduct and 
                withhold that the transferee would have had if 
                such agent had complied with paragraph (1).
                  [(B) Liability limited to amount of 
                compensation.--An agent's liability under 
                subparagraph (A) shall be limited to the amount 
                of compensation the agent derives from the 
                transaction.]
          (1) Notice of false affidavit; foreign 
        corporations.--If--
                  (A) the transferor furnishes the transferee 
                or qualified substitute an affidavit described 
                in paragraph (2) of subsection (b) or a 
                domestic corporation furnishes the transferee 
                an affidavit described in paragraph (3) of 
                subsection (b), and
                  (B) in the case of--
                          (i) any transferor's agent--
                                  (I) such agent has actual 
                                knowledge that such affidavit 
                                is false, or
                                  (II) in the case of an 
                                affidavit described in 
                                subsection (b)(2) furnished by 
                                a corporation, such corporation 
                                is a foreign corporation, or
                          (ii) any transferee's agent or 
                        qualified substitute, such agent or 
                        substitute has actual knowledge that 
                        such affidavit is false,
                such agent or qualified substitute shall so 
                notify the transferee at such time and in such 
                manner as the Secretary shall require by 
                regulations.
          (2) Failure to furnish notice.--
                  (A) In general.--If any transferor's agent, 
                transferee's agent, or qualified substitute is 
                required by paragraph (1) to furnish notice, 
                but fails to furnish such notice at such time 
                or times and in such manner as may be required 
                by regulations, such agent or substitute shall 
                have the same duty to deduct and withhold that 
                the transferee would have had if such agent or 
                substitute had complied with paragraph (1).
                  (B) Liability limited to amount of 
                compensation.--An agent's or substitute's 
                liability under subparagraph (A) shall be 
                limited to the amount of compensation the agent 
                or substitute derives from the transaction.

           *       *       *       *       *       *       *

  (f) Definitions.--For purposes of this section--
          (1)  * * *

           *       *       *       *       *       *       *

          (6) Qualified substitute.--The term ``qualified 
        substitute'' means, with respect to a disposition of a 
        United States real property interest--
                  (A) the person (including any attorney or 
                title company) responsible for closing the 
                transaction, other than the transferor's agent, 
                and
                  (B) the transferee's agent.

           *       *       *       *       *       *       *


Subtitle B--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


   Subpart B--Information Concerning Transactions with Other Persons

Sec. 6041. Information at source.
     * * * * * * *
Sec. 6045A. Information required in connection with transfers of covered 
          securities to brokers.
Sec. 6045B. Returns relating to actions affecting basis of specified 
          securities.

           *       *       *       *       *       *       *


SEC. 6045. RETURNS OF BROKERS.

  (a)  * * *
  (b) Statements to be Furnished to Customers.--Every person 
required to make a return under subsection (a) shall furnish to 
each customer whose name is required to be set forth in such 
return a written statement showing--
          (1) the name, address, and phone number of the 
        information contact of the person required to make such 
        return, and
          (2) the information required to be shown on such 
        return with respect to such customer.
  The written statement required under the preceding sentence 
shall be furnished to the customer on or before [January 31] 
February 15 of the year following the calendar year for which 
the return under subsection (a) was required to be made. In the 
case of a consolidated reporting statement (as defined in 
regulations) with respect to any account, any statement which 
would otherwise be required to be furnished on or before 
January 31 of a calendar year with respect to any item 
reportable to the taxpayer shall instead be required to be 
furnished on or before February 15 of such calendar year if 
furnished with such consolidated reporting statement.

           *       *       *       *       *       *       *

  (d) Statements Required in Case of Certain Substitute 
Payments.--If any broker--
          (1) transfers securities of a customer for use in a 
        short sale or similar transaction, and
          (2) receives (on behalf of the customer) a payment in 
        lieu of--
                  (A) a dividend,
                  (B) tax-exempt interest, or
                  (C) such other items as the Secretary may 
                prescribe by regulations,
        during the period such short sale or similar 
        transaction is open, the broker shall furnish such 
        customer a written statement ([at such time and] in the 
        manner as the Secretary shall prescribe by regulations) 
        identifying such payment as being in lieu of the 
        dividend, tax-exempt interest, or such other item. The 
        written statement required under the preceding sentence 
        shall be furnished on or before February 15 of the year 
        following the calendar year in which the payment was 
        made. The Secretary may prescribe regulations which 
        require the broker to make a return which includes the 
        information contained in such written statement.

           *       *       *       *       *       *       *

  (g) Additional Information Required in the Case of Securities 
Transactions, etc.--
          (1) In general.--If a broker is otherwise required to 
        make a return under subsection (a) with respect to the 
        gross proceeds of the sale of a covered security, the 
        broker shall include in such return the information 
        described in paragraph (2).
          (2) Additional information required.--
                  (A) In general.--The information required 
                under paragraph (1) to be shown on a return 
                with respect to a covered security of a 
                customer shall include the customer's adjusted 
                basis in such security and whether any gain or 
                loss with respect to such security is long-term 
                or short-term (within the meaning of section 
                1222).
                  (B) Determination of adjusted basis.--For 
                purposes of subparagraph (A)--
                          (i) In general.--The customer's 
                        adjusted basis shall be determined--
                                  (I) in the case of any 
                                security (other than any stock 
                                for which an average basis 
                                method is permissible under 
                                section 1012), in accordance 
                                with the first-in first-out 
                                method unless the customer 
                                notifies the broker by means of 
                                making an adequate 
                                identification of the stock 
                                sold or transferred, and
                                  (II) in the case of any stock 
                                for which an average basis 
                                method is permissible under 
                                section 1012, in accordance 
                                with the broker's default 
                                method unless the customer 
                                notifies the broker that he 
                                elects another acceptable 
                                method under section 1012 with 
                                respect to the account in which 
                                such stock is held.
                          (ii) Exception for wash sales.--
                        Except as otherwise provided by the 
                        Secretary, the customer's adjusted 
                        basis shall be determined without 
                        regard to section 1091 (relating to 
                        loss from wash sales of stock or 
                        securities) unless the transactions 
                        occur in the same account with respect 
                        to identical securities.
          (3) Covered security.--For purposes of this 
        subsection--
                  (A) In general.--The term ``covered 
                security'' means any specified security 
                acquired on or after the applicable date if 
                such security--
                          (i) was acquired through a 
                        transaction in the account in which 
                        such security is held, or
                          (ii) was transferred to such account 
                        from an account in which such security 
                        was a covered security, but only if the 
                        broker received a statement under 
                        section 6045A with respect to the 
                        transfer.
                  (B) Specified security.--The term ``specified 
                security'' means--
                          (i) any share of stock in a 
                        corporation,
                          (ii) any note, bond, debenture, or 
                        other evidence of indebtedness,
                          (iii) any commodity, or contract or 
                        derivative with respect to such 
                        commodity, if the Secretary determines 
                        that adjusted basis reporting is 
                        appropriate for purposes of this 
                        subsection, and
                          (iv) any other financial instrument 
                        with respect to which the Secretary 
                        determines that adjusted basis 
                        reporting is appropriate for purposes 
                        of this subsection.
                  (C) Applicable date.--The term ``applicable 
                date'' means--
                          (i) January 1, 2010, in the case of 
                        any specified security which is stock 
                        in a corporation (other than any stock 
                        described in clause (ii)),
                          (ii) January 1, 2011, in the case of 
                        any stock for which an average basis 
                        method is permissible under section 
                        1012, and
                          (iii) January 1, 2012, or such later 
                        date determined by the Secretary in the 
                        case of any other specified security.
          (4) Treatment of s corporations.--In the case of the 
        sale of a covered security acquired by an S corporation 
        (other than a financial institution) after December 31, 
        2011, such S corporation shall be treated in the same 
        manner as a partnership for purposes of this section.
          (5) Special rules for short sales.--In the case of a 
        short sale, reporting under this section shall be made 
        for the year in which such sale is closed.
  (h) Application to Options on Securities.--
          (1) Exercise of option.--For purposes of this 
        section, if a covered security is acquired or disposed 
        of pursuant to the exercise of an option that was 
        granted or acquired in the same account as the covered 
        security, the amount received with respect to the grant 
        or paid with respect to the acquisition of such option 
        shall be treated as an adjustment to gross proceeds or 
        as an adjustment to basis, as the case may be.
          (2) Lapse or closing transaction.--In the case of the 
        lapse (or closing transaction (as defined in section 
        1234(b)(2)(A))) of an option on a specified security or 
        the exercise of a cash-settled option on a specified 
        security, reporting under subsections (a) and (g) with 
        respect to such option shall be made for the calendar 
        year which includes the date of such lapse, closing 
        transaction, or exercise.
          (3) Prospective application.--Paragraphs (1) and (2) 
        shall not apply to any option which is granted or 
        acquired before January 1, 2012.
          (4) Definitions.--For purposes of this subsection, 
        the terms ``covered security'' and ``specified 
        security'' shall have the meanings given such terms in 
        subsection (g)(3).

SEC. 6045A. INFORMATION REQUIRED IN CONNECTION WITH TRANSFERS OF 
                    COVERED SECURITIES TO BROKERS.

  (a) Furnishing of Information.--Every applicable person which 
transfers to a broker (as defined in section 6045(c)(1)) a 
security which is a covered security (as defined in section 
6045(g)(3)) in the hands of such applicable person shall 
furnish to such broker a written statement in such manner and 
setting forth such information as the Secretary may by 
regulations prescribe for purposes of enabling such broker to 
meet the requirements of section 6045(g).
  (b) Applicable Person.--For purposes of subsection (a), the 
term ``applicable person'' means--
          (1) any broker (as defined in section 6045(c)(1)), 
        and
          (2) any other person as provided by the Secretary in 
        regulations.
  (c) Time for Furnishing Statement.--Except as otherwise 
provided by the Secretary, any statement required by subsection 
(a) shall be furnished not later than 15 days after the date of 
the transfer described in such subsection.

SEC. 6045B. RETURNS RELATING TO ACTIONS AFFECTING BASIS OF SPECIFIED 
                    SECURITIES.

  (a) In General.--According to the forms or regulations 
prescribed by the Secretary, any issuer of a specified security 
shall make a return setting forth--
          (1) a description of any organizational action which 
        affects the basis of such specified security of such 
        issuer,
          (2) the quantitative effect on the basis of such 
        specified security resulting from such action, and
          (3) such other information as the Secretary may 
        prescribe.
  (b) Time for Filing Return.--Any return required by 
subsection (a) shall be filed not later than the earlier of--
          (1) 45 days after the date of the action described in 
        subsection (a), or
          (2) January 15 of the year following the calendar 
        year during which such action occurred.
  (c) Statements To Be Furnished to Holders of Specified 
Securities or Their Nominees.--According to the forms or 
regulations prescribed by the Secretary, every person required 
to make a return under subsection (a) with respect to a 
specified security shall furnish to the nominee with respect to 
the specified security (or certificate holder if there is no 
nominee) a written statement showing--
          (1) the name, address, and phone number of the 
        information contact of the person required to make such 
        return,
          (2) the information required to be shown on such 
        return with respect to such security, and
          (3) such other information as the Secretary may 
        prescribe.
The written statement required under the preceding sentence 
shall be furnished to the holder on or before January 15 of the 
year following the calendar year during which the action 
described in subsection (a) occurred.
  (d) Specified Security.--For purposes of this section, the 
term ``specified security'' has the meaning given such term by 
section 6045(g)(3)(B). No return shall be required under this 
section with respect to actions described in subsection (a) 
with respect to a specified security which occur before the 
applicable date (as defined in section 6045(g)(3)(C)) with 
respect to such security.
  (e) Public Reporting in Lieu of Return.--The Secretary may 
waive the requirements under subsections (a) and (c) with 
respect to a specified security, if the person required to make 
the return under subsection (a) makes publicly available, in 
such form and manner as the Secretary determines necessary to 
carry out the purposes of this section--
          (1) the name, address, phone number, and email 
        address of the information contact of such person, and
          (2) the information described in paragraphs (1), (2), 
        and (3) of subsection (a).

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 63--ASSESSMENT

           *       *       *       *       *       *       *


  Subchapter B--Deficiency Procedures in the Case of Income, Estate, 
Gift, and Certain Excise Taxes

           *       *       *       *       *       *       *


SEC. 6211. DEFINITION OF A DEFICIENCY.

  (a)  * * *
  (b) Rules for Application of Subsection (a).--For purposes of 
this section.--
          (1)  * * *

           *       *       *       *       *       *       *

          (4) For purposes of subsection (a).--
                  (A) any excess of the sum of the credits 
                allowable under sections 24(d), 32, [34, 53(e), 
                and 6428] 34, 35, 36, 53(e), and 6428 over the 
                tax imposed by subtitle A (determined without 
                regard to such credits), and

           *       *       *       *       *       *       *


 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. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES.

  (a)  * * *

           *       *       *       *       *       *       *

  (d) Definitions.--For purposes of this part--
          (1) Information return.--
                  (A)  * * *
                  (B) any return required by--
                          (i)  * * *

           *       *       *       *       *       *       *

                          (iv) section 6045B(a) (relating to 
                        returns relating to actions affecting 
                        basis of specified securities),
                          [(iv)] (v) section 6050H(a) or (h)(1) 
                        (relating to mortgage interest received 
                        in trade or business from individuals),
                          [(v)] (vi) section 6050I(a) or (g)(1) 
                        (relating to cash received in trade or 
                        business, etc.),
                          [(vi)] (vii) section 6050J(a) 
                        (relating to foreclosures and 
                        abandonments of security),
                          [(vii)] (viii) section 6050K(a) 
                        (relating to exchanges of certain 
                        partnership interests),
                          [(viii)] (ix) section 6050L(a) 
                        (relating to returns relating to 
                        certain dispositions of donated 
                        property),
                          [(ix)] (x) section 6050P (relating to 
                        returns relating to the cancellation of 
                        indebtedness by certain financial 
                        entities),
                          [(x)] (xi) section 6050Q (relating to 
                        certain long-term care benefits),
                          [(xi)] (xii) section 6050S (relating 
                        to returns relating to payments for 
                        qualified tuition and related 
                        expenses),
                          [(xii)] (xiii) section 6050T 
                        (relating to returns relating to credit 
                        for health insurance costs of eligible 
                        individuals),
                          [(xiii)] (xiv) section 6052(a) 
                        (relating to reporting payment of wages 
                        in the form of group-life insurance),
                          [(xiv)] (xv) section 6050V (relating 
                        to returns relating to applicable 
                        insurance contracts in which certain 
                        exempt organizations hold interests),
                          [(xv)] (xvi) section 6053(c)(1) 
                        (relating to reporting with respect to 
                        certain tips),
                          [(xvi)] (xvii) subsection (b) or (e) 
                        of section 1060 (relating to reporting 
                        requirements of transferors and 
                        transferees in certain asset 
                        acquisitions),
                          [(xvii)] (xviii) section 4101(d) 
                        (relating to information reporting with 
                        respect to fuels taxes),
                          [(xviii)] (xix) subparagraph (C) of 
                        section 338(h)(10) (relating to 
                        information required to be furnished to 
                        the Secretary in case of elective 
                        recognition of gain or loss),
                          [(xix)] (xx) section 264(f)(5)(A)(iv) 
                        (relating to reporting with respect to 
                        certain life insurance and annuity 
                        contracts), or
                          [(xx)] (xxi) section 6050U (relating 
                        to charges or payments for qualified 
                        long-term care insurance contracts 
                        under combined arrangements), and
                          [(xxi)] (xxii) section 6039(a) 
                        (relating to returns required with 
                        respect to certain options), and

           *       *       *       *       *       *       *

          (2) Payee statement.--The term ``payee statement'' 
        means any statement required to be furnished under--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (I) section 6045A (relating to information 
                required in connection with transfers of 
                covered securities to brokers),
                  (J) subsections (c) and (e) of section 6045B 
                (relating to returns relating to actions 
                affecting basis of specified securities),
                  [(I)] (K) section 6049(c) (relating to 
                returns regarding payments of interest),
                  [(J)] (L) section 6050A(b) (relating to 
                reporting requirements of certain fishing boat 
                operators),
                  [(K)] (M) section 6050H(d) or (h)(2) relating 
                to returns relating to mortgage interest 
                received in trade or business from 
                individuals),
                  [(L)] (N) section 6050I(e) or paragraph (4) 
                or (5) of section 6050I(g) (relating to cash 
                received in trade or business, etc.),
                  [(M)] (O) section 6050J(e) (relating to 
                returns relating to foreclosures and 
                abandonments of security),
                  [(N)] (P) section 6050K(b) (relating to 
                returns relating to exchanges of certain 
                partnership interests),
                  [(O)] (Q) section 6050L(c) (relating to 
                returns relating to certain dispositions of 
                donated property),
                  [(P)] (R) section 6050N(b) (relating to 
                returns regarding payments of royalties),
                  [(Q)] (S) section 6050P(d) (relating to 
                returns relating to the cancellation of 
                indebtedness by certain financial entities),
                  [(R)] (T) section 6050Q (relating to certain 
                long-term care benefits),
                  [(S)] (U) section 6050R(c) (relating to 
                returns relating to certain purchases of fish),
                  [(T)] (V) section 6051 (relating to receipts 
                for employees),
                  [(U)] (W) section 6052(b) (relating to 
                returns regarding payment of wages in the form 
                of group-term life insurance),
                  [(V)] (X) section 6053(b) or (c) (relating to 
                reports of tips),
                  [(W)] (Y) section 6048(b)(1)(B) (relating to 
                foreign trust reporting requirements),
                  [(X)] (Z) section 408(i) (relating to reports 
                with respect to individual retirement plans) to 
                any person other than the Secretary with 
                respect to the amount of payments made to such 
                person,
                  [(Y)] (AA) section 6047(d) (relating to 
                reports by plan administrators) to any person 
                other than the Secretary with respect to the 
                amount of payments made to such person,
                  [(Z)] (BB) section 6050S(d) (relating to 
                returns relating to qualified tuition and 
                related expenses),
                  [(AA)] (CC) section 264(f)(5)(A)(iv) 
                (relating to reporting with respect to certain 
                life insurance and annuity contracts),
                  [(BB)] (DD) section 6050T (relating to 
                returns relating to credit for health insurance 
                costs of eligible individuals)
                  [(CC)] (EE) section 6050U (relating to 
                charges or payments for qualified long-term 
                care insurance contracts under combined 
                arrangements).

           *       *       *       *       *       *       *

                              ----------                              


                      TITLE 31, UNITED STATES CODE



           *       *       *       *       *       *       *
SUBTITLE II--THE BUDGET PROCESS

           *       *       *       *       *       *       *


CHAPTER 13--APPROPRIATIONS

           *       *       *       *       *       *       *


SUBCHAPTER II--TRUST FUNDS AND REFUNDS

           *       *       *       *       *       *       *


Sec. 1324. Refund of internal revenue collections

  (a) * * *
  (b) Disbursements may be made from the appropriation made by 
this section only for--
          (1) * * *
          (2) refunds due from credit provisions of the 
        Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.) 
        enacted before January 1, 1978, or enacted by the 
        Taxpayer Relief Act of 1997, or from section 35, 36, or 
        6428 or 53(e) of such Code.

           *       *       *       *       *       *       *

                              ----------                              


         TAX INCREASE PREVENTION AND RECONCILIATION ACT OF 2005

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 
                [115.75 percent] 100 percent of such amount,

           *       *       *       *       *       *       *


                                  
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