[House Report 110-728]
[From the U.S. Government Publishing Office]






110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-728

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



 
               ALTERNATIVE MINIMUM TAX RELIEF ACT OF 2008

                                _______
                                

 June 20, 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

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 6275]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 6275) to amend the Internal Revenue Code of 1986 to 
provide individuals temporary relief from the alternative 
minimum tax, and for other purposes, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE, ETC.

  (a) Short Title.--This Act may be cited as the ``Alternative Minimum 
Tax Relief Act of 2008''.
  (b) Reference.--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 for this Act is as 
follows:

Sec. 1. Short title, etc.

                     TITLE I--INDIVIDUAL TAX RELIEF

Sec. 101. Extension of increased alternative minimum tax exemption 
amount.
Sec. 102. Extension of alternative minimum tax relief for nonrefundable 
personal credits.

                      TITLE II--REVENUE PROVISIONS

Sec. 201. Income of partners for performing investment management 
services treated as ordinary income received for performance of 
services.
Sec. 202. Limitation of deduction for income attributable to domestic 
production of oil, gas, or primary products thereof.
Sec. 203. Limitation on treaty benefits for certain deductible 
payments.
Sec. 204. Returns relating to payments made in settlement of payment 
card and third party network transactions.
Sec. 205. Application of continuous levy to property sold or leased to 
the Federal Government.
Sec. 206. Time for payment of corporate estimated taxes.

                     TITLE I--INDIVIDUAL TAX RELIEF

SEC. 101. EXTENSION OF INCREASED ALTERNATIVE MINIMUM TAX EXEMPTION 
                    AMOUNT.

  (a) In General.--Paragraph (1) of section 55(d) is amended--
          (1) by striking ``($66,250 in the case of taxable years 
        beginning in 2007)'' in subparagraph (A) and inserting 
        ``($69,950 in the case of taxable years beginning in 2008)'', 
        and
          (2) by striking ``($44,350 in the case of taxable years 
        beginning in 2007)'' in subparagraph (B) and inserting 
        ``($46,200 in the case of taxable years beginning in 2008)''.
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2007.

SEC. 102. EXTENSION OF ALTERNATIVE MINIMUM TAX RELIEF FOR NONREFUNDABLE 
                    PERSONAL CREDITS.

  (a) In General.--Paragraph (2) of section 26(a) is amended--
          (1) by striking ``or 2007'' and inserting ``2007, or 2008'', 
        and
          (2) by striking ``2007'' in the heading thereof and inserting 
        ``2008''.
  (b)  Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2007.

                      TITLE II--REVENUE PROVISIONS

SEC. 201. INCOME OF PARTNERS FOR PERFORMING INVESTMENT MANAGEMENT 
                    SERVICES TREATED AS ORDINARY INCOME RECEIVED FOR 
                    PERFORMANCE OF SERVICES.

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

``SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
                    SERVICES TO PARTNERSHIP.

  ``(a) Treatment of Distributive Share of Partnership Items.--For 
purposes of this title, in the case of an investment services 
partnership interest--
          ``(1) In general.--Notwithstanding section 702(b)--
                  ``(A) any net income with respect to such interest 
                for any partnership taxable year shall be treated as 
                ordinary income for the performance of services, and
                  ``(B) any net loss with respect to such interest for 
                such year, to the extent not disallowed under paragraph 
                (2) for such year, shall be treated as an ordinary 
                loss.
        All items of income, gain, deduction, and loss which are taken 
        into account in computing net income or net loss shall be 
        treated as ordinary income or ordinary loss (as the case may 
        be).
          ``(2) Treatment of losses.--
                  ``(A) Limitation.--Any net loss with respect to such 
                interest shall be allowed for any partnership taxable 
                year only to the extent that such loss does not exceed 
                the excess (if any) of--
                          ``(i) the aggregate net income with respect 
                        to such interest for all prior partnership 
                        taxable years, over
                          ``(ii) the aggregate net loss with respect to 
                        such interest not disallowed under this 
                        subparagraph for all prior partnership taxable 
                        years.
                  ``(B) Carryforward.--Any net loss for any partnership 
                taxable year which is not allowed by reason of 
                subparagraph (A) shall be treated as an item of loss 
                with respect to such partnership interest for the 
                succeeding partnership taxable year.
                  ``(C) Basis adjustment.--No adjustment to the basis 
                of a partnership interest shall be made on account of 
                any net loss which is not allowed by reason of 
                subparagraph (A).
                  ``(D) Exception for basis attributable to purchase of 
                a partnership interest.--In the case of an investment 
                services partnership interest acquired by purchase, 
                paragraph (1)(B) shall not apply to so much of any net 
                loss with respect to such interest for any taxable year 
                as does not exceed the excess of--
                          ``(i) the basis of such interest immediately 
                        after such purchase, over
                          ``(ii) the aggregate net loss with respect to 
                        such interest to which paragraph (1)(B) did not 
                        apply by reason of this subparagraph for all 
                        prior taxable years.
                Any net loss to which paragraph (1)(B) does not apply 
                by reason of this subparagraph shall not be taken into 
                account under subparagraph (A).
                  ``(E) Prior partnership years.--Any reference in this 
                paragraph to prior partnership taxable years shall only 
                include prior partnership taxable years to which this 
                section applies.
          ``(3) Net income and loss.--For purposes of this section--
                  ``(A) Net income.--The term `net income' means, with 
                respect to any investment services partnership 
                interest, for any partnership taxable year, the excess 
                (if any) of--
                          ``(i) all items of income and gain taken into 
                        account by the holder of such interest under 
                        section 702 with respect to such interest for 
                        such year, over
                          ``(ii) all items of deduction and loss so 
                        taken into account.
                  ``(B) Net loss.--The term `net loss' means with 
                respect to such interest for such year, the excess (if 
                any) of the amount described in subparagraph (A)(ii) 
                over the amount described in subparagraph (A)(i).
  ``(b) Dispositions of Partnership Interests.--
          ``(1) Gain.--Any gain on the disposition of an investment 
        services partnership interest shall be treated as ordinary 
        income for the performance of services.
          ``(2) Loss.--Any loss on the disposition of an investment 
        services partnership interest shall be treated as an ordinary 
        loss to the extent of the excess (if any) of--
                  ``(A) the aggregate net income with respect to such 
                interest for all partnership taxable years, over
                  ``(B) the aggregate net loss with respect to such 
                interest allowed under subsection (a)(2) for all 
                partnership taxable years.
          ``(3) Disposition of portion of interest.--In the case of any 
        disposition of an investment services partnership interest, the 
        amount of net loss which otherwise would have (but for 
        subsection (a)(2)(C)) applied to reduce the basis of such 
        interest shall be disregarded for purposes of this section for 
        all succeeding partnership taxable years.
          ``(4) Distributions of partnership property.--In the case of 
        any distribution of property by a partnership with respect to 
        any investment services partnership interest held by a 
        partner--
                  ``(A) the excess (if any) of--
                          ``(i) the fair market value of such property 
                        at the time of such distribution, over
                          ``(ii) the adjusted basis of such property in 
                        the hands of the partnership,
                shall be taken into account as an increase in such 
                partner's distributive share of the taxable income of 
                the partnership (except to the extent such excess is 
                otherwise taken into account in determining the taxable 
                income of the partnership),
                  ``(B) such property shall be treated for purposes of 
                subpart B of part II as money distributed to such 
                partner in an amount equal to such fair market value, 
                and
                  ``(C) the basis of such property in the hands of such 
                partner shall be such fair market value.
        Subsection (b) of section 734 shall be applied without regard 
        to the preceding sentence.
          ``(5) Application of section 751.--In applying section 
        751(a), an investment services partnership interest shall be 
        treated as an inventory item.
  ``(c) Investment Services Partnership Interest.--For purposes of this 
section--
          ``(1) In general.--The term `investment services partnership 
        interest' means any interest in a partnership which is held by 
        any person if such person provides (directly or indirectly) a 
        substantial quantity of any of the following services with 
        respect to the assets of the partnership in the conduct of the 
        trade or business of providing such services:
                  ``(A) Advising as to the advisability of investing 
                in, purchasing, or selling any specified asset.
                  ``(B) Managing, acquiring, or disposing of any 
                specified asset.
                  ``(C) Arranging financing with respect to acquiring 
                specified assets.
                  ``(D) Any activity in support of any service 
                described in subparagraphs (A) through (C).
        For purposes of this paragraph, the term `specified asset' 
        means securities (as defined in section 475(c)(2) without 
        regard to the last sentence thereof), real estate, commodities 
        (as defined in section 475(e)(2))), or options or derivative 
        contracts with respect to securities (as so defined), real 
        estate, or commodities (as so defined).
          ``(2) Exception for certain capital interests.--
                  ``(A) In general.--If--
                          ``(i) a portion of an investment services 
                        partnership interest is acquired on account of 
                        a contribution of invested capital, and
                          ``(ii) the partnership makes a reasonable 
                        allocation of partnership items between the 
                        portion of the distributive share that is with 
                        respect to invested capital and the portion of 
                        such distributive share that is not with 
                        respect to invested capital,
                then subsection (a) shall not apply to the portion of 
                the distributive share that is with respect to invested 
                capital. An allocation will not be treated as 
                reasonable for purposes of this subparagraph if such 
                allocation would result in the partnership allocating a 
                greater portion of income to invested capital than any 
                other partner not providing services would have been 
                allocated with respect to the same amount of invested 
                capital.
                  ``(B) Special rule for dispositions.--In any case to 
                which subparagraph (A) applies, subsection (b) shall 
                not apply to any gain or loss allocable to invested 
                capital. The portion of any gain or loss attributable 
                to invested capital is the proportion of such gain or 
                loss which is based on the distributive share of gain 
                or loss that would have been allocable to invested 
                capital under subparagraph (A) if the partnership sold 
                all of its assets immediately before the disposition.
                  ``(C) Invested capital.--For purposes of this 
                paragraph, the term `invested capital' means, the fair 
                market value at the time of contribution of any money 
                or other property contributed to the partnership.
                  ``(D) Treatment of certain loans.--
                          ``(i) Proceeds of partnership loans not 
                        treated as invested capital of service 
                        providing partners.--For purposes of this 
                        paragraph, an investment services partnership 
                        interest shall not be treated as acquired on 
                        account of a contribution of invested capital 
                        to the extent that such capital is attributable 
                        to the proceeds of any loan or other advance 
                        made or guaranteed, directly or indirectly, by 
                        any partner or the partnership.
                          ``(ii) Loans from nonservice providing 
                        partners to the partnership treated as invested 
                        capital.--For purposes of this paragraph, any 
                        loan or other advance to the partnership made 
                        or guaranteed, directly or indirectly, by a 
                        partner not providing services to the 
                        partnership shall be treated as invested 
                        capital of such partner and amounts of income 
                        and loss treated as allocable to invested 
                        capital shall be adjusted accordingly.
  ``(d) Other Income and Gain in Connection With Investment Management 
Services.--
          ``(1) In general.--If--
                  ``(A) a person performs (directly or indirectly) 
                investment management services for any entity,
                  ``(B) such person holds a disqualified interest with 
                respect to such entity, and
                  ``(C) the value of such interest (or payments 
                thereunder) is substantially related to the amount of 
                income or gain (whether or not realized) from the 
                assets with respect to which the investment management 
                services are performed,
        any income or gain with respect to such interest shall be 
        treated as ordinary income for the performance of services. 
        Rules similar to the rules of subsection (c)(2) shall apply 
        where such interest was acquired on account of invested capital 
        in such entity.
          ``(2) Definitions.--For purposes of this subsection--
                  ``(A) Disqualified interest.--The term `disqualified 
                interest' means, with respect to any entity--
                          ``(i) any interest in such entity other than 
                        indebtedness,
                          ``(ii) convertible or contingent debt of such 
                        entity,
                          ``(iii) any option or other right to acquire 
                        property described in clause (i) or (ii), and
                          ``(iv) any derivative instrument entered into 
                        (directly or indirectly) with such entity or 
                        any investor in such entity.
                Such term shall not include a partnership interest and 
                shall not include stock in a taxable corporation.
                  ``(B) Taxable corporation.--The term `taxable 
                corporation' means--
                          ``(i) a domestic C corporation, or
                          ``(ii) a foreign corporation subject to a 
                        comprehensive foreign income tax.
                  ``(C) Investment management services.--The term 
                `investment management services' means a substantial 
                quantity of any of the services described in subsection 
                (c)(1) which are provided in the conduct of the trade 
                or business of providing such services.
                  ``(D) Comprehensive foreign income tax.--The term 
                `comprehensive foreign income tax' means, with respect 
                to any foreign corporation, the income tax of a foreign 
                country if--
                          ``(i) such corporation is eligible for the 
                        benefits of a comprehensive income tax treaty 
                        between such foreign country and the United 
                        States, or
                          ``(ii) such corporation demonstrates to the 
                        satisfaction of the Secretary that such foreign 
                        country has a comprehensive income tax.
  ``(e) Regulations.--The Secretary shall prescribe such regulations as 
are necessary or appropriate to carry out the purposes of this section, 
including regulations to--
          ``(1) prevent the avoidance of the purposes of this section, 
        and
          ``(2) coordinate this section with the other provisions of 
        this subchapter.
  ``(f) Cross Reference.--For 40 percent no fault penalty on certain 
underpayments due to the avoidance of this section, see section 
6662.''.
  (b) Application to Real Estate Investment Trusts.--
          (1) In general.--Subsection (c) of section 856 is amended by 
        adding at the end the following new paragraph:
          ``(9) Exception from recharacterization of income from 
        investment services partnership interests.--
                  ``(A) In general.--Paragraphs (2), (3), and (4) shall 
                be applied without regard to section 710 (relating to 
                special rules for partners providing investment 
                management services to partnership).
                  ``(B) Special rule for partnerships owned by reits.--
                Section 7704 shall be applied without regard to section 
                710 in the case of a partnership which meets each of 
                the following requirements:
                          ``(i) Such partnership is treated as publicly 
                        traded under section 7704 solely by reason of 
                        interests in such partnership being convertible 
                        into interests in a real estate investment 
                        trust which is publicly traded.
                          ``(ii) 50 percent or more of the capital and 
                        profits interests of such partnership are 
                        owned, directly or indirectly, at all times 
                        during the taxable year by such real estate 
                        investment trust (determined with the 
                        application of section 267(c)).
                          ``(iii) Such partnership meets the 
                        requirements of paragraphs (2), (3), and (4) 
                        (applied without regard to section 710).''.
          (2) Conforming amendment.--Paragraph (4) of section 7704(d) 
        is amended by inserting ``(determined without regard to section 
        856(c)(8))'' after ``856(c)(2)''.
  (c) Imposition of Penalty on Underpayments.--
          (1) In general.--Subsection (b) of section 6662 is amended by 
        inserting after paragraph (5) the following new paragraph:
          ``(6) The application of subsection (d) of section 710 or the 
        regulations prescribed under section 710(e) to prevent the 
        avoidance of the purposes of section 710.''.
          (2) Amount of penalty.--
                  (A) In general.--Section 6662 is amended by adding at 
                the end the following new subsection:
  ``(i) Increase in Penalty in Case of Property Transferred for 
Investment Management Services.--In the case of any portion of an 
underpayment to which this section applies by reason of subsection 
(b)(6), subsection (a) shall be applied with respect to such portion by 
substituting `40 percent' for `20 percent'.''.
                  (B) Conforming amendments.--Subparagraph (B) of 
                section 6662A(e)(2) is amended--
                          (i) by striking ``section 6662(h)'' and 
                        inserting ``subsection (h) or (i) of section 
                        6662'', and
                          (ii) by striking ``gross valuation 
                        misstatement penalty'' in the heading and 
                        inserting ``certain increased underpayment 
                        penalties''.
          (3) Reasonable cause exception not applicable.--Subsection 
        (c) of section 6664 is amended--
                  (A) by redesignating paragraphs (2) and (3) as 
                paragraphs (3) and (4), respectively,
                  (B) by striking ``paragraph (2)'' in paragraph (4), 
                as so redesignated, and inserting ``paragraph (3)'', 
                and
                  (C) by inserting after paragraph (1) the following 
                new paragraph:
          ``(2) Exception.--Paragraph (1) shall not apply to any 
        portion of an underpayment to which this section applies by 
        reason of subsection (b)(6).''.
  (d) Conforming Amendments.--
          (1) Subsection (d) of section 731 is amended by inserting 
        ``section 710(b)(4) (relating to distributions of partnership 
        property),'' before ``section 736''.
          (2) Section 741 is amended by inserting ``or section 710 
        (relating to special rules for partners providing investment 
        management services to partnership)'' before the period at the 
        end.
          (3) Paragraph (13) of section 1402(a) is amended--
                  (A) by striking ``other than guaranteed'' and 
                inserting ``other than--
                  ``(A) guaranteed'',
                  (B) by striking the semicolon at the end and 
                inserting ``, and'', and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(B) any income treated as ordinary income under 
                section 710 received by an individual who provides 
                investment management services (as defined in section 
                710(d)(2));''.
          (4) Paragraph (12) of section 211(a) of the Social Security 
        Act is amended--
                  (A) by striking ``other than guaranteed'' and 
                inserting ``other than--
                  ``(A) guaranteed'',
                  (B) by striking the semicolon at the end and 
                inserting ``, and'', and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(B) any income treated as ordinary income under 
                section 710 of the Internal Revenue Code of 1986 
                received by an individual who provides investment 
                management services (as defined in section 710(d)(2) of 
                such Code);''.
          (5) The table of sections for part I of subchapter K of 
        chapter 1 is amended by adding at the end the following new 
        item:

``Sec. 710. Special rules for partners providing investment management 
services to partnership.''.

  (e) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending after June 18, 2008.
          (2) Partnership taxable years which include effective date.--
        In applying section 710(a) of the Internal Revenue Code of 1986 
        (as added by this section) in the case of any partnership 
        taxable year which includes June 18, 2008, the amount of the 
        net income referred to in such section shall be treated as 
        being the lesser of the net income for the entire partnership 
        taxable year or the net income determined by only taking into 
        account items attributable to the portion of the partnership 
        taxable year which is after such date.
          (3) Dispositions of partnership interests.--Section 710(b) of 
        the Internal Revenue Code of 1986 (as added by this section) 
        shall apply to dispositions and distributions after June 18, 
        2008.
          (4) Other income and gain in connection with investment 
        management services.--Section 710(d) of such Code (as added by 
        this section) shall take effect on June 18, 2008.
          (5) Publicly traded partnerships.--For purposes of applying 
        section 7704, the amendments made by this section shall apply 
        to taxable years beginning after December 31, 2010.

SEC. 202. LIMITATION OF DEDUCTION FOR INCOME ATTRIBUTABLE TO DOMESTIC 
                    PRODUCTION OF OIL, GAS, OR PRIMARY PRODUCTS 
                    THEREOF.

  (a) Denial of Deduction for Major Integrated Oil Companies for Income 
Attributable to Domestic Production of Oil, Gas, or Primary Products 
Thereof.--
          (1) In general.--Subparagraph (B) of section 199(c)(4) 
        (relating to exceptions) 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 inserting after clause 
        (iii) the following new clause:
                          ``(iv) in the case of any major integrated 
                        oil company (as defined in section 
                        167(h)(5)(B)), the production, refining, 
                        processing, transportation, or distribution of 
                        oil, gas, or any primary product thereof during 
                        any taxable year described in section 
                        167(h)(5)(B).''.
          (2) Primary product.--Section 199(c)(4)(B) is amended by 
        adding at the end the following flush sentence:
                ``For purposes of clause (iv), the term `primary 
                product' has the same meaning as when used in section 
                927(a)(2)(C), as in effect before its repeal.''.
  (b) Limitation on Oil Related Qualified Production Activities Income 
for Taxpayers Other Than Major Integrated Oil Companies.--
          (1) In general.--Section 199(d) is amended by redesignating 
        paragraph (9) as paragraph (10) and by inserting after 
        paragraph (8) the following new paragraph:
          ``(9) Special rule for taxpayers with oil related qualified 
        production activities income.--
                  ``(A) In general.--If a taxpayer (other than a major 
                integrated oil company (as defined in section 
                167(h)(5)(B))) has oil related qualified production 
                activities income for any taxable year beginning after 
                2009, the amount of the deduction under subsection (a) 
                shall be reduced by 3 percent of the least of--
                          ``(i) the oil related qualified production 
                        activities income of the taxpayer for the 
                        taxable year,
                          ``(ii) the qualified production activities 
                        income of the taxpayer for the taxable year, or
                          ``(iii) taxable income (determined without 
                        regard to this section).
                  ``(B) Oil related qualified production activities 
                income.--The term `oil related qualified production 
                activities income' means for any taxable year the 
                qualified production activities income which is 
                attributable to the production, refining, processing, 
                transportation, or distribution of oil, gas, or any 
                primary product thereof during such taxable year.''.
          (2) Conforming amendment.--Section 199(d)(2) (relating to 
        application to individuals) is amended by striking ``subsection 
        (a)(1)(B)'' and inserting ``subsections (a)(1)(B) and 
        (d)(9)(A)(iii)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2008.

SEC. 203. LIMITATION ON TREATY BENEFITS FOR CERTAIN DEDUCTIBLE 
                    PAYMENTS.

  (a) In General.--Section 894 (relating to income affected by treaty) 
is amended by adding at the end the following new subsection:
  ``(d) Limitation on Treaty Benefits for Certain Deductible 
Payments.--
          ``(1) In general.--In the case of any deductible related-
        party payment, any withholding tax imposed under chapter 3 (and 
        any tax imposed under subpart A or B of this part) with respect 
        to such payment may not be reduced under any treaty of the 
        United States unless any such withholding tax would be reduced 
        under a treaty of the United States if such payment were made 
        directly to the foreign parent corporation.
          ``(2) Deductible related-party payment.--For purposes of this 
        subsection, the term `deductible related-party payment' means 
        any payment made, directly or indirectly, by any person to any 
        other person if the payment is allowable as a deduction under 
        this chapter and both persons are members of the same foreign 
        controlled group of entities.
          ``(3) Foreign controlled group of entities.--For purposes of 
        this subsection--
                  ``(A) In general.--The term `foreign controlled group 
                of entities' means a controlled group of entities the 
                common parent of which is a foreign corporation.
                  ``(B) Controlled group of entities.--The term 
                `controlled group of entities' means a controlled group 
                of corporations as defined in section 1563(a)(1), 
                except that--
                          ``(i) `more than 50 percent' shall be 
                        substituted for `at least 80 percent' each 
                        place it appears therein, and
                          ``(ii) the determination shall be made 
                        without regard to subsections (a)(4) and (b)(2) 
                        of section 1563.
                A partnership or any other entity (other than a 
                corporation) shall be treated as a member of a 
                controlled group of entities if such entity is 
                controlled (within the meaning of section 954(d)(3)) by 
                members of such group (including any entity treated as 
                a member of such group by reason of this sentence).
          ``(4) Foreign parent corporation.--For purposes of this 
        subsection, the term `foreign parent corporation' means, with 
        respect to any deductible related-party payment, the common 
        parent of the foreign controlled group of entities referred to 
        in paragraph (3)(A).
          ``(5) Regulations.--The Secretary may prescribe such 
        regulations or other guidance as are necessary or appropriate 
        to carry out the purposes of this subsection, including 
        regulations or other guidance which provide for--
                  ``(A) the treatment of two or more persons as members 
                of a foreign controlled group of entities if such 
                persons would be the common parent of such group if 
                treated as one corporation, and
                  ``(B) the treatment of any member of a foreign 
                controlled group of entities as the common parent of 
                such group if such treatment is appropriate taking into 
                account the economic relationships among such 
                entities.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to payments made after the date of the enactment of this Act.

SEC. 204. RETURNS RELATING TO PAYMENTS MADE IN SETTLEMENT OF PAYMENT 
                    CARD AND THIRD PARTY NETWORK TRANSACTIONS.

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

``SEC. 6050W. RETURNS RELATING TO PAYMENTS MADE IN SETTLEMENT OF 
                    PAYMENT CARD AND THIRD PARTY NETWORK TRANSACTIONS.

  ``(a) In General.--Each payment settlement entity shall make a return 
for each calendar year setting forth--
          ``(1) the name, address, and TIN of each participating payee 
        to whom one or more payments in settlement of reportable 
        payment transactions are made, and
          ``(2) the gross amount of the reportable payment transactions 
        with respect to each such participating payee.
Such return shall be made at such time and in such form and manner as 
the Secretary may require by regulations.
  ``(b) Payment Settlement Entity.--For purposes of this section--
          ``(1) In general.--The term `payment settlement entity' 
        means--
                  ``(A) in the case of a payment card transaction, the 
                merchant acquiring bank, and
                  ``(B) in the case of a third party network 
                transaction, the third party settlement organization.
          ``(2) Merchant acquiring bank.--The term `merchant acquiring 
        bank' means the bank or other organization which has the 
        contractual obligation to make payment to participating payees 
        in settlement of payment card transactions.
          ``(3) Third party settlement organization.--The term `third 
        party settlement organization' means the central organization 
        which has the contractual obligation to make payment to 
        participating payees of third party network transactions.
          ``(4) Special rules related to intermediaries.--For purposes 
        of this section--
                  ``(A) Aggregated payees.--In any case where 
                reportable payment transactions of more than one 
                participating payee are settled through an 
                intermediary--
                          ``(i) such intermediary shall be treated as 
                        the participating payee for purposes of 
                        determining the reporting obligations of the 
                        payment settlement entity with respect to such 
                        transactions, and
                          ``(ii) such intermediary shall be treated as 
                        the payment settlement entity with respect to 
                        the settlement of such transactions with the 
                        participating payees.
                  ``(B) Electronic payment facilitators.--In any case 
                where an electronic payment facilitator or other third 
                party makes payments in settlement of reportable 
                payment transactions on behalf of the payment 
                settlement entity, the return under subsection (a) 
                shall be made by such electronic payment facilitator or 
                other third party in lieu of the payment settlement 
                entity.
  ``(c) Reportable Payment Transaction.--For purposes of this section--
          ``(1) In general.--The term `reportable payment transaction' 
        means any payment card transaction and any third party network 
        transaction.
          ``(2) Payment card transaction.--The term `payment card 
        transaction' means any transaction in which a payment card is 
        accepted as payment.
          ``(3) Third party network transaction.--The term `third party 
        network transaction' means any transaction which is settled 
        through a third party payment network.
  ``(d) Other Definitions.--For purposes of this section--
          ``(1) Participating payee.--
                  ``(A) In general.--The term `participating payee' 
                means--
                          ``(i) in the case of a payment card 
                        transaction, any person who accepts a payment 
                        card as payment, and
                          ``(ii) in the case of a third party network 
                        transaction, any person who accepts payment 
                        from a third party settlement organization in 
                        settlement of such transaction.
                  ``(B) Exclusion of foreign persons.--Except as 
                provided by the Secretary in regulations or other 
                guidance, such term shall not include any person with a 
                foreign address.
                  ``(C) Inclusion of governmental units.--The term 
                `person' includes any governmental unit (and any agency 
                or instrumentality thereof).
          ``(2) Payment card.--The term `payment card' means any card 
        which is issued pursuant to an agreement or arrangement which 
        provides for--
                  ``(A) one or more issuers of such cards,
                  ``(B) a network of persons unrelated to each other, 
                and to the issuer, who agree to accept such cards as 
                payment, and
                  ``(C) standards and mechanisms for settling the 
                transactions between the merchant acquiring banks and 
                the persons who agree to accept such cards as payment.
        The acceptance as payment of any account number or other 
        indicia associated with a payment card shall be treated for 
        purposes of this section in the same manner as accepting such 
        payment card as payment.
          ``(3) Third party payment network.--The term `third party 
        payment network' means any agreement or arrangement--
                  ``(A) which involves the establishment of accounts 
                with a central organization for the purpose of settling 
                transactions between persons who establish such 
                accounts,
                  ``(B) which provides for standards and mechanisms for 
                settling such transactions,
                  ``(C) which involves a substantial number of persons 
                unrelated to such central organization who provide 
                goods or services and who have agreed to settle 
                transactions for the provision of such goods or 
                services pursuant to such agreement or arrangement, and
                  ``(D) which guarantees persons providing goods or 
                services pursuant to such agreement or arrangement that 
                such persons will be paid for providing such goods or 
                services.
        Such term shall not include any agreement or arrangement which 
        provides for the issuance of payment cards.
  ``(e) Exception for De Minimis Payments by Third Party Settlement 
Organizations.--A third party settlement organization shall be required 
to report any information under subsection (a) with respect to third 
party network transactions of any participating payee only if--
          ``(1) the amount which would otherwise be reported under 
        subsection (a)(2) with respect to such transactions exceeds 
        $10,000, and
          ``(2) the aggregate number of such transactions exceeds 200.
  ``(f) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each person with respect to whom such a 
return is required 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 gross amount of the reportable payment transactions 
        with respect to the person required to be shown on the return.
The written statement required under the preceding sentence shall be 
furnished to the person on or before January 31 of the year following 
the calendar year for which the return under subsection (a) was 
required to be made. Such statement may be furnished electronically.
  ``(g) Regulations.--The Secretary may prescribe such regulations or 
other guidance as may be necessary or appropriate to carry out this 
section, including rules to prevent the reporting of the same 
transaction more than once.''.
  (b) Penalty for Failure To File.--
          (1) Return.--Subparagraph (B) of section 6724(d)(1) is 
        amended--
                  (A) by striking ``and'' at the end of clause (xx),
                  (B) by redesignating the clause (xix) that follows 
                clause (xx) as clause (xxi),
                  (C) by striking ``and'' at the end of clause (xxi), 
                as redesignated by subparagraph (B) and inserting 
                ``or'', and
                  (D) by adding at the end the following:
                          ``(xxii) section 6050W (relating to returns 
                        to payments made in settlement of payment card 
                        transactions), and''.
          (2) Statement.--Paragraph (2) of section 6724(d) is amended 
        by inserting a comma at the end of subparagraph (BB), by 
        striking the period at the end of the subparagraph (CC) and 
        inserting ``, or'', and by inserting after subparagraph (CC) 
        the following:
                  ``(DD) section 6050W(c) (relating to returns relating 
                to payments made in settlement of payment card 
                transactions).''.
  (c) Application of Backup Withholding.--Paragraph (3) of section 
3406(b) is amended by striking ``or'' at the end of subparagraph (D), 
by striking the period at the end of subparagraph (E) and inserting ``, 
or'', and by adding at the end the following new subparagraph:
                  ``(F) section 6050W (relating to returns relating to 
                payments made in settlement of payment card 
                transactions).''.
  (d) 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 6050V the following:

``Sec. 6050W. Returns relating to payments made in settlement of 
payment card and third party network transactions.''.

  (e) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        returns for calendar years beginning after December 31, 2010.
          (2) Application of backup withholding.--
                  (A) In general.--The amendment made by subsection (c) 
                shall apply to amounts paid after December 31, 2011.
                  (B) Eligibility for tin matching program.--Solely for 
                purposes of carrying out any TIN matching program 
                established by the Secretary under section 3406(i) of 
                the Internal Revenue Code of 1986--
                          (i) the amendments made this section shall be 
                        treated as taking effect on the date of the 
                        enactment of this Act, and
                          (ii) each person responsible for setting the 
                        standards and mechanisms referred to in section 
                        6050W(d)(2)(C) of such Code, as added by this 
                        section, for settling transactions involving 
                        payment cards shall be treated in the same 
                        manner as a payment settlement entity.

SEC. 205. APPLICATION OF CONTINUOUS LEVY TO PROPERTY SOLD OR LEASED TO 
                    THE FEDERAL GOVERNMENT.

  (a) In General.--Paragraph (3) of section 6331(h) is amended by 
striking ``goods'' and inserting ``property''.
  (b) Effective Date.--The amendment made by this section shall apply 
to levies approved after the date of the enactment of this Act.

SEC. 206. 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 59.5 percentage points.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 6275, as amended, (1) provides alternative 
minimum tax relief to individuals for taxable years beginning 
in 2008, (2) treats the income of partners performing 
investment management services as ordinary income received for 
the performance of services to the extent such income is not 
allowable to invested capital, (3) limits the section 199 
deduction for certain income attributable to the domestic 
production of oil, gas, or the primary products thereof for 
certain taxpayers, (4) limits the tax treaty benefits with 
respect to certain deductible payments, (5) requires 
information reporting on payment card and third party payment 
transactions, (6) expands the types of Federal payments subject 
to present-law continuous levy rules (i.e., vendor payments for 
all property and services), (7) 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 protect more than 25 million families from the burden of the 
alternative minimum tax without increasing the national debt, 
as well as other purposes.

                         C. Legislative History

    The Committee on Ways and Means marked up the Alternative 
Minimum Tax Relief Act of 2008 on June 18, 2008, and ordered 
the bill, as amended, favorably reported.

                      II. EXPLANATION OF THE BILL


                     TITLE I--INDIVIDUAL TAX RELIEF


A. Extend Alternative Minimum Tax Relief for Individuals (Secs. 101 and 
            102 of the Bill and Secs. 26 and 55 of the Code)


                              PRESENT LAW

    Present law imposes an alternative minimum tax (``AMT'') on 
individuals. The AMT is the amount by which the tentative 
minimum tax exceeds the regular income tax. An individual's 
tentative minimum tax is the sum of (1) 26 percent of so much 
of the taxable excess as does not exceed $175,000 ($87,500 in 
the case of a married individual filing a separate return) and 
(2) 28 percent of the remaining taxable excess. The taxable 
excess is so much of the alternative minimum taxable income 
(``AMTI'') as exceeds the exemption amount. The maximum tax 
rates on net capital gain and dividends used in computing the 
regular tax are used in computing the tentative minimum tax. 
AMTI is the individual's taxable income adjusted to take 
account of specified preferences and adjustments.
    The present exemption amount is: (1) $66,250 ($45,000 in 
taxable years beginning after 2007) in the case of married 
individuals filing a joint return and surviving spouses; (2) 
$44,350 ($33,750 in taxable years beginning after 2007) in the 
case of other unmarried individuals; (3) $33,125 ($22,500 in 
taxable years beginning after 2007) in the case of married 
individuals filing separate returns; and (4) $22,500 in the 
case of an estate or trust. The exemption amount is phased out 
by an amount equal to 25 percent of the amount by which the 
individual's AMTI exceeds (1) $150,000 in the case of married 
individuals filing a joint return and surviving spouses, (2) 
$112,500 in the case of other unmarried individuals, and (3) 
$75,000 in the case of married individuals filing separate 
returns or an estate or a trust. These amounts are not indexed 
for inflation.
    Present law provides for certain nonrefundable personal tax 
credits (i.e., the dependent care credit, the credit for the 
elderly and disabled, the adoption credit, the child credit,\1\ 
the credit for interest on certain home mortgages, the HOPE 
Scholarship and Lifetime Learning credits, the credit for 
savers, the credit for certain nonbusiness energy property, the 
credit for residential energy efficient property, and the D.C. 
first-time homebuyer credit).
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    \1\The child credit may be refundable in whole or in part to a 
taxpayer.
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    For taxable years beginning before 2008, the nonrefundable 
personal credits are allowed to the extent of the full amount 
of the individual's regular tax and alternative minimum tax.
    For taxable years beginning after 2007, the nonrefundable 
personal credits (other than the adoption credit, child credit 
and saver's credit) are allowed only to the extent that the 
individual's regular income tax liability exceeds the 
individual's tentative minimum tax, determined without regard 
to the minimum tax foreign tax credit. The adoption credit, 
child credit, and saver's credit are allowed to the full extent 
of the individual's regular tax and alternative minimum tax.\2\
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    \2\The rule applicable to the adoption credit and child credit is 
subject to the EGTRRA sunset.
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                           REASONS FOR CHANGE

    The Committee is concerned about the projected increase in 
the number of individuals who will be affected by the 
individual alternative minimum tax and the projected increase 
in tax liability for those who are affected by the tax for 
2008. The provision will reduce the number of individuals who 
would otherwise be affected by the alternative minimum tax and 
will reduce the tax liability of the families that continue to 
be affected by the alternative minimum tax.

                        EXPLANATION OF PROVISION

    The bill provides that the individual AMT exemption amount 
for taxable years beginning in 2008 is $69,950, in the case of 
married individuals filing a joint return and surviving 
spouses; (2) $46,200 in the case of other unmarried 
individuals; and (3) $34,975 in the case of married individuals 
filing separate returns.
    For taxable years beginning in 2008, the bill allows an 
individual to offset the entire regular tax liability and 
alternative minimum tax liability by the nonrefundable personal 
credits.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning in 
2008.

                      TITLE II--REVENUE PROVISIONS


  A. Income of Partners for Performing Investment Management Services 
 Treated as Ordinary Income Received for Performance of Services (Sec. 
 201 of the Bill and Secs. 710, 856, 1402, 6662, 6662A, 6664, and 7704 
                              of the Code)


                              PRESENT LAW

Partnership profits interest for services

    A profits interest in a partnership is the right to receive 
future profits in the partnership but does not generally 
include any right to receive money or other property upon the 
immediate liquidation of the partnership. The treatment of the 
receipt of a profits interest in a partnership in exchange for 
the performance of services has been the subject of 
controversy. Though courts have differed, in some instances, a 
taxpayer receiving a profits interest for performing services 
has not been taxable upon the receipt of the partnership 
interest.\3\
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    \3\Only a handful of cases have ruled on this issue. Though one 
case required the value to be included currently, where value was 
easily determined by a sale of the profits interest soon after receipt 
(Diamond v. Commissioner, 56 T. C. (1971), aff'd 492 F. 2.2d 286 (7th 
Cir, 1974)), a more recent case concluded that partnership profits 
interests were not includable on receipt, because the profits interests 
were speculative and without fair market value (Campbell v. 
Commissioner, 943 F. 2d. 815 (8th Cir. 1991)).
---------------------------------------------------------------------------
    In 1993, the Internal Revenue Service, referring to the 
results of cases, issued administrative guidance that the IRS 
generally would treat the receipt of a partnership profit 
interest for services as not a taxable event for the 
partnership or the partner.\4\ Under this guidance, this 
treatment does not apply, however, if: (1) The profits interest 
relates to a substantially certain and predictable stream of 
income from partnership assets, such as income from high-
quality debt securities or a high quality net lease; (2) within 
two years of receipt, the partner disposes of the profits 
interest; or (3) the profits interest is a limited partnership 
interest in a publicly traded partnership. More recent 
administrative guidance\5\ clarifies that this treatment 
applies provided the service partner takes into income his 
distributive share of partnership income, and the partnership 
does not deduct any amount, either on grant or on vesting of 
the profits interest.\6\
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    \4\Rev. Proc. 93-27, 1993-2 C.B. 343, citing the Diamond and 
Campbell cases, supra.
    \5\Rev. Proc. 2001-43 (2001-2 C.B. 191).
    \6\A similar result would occur under the ``safe harbor'' election 
of proposed regulations regarding the application of section 83 to the 
compensatory transfer of a partnership interest. REG-105346-03, 70 Fed. 
Reg. 29675 (May 24, 2005).
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    By contrast, a partnership capital interest received for 
services is includable in the partner's income under generally 
applicable rules relating the receipt of property for the 
performance of services.\7\ A partnership capital interest for 
this purpose is an interest that would entitle the receiving 
partner to a share of the proceeds if the partnership's assets 
were sold at fair market value and the proceeds were 
distributed in liquidation.\8\
---------------------------------------------------------------------------
    \7\Secs. 61 and 83; Treas. Reg. sec. 1.721-1(b)(1); see U.S. v. 
Frazell, 335 F.2d 487 (5th Cir. 1964), cert denied, 380 U.S. 961 
(1965).
    \8\Rev. Proc. 93-27, 1993-2 C.B. 343.
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Passthrough tax treatment of partnerships

    The character of partnership items passes through to the 
partners, as if the items were realized directly by the 
partners.\9\ Thus, for example, long-term capital gain of the 
partnership is treated as long-term capital gain in the hands 
of the partners--
---------------------------------------------------------------------------
    \9\Sec. 702.
---------------------------------------------------------------------------
    A partner holding a partnership interest includes in income 
its distributive share (whether or not actually distributed) of 
partnership items of income and gain, including capital gain 
eligible for the lower income tax rates. A partner's basis in 
the partnership interest is increased by any amount of gain 
thus included and is decreased by losses. These basis 
adjustments prevent double taxation of partnership income to 
the partner, preserving the partnership's tax status as a 
passthrough entity. Amounts distributed to the partner by the 
partnership are taxed, to the extent the amount exceeds the 
partner's basis in the partnership interest.

Employment tax treatment of partners

    As part of the financing for Social Security and Medicare 
benefits, a tax is imposed on the wages of an individual 
received with respect to his or her employment under the 
Federal Insurance Contributions Act (``FICA'').\10\ A similar 
tax is imposed on the net earnings from self-employment of an 
individual under the Self Employment Contributions Act 
(``SECA'').\11\
---------------------------------------------------------------------------
    \10\See Chapter 21 of the Code.
    \11\Sec. 1401.
---------------------------------------------------------------------------
    The FICA tax has two components. Under the old-age, 
survivors, and disability insurance component (``OASDI''), the 
rate of tax is 12.40 percent, half of which is imposed on the 
employer, and the other half of which is imposed on the 
employee.\12\ The amount of wages subject to this component is 
capped at $102,000 for 2008. Under the hospital insurance 
component (``HI''), the rate is 2.90 percent, also split 
equally between the employer and the employee. The amount of 
wages subject to the HI component of the tax is not capped. The 
wages of individuals employed by a business in any form (for 
example, a C corporation generally are subject to the FICA 
tax.\13\
---------------------------------------------------------------------------
    \12\Secs. 3101 and 3111.
    \13\S corporation shareholders who are employees of the S 
corporation are subject to FICA taxes. A considerable body of case law 
has addressed the issue of whether amounts paid to S corporation 
shareholder-employees are reasonable compensation for services and 
therefore are wages subject to FICA tax or are properly characterized 
as another type of income (typically, dividends) and therefore not 
subject to FICA tax.
---------------------------------------------------------------------------
    The SECA tax rate is the combined employer and employee 
rate for FICA taxes. Under the OASDI component, the rate of tax 
is 12.40 percent and the amount of earnings subject to this 
component is capped at $102,000 for 2008. Under the HI 
component, the rate is 2.90 percent, and the amount of self-
employment income subject to the HI component is not capped.
    For SECA tax purposes, net earnings from self-employment 
means the gross income derived by an individual from any trade 
or business carried on by the individual, less the deductions 
attributable to the trade or business that are allowed under 
the self-employment tax rules.\14\ Specified types of income or 
loss are excluded, such as rentals from real estate in certain 
circumstances, dividends and interest, and gains or loss from 
the sale or exchange of a capital asset or from timber, certain 
minerals, or other property that is neither inventory nor held 
primarily for sale to customers.
---------------------------------------------------------------------------
    \14\For purposes of determining net earnings from self-employment, 
taxpayers are permitted a deduction from net earnings from self-
employment equal to the product of the taxpayer's net earnings 
(determined without regard to this deduction) and one-half of the sum 
of the rates for OASDI (12.4 percent) and HI (2.9 percent), i.e., 7.65 
percent of net earnings. This deduction reflects the fact that the FICA 
rates apply to an employee's wages, which do not include FICA taxes 
paid by the employer, whereas a self-employed individual's net earnings 
are economically the equivalent of an employee's wages plus the 
employer share of FICA taxes. The deduction is intended to provide 
parity between FICA and SECA taxes. In addition, self-employed 
individuals may deduct one-half of self-employment taxes for income tax 
purposes (sec. 164(f)).
---------------------------------------------------------------------------
    For an individual who is a partner in a partnership, the 
net earnings from self-employment generally include the 
partner's distributive share (whether or not distributed) of 
income or loss from any trade or business carried on by the 
partnership (excluding specified types of income, such as rents 
and dividends, as described above). This rule applies to 
individuals who are general partners. A special rule applies 
for limited partners of a partnership.\15\ In determining a 
limited partner's net earnings from self-employment, an 
exclusion is provided for his or her distributive share of 
partnership income or loss. The exclusion does not apply with 
respect to guaranteed payments to the limited partner for 
services actually rendered to or on behalf of the partnership 
to the extent that those payments are established to be in the 
nature of remuneration for those services.
---------------------------------------------------------------------------
    \15\15 Sec. 1402(a)(13).
---------------------------------------------------------------------------

Income tax treatment of publicly traded partnerships

    Under present law, a publicly traded partnership generally 
is treated as a corporation for Federal tax purposes (sec. 
7704(a)). For this purpose, a publicly traded partnership means 
any partnership if interests in the partnership are traded on 
an established securities market, or interests in the 
partnership are readily tradable on a secondary market (or the 
substantial equivalent thereof).
    An exception from corporate treatment is provided for 
certain publicly traded partnerships, 90 percent or more of 
whose gross income is qualifying income (sec. 7704(c)(2)). 
However, this exception does not apply to any partnership that 
would be described in section 851(a) if it were a domestic 
corporation, which includes a corporation registered under the 
Investment Company Act of 1940 as a management company or unit 
investment trust.
    Qualifying income includes interest, dividends, and gains 
from the disposition of a capital asset (or of property 
described in section 1231(b)) that is held for the production 
of income that is qualifying income. Qualifying income also 
includes rents from real property, gains from the sale or other 
disposition of real property, and income and gains from the 
exploration, development, mining or production, processing, 
refining, transportation (including pipelines transporting gas, 
oil, or products thereof), or the marketing of any mineral or 
natural resource (including fertilizer, geothermal energy, and 
timber). It also includes income and gains from commodities 
(not described in section 1221(a)(1)) or futures, options, or 
forward contracts with respect to such commodities (including 
foreign currency transactions of a commodity pool) in the case 
of partnership, a principal activity of which is the buying and 
selling of such commodities, futures, options or forward 
contracts.
    The rules generally treating publicly traded partnerships 
as corporations were enacted in 1987 to address concern about 
long-term erosion of the corporate tax base. At that time, 
Congress stated, ``[t]o the extent that activities would 
otherwise be conducted in corporate form, and earnings would be 
subject to two levels of tax (at the corporate and shareholder 
levels), the growth of publicly traded partnerships engaged in 
such activities tends to jeopardize the corporate tax base.'' 
(H.R. Rep. No. 100-391, 100th Cong., 1st Sess. 1065.) Referring 
to recent tax law changes affecting corporations, the Congress 
stated, ``[t]hese changes reflect an intent to preserve the 
corporate level tax. The committee is concerned that the intent 
of these changes is being circumvented by the growth of 
publicly traded partnerships that are taking advantage of an 
unintended opportunity for disincorporation and elective 
integration of the corporate and shareholder levels of tax.'' 
(H.R. Rep. No. 100-391, 100th Cong., 1st Sess. 1066.)

Real estate investment trusts (REITs)

    A real estate investment trust (``REIT'') is an entity that 
derives most of its income from passive real-estate-related 
investments. A REIT must satisfy a number of tests on an annual 
basis that relate to the entity's organizational structure, the 
source of its income, and the nature of its assets. If an 
electing entity meets the requirements for REIT status, the 
portion of its income that is distributed to its investors each 
year generally is treated as a dividend deductible by the REIT 
and includible in income by its investors. In this manner, the 
distributed income of the REIT is not taxed at the entity 
level. The distributed income is taxed only at the investor 
level. A REIT generally is required to distribute 90 percent of 
its income (other than net capital gain) to its investors 
before the end of its taxable year.
    In order for an entity to qualify as a REIT, at least 95 
percent of its gross income generally must be derived from 
certain passive sources (the ``95-percent income test''). In 
addition, at least 75 percent of its income generally must be 
from certain real estate sources (the ``75-percent income 
test''), including rents from real property (as defined) and 
gain from the sale or other disposition of real property. 
Amounts received as impermissible ``tenant services income'' 
are not treated as rents from real property.\16\ In general, 
such amounts are for services rendered to tenants that are not 
``customarily furnished'' in connection with the rental of real 
property. In addition, at least 75 percent of the value of its 
total assets must be represented by real estate assets, cash 
and cash items (including receivables), and Government 
securities, and maximum percentages apply to ownership of other 
types of securities (the ``asset test'').
---------------------------------------------------------------------------
    \16\A REIT is not treated as providing services that produce 
impermissible tenant services income if such services are provided by 
an independent contractor from whom the REIT does not derive or receive 
any income. An independent contractor is defined as a person who does 
not own, directly or indirectly, more than 35 percent of the shares of 
the REIT. Also, no more than 35 percent of the total shares of stock of 
an independent contractor (or of the interests in net assets or net 
profits, if not a corporation) can be owned directly or indirectly by 
persons owning 35 percent or more of the interests in the REIT.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee has become aware that some types of service 
providers in the asset management business have been paying tax 
at capital gains rates on service income through the use of a 
partnership profits interest,\17\ known as a ``carried 
interest.'' Because the character of a partnership's income 
passes through to partners, income from a carried interest may 
take the form of long-term or short-term capital gain realized 
by the underlying investment fluid as the fund sells off 
investment assets. In 2008, for individuals generally, the top 
rate of tax on long-term capital gain is 15 percent, while the 
top income tax rate on ordinary labor income is 35 percent 
(plus the applicable employment tax rate).
---------------------------------------------------------------------------
    \17\A partnership profits interest generally gives the partner a 
right to receive a percentage of a partnership's profits without an 
obligation to contribute to partnership capital and without a right to 
partnership assets on liquidation.
---------------------------------------------------------------------------
    The Committee held a hearing\18\ covering Federal tax 
issues arising from the use of carried interests in asset 
management businesses. In these arrangements, the investment 
fund typically is a partnership. The investors are limited 
partners that contribute capital to acquire fund assets, and 
the fund manager is the general partner of the investment fund 
partnership. The general partner is itself a partnership of 
individuals with investment management expertise. The fund 
manager receives management fees along with a carried interest.
---------------------------------------------------------------------------
    \18\The Ways and Means Committee hearing took place September 6, 
2007. See Joint Committee on Taxation, ``Present Law and Analysis 
Relating to Tax Treatment of Partnership Carried Interests and Related 
Issues, Part I,'' (JCX-62-07), September 4, 2007, and Joint Committee 
on Taxation, ``Present Law and Analysis Relating to Tax Treatment of 
Partnership Carried Interests and Related Issues, Part 17;'' (JCX-63-
07), September 4, 2007.
---------------------------------------------------------------------------
    The Committee believes that in the case of an investment 
services partnership interest the carried interest arrangement 
primarily involves the performance of services by individuals 
whose professional skill generates capital income for investors 
in the fund. While these individuals' economic interests are 
aligned with those of the fund investors to the extent their 
compensation is based on the positive investment yield of the 
fund, the individuals are nevertheless performing services: 
Therefore, the income should be taxed as ordinary compensation 
income for the performance of services.
    The Committee believes this result is needed to protect the 
neutrality of the tax law with respect to income for different 
types of services, and is necessary to provide fairness in the 
tax law. The tax rules should not permit investment managers to 
structure their compensation so it is subject to preferential 
capital gains rates of 15 percent, and to pay no employment tax 
on these amounts, while wage-earners who have no such 
restructuring opportunities are subject to tax on ordinary 
income up to a top rate of 35 percent, plus employment tax.
    The Committee understands that the Internal Revenue Service 
currently takes the position that the receipt of a partnership 
profits interest is not generally a taxable event to the 
partner or to the partnership unless unusual circumstances 
indicate the interest is easy to value and it is held for a 
relatively short time. As acknowledged by the Internal Revenue 
Service in taking this position, however, courts have reasoned 
that the value of the profits interest for services should be 
included in income on receipt, but valuation of these interests 
is often difficult due to factors such as the speculative 
nature of future business profits. Therefore, efforts to 
measure the amount of compensation for services by including in 
income the value of a partnership profits interest received for 
services at the time of receipt have not been successful.
    The Committee bill consequently takes a different approach, 
the approach of treating net income and gain from an investment 
services partnership interest as ordinary income for the 
performance of services except to the extent it is attributable 
to the partner's invested capital, Capital gains tax treatment 
will still be available to the extent that gain is attributable 
to the partner's invested capital.
    It is intended that the present-law employment tax rules 
apply to this income to the same extent they apply to other 
compensation income. To ensure that the substance of the 
provision applies regardless of the use of vehicles other than 
partnerships to seek reduction of tax on compensation income 
for investment services, the provision also recharacterizes as 
ordinary income for the performance of services the income or 
gain with respect to certain other interests, including 
interests in certain entities other than partnerships, that are 
held by a person who performs, directly or indirectly, 
investment management services for the entity. In addition, to 
strongly ensure compliance with the provision, a 40-percent 
strict liability penalty applies to underpayments attributable 
to such techniques to seek to avoid ordinary income tax rates 
under the provision. It is expected that in enforcement, in 
coordinating with present law rules relating to partners and 
partnerships, and in providing other guidance under the 
provision, the Treasury Department will consistently limit 
opportunities to avoid ordinary income tax on compensation 
within the scope of the provision.
    The income recharacterized as ordinary compensation income 
under the provision is not treated as qualifying income of a 
publicly traded partnership, because it is in the nature of 
compensation (rather than the types of income listed as 
qualifying income). The effective date of the provision as it 
applies with respect to the qualifying income of publicly 
traded partnerships is deferred until taxable years beginning 
after December 31, 2010, to permit compliance with the 
provision.

                        EXPLANATION OF PROVISION

Recharacterization as ordinary income for performance of services

    The provision generally treats net income from an 
investment services partnership interest as ordinary income for 
the performance of services except to the extent it is 
attributable to the partner's invested capital. Thus, the 
provision recharacterizes the partner's distributive share of 
income from the partnership, regardless of whether such income 
would otherwise be treated as capital gain, dividend income, or 
any other type of income in the hands of the partner. Such 
income is taxed at ordinary income rates and is subject to 
self-employment tax.
    Net income means, with respect to an investment services 
partnership interest, the excess (if any) of (1) all items of 
income and gain taken into account by the partner with respect 
to the partnership interest for the partnership taxable year, 
over (2) all items of deduction and loss taken into account by 
the partner with respect to the partnership interest for the 
partnership taxable year. All items of income, gain, deduction, 
and loss that are taken into account in computing net income 
(or net loss) are treated as ordinary income (or ordinary loss, 
as the case may be). Net income from an investment services 
partnership interest is included in net earnings from self-
employment.
    The provision provides that an investment services 
partnership interest is a partnership interest held by any 
person who provides (directly or indirectly) a substantial 
quantity of certain services to the partnership in the conduct 
of the trade or business of providing such services. The 
services are: (1) Advising the partnership as to the 
advisability of investing in, purchasing, or selling any 
specified asset; (2) managing, acquiring, or disposing of any 
specified asset; (3) arranging financing with respect to 
acquiring specified assets; (4) any activity in support of any 
of the foregoing services.
    For this purpose, specified assets means securities (as 
defined in section 475(c)(2)), real estate, commodities (as 
defined in section 475(e)(2)), or options or derivative 
contracts with respect to such securities, real estate, or 
commodities. A security for this purpose means any (1) share of 
corporate stock, (2) partnership interest or beneficial 
ownership interest in a widely held or publicly traded 
partnership or trust, (3) note, bond, debenture, or other 
evidence of indebtedness, (4) interest rate, currency, or 
equity notional principal contract, (5) interest in, or 
derivative financial instrument in, any such security or any 
currency (regardless of whether section 1256 applies to the 
contract), and (6) position that is not such a security and is 
a hedge with respect to such a security and is clearly 
identified. A commodity for this purpose means a (1) commodity 
that is actively traded, (2) notional principal contract with 
respect to such a commodity, (3) interest in, or derivative 
financial instrument in, such a commodity, or (4) position that 
is not such a commodity and is a hedge with respect to such a 
commodity and is clearly identified.
    For example, assume that three individuals form a 
partnership to operate a biotechnology business; two each 
contribute $1 million in cash, and the third contributes his 
personal services as a research scientist. In the following 
year, the business profits of the partnership are $300,000, and 
the partnership agreement provides that each of the three 
partners' distributive share is $100,000. The profits are 
ordinary income to the partners under present law, so the 
provision does not affect the income tax rate applicable to the 
partners.\19\ In the following year, the third partner sells 
his partnership interest. Because the third partner's services 
do not consist of the services described above, the gain on 
sale of the partnership interest is not subject to 
recharacterization under the provision. As another example, 
assume instead that a partnership of three individuals is 
formed to manage investments in specified assets. The first two 
individuals contribute $1 million each and the third 
contributes his personal services advising the partnership as 
to the advisability of investing in particular specified 
assets, and managing, acquiring, arranging financing for, and 
disposing of such assets. In the following year, the profits of 
the partnership are $300,000, and the partnership agreement 
provides that each of the three partners' distributive share is 
$100,000. Because the third partner's services consist of the 
services described above with respect to specified assets, the 
third partner's share of profits is subject to 
recharacterization under the provision. When the third partner 
sells his partnership interest in the following year, the gain 
is recharacterized as ordinary compensation income under the 
provision.\20\
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    \19\The income generally is subject to self-employment tax under 
present law, without regard to the provision.
    \20\The rule providing that gain is treated as ordinary income for 
the performance of services on the disposition of an investment 
services partnership interest is described below.
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Exception for invested capital

    The provision provides an exception to recharacterization 
as ordinary income for performance of services in the case of 
the portion of the partner's distributive share of partnership 
items with respect to the partner's invested capital. Invested 
capital means the fair market value at the time of contribution 
of any money or other property contributed to the partnership. 
The exception applies provided that the partnership makes a 
reasonable allocation of partnership items between the portion 
of the partner's distributive share attributable to invested 
capital and the remaining portion. The exception to 
recharacterization also applies to gain or loss attributable to 
invested capital on disposition of the partnership interest, 
which is the portion that would have been allocable to invested 
capital if the partnership had sold all its assets immediately 
before the disposition.
    An allocation is not treated as reasonable if it would 
result in the allocation of a greater portion of income to 
invested capital than any other partner not providing services 
would have been allocated with respect to the same amount of 
invested capital. In applying this rule, it is intended that 
the return to the service-providing partner's invested capital 
(if any) be at no greater a rate than the return to that non-
service-providing partner who has the lowest rate of return on 
his invested capital. For example, assume two partners each 
contribute $1 million to a partnership they form, and a third 
partner who performs services that make his interest an 
investment services partnership interest also contributes 
$500,000 to the partnership. Partnership earnings the following 
year are $900,000, and the partnership agreement provides that 
the earnings are divided equally among the three partners 
($300,000 each). Under the provision, an allocation to the 
third partner is not treated as reasonable if the amount 
allocated to his invested capital exceeds $150,000. The two 
non-service-providing partners' rate of return on invested 
capital is 30 percent ($300,000 earnings on $1 million), so 30 
percent of the service provider's $500,000 of invested capital 
is $150,000.
    It is intended that Treasury Department guidance provide 
that an allocation of income on invested capital does not fail 
to be treated as reasonable solely because of appreciation or 
depreciation in the value of partnership capital prior to the 
admission of new partners (provided service providers do not 
thereby convert their compensation to income on invested 
capital). For example, assume two partners, one of whom is a 
service provider, each contribute $1 million to a partnership 
they form, and the partnership assets appreciate to $6 million, 
at which time a third partner is admitted for a capital' 
investment of $3 million. Earnings at the end of the following 
year are $900,000, divided equally among the three partners. An 
allocation of earnings on invested capital to the service-
providing partner of $300,000 should not fail to be treated as 
reasonable solely because it reflects appreciation in the value 
of the partnership assets as of the time of admission of the 
third partner. Such an allocation may fail to be treated as 
reasonable based on other factors identified in Treasury 
guidance. In particular, it is not intended that the partner 
that provides services be permitted to treat any amount as 
income on invested capital to the extent it otherwise would be 
treated as compensation under the provision.
    For purposes of the exception for invested capital, an 
investment services partnership interest is not treated as 
acquired by contribution of invested capital to the extent of 
any loan or other advance made or guaranteed, directly or 
indirectly, by any partner or the partnership. For example, if 
partner A loans partner B funds that partner B contributes to 
the partnership, the loaned amount is not invested capital of 
partner B.
    In addition, for this purpose, any loan or other advance to 
the partnership made or guaranteed, directly or indirectly by a 
partner not providing services to the partnership is treated as 
invested capital of that partner. Income and loss treated as 
allocable to invested capital are adjusted accordingly. For 
example, if investors in a private equity fund that is a 
partnership contribute capital as debt rather than as equity, 
while the manager of the fund contributes only equity so that 
his invested capital appears to be a large percentage of the 
total equity contributed, the provision treats the partnership 
debt to the investors as the investors' invested capital. The 
percentage of total invested capital that is attributable to 
the fund manager in this example is determined taking into 
account this debt as well as the equity contributed to the 
fund, so the manager's invested capital is a smaller percentage 
of total invested capital than if only equity contributions 
were taken into account.

Losses, dispositions, and partnership distributions

    The provision provides rules for the treatment of losses 
with respect to an investment services partnership interest, as 
well as for disposition of all or a portion of such a 
partnership interest, and distributions of partnership property 
with respect to such a partnership interest.
    Consistently with the general rule providing that net 
income with respect to such a partnership interest is ordinary 
income for the performance of services, the provision provides 
that net loss with respect to such a partnership interest (to 
the extent not disallowed) generally is treated as ordinary 
loss. For this purpose, net loss means, with respect to an 
investment services partnership interest, the excess (if any) 
of (1) all items of deduction and loss taken into account by 
the partner with respect to the partnership interest for the 
partnership taxable year, over (2) all items of income and gain 
taken into account by the partner with respect to the 
partnership interest for the partnership taxable year. The net 
loss is allowed for a partnership taxable year, however, only 
to the extent that the loss does not exceed the excess (if any) 
of (1) aggregate net income with respect to the partnership 
interest for prior partnership taxable years, over (2) the 
aggregate net loss with respect to the partnership interest not 
disallowed for prior partnership years. Any net loss that is 
not allowed for the partnership taxable year is carried forward 
to the next partnership taxable year. Notwithstanding the 
present-law rule that the basis of a partnership interest 
generally is reduced by the partner's distributive share of 
partnership losses and deductions (sec. 705(a)(2)), the 
provision provides that no adjustment is made to the basis of a 
partnership interest on account of a net loss that is not 
allowed for the partnership taxable year. When any such net 
loss that is carried forward is allowed in a subsequent year, 
the adjustment is made to the basis of the partnership 
interest.
    For purposes of determining self-employment tax, a net loss 
from an investment services partnership interest (to the extent 
it is allowed in computing taxable income) is taken into 
account in determining net earnings from self-employment for 
the taxable year. Thus, for example, if an individual has three 
investment services partnership interests, two of which 
generate net income for the taxable year and the third of which 
generates a net loss that is allowable under the provision as 
an ordinary loss for the taxable year, then the entire net 
income and net loss are taken into account in determining the 
individual's net earnings from self-employment for the taxable 
year. However, to the extent a loss is disallowed under this 
provision for a taxable year, that loss does not reduce the 
taxpayer's net earnings from self-employment for that taxable 
year, but is taken into account in the carryover year for which 
it is allowed in determining the amount of ordinary 
compensation under this provision. To the same extent as under 
present law, the provision does not permit net operating loss 
deductions in calculating net earnings from self-employment 
(sec. 1402(a)(4)).
    Net loss with respect to an investment services partnership 
interest that was acquired by purchase, however, is not treated 
as ordinary, to the extent of net loss not exceeding the excess 
of (1) the basis of the interest immediately after the 
purchase, over (2) the aggregate net loss not treated as 
ordinary under this rule in prior taxable years. Such net loss 
is not taken into account in determining the amount of net 
income that is treated as ordinary under the provision.
    On the disposition of an investment services partnership 
interest, gain is treated as ordinary income for the 
performance of services, notwithstanding the present-law rule 
that gain or loss from the disposition of a partnership 
interest generally is considered as capital gain or loss (sec. 
741; except ordinary treatment applies to the extent 
attributable to inventory and unrealized receivables, sec. 
751). Loss on. the disposition of an investment services 
partnership interest is treated as ordinary loss, but only to 
the extent of the amount by which aggregate net income 
previously treated as ordinary exceeds aggregate net loss 
previously allowed as ordinary under the provision. The amount 
of net loss that otherwise would have reduced the basis of the 
investment services partnership interest is disregarded for 
purposes of the provision, in the event of any disposition of 
the interest.
    On the distribution of property by a partnership to a 
partner with respect to an investment services partnership 
interest, the provision provides generally that the partner 
recognizes ordinary compensation income to the extent of any 
appreciation in the property. Specifically, the provision 
provides that the excess (if any) of the fair market value of 
the property at the time of the distribution over the adjusted 
basis of the distributed property in the hands of the 
partnership is included in income by the partner, and is 
considered ordinary compensation income by reason of the 
general rule of the provision (new section 710(a)(1)). This 
amount is not so includable to the extent otherwise taken into 
account in computing the taxable income of the partnership, for 
example, by reason of section 751(b), treating certain 
distributions as sales or exchanges.
    To the extent the fair market value of the property (which 
is treated as money) exceeds the partner's adjusted basis in 
its partnership interest, the partner has ordinary compensation 
(secs. 731(a)(1) and 710(a)(1)). The basis of the distributed 
property is its fair market value at the time of the 
distribution. The adjusted basis of the distributee partner's 
interest in the partnership is reduced (but not below zero) 
under section 733 by the amount of money upon the distribution.
    For example, assume a partnership has an adjusted basis of 
20 in a property whose fair market value is 50. The partnership 
distributes the property to a partner whose investment services 
partnership interest has an adjusted basis of 35. Under the 
provision, 30 (50 minus 20) is included in the partner's income 
as compensation. The partner's basis in his investment services 
partnership interest is increased from 35 to 65 by the 30 of 
income taken into account and then reduced to 15 by the 50 
value, of the property distributed. If the partner sells the 
partnership interest at a gain, the gain is treated as 
compensation income under the general rule of the provision 
(new section 710(a)).
    So that the other partners' shares of the basis of 
partnership property are not affected by the property 
distribution, the present-law rules providing for an adjustment 
to the basis of the partnership's property in the event of a 
section 754 election or a substantial basis reduction are 
applied without regard to the income inclusion rule for 
property distributions with respect to an investment services 
partnership interest.
    In applying the present-law rules relating to ordinary 
income treatment of amounts attributable to unrealized 
receivables and inventory items on sale or exchange of a 
partnership interest (sec. 751(a)), an investment services 
partnership interest is treated as an inventory item of the 
partnership. Thus, for example, upon the sale or exchange of an 
interest in a partnership that in turn holds an investment 
services partnership interest, amounts received by the 
transferor partner that are attributable to the investment 
services partnership interest are considered as ordinary 
income.

Other entities

    The provision also recharacterizes as ordinary income for 
the performance of services the income or gain with respect to 
certain other interests, including interests in certain 
entities other than partnerships, that are held by a person who 
performs, directly or indirectly, investment management 
services for the entity.
    This rule applies if (1) a person performs (directly or 
indirectly) investment management services for any entity, (2) 
the person holds a disqualified interest with respect to the 
entity, and (3) the value of the interest (or payments 
thereunder) is substantially related to the amount of realized 
or unrealized income or gain from the assets with respect to 
which the investment management services are performed. In this 
case, any income or gain with respect to the interest is 
treated as ordinary income for the performance of services. 
Rules similar to the exception for a partner's invested capital 
apply for this purpose. For this purpose, a disqualified 
interest in an entity means (1) any interest other than debt, 
(2) convertible or contingent debt, (3) an option or other 
right to acquire. either of the foregoing, or (4) a derivative 
instrument entered into (directly or indirectly) with the 
entity or an investor in the entity. A disqualified interest 
does not include a partnership interest. A disqualified 
interest also does not include stock in a taxable corporation, 
which for this purpose means either a domestic C corporation or 
a foreign corporation that is subject to a comprehensive 
foreign income tax. Under this rule, a comprehensive income tax 
means the income tax of a foreign country if the foreign 
corporation is eligible for the benefits of a comprehensive 
income tax treaty between that country and the U.S., or if the 
corporation demonstrates to the satisfaction of the Treasury 
Secretary that the foreign country has a comprehensive income 
tax.
    For example, if a hedge fund manager holds stock of a 
Cayman Islands corporation that in turn is a partner in a hedge 
fund partnership, the manager performs investment management 
services for the hedge fund, and the value of the stock (or 
dividends) is substantially related to the growth and income in 
hedge fund assets for which the manager provides investment 
management services, then gain in the value of the stock, and 
dividends, are treated as ordinary income for the performance 
of services. The fact that the services are performed for the 
hedge fund, rather than directly for the Cayman Islands 
corporation in which the manager has a disqualified interest, 
does not change this result under the provision. Thus, the gain 
is not eligible for the capital gain tax rate, the dividend is 
not eligible for the special rate on qualified dividends, but 
rather, are subject to tax at ordinary rates as income from the 
performance of services. The income is treated as net earnings 
from self-employment for purposes of the self-employment tax of 
the individual who performs the services. Though the amounts 
received may exceed the cap (imposed by reason of section 
1402(b)) on the old-age, survivors, and disability insurance 
portion of the self-employment tax, the hospital insurance 
portion of the self-employment tax is not capped, and applies 
to the income.

Underpayment penalty

    The provision provides that the accuracy-related penalty 
under section 6662 on underpayments applies to underpayments 
attributable the failure to comply with section 710(d) 
(relating to the treatment of income in connection with 
investment management services unrelated to partnership 
interests) or the regulations under section 710 preventing the 
avoidance of the purposes of section 710. The penalty rate is 
40 percent. The present-law reasonable cause exception of 
section 6664 does not apply with respect to these 
underpayments, resulting in an automatic penalty.

Self-employment tax treatment

    Under the provision, net income from an investment services 
partnership interest is subject to self-employment tax. Net 
income from an investment services partnership interest is 
derived from the performance by a person of a substantial 
quantity of services to the partnership in the course of the 
active conduct of a trade or business. This income falls within 
the definition of net earnings from self-employment, which 
generally includes a partner's distributive share (whether or 
not distributed) of income or loss from any trade or business 
carried on by the partnership (sec. 1402(a)), with certain 
exclusions. Because net income from an investment services 
partnership is treated as ordinary income for the performance 
of services, the present-law exception for gain or loss from 
the sale or exchange of a capital asset does not apply, even 
though the net income from the investment service partnership 
interest might otherwise be characterized as capital gain. The 
provision also provides that, in the case of a limited partner, 
the present law exclusion for limited partners does not apply 
to any income treated as ordinary income from an investment 
services partnership interest that is received by an individual 
who provides a substantial quantity of the specified services.

Rules relating to REITs and publicly traded partnerships

    In the case of a REIT to which income and asset limitations 
apply under present law (sec. 856(c)(2), (3) and (4)), these 
income and asset tests are applied without regard to the 
provision. Thus, a REIT may continue to satisfy the income and 
asset limitations without regard to the provision.
    Under the provision, a publicly traded partnership, more 
than 10 percent of whose gross income consists of net income 
from an investment services partnership interest, generally is 
treated as a corporation for Federal tax purposes under section 
7704. The present-law exception to corporate treatment for a 
publicly traded partnership, 90 percent or more of whose gross 
income is qualifying income within the meaning of section 
7704(c)(2), does not apply, because net income from an 
investment services partnership interest is not qualifying 
income within the meaning of section 7704(c)(2).
    The provision provides a special rule for certain 
partnerships that are owned by publicly traded REITs and that 
meet specific requirements, however. Under the special rule, 
the recharacterization of partnership income as ordinary income 
for the performance of services does not apply, provided the 
following requirements are met. The requirements are: (1) The 
partnership is treated as publicly traded (under section 7704) 
solely because interests in the partnership are convertible 
into interests in a publicly traded REIT; (2) 50 percent or 
more of the capital and profits interests of the partnership 
are owned, directly or indirectly, at all times during the 
taxable year, by the REIT (taking into account attribution 
rules under section 267(c)); and (3) the partnership itself 
satisfies the REIT income and asset limitations (secs. 
856(c)(2), (3), and (4), applied without regard to this 
provision). Thus, for example, this special rule provides that 
a partnership is not treated as a corporation under section 
7704, in an ``upreit'' structure in which a publicly traded 
REIT owns more than 50 percent of the capital and profits 
interests of the partnership, partnership interests held by 
persons other than the REIT are convertible into publicly 
traded REIT stock, and the partnership itself meets the income 
and asset limitations of the REIT rules (secs. 856(c)(2), (3) 
and (4)). For this purpose, if the partnership interest may be 
put to the REIT or the partnership for REIT stock, it is 
considered convertible into interests of the publicly traded 
REIT. It is not intended that convertibility of partnership 
interests into a class of publicly traded REIT stock that 
tracks the performance of particular partnership assets (such 
as assets of a type that, if held in excess, would cause the 
REIT asset or income limitations not to be satisfied), or 
performance of the partnership assets generally, satisfies this 
special rule; rather, it is intended that such a partnership 
does not meet the requirements of this special rule.

Regulatory authority

    The Treasury Department shall prescribe such regulations as 
are necessary or appropriate to carry out the purpose of the 
provision, including regulations to prevent the avoidance of 
the purposes of the provision and regulations to coordinate the 
provision with other rules of subchapter K of the Code 
(relating to partnerships). It is not intended that the 
provision be utilized to effect a recharacterization as untaxed 
foreign-source compensation income the amount of any otherwise 
taxable (or withholdable) U.S.-source dividend, effectively 
connected income, U.S. real property gain, or similar income or 
of any otherwise taxable subpart F inclusion or passive foreign 
investment company inclusion; the Treasury Department is 
directed to provide guidance to carry out this intent.

                             EFFECTIVE DATE

    The provision is effective generally for taxable years 
ending after June 18, 2008.
    In the case of a partnership taxable year that includes 
that date, the amount of net income of a partner that is 
recharacterized as ordinary income for the performance of 
services under the provision is limited to the lesser of (1) 
net income for the entire partnership taxable year, or (2) net 
income determined by taking into account only items 
attributable to the part of the taxable year after that date.
    The provision is effective for dispositions of partnership 
interests, and partnership distributions, after that date.
    The provision relating to income or gain with respect-to 
interests in certain entities other than partnerships that are 
held by a person who performs, directly or indirectly, 
investment management services for the entity takes effect on 
June 18, 2008.
    For purposes of applying the rules relating to publicly 
traded partnerships (section 7704), the provision applies to 
taxable years beginning after December 31, 2010.

    B. Limitation of Deduction for Income Attributable to Domestic 
 Production of Oil, Gas, Or Primary Products Thereof (Sec. 202 of the 
                     Bill and Sec. 199 of the Code)


                              PRESENT LAW

In general

    Section 199 of the Code provides a deduction equal to a 
portion of the taxpayer's qualified production activities 
income. For taxable years beginning after 2009, the deduction 
is nine percent of such income. For taxable years beginning in 
2008 and 2009, the deduction is six percent of income. However, 
the deduction for a taxable year is limited to 50 percent of 
the wages properly allocable to domestic production gross 
receipts paid by the taxpayer during the calendar year that 
ends in such taxable year.\21\
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    \21\For this purpose, ``wages'', include the sum of the amounts of 
wages as defined in section 3401(a) and elective deferrals that the 
taxpayer properly reports to the Social Security Administration with 
respect to the employment of employees of the taxpayer during the 
calendar year ending during the taxpayer's taxable year. Elective 
deferrals include elective deferrals as defined in section 402(g)(3), 
amounts deferred under section 457, and designated Roth contributions 
(as defined in section 402A).
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Qualified production activities income

    In general, ``qualified production activities income'' is 
equal to domestic production gross receipts (defined by section 
199(c)(4)), reduced by the sum of: (1) The costs of goods sold 
that are allocable to such receipts; (2) other expenses, 
losses, or deductions which are properly allocable to such 
receipts.

Domestic production gross receipts

    ``Domestic production gross receipts'' generally are gross 
receipts of a taxpayer that are derived from: (1) Any sale, 
exchange or other disposition, or any lease, rental or license, 
of qualifying production property (``QPP'') that was 
manufactured, produced, grown or extracted (``MPGE'') by the 
taxpayer in whole or in significant part within the United 
States; (2) any sale, exchange or other disposition, or any 
lease, rental or license, of qualified film produced by the 
taxpayer; (3) any sale, exchange or other disposition of 
electricity, natural gas, or potable water produced by the 
taxpayer in the United States; (4) construction activities 
performed in the United States; \22\ or (5) engineering or 
architectural services performed in the United States for 
construction projects located in the United States.
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    \22\For this purpose, construction activities include activities 
that are directly related to the `erection or substantial renovation of 
residential and commercial buildings and infrastructure. Substantial 
renovation-would include structural improvements, but not mere cosmetic 
changes, such as painting, that is not performed in connection with 
activities that otherwise constitute substantial renovation.
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    Congress granted Treasury broad authority to ``prescribe 
such regulations as are necessary to carry out the purposes'' 
of section 199.\23\ In defining MPGE for purposes of section 
199, Treasury described the following as MPGE activities: 
Manufacturing, producing, growing, extracting; installing, 
developing, improving, and creating QPP; making QPP out of 
scrap, salvage, or junk material as well as from new or raw 
material by processing, manipulating, refining, or changing the 
form of an article, or by combining or assembling two or more 
articles; cultivating soil, raising livestock, fishing, and 
mining minerals.\24\
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    \23\Sec.199(d)(9).
    \24\Treas. Reg. sec. 1.199-3(e)(1).
---------------------------------------------------------------------------
    The regulations specifically cite an example of oil 
refining activities in describing the ``in whole or in 
significant part'' test in determining domestic production 
gross receipts. QPP is generally considered to be MPGE in 
significant part by the taxpayer within the United States if 
such activities are substantial in nature taking into account 
all of the facts and circumstances, including the relative 
value added by, and relative cost of, the taxpayer's MPGE 
activity within the United States, the nature of the QPP, and 
the nature of the MPGE activity that the taxpayer performs 
within the United States\25\ The following example is provided 
in the regulations to illustrate this ``substantial in nature'' 
standard:
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    \25\Treas. Reg. sec. 1.199-3(g)(2).

          X purchases from Y, an unrelated person, unrefined 
        oil extracted outside the United States. X refines the 
        oil in the United States. The refining of the oil by X 
        is, an MPGE activity that is substantial in nature.\26\
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    \26\Treas. Reg. sec. 1.199-3(g)(5), Example 1.
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Natural gas transmission or distribution

    Domestic production gross receipts include gross receipts 
from the production in the United States of natural gas, but 
excludes gross receipts from the transmission or distribution 
of natural gas.\27\ Production activities generally include all 
activities involved in extracting natural. gas from the ground 
and processing the gas into pipeline quality gas. However, 
gross receipts of a taxpayer attributable to transmission of 
pipeline quality gas from a natural gas field (or from a 
natural gas processing plant) to a local distribution-company's 
citygate (or to another customer) are not qualified domestic 
production gross receipts. Likewise, gas purchased by a local 
gas distribution company and distributed from the citygate to 
the local customers does not give rise to domestic production 
gross receipts.
---------------------------------------------------------------------------
    \27\H.R. Rep. No. 108-755 (conference report for the American Jobs 
Creation Act of 2004), footnote 28 at 272.
---------------------------------------------------------------------------

Drilling oil or gas wells

    The Treasury regulations provide that qualifying 
construction activities performed in the United States include 
activities relating to drilling an oil or gas well.\28\ Under 
the regulations, activities the cost of which are intangible 
drilling and development costs within the meaning of Treas. 
Reg. sec. 1.612-4 are considered to be activities constituting 
construction for purposes of determining domestic production 
gross receipts.\29\
---------------------------------------------------------------------------
    \28\Treas. Reg. sec. 1.199-3(m)(1)(i).
    \29\Treas. Reg. sec. 1.199-3(m)(2)(iii).
---------------------------------------------------------------------------

Qualifying in-kind partnerships

    In general, an owner of a pass-thru entity is not treated 
as conducting the qualified production activities of the pass-
thru entity, and vice versa. However, the Treasury regulations 
provide a special rule for ``qualifying in-kind partnerships,'' 
which are defined as partnerships engaged solely in the 
extraction, refining, or processing of oil, natural gas, 
petrochemicals, or products derived from oil, natural gas, or 
petrochemicals in whole or in significant part within the 
United States, or the production or generation of electricity 
in the United States.\30\ In the case of a qualifying in-kind 
partnership, each partner is treated as MPGE or producing the 
property MPGE or produced by the partnership that is 
distributed to that partner.\31\ If a partner of a qualifying 
in-kind partnership derives gross receipts from the lease, 
rental, license, sale, exchange, or other disposition of the 
property that was MPGE or produced by the qualifying in-kind 
partnership, then, provided such partner is a partner of the 
qualifying in-kind partnership at the time the partner disposes 
of the property, the partner is treated as conducting the MPGE 
or production activities previously conducted by the qualifying 
in-kind partnership with respect to that property.\32\
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    \30\Treas. Reg. sec. 1.199-9(i)(2).
    \31\Treas. Reg. sec. 1.199-9(i)(1).
    \32\Id.
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Alternative minimum tax

    The deduction for domestic production activities is allowed 
for purposes of computing alternative minimum taxable income 
(including adjusted current earnings). The deduction in 
computing alternative minimum taxable income is determined by 
reference to the lesser of the qualified production activities 
income (as determined for the regular tax) or the alternative 
minimum taxable income (in the case of an individual, adjusted 
gross income as determined for the regular tax) without regard 
to this deduction.

                           REASONS FOR CHANGE

    The Committee believes that section 199 was enacted to 
replace the extraterritorial income (``ETI'') regime by 
providing new provisions to reduce the tax burden on those 
domestic manufacturers, including small businesses engaged in 
manufacturing. Taxpayers engaged in oil and gas activities were 
not permitted to claim ETI benefits. The Committee believes 
that these taxpayers should not be allowed to claim section 199 
deductions, or in the case of smaller companies, the benefits 
should not exceed the present law level of six percent of 
qualified production activities income.

                        EXPLANATION OF PROVISION

    The provision excludes gross receipts of any major 
integrated oil company (as defined in section 167(h)(5)(B)) 
derived from the production, refining, processing, 
transportation, or distribution of oil, gas, or any primary 
product thereof from the term ``domestic production gross 
receipts'' for purposes of section. The term ``primary 
product'' has the same meaning as when used in section 
927(a)(2)(C), as in effect before its repeal. The Treasury 
regulations define the term ``primary product from oil'' to 
mean crude oil and all products derived from the destructive 
distillation of crude oil, including volatile products, light 
oils such as motor fuel and kerosene, distillates such as 
naphtha, lubricating oils, greases and waxes, and residues such 
as fuel oil.\33\ Additionally, a product or commodity derived 
from oil which would be a primary product from oil if derived 
from crude oil is considered a primary product from oil.\34\ 
The term ``primary product from gas'' is defined as all gas and 
associated hydrocarbon components from gas wells or oil wells, 
whether recovered at the lease or upon further processing, 
including natural gas, condensates, liquified petroleum gases 
such as ethane, propane, and butane, and liquid products such 
as natural gasoline.\35\ These primary products and processes 
are not intended to represent either the only primary products 
from oil or gas or the only processes from which primary 
products may be derived under existing and future 
technologies.\36\ Examples of nonprimary products include, but 
are not limited to, petrochemicals, medicinal products, 
insecticides, and alcohols.\37\
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    \33\Treas. Reg. sec. 1.927(a)-1T(g)(2)(i).
    \34\Id.
    \35\Treas. Reg. sec. 1.927(a)-1T(g)(2)(ii).
    \36\Treas. Reg. sec. 1.927(a)-1T(g)(2)(iii).
    \37\Treas. Reg. sec. 1.927(a)-1T(g)(2)(iv).
---------------------------------------------------------------------------
    The provision also reduces the section 199 deduction for 
taxpayers, other than major integrated oil companies, that have 
oil related qualified production activities income for any 
taxable year beginning after 2009 by three percent of the least 
of: (1) Oil related qualified production activities income for 
the taxable year; (2) qualified production activities income 
for the taxable year; or (3) taxable income (determined without 
regard to the section 199 deduction).
    The term ``oil related qualified production activities 
income'' is defined as the qualified production activities 
income which is attributable to the production; refining, 
processing, transportation, or distribution of oil, gas, or any 
primary product thereof during such taxable year.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2008.

    C. Limit Tax Treaty Benefits With Respect to Certain Deductible 
        Payments (Sec. 203 of the Bill and Sec. 894 of the Code)


                              PRESENT LAW

In general

    The United States taxes foreign corporations only on income 
that has a sufficient nexus to the United States. Thus, a 
foreign corporation is generally subject to net-basis U.S. tax 
only on income that is ``effectively connected'' with the 
conduct of a trade or business in the United States. Such 
``effectively connected income'' generally is taxed in the same 
manner and at the same rates as the income of a U.S. 
corporation. An applicable tax treaty may limit the imposition 
of U.S. tax on business operations of a foreign corporation to 
cases in which the business is conducted through a ``permanent 
establishment'' in the United States.
    In addition, foreign corporations generally are subject to 
a gross-basis U.S. tax at a flat 30-percent rate on the receipt 
of interest, dividends, rents, royalties, and certain similar 
types of income derived from U.S. sources, subject to certain 
exceptions. The tax (``U.S. withholding tax'') generally is 
collected by means of withholding by the person making the 
payment. U.S. withholding tax may be reduced or eliminated 
under an applicable tax treaty, subject to the conditions 
discussed below.

Tax treaties

    A foreign corporation may not benefit from a provision of a 
U.S. tax treaty with a foreign country that eliminates reduces 
U.S. withholding tax unless the foreign corporation is both a 
resident of such foreign country and qualifies under any 
limitation-of-benefits provision contained in the U.S. tax 
treaty with such foreign country. In general, a foreign 
corporation is a resident of a foreign country under a U.S. tax 
treaty with that foreign country if it is liable to tax in that 
country by reason of its domicile, residence, citizenship, 
place of management, place of incorporation, or other criterion 
of a similar nature.\38\
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    \38\United States Model Income Tax Convention of November 15, 2006, 
Art. 4, par. 1.
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            Limitation-on-benefits provisions
    Limitation-on-benefits provisions in income tax treaties 
are intended to deny treaty benefits in certain cases of treaty 
shopping or income stripping engaged in by third-country 
residents. Treaty shopping is said to occur when an entity that 
is resident in a country with respect to which there is no 
relevant tax treaty in force (or there is such a treaty in 
force but the taxpayer desires better benefits than those 
offered under that treaty) becomes resident in a treaty country 
or conducts a transaction in such a country for the purpose of 
qualifying for treaty benefits. For example, treaty shopping by 
a third-country resident may involve organizing in a treaty 
country a corporation that is entitled to the benefits of the 
treaty. Alternatively, a third-country resident eligible for 
favorable treatment under the tax rules of its country of 
residency may attempt to reduce the income base of a treaty 
country resident by having that treaty country resident pay to 
it, directly or indirectly, interest, royalties, or other 
amounts that are deductible in the treaty country from which 
the payments are made.
    U.S. tax treaties contain a variety of limitation-on-
benefits provisions due to the continued and recently 
accelerated development of limitation-on-benefits concepts, and 
the negotiated nature of tax treaties in general. Although many 
older U.S. tax treaties may lack limitation-on-benefits 
provisions\39\ or lack the refinements now thought essential to 
such provisions, the U.S. model income tax treaty, as most 
recently revised in 2006 (``U.S. model treaty''),\40\ and most 
of the newer U.S. treaties include limitation-on-benefits 
provisions that limit treaty benefits to resident taxpayers 
that meet certain detailed requirements intended to minimize 
these abuses. Present Treasury Department policy, which has 
been repeatedly ratified by the Senate, is broadly to revise 
older treaties by tightening limitation-on-benefits provisions 
to prevent treaty shopping.
---------------------------------------------------------------------------
    \39\U.S. income tax treaties with Greece, Hungary, Iceland, 
Pakistan, the Philippines, Poland and Romania are examples of such 
treaties. The U.S.-Greece treaty entered into force on December 30, 
1953; the U.S.-Hungary treaty entered into force on September 18, 1979; 
the U.S. Iceland treaty entered into force on December 26, 1975; the 
U.S.-Pakistan treaty entered into force on May 21, 1959; the U.S.-
Philippines treaty entered into force on October 16, 1982; the U.S.-
Poland treaty entered into force on July 23, 1976; and the U.S.-Romania 
treaty entered into force on February 26, 1976.
    \40\United States Model Income Tax Convention of November 15, 2006, 
Art. 22.
---------------------------------------------------------------------------
    The limitation-on-benefits rules included in U.S. income 
tax treaties and protocols signed since 2001 generally 
correspond with the limitation-on-benefits provisions of the 
U.S. model treaty.\41\ Certain features of the limitation-on-
benefits provisions in recent treaties and protocols, however, 
differ from the rules in the U.S. model treaty, and some recent 
treaties and protocols include additional limitation-on-
benefits, rules not included in the U.S. model treaty. Some of 
the additions and differences make limitation-on-benefits 
provisions more restrictive than the rules in the U.S. model 
treaty, and others make the provisions less restrictive.
---------------------------------------------------------------------------
    \41\The income tax treaties and protocols signed since 2001 are 
those with the United Kingdom (treaty entered into force on March 31, 
2003); Australia (protocol entered into force May 12, 2003); Mexico 
(protocol entered into force July 3, 2003); Sri Lanka (protocol entered 
into force July 12, 2004); Japan (treaty entered into force Match 30, 
2004); Barbados (protocol entered into force December 20, 2004); 
Netherlands (protocol entered into force December 28, 2004); Bangladesh 
(treaty entered into force August 7, 2006); Sweden (protocol entered 
into force August 31, 2006); France (protocol entered into force 
December 21, 2006); Denmark (protocol entered into force December 28, 
2007); Finland (protocol entered into force December 28, 2007); Germany 
(protocol entered into force December 28, 2007); Belgium (treaty 
entered into force December 28, 2007); Bulgaria (treaty signed February 
23, 2007; has not yet entered into force); Canada (protocol signed 
September 21, 2007; has not yet entered into force); and Iceland 
(treaty signed October 23, 2007; has not yet entered into force).
---------------------------------------------------------------------------
            The U.S. model treaty limitation-on-benefits provision
    The limitation-on-benefits rules of the U.S. model treaty 
include three provisions under which a resident of a treaty 
country may qualify for treaty benefits. First, a treaty-
country resident may qualify for all treaty benefits if it has 
any one of several listed attributes. Second, a treaty-country 
resident that does not have one of the listed attributes may 
qualify for treaty benefits for income items that are derived 
from the other treaty country and that are related to a trade 
or business carried on in the residence country. Third, a 
treaty-country resident that would not be eligible for treaty 
benefits under either of the preceding two provisions may 
qualify for treaty benefits at the discretion of the competent 
authority of the other treaty country. These three provisions 
are described in more detail below.
    A treaty-country resident may qualify for treaty benefits 
under the U.S. model treaty if it has one of the following 
attributes: it is (1) An individual; (2) a contracting state or 
a political subdivision or a local authority of the contracting 
state; (3) a company that satisfies public-trading or ownership 
tests described below; (4) a pension fund or other tax-exempt 
organization (if, in the case of a pension fund, more than 50 
percent of the fund's beneficiaries, members, or participants 
are individuals resident in either treaty country); or (5) a 
person other than an individual that satisfies ownership and 
base-erosion requirements described below.
    A company satisfies the public trading test if its 
principal class of shares (and any disproportionate class of 
shares) is regularly traded on one or more recognized stock 
exchanges and either its principal class of shares is primarily 
traded on one or more recognized stock exchanges located in the 
treaty country in which-the company is a resident or the 
company's primary place of management and control is in its 
country of residence. A company may satisfy the ownership test 
if at least 50 percent of the aggregate vote and value of the 
company's shares (and at least 50 percent of any 
disproportionate class of the company's shares) is owned 
directly or indirectly by five or fewer companies entitled to 
benefits under the public trading test described above. This 
ownership requirement may be satisfied by indirect ownership 
only if each intermediate owner is a resident of either treaty 
country.
    A resident of a treaty country satisfies the ownership 
prong of the ownership and base erosion requirements if on at 
least half the days of the taxable year, persons that are 
residents of that country and that are entitled to treaty 
benefits as individuals, governments, companies that satisfy 
the public trading requirement, or pension funds or other tax-
exempt organizations own, directly or indirectly, stock 
representing at least 50 percent of the aggregate voting power 
and value (and at least 50 percent of any disproportionate 
class of shares) of the resident for whom treaty benefit 
eligibility is being tested. This ownership requirement may be 
satisfied by indirect ownership only if each intermediate owner 
is a resident of the country of residence of the person for 
which entitlement to treaty benefits is being tested. A 
resident of a treaty country satisfies the base erosion prong 
of the ownership and base erosion test if less than 50 percent 
of the person's gross income for the taxable year, as 
determined in the person's country of residence, is paid or 
accrued, directly or indirectly, in the form of deductible 
payments to persons who are not residents of either treaty 
country entitled to treaty benefits as individuals, 
governments, companies that satisfy the public trading 
requirement, or pension funds or other tax-exempt organizations 
(other than arm's-length payments in the ordinary course of 
business for services or tangible property).
    Under the U.S. model treaty, a resident of a treaty country 
that is not eligible for all treaty benefits under any of the 
rules described above may be entitled to treaty benefits with 
respect to a particular item of income derived from the other 
treaty country. A resident is entitled to treaty benefits for 
such an income item if the resident is engaged in the active 
conduct of a trade or business in its country of residence 
(other than the business of making or managing investments for 
the resident's own account, unless these activities are 
banking, insurance, or securities activities carried on by a 
bank, an insurance company, or a registered securities dealer) 
and the income derived from the other treaty country is derived 
in connection with or is incidental to that trade or business. 
If a resident of a treaty country derives an item of income 
from a trade or business activity that it conducts in the other 
treaty country, or derives an income item arising in that other 
country from a related person, the income item eligibility rule 
just described is considered satisfied for that income item 
only if the trade or business activity carried on by the 
resident in its country of residence is substantial in relation 
to the trade or business activity carried on by the resident or 
the related person in the other country. The determination 
whether a trade or business activity is substantial is based on 
all the facts and circumstances.
    A resident of a treaty country not otherwise eligible for 
treaty benefits under the U.S. model treaty may be eligible for 
benefits for a specific item of income based on a determination 
by the competent authority of the other treaty country. The 
competent authority may grant benefits for an item of income if 
it determines that the establishment, acquisition, or 
maintenance of the person for whom treaty benefits eligibility 
is being tested, and the conduct of that person's operations, 
did not have as one of its principal purposes the obtaining of 
benefits under the treaty.

                           REASONS FOR CHANGE

    The Committee is aware that even though many recent U.S. 
income tax treaties include limitation-on-benefits provisions 
intended to ensure that only persons with sufficient nexus to 
the treaty partner countries may obtain treaty benefits, 
foreign multinational taxpayers residing in countries with 
which the United States does not have comprehensive tax 
treaties (including tax havens) may engage in treaty shopping. 
Treaty shopping by foreign multinational companies may involve 
organizing, in jurisdictions that have income tax treaties with 
the United States that offer favorable U.S. withholding rates 
on deductible payments; subsidiaries with no substantial 
business activities or other connections to those 
jurisdictions.\42\ Such payments may ultimately be distributed 
to the foreign parent corporations in the non-tax-treaty 
jurisdictions, although payments made directly to the parent 
companies would not have been eligible for reduced treaty 
withholding rates. The Committee believes that some instances 
of treaty shopping involve formerly U.S.-based companies that 
engaged in corporate inversion transactions prior to the 
enactment of the anti-inversion rules of section 7874. As a 
result of these inversion transactions, U.S. parent 
corporations of multinational groups became subsidiaries of 
foreign corporations organized in low- or no-tax jurisdictions. 
The Committee believes that it is inappropriate to allow treaty 
benefits for deductible payments in cases in which a foreign 
parent corporation would not have qualified for benefits under 
a U.S. tax treaty if the payment had been made directly to the 
parent, including where the parent is resident in a tax haven.
---------------------------------------------------------------------------
    \42\As documented in the Department of the Treasury Report to the 
Congress on Earnings Stripping, Transfer Pricing and U.S. Income Tax 
Treaties, some of the older U.S. income treaties that do not have 
limitation-on-benefits provisions, or treaties which lack all of the 
recent refinements to such provisions, provide for zero or low rates of 
U.S. withholding on certain deductible payments, including interest. 
Department of the Treasury, Report to the Congress on Earnings 
Stripping, Transfer Pricing and U.S. Income Tax Treaties, November 28, 
2007, at 82.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    In general, the provision limits tax treaty benefits with 
respect to U.S. withholding tax imposed on deductible related-
party payments. Under the provision, the amount of U.S. 
withholding tax imposed on such a payment may be reduced under 
any U.S. tax treaty only if U.S. withholding tax would have 
been reduced under a U.S. tax treaty if the payment had been 
made directly to the ``foreign parent corporation'' of the 
payee. A payment is a deductible related-party payment if it is 
made directly or indirectly by any entity to any other entity, 
it is allowable as a deduction, and both entities are members 
of the same ``foreign controlled group of entities.''
    For purposes of the provision, a foreign controlled group 
of entities is a controlled group of corporations, modified as 
described below, in which the common parent company is a 
foreign corporation. Such common parent company is referred to 
as the ``foreign parent corporation''. A controlled group of 
corporations consists of a chain or chains of corporations 
connected through direct stock ownership of at least 80 percent 
vote or value. For purposes of the provision, the relevant 
ownership threshold is lowered from at least 80 percent to more 
than 50 percent, certain members of the controlled group of 
corporations that would otherwise be treated as excluded 
members are not treated as excluded members, and insurance 
companies are not treated as members of a separate controlled 
group of corporations. In addition, a partnership or other 
noncorporate entity is treated as a member of a controlled 
group of corporations if such entity is controlled by members 
of the group.
    The Secretary may prescribe regulations that are necessary 
or appropriate to carry out the purposes of the provision, 
including regulations providing for the treatment of two or 
more persons as members of a foreign controlled group of 
entities if such persons would be the common parent of such 
group if treated as one corporation, and regulations providing 
for the treatment of any member of a foreign controlled group 
of entities as the common parent of that group if such 
treatment is appropriate taking into account the economic 
relationships among the group entities.
    For example, under the provision, a deductible payment made 
by a U.S. entity to a foreign entity with a foreign parent 
corporation that is resident in a country with respect to which 
the United States does not have a tax treaty (or that is 
resident in a country with a U.S. tax treaty that would not 
reduce the withholding tax if the payment were made directly to 
the parent) is always subject to the statutory U.S. withholding 
tax rate of 30 percent, irrespective of whether the payee is 
resident of a treaty country. If the foreign parent corporation 
is resident in a country with respect to which the United 
States has a tax treaty that would have reduced the statutory 
U.S. withholding rate on a hypothetical deductible payment of 
the same type and amount made directly to the foreign parent 
corporation (regardless of the amount of such reduction), the 
U.S. withholding rate on the actual deductible payment is the 
applicable rate under the U.S. tax treaty with the country in 
which the payee is resident.

                             EFFECTIVE DATE

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

   D. Require Information Reporting on Payment Card and Third Party 
 Payment Transactions (Sec. 204 of the Bill and New Sec. 6050W of the 
                                 Code)


                              PRESENT LAW

    Present law imposes a variety of information reporting 
requirements on participants in certain transactions. These 
requirements are intended to assist taxpayers in preparing 
their income tax returns and to help the Internal Revenue 
Service (``IRS'') determine whether such 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.\43\ Payments to 
corporations generally are excepted from this requirement. 
Certain payments subject to information reporting also are 
subject to backup withholding if the payee has not provided a 
valid taxpayer identification number (``TIN'').
---------------------------------------------------------------------------
    \43\Sec. 6041(a). Unless otherwise stated, all section references 
are to the Internal Revenue Code of 1986, as amended (the ``Code'').
---------------------------------------------------------------------------
    Under present law, any person required to file a correct 
information return who fails to do so on or before the 
prescribed filing date is subject to a penalty that varies 
based on when, if at all, the correct information return is 
filed. In addition, under present law, the IRS has authority to 
operate the TIN matching program. The TIN matching program 
permits payors to verify the payee TINS required to be reported 
on information returns and payee statements.

                           REASONS FOR CHANGE

    The Committee believes that requiring information reporting 
with respect to receipts from credit card and other electronic 
payment transactions will improve compliance and IRS 
enforcement efforts. Generally, business receipts that are 
subject to information reporting are less likely to be 
underreported by taxpayers. The Committee believes that 
expanding information reporting requirements will encourage the 
filing of timely and accurate income tax returns and improve 
overall tax administration.

                        EXPLANATION OF PROVISION

    The provision requires any payment settlement entity making 
payment to a participating payee in settlement of reportable 
payments transactions to report annually to the IRS and to the 
participating payee\44\ the gross amount of such reportable 
payment transactions, as well as the name, address, and TIN of 
the participating payees. A ``reportable payment transaction'' 
means any payment card transaction and any third party network 
transaction.
---------------------------------------------------------------------------
    \44\The provision allows the payee statement to be furnished 
electronically.
---------------------------------------------------------------------------
    Under the provision, a ``payment settlement entity'' means, 
in the case of a payment card transaction, a merchant acquiring 
bank and, in the case of a third party network transaction, a 
third party settlement organization. A ``participating payee'' 
means, in the case of a payment card transaction, any person 
who accepts a payment card as payment and, in the case of a 
third party network transaction, any person who accepts payment 
from a third party settlement organization in settlement of 
such transaction.
    For purposes of the reporting requirement, the term 
``merchant acquiring bank'' means the bank or other 
organization with the contractual obligation to make payment to 
participating payees in settlement of payment card 
transactions. A ``payment card transaction'' means any 
transaction in which a payment card is accepted as payment.\45\ 
A ``payment card'' is defined as any card (e.g., a credit card 
or debit card) which is issued pursuant to an agreement or 
arrangement which provides for: (1) One or more issuers of such 
cards; (2) a network of persons unrelated to each other, and to 
the issuer, who agree to accept such cards as payment; and (3) 
standards and mechanisms for settling the transactions between 
the merchant acquiring banks and the persons who agree to 
accept such cards as payment. Thus, under the provision, a bank 
that enrolls a business to accept credit cards and contracts 
with the business to make payment on credit card transactions 
is required to report to the IRS the business's gross credit 
card transactions for each calendar year. The bank also is 
required to provide a copy of the information report to the 
business.
---------------------------------------------------------------------------
    \45\For this purpose, the acceptance as payment of any account 
number or other indicia associated with a payment card also qualifies a 
payment card transaction.
---------------------------------------------------------------------------
    The provision also requires reporting on a third party 
network transaction. The term ``third party network 
transaction'' means any transaction which is settled through a 
third party payment network. A ``third party payment network'' 
is defined as any agreement or arrangement: (1) Which involves 
the establishment of accounts with a central organization for 
the purpose of settling transactions between persons who 
establish such accounts; (2) which provides standards and 
mechanisms for settling such transactions; (3) which involves a 
substantial number of persons (e.g., more than 50) unrelated to 
such central organization who provide goods or services and who 
have agreed to settle transactions for the provision of such 
goods or services pursuant to such agreement or arrangement; 
and (4) which guarantees persons providing goods or services 
pursuant to such agreement or arrangement that such persons 
will be paid for providing such goods or services. In the case 
of a third party network transaction, the payment settlement 
entity is the third party settlement organization, which is 
defined as the central organization which has the contractual 
obligation to make payment to participating payees of third 
party network transactions. Thus, an organization generally is 
required to report if it provides a network enabling buyers who 
have established accounts with the organization to transfer 
funds to sellers who have a contractual obligation to accept 
payment through the network. However, an organization operating 
a network which merely processes electronic payments (such as 
wire transfers and direct deposit payments) between buyers and 
sellers, but does not have contractual agreements with such 
buyers and sellers to use such network, is not required to 
report under the provision.
    A third party payment network does not include any 
agreement or arrangement which provides for the issuance of 
payment cards as defined by the provision. In addition, a third 
party settlement organization is required to report only if the 
aggregate value of third party network transactions for the 
year exceeds $10,000 and the aggregate number of such 
transactions exceeds 200.
    The provision also imposes reporting requirements on 
intermediaries who receive payments from a payment settlement 
entity and distribute such payments to one or more 
participating payees. The provision treats such intermediaries 
as participating payees, with respect to the payment settlement 
entity and as payment settlement entities with respect to the 
participating payees to whom the intermediary distributes 
payments. Thus, for example, in the case of a corporation that 
receives payment from a bank for credit card sales effectuated 
at the corporation's independently-owned franchise stores, the 
bank is required to report the gross amount of reportable 
payment transactions settled through the corporation 
(notwithstanding the fact that the corporation does not accept 
payment cards and would not otherwise be treated as a 
participating payee). In turn, the corporation, as an 
intermediary, would be required to report the gross amount of 
reportable payment transactions allocable to each franchise 
store.
    If a payment settlement entity contracts with a third party 
to settle reportable payment transactions on behalf of the 
payment settlement entity, the provision requires the third 
party to file the annual information return in lieu of the 
payment settlement entity.
    Under the provision, reportable payment transactions 
subject to information reporting generally are subject to 
backup withholding requirements. Finally, present law penalties 
relating to the failure to file correct information returns 
would apply to the new information reporting requirements 
required under the provision.

                             EFFECTIVE DATE

    The provision generally is effective for information 
returns for reportable payment transactions for calendar years 
beginning after December 31, 2010. The amendments to the backup 
withholding requirements apply to amounts paid after December 
31, 2011. Solely for purposes of carrying out the TIN matching 
program established by the IRS, the provision shall be treated 
as taking effect on the date of enactment and each person 
responsible for setting the standards and mechanisms for 
settling transactions involving payment cards shall be treated 
in the same manner as a payment settlement entity.

 E. Application of Continuous Levy to Payments Made to Federal Vendors 
 Relating to Property (Sec. 205 of the Bill and Sec. 6331 of the Code)


                              PRESENT LAW

    To facilitate the collection of tax, the IRS can generally 
levy upon all property and rights to property of a 
taxpayer.\46\ With respect to specified types of recurring 
payments, the IRS may impose a continuous levy of up to 15 
percent of each payment, which generally continues in effect 
until the liability is paid.\47\ With respect to Federal 
payments to vendors of goods or services, the continuous levy 
may be up to 100 percent of each payment.
---------------------------------------------------------------------------
    \46\Sec. 6331.
    \47\Sec. 6331(h).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The 100 percent continuous levy authority was intended to 
address abuse of the Federal tax system by some Federal 
contractors. The Committee is aware that the 100 percent 
continuous levy authority is not operating in the manner it was 
intended. Consequently, the Committee believes it is necessary 
to expand the scope of the provision to apply to payments to 
vendor for any type of property.

                        EXPLANATION OF PROVISION

    The provision expands the types of Federal payments subject 
to the 100 percent continuous levy from vendor payments for 
goods and services to vendor payments for all property and 
services.

                             EFFECTIVE DATE

    The provision is effective for levies approved after the 
date of enactment.

 F. Modifications to Corporate Estimated Tax Payments (Sec. 206 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, 2012, 
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 59.5 percentage 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.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 6275, the ``Alternative Minimum Tax 
Relief Act of 2008.''

                    MOTION TO REPORT RECOMMENDATIONS

    H.R. 6275, the ``Alternative Minimum Tax Relief Act of 
2008'' as amended, was ordered favorably reported by a rollcall 
vote of 22-yeas and 16 nays (with a quorum being present). The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representatives              Yea      Nay    Present     Representatives      Yea       Nay    Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel........................        X                     Mr. McCrery.........                 X
Mr. Stark.........................                              Mr. Herger..........                 X
Mr. Levin.........................        X                     Mr. Camp............                 X
Mr. McDermott.....................        X                     Mr. Ramstad.........                 X
Mr. Lewis (GA)....................        X                     Mr. Johnson.........                 X
Mr. Neal..........................        X                     Mr. English.........                 X
Mr. McNulty.......................        X                     Mr. Weller..........                 X
Mr. Tanner........................        X                     Mr. Hulshof.........
Mr. Becerra.......................        X                     Mr. Lewis (KY)......                 X
Mr. Doggett.......................        X                     Mr. Brady...........                 X
Mr. Pomeroy.......................        X                     Mr. Reynolds........                 X
Ms. Tubbs Jones...................        X                     Mr. Ryan............                 X
Mr. Thompson......................        X                     Mr. Cantor..........                 X
Mr. Larson........................        X                     Mr. Linder..........                 X
Mr. Emanuel.......................        X                     Mr. Nunes...........                 X
Mr. Blumenauer....................        X                     Mr. Tiberi..........                 X
Mr. Kind..........................                              Mr. Porter..........                 X
Mr. Pascrell......................        X
Ms. Berkley.......................        X
Mr. Crowley.......................        X
Mr. Van Hollen....................        X
Mr. Meek..........................        X
Ms. Schwartz......................        X
Mr. Davis.........................        X
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendments 
to the Chairman's Amendment in the Nature of a Substitute.
    An amendment by Mr. English which would strike Title II of 
the bill was defeated by a rollcall vote of 16 yeas and 22 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representatives             Yea       Nay    Present     Representatives       Yea      Nay    Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel........................                 X            Mr. McCrery.........        X
Mr. Stark.........................                              Mr. Herger..........        X
Mr. Levin.........................                 X            Mr. Camp............        X
Mr. McDermott.....................                 X            Mr. Ramstad.........        X
Mr. Lewis (GA)....................                 X            Mr. Johnson.........        X
Mr. Neal..........................                 X            Mr. English.........        X
Mr. McNulty.......................                 X            Mr. Weller..........        X
Mr. Tanner........................                 X            Mr. Hulshof.........
Mr. Becerra.......................                 X            Mr. Lewis (KY)......        X
Mr. Doggett.......................                 X            Mr. Brady...........        X
Mr. Pomeroy.......................                 X            Mr. Reynolds........        X
Ms. Tubbs Jones...................                 X            Mr. Ryan............        X
Mr. Thompson......................                 X            Mr. Cantor..........        X
Mr. Larson........................                 X            Mr. Linder..........        X
Mr. Emanuel.......................                 X            Mr. Nunes...........        X
Mr. Blumenauer....................                 X            Mr. Tiberi..........        X
Mr. Kind..........................                              Mr. Porter..........        X
Mr. Pascrell......................                 X
Ms. Berkley.......................                 X
Mr. Crowley.......................                 X
Mr. Van Hollen....................                 X
Mr. Meek..........................                 X
Ms. Schwartz......................                 X
Mr. Davis.........................                 X
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Brady which would strike section 202 of 
the bill and modify the bill by providing an increase in 
deductions for certain trade and business expenses was defeated 
by a rollcall vote of 17 yeas and 21 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
          Representatives             Yea       Nay    Present     Representatives       Yea      Nay    Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel........................                 X            Mr. McCrery.........        X
Mr. Stark.........................                              Mr. Herger..........        X
Mr. Levin.........................                 X            Mr. Camp............        X
Mr. McDermott.....................                 X            Mr. Ramstad.........        X
Mr. Lewis (GA)....................                 X            Mr. Johnson.........        X
Mr. Neal..........................                 X            Mr. English.........        X
Mr. McNulty.......................                 X            Mr. Weller..........        X
Mr. Tanner........................                 X            Mr. Hulshof.........
Mr. Becerra.......................                 X            Mr. Lewis (KY)......        X
Mr. Doggett.......................                 X            Mr. Brady...........        X
Mr. Pomeroy.......................                 X            Mr. Reynolds........        X
Ms. Tubbs Jones...................                 X            Mr. Ryan............        X
Mr. Thompson......................                 X            Mr. Cantor..........        X
Mr. Larson........................                 X            Mr. Linder..........        X
Mr. Emanuel.......................                 X            Mr. Nunes...........        X
Mr. Blumenauer....................                 X            Mr. Tiberi..........        X
Mr. Kind..........................                              Mr. Porter..........        X
Mr. Pascrell......................        X
Ms. Berkley.......................                 X
Mr. Crowley.......................                 X
Mr. Van Hollen....................                 X
Mr. Meek..........................                 X
Ms. Schwartz......................                 X
Mr. Davis.........................                 X
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Brady which would exempt real estate 
from section 201 of the bill was defeated by a rollcall vote of 
16 yeas and 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
          Representatives             Yea       Nay    Present     Representatives       Yea      Nay    Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel........................                 X            Mr. McCrery.........        X
Mr. Stark.........................                              Mr. Herger..........        X
Mr. Levin.........................                 X            Mr. Camp............        X
Mr. McDermott.....................                 X            Mr. Ramstad.........        X
Mr. Lewis (GA)....................                 X            Mr. Johnson.........        X
Mr. Neal..........................                 X            Mr. English.........        X
Mr. McNulty.......................                 X            Mr. Weller..........        X
Mr. Tanner........................                 X            Mr. Hulshof.........
Mr. Becerra.......................                 X            Mr. Lewis (KY)......        X
Mr. Doggett.......................                 X            Mr. Brady...........        X
Mr. Pomeroy.......................                 X            Mr. Reynolds........        X
Ms. Tubbs Jones...................                 X            Mr. Ryan............        X
Mr. Thompson......................                 X            Mr. Cantor..........        X
Mr. Larson........................                 X            Mr. Linder..........        X
Mr. Emanuel.......................                 X            Mr. Nunes...........        X
Mr. Blumenauer....................                 X            Mr. Tiberi..........        X
Mr. Kind..........................                              Mr. Porter..........        X
Mr. Pascrell......................                 X
Ms. Berkley.......................                 X
Mr. Crowley.......................                 X
Mr. Van Hollen....................                 X
Mr. Meek..........................                 X
Ms. Schwartz......................                 X
Mr. Davis.........................                 X
----------------------------------------------------------------------------------------------------------------

                     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. 6275, 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, June 20, 2008.
Hon. Charles B. Rangel,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office as 
prepared the enclosed cost estimate for H.R. 6275, the 
Alternative Minus Tax Relief 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 P. Murphy
                                   (For Peter R. Orszag, Director).
    Enclosure.

H.R. 6275--Alternative Minimum Tax Relief Act of 2008

    Summary: H.R. 6275 would provide relief from the 
alternative minimum tax (AMT) for tax year 2008. Additionally, 
the bill would raise revenue by modifying the tax treatment of 
income (``carried interest'') from investment services 
partnerships, denying a deduction for the domestic production 
of oil and gas products, limiting the ability of foreign 
corporations to use United States tax treaties to reduce their 
withholding taxes, requiring information reporting on 
merchants' credit and debit card transactions, and adjusting 
the rules for assessing levies on payments from the federal 
government to private vendors with outstanding tax liability. 
The bill would also shift some corporate income tax receipts 
from 2012 and 2014 into 2013. On balance, the Joint Committee 
on Taxation (JCT) estimates that enacting the bill would 
increase revenues by $158 million over the 2008-2013 period and 
by $68 million over the 2008-2018 period.
    JCT has determined that the bill contains no 
intergovernmental mandates as defined by the Unfunded Mandates 
Reform Act (UMRA), but that it contains four private-sector 
mandates: The taxation of carried interest as ordinary income, 
the denial of the section 199 deduction for major integrated 
oil companies and freezing of the current deduction for other 
oil and gas producers, the limitation on the ability of foreign 
corporations to use United States tax treaties to reduce tax 
withholding, and the additional information reporting on credit 
and debit card transactions. JCT estimates that the costs 
required to comply with the mandates would exceed the annual 
threshold established by UMRA for private-sector mandates ($136 
million in 2008, adjusted annually for inflation) in each of 
the next 10 years (2009 through 2018).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 6275 is shown in the following table.

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

Individual AMT relief............................     -1,230    -75,143     14,851          0          0          0          0          0          0          0          0    -61,522    -61,522
Altered Taxation of Carried Interest.............         82      3,519      3,810      3,832      3,591      3,243      2,818      2,567      2,383      2,458      2,678     18,077     30,981
Limiting the Section 199 Deduction for Oil and             0        367        955      1,170      1,258      1,352      1,453      1,562      1,578      1,805      2,065      5,102     13,565
 Gas Producers...................................
Limiting the Use of Tax Treaties by Foreign               13        551        592        636        667        701        719        737        755        774        796      3,160      6,941
 Companies.......................................
Additional Information Reporting.................          0          0          0         24        620        860      1,262      1,630      1,717      1,802      1,888      1,504      9,802
Expanding the Application of a Levy on Certain             2         27         27         28         29         29         30         31         32         33         34        142        301
 Federal Payments................................
Corporate Estimated Tax Payments Due in 2012 and           0          0          0          0     -9,934     43,629     33,695          0          0          0          0     33,695          0
 2013............................................
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
      Total Changes..............................     -1,133    -70,679     20,235      5,690     -3,769     49,814    -27,413      6,527      6,465      6,872      7,461        158         68
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Joint Committee on Taxation.
Note: AMT = Alternative Minimum Tax.

    Basis of the estimate: JCT estimated the effects of H.R. 
6275 on revenues. For this estimate, JCT assumes the bill will 
be enacted by August 1, 2008.

Individual AMT relief

    H.R. 6275 would reduce revenues by raising the exemption 
amount against one's gross income for AMT purposes and by 
extending the rule that allows the use of nonrefundable credits 
against the AMT. Under current law, unmarried individuals, 
married individuals filing joint returns, and married 
individuals filing separate returns are permitted an exemption 
on their taxable income under the alternative minimum tax rules 
for 2008 of $33,750, $45,000, and. $22,500, respectively. H.R. 
6275 would raise those respective exemption amounts to $46,200, 
$69,950, and $34,975. Also, under current law, individuals with 
nonrefundable personal tax credits are permitted to claim the 
credits against the AMT in 2007 but not thereafter. H.R. 6275 
would extend such treatment through tax year 2008. JCT 
estimates that this provision would decrease revenues by $61.5 
billion over the 2008-2010 period.

Altered Taxation of Carried Interest

    The bill would modify the rules for the taxation of income 
of a general partner in a private equity or hedge fund. Such a 
partner's income may include compensation that is determined as 
a share of the profits on the assets under the fund's 
management. This kind of compensation is referred to as carried 
interest. Under current law, carried interest is taxed at the 
long-term capital gains rate to the extent that the fund's 
profits reflect long-term capital gains. Under H.R. 6275, all 
carried interest would be taxed as ordinary income except for 
that which is directly attributable to such partner's invested 
capital. JCT estimates that enacting this provision would 
increase revenues by $31.0 billion over the 2008-2018 period.

Limiting the Section 199 Deduction for Oil and Gas Producers

    Under current law, taxpayers are permitted a deduction 
under section 199 of the Internal Revenue Code of up to 6 
percent of a income attributable to qualifying domestic 
production activity. That deduction will rise to 9 percent 
after 2009. H.R. 6275 would deny that tax deduction to any 
income of major integrated oil companies from the sale or 
exchange of oil, natural gas, or related byproducts beginning 
in 2009. The bill would also freeze the existing deduction at 6 
percent for other oil and natural gas producers. JCT estimates 
that this provision would increase revenues by $13.6 billion 
over the 2009-2018 period.

Limiting the Use of Tax Treaties by Foreign Companies

    The bill would change tax provisions that in some cases 
allow a U.S. subsidiary of a foreign parent corporation to 
avoid U.S. withholding tax on payments to a related subsidiary 
in another country that has a tax treaty with the United 
States. JCT estimates that this provision would increase 
revenues by $6.9 billion over the 2008-2018 period.

Information Reporting on Payment Card Transactions

    H.R. 6275 would require banks and other payment settlement 
entities to report to the IRS the gross amount of money paid to 
merchants as settlement for credit and debit card transactions. 
Such information reporting would be required beginning in tax 
year 2011. JCT estimates this provision would increase revenues 
by $9.8 billion over the 2011-2018 period.

Application of continuous levy

    Under current law, the IRS may impose a continuous levy on 
federal payments to vendors of goods or services with unpaid, 
outstanding tax ability. The bill would expand the IRS' ability 
to impose such a levy to include federal payments for other 
kinds of property. JCT estimates that this provision would 
increase revenues by about $0.3 billion over the 2008-2018 
period.

Corporate estimated tax payments due in 2012 and 2013

    H.R. 6275 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 $43.6 billion in 2013, and 
reduce them by $33.7 billion in 2014.
    Intergovernmental and private-sector impact: JCT has 
reviewed the bill and determined that it contains no 
intergovernmental mandates, but that it contains four private-
sector mandates. The bill would alter the tax treatment of 
investment services income (carried interest of general 
partners in private equity and hedge funds, deny the section 
199 deduction for major integrated oil companies and freeze the 
current deduction for other oil and gas producers, limit the 
ability of foreign corporations to use United States tax 
treaties to reduce U.S. tax withholding, and require that 
additional information regarding the gross amount of credit and 
debit card transactions be reported to the IRS. 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 
10 years (2009 through 2018).
    Estimate prepared by: Zachary Epstein.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax 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:
    This bill significantly reduces alternative minimum tax 
liability for one year, in a temporary extension of prior law. 
However, since the relevant provisions have been extended 
repeatedly in recent years, our conventional revenue estimate 
assumes that most taxpayers already anticipated such an 
extension would occur for the current year, and that the 
applicable marginal rates for 2008 are those which apply under 
the provision. Because taxpayers are already responding as if 
the provision were extended, there can be little effect on 
economic activity in 2008. Since most taxpayers file returns 
after their taxable year is complete, any change in marginal 
tax rates due to this provision may be understood too late to 
affect labor supply decisions. Thus, extending the provision 
has primarily an effect on after-tax income in 2009, when 
taxpayers file their returns. The reduction in individual tax 
liability results in more disposable income for individuals, 
and thus may be expected to increase total personal consumption 
expenditures.
    However, the temporary nature of the provision implies that 
the economic effects are small when considered relative to the 
five-year time horizon within which our macroeconomic results 
are reported. In addition, the temporary nature of this 
provision increases the amount of uncertainty associated with 
modeling the effects of these proposals on the macro-economy. 
Modeling the effects of such proposals requires making 
assumptions about taxpayers' expectations about the future of 
the provision, as well as adjusting their responses in light of 
those assumptions. Empirical evidence on taxpayers' 
expectations about future tax policy and likely response to 
temporary incentives is inconclusive.
    The extent of this response is also sensitive to 
individuals' expectations about how this provision would affect 
their future tax liability. To the extent that individuals 
choose to spend the additional income rather than save it, 
interest rates may rise and private investment may be reduced. 
The short run stimulative effects of any decrease in tax 
liability are also affected by the state of the economy at the 
time of the tax reduction. If the economy is operating near 
capacity, short run stimulus cannot be expected to result in 
much additional real growth. Depending on the reaction of the 
Federal Reserve Board, it may result in inflation or higher 
interest rates. We would expect any stimulus generated by this 
provision, relative to the present-law baseline, to be small, 
short-lived, and occurring in the first three quarters of 2009. 
As with the marginal rate response, this analysis is subject to 
uncertainty about taxpayers' expectations for future tax policy 
and behavioral response.
    In addition, this bill contains several provisions that 
permanently increase the tax liability of several limited 
groups of taxpayers. To the extent that these tax increases 
provide incentives for reducing investment in the affected 
sectors, we would expect that much of this investment would 
shift to other sectors. The increased rate of taxation on 
certain income of partners for performing investment services 
affects a group of taxpayers whose labor supply is known to be 
fairly insensitive to changes in tax policy. As a whole, we 
would expect these tax increases to have very small effects on 
the economy.
    Thus, we estimate that the effects of the bill on economic 
activity are so small relative to the size of the economy and 
the degree of uncertainty associated with the estimate 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.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
    The Committee has determined that the 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) Income of partners 
for performing investment management services treated as 
ordinary income received for the performance of services (sec. 
201 of the bill); (2) limitation of deduction of income 
attributable to domestic production of oil, gas, or primary 
products thereof (sec. 202 of the bill); (3) limit tax treaty 
benefits with respect to certain deductible payments (sec. 203 
of the bill); and (4) require information reporting on payment 
card and third party payment transactions (sec. 204 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.

                E. Applicability of House Rule XXI 5(b)

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

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. For each such provision identified by the staff of 
the Joint Committee on Taxation a summary description of the 
provision is provided along with an estimate of the number and 
type of affected taxpayers, and a discussion regarding the 
relevant complexity and administrative issues. One provision 
has been identified as requiring a complexity analysis in this 
bill (the increase in the AMT exemption amount).
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and Treasury regarding 
each of the provisions included in the complexity analysis.

Summary description of the provision

    The alternative minimum tax exemption amounts for 2008 are 
increased.

Number of affected taxpayers

    It is estimated that the provisions will affect 
approximately 26 million individual tax returns.

Discussion

    Many individuals will not have to compute their alternative 
minimum tax and file the IRS forms relating to that tax.


                        G. Limited Tax Benefits

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

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

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

                     INTERNAL REVENUE CODE 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) Limitation Based on Amount of Tax.--
          (1) * * *
          (2) Special rule for taxable years 2000 through 
        [2007] 2008.--For purposes of any taxable year 
        beginning during 2000, 2001, 2002, 2003, 2004, 2005, 
        2006, [or 2007] 2007, or 2008, the aggregate amount of 
        credits allowed by this subpart for the taxable year 
        shall not exceed the sum of--
                  (A) * * *

           *       *       *       *       *       *       *


PART VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *



SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Exemption Amount.--For purposes of this section--
          (1) Exemption amount for taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation, the term ``exemption amount'' means--
                  (A) $45,000 [($66,250 in the case of taxable 
                years beginning in 2007)] ($69,950 in the case 
                of taxable years beginning in 2008) in the case 
                of--
                          (i) * * *

           *       *       *       *       *       *       *

                  (B) $33,750 [($44,350 in the case of taxable 
                years beginning in 2007)] ($46,200 in the case 
                of taxable years beginning in 2008) in the case 
                of an individual who--
                          (i) * * *

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *



SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Qualified Production Activities Income.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Domestic production gross receipts.--
                  (A) * * *
                  (B) Exceptions.--Such term shall not include 
                gross receipts of the taxpayer which are 
                derived from--
                          (i) * * *
                          (ii) the transmission or distribution 
                        of electricity, natural gas, or potable 
                        water, [or]
                          (iii) the lease, rental, license, 
                        sale, exchange, or other disposition of 
                        land[.], or
                          (iv) in the case of any major 
                        integrated oil company (as defined in 
                        section 167(h)(5)(B)), the production, 
                        refining, processing, transportation, 
                        or distribution of oil, gas, or any 
                        primary product thereof during any 
                        taxable year described in section 
                        167(h)(5)(B).
                For purposes of clause (iv), the term ``primary 
                product'' has the same meaning as when used in 
                section 927(a)(2)(C), as in effect before its 
                repeal.

           *       *       *       *       *       *       *

  (d) Definitions and Special Rules.--
          (1) * * *
          (2) Application to individuals.--In the case of an 
        individual, [subsection (a)(1)(B)] subsections 
        (a)(1)(B) and (d)(9)(A)(iii) shall be applied by 
        substituting ``adjusted gross income'' for ``taxable 
        income''. For purposes of the preceding sentence, 
        adjusted gross income shall be determined--
                  (A) * * *

           *       *       *       *       *       *       *

          (9) Special rule for taxpayers with oil related 
        qualified production activities income.--
                  (A) In general.--If a taxpayer (other than a 
                major integrated oil company (as defined in 
                section 167(h)(5)(B))) has oil related 
                qualified production activities income for any 
                taxable year beginning after 2009, the amount 
                of the deduction under subsection (a) shall be 
                reduced by 3 percent of the least of--
                          (i) the oil related qualified 
                        production activities income of the 
                        taxpayer for the taxable year,
                          (ii) the qualified production 
                        activities income of the taxpayer for 
                        the taxable year, or
                          (iii) taxable income (determined 
                        without regard to this section).
                  (B) Oil related qualified production 
                activities income.--The term ``oil related 
                qualified production activities income'' means 
                for any taxable year the qualified production 
                activities income which is attributable to the 
                production, refining, processing, 
                transportation, or distribution of oil, gas, or 
                any primary product thereof during such taxable 
                year.
          [(9)] (10) Regulations.--The Secretary shall 
        prescribe such regulations as are necessary to carry 
        out the purposes of this section, including regulations 
        which prevent more than 1 taxpayer from being allowed a 
        deduction under this section with respect to any 
        activity described in subsection (c)(4)(A)(i).

           *       *       *       *       *       *       *


                Subchapter K--Partners and Partnerships

                 PART I--DETERMINATION OF TAX LIABILITY

Sec. 701. Partners, not partnership, subject to tax.
     * * * * * * *
Sec. 710. Special rules for partners providing investment management 
          services to partnership.

           *       *       *       *       *       *       *


SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
                    SERVICES TO PARTNERSHIP.

  (a) Treatment of Distributive Share of Partnership Items.--
For purposes of this title, in the case of an investment 
services partnership interest--
          (1) In general.--Notwithstanding section 702(b)--
          (A) any net income with respect to such interest for 
        any partnership taxable year shall be treated as 
        ordinary income for the performance of services, and
          (B) any net loss with respect to such interest for 
        such year, to the extent not disallowed under paragraph 
        (2) for such year, shall be treated as an ordinary 
        loss.
        All items of income, gain, deduction, and loss which 
        are taken into account in computing net income or net 
        loss shall be treated as ordinary income or ordinary 
        loss (as the case may be).
          (2) Treatment of losses.--
                  (A) Limitation.--Any net loss with respect to 
                such interest shall be allowed for any 
                partnership taxable year only to the extent 
                that such loss does not exceed the excess (if 
                any) of--
                          (i) the aggregate net income with 
                        respect to such interest for all prior 
                        partnership taxable years, over
                          (ii) the aggregate net loss with 
                        respect to such interest not disallowed 
                        under this subparagraph for all prior 
                        partnership taxable years.
                  (B) Carryforward.--Any net loss for any 
                partnership taxable year which is not allowed 
                by reason of subparagraph (A) shall be treated 
                as an item of loss with respect to such 
                partnership interest for the succeeding 
                partnership taxable year.
                  (C) Basis adjustment.--No adjustment to the 
                basis of a partnership interest shall be made 
                on account of any net loss which is not allowed 
                by reason of subparagraph (A).
                  (D) Exception for basis attributable to 
                purchase of a partnership interest.--In the 
                case of an investment services partnership 
                interest acquired by purchase, paragraph (1)(B) 
                shall not apply to so much of any net loss with 
                respect to such interest for any taxable year 
                as does not exceed the excess of--
                          (i) the basis of such interest 
                        immediately after such purchase, over
                          (ii) the aggregate net loss with 
                        respect to such interest to which 
                        paragraph (1)(B) did not apply by 
                        reason of this subparagraph for all 
                        prior taxable years.
                Any net loss to which paragraph (1)(B) does not 
                apply by reason of this subparagraph shall not 
                be taken into account under subparagraph (A).
                  (E) Prior partnership years.--Any reference 
                in this paragraph to prior partnership taxable 
                years shall only include prior partnership 
                taxable years to which this section applies.
          (3) Net income and loss.--For purposes of this 
        section--
                  (A) Net income.--The term ``net income'' 
                means, with respect to any investment services 
                partnership interest, for any partnership 
                taxable year, the excess (if any) of--
                          (i) all items of income and gain 
                        taken into account by the holder of 
                        such interest under section 702 with 
                        respect to such interest for such year, 
                        over
                          (ii) all items of deduction and loss 
                        so taken into account.
                  (B) Net loss.--The term ``net loss'' means 
                with respect to such interest for such year, 
                the excess (if any) of the amount described in 
                subparagraph (A)(ii) over the amount described 
                in subparagraph (A)(i).
  (b) Dispositions of Partnership Interests.--
          (1) Gain.--Any gain on the disposition of an 
        investment services partnership interest shall be 
        treated as ordinary income for the performance of 
        services.
                  (2) Loss.--Any loss on the disposition of an 
                investment services partnership interest shall 
                be treated as an ordinary loss to the extent of 
                the excess (if any) of--
                          (A) the aggregate net income with 
                        respect to such interest for all 
                        partnership taxable years, over
                          (B) the aggregate net loss with 
                        respect to such interest allowed under 
                        subsection (a)(2) for all partnership 
                        taxable years.
          (3) Disposition of portion of interest.--In the case 
        of any disposition of an investment services 
        partnership interest, the amount of net loss which 
        otherwise would have (but for subsection (a)(2)(C)) 
        applied to reduce the basis of such interest shall be 
        disregarded for purposes of this section for all 
        succeeding partnership taxable years.
          (4) Distributions of partnership property.--In the 
        case of any distribution of property by a partnership 
        with respect to any investment services partnership 
        interest held by a partner--
                  (A) the excess (if any) of--
                          (i) the fair market value of such 
                        property at the time of such 
                        distribution, over
                          (ii) the adjusted basis of such 
                        property in the hands of the 
                        partnership,
                shall be taken into account as an increase in 
                such partner's distributive share of the 
                taxable income of the partnership (except to 
                the extent such excess is otherwise taken into 
                account in determining the taxable income of 
                the partnership),
                  (B) such property shall be treated for 
                purposes of subpart B of part II as money 
                distributed to such partner in an amount equal 
                to such fair market value, and
                  (C) the basis of such property in the hands 
                of such partner shall be such fair market 
                value.
        Subsection (b) of section 734 shall be applied without 
        regard to the preceding sentence.
          (5) Application of section 751.--In applying section 
        751(a), an investment services partnership interest 
        shall be treated as an inventory item.
  (c) Investment Services Partnership Interest.--For purposes 
of this section--
          (1) In general.--The term ``investment services 
        partnership interest'' means any interest in a 
        partnership which is held by any person if such person 
        provides (directly or indirectly) a substantial 
        quantity of any of the following services with respect 
        to the assets of the partnership in the conduct of the 
        trade or business of providing such services:
                  (A) Advising as to the advisability of 
                investing in, purchasing, or selling any 
                specified asset.
                  (B) Managing, acquiring, or disposing of any 
                specified asset.
                  (C) Arranging financing with respect to 
                acquiring specified assets.
                  (D) Any activity in support of any service 
                described in subparagraphs (A) through (C).
        For purposes of this paragraph, the term ``specified 
        asset'' means securities (as defined in section 
        475(c)(2) without regard to the last sentence thereof), 
        real estate, commodities (as defined in section 
        475(e)(2))), or options or derivative contracts with 
        respect to securities (as so defined), real estate, or 
        commodities (as so defined).
          (2) Exception for certain capital interests.--
                  (A) In general.--If--
                          (i) a portion of an investment 
                        services partnership interest is 
                        acquired on account of a contribution 
                        of invested capital, and
                          (ii) the partnership makes a 
                        reasonable allocation of partnership 
                        items between the portion of the 
                        distributive share that is with respect 
                        to invested capital and the portion of 
                        such distributive share that is not 
                        with respect to invested capital,
                then subsection (a) shall not apply to the 
                portion of the distributive share that is with 
                respect to invested capital. An allocation will 
                not be treated as reasonable for purposes of 
                this subparagraph if such allocation would 
                result in the partnership allocating a greater 
                portion of income to invested capital than any 
                other partner not providing services would have 
                been allocated with respect to the same amount 
                of invested capital.
                  (B) Special rule for dispositions.--In any 
                case to which subparagraph (A) applies, 
                subsection (b) shall not apply to any gain or 
                loss allocable to invested capital. The portion 
                of any gain or loss attributable to invested 
                capital is the proportion of such gain or loss 
                which is based on the distributive share of 
                gain or loss that would have been allocable to 
                invested capital under subparagraph (A) if the 
                partnership sold all of its assets immediately 
                before the disposition.
                  (C) Invested capital.--For purposes of this 
                paragraph, the term ``invested capital'' means, 
                the fair market value at the time of 
                contribution of any money or other property 
                contributed to the partnership.
                  (D) Treatment of certain loans.--
                          (i) Proceeds of partnership loans not 
                        treated as invested capital of service 
                        providing partners.--For purposes of 
                        this paragraph, an investment services 
                        partnership interest shall not be 
                        treated as acquired on account of a 
                        contribution of invested capital to the 
                        extent that such capital is 
                        attributable to the proceeds of any 
                        loan or other advance made or 
                        guaranteed, directly or indirectly, by 
                        any partner or the partnership.
                          (ii) Loans from nonservice providing 
                        partners to the partnership treated as 
                        invested capital.--For purposes of this 
                        paragraph, any loan or other advance to 
                        the partnership made or guaranteed, 
                        directly or indirectly, by a partner 
                        not providing services to the 
                        partnership shall be treated as 
                        invested capital of such partner and 
                        amounts of income and loss treated as 
                        allocable to invested capital shall be 
                        adjusted accordingly.
  (d) Other Income and Gain in Connection With Investment 
Management Services.--
          (1) In general.--If--
                  (A) a person performs (directly or 
                indirectly) investment management services for 
                any entity,
                  (B) such person holds a disqualified interest 
                with respect to such entity, and
                  (C) the value of such interest (or payments 
                thereunder) is substantially related to the 
                amount of income or gain (whether or not 
                realized) from the assets with respect to which 
                the investment management services are 
                performed,
        any income or gain with respect to such interest shall 
        be treated as ordinary income for the performance of 
        services. Rules similar to the rules of subsection 
        (c)(2) shall apply where such interest was acquired on 
        account of invested capital in such entity.
          (2) Definitions.--For purposes of this subsection--
                  (A) Disqualified interest.--The term 
                ``disqualified interest'' means, with respect 
                to any entity--
                          (i) any interest in such entity other 
                        than indebtedness,
                          (ii) convertible or contingent debt 
                        of such entity,
                          (iii) any option or other right to 
                        acquire property described in clause 
                        (i) or (ii), and
                          (iv) any derivative instrument 
                        entered into (directly or indirectly) 
                        with such entity or any investor in 
                        such entity.
                Such term shall not include a partnership 
                interest and shall not include stock in a 
                taxable corporation.
                  (B) Taxable corporation.--The term ``taxable 
                corporation'' means--
                          (i) a domestic C corporation, or
                          (ii) a foreign corporation subject to 
                        a comprehensive foreign income tax.
                  (C) Investment management services.--The term 
                ``investment management services'' means a 
                substantial quantity of any of the services 
                described in subsection (c)(1) which are 
                provided in the conduct of the trade or 
                business of providing such services.
                  (D) Comprehensive foreign income tax.--The 
                term ``comprehensive foreign income tax'' 
                means, with respect to any foreign corporation, 
                the income tax of a foreign country if--
                          (i) such corporation is eligible for 
                        the benefits of a comprehensive income 
                        tax treaty between such foreign country 
                        and the United States, or
                          (ii) such corporation demonstrates to 
                        the satisfaction of the Secretary that 
                        such foreign country has a 
                        comprehensive income tax.
  (e) Regulations.--The Secretary shall prescribe such 
regulations as are necessary or appropriate to carry out the 
purposes of this section, including regulations to--
          (1) prevent the avoidance of the purposes of this 
        section, and
          (2) coordinate this section with the other provisions 
        of this subchapter.
  (f) Cross Reference.--For 40 percent no fault penalty on 
certain underpayments due to the avoidance of this section, see 
section 6662.

           *       *       *       *       *       *       *


PART II--CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS

           *       *       *       *       *       *       *


Subpart B--Distributions by a Partnership

           *       *       *       *       *       *       *


SEC. 731. EXTENT OF RECOGNITION OF GAIN OR LOSS ON DISTRIBUTION.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Exceptions.--This section shall not apply to the extent 
otherwise provided by section 710(b)(4) (relating to 
distributions of partnership property), section 736 (relating 
to payments to a retiring partner or a deceased partner's 
successor in interest), section 751 (relating to unrealized 
receivables and inventory items), and section 737 (relating to 
recognition of precontribution gain in case of certain 
distributions).

           *       *       *       *       *       *       *


           Subpart C--Transfers of Interests in a Partnership

SEC. 741. RECOGNITION AND CHARACTER OF GAIN OR LOSS ON SALE OR 
                    EXCHANGE.

  In the case of a sale or exchange of an interest in a 
partnership, gain or loss shall be recognized to the transferor 
partner. Such gain or loss shall be considered as gain or loss 
from the sale or exchange of a capital asset, except as 
otherwise provided in section 751 (relating to unrealized 
receivables and inventory items) or section 710 (relating to 
special rules for partners providing investment management 
services to partnership).

           *       *       *       *       *       *       *


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) * * *

           *       *       *       *       *       *       *

          (9) Exception from recharacterization of income from 
        investment services partnership interests.--
                  (A) In general.--Paragraphs (2), (3), and (4) 
                shall be applied without regard to section 710 
                (relating to special rules for partners 
                providing investment management services to 
                partnership).
                  (B) Special rule for partnerships owned by 
                reits.--Section 7704 shall be applied without 
                regard to section 710 in the case of a 
                partnership which meets each of the following 
                requirements:
                          (i) Such partnership is treated as 
                        publicly traded under section 7704 
                        solely by reason of interests in such 
                        partnership being convertible into 
                        interests in a real estate investment 
                        trust which is publicly traded.
                          (ii) 50 percent or more of the 
                        capital and profits interests of such 
                        partnership are owned, directly or 
                        indirectly, at all times during the 
                        taxable year by such real estate 
                        investment trust (determined with the 
                        application of section 267(c)).
                          (iii) Such partnership meets the 
                        requirements of paragraphs (2), (3), 
                        and (4) (applied without regard to 
                        section 710).

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

           *       *       *       *       *       *       *


Subpart D--Miscellaneous Provisions

           *       *       *       *       *       *       *


SEC. 894. INCOME AFFECTED BY TREATY.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Limitation on Treaty Benefits for Certain Deductible 
Payments.--
          (1) In general.--In the case of any deductible 
        related-party payment, any withholding tax imposed 
        under chapter 3 (and any tax imposed under subpart A or 
        B of this part) with respect to such payment may not be 
        reduced under any treaty of the United States unless 
        any such withholding tax would be reduced under a 
        treaty of the United States if such payment were made 
        directly to the foreign parent corporation.
          (2) Deductible related-party payment.--For purposes 
        of this subsection, the term ``deductible related-party 
        payment'' means any payment made, directly or 
        indirectly, by any person to any other person if the 
        payment is allowable as a deduction under this chapter 
        and both persons are members of the same foreign 
        controlled group of entities.
          (3) Foreign controlled group of entities.--For 
        purposes of this subsection--
                  (A) In general.--The term ``foreign 
                controlled group of entities'' means a 
                controlled group of entities the common parent 
                of which is a foreign corporation.
                  (B) Controlled group of entities.--The term 
                ``controlled group of entities'' means a 
                controlled group of corporations as defined in 
                section 1563(a)(1), except that--
                          (i) ``more than 50 percent'' shall be 
                        substituted for ``at least 80 percent'' 
                        each place it appears therein, and
                          (ii) the determination shall be made 
                        without regard to subsections (a)(4) 
                        and (b)(2) of section 1563.
                A partnership or any other entity (other than a 
                corporation) shall be treated as a member of a 
                controlled group of entities if such entity is 
                controlled (within the meaning of section 
                954(d)(3)) by members of such group (including 
                any entity treated as a member of such group by 
                reason of this sentence).
          (4) Foreign parent corporation.--For purposes of this 
        subsection, the term ``foreign parent corporation'' 
        means, with respect to any deductible related-party 
        payment, the common parent of the foreign controlled 
        group of entities referred to in paragraph (3)(A).
          (5) Regulations.--The Secretary may prescribe such 
        regulations or other guidance as are necessary or 
        appropriate to carry out the purposes of this 
        subsection, including regulations or other guidance 
        which provide for--
                  (A) the treatment of two or more persons as 
                members of a foreign controlled group of 
                entities if such persons would be the common 
                parent of such group if treated as one 
                corporation, and
                  (B) the treatment of any member of a foreign 
                controlled group of entities as the common 
                parent of such group if such treatment is 
                appropriate taking into account the economic 
                relationships among such entities.

           *       *       *       *       *       *       *


CHAPTER 2--TAX ON SELF-EMPLOYMENT INCOME

           *       *       *       *       *       *       *


SEC. 1402. DEFINITIONS.

  (a) Net Earnings From Self-employment.--The term ``net 
earnings from self-employment'' means the gross income derived 
by an individual from any trade or business carried on by such 
individual, less the deductions allowed by this subtitle which 
are attributable to such trade or business, plus his 
distributive share (whether or not distributed) of income or 
loss described in section 702(a)(8) from any trade or business 
carried on by a partnership of which he is a member; except 
that in computing such gross income and deductions and such 
distributive share of partnership ordinary income or loss--
          (1) * * *

           *       *       *       *       *       *       *

                  (A) by striking ``other than guaranteed'' and 
                inserting ``other than--
                  ``(A) guaranteed'',
          (13) there shall be excluded the distributive share 
        of any item of income or loss of a limited partner, as 
        such, [other than guaranteed] other than--
                  (A) guaranteed payments described in section 
                707(c) that partner for services actually 
                rendered to or on behalf of the partnership to 
                the extent that those payments are established 
                to be in the nature of remuneration for those 
                services[;], and
                  (B) any income treated as ordinary income 
                under section 710 received by an individual who 
                provides investment management services (as 
                defined in section 710(d)(2));

           *       *       *       *       *       *       *


Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

           *       *       *       *       *       *       *


SEC. 3406. BACKUP WITHHOLDING.

  (a) * * * .--
  (b) Reportable Payment, Etc.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Other reportable payment.--The term ``other 
        reportable payment'' means any payment of a kind, and 
        to a payee, required to be shown on a return required 
        under--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) section 6050A (relating to reporting 
                requirements of certain fishing boat 
                operators), but only to the extent such payment 
                is in money and represents a share of the 
                proceeds of the catch, [or]
                  (E) section 6050N (relating to payments of 
                royalties)[.], or
                  (F) section 6050W (relating to returns 
                relating to payments made in settlement of 
                payment card transactions).

           *       *       *       *       *       *       *


Subtitle F--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. 6050W. Returns relating to payments made in settlement of payment 
          card and third party network transactions.
     * * * * * * *

SEC. 6050W. RETURNS RELATING TO PAYMENTS MADE IN SETTLEMENT OF PAYMENT 
                    CARD AND THIRD PARTY NETWORK TRANSACTIONS.

  (a) In General.--Each payment settlement entity shall make a 
return for each calendar year setting forth--
          (1) the name, address, and TIN of each participating 
        payee to whom one or more payments in settlement of 
        reportable payment transactions are made, and
          (2) the gross amount of the reportable payment 
        transactions with respect to each such participating 
        payee.
Such return shall be made at such time and in such form and 
manner as the Secretary may require by regulations.
  (b) Payment Settlement Entity.--For purposes of this 
section--
          (1) In general.--The term ``payment settlement 
        entity'' means--
                  (A) in the case of a payment card 
                transaction, the merchant acquiring bank, and
                  (B) in the case of a third party network 
                transaction, the third party settlement 
                organization.
          (2) Merchant acquiring bank.--The term ``merchant 
        acquiring bank'' means the bank or other organization 
        which has the contractual obligation to make payment to 
        participating payees in settlement of payment card 
        transactions.
          (3) Third party settlement organization.--The term 
        ``third party settlement organization'' means the 
        central organization which has the contractual 
        obligation to make payment to participating payees of 
        third party network transactions.
          (4) Special rules related to intermediaries.--For 
        purposes of this section--
                  (A) Aggregated payees.--In any case where 
                reportable payment transactions of more than 
                one participating payee are settled through an 
                intermediary--
                          (i) such intermediary shall be 
                        treated as the participating payee for 
                        purposes of determining the reporting 
                        obligations of the payment settlement 
                        entity with respect to such 
                        transactions, and
                          (ii) such intermediary shall be 
                        treated as the payment settlement 
                        entity with respect to the settlement 
                        of such transactions with the 
                        participating payees.
                  (B) Electronic payment facilitators.--In any 
                case where an electronic payment facilitator or 
                other third party makes payments in settlement 
                of reportable payment transactions on behalf of 
                the payment settlement entity, the return under 
                subsection (a) shall be made by such electronic 
                payment facilitator or other third party in 
                lieu of the payment settlement entity.
  (c) Reportable Payment Transaction.--For purposes of this 
section--
          (1) In general.--The term ``reportable payment 
        transaction'' means any payment card transaction and 
        any third party network transaction.
          (2) Payment card transaction.--The term ``payment 
        card transaction'' means any transaction in which a 
        payment card is accepted as payment.
          (3) Third party network transaction.--The term 
        ``third party network transaction'' means any 
        transaction which is settled through a third party 
        payment network.
  (d) Other Definitions.--For purposes of this section--
          (1) Participating payee.--
                  (A) In general.--The term ``participating 
                payee'' means--
                          (i) in the case of a payment card 
                        transaction, any person who accepts a 
                        payment card as payment, and
                          (ii) in the case of a third party 
                        network transaction, any person who 
                        accepts payment from a third party 
                        settlement organization in settlement 
                        of such transaction.
                  (B) Exclusion of foreign persons.--Except as 
                provided by the Secretary in regulations or 
                other guidance, such term shall not include any 
                person with a foreign address.
                  (C) Inclusion of governmental units.--The 
                term ``person'' includes any governmental unit 
                (and any agency or instrumentality thereof).
          (2) Payment card.--The term ``payment card'' means 
        any card which is issued pursuant to an agreement or 
        arrangement which provides for--
                  (A) one or more issuers of such cards,
                  (B) a network of persons unrelated to each 
                other, and to the issuer, who agree to accept 
                such cards as payment, and
                  (C) standards and mechanisms for settling the 
                transactions between the merchant acquiring 
                banks and the persons who agree to accept such 
                cards as payment.
        The acceptance as payment of any account number or 
        other indicia associated with a payment card shall be 
        treated for purposes of this section in the same manner 
        as accepting such payment card as payment.
          (3) Third party payment network.--The term ``third 
        party payment network'' means any agreement or 
        arrangement--
                  (A) which involves the establishment of 
                accounts with a central organization for the 
                purpose of settling transactions between 
                persons who establish such accounts,
                  (B) which provides for standards and 
                mechanisms for settling such transactions,
                  (C) which involves a substantial number of 
                persons unrelated to such central organization 
                who provide goods or services and who have 
                agreed to settle transactions for the provision 
                of such goods or services pursuant to such 
                agreement or arrangement, and
                  (D) which guarantees persons providing goods 
                or services pursuant to such agreement or 
                arrangement that such persons will be paid for 
                providing such goods or services.
        Such term shall not include any agreement or 
        arrangement which provides for the issuance of payment 
        cards.
  (e) Exception for De Minimis Payments by Third Party 
Settlement Organizations.--A third party settlement 
organization shall be required to report any information under 
subsection (a) with respect to third party network transactions 
of any participating payee only if--
          (1) the amount which would otherwise be reported 
        under subsection (a)(2) with respect to such 
        transactions exceeds $10,000, and
          (2) the aggregate number of such transactions exceeds 
        200.
  (f) Statements To Be Furnished to Persons With Respect to 
Whom Information Is Required.--Every person required to make a 
return under subsection (a) shall furnish to each person with 
respect to whom such a return is required 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 gross amount of the reportable payment 
        transactions with respect to the person required to be 
        shown on the return.
The written statement required under the preceding sentence 
shall be furnished to the person on or before January 31 of the 
year following the calendar year for which the return under 
subsection (a) was required to be made. Such statement may be 
furnished electronically.
  (g) Regulations.--The Secretary may prescribe such 
regulations or other guidance as may be necessary or 
appropriate to carry out this section, including rules to 
prevent the reporting of the same transaction more than once.

           *       *       *       *       *       *       *


CHAPTER 64--COLLECTION

           *       *       *       *       *       *       *


Subchapter D--Seizure of Property for Collection of Taxes

           *       *       *       *       *       *       *


PART II--LEVY

           *       *       *       *       *       *       *


SEC. 6331. LEVY AND DISTRAINT.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Continuing Levy on Certain Payments.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Increase in levy for certain payments.--Paragraph 
        (1) shall be applied by substituting ``100 percent'' 
        for ``15 percent'' in the case of any specified payment 
        due to a vendor of [goods] property or services sold or 
        leased to the Federal Government.

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


Subchapter A--Additions to the Tax and Additional Amounts

           *       *       *       *       *       *       *


PART II--ACCURACY-RELATED AND FRAUD PENALTIES

           *       *       *       *       *       *       *


SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERPAYMENTS.

  (a) * * *
  (b) Portion of Underpayment to Which Section Applies.--This 
section shall apply to the portion of any underpayment which is 
attributable to 1 or more of the following:
          (1) * * *

           *       *       *       *       *       *       *

          (6) The application of subsection (d) of section 710 
        or the regulations prescribed under section 710(e) to 
        prevent the avoidance of the purposes of section 710.

           *       *       *       *       *       *       *

  (i) Increase in Penalty in Case of Property Transferred for 
Investment Management Services.--In the case of any portion of 
an underpayment to which this section applies by reason of 
subsection (b)(6), subsection (a) shall be applied with respect 
to such portion by substituting ``40 percent'' for ``20 
percent''.

SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS 
                    WITH RESPECT TO REPORTABLE TRANSACTIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Special Rules.--
          (1) * * *
          (2) Coordination with other penalties.--
                  (A) * * *
                  (B) Coordination with [gross valuation 
                misstatement penalty] certain increased 
                underpayment penalties.--This section shall not 
                apply to any portion of an understatement on 
                which a penalty is imposed under section 6662 
                if the rate of the penalty is determined under 
                [section 6662(h)] subsection (h) or (i) of 
                section 6662.

           *       *       *       *       *       *       *


SEC. 6664. DEFINITIONS AND SPECIAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Reasonable Cause Exception for Underpayments.--
          (1) * * *
          (2) Exception.--Paragraph (1) shall not apply to any 
        portion of an underpayment to which this section 
        applies by reason of subsection (b)(6).
          [(2)] (3) Special rule for certain valuation 
        overstatements.--In the case of any underpayment 
        attributable to a substantial or gross valuation 
        overstatement under chapter 1 with respect to 
        charitable deduction property, paragraph (1) shall not 
        apply. The preceding sentence shall not apply to a 
        substantial valuation overstatement under chapter 1 
        if--
                  (A) * * *

           *       *       *       *       *       *       *

          [(3)] (4) Definitions.--For purposes of this 
        subsection--
                  (A) Charitable deduction property.--The term 
                ``charitable deduction property'' means any 
                property contributed by the taxpayer in a 
                contribution for which a deduction was claimed 
                under section 170. For purposes of [paragraph 
                (2)] paragraph (3), such term shall not include 
                any securities for which (as of the date of the 
                contribution) market quotations are readily 
                available on an established securities market.

           *       *       *       *       *       *       *


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.--The term ``information 
        return'' means--
                  (A) * * *
                  (B) any return required by--
                          (i) * * *

           *       *       *       *       *       *       *

                          (xx) section 6050U (relating to 
                        charges or payments for qualified long-
                        term care insurance contracts under 
                        combined arrangements), [and]
                          [(xix)] (xxi) section 6039(a) 
                        (relating to returns required with 
                        respect to certain options), [and] or
                          (xxii) section 6050W (relating to 
                        returns to payments made in settlement 
                        of payment card transactions), and

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

                  (BB) section 6050T (relating to returns 
                relating to credit for health insurance costs 
                of eligible individuals),
                  (CC) section 6050U (relating to charges or 
                payments for qualified long-term care insurance 
                contracts under combined arrangements)[.], or
                  (DD) section 6050W(c) (relating to returns 
                relating to payments made in settlement of 
                payment card transactions).

           *       *       *       *       *       *       *


CHAPTER 79--DEFINITIONS

           *       *       *       *       *       *       *


SEC. 7704. CERTAIN PUBLICLY TRADED PARTNERSHIPS TREATED AS 
                    CORPORATIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Qualifying Income.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Certain income qualifying under regulated 
        investment company or real estate trust provisions.--
        The term ``qualifying income'' also includes any income 
        which would qualify under section 851(b)(2)(A) or 
        856(c)(2) (determined without regard to section 
        856(c)(8)).

           *       *       *       *       *       *       *

                              ----------                              


                          SOCIAL SECURITY ACT



           *       *       *       *       *       *       *
TITLE II--FEDERAL OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE BENEFITS

           *       *       *       *       *       *       *


                            SELF-EMPLOYMENT

  Sec. 211. For the purposes of this title--
  (a) Net Earnings From Self-employment.--The term ``net 
earnings from self-employment'' means the gross income, as 
computed under subtitle A of the Internal Revenue Code of 1986, 
derived by an individual from any trade or business carried on 
by such individual, less the deductions allowed under such 
subtitle which are attributable to such trade or business, plus 
his distributive share (whether or not distributed) of the 
ordinary net income or loss, as computed under section 
702(a)(8) of such Code, from any trade or business carried on 
by a partnership of which he is a member; except that in 
computing such gross income and deductions and such 
distributive share of partnership ordinary net income or loss--
          (1) * * *

           *       *       *       *       *       *       *

          (12) There shall be excluded the distributive share 
        of any item of income or loss of a limited partner, as 
        such, [other than guaranteed] other than--
                  (A) guaranteed payments described in section 
                707(c) of the Internal Revenue Code of 1986 to 
                that partner for services actually rendered to 
                or on behalf of the partnership to the extent 
                that those payments are established to be in 
                the nature of remuneration for those 
                services[;], and
                  (B) any income treated as ordinary income 
                under section 710 of the Internal Revenue Code 
                of 1986 received by an individual who provides 
                investment management services (as defined in 
                section 710(d)(2) of such Code);

           *       *       *       *       *       *       *

                              ----------                              


 SECTION 401 OF THE 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 
                [123.50 percent] 100 percent of such amount,

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    Earlier this month, the distinguished Chairman of the 
Senate Finance Committee said: ``I think it's important to 
recognize the reality that at the end of the day, the AMT patch 
will not be paid for.'' A day later, he was even more explicit, 
observing: ``We all know it's not going to be paid for, so, why 
go through all the motions?''
    Given those comments, one might conclude that H.R 6275--
legislation containing an important AMT patch for 2008, but 
also a series of highly controversial, unwarranted tax hikes--
is ``dead on arrival'' in the Senate. But, frankly, that 
characterization gives even more credence to this hopelessly 
doomed bill than it deserves.
    Indeed, this legislation is dead even before arrival in the 
other body. A distinguished Democratic Member of our panel 
acknowledged as much in a pre-markup media interview, 
conceding: ``What's likely to happen is we'll pass a bill 
that's paid for, the Senate will send it back without offsets 
and we'll agree to it--just like last year.'' Simply put: this 
bill, like so many others authored by the House Majority before 
it, is just for show--another purely partisan exercise that 
stands absolutely no chance of making it through the other body 
and becoming law.
    Republicans were united in opposition to this misguided 
proposal during Committee consideration, and we fully expect a 
similar party-line vote on the Floor, should the Majority 
insist on bringing this political charade before the full 
House. We have a better idea: the Majority should abandon its 
efforts to enact needless tax increases and instead work with 
Republicans in a constructive, bipartisan manner to ensure that 
middle-class taxpayers are protected against the growing reach 
of the AMT.

     PAYGO MEANS NEEDLESS TAX HIKES, EVEN TO PREVENT TAX INCREASES

    We have said it before, and we will say it again: Congress 
should not have to raise taxes to prevent tax increases. Yet, 
as we have repeatedly stressed since the start of the 110th 
Congress, the Majority's paygo rules require precisely that--
massive tax increases simply to extend current law.
    While we all agree that something needs to be done about 
the deficit, we need to keep in mind that Washington doesn't 
have a revenue problem; it has a spending problem. The federal 
government is already collecting more taxes as a percent of GDP 
(18.8% in 2007) than the historical average (18.3% over the 
past 40 years). Under the Majority's paygo baseline, revenues 
will vastly exceed historical averages and will approach an 
incredible 20.5% of GDP within the decade. Even if the AMT 
patch were permanently extended, federal revenues would exceed 
historical averages for almost the entire ten-year window, and 
would, by 2018, reach 19.9% of GDP, a figure exceeded only 
three times since 1968.
    Are there long-term budget challenges facing us? Of course 
there are. But they are mostly the result of our inability to 
tackle fast-growing entitlements, not a lack of revenue. In 
light of all this, we believe that Congress should not be in 
the business of raising taxes, generally, and it certainly 
should not be doing so to ``pay for'' extensions of current 
low-tax policies, such as the AMT patch. The Majority was wrong 
to propose tax increases to offset the AMT patch last year, 
they are wrong again now, and the end result in both cases will 
be the same: an extension of the current AMT patch to protect 
millions of Americans without any corresponding tax increases.

      INCREASINGLY CONTROVERSIAL AND EVER-MORE DANGEROUS TAX HIKES

    Our experience with H.R. 6275 offers a pointed reminder 
about just how small and finite the supply of ``acceptable'' 
revenue raisers truly is. This exercise clearly shows that even 
the fertile minds of our friends across the aisle have only a 
few ``cute and cuddly'' tax increases that impact only a few 
disfavored individuals or companies.
    Indeed, the array of offsets in this $61.5 billion bill is 
far more objectionable than those used for the extenders bill 
(H.R. 6049) passed by the House last month. That previous bill 
contained revenue raising provisions related to the deferred 
compensation of managers of offshore hedge funds and a delay of 
pending worldwide interest allocation rules. While many of us 
were not particularly enamored of those provisions, they were 
certainly not the most egregious offsets the Majority could 
have chosen.
    But with those offsets now ``taken,'' the Majority has 
shown its commitment to recycling by bringing back, as part of 
H.R. 6275, a troublesome trio of previously rejected offsets 
that are far more controversial. This threatening threesome 
includes a tax hike on domestic oil and gas production that 
will do nothing to lower prices at the pump and will instead 
discourage domestic energy production, a provision imposing 
higher taxes on multi-national firms that invest and create 
good jobs in the U.S., and a ``carried interest'' tax increase 
on investment partnerships that could affect countless `mom and 
pop' businesses along Main Street, U.S.A. The bill also 
contains several altogether new revenue raisers, including a 
potentially burdensome, reporting requirement on credit card 
companies, that have never been subject to a formal hearing 
before our Committee.
    Just as the offsets in H.R. 6275 are more offensive than 
the ones used last month on the extenders bill, the ones we 
will see used the next time around are likely to be even worse. 
And, as we head toward 2010, when a huge number of critically 
important tax policies--ranging from the expanded $1,000 child 
credit to the lower tax rates on income, capital gains, and 
dividends--are set to expire, the Majority's treacherous, high-
tax road will lead us straight toward a $3.5 M trillion tax 
hike simply to extend current law.
    It didn't have to be this way, at least with respect to 
H.R. 6275. Republicans offered, three common-sense amendments 
during our Committee markup, but all were rejected on partyline 
or near-party-line votes. Mr. English's amendment would have 
eliminated the offsets entirely, leaving a clean AMT patch that 
could easily pass the Senate and be signed into law. Mr. 
Brady's amendment to exempt real estate partnerships, including 
many small businesses that happen to be organized in 
partnership form, from the Majority's proposed tax hike on 
carried interest met a similar, unfortunate fate. Perhaps most 
surprising of all, the Majority even rejected a separate 
amendment by Mr. Brady to strike the bill's provisions 
discouraging domestic energy production and to provide crucial 
increases in the per mile deductions that taxpayers can claim 
for driving for business, medical, moving, or charitable 
purposes. In light of the record-high gas prices that are now 
occurring on the Majority's watch, we are disappointed but not 
surprised that the Majority would oppose this effort to 
increase our domestic energy supply while providing modest, yet 
important, relief to drivers across the country who are feeling 
unprecedented pain at the pump.

        MAJORITY'S POLITICAL GAMES THREATEN TIMELY A.M.T. PATCH

    Republicans strongly support a clean AMT patch to protect 
millions of middle-class taxpayers from falling victim to the 
AMT in 2008. Without this patch, more than 25 million families 
would pay an additional $61.5 billion in taxes next April, 
including 21 million families who did not owe AMT in 2007. This 
would translate into an average tax increase of more than 
$2,400 per affected taxpayer.
    Sadly, the Majority's decision to play politics with this 
bill puts us on the same regrettable path as last year--toward 
another historically late AMT patch. As we all painfully 
remember, House Democrats' stubborn insistence on linking the 
2007 patch to unrelated tax hikes ultimately resulted in the 
patch being enacted--without offsets--later in the year than 
ever before, causing headaches and uncertainty for taxpayers 
and the IRS alike. According to the Government Accountability 
Office (GAO), that late enactment of the 2007 patch prevented 
the IRS from processing AMT-affected returns until about a 
month into the filing season.
    To avoid a repeat of last year's mismanaged procesd--and to 
protect millions of middleclass taxpayers from the AMT--the 
Majority should be working closely with Republicans to enact a 
timely AMT patch, without offsets. Our friends in the Majority 
have supported clean AMT patches in the past, most recently 
last December. And we all know that we're going to end up with 
a clean AMT patch once again this year. As the esteemed 
Chairman of the Senate Finance Committee put it: ``We all know 
it's not going to be paid for, so why go through all the 
motions?''
    We couldn't have said it better ourselves.

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

                                  
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