[House Report 111-447]
[From the U.S. Government Publishing Office]


111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     111-447

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



 
         SMALL BUSINESS AND INFRASTRUCTURE JOBS TAX ACT OF 2010

                                _______
                                

 March 19, 2010.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4849]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4849) to amend the Internal Revenue Code of 1986 to 
provide tax incentives for small business job creation, extend 
the Build America Bonds program, provide other infrastructure 
job creation tax incentives, 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 ``Small Business and 
Infrastructure Jobs Tax Act of 2010''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.

                 TITLE I--SMALL BUSINESS TAX INCENTIVES

                     Subtitle A--General Provisions

Sec. 101. Temporary exclusion of 100 percent of gain on certain small 
business stock.

       Subtitle B--Limitations and Reporting on Certain Penalties

Sec. 111. Limitation on penalty for failure to disclose certain 
information.
Sec. 112. Annual reports on penalties and certain other enforcement 
actions.

                      Subtitle C--Other Provisions

Sec. 121. Nonrecourse small business investment company loans from the 
Small Business Administration treated as amounts at risk.
Sec. 122. Increase in amount allowed as deduction for start-up 
expenditures.

                  TITLE II--INFRASTRUCTURE INCENTIVES

Sec. 201. Extension of Build America Bonds.
Sec. 202. Exempt-facility bonds for sewage and water supply facilities.
Sec. 203. Extension of exemption from alternative minimum tax treatment 
for certain tax-exempt bonds.
Sec. 204. Elective payments in lieu of low income housing credits.
Sec. 205. Extension and additional allocations of recovery zone bond 
authority.
Sec. 206. Allowance of new markets tax credit against alternative 
minimum tax.

                     TITLE III--REVENUE PROVISIONS

Sec. 301. Limitation on treaty benefits for certain deductible 
payments.
Sec. 302. Treatment of securities of a controlled corporation exchanged 
for assets in certain reorganizations.
Sec. 303. Repeal of special rules for interest and dividends received 
from persons meeting the 80-percent foreign business requirements.
Sec. 304. Information reporting for rental property expense payments.
Sec. 305. Application of levy to payments to Federal vendors relating 
to property.
Sec. 306. Application of continuous levy to employment tax liability of 
certain Federal contractors.
Sec. 307. Required minimum 10-year term, etc., for grantor retained 
annuity trusts.
Sec. 308. Increase in information return penalties.

                 TITLE I--SMALL BUSINESS TAX INCENTIVES

                     Subtitle A--General Provisions

SEC. 101. TEMPORARY EXCLUSION OF 100 PERCENT OF GAIN ON CERTAIN SMALL 
                    BUSINESS STOCK.

  (a) In General.--Subsection (a) of section 1202 is amended by adding 
at the end the following new paragraph:
          ``(4) Special 100 percent exclusion.--In the case of 
        qualified small business stock acquired after March 15, 2010, 
        and before January 1, 2012--
                  ``(A) paragraph (1) shall be applied by substituting 
                `100 percent' for `50 percent',
                  ``(B) paragraph (2) shall not apply, and
                  ``(C) paragraph (7) of section 57(a) shall not 
                apply.''.
  (b) Conforming Amendments.--Paragraph (3) of section 1202(a) is 
amended--
          (1) by striking ``after the date of the enactment of this 
        paragraph and before January 1, 2011'' and inserting ``after 
        February 17, 2009, and before March 16, 2010'', and
          (2) by striking ``Special rules for 2009 and 2010'' in the 
        heading and inserting ``Special 75 percent exclusion''.
  (c) Effective Date.--The amendments made by this section shall apply 
to stock acquired after March 15, 2010.

       Subtitle B--Limitations and Reporting on Certain Penalties

SEC. 111. LIMITATION ON PENALTY FOR FAILURE TO DISCLOSE CERTAIN 
                    INFORMATION.

  (a) In General.--Subsection (b) of section 6707A is amended to read 
as follows:
  ``(b) Amount of Penalty.--
          ``(1) In general.--Except as otherwise provided in this 
        subsection, the amount of the penalty under subsection (a) with 
        respect to any reportable transaction shall be 75 percent of 
        the decrease in tax shown on the return as a result of such 
        transaction (or which would have resulted from such transaction 
        if such transaction were respected for Federal tax purposes).
          ``(2) Maximum penalty.--The amount of the penalty under 
        subsection (a) with respect to any reportable transaction for 
        any taxable year shall not exceed--
                  ``(A) in the case of a listed transaction, $200,000 
                ($100,000 in the case of a natural person), or
                  ``(B) in the case of any other reportable 
                transaction, $50,000 ($10,000 in the case of a natural 
                person).
          ``(3) Minimum penalty.--The amount of the penalty under 
        subsection (a) with respect to any transaction for any taxable 
        year shall not be less than $10,000 ($5,000 in the case of a 
        natural person).''.
  (b) Effective Date.--The amendment made by this section shall apply 
to penalties assessed after December 31, 2006.

SEC. 112. ANNUAL REPORTS ON PENALTIES AND CERTAIN OTHER ENFORCEMENT 
                    ACTIONS.

  (a) In General.--The Commissioner of Internal Revenue, in 
consultation with the Secretary of the Treasury, shall submit to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate an annual report on the penalties 
assessed by the Internal Revenue Service during the preceding year 
under each of the following provisions of the Internal Revenue Code of 
1986:
          (1) Section 6662A (relating to accuracy-related penalty on 
        understatements with respect to reportable transactions).
          (2) Section 6700(a) (relating to promoting abusive tax 
        shelters).
          (3) Section 6707 (relating to failure to furnish information 
        regarding reportable transactions).
          (4) Section 6707A (relating to failure to include reportable 
        transaction information with return).
          (5) Section 6708 (relating to failure to maintain lists of 
        advisees with respect to reportable transactions).
  (b) Additional Information.--The report required under subsection (a) 
shall also include information on the following with respect to each 
year:
          (1) Any action taken under section 330(b) of title 31, United 
        States Code, with respect to any reportable transaction (as 
        defined in section 6707A(c) of the Internal Revenue Code of 
        1986).
          (2) Any extension of the time for assessment of tax enforced, 
        or assessment of any amount under such an extension, under 
        paragraph (10) of section 6501(c) of the Internal Revenue Code 
        of 1986.
  (c) Date of Report.--The first report required under subsection (a) 
shall be submitted not later than December 31, 2010.

                      Subtitle C--Other Provisions

SEC. 121. NONRECOURSE SMALL BUSINESS INVESTMENT COMPANY LOANS FROM THE 
                    SMALL BUSINESS ADMINISTRATION TREATED AS AMOUNTS AT 
                    RISK.

  (a) In General.--Subparagraph (B) of section 465(b)(6) is amended to 
read as follows:
                  ``(B) Qualified nonrecourse financing.--For purposes 
                of this paragraph--
                          ``(i) In general.--The term `qualified 
                        nonrecourse financing' means any financing--
                                  ``(I) which is qualified real 
                                property financing or qualified SBIC 
                                financing,
                                  ``(II) except to the extent provided 
                                in regulations, with respect to which 
                                no person is personally liable for 
                                repayment, and
                                  ``(III) which is not convertible 
                                debt.
                          ``(ii) Qualified real property financing.--
                        The term `qualified real property financing' 
                        means any financing which--
                                  ``(I) is borrowed by the taxpayer 
                                with respect to the activity of holding 
                                real property,
                                  ``(II) is secured by real property 
                                used in such activity, and
                                  ``(III) is borrowed by the taxpayer 
                                from a qualified person or represents a 
                                loan from any Federal, State, or local 
                                government or instrumentality thereof, 
                                or is guaranteed by any Federal, State, 
                                or local government.
                          ``(iii) Qualified sbic financing.--The term 
                        `qualified SBIC financing' means any financing 
                        which--
                                  ``(I) is borrowed by a small business 
                                investment company (within the meaning 
                                of section 301 of the Small Business 
                                Investment Act of 1958), and
                                  ``(II) is borrowed from, or 
                                guaranteed by, the Small Business 
                                Administration under the authority of 
                                section 303(b) of such Act.''.
  (b) Conforming Amendments.--Subparagraph (A) of section 465(b)(6) is 
amended--
          (1) by striking ``in the case of an activity of holding real 
        property,'', and
          (2) by striking ``which is secured by real property used in 
        such activity''.
  (c) Effective Date.--The amendments made by this section shall apply 
to loans and guarantees made after the date of the enactment of this 
Act.

SEC. 122. INCREASE IN AMOUNT ALLOWED AS DEDUCTION FOR START-UP 
                    EXPENDITURES.

  (a) In General.--Subsection (b) of section 195 is amended by adding 
at the end the following new paragraph:
          ``(3) Increased limitation for taxable years beginning in 
        2010 or 2011.--In the case of any taxable year beginning in 
        2010 or 2011, paragraph (1)(A)(ii) shall be applied--
                  ``(A) by substituting `$20,000' for `$5,000', and
                  ``(B) by substituting `$75,000' for `$50,000'.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2009.

                  TITLE II--INFRASTRUCTURE INCENTIVES

SEC. 201. EXTENSION OF BUILD AMERICA BONDS.

  (a) In General.--Subparagraph (B) of section 54AA(d)(1) is amended by 
striking ``January 1, 2011'' and inserting ``April 1, 2013''.
  (b) Extension of Payments to Issuers.--
          (1) In general.--Subsection (a) of section 6431 is amended by 
        striking ``January 1, 2011'' and inserting ``April 1, 2013''.
          (2) Conforming amendments.--Subsection (g) of section 54AA is 
        amended--
                  (A) by striking ``January 1, 2011'' and inserting 
                ``April 1, 2013'', and
                  (B) by striking ``Qualified Bonds Issued Before 
                2011'' in the heading and inserting ``Certain Qualified 
                Bonds''.
  (c) Reduction in Percentage of Payments to Issuers.--Subsection (b) 
of section 6431 is amended--
          (1) by striking ``The Secretary'' and inserting the 
        following:
          ``(1) In general.--The Secretary'',
          (2) by striking ``35 percent'' and inserting ``the applicable 
        percentage'', and
          (3) by adding at the end the following new paragraph:
          ``(2) Applicable percentage.--For purposes of this 
        subsection, the term `applicable percentage' means the 
        percentage determined in accordance with the following table:


----------------------------------------------------------------------------------------------------------------
  ``In the case of a qualified bond issued during calendar
                           year:                                        The applicable percentage is:
----------------------------------------------------------------------------------------------------------------
2009 or 2010...............................................  35 percent
2011.......................................................  33 percent
2012.......................................................  31 percent
2013.......................................................  30 percent''.
----------------------------------------------------------------------------------------------------------------

  (d) Current Refundings Permitted.--Subsection (g) of section 54AA is 
amended by adding at the end the following new paragraph:
          ``(3) Treatment of current refunding bonds.--
                  ``(A) In general.--For purposes of this subsection, 
                the term `qualified build America bond' includes any 
                bond (or series of bonds) issued to refund a qualified 
                build America bond if--
                          ``(i) the average maturity date of the issue 
                        of which the refunding bond is a part is not 
                        later than the average maturity date of the 
                        bonds to be refunded by such issue,
                          ``(ii) the amount of the refunding bond does 
                        not exceed the outstanding amount of the 
                        refunded bond, and
                          ``(iii) the refunded bond is redeemed not 
                        later than 90 days after the date of the 
                        issuance of the refunding bond.
                  ``(B) Applicable percentage.--In the case of a 
                refunding bond referred to in subparagraph (A), the 
                applicable percentage with respect to such bond under 
                section 6431(b) shall be the lowest percentage 
                specified in paragraph (2) of such section.
                  ``(C) Determination of average maturity.--For 
                purposes of subparagraph (A)(i), average maturity shall 
                be determined in accordance with section 
                147(b)(2)(A).''.
  (e) Clarification Related to Levees and Flood Control Projects.--
Subparagraph (A) of section 54AA(g)(2) is amended by inserting 
``(including capital expenditures for levees and other flood control 
projects)'' after ``capital expenditures''.

SEC. 202. EXEMPT-FACILITY BONDS FOR SEWAGE AND WATER SUPPLY FACILITIES.

  (a) Bonds for Water and Sewage Facilities Exempt From Volume Cap on 
Private Activity Bonds.--
          (1) In general.--Paragraph (3) of section 146(g) is amended 
        by inserting ``(4), (5),'' after ``(2),''.
          (2) Conforming amendment.--Paragraphs (2) and (3)(B) of 
        section 146(k) are both amended by striking ``(4), (5), (6),'' 
        and inserting ``(6)''.
  (b) Tax-exempt Issuance by Indian Tribal Governments.--
          (1) In general.--Subsection (c) of section 7871 is amended by 
        adding at the end the following new paragraph:
          ``(4) Exception for bonds for water and sewage facilities.--
        Paragraph (2) shall not apply to an exempt facility bond 95 
        percent or more of the net proceeds (as defined in section 
        150(a)(3)) of which are to be used to provide facilities 
        described in paragraph (4) or (5) of section 142(a).''.
          (2) Conforming amendment.--Paragraph (2) of section 7871(c) 
        is amended by striking ``paragraph (3)'' and inserting 
        ``paragraphs (3) and (4)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

SEC. 203. EXTENSION OF EXEMPTION FROM ALTERNATIVE MINIMUM TAX TREATMENT 
                    FOR CERTAIN TAX-EXEMPT BONDS.

  (a) In General.--Clause (vi) of section 57(a)(5)(C) is amended--
          (1) by striking ``January 1, 2011'' in subclause (I) and 
        inserting ``January 1, 2012'', and
          (2) by striking ``and 2010'' in the heading and inserting ``, 
        2010, and 2011''.
  (b) Adjusted Current Earnings.--Clause (iv) of section 56(g)(4)(B) is 
amended--
          (1) by striking ``January 1, 2011'' in subclause (I) and 
        inserting ``January 1, 2012'', and
          (2) by striking ``and 2010'' in the heading and inserting ``, 
        2010, and 2011''.
  (c) Effective Date.--The amendments made by this section shall apply 
to obligations issued after December 31, 2010.

SEC. 204. ELECTIVE PAYMENTS IN LIEU OF LOW INCOME HOUSING CREDITS.

  (a) In General.--Chapter 65 (relating to abatements, credits, and 
refunds) is amended by adding at the end the following new subchapter:

               ``Subchapter C--Direct Payment Provisions

``Sec. 6451. Elective payments in lieu of low income housing credit for 
bond-financed buildings.

``SEC. 6451. ELECTIVE PAYMENTS IN LIEU OF LOW INCOME HOUSING CREDIT FOR 
                    BOND-FINANCED BUILDINGS.

  ``(a) In General.--Any person making an election under this section 
with respect to any qualified bond-financed low-income building 
originally placed in service by such person during the taxable year 
shall be treated as making a payment, against the tax imposed by 
subtitle A for the taxable year, equal to the direct payment amount 
with respect to such building. Such payment shall be treated as made on 
the later of the due date of the return of such tax or the date on 
which such return is filed.
  ``(b) Qualified Bond-financed Low-income Building.--For purposes of 
this section, the term `qualified bond-financed low-income building' 
means any qualified low-income building to which paragraph (1) of 
section 42(h) does not apply by reason of paragraph (4)(B) of such 
section.
  ``(c) Direct Payment Amount.--For purposes of this section, the term 
`direct payment amount' means, with respect to any building, 25.5 
percent of the qualified basis of such building.
  ``(d) Special Rules for Certain Non-taxpayers.--
          ``(1) Denial of payment.--Subsection (a) shall not apply with 
        respect to any building placed in service by--
                  ``(A) any governmental entity, or
                  ``(B) any organization described in section 501(c) or 
                401(a) and exempt from tax under section 501(a).
          ``(2) Special rules for partnerships and s corporations.--In 
        the case of property originally placed in service by a 
        partnership or an S corporation--
                  ``(A) the election under subsection (a) may be made 
                only by such partnership or S corporation,
                  ``(B) such partnership or S corporation shall be 
                treated as making the payment referred to in subsection 
                (a) only to the extent of the proportionate share of 
                such partnership or S corporation as is owned by 
                persons who would be treated as making such payment if 
                the building were placed in service by such persons, 
                and
                  ``(C) the return required to be made by such 
                partnership or S corporation under section 6031 or 6037 
                (as the case may be) shall be treated as a return of 
                tax for purposes of subsection (a).
For purposes of subparagraph (B), rules similar to the rules of section 
168(h)(6) (other than subparagraph (F) thereof) shall apply.
  ``(e) Coordination With Low Income Housing Credit.--In the case of 
any property with respect to which an election is made under this 
section, no credit shall be determined under section 42 with respect to 
such building for any taxable year.
  ``(f) Other Definitions and Special Rules.--For purposes of this 
section--
          ``(1) Other definitions.--Terms used in this section which 
        are also used in section 42 shall have the same meaning for 
        purposes of this section as when used in such section.
          ``(2) Application of recapture rules, etc.--Except as 
        otherwise provided by the Secretary, rules similar to the rules 
        of section 42 shall apply, including the recapture rules of 
        section 42(j).
          ``(3) Provision of information.--A person shall not be 
        treated as having elected the application of this section 
        unless the taxpayer provides such information as the Secretary 
        may require for purposes of verifying the proper amount to be 
        treated as a payment under subsection (a) and evaluating the 
        effectiveness of this section.
          ``(4) Exclusion from gross income.--Any credit or refund 
        allowed or made by reason of this section shall not be 
        includible in gross income or alternative minimum taxable 
        income.
  ``(g) Termination.--Subsection (a) shall not apply with respect to 
any building placed in service during a taxable year beginning after 
December 31, 2010.''.
  (b) Conforming Amendments.--
          (1) Subparagraph (A) of section 6211(b)(4) is amended by 
        inserting ``and subchapter C of chapter 65 (including any 
        payment treated as made under such subchapter)'' after 
        ``6431''.
          (2) Subparagraph (B) of section 6425(c)(1) is amended--
                  (A) by striking ``the credits'' and inserting ``the 
                sum of--
                          ``(i) the credits'',
                  (B) by striking the period at the end of clause (i) 
                thereof (as amended by this paragraph) and inserting 
                ``, plus'', and
                  (C) by adding at the end the following new clause:
                          ``(ii) the credits allowed (and payments 
                        treated as made) under subchapter C.''.
          (3) Paragraph (3) of section 6654(f) is amended--
                  (A) by striking ``the credits'' and inserting ``the 
                sum of--
                  ``(A) the credits'',
                  (B) by striking the period at the end of subparagraph 
                (A) thereof (as amended by this paragraph) and 
                inserting ``, and'', and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(B) the credits allowed (and payments treated as 
                made) under subchapter C of chapter 65.''.
          (4) Subparagraph (B) of section 6655(g)(1) is amended--
                  (A) by striking ``the credits'' and inserting ``the 
                sum of--
                          ``(i) the credits'',
                  (B) by striking the period at the end of clause (i) 
                thereof (as amended by this paragraph) and inserting 
                ``, plus'', and
                  (C) by adding at the end the following new clause:
                          ``(ii) the credits allowed (and payments 
                        treated as made) under subchapter C of chapter 
                        65.''.
          (5) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``, or from the provisions 
        of subchapter C of chapter 65 of such Code'' before the period 
        at the end.
          (6) The table of subchapters for chapter 65 is amended by 
        adding at the end the following new item:

                subchapter c. direct payment provisions

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

SEC. 205. EXTENSION AND ADDITIONAL ALLOCATIONS OF RECOVERY ZONE BOND 
                    AUTHORITY.

  (a) Extension of Recovery Zone Bond Authority.--Section 1400U-2(b)(1) 
and section 1400U-3(b)(1)(B) are each amended by striking ``January 1, 
2011'' and inserting ``January 1, 2012''.
  (b) Additional Allocations of Recovery Zone Bond Authority Based on 
Unemployment.--Section 1400U-1 is amended by adding at the end the 
following new subsection:
  ``(c) Allocation of 2010 Recovery Zone Bond Limitations Based on 
Unemployment.--
          ``(1) In general.--The Secretary shall allocate the 2010 
        national recovery zone economic development bond limitation and 
        the 2010 national recovery zone facility bond limitation among 
        the States in the proportion that each such State's 2009 
        unemployment number bears to the aggregate of the 2009 
        unemployment numbers for all of the States.
          ``(2) Minimum allocation.--The Secretary shall adjust the 
        allocations under paragraph (1) for each State to the extent 
        necessary to ensure that no State (prior to any reduction under 
        paragraph (3)) receives less than 0.9 percent of the 2010 
        national recovery zone economic development bond limitation and 
        0.9 percent of the 2010 national recovery zone facility bond 
        limitation.
          ``(3) Allocations by states.--
                  ``(A) In general.--Each State with respect to which 
                an allocation is made under paragraph (1) shall 
                reallocate such allocation among the counties and large 
                municipalities (as defined in subsection (a)(3)(B)) in 
                such State in the proportion that each such county's or 
                municipality's 2009 unemployment number bears to the 
                aggregate of the 2009 unemployment numbers for all the 
                counties and large municipalities (as so defined) in 
                such State.
                  ``(B) 2010 allocation reduced by amount of previous 
                allocation.--Each State shall reduce (but not below 
                zero)--
                          ``(i) the amount of the 2010 national 
                        recovery zone economic development bond 
                        limitation allocated to each county or large 
                        municipality (as so defined) in such State by 
                        the amount of the national recovery zone 
                        economic development bond limitation allocated 
                        to such county or large municipality under 
                        subsection (a)(3)(A) (determined without regard 
                        to any waiver thereof), and
                          ``(ii) the amount of the 2010 national 
                        recovery zone facility bond limitation 
                        allocated to each county or large municipality 
                        (as so defined) in such State by the amount of 
                        the national recovery zone facility bond 
                        limitation allocated to such county or large 
                        municipality under subsection (a)(3)(A) 
                        (determined without regard to any waiver 
                        thereof).
                  ``(C) Waiver of suballocations.--A county or 
                municipality may waive any portion of an allocation 
                made under this paragraph. A State may by law treat a 
                county or municipality as waiving any portion of an 
                allocation made under this paragraph if there is a 
                reasonable expectation that such allocation would not 
                otherwise be used.
                  ``(D) Special rule for a municipality in a county.--
                In the case of any large municipality any portion of 
                which is in a county, such portion shall be treated as 
                part of such municipality and not part of such county.
          ``(4) 2009 unemployment number.--For purposes of this 
        subsection, the term `2009 unemployment number' means, with 
        respect to any State, county or municipality, the number of 
        individuals in such State, county, or municipality who were 
        determined to be unemployed by the Bureau of Labor Statistics 
        for December 2009.
          ``(5) 2010 national limitations.--
                  ``(A) Recovery zone economic development bonds.--The 
                2010 national recovery zone economic development bond 
                limitation is $10,000,000,000. Any allocation of such 
                limitation under this subsection shall be treated for 
                purposes of section 1400U-2 in the same manner as an 
                allocation of national recovery zone economic 
                development bond limitation.
                  ``(B) Recovery zone facility bonds.--The 2010 
                national recovery zone facility bond limitation is 
                $15,000,000,000. Any allocation of such limitation 
                under this subsection shall be treated for purposes of 
                section 1400U-3 in the same manner as an allocation of 
                national recovery zone facility bond limitation.''.
  (c) Authority of State to Waive Certain 2009 Allocations.--
Subparagraph (A) of section 1400U-1(a)(3) is amended by adding at the 
end the following: ``A State may by law treat a county or municipality 
as waiving any portion of an allocation made under this subparagraph if 
there is a reasonable expectation that such allocation would not 
otherwise be used.''.

SEC. 206. ALLOWANCE OF NEW MARKETS TAX CREDIT AGAINST ALTERNATIVE 
                    MINIMUM TAX.

  (a) In General.--Subparagraph (B) of section 38(c)(4) is amended by 
redesignating clauses (v) through (viii) as clauses (vi) through (ix), 
respectively, and by inserting after clause (iv) the following new 
clause:
                          ``(v) the credit determined under section 
                        45D, but only with respect to credits 
                        determined with respect to qualified equity 
                        investments (as defined in section 45D(b)) 
                        initially made before January 1, 2012,''.
  (b) Effective Date.--The amendments made by this section shall apply 
to qualified equity investments (as defined in section 45D(b) of the 
Internal Revenue Code of 1986) initially made after March 15, 2010.

                     TITLE III--REVENUE PROVISIONS

SEC. 301. 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. 302. TREATMENT OF SECURITIES OF A CONTROLLED CORPORATION EXCHANGED 
                    FOR ASSETS IN CERTAIN REORGANIZATIONS.

  (a) In General.--Section 361 (relating to nonrecognition of gain or 
loss to corporations; treatment of distributions) is amended by adding 
at the end the following new subsection:
  ``(d) Special Rules for Transactions Involving Section 355 
Distributions.--In the case of a reorganization described in section 
368(a)(1)(D) with respect to which stock or securities of the 
corporation to which the assets are transferred are distributed in a 
transaction which qualifies under section 355--
          ``(1) this section shall be applied by substituting `stock 
        other than nonqualified preferred stock (as defined in section 
        351(g)(2))' for `stock or securities' in subsections (a) and 
        (b)(1), and
          ``(2) the first sentence of subsection (b)(3) shall apply 
        only to the extent that the sum of the money and the fair 
        market value of the other property transferred to such 
        creditors does not exceed the adjusted bases of such assets 
        transferred (reduced by the amount of the liabilities assumed 
        (within the meaning of section 357(c))).''.
  (b) Conforming Amendment.--Paragraph (3) of section 361(b) is amended 
by striking the last sentence.
  (c) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to exchanges after 
        the date of the enactment of this Act.
          (2) Transition rule.--The amendments made by this section 
        shall not apply to any exchange pursuant to a transaction which 
        is--
                  (A) made pursuant to an agreement which was binding 
                on March 15, 2010, and at all times thereafter,
                  (B) described in a ruling request submitted to the 
                Internal Revenue Service on or before such date, or
                  (C) described on or before such date in a public 
                announcement or in a filing with the Securities and 
                Exchange Commission.

SEC. 303. REPEAL OF SPECIAL RULES FOR INTEREST AND DIVIDENDS RECEIVED 
                    FROM PERSONS MEETING THE 80-PERCENT FOREIGN 
                    BUSINESS REQUIREMENTS.

  (a) Repeal of Special Rule Treating Interest as United States 
Source.--Paragraph (1) of section 861(a) is amended by striking 
subparagraph (A) and by redesignating subparagraphs (B) and (C) as 
subparagraphs (A) and (B), respectively.
  (b) Repeal of Exception to Tax on Dividends Received by Nonresident 
Aliens.--Paragraph (2) of section 871(i) is amended by striking 
subparagraph (B) and by redesignating subparagraphs (C) and (D) as 
subparagraphs (B) and (C), respectively.
  (c) Conforming Amendments.--
          (1) Section 861 is amended by striking subsection (c) and by 
        redesignating subsections (d), (e), and (f) as subsections (c), 
        (d), and (e), respectively.
          (2) Paragraph (9) of section 904(h) is amended to read as 
        follows:
          ``(9) Treatment of certain domestic corporations.--In the 
        case of any dividend treated as not from sources with the 
        United States under section 861(a)(2)(A), the corporation 
        paying such dividend shall be treated for purposes of this 
        subsection as a United States-owned foreign corporation.''.
          (3) Subsection (c) of section 2104 is amended in the last 
        sentence by striking ``or to a debt obligation of a domestic 
        corporation'' and all that follows and inserting a period.
  (d) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2010.
          (2) Grandfather rule for outstanding debt obligations.--
                  (A) In general.--The amendments made by this section 
                shall not apply to payments of interest on obligations 
                issued before the date of the enactment of this Act.
                  (B) Exception for related party debt.--Subparagraph 
                (A) shall not apply to any interest which is payable to 
                a related person (determined under rules similar to the 
                rules of section 954(d)(3)).
                  (C) Significant modifications treated as new 
                issues.--For purposes of subparagraph (A), a 
                significant modification of the terms of any obligation 
                (including any extension of the term of such 
                obligation) shall be treated as a new issue.

SEC. 304. INFORMATION REPORTING FOR RENTAL PROPERTY EXPENSE PAYMENTS.

  (a) In General.--Section 6041 is amended by adding at the end the 
following new subsection:
  ``(h) Treatment of Rental Property Expense Payments.--
          ``(1) In general.--For purposes of subsection (a), a person 
        receiving rental income from real estate (other than a 
        qualified residence) shall be considered to be engaged in a 
        trade or business of renting property.
          ``(2) Qualified residence.--For purposes of paragraph (1), 
        the term `qualified residence' means----
                  ``(A) the principal residence (within the meaning of 
                section 121) of the taxpayer, and
                  ``(B) 1 other residence of the taxpayer which is 
                selected by the taxpayer for purposes of this 
                subsection for the taxable year and which is used by 
                the taxpayer as a residence (within the meaning of 
                section 280A(d)(1)).''.
  (b) Effective Date.--The amendment made by this section shall apply 
to payments made after December 31, 2010.

SEC. 305. APPLICATION OF LEVY TO PAYMENTS TO FEDERAL VENDORS RELATING 
                    TO PROPERTY.

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

SEC. 306. APPLICATION OF CONTINUOUS LEVY TO EMPLOYMENT TAX LIABILITY OF 
                    CERTAIN FEDERAL CONTRACTORS.

  (a) In General.--Section 6330(h) is amended by inserting ``or if the 
person subject to the levy (or any predecessor thereof) is a Federal 
contractor that was identified as owing such employment taxes through 
the Federal Payment Levy Program'' before the period at the end of the 
first sentence.
  (b) Effective Date.--The amendment made by this section shall apply 
to levies issued after December 31, 2010.

SEC. 307. REQUIRED MINIMUM 10-YEAR TERM, ETC., FOR GRANTOR RETAINED 
                    ANNUITY TRUSTS.

  (a) In General.--Subsection (b) of section 2702 is amended--
          (1) by redesignating paragraphs (1), (2) and (3) as 
        subparagraphs (A), (B), and (C), respectively, and by moving 
        such subparagraphs (as so redesignated) 2 ems to the right,
          (2) by striking ``For purposes of'' and inserting the 
        following:
          ``(1) In general.--For purposes of'', and
          (3) by striking ``paragraph (1) or (2)'' in paragraph (1)(C) 
        (as so redesignated) and inserting ``subparagraph (A) or (B)'', 
        and
          (4) by adding at the end the following new paragraph:
          ``(2) Additional requirements with respect to grantor 
        retained annuities.--For purposes of subsection (a), in the 
        case of an interest described in paragraph (1)(A) (determined 
        without regard to this paragraph) which is retained by the 
        transferor, such interest shall be treated as described in such 
        paragraph only if--
                  ``(A) the right to receive the fixed amounts referred 
                to in such paragraph is for a term of not less than 10 
                years,
                  ``(B) such fixed amounts, when determined on an 
                annual basis, do not decrease relative to any prior 
                year during the first 10 years of the term referred to 
                in subparagraph (A), and
                  ``(C) the remainder interest has a value greater than 
                zero determined as of the time of the transfer.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to transfers made after the date of the enactment of this Act.

SEC. 308. INCREASE IN INFORMATION RETURN PENALTIES.

  (a) Failure to File Correct Information Returns.--
          (1) In general.--Subsections (a)(1), (b)(1)(A), and (b)(2)(A) 
        of section 6721 are each amended by striking ``$50'' and 
        inserting ``$100''.
          (2) Aggregate annual limitation.--Subsections (a)(1), 
        (d)(1)(A), and (e)(3)(A) of section 6721 are each amended by 
        striking ``$250,000'' and inserting ``$1,500,000''.
  (b) Reduction Where Correction Within 30 Days.--
          (1) In general.--Subparagraph (A) of section 6721(b)(1) is 
        amended by striking ``$15'' and inserting ``$30''.
          (2) Aggregate annual limitation.--Subsections (b)(1)(B) and 
        (d)(1)(B) of section 6721 are each amended by striking 
        ``$75,000'' and inserting ``$250,000''.
  (c) Reduction Where Correction on or Before August 1.--
          (1) In general.--Subparagraph (A) of section 6721(b)(2) is 
        amended by striking ``$30'' and inserting ``$60''.
          (2) Aggregate annual limitation.--Subsections (b)(2)(B) and 
        (d)(1)(C) of section 6721 are each amended by striking 
        ``$150,000'' and inserting ``$500,000''.
  (d) Aggregate Annual Limitations for Persons With Gross Receipts of 
Not More Than $5,000,000.--Paragraph (1) of section 6721(d) is 
amended--
          (1) by striking ``$100,000'' in subparagraph (A) and 
        inserting ``$500,000'',
          (2) by striking ``$25,000'' in subparagraph (B) and inserting 
        ``$75,000'', and
          (3) by striking ``$50,000'' in subparagraph (C) and inserting 
        ``$200,000''.
  (e) Penalty in Case of Intentional Disregard.--Paragraph (2) of 
section 6721(e) is amended by striking ``$100'' and inserting ``$250''.
  (f) Adjustment for Inflation.--Section 6721 is amended by adding at 
the end the following new subsection:
  ``(f) Adjustment for Inflation.--
          ``(1) In general.--For each fifth calendar year beginning 
        after 2012, each of the dollar amounts under subsections (a), 
        (b), (d) (other than paragraph (2)(A) thereof), and (e) shall 
        be increased by such dollar amount multiplied by the cost-of-
        living adjustment determined under section 1(f)(3) determined 
        by substituting `calendar year 2011' for `calendar year 1992' 
        in subparagraph (B) thereof.
          ``(2) Rounding.--If any amount adjusted under paragraph (1)--
                  ``(A) is not less than $75,000 and is not a multiple 
                of $500, such amount shall be rounded to the next 
                lowest multiple of $500, and
                  ``(B) is not described in subparagraph (A) and is not 
                a multiple of $10, such amount shall be rounded to the 
                next lowest multiple of $10.''.
  (g) Effective Date.--The amendments made by this section shall apply 
with respect to information returns required to be filed on or after 
January 1, 2011.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 4849, as amended, provides tax incentives 
for small business job creation, extends the Build America 
Bonds program, and provides other infrastructure job creation 
incentives without increasing the national debt. The bill funds 
these incentives by limiting tax treaty benefits with respect 
to certain deductible payments, requiring information reporting 
for rental property expense payments, requiring a minimum 10-
year term for grantor retained annuity trusts, and making other 
necessary changes to the tax laws.

                 B. Background and Need for Legislation

    The provisions of the bill reflect a need to encourage 
small business growth and provide further support for State and 
local infrastructure projects in order to improve the economy 
and create jobs.

                         C. Legislative History

    The Committee on Ways and Means marked up the provisions of 
the bill on March 17, 2010, and reported the provisions, as 
amended, on March 17, 2010, by a roll call vote, with a quorum 
present.

                      II. EXPLANATION OF THE BILL


                 TITLE I--SMALL BUSINESS TAX INCENTIVES


                         A. General Provisions


1. Temporary exclusion of 100 percent of gain on certain small business 
        stock (sec. 101 of the bill and sec. 1202 of the Code)

                              PRESENT LAW

In general

    Under present law, individuals may exclude 50 percent (60 
percent for certain empowerment zone businesses) of the gain 
from the sale of certain small business stock acquired at 
original issue and held for at least five years.\1\ The amount 
of gain eligible for the exclusion by an individual with 
respect to any corporation is the greater of (1) ten times the 
taxpayer's basis in the stock or (2) $10 million. In order to 
qualify as a small business, when the stock is issued, the 
gross assets of the corporation may not exceed $50 million. The 
corporation also must meet certain active trade or business 
requirements.
---------------------------------------------------------------------------
    \1\Sec. 1202.
---------------------------------------------------------------------------
    The portion of the gain includible in taxable income is 
taxed at a maximum rate of 28 percent under the regular tax.\2\ 
A percentage of the excluded gain is an alternative minimum tax 
preference;\3\ the portion of the gain includible in 
alternative minimum taxable income is taxed at a maximum rate 
of 28 percent under the alternative minimum tax.
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    \2\Sec. 1(h).
    \3\Sec. 57(a)(7). In the case of qualified small business stock, 
the percentage of gain excluded from gross income which is an 
alternative minimum tax preference is (i) seven percent in the case of 
stock disposed of in a taxable year beginning before 2011; (ii) 42 
percent in the case of stock acquired before January 1, 2001, and 
disposed of in a taxable year beginning after 2010; and (iii) 28 
percent in the case of stock acquired after December 31, 2000, and 
disposed of in a taxable year beginning after 2010.
---------------------------------------------------------------------------
    Thus, under present law, gain from the sale of qualified 
small business stock is taxed at effective rates of 14 percent 
under the regular tax\4\ and (i) 14.98 percent under the 
alternative minimum tax for dispositions before January 1, 
2011; (ii) 19.98 percent under the alternative minimum tax for 
dispositions after December 31, 2010, in the case of stock 
acquired before January 1, 2001; and (iii) 17.92 percent under 
the alternative minimum tax for dispositions after December 31, 
2010, in the case of stock acquired after December 31, 2000.\5\
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    \4\The 50 percent of gain included in taxable income is taxed at a 
maximum rate of 28 percent.
    \5\The amount of gain included in alternative minimum tax is taxed 
at a maximum rate of 28 percent. The amount so included is the sum of 
(i) 50 percent (the percentage included in taxable income) of the total 
gain and (ii) the applicable preference percentage of the one-half gain 
that is excluded from taxable income.
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Temporary increase in exclusion

    Under present law, the percentage exclusion for qualified 
small business stock acquired after February 17, 2009, and 
before January 1, 2011, is increased to 75 percent. As a result 
of the increased exclusion, gain from the sale of this 
qualified small business stock held at least five years is 
taxed at effective rates of seven percent under the regular 
tax\6\ and 12.88 percent under the alternative minimum tax.\7\
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    \6\The 25 percent of gain included in taxable income is taxed at a 
maximum rate of 28 percent.
    \7\The 46 percent of gain included in alternative minimum tax is 
taxed at a maximum rate of 28 percent. Forty-six percent is the sum of 
25 percent (the percentage of total gain included in taxable income) 
plus 21 percent (the percentage of total gain which is an alternative 
minimum tax preference).
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                           REASONS FOR CHANGE

    The Committee believes that increasing the exclusion of 
gain for small business stock will encourage and new and 
additional investment in small businesses. Access to additional 
capital will help these small businesses expand and create 
jobs.

                        EXPLANATION OF PROVISION

    Under the provision, the percentage exclusion for qualified 
small business stock is increased to 100 percent and the 
minimum tax preference does not apply. Thus, no regular tax or 
alternative minimum tax is imposed on the sale of this stock 
held at least five years.

                             EFFECTIVE DATE

    The provision is effective for stock acquired after March 
15, 2010, and before January 1, 2012.

           B. Limitations and Reporting on Certain Penalties


1. Limitation on penalty for failure to disclose certain information 
        (sec. 111 of the bill and sec. 6707A of the Code)

                              PRESENT LAW

    The reporting requirements of sections 6011 through 6112 
create interlocking disclosure obligations for both taxpayers 
and advisors. Each of these disclosure statutes has a parallel 
penalty provision that enforces it. Prior to enactment of the 
American Jobs Creation Act of 2004, no penalty was imposed on 
taxpayers who failed to disclose participation in transactions 
subject to section 6011. For disclosures that were due after 
enactment of that legislation, a strict liability penalty under 
section 6707A applies to any failure to disclose a reportable 
transaction.
    Regulations under section 6011 require a taxpayer to 
disclose with its tax return certain information with respect 
to each ``reportable transaction'' in which the taxpayer 
participates.\8\ A reportable transaction is defined as one 
that the Treasury Secretary determines is required to be 
disclosed because it is determined to have a potential for tax 
avoidance or evasion.\9\ There are five categories of 
reportable transactions: listed transactions, confidential 
transactions, transactions with contractual protection, certain 
loss transactions and transactions of interest.\10\
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    \8\Treas. Reg. sec. 1.6011-4.
    \9\Sec. 6707A(c)(1).
    \10\Treas. Reg. sec. 1.6011-4(b)(2)-(6).
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    Transactions falling under the first and last categories of 
reportable transactions are transactions that are described in 
publications issued by the Treasury Department and identified 
as one of these types of transaction. A listed transaction is 
defined as a reportable transaction which is the same as, or 
substantially similar\11\ to, a transaction specifically 
identified by the Secretary as a tax avoidance transaction for 
purposes of the reporting disclosure requirements.\12\ A 
``transaction of interest'' is one that is the same or 
substantially similar to a transaction identified by the 
Secretary as one about which the Secretary is concerned but 
does not yet have sufficient knowledge to determine that the 
transaction is abusive.\13\
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    \11\The regulations clarify that the term ``substantially similar'' 
includes any transaction that is expected to obtain the same or similar 
types of tax consequences and that is either factually similar or based 
on the same or similar tax strategy. Further, the term must be broadly 
construed in favor of disclosure. Treas. Reg. sec. 1.6011-4(c)(4).
    \12\Sec. 6707A(c)(2).
    \13\Treas. Reg. sec. 1.6011-4(b)(6).
---------------------------------------------------------------------------
    The other categories of reportable transactions are not 
specifically identified in published guidance, but are defined 
as classes of transactions sharing certain characteristics. In 
general, a transaction is considered to be offered to a 
taxpayer under conditions of confidentiality if an advisor who 
is paid a minimum fee places a limitation on disclosure by the 
taxpayer of the tax treatment or tax structure of the 
transaction and the limitation on disclosure protects the 
confidentiality of that advisor's tax strategies (irrespective 
if such terms are legally binding).\14\ A transaction involves 
contractual protection if (1) the taxpayer has the right to a 
full or partial refund of fees if the intended tax consequences 
from the transaction are not sustained or, (2) the fees are 
contingent on the intended tax consequences from the 
transaction being sustained.\15\ A reportable loss transaction 
generally includes any transaction that results in a taxpayer 
claiming a loss (under section 165) of at least (1) $10 million 
in any single year or $20 million in any combination of years 
by a corporate taxpayer or a partnership with only corporate 
partners; (2) $2 million in any single year or $4 million in 
any combination of years by all other partnerships, S 
corporations, trusts, and individuals; or (3) $50,000 in any 
single year for individuals or trusts if the loss arises with 
respect to foreign currency translation losses.\16\ Treasury 
has announced its intention to add a sixth category of 
reportable transactions, patented transactions, but has not yet 
done so.\17\
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    \14\Treas. Reg. sec. 1.6011-4(b)(3).
    \15\Treas. Reg. sec. 1.6011-4(b)(4).
    \16\Treas. Reg. sec. 1.6011-4(b)(5).
    \17\Proposed Treas. Reg. sec. 1.6011-4(b)(7), published September 
26, 2007 (REG-129916-07).
---------------------------------------------------------------------------
    Section 6707A imposes a penalty for failure to comply with 
the reporting requirements of 6011. A single reportable 
transaction may have to be reported by multiple taxpayers in 
connection with multiple tax returns. For example, a reportable 
transaction entered into by a partnership may have to be 
reported under section 6011 by both the partnership and its 
partners.\18\ The amount of the penalty due for each taxpayer's 
failure to comply varies depending upon whether or not the 
transaction is a listed transaction and whether the relevant 
taxpayer is an individual. For listed transactions, the maximum 
penalty is $100,000 for natural persons and $200,000 for all 
other persons. For reportable transactions other than listed 
transactions, the maximum penalty is $10,000 for natural 
persons and $50,000 for all other persons.
---------------------------------------------------------------------------
    \18\See, e.g., Treas. Reg. sec. 1.6011-4(c)(3)(ii), Example 2.
---------------------------------------------------------------------------
    A public entity that is required to pay a penalty for an 
undisclosed listed or reportable transaction must disclose the 
imposition of the penalty in reports to the SEC for such 
periods specified by the Secretary. Disclosure to the SEC 
applies without regard to whether the taxpayer determines the 
amount of the penalty to be material to the reports in which 
the penalty must appear, and any failure to disclose such 
penalty in the reports is treated as a failure to disclose a 
listed transaction. A taxpayer must disclose a penalty in 
reports to the SEC once the taxpayer has exhausted its 
administrative and judicial remedies with respect to the 
penalty (or if earlier, when paid).\19\ However, the taxpayer 
is only required to report the penalty one time. A public 
entity that is subject to a gross valuation misstatement 
penalty under section 6662(h) attributable to a non-disclosed 
listed transaction or non-disclosed, portable avoidance 
transaction may also be required to make disclosures in its SEC 
filings.\20\
---------------------------------------------------------------------------
    \19\Sec. 6707A(e).
    \20\Sec. 6707A(e)(2)(C); Rev. Proc. 2005-51, 2005-2, CB 296.
---------------------------------------------------------------------------
    For reportable transactions other than listed transactions, 
the IRS Commissioner or his delegate can rescind (or abate) the 
penalty only if rescinding the penalty would promote compliance 
with the tax laws and effective tax administration.\21\ The 
decision to rescind a penalty must be accompanied by a record 
describing the facts and reasons for the action and the amount 
rescinded. Determinations by the Commissioner regarding 
rescission are not subject to judicial review.\22\ The IRS also 
is required to submit an annual report to Congress summarizing 
the application of the disclosure penalties and providing a 
description of each penalty rescinded under this provision and 
the reasons for the rescission. The section 6707A penalty 
cannot be waived with respect to a listed transaction.
---------------------------------------------------------------------------
    \21\In determining whether to rescind (or abate) the penalty for 
failing to disclose a reportable transaction on the grounds that doing 
so would promote compliance with the tax laws and effective tax 
administration, it is intended that the IRS Commissioner take into 
account whether: (1) the person on whom the penalty is imposed has a 
history of complying with the tax laws; (2) the violation is due to an 
unintentional mistake of fact; and (3) imposing the penalty would be 
against equity and good conscience.
    \22\This does not limit the ability of a taxpayer to challenge 
whether a penalty is appropriate (e.g., a taxpayer may litigate the 
issue of whether a transaction is a reportable transaction (and thus 
subject to the penalty if not disclosed) or not a reportable 
transaction (and thus not subject to the penalty)).
---------------------------------------------------------------------------
    The section 6707A penalty is assessed in addition to any 
accuracy-related penalties. If the taxpayer does not adequately 
disclose a reportable transaction, the strengthened reasonable 
cause exception to the accuracy-related penalty is not 
available and the taxpayer is subject to an increased penalty 
equal to 30 percent of the understatement.\23\ However, a 
taxpayer will be treated as having adequately disclosed a 
transaction for this purpose if the IRS Commissioner has 
separately rescinded the separate penalty under section 6707A 
for failure to disclose a reportable transaction.\24\ The IRS 
Commissioner is authorized to do this only if the failure does 
not relate to a listed transaction and only if rescinding the 
penalty would promote compliance and effective tax 
administration.\25\
---------------------------------------------------------------------------
    \23\Sec. 6662A(c).
    \24\Sec. 6664(d).
    \25\Sec. 6707A(d).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    At the time that this penalty was enacted in 2004, Congress 
believed that a penalty for failing to make the required 
disclosures, when the imposition of such penalty is not 
dependent on the tax treatment of the underlying transaction 
ultimately being sustained, would provide an additional 
incentive for taxpayers to satisfy their reporting obligations 
under the new disclosure provisions.\26\ In the years since 
enactment, the Committee has learned that this penalty is very 
often applicable to small businesses and individuals in amounts 
that exceed the tax savings claimed on these returns, if any. 
These taxpayers often were not advised that the transactions 
are reportable to the IRS. In her annual report,\27\ the 
National Taxpayer Advocate informed Congress that the penalties 
cause unconscionable hardship on taxpayers as there are 
individuals facing bankruptcy and loss of a business as a 
result of the magnitude of the penalty for failure to disclose 
a reportable transaction. The statute allows penalties of up to 
$300,000 per year on taxpayers with no underpayment of tax and 
no knowledge that they entered into a transaction required to 
be reported. Such individuals generally invested in 
transactions (often a pension plan) that were required to be 
disclosed through their small businesses often organized as 
pass-through entities and claimed benefits for several years. 
Thus, once determined that the transaction should have been 
reported, the penalties applied to both the small business and 
the owner over several years, which resulted in some penalties 
exceeding over $1 million. The Committee believes that it is 
appropriate to provide a mechanism for establishing a penalty 
amount that will be proportionate to the misconduct to be 
penalized, without discouraging compliance with the requirement 
to disclose reportable transactions.
---------------------------------------------------------------------------
    \26\See, ``Reasons for Change'' in discussion of section 811 of the 
American Jobs Creation Act of 2004 (``AJCA'') Pub. L. 108-357, at page 
361 of the Joint Committee on Taxation, General Explanation of Tax 
Legislation Enacted in the 108th Congress (JCS-5-05), May 2005.
    \27\See, discussion of ``Legislative Recommendations with 
Legislative Action: Modify Internal Revenue Code Section 6707A to 
Ameliorate Unconscionable Impact,'' Vol. 1 National Taxpayer Advocate 
2008 Annual Report to Congress, 419.
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                        EXPLANATION OF PROVISION

    The provision changes the general rule for determining the 
amount of the applicable penalty to achieve proportionality 
between the penalty and the tax savings that were the object of 
the transaction, retains the current penalty amounts as the 
maximum penalty that may be imposed, and establishes a minimum 
penalty.
    First, it provides a general rule that a participant in a 
reportable transaction who fails to disclose the reportable 
transaction as required under section 6011 is subject to a 
penalty equal to 75 percent of the reduction in tax reported on 
the participant's income tax return as a result of 
participation in the transaction, or that would result if the 
transaction were respected for Federal tax purposes. Regardless 
of the amount determined under the general rule, the penalty 
for each such failure may not exceed certain maximum amounts. 
The maximum annual penalty that a taxpayer may incur for 
failing to disclose a particular reportable transaction other 
than a listed transaction is $10,000 in the case of a natural 
person and $50,000 for all other persons. The maximum annual 
penalty that a taxpayer may incur for failing to disclose a 
listed transaction is $100,000 in the case of a natural person 
and $200,000, for all other persons.
    The provision also establishes a minimum penalty with 
respect to failure to disclose a reportable or listed 
transaction. That minimum penalty is $5,000 for natural persons 
and $10,000 for all other persons.
    The following examples illustrate the operation of the 
maximum and minimum penalties with respect to a partnership or 
a corporation. First, assume that two individuals participate 
in a listed transaction through a partnership formed for that 
purpose. Both partners, as well as the partnership, are 
required to disclose the transaction. All fail to do so. The 
failure by the partnership to disclose its participation in a 
listed or otherwise reportable transaction is subject to the 
minimum penalty of $10,000, because income tax liability is not 
incurred at the partnership level nor reported on a partnership 
return. The partners in such partnership who also failed to 
comply with the reporting requirements of section 6011 are each 
subject to a penalty based on the reduction in tax reported on 
their respective returns.
    In the second example, assume that a corporation 
participates in a single listed transaction over the course of 
three taxable years. The decrease in tax shown on the corporate 
returns is $1 million in the first year, $100,000 in the second 
year, and $10,000 in the third year. If the corporation fails 
to disclose the listed transaction in all three years, the 
corporation is subject to three separate penalties: a penalty 
of $200,000 in the first year (as a result of the cap on 
penalties), a $75,000 penalty in the second year (computed 
under the general rule) and a $10,000 penalty in the third year 
(as a result of the minimum penalty) for total penalties of 
$285,000.

                             EFFECTIVE DATE

    The provision applies to all penalties assessed under 
section 6707A after December 31, 2006.

2. Annual reports on penalties and certain other enforcement actions 
        (sec. 112 of the bill)

                              PRESENT LAW

    Transactions that have the potential for tax avoidance are 
required to be disclosed by both the taxpayers who engage in 
the transaction and the various professionals who provide 
advice with respect to such transactions. Failure to comply 
with the reporting and disclosure requirements may result in 
assessment of penalties against both the taxpayer and material 
advisor and the use of special enforcement measures.
            Reporting obligations
    These disclosure requirements\28\ create interlocking 
disclosure obligations for both taxpayers and advisors. A 
taxpayer is required to disclose with its tax re certain 
information with respect to each ``reportable transaction,'' as 
defined in regulations.\29\ Each advisor who provides material 
advice with respect to any reportable transaction (including 
any listed transaction) is required to file an information 
return with the Secretary (in such form and manner as the 
Secretary may prescribe).\30\ Finally, the advisor is required 
to maintain a list of those persons he has advised with respect 
to a reportable transaction and to provide the list to the IRS 
upon request.\31\
---------------------------------------------------------------------------
    \28\Secs. 6011, 6111 and 6112.
    \29\Treas. Reg. sec. 1.6011-4.
    \30\Sec. 6111.
    \31\Sec. 6112.
---------------------------------------------------------------------------
    A reportable transaction is defined as one that the 
Treasury Secretary requires to be disclosed based on its 
potential for tax avoidance or evasion.\32\ There are five 
categories of reportable transactions: listed transactions, 
confidential transactions, transacts with contractual 
protection, certain loss transactions and transactions of 
interest.\33\
---------------------------------------------------------------------------
    \32\Sec. 6707A(c)(1) states that the term means ``any transaction 
with respect to which information is required to be included with a 
return or statement because, as determined under regulations prescribed 
under section 6011, such transaction is of a type which the Secretary 
determines as having a potential for tax avoidance or evasion.'' 
Sections 6111(b)(2) and 6112 both define ``reportable transaction'' by 
reference to the definition in section 6707A(c). The definition of 
``listed transaction'' similarly depends upon identification of 
transactions by the Secretary as tax avoidance transactions for 
purposes of section 6011.
    \33\Treas. Reg. sec. 1.6011-4(b)(2)-(6).
---------------------------------------------------------------------------
            Penalties and other enforcement tools related to reportable 
                    transactions
    Each of the disclosure statutes has a parallel penalty 
provision to aid enforcement. The taxpayer who participates in 
a reportable transaction and fails to disclose it is subject to 
a strict liability penalty.\34\ The penalty is assessed in 
addition to any accuracy-related penalties. It may be rescinded 
with respect to reportable transactions other than listed 
transactions. Rescission is discretionary and conditioned upon 
a determination by the Commissioner that rescinding the penalty 
would promote compliance and effective tax administration.\35\ 
The Code also imposes a penalty on any material advisor who 
fails to file an information return, or who files a false or 
incomplete information return, with respect to a reportable 
transaction (including a listed transaction). It may be 
rescinded, subject to limitations similar to those applicable 
to rescission of the penalty imposed on investors.\36\ The IRS 
may also submit a written request that a material advisor make 
available the list required to be maintained under section 
6612(a). A failure to make the list available upon written 
request is subject to a penalty of $10,000 per day for as long 
as the failure continues, unless the advisor can establish 
reasonable cause for the failure.\37\
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    \34\Section 6707A imposes a penalty for failure to comply with the 
reporting requirements of 6011. A single reportable transaction may 
have to be reported by multiple taxpayers in connection with multiple 
tax returns. For example, a reportable transaction entered into by a 
partnership may have to be reported under section 6011 by both the 
partnership and its partners. The amount of the penalty due for each 
taxpayer's failure to comply varies depending upon whether or not the 
transaction is a listed transaction and whether the relevant taxpayer 
is an individual. For listed transactions, the maximum penalty is 
$100,000 for natural persons and $200,000 for all other persons. For 
reportable transactions other than listed transactions, the maximum 
penalty is $10,000 for natural persons and $50,000 for all other 
persons. A public entity that is required to pay a penalty for an 
undisclosed listed or reportable transaction must disclose the 
imposition of the penalty in reports to the SEC for such periods 
specified by the Secretary. Failure to comply with this reporting 
requirement may result in assessment of a second tier penalty.
    \35\Sec. 6707A(d). In determining whether to rescind (or abate) the 
penalty for failing to disclose a reportable transaction on the grounds 
that doing so would promote compliance with the tax laws and effective 
tax administration, it is intended that the IRS Commissioner take into 
account whether: (1) the person on whom the penalty is imposed has a 
history of complying with the tax laws; (2) the violation is due to an 
unintentional mistake of fact; and (3) imposing the penalty would be 
against equity and good conscience.
    \36\Section 6707 provides a penalty in the amount of $50,000. If 
the penalty is with respect to a listed transaction, the amount of the 
penalty is increased to the greater of (1) $200,000, or (2) 50 percent 
of the gross income of such person with respect to aid, assistance, or 
advice which is provided with respect to the transaction before the 
date the information return that includes the transaction is filed. 
Intentional disregard by a material advisor of the requirement to 
disclose a listed transaction increases the penalty to 75 percent of 
the gross income.
    \37\Sec. 6708.
---------------------------------------------------------------------------
    In addition to the penalties that specifically address the 
failure to comply with the disclosure and reporting 
obligations, other special enforcement provisions are 
applicable to reportable transactions. An understatement 
arising from any listed transactions or from a reportable 
transaction for which a significant purpose is avoidance or 
evasion of Federal income tax will be subject to an accuracy-
related penalty,\38\ unless the taxpayer can establish that the 
failure was due to reasonable cause as determined under a 
standard that is more stringent than that applicable to other 
accuracy-related penalties.\39\
---------------------------------------------------------------------------
    \38\Sec. 6662A.
    \39\Sec. 6664(d).
---------------------------------------------------------------------------
    If the taxpayer does not adequately disclose a reportable 
transaction, the strengthened reasonable cause exception is not 
available and the taxpayer is subject to an increased penalty 
equal to 30 percent of the understatement.\40\ However, a 
taxpayer will be treated as having adequately disclosed a 
transaction for this purpose if the IRS Commissioner has 
separately rescinded the separate penalty under section 6707A 
for failure to disclose a reportable transaction.\41\ Finally, 
a new exception to the statute of limitations provides that the 
period is suspended if a listed transaction is not properly 
disclosed.\42\ If the transaction is disclosed either because 
the taxpayer files the proper disclosure form or a material 
advisor identifies the transaction to the IRS in a list 
maintained under section 6112, the period will remain open for 
at least one year from the earlier of date of the disclosure by 
the investor or the disclosure by the material advisor with 
respect to that transaction.
---------------------------------------------------------------------------
    \40\Sec. 6662A(c).
    \41\Sec. 6664(d).
    \42\Sec. 6501(c)(10).
---------------------------------------------------------------------------
    The Code authorizes civil actions to enjoin any person from 
specified conduct relating to tax shelters or reportable 
transactions.\43\ The specified conduct includes failure with 
respect to the requirements relating to the reporting of 
reportable transactions\44\ and the keeping of lists of 
investors by material advisors.\45\ Thus, an injunction may be 
sought against a material advisor to enjoin the advisor from 
(1) failing to file an information return with respect to a 
reportable transaction, or (2) failing to maintain, or to 
timely furnish upon written request by the Secretary, a list of 
investors with respect to each reportable transaction. In 
addition, injunctions, monetary penalties and suspension or 
disbarment are authorized with respect to violations of any of 
the rules under Circular 230, which regulates the practice of 
representatives of persons before the Department of the 
Treasury.
---------------------------------------------------------------------------
    \43\Sec. 7408.
    \44\Sec. 6707.
    \45\Sec. 6708.
---------------------------------------------------------------------------
            Reports to Congress by the Secretary
    The Secretary is required to maintain records and report on 
the administration of the penalties for failure to disclose a 
reportable transaction in two ways. First, each decision to 
rescind a penalty imposed under section 6707 or section 6707A 
must be memorialized in a record maintained in the Officer of 
the Commissioner.\46\ That record must include a description of 
the facts and circumstances of the violation, the reasons for 
the decision to rescind, and the amount rescinded. Second, the 
IRS is required to submit an annual report to Congress on the 
administration of the rescission authority under both sections 
6707 and 6707A. The information with respect to the latter is 
to be in summary form, while the information on rescission of 
penalties imposed against material advisors is to be more 
detailed.\47\ The report is not required to address 
administration of the other enforcement tools described above.
---------------------------------------------------------------------------
    \46\Section 6707(c) incorporates by reference the provisions of 
section 6707A(d), which details the extent of the Commissioner's 
authority to rescind the penalty.
    \47\AJCA provides:
    ``The Commissioner of Internal Revenue shall annually report to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate--
    ``(1) a summary of the total number and aggregate amount of 
penalties imposed, and rescinded, under section 6707A of the Internal 
Revenue Code of 1986, and
    ``(2) a description of each penalty rescinded under section 6707(c) 
of such Code and the reasons therefor.''. P.L. 108-357, Title VIII, 
Subtitle B, Part I, Sec.  811(d), 118 Stat. 1577, Oct. 22, 2004.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Since the enactment of a number of enforcement measures 
intended to support IRS efforts to combat abusive tax avoidance 
transactions, there has been little data available to determine 
whether the measures had the desired effect. Congress believes 
that an annual report on administrative experience with all of 
the enforcement measures modified or added by AJCA will better 
enable it to assess the efficacy of those measures.

                        EXPLANATION OF PROVISION

    The provision requires that the IRS, in consultation with 
the Secretary, submit an annual report on administration of 
certain penalty provisions of the Code to the House Ways and 
Means Committee and the Senate Committee on Finance. A summary 
of penalties assessed the preceding year is required. In 
addition, the Secretary must report actions taken against 
practitioners appearing before the Treasury or IRS with respect 
to a reportable transaction\48\ and instances in which the IRS 
attempted to rely on the exception to the limitations period 
for assessment based on failure to disclose a listed 
transaction.\49\ The penalties that are subject to this 
reporting requirement are those assessed in the preceding year 
with respect to (1) a participant's failure to disclose a 
reportable transaction,\50\ (2) reportable transaction 
understatements,\51\ (3) promotion of abusive shelters,\52\ (4) 
failure of a material advisor to furnish information on a 
reportable transaction,\53\ and (5) material advisors' failure 
to maintain or produce a list of reportable transactions.\54\

                             EFFECTIVE DATE

    The first annual report is required to be submitted not 
later than December 31, 2010.
---------------------------------------------------------------------------
    \48\31 U.S.C. sec. 330(b) authorizes the Secretary to impose 
sanctions on those who appear before the Department, including monetary 
penalties and suspension or disbarment from practice before the 
Department.
    \49\Sec. 6501(c)(10) provides that the limitations period with 
respect to tax attributable to a listed transaction shall not expire 
less than one year after the required disclosure of that transaction is 
furnished by the taxpayer or by the material advisor, whichever is 
earlier.
    \50\Sec. 6707A.
    \51\Sec. 6662A.
    \52\Sec. 6700.
    \53\Sec. 6707.
    \54\Sec. 6708.
---------------------------------------------------------------------------

                          C. Other Provisions


 1. Nonrecourse small business investment company loans from the Small 
  Business Administration treated as amounts at risk (sec. 121 of the 
                     bill and sec. 465 of the Code)


                              PRESENT LAW

    Several present-law rules limit losses from business 
activities held by individuals, including activities held 
through partnerships. Under present law, the character of 
partnership items passes through to the partners as if the 
items were realized directly by the partners. A partner's share 
of partnership loss is allowed only to the extent of the 
adjusted basis of the partner's interest in the partnership at 
the end of the year in which the loss occurred.\55\ The basis 
of a partnership interest generally includes the amount 
contributed by the partner to the partnership, and for this 
purpose, generally an increase in the partner's share of 
partnership liabilities (including debt) is considered as a 
contribution by the partner.\56\
---------------------------------------------------------------------------
    \55\Sec. 704(d).
    \56\Sec. 722, 752.
---------------------------------------------------------------------------
    In the case of individuals and closely held corporations, 
present law includes rules designed to prevent the deduction of 
losses exceeding the taxpayer's economic investment--the at-
risk rules\57\--and to limit tax shelters.\58\
---------------------------------------------------------------------------
    \57\Sec. 465.
    \58\The passive loss rules limit deductions and credits from 
passive trade or business activities of individuals and certain closely 
held corporations (sec. 469, enacted in 1986). A passive activity is 
generally an activity in which the taxpayer does not materially 
participate, and certain rental real estate activities regardless of 
the taxpayer's material participation. Deductions attributable to 
passive activities, to the extent they exceed income from passive 
activities, generally may not be deducted against other income. 
Deductions and credits that are suspended under these rules are carried 
forward and treated as deductions and credits from passive activities 
in the next year. The suspended losses from a passive activity are 
allowed in full when a taxpayer disposes of his entire interest in the 
passive activity to an unrelated person.
---------------------------------------------------------------------------
    Present law provides an at-risk limitation on losses from 
an activity engaged in by the taxpayer in carrying on a trade 
or business or for the production of income (including through 
a partnership), in the case of taxpayers that are individuals 
or certain closely held corporations. A taxpayer is generally 
not considered at risk with respect to borrowed amounts if (1) 
the taxpayer is not personally liable for repayment of the debt 
(nonrecourse loans), or (2) the lender has an interest (other 
than as a creditor) in the activity.\59\ In the case of the 
activity of holding real property, a special rule treats 
qualified nonrecourse financing as an amount at risk.\60\ 
Qualified nonrecourse financing generally includes financing 
that is secured by real property used in the activity and that 
is loaned by or guaranteed by a Federal, State, or local 
government, or is borrowed by the taxpayer from a qualified 
person that is or is treated as a person actively and regularly 
engaged in the business of lending money (such as a bank). Any 
loss not allowed under this rule for a taxable year is carried 
forward to the succeeding taxable year. A taxpayer's amount at 
risk is reduced by losses allowed under the rule.
---------------------------------------------------------------------------
    \59\Sec. 465(b).
    \60\In its Reasons for Change in adopting the extension of the at-
risk rules to real estate and providing an exception for qualified 
nonrecourse financing for real estate, the Ways and Means Committee 
stated, ``Nonrecourse financing by the seller of real property (or a 
person related to the seller) is not treated as an amount at risk under 
the bill, because there may be little or no incentive to limit the 
amount of such financing to the value of the property. In the case of 
arm's length third party commercial financing secured solely by the 
real property, however, the lender is much less likely to make loans 
which exceed the property's value or which cannot be serviced by the 
property; it is more likely that such financing will be repaid and that 
the purchaser consequently has or will have real equity in the 
activity.'' H. Rep. No. 99-426, Tax Reform Act of 1985, Report of the 
Committee on Ways and Means, House of Representatives, on H.R. 3838, 
December 7, 1985, at 293; and see Joint Committee on Taxation, General 
Explanation of the Tax Reform Act of 1986 (H.R. 3838, 99th Cong., Pub. 
L. No. 99-514), JCS-10-87, May 4, 1987, at 257.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is concerned about the difficulty in 
obtaining credit that small businesses are experiencing under 
current economic conditions. The Committee believes that Small 
Business Administration loans and loan guarantees can serve to 
alleviate some of the difficulties experienced by small 
businesses in obtaining credit necessary to conduct business 
activities and hire workers. The provision is intended to 
provide an incentive for a greater amount of authorized Small 
Business Administration loans and loan guarantees to be made 
available to small businesses through small business investment 
companies. The Committee is aware that nonrecourse financing 
generally is not treated as an amount at risk, because there 
may be little or no incentive to limit the amount of such 
financing to the value of the property. In the case of 
nonrecourse financing under the Small Business Administration's 
SBIC program, however, due to the specific programmatic 
restraints\61\ and the concomitant strong expectation that the 
Small Business Administration has of repayment, it is more 
likely that the investors in a small business that receives a 
loan from an SBIC have real equity in the small business.
---------------------------------------------------------------------------
    \61\Under the Small Business Investment Act of 1958, the Small 
Business Administration investigates whether an applicant for small 
business investment company status meets minimum private capital 
requirements, whether its management is independent of its owners, 
whether the management is qualified and has the knowledge, experience 
and capability to comply with requirements for the Small Business 
Administration loan or guarantee, and satisfies other requirements that 
serve to ensure repayment of the loaned or guaranteed amount. See 15 
U.S. Code sec. 681-683. Prospective SBICs must apply to the Small 
Business Administration for approval, a process that often takes up to 
a year. Further, the Small Business Administration is constrained by 
the Congressional appropriations process in the amount of loans and 
loan guarantees that it can provide.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision modifies the at-risk rules. The bill provides 
that a taxpayer's amount at risk includes qualified SBIC 
financing, which means any financing that (1) is borrowed by a 
small business investment company (SBIC), (2) is secured by 
property held, directly or indirectly, by the SBIC, and (3) is 
either borrowed from, or guaranteed by, the Small Business 
Administration (SBA) under the authority of its SBIC program 
(section 303(b) of the Small Business Investment Act of 1958).

                             EFFECTIVE DATE

    The provision is effective for loans and guarantees made 
after the date of enactment.

2. Increase in amount allowed as deduction for start-up expenditures 
        (sec. 122 of the bill and sec. 195 of the Code)

                              PRESENT LAW

    A taxpayer can elect to deduct up to $5,000 of start-up 
expenditures in the taxable year in which the active trade or 
business begins.\62\ However, the $5,000 amount is reduced (but 
not below zero) by the amount by which the cumulative cost of 
start-up expenditures exceeds $50,000.\63\ Start-up 
expenditures that are not deductible in the year in which the 
active trade or business begins are, at the taxpayer's 
election, amortized over a 15-year period beginning with the 
month the active trade or business begins.\64\ Start-up 
expenditures are amounts that would have been deductible as 
trade or business expenses, had they not been paid or incurred 
before business began.\65\
---------------------------------------------------------------------------
    \62\Sec. 195(b)(1)(A).
    \63\Ibid.
    \64\Sec. 195(b)(1)(B).
    \65\Sec. 195(c).
---------------------------------------------------------------------------
    Treasury regulations\66\ provide that a taxpayer is deemed 
to have made an election under section 195(b) to amortize its 
start-up expenditures for the taxable year in which the active 
trade or business to which the expenditures relate begins. A 
taxpayer that chooses to forgo the deemed election must clearly 
elect to capitalize its start-up expenditures on its timely 
filed Federal income tax return for the taxable year the active 
trade or business commences. The election either to amortize or 
capitalize start-up expenditures is irrevocable and applies to 
all start-up expenditures related to the active trade or 
business
---------------------------------------------------------------------------
    \66\Temp. Treas. Reg. sec. 1.195-1T(b).
---------------------------------------------------------------------------

                           REASON FOR CHANGE

    The Committee believes that increasing the amount of start-
up expenditures that a taxpayer can elect to deduct, rather 
than requiring their amortization, may help encourage the 
formation of new businesses.

                        EXPLANATION OF PROVISION

    For taxable years beginning in 2010 or 2011, the provision 
increases the amount of startup expenditures a taxpayer can 
elect to deduct from $5,000 to $20,000. The provision also 
increases the deduction phase-out threshold such that the 
$20,000 is reduced (but not below zero) by the amount by which 
the cumulative cost of start-up expenditures exceeds $75,000.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning in 2010 or 
2011.

                  TITLE II--INFRASTRUCTURE INCENTIVES


                  A. Extension of Build America Bonds


       (Sec. 201 of the Bill and Secs. 54AA and 6431 of the Code)


                              PRESENT LAW

Build America Bonds

    Section 54AA, added to the Code by the American Recovery 
and Reinvestment Act of 2009 (``ARRA''),\67\ permits an issuer 
to elect to have an otherwise tax-exempt bond, issued prior to 
January 1, 2011, treated as a ``Build America Bond.''\68\ In 
general, Build America Bonds are taxable governmental bonds, 
the interest on which is subsidized by the Federal government 
by means of a tax credit to the holder (``tax-credit Build 
America Bonds'') or, in the case of certain qualified bonds, a 
direct payment to the issuer (``direct-pay Build America 
Bonds'').
---------------------------------------------------------------------------
    \67\Pub. L. No. 111-5.
    \68\Sec. 54AA.
---------------------------------------------------------------------------
            Definition and general requirements
    A Build America Bond is any obligation (other than a 
private activity bond) if the interest on such obligation would 
be (but for section 54AA) excludable from gross income under 
section 103,\69\ and the issuer makes an irrevocable election 
to have the rules in section 54AA apply.\70\ In determining if 
an obligation would be tax-
exempt under section 103, the credit (or the payment discussed 
below for direct-pay Build America Bonds) is not treated as a 
Federal guarantee.\71\ Further, for purposes of the 
restrictions on arbitrage in section 148, the yield on a tax-
credit Build America Bond is determined without regard to the 
credit;\72\ the yield on a direct-pay Build America Bond is 
reduced by the payment made pursuant to section 6431.\73\ A 
Build America Bond does not include any bond if the issue price 
has more than a de minimis amount of premium over the stated 
principal amount of the bond.\74\
---------------------------------------------------------------------------
    \69\Thus, where a bond otherwise satisfies all of the requirements 
under section 103 to be treated as a tax-exempt bond, it should be 
possible to issue such bond as a Build America Bond. C.f. CCA AM2009-
014 (indicating that an Indian tribal government that received an 
allocation of volume cap pursuant to section 7871(f)(1) to issue Tribal 
Economic Development Bonds could issue such bonds as Build America 
Bonds rather than issuing them as tax-exempt bonds under section 103).
    \70\Sec. 54AA(d). Subject to updated IRS reporting forms or 
procedures, an issuer of Build America Bonds makes the election 
required by 54AA on its books and records on or before the issue date 
of such bonds. Notice 2009-26, 2009-16 I.R.B. 833.
    \71\Sec. 54AA(d)(2)(A). Section 149(b) provides that section 103(a) 
shall not apply to any State or local bond if such bond is federally 
guaranteed.
    \72\Sec. 54AA(d)(2)(B).
    \73\Sec. 6431(c).
    \74\Sec. 54AA(d)(2)(C).
---------------------------------------------------------------------------
            Treatment of holders of tax-credit Build America Bonds
    The holder of a tax-credit Build America Bond accrues a tax 
credit in the amount of 35 percent of the interest paid on the 
interest payment dates of the bond during the calendar 
year.\75\ The interest payment date is any date on which the 
holder of record of the Build America Bond is entitled to a 
payment of interest under such bond.\76\ The sum of the accrued 
credits is allowed against regular and alternative minimum tax; 
unused credit may be carried forward to succeeding taxable 
years.\77\ The credit, as well as the interest paid by the 
issuer, is included in gross income, and the credit may be 
stripped under rules similar to those provided in section 54A 
regarding qualified tax credit bonds.\78\ Rules similar to 
those that apply for S corporations, partnerships and regulated 
investment companies with respect to qualified tax credit bonds 
also apply to the credit.\79\
---------------------------------------------------------------------------
    \75\Sec. 54AA(a) and (b). Original issue discount (``OID'') is not 
treated as a payment of interest for purposes of determining the credit 
under the provision. OID is the excess of an obligation's stated 
redemption price at maturity over the obligation's issue price (sec. 
1273(a)).
    \76\Sec. 54AA(e).
    \77\Sec. 54AA(c).
    \78\Sec. 54AA(f).
    \79\Ibid.
---------------------------------------------------------------------------
            Special rules for direct-pay Build America Bonds
    Under the special rule for qualified bonds, in lieu of the 
tax credit to the holder, the issuer is allowed a credit equal 
to 35 percent of each interest payment made under such 
bond.\80\ A ``qualified bond,'' that is, a direct-pay Build 
America Bond, is any Build America Bond issued as part of an 
issue if 100 percent of the excess of available project 
proceeds of such issue over the amounts in a reasonably 
required reserve with respect to such issue are to be used for 
capital expenditures.\81\ Direct-pay Build America Bonds may 
not be issued to refinance capital expenditures in ``refunding 
issues'' (as defined in Treas. Reg. sec. 1.150-1).\82\ Direct-
pay Build America Bonds also must be issued before January 1, 
2011. The issuer must make an irrevocable election to have the 
special rule for qualified bonds apply.\83\
---------------------------------------------------------------------------
    \80\Sec. 54AA(g)(1). OID is not treated as a payment of interest 
for purposes of calculating the refundable credit under the provision.
    \81\Sec. 54AA(g).
    \82\Notice 2009-26. In contrast, tax-credit Build America Bonds 
``may be issued to finance the same kinds of expenditures (e.g., 
capital expenditures and working capital expenditures) and may involve 
the same kinds of financings (e.g., original new money financings, 
current refundings, and one advance refunding) as tax-exempt 
governmental bonds.'' Ibid.
    \83\Sec. 54AA(g)(2)(B). Subject to updated IRS reporting forms or 
procedures, an issuer of direct-pay Build America Bonds makes the 
election required by 54AA(g)(2)(B) on its books and records on or 
before the issue date of such bonds. Notice 2009-26, 2009-16 I.R.B. 
833.
---------------------------------------------------------------------------
    The payment by the Secretary is to be made 
contemporaneously with the interest payment made by the issuer, 
and may be made either in advance or as reimbursement.\84\ In 
lieu of payment to the issue, the payment may be made to a 
person making interest payments on behalf of the issuer.\85\
---------------------------------------------------------------------------
    \84\Sec. 6431.
    \85\Sec. 6431(b).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that Build America Bonds have been a 
very useful and efficient tool for stimulating economic 
development, creating jobs, and helping to rebuild the 
country's infrastructure. For these reasons, the Committee 
believes that the provisions authorizing Build America Bonds 
should be extended. As the market for Build America Bonds 
grows, the interest subsidy for direct-pay Build America Bonds 
can be reduced without compromising the utility of the bonds.

                        EXPLANATION OF PROVISION

    The provision extends both types of Build America Bonds 
through June 30, 2013. For direct-pay Build America Bonds 
issued in 2011, the provision provides for a payment to the 
issuer equal to 33 percent of each interest payment made under 
such bond. For direct-pay Build America Bonds issued in 2012, 
the rate for payments to issuers is reduced to 31 percent of 
each interest payment; for direct-pay Build America Bonds 
issued in 2013, the rate is reduced to 30 percent.
    In addition, the provision expands the definition of 
qualified Build America Bonds to include a bond issued to 
effect a current refunding of qualified Build America Bonds, 
provided that (1) the average maturity date of the issue of 
which the refunding bond is a part is not later than the 
average maturity date of the bonds to be refunded by such 
issue, (2) the amount of the refunding bond does not exceed the 
outstanding amount of the refunded bond, and (3) the refunded 
bond is redeemed not later than 90 days after the date of the 
issuance of the refunding bond. In the case of a direct-pay 
Build America Bond issued to refund another issue of direct-pay 
Build America Bonds, the provision provides that the payment to 
the issuer shall be at the lowest direct-pay rate provided in 
section 6431 (i.e., 30 percent under the provision).
    Also, the provision clarifies that expenditures for levees 
and other flood control projects are among the present-law 
capital expenditures that may be financed with direct-pay Build 
America Bonds.

                             EFFECTIVE DATE

    The provision is effective as of the date of enactment.

    B. Exempt-Facility Bonds for Sewage and Water Supply Facilities


       (Sec. 202 of the Bill and Secs. 146 and 7871 of the Code)


                              PRESENT LAW

    Interest on bonds issued by State and local governments 
generally is excluded from gross income for Federal income tax 
purposes if the proceeds of the bonds are used to finance 
direct activities of these governmental units or if the bonds 
are repaid with revenues of the governmental units. Private 
activity bonds are bonds in which the State or local government 
serves as a conduit providing financing to nongovernmental 
persons. Interest on private activity bonds is taxable unless 
the bonds are issued for certain purposes permitted by the Code 
(``qualified private activity bonds'').\86\
---------------------------------------------------------------------------
    \86\Sec. 103(b)(1).
---------------------------------------------------------------------------
    The definition of a qualified private activity bond 
includes exempt facility bonds, qualified mortgage, veterans' 
mortgage, small issue, redevelopment, 501(c)(3), and student 
loan bonds.\87\ The definition of an exempt facility bond 
includes bonds issued to finance certain transportation 
facilities (airports, ports, mass commuting, and high-speed 
intercity rail facilities); low-income residential rental 
property; privately owned and/or operated utility facilities 
(sewage, water, solid waste disposal, and local district 
heating and cooling facilities, certain private electric and 
gas facilities, and hydroelectric dam enhancements); public/
private educational facilities; and qualified green building/
sustainable design projects.\88\ A facility for the furnishing 
of water will qualify as an exempt facility if: the water is or 
will be made available to members of the general public 
(including electric, industrial, agricultural, or commercial 
users); and either the facilities are (1) operated by a 
governmental unit or (2) the rates for the furnishing or sale 
of the water have been established or approved by a State or 
political subdivision thereof, by an agency or instrumentality 
of the United States, or by a public service or public utility 
commission or other similar body of any State or political 
subdivision thereof.\89\
---------------------------------------------------------------------------
    \87\Sec. 141(e).
    \88\Sec. 142(a).
    \89\Sec. 142(e).
---------------------------------------------------------------------------
    Issuance of most qualified private activity bonds is 
subject (in whole or in part) to annual State volume 
limitations (``State volume cap'').\90\ For a calendar year 
2010, the State volume cap, which is indexed for inflation, 
equals $90 per resident of the State, or $273,775,000, if 
greater.\91\
---------------------------------------------------------------------------
    \90\Sec. 146.
    \91\Rev. Proc. 2009-50.
---------------------------------------------------------------------------
    Exceptions from the State volume cap are provided for bonds 
issued for certain government-owned facilities (airports, 
ports, certain high-speed intercity rail, and solid waste 
disposal) and bonds which are subject to separate local, State, 
or national volume limits (public/private educational 
facilities, enterprise zone facility bonds, qualified green 
building/sustainable design projects, and qualified highway or 
surface freight transfer facility bonds).
    If an issuing authority's State volume cap for a calendar 
year exceeds the aggregate amount of tax-exempt private 
activity bonds issued during the year, the authority generally 
may elect to treat all (or any portion) of the excess as a 
carryforward for one or more specified ``carryforward 
purposes.'' The issuing authority is required to identify the 
purpose for which the carryforward is elected and specify the 
portion of the carryforward which is to be used for that 
purpose. The Code defines ``carryforward purpose'' to mean one 
of four purposes: issuing exempt facility bonds; issuing 
qualified mortgage bonds or mortgage credit certificates; 
issuing qualified student loan bonds; and issuing qualified 
redevelopment bonds.\92\ A carryforward of unused State volume 
cap is valid for three years.
---------------------------------------------------------------------------
    \92\Sec. 146(f)(5).
---------------------------------------------------------------------------
    Many States have State revolving fund programs (``SRFs'') 
to finance wastewater and drinking water projects. SRFs are 
pools of capital dedicated to financing public infrastructure 
formed through Federal and state contributions. SRFs use 
Federal grants to make loans to local governments to finance 
the construction of water facilities and to establish debt 
service reserve funds for bonds the proceeds of which are so be 
used to make such loans. Although present law generally 
prohibits the Federal guarantee of tax-exempt bonds,\93\ the 
IRS has ruled that States may use Federal grants to fund debt 
service reserve funds for tax-ex pt bonds issued to finance SRF 
loans without affecting the tax-exempt status of such 
bonds.\94\
---------------------------------------------------------------------------
    \93\Sec. 149(b).
    \94\Notice 88-54, 1988-1 C.B. 539.
---------------------------------------------------------------------------
    Although not States or subdivisions of States, Indian 
tribal governments are provided with a tax status similar to 
State and local governments for specified purposes under the 
Code.\95\ Among the purposes for which a tribal government is 
treated as a State is the issuance of tax-exempt bonds. Under 
section 7871(c), tribal governments are authorized to issue 
tax-exempt bonds only if substantially all of the proceeds are 
used for essential governmental functions.\96\ The term 
essential governmental function does not include any function 
that is not customarily performed by State and local 
governments with general taxing powers. Section 7871(c) further 
prohibits Indian tribal governments from issuing tax-exempt 
private activity bonds (as defined in section 141(a) of the 
Code) with the exception of certain bonds for manufacturing 
facilities. These private activity bonds for manufacturing are 
not subject to the State volume cap.
---------------------------------------------------------------------------
    \95\Sec. 7871.
    \96\Sec. 7871(c).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Tax-exempt bonds are an effective tool for assisting 
communities to build and repair local water and sewage systems. 
The need to repair and replace this infrastructure is 
significant, and the construction of these facilities will help 
create jobs. Therefore, the Committee believes it is 
appropriate to remove the private activity bond volume cap for 
water and sewage systems. In addition, the Committee believes 
that Indian tribal governments should receive equivalent access 
to tax-exempt bond financing as State and local governments 
with respect to facilities for the furnishing of water and 
sewage facilities.

                        EXPLANATION OF PROVISION

    The provision provides that tax-exempt bonds issued to 
finance privately used or operated facilities for the 
furnishing of water or sewage facilities are not subject to the 
State volume caps. Also, the provision allows Indian tribal 
governments to issue tax-exempt private activity bonds for the 
furnishing of water or sewage facilities. These bonds are not 
subject to the State volume cap or the essential government 
function test.

                             EFFECTIVE DATE

    The provision is effective for bonds issued after the date 
of enactment.

C. Extension of Exemption From Alternative Minimum Tax for Certain Tax-
                              Exempt Bonds


         (Sec. 203 of the Bill and Secs. 56 and 57 of the Code)


                              PRESENT LAW

    Present law imposes an alternative minimum tax (``AMT'') on 
individuals and corporations. AMT is the amount by which the 
tentative minimum tax exceeds the regular income tax. The 
tentative minimum tax is computed based upon a taxpayer's 
alternative minimum taxable income (``AMTI''). AMTI is the 
taxpayer's taxable income modified to take into account certain 
preferences and adjustments. One of the preference items is 
tax-exempt interest on certain tax-exempt bonds issued for 
private activities (sec. 57(a)(5)). Also, in the case of a 
corporation, an adjustment based on current earnings is 
determined, in part, by taking into account 75 percent of 
items, including tax-exempt interest, that are excluded from 
taxable income but included in the corporation's earnings and 
profits (sec. 56(g)(4)(B)).
    The American Recovery and Reinvestment Act of 2009 provided 
that tax-exempt interest on private activity bonds issued in 
2009 and 2010 is not an item of tax preference for purposes of 
the alternative minimum tax and interest on tax exempt bonds 
issued in 2009 and 2010 is not included in the corporate 
adjustment based on current earnings. For these purposes, a 
refunding bond is treated as issued on the date of the issuance 
of the refunded bond (or in the case of a series of refundings, 
the original bond).
    The Act also provided that tax-exempt interest on private 
activity bonds issued in 2009 and 2010 to currently refund a 
private activity bond issued after December 31, 2003, and 
before January 1, 2009, is not an item of tax preference for 
purposes of the alternative minimum tax. Also, tax-exempt 
interest on bonds issued in 2009 and 2010 to currently refund a 
bond issued after December 31, 2003, and before January 1, 
2009, is not included in the corporate adjustment based on 
current earnings.

                           REASONS FOR CHANGE

    The Committee believes that the AMT treatment of interest 
on tax-exempt bonds restricts the number of persons willing to 
hold tax-exempt bonds, resulting in higher financing costs. 
Higher financing costs, in turn, may make it more difficult for 
economic development projects to begin or continue. The 
Committee believes that extending the minimum tax treatment of 
interest on tax-exempt bonds provided by the American Recovery 
and Reinvestment Act of 2009 will help create jobs. 
Accordingly, the provision extends the elimination of the AMT 
adjustments for interest on tax-exempt bonds issued in 2011.

                        EXPLANATION OF PROVISION

    The provision extends the minimum tax treatment of interest 
on tax-exempt bonds provided by the American Recovery and 
Reinvestment Act of 2009 to bonds issued in 2011.

                             EFFECTIVE DATE

    The provision applies to interest on bonds issued after 
December 31, 2010.

  D. Elective Payments in Lieu of Low-Income Housing Credits for 2010


            (Sec. 204 of the Bill and Sec. 6451 of the Code)


                              PRESENT LAW

Tax credits

            In general
    The low-income housing credit may be claimed over a 10-year 
period by owners of certain residential rental property for the 
cost of rental housing occupied by tenants having incomes below 
specified levels.\97\ The amount of the credit for any taxable 
year in the credit period is the ``applicable percentage'' of 
the qualified basis of each qualified low-income building. 
Generally, the applicable percentage is 70 percent for a new 
non-Federally subsidized building and 30 percent for all other 
buildings. Generally, a new building is considered Federally-
subsidized if it also receives tax-exempt bond financing. The 
qualified basis of any qualified low-income building for any 
taxable year equals the applicable fraction of the eligible 
basis of the building.
---------------------------------------------------------------------------
    \97\Sec. 42.
---------------------------------------------------------------------------
            Volume limits
    Generally, a low-income housing credit is allowable only if 
the owner of a qualified building receives a housing credit 
allocation from the State or local housing credit agency. Each 
State has a limited amount of low-income housing credit 
available to allocate. This amount is called the aggregate 
housing credit dollar amount. The aggregate housing credit 
dollar amount for each State has four components: (1) the 
unused housing credit ceiling, if any, of such State from the 
prior calendar year; (2) the credit ceiling for the year; (3) 
any returns of credit ceiling to the State during the calendar 
year from previous allocations; and (4) the State's share, if 
any, of the national pool of unused credits from other States 
that failed to use them (only States which allocated their 
entire credit ceiling for the preceding calendar year are 
eligible for a share of the national pool. For calendar year 
2010, each State's credit ceiling is $2.10 per resident, with a 
minimum annual cap of $2,430,000 for certain small population 
States.\98\ These amounts are indexed for inflation.
---------------------------------------------------------------------------
    \98\Rev. Proc. 2009-50
---------------------------------------------------------------------------
    Certain buildings that also receive financing with proceeds 
of tax-exempt bonds do not require an allocation of the low-
income housing credit. Generally, these buildings are buildings 
where 50 percent or more of the aggregate basis of the building 
and the land on which the building is located is financed with 
obligations tax exempt under section 103 and subject to the 
private activity bond volume limits.\99\
---------------------------------------------------------------------------
    \99\Sec. 146.
---------------------------------------------------------------------------
            Special basis rule
    The eligible basis of a qualified building must be reduced 
by the amount of any Federal grant with respect to such 
building.

Grants in lieu of tax credits for 2009

            Low-income housing grant election amount
    Under a special rule, the Secretary of the Treasury makes a 
grant to each State's housing credit agency in an amount equal 
to the low-income housing grant election amount for 2009.
    The low-income housing grant election amount for a State is 
an amount elected by the State subject to certain limits. The 
maximum low-income housing grant election amount for a State 
may not exceed 85 percent of the product of ten (i.e., the 
length of the credit period) and the sum of the State's: (1) 
unused housing credit ceiling for 2008; (2) any returns to the 
State during 2009 of credit allocations previously made by the 
State; (3) 40 percent of the State's 2009 credit allocation; 
and (4) 40 percent of the State's share of the national pool 
allocated in 2009, if any.
    These grants are not taxable income to recipients.
            Subawards to low-income housing credit buildings
    A State receiving a grant under this election is to use 
these monies to make subawards to finance the construction or 
acquisition and rehabilitation of qualified low-income 
buildings as defined under the low-income housing credit. A 
subaward may be made to finance a qualified low-income building 
regardless of whether the building has an allocation of low-
income housing credit. However, in the case of qualified low-
income buildings without allocations of the low-income housing 
credit, the State housing credit agency must make a 
determination that the subaward with respect to such building 
will increase the total funds available to the State to build 
and rehabilitate affordable housing. In conjunction with this 
determination the State housing credit agency must establish a 
process in which applicants for the subawards must demonstrate 
good faith efforts to obtain investment commitments before the 
agency makes such subawards.
    Any building receiving grant money from a subaward must 
satisfy the low-income housing credit rules. The State housing 
credit agency shall perform asset management functions to 
ensure compliance with the low-income housing credit rules and 
the long-term viability of buildings financed with these 
subawards.\100\ Failure to satisfy the low-income housing 
credit rules will result in recapture enforced by means of 
liens or other methods that the Secretary (or delegate) deems 
appropriate. Any such recapture will be payable to the 
Secretary for deposit in the general fund of the Treasury.
---------------------------------------------------------------------------
    \100\The State housing credit agency may collect reasonable fees 
from subaward recipients to cover the expenses of the agency's asset 
management duties. Alternatively, the State housing credit agency may 
retain a third party to perform these asset management duties.
---------------------------------------------------------------------------
    Any grant funds not used to make subawards before January 
1, 2011, and any grant monies from subawards returned on or 
after January 1, 2011, must be returned to the Secretary.
            Special basis rule
    A grant received under the grant election does not reduce 
eligible basis of a qualified low-income building.
            Reduction in low-income housing credit volume limit for 
                    2009
    The otherwise applicable component or components of the 
aggregate housing credit dollar amounts for any State for 2009 
are reduced by the amount taken into account in determining the 
low-income housing grant election amount.

                           REASONS FOR CHANGE

    Low-income housing tax credit buildings often require 
intricate financing arrangements in addition to the tax 
benefit. Private financing options as well as the 
attractiveness of the tax credit itself can be affected by 
general economic conditions. Notwithstanding temporary 
downturns in the general economy, the need for additional 
affordable housing is ongoing. The Committee believes that the 
provision will allow certain projects to proceed that may not 
otherwise be placed-in-service under the present economic 
circumstances. The construction of these buildings will help 
create jobs.

                        EXPLANATION OF PROVISION

Elective payments in lieu of low-income housing credit for certain 
        bond-financed buildings

            In general
    At the election of the taxpayer, a portion of the otherwise 
applicable low-income housing credit with respect to certain 
buildings equal to the ``direct payment amount'' is treated as 
a payment against Federal income tax. In this manner, the low-
income housing credit otherwise available is converted to a 
cash equivalent. The direct payment amount with respect to such 
a building is 85 percent of 30 percent (i.e., 25.5 percent) of 
the qualified basis of such building. This election is limited 
only to those tax-exempt bond financed buildings which do not 
require an allocation of low-income housing credit.
    The election does not apply with respect to any building 
placed in service by any government entity or tax-exempt 
organization. In the case of property placed in service by a 
partnership or S corporation, the election must be made at the 
entity level.
            Low-income housing credit rules
    Rules similar to the low-income housing credit rules 
(including recapture) continue to apply.
            Tax treatment of amounts received
    Any credit or refund allowed under this provision is not 
includible in the taxpayer's gross income or alternative 
minimum taxable income.
            Termination
    The provision does not apply with respect to any building 
placed in service during a taxable year beginning after 
December 31, 2010.

                             EFFECTIVE DATE

    The provision relating to elective payments in lieu of low-
income housing credit for certain bond-financed buildings is 
effective for buildings placed-in-service after the date of 
enactment.

E. Extension and Additional Allocations of Recovery Zone Bond Authority


 (Sec. 205 of the Bill and Secs. 1400U-1, 1400U-2, and 1400U-3 of the 
                                 Code)


                              PRESENT LAW

In general

    Issuers may issue recovery zone economic development bonds 
and recovery zone facility bonds with respect to a recovery 
zone. A recovery zone is (1) any area designated by an issuer 
as having significant poverty, unemployment, rate of home 
foreclosures, or general distress; (2) any area designated by 
the issuer as economically distressed by reason of the closure 
or realignment of a military installation pursuant to the 
Defense Base Closure and Realignment Act of 1990, or (3) any 
area for which a designation as an empowerment zone or renewal 
community is in effect.
    There is a national recovery zone economic development bond 
limitation of $10 billion. In addition, there is a separate 
national recovery zone facility bond limitation of $15 billion. 
Present law requires that the Secretary allocate these bond 
limitations among the States in the proportion that each 
State's employment decline bears to the national decline in 
employment (the aggregate 2008 State employment declines for 
all States). The allocations are adjusted to the extent 
necessary to ensure that no State receives less than 0.9 
percent of each recovery zone bond limitation.
    In turn, each State is to reallocate its allocation among 
the counties (parishes) and large municipalities in such State 
in the proportion that each such county or municipality's 2008 
employment decline bears to the aggregate employment declines 
for all counties and municipalities in such State. In 
calculating the local employment decline with respect to a 
county, the portion of such decline attributable to a large 
municipality is disregarded for purposes of determining the 
county's portion of the State employment decline and is 
attributable to the large municipality only.
    The ``2008 State employment decline'' means, with respect 
to any State, the excess (if any) of (i) the number of 
individuals employed in such State as determined for December 
2007, over (ii) the number of individuals employed in such 
State as determined for December 2008. The term ``large 
municipality'' means a municipality with a population of more 
than 100,000.

Recovery zone economic development bonds

    A recovery zone economic development bond is a Build 
America Bond (a type of taxable governmental bond) that 
entitles the issuer of such bonds to receive a refundable tax 
credit (payment) equal to 45 percent of the interest payable on 
an interest payment date.
    A recovery zone economic development bond is a Build 
America Bond issued as part of an issue if 100 percent of the 
available project proceeds of such issue are to be used for one 
or more qualified economic development purposes and the issuer 
designates such bond as a recovery zone economic development 
bond. A qualified economic development purpose means 
expenditures for purposes of promoting development or other 
economic activity in a recovery zone, including (1) capital 
expenditures paid or incurred with respect to property located 
in such zone, (2) expenditures for public infrastructure and 
construction of public facilities located in a recovery zone 
and (3) expenditures for job training and educational programs.
    The aggregate face amount of bonds which may be designated 
by any issuer cannot exceed the amount of the recovery zone 
economic development bond limitation allocated to such issuer. 
Recovery zone economic development bonds must be issued before 
January 1, 2011.

Recovery zone facility bonds

    A recovery zone facility bond is any bond issued as part of 
an issue if: (1) 95 percent or more of the net proceeds of such 
issue are to be used for recovery zone property and (2) such 
bond is issued before January 1, 2011, and (3) the issuer 
designates such bond as a recovery zone facility bond. The 
aggregate face amount of bonds which may be designated by any 
issuer cannot exceed the amount of the recovery zone facility 
bond limitation allocated to such issuer.
    Under the provision, the term ``recovery zone property'' 
means any property subject to depreciation to which section 168 
applies (or would apply but for section 179) if (1) such 
property was acquired by the taxpayer by purchase after the 
date on which the designation of the recovery zone took effect; 
(2) the original use of such property in the recovery zone 
commences with the taxpayer; and (3) substantially all of the 
use of such property is in the recovery zone and is in the 
active conduct of a qualified business by the taxpayer in such 
zone. The term ``qualified business'' means any trade or 
business except that the rental to others of real property 
located in a recovery zone shall be treated as a qualified 
business only if the property is not residential rental 
property (as defined in section 168(e)(2)) and does not include 
any trade or business consisting of the operation of any 
facility described in section 144(c)(6)(B) (i.e., any private 
or commercial golf course, country club, massage parlor, hot 
tub facility, suntan facility, racetrack or other facility used 
for gambling, or any store the principal purpose of which is 
the sale of alcoholic beverages for consumption off premises).
    Subject to the following exceptions and modifications, 
issuance of recovery zone facility bonds is subject to the 
general rules applicable to issuance of qualified private 
activity bonds:
    1. Issuance of the bonds is not subject to the aggregate 
annual State private activity bond volume limits (sec. 146);
    2. The restriction on acquisition of existing property does 
not apply (sec. 147(d));

                           REASONS FOR CHANGE

    The Committee believes that recovery zone bonds are a 
useful tool for stimulating economic development, creating 
jobs, and helping rebuild the country's infrastructure, 
particularly in communities that have been adversely affected 
by current economic conditions. Some areas of the country with 
high unemployment did not receive recovery bond allocations 
under the present-law formulation. The Committee believes it is 
appropriate to provide additional allocation authority to 
ensure that all areas nationwide receive at least a minimum 
allocation of recovery zone bonds based on the number of 
unemployed in that locality.

                        EXPLANATION OF PROVISION

    The provision extends for one additional year the period 
for issuing recovery zone economic development bonds and 
recovery zone facility bonds (through December 31, 2011).
    The provision provides for a second allocation of $10 
billion of recovery zone economic development bonds and $15 
billion of recovery zone facility bonds. This second allocation 
is made in the proportion that each State's 2009 unemployment 
number bears to the aggregate of the 2009 unemployment numbers 
for all States. The second round of allocations is adjusted to 
the extent necessary to ensure that no State receives less than 
0.9 percent of each recovery zone bond limitation, before the 
reduction discussed below.
    Similar to present law, each State is to reallocate its 
allocation among the counties (parishes) and large 
municipalities in such State in the proportion that each such 
county or municipality's 2009 unemployment number bears to the 
aggregate 2009 unemployment number for all counties and 
municipalities in such State. In the case of any large 
municipality, any portion of which is in a county, such portion 
is treated as part of the municipality and not part of the 
county.
    A State is required to reduce, but not below zero, each 
allocation to a county or large municipality by the amount of 
the first (present law) recovery zone economic development bond 
allocation. Similarly, each county or large municipality's 
second allocation of recovery zone facility bond allocation is 
reduced, but not below zero, by the amount of the first 
recovery zone facility bond allocation. These reductions are 
made without regard to any waiver of allocation made by the 
county or large municipality. For purposes of the limitations 
on the amount of bonds that may be designated, any amount of 
the national allocation that is not allocated by a State to a 
county or large municipality as a result of such reduction 
shall be treated as not allocated to any issuer, including the 
State itself.
    Under present law and under the provision, a county or 
municipality may waive any portion of an allocation made to it. 
The provision further provides that by State law, a State may 
treat a county or municipality as waiving any portion of an 
allocation made to a county or municipality if there is a 
reasonable expectation that such allocation would not be used. 
This rule applies to all allocations, including the first round 
of allocations made in 2009. No negative inference is intended 
regarding State laws enacted prior to the date of enactment, 
which deem a county or municipality's allocation waived.
    The term ``2009 unemployment number'' means, with respect 
to any State, county or municipality, the number of individuals 
in such State, county, or municipality who were determined to 
be unemployed by the Bureau of Labor Statistics for December 
2009.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 F. Allowance of New Markets Tax Credit Against Alternative Minimum Tax


             (Sec. 206 of the Bill and Sec. 38 of the Code)


                              PRESENT LAW

    Under present law, business tax credits generally may not 
exceed the excess of the taxpayer's income tax liability over 
the tentative minimum tax (or, if greater, 25 percent of the 
regular tax liability in excess of $25,000). Credits in excess 
of the limitation may be carried back one year and carried over 
for up to 20 years.
    The tentative minimum tax is an amount equal to specified 
rates of tax imposed on the excess of the alternative minimum 
taxable income over an exemption amount. To the extent the 
tentative minimum tax exceeds the regular tax, a taxpayer is 
subject to the alternative minimum tax.
    Thus, business tax credits generally cannot offset the 
alternative minimum tax liability.

                           REASONS FOR CHANGE

    The Committee believes that allowing new markets tax credit 
investments to offset alternative minimum tax liability will 
broaden the pool of potential investors and put the new markets 
tax credit on par with other tax credits that can offset the 
AMT, such as the low-income housing tax credit and the historic 
rehabilitation tax credit. Broadening the pool of potential 
investors for new market tax credits increases the efficiencies 
of the program in attracting private capital to economic 
development projects that will help to create jobs.

                        EXPLANATION OF PROVISION

    The provision treats the tentative minimum tax as being 
zero for purposes of determining the tax liability limitation 
with respect to the new markets tax credit.
    Thus, the new markets tax credit may offset the alternative 
minimum tax liability.

                             EFFECTIVE DATE

    The provision applies to credits determined with respect to 
qualified equity investments (as defined in section 45D(b)) 
initially made after March 15, 2010, and before January 1, 
2012.

                     TITLE III--REVENUE PROVISIONS


    A. Limitation on Treaty Benefits for Certain Deductible Payments


            (Sec. 301 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 or 
reduces U.S. withholding tax unless the foreign corporation is 
both a resident of such foreign country and qualifies under any 
limitation-on-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.\101\
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    \101\United States Model Income Tax Convention of November 15, 
2006, Art. 4, par. 1.
---------------------------------------------------------------------------
            Limitation-on-benefits provisions generally
    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 related 
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\102\ 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''),\103\ and 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.
---------------------------------------------------------------------------
    \102\U.S. income tax treaties with Greece, Hungary, Pakistan, the 
Philippines, Poland, and Romania are examples of such treaties, each of 
which entered into force more than 25 years ago. The United States 
recently signed a new income tax treaty with Hungary that contains a 
modern limitation-on-benefits provision; the U.S. Senate must still 
ratify that treaty before it may enter into force.
    \103\United States Model Income Tax Convention of November 15, 
2006, Art. 22.
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    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. 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.
            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.
            Listed attributes qualifying a treaty-country resident for 
                    treaty benefits
    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 either a public trading or 
ownership test 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 the ownership and base erosion test described below.
    Public trading and ownership tests.--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 test may be satisfied by 
indirect ownership only if each intermediate owner is a 
resident of either treaty country.
    Ownership and base erosion test.--A resident of a treaty 
country satisfies the ownership prong of the ownership and base 
erosion test 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 test, 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 test, 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).
            Items of income derived from an active trade or business
    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.
            Discretionary grant of benefits by competent authority
    A resident of a treaty country not otherwise eligible for 
treaty benefits under the U.S. model treaty may be eligible for 
the benefits of the treaty generally or eligible for the 
benefits with respect to a specific item of income, based on a 
determination by the competent authority of the other treaty 
country. The competent authority may grant such benefits 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.\104\ Such payments may ultimately be distributed 
to the foreign parent corporations in the nontax-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 of the sort described above 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 related-
party payments in cases in which the 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 
in cases in which the parent is resident in a tax haven.
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    \104\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 that 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 82 (2007).
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                        EXPLANATION OF PROVISION

    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 deductible related-party payments may not be 
reduced under any U.S. income tax treaty unless such 
withholding tax would have been reduced under a U.S. income tax 
treaty if the payment were 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 
for U.S. tax purposes, 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'' as 
defined in section 1563(a)(1), 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 of the total combined voting 
power of all classes of stock entitled to vote or at least 80 
percent of the total value of shares of all classes of stock of 
each of the corporations. 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,\105\ 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.
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    \105\Under section 1563(b)(2), a corporation which is a member of a 
controlled group of corporations on December 31 of a taxable year is 
treated as an excluded member of the group for the taxable year that 
includes such December 31 if such corporation--
    (A) is a member of the group for less than one-half the number of 
days in such taxable year which precedes such December 31;
    (B) is exempt from taxation under section 501(a) for such taxable 
year;
    (C) is a foreign corporation subject to tax under section 881 for 
such taxable year;
    (D) is an insurance company subject to taxation under section 801; 
or
    (E) is a franchised corporation (as defined in section 1563(f)(4)).
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    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 an income tax treaty is always 
subject to the statutory U.S. withholding tax rate of 30 
percent, irrespective of whether the payee qualifies for 
benefits under a tax treaty. If, instead, the foreign parent 
corporation is a resident of a country with respect to which 
the United States does have an income tax treaty that would 
reduce the withholding tax rate on a payment made directly to 
the foreign parent corporation (regardless of the amount of 
such reduction), and the payment would qualify for benefits 
under that treaty if the payment were made directly to the 
foreign parent corporation, then the payee entity will continue 
to be eligible for the reduced withholding tax rate under the 
U.S. income tax treaty with the payee entity's residence 
country (even if such reduced treaty rate is lower than the 
rate that would be imposed on a hypothetical direct payment to 
the foreign parent corporation).

                             EFFECTIVE DATE

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

 B. Treatment of Securities of a Controlled Corporation Exchanged for 
                   Assets in Certain Reorganizations


            (Sec. 302 of the Bill and Sec. 361 of the Code)


                              PRESENT LAW

    The transfer of assets by a transferor corporation to 
another corporation, controlled (immediately after the 
transfer) by the transferor or one or more of its shareholders, 
will qualify as a tax-free reorganization if the transfer is 
made by one corporation (``distributing'') of a part of its 
assets consisting of an active trade or business meeting 
certain requirements to a controlled subsidiary corporation 
(``controlled''), followed by the distribution of the stock and 
securities of the controlled subsidiary in a divisive spin-off, 
split-off, or split-up which was not used principally as a 
device for the distribution of earnings and profits (``divisive 
D reorganization'').\106\
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    \106\Secs. 355 and 368(a)(1)(D). Section 355 imposes other 
requirements to avoid gain recognition at the corporate level with 
respect to the spin off, split up, or split off, e.g., secs. 355(d) and 
(e).
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    No gain or loss is recognized to a corporation if the 
corporation is a party to a reorganization and exchanges 
property, in pursuance of the plan of reorganization, solely 
for stock or securities in another corporation a party to the 
reorganization.\107\ If property other than stock or securities 
is received (``other property''), gain is recognized to the 
extent the other property is not distributed.\108\
---------------------------------------------------------------------------
    \107\Sec. 361(a).
    \108\Sec. 361(b).
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    In addition, in the case of a transfer of money or other 
property received in the exchange to the corporation's 
creditors in connection with the reorganization, gain is 
recognized to the extent the sum of the money and the fair 
market value of the other property exceed the adjusted bases of 
the assets transferred (net of liabilities).\109\ Such a 
transfer to creditors is aggregated with other assumptions of 
the transferor corporation's liabilities by the transferee, 
which generally cause gain recognition if they exceed the 
adjusted basis of assets transferred.\110\
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    \109\The last sentence of sec. 361(b)(3).
    \110\Sec. 357(c).
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    For example, if in a divisive D reorganization the 
controlled corporation either (1) directly assumes the debt of 
the distributing corporation, or (2) borrows and distributes 
cash to the distributing corporation to pay the distributing 
corporation's creditors, such debt assumption or cash 
distribution is treated as money received by the distributing 
corporation, and is taxable to the extent it exceeds the 
distributing corporation's basis in the assets transferred to 
the controlled corporation. By contrast, if the controlled 
corporation leverages itself by issuing its debt securities to 
the distributing corporation, the controlled corporation's debt 
securities are not treated as money received by the 
distributing corporation. Thus, the distributing corporation 
could use the controlled corporation's securities to retire the 
distributing corporation's own debt, recognize no gain, and be 
in the same economic position as if its debt had been directly 
assumed by the controlled corporation or as if it had retired 
its debt with cash received from the controlled corporation.

                           REASONS FOR CHANGE

    The Committee is concerned about the levels of debt 
incurred in divisive transactions in which one corporation is 
relieved of debt while the other subsequently separate 
corporation is heavily burdened. In recent years, Congress has 
sought to limit a distributing corporation's ability to cause a 
controlled corporation to distribute cash or assume the 
distributing corporation's debt prior to a tax-free spin-off 
For example, in 2004, Congress limited the amount of money and 
other property that can be distributed to creditors in a 
divisive D reorganization without gain recognition to the basis 
of the assets contributed (net of liabilities). While this 
change made it more difficult for a distributing corporation to 
reduce its own indebtedness in connection with a spin-off, it 
was still possible for the distributing corporation to use 
controlled corporation debt securities to pay down its debt 
(effectively shifting its liabilities to the separated 
controlled corporation). The Committee believes that in a 
divisive D reorganization, debt securities of the controlled 
corporation (as well as certain preferred stock that is treated 
as taxable consideration to shareholders in similar present law 
contexts), should be treated as cash received by the 
distributing corporation if retained by the corporation or 
transferred to its security holders or other creditors. The 
change more closely conforms the treatment of securities 
received in these reorganizations with the treatment of 
securities received in other corporate organizations and 
reorganizations.

                        EXPLANATION OF PROVISION

    Under the provision, in the case of a divisive D 
reorganization, no gain or loss is recognized to a corporation 
if the corporation is a party to a reorganization and exchanges 
property, in pursuance of the plan of reorganization, solely 
for stock other than nonqualified preferred stock (as defined 
in section 351(g)(2)).\111\ Thus, under the provision, 
securities and nonqualified preferred stock are treated as 
``other property.''
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    \111\Section 351(g)(2) defines nonqualified preferred stock as 
preferred stock if (i) the holder has a right to require the issuer or 
a related person to redeem or purchase the stock, which right may be 
exercised within the 20 year period beginning on the issue date and is 
not subject to a contingency which, as of the issue date, makes remote 
the likelihood of redemption or purchase; (ii) the issuer or a related 
person is required to redeem or purchase the stock (within such 20 year 
period and not subject to such a contingency); (iii) the issuer or a 
related person has the right to redeem or purchase the stock (which 
right is exercisable within such 20 year period and not subject to such 
a contingency) and as of the issue date, it is more likely than not 
that such right will be exercised, or (iv) the dividend on such stock 
varies in whole or in part (directly or indirectly) with reference to 
interest rates, commodity prices, or other similar indices. There are 
exceptions for certain rights that are exercisable only on the death, 
disability or mental incompetency of the holder, or only upon the 
separation from service of a service provider who received the right as 
reasonable compensation for services, and for certain situations 
involving publicly traded stock.
    Nonqualified preferred stock is treated in the same manner as 
securities under section 351 and thus is not qualified consideration 
that may be received tax free by a contributing shareholder. Sections 
354(a)(2)(C) and 356(e) treat nonqualified preferred stock as taxable 
consideration if received in exchange for stock by shareholders of a 
corporation that itself is a party to a reorganization (except to the 
extent received in exchange for other nonqualified preferred stock); 
and section 355 contains a similar rule (sec. 355(a)(3)(D)).
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    Under the provision, the transferor corporation's gain on 
the exchange is recognized to the extent of the sum of money 
and the value of other property, including securities and 
nonqualified preferred stock, not distributed in pursuance of 
the plan of reorganization. Also, gain on the exchange is 
recognized to the extent that the sum of money and the value of 
all property other than stock that is not nonqualified 
preferred stock which is transferred to creditors exceeds the 
adjusted bases of the assets transferred (net of liabilities).
    For example, under the provision, in a divisive D 
reorganization, the exchange of the controlled corporation's 
securities for the distributing corporation's securities would 
be treated in the same manner as (1) the assumption of the 
distributing corporation's debt by the controlled corporation 
or (2) the use of a cash distribution from the controlled 
corporation to retire debt of the distributing corporation.

                             EFFECTIVE DATE

    The provision applies to exchanges occurring after the date 
of enactment.
    However, the provision does not apply to any exchange in 
connection with a transaction which is (i) made pursuant to an 
agreement which was binding on March 15, 2010, and at all times 
thereafter, (ii) described in a ruling request submitted to the 
Internal Revenue Service on or before such date, or (iii) 
described on or before such date in a public announcement or in 
a filing with the Securities and Exchange Commission.

  C. Repeal of Special Rules for Interest and Dividends Received From 
      Persons Meeting the 80-Percent Foreign Business Requirements


  (Sec. 303 of the Bill and Secs. 861(a)(1)(A) and 871(i) of the Code)


                              PRESENT LAW

    The source of interest and dividend income generally is 
determined by reference to the country of residence of the 
payor.\112\ Thus, an interest or dividend payment from a U.S. 
payor to a foreign person generally is treated as U.S.-source 
income and is subject to the 30-percent gross-basis U.S. 
withholding tax.\113\ However, if a resident alien individual 
(``individual'') or U.S. corporation satisfies an 80-percent 
active foreign business income requirement (the ``80/20 
test''), all or a portion of any interest paid by the 
individual or that U.S. corporation (a so-called ``80/20 
company'') is exempt from U.S. withholding tax. Interest paid 
by an individual that satisfies the 80/20 test or by an 80/20 
company is treated as foreign-source income and is therefore 
exempt from the 30-percent withholding tax if it is paid to 
unrelated parties.\114\ When an individual or 80/20 company 
pays interest to a related party, the re-sourcing rule applies 
only to the percentage of the interest that is equal to the 
percentage of the individual or 80/20 company's foreign-source 
income (described below) as a portion of the individual or 80/
20 company's total gross income during the three-year testing 
period (a so-called ``look-through'' approach).\115\
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    \112\Secs. 861(a)(1), (2), 862(a)(1), (2).
    \113\Secs. 871(a)(1)(A), 881(a)(1), 1441(b), 1442(a).
    \114\Sec. 861(a)(1)(A).
    \115\Sec. 861(c)(2).
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    In addition to interest, the payment of a dividend by an 
80/20 company will also be exempt from U.S. withholding tax. 
Unlike interest, a dividend paid by an 80/20 company remains 
U.S. source (for example, for foreign tax credit limitation 
purposes). However, a percentage of the dividend paid by an 80/
20 company to a foreign shareholder is exempt from the 30-
percent gross-basis U.S. withholding tax. As with related-party 
interest, the percentage equals the percentage of the 80/20 
company's total gross income during the testing period that is 
foreign source.\116\
---------------------------------------------------------------------------
    \116\Sec. 871(i).
---------------------------------------------------------------------------
    In general, an individual or U.S. corporation meets the 80/
20 test if at least 80 percent of the gross income of the 
individual or corporation during the testing period is derived 
from foreign sources and is attributable to the active conduct 
of a trade or business in a foreign country (or a U.S. 
possession) by the individual or corporation or, in the case of 
the corporation, a 50-percent owned subsidiary of that 
corporation. The testing period generally is the three-year 
period preceding the year in which the interest or dividend is 
paid.\117\
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    \117\Sec. 861(c)(1). The income of a subsidiary is attributed to 
the tested company only to the extent that the tested company actually 
receives income from the subsidiary in the form of dividends. 
Conference Report to the 1986 Tax Reform Act, Pub. L. No. 99-514, Vol 
II, 602. See also Rev. Rul. 73-63, 1973-1 C.B. 336 and P.L.R. 
6905161160A (May 16, 1969).
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                           REASONS FOR CHANGE

    The Committee is concerned that the 80/20 rules are being 
used in unintended ways to avoid U.S. tax. For example, some 
foreign investors may seek to avoid U.S. withholding tax on the 
receipt of dividend income generated primarily from U.S. 
domestic operations by satisfying the 80/20 test. In addition, 
some U.S. corporate taxpayers may seek to increase the foreign 
tax credit limitation they claim by using the 80/20 company 
exception to generate low-taxed foreign-source income without a 
corresponding increase in net taxable income. The Committee 
believes that use of the 80/20 exceptions for such unintended 
benefits is inappropriate.

                        EXPLANATION OF PROVISION

    The provision repeals the present law rule that treats as 
foreign source all or a portion of any interest paid by a 
resident alien individual or U.S. corporation that meets the 
80/20 test. The provision also repeals the present law rule 
that treats all or a portion of any dividends paid by a U.S. 
corporation that meets the 80/20 test as being exempt from 
withholding tax.
    The repeal of the 80/20 company provisions relating to the 
payment of interest shall not apply to payments of interest on 
obligations issued before the date of enactment unless such 
interest is payable to a related person (as determined under 
rules similar to the rules of section 954(d)(3)).\118\ However, 
a significant modification of the terms of any obligation 
(including any extension of the term of such obligation) shall 
be treated as the issuance of a new obligation. For purposes of 
determining what constitutes a significant modification, it is 
anticipated that rules similar to those under section 1001 
shall apply.
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    \118\A person will be treated as a related person with respect to a 
controlled foreign corporation if (A) such person is an individual, 
corporation, partnership, trust or estate which controls, or is 
controlled by, the controlled foreign corporation, or (B) such person 
is a corporation, partnership, trust or estate which is controlled by 
the same person or persons which control the resident controlled 
foreign corporation. For purposes of the preceding sentence, control 
means, with respect to a corporation, the ownership, directly or 
indirectly, of stock possessing more than 50 percent of the total 
voting power of all classes of stock entitled to vote or of the total 
value of stock of such corporation. In the case of a partnership, 
trust, or estate, control means the ownership, directly or indirectly, 
of more than 50 percent (by value) of the beneficial interests in such 
partnership, trust, or estate. For purposes of this paragraph, rules 
similar to the rules of section 958 shall apply. Sec. 954(d)(3).
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                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2010.

     D. Information Reporting for Rental Property Expense Payments


            (Sec. 304 of the Bill and Sec. 6041 of the Code)


                              PRESENT LAW

    A variety of information reporting requirements apply under 
present law.\119\ These requirements are intended to assist 
taxpayers in preparing their income tax returns and to help the 
IRS determine whether such returns are correct and complete.
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    \119\Secs. 6031 through 6060.
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    The primary provision governing information reporting by 
payors requires an information return by every person engaged 
in a trade or business who makes payments to any one payee 
aggregating $600 or more in any taxable year in the course of 
that payor's trade or business.\120\ Payments subject to 
reporting include fixed or determinable income or compensation, 
but do not include payments for goods or certain enumerated 
types of payments that are subject to other specific reporting 
requirements.\121\ The payor is required to provide the 
recipient of the payment with an annual statement showing the 
aggregate payments made and contact information for the 
payor.\122\ The regulations generally except from reporting, 
payments to corporations, exempt organizations, governmental 
entities, international organizations, or retirement 
plans.\123\ Additionally, the requirement that businesses 
report certain fixed or determinable payments of income or 
gain, by its terms, is not applicable to persons engaged in a 
passive investment activity.
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    \120\Sec. 6041(a). Information returns are generally submitted 
electronically on Forms 1096 and Forms 1099, although certain payments 
to beneficiaries or employees may require use of Forms W-3 and W-2, 
respectively. Treas. Reg. sec. 1.6041-1(a)(2).
    \121\Sec. 6041(a) requires reporting as to ``other fixed or 
determinable gains, profits, and income (other than payments to which 
section 6042(a)(1), 6044(a)(1), 6047(c), 6049(a) or 6050N(a) applies 
and other than payments with respect to which a statement is required 
under authority of section 6042(a), 6044(a)(2) or 6045)[.]'' The 
payments thus excepted include most interest, royalties, and dividends 
that are subject to other specific reporting requirements.
    \122\Sec. 6041(d). Specifically, the recipient of the payment is 
required to provide a Form W-9 to the payor, which enables the payee to 
provide the recipient of the payment with an annual statement showing 
the aggregate payments made and contact information for the payor. If a 
Form W-9 is not provided, the payor is required to ``backup withhold'' 
tax at a rate of 28 percent of the gross amount of the payment unless 
the payee has otherwise established that the income is exempt from 
backup withholding. The backup withholding tax may be credited by the 
payee against regular income tax liability, i.e., it is effectively an 
advance payment of tax, similar to the withholding of tax from wages. 
This combination of reporting and backup withholding is designed to 
ensure that U.S. persons pay an appropriate amount of tax with respect 
to all income, either by providing the IRS with the information that it 
needs to audit payment of the tax or, in the absence of such 
information, requiring collection of the tax on payment.
    \123\Treas. Reg. sec. 1.6041-3(p). Certain for-profit health 
provider corporations are not covered by this general exception, 
including those organizations providing billing services for such 
companies.
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    A taxpayer whose rental real estate activity is a trade or 
business is subject to this reporting requirement, but a 
taxpayer whose rental real estate activity is not considered a 
trade or business is not subject to the requirement.
    Persons engaged in certain real estate transactions 
generally must report the gross proceeds paid from such 
transactions.\124\ A real estate transaction is defined by 
regulation as a sale or exchange of reportable real estate, 
which in turn is defined to include present or future ownership 
interests, but not most leaseholds.\125\
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    \124\Sec. 6045(e) requires reporting by real estate brokers, 
persons responsible for closing and others designed in regulations, but 
excepts from reporting sales of principal residences for $250,000 or 
less ($500,000 for married persons).
    \125\Treas. Reg. sec. 1.6045-4(b)(2) defines reportable real estate 
to include rights to possession or use of real estate only if such 
rights were created prior to January 1, 1991, and had a remaining term 
of at least 30 years.
---------------------------------------------------------------------------
    In addition, financial institutions are required to report 
to both taxpayers and the IRS the amount of interest taxpayers 
paid during the year on mortgages they held on their rental 
properties.\126\
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    \126\Sec. 6050H. This information is provided on Form 1098.
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    A taxpayer is subject to penalties for failure to comply 
with the information reporting requirements. Such penalties may 
include a penalty for failure to file the information 
return,\127\ for failure to furnish payee statements,\128\ or 
for failure to comply with other various reporting 
requirements.\129\
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    \127\Sec. 6721. The penalty for the failure to file an information 
return generally is $50 for each return for which such failure occurs. 
The total penalty imposed on a person for all failures during a 
calendar year cannot exceed $250,000. Additionally, special rules apply 
to reduce the per-failure and maximum penalty where the failure is 
corrected within a specified period.
    \128\Sec. 6722. The penalty for failure to provide a correct payee 
statement is $50 for each statement with respect to which such failure 
occurs, with the total penalty for a calendar year not to exceed 
$100,000. Special rules apply that increase the per-statement and total 
penalties where there is intentional disregard of the requirement to 
furnish a payee statement.
    \129\Sec. 6723. The penalty for failure to timely comply with a 
specified information reporting requirement is $50 per failure, not to 
exceed $100,000 for a calendar year.
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                           REASONS FOR CHANGE

    One of the principal methods of improving tax compliance is 
to require information reporting by the third-party payor. The 
Committee believes that requiring information reporting by 
taxpayers receiving rental income and deducting expenses on 
rental activities would improve tax compliance of both the 
payor and the recipient by reducing opportunities for error and 
fraud. If the payors are required to provide the IRS 
information with respect to taxable payments, the recipients 
are more likely to include the payment in income.\130\ The 
increased third-party reporting of payments to those who 
provide services with respect to rental property will assist 
such contractors in properly reporting their income.
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    \130\See, .
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    The Committee also believes that requiring taxpayers to 
file information returns with respect to certain rental 
property expenses may deter such taxpayers from reporting 
expenses they did not incur. Taxpayers who previously may have 
overestimated rental expenses will be required to maintain 
better documentation of such expenses to report them to the 
payee. Furthermore, the need to report with respect to the 
payee, and to provide a copy to the IRS, creates a record of 
such expenses that may subsequently be used upon IRS 
examination.

                        EXPLANATION OF PROVISION

    The provision treats recipients of rental income from real 
estate as persons engaged in a trade or business for purposes 
of the information reporting requirements. Rental income 
recipients making payments of $600 or more to a service 
provider (such as a plumber, painter, or accountant) with 
respect to the rental property are required to provide an 
information return (typically Form 1099-MISC) to the IRS and to 
the service provider. However, the recipient of rental income 
need not report under this provision with respect to the rental 
income that is derived from a qualified residence.
    For this purpose, a qualified residence is the principal 
residence of the taxpayer, and one other residence of the 
taxpayer, selected by the taxpayer, that meets a personal use 
requirement. This requirement is that the residence be used 
personally by the taxpayer during the calendar year for the 
greater of (1) fourteen days or (2) 10 percent of the number of 
days during the year for which the property is let at a fair 
market rental. Thus, for example, if a property is rented for a 
total of 90 days during the year, and the taxpayer personally 
uses the property for 14 days, the property is a qualified 
residence and expenses paid with respect to that property are 
not subject to reporting. If the same property had instead been 
rented for 300 days of the year, and the taxpayer used the 
property only 14 days, the property would not be a qualified 
residence and the reporting obligation applies. To be exempt 
from reporting with respect to expenses on that property, the 
taxpayer's personal use would have to equal or exceed 30 days.

                             EFFECTIVE DATE

    The provision applies to payments made after December 31, 
2010.

   E. Application of Levy to Payments to Federal Vendors Relating to 
                                Property


            (Sec. 305 of the Bill and Sec. 6331 of the Code)


                              PRESENT LAW

In general

    Levy is the IRS's administrative authority to seize a 
taxpayer's property or rights to property to pay the taxpayer's 
tax liability.\131\ Generally, the IRS is entitled to seize a 
taxpayer's property by levy if a Federal tax lien has attached 
to such property,\132\ and the IRS has provided both notice of 
intention to levy\133\ and notice of the right to an 
administrative hearing (referred to as a collections due 
process notice or ``CDP'' notice)\134\ at least 30 days before 
the levy is made. A Federal tax lien arises automatically when: 
(1) a tax assessment has been made, (2) the taxpayer has been 
given notice of the assessment stating the amount and demanding 
payment, and (3) the payer has failed to pay the amount 
assessed within 10 days after the notice and demand.\135\
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    \131\Sec. 6331(a). Levy specifically refers to the legal process by 
which the IRS orders a third party to turn over property in its 
possession that belongs to the delinquent taxpayer named in a notice of 
levy.
    \132\Sec. 6331(a).
    \133\Sec. 6331(d).
    \134\Sec. 6330. The administrative hearing is referred to as the 
CDP hearing.
    \135\Sec. 6321.
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    The notice of intent to levy is not required if the 
Secretary finds that collection would be jeopardized by delay. 
The standard for determining whether jeopardy exists is similar 
to the standard applicable in permitting assessment of tax 
without following the normal deficiency procedures.\136\
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    \136\Secs. 6331(d)(3) and 6861.
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    The CDP notice (and pre-levy CDP hearing) is not required 
if the Secretary finds that collection would be jeopardized by 
delay or the Secretary has served a levy on a State to collect 
a Federal tax liability from a State tax refund. In addition, a 
levy issued to collect Federal employment taxes is excepted 
from the CDP notice and the pre-levy CDP hearing requirement if 
the taxpayer subject to the levy requested a CDP hearing with 
respect to unpaid employment taxes arising in the two-year 
period before the beginning of the taxable period with respect 
to which the employment tax levy is served. The taxpayer, 
however, in each of these three cases, is provided an 
opportunity for a hearing within a reasonable period of time 
after the issuance of the levy.\137\
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    \137\Sec. 6330(f).
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Federal payment levy program

    To help the IRS collect taxes more effectively, the 
Taxpayer Relief Act of 1997\138\ authorized the establishment 
of the Federal Payment Levy Program (``FPLP''), which allows 
the IRS to continuously levy up to 15 percent of certain 
``specified payments,'' such as government payments to Federal 
contractors that are delinquent on their tax obligations. With 
respect to Federal payments to vendors of goods or services, 
the continuous levy may be up to 100 percent of each 
payment.\139\ The term ``goods or services'' is not defined in 
the statute. The levy (either 15 percent or 100 percent) 
generally continues in effect until the liability is paid or 
the IRS releases the levy.
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    \138\Pub. L. No. 105-34.
    \139\Sec. 6331(h)(3).
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    Under FPLP, the IRS matches its accounts receivable records 
with Federal payment records maintained by the Department of 
the Treasury's Financial Management Service (``FMS''), such as 
certain Social Security benefit and Federal wage records. When 
the records match, the delinquent taxpayer is provided both 
notice of intention to levy and notice of the right to the CDP 
hearing 30 days before the levy is made. If the taxpayer does 
not respond after 30 days, the IRS can instruct FMS to levy its 
Federal payments. Subsequent payments are continuously levied 
until such time that the tax debt is paid or IRS releases the 
levy.

                           REASONS FOR CHANGE

    The Committee believes that ambiguity in the language used 
to grant authority to impose continuous levy on payments to 
Federal vendors has limited the effectiveness of that grant of 
authority. Consistent with its anti-abuse purpose, the 
continuous levy authority was intended to reach all Federal 
payments to government contractors. However, the statutory 
language provides the levy for ``goods or services sold or 
leased.'' As used elsewhere in the Code, the phrase ``goods and 
services'' clearly refers to tangible personal property and 
personal services.\140\ As a result, the extent to which 
payments with respect to real property or intangible property 
were intended to be included within the scope of the 100-
percent continuous levy authority has been questioned.
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    \140\See e.g., Sec. 274(e)(2) (``expenses for goods, services, or 
facilities'' used to identify certain expenses that are deductible if 
treated as compensation to the taxpayer's employee); Sec. 
170(f)(8)(B)(ii) and (iii) (requiring that the recipient of a 
charitable contribution provide an acknowledgement that states whether 
any goods or services were provided by the charity in return for the 
purported donation).
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    The provision eliminates any ambiguity in the statutory 
language such that the IRS (through the FMS) would be permitted 
to levy up to 100 percent of all Federal vendor payments.

                        EXPLANATION OF PROVISION

    The provision amends section 6331(h)(3) to add ``property'' 
to ``goods or services'' to allow the IRS can levy 100 percent 
of any payment due to a Federal vendor with unpaid Federal tax 
liabilities, including payments made for the sale or lease of 
real estate and other types of property not considered ``goods 
or services.''

                             EFFECTIVE DATE

    The provision applies to levies approved after the date of 
enactment.

   F. Application of Continuous Levy to Employment Tax Liability of 
                      Certain Federal Contractors


            (Sec. 306 of the Bill and Sec. 6330 of the Code)


                              PRESENT LAW

In general

    Levy is the IRS's administrative authority to seize a 
taxpayer's property or rights to property to pay the taxpayer's 
tax liability.\141\ (Generally, the IRS is entitled to seize a 
taxpayer's property by levy if a Federal tax lien has attached 
to such property,\142\ and the IRS has provided both notice of 
intention to levy\143\ and notice of the right to an 
administrative hearing (referred to as a collections due 
process notice or ``CDP'' notice)\144\ at least thirty days 
before the levy is made. A Federal tax lien arises 
automatically when: (1) a tax assessment has been made, (2) the 
taxpayer has been given notice of the assessment stating the 
amount and demanding payment, and (3) the taxpayer has failed 
to pay the amount assessed within 10 days after the notice and 
demand.\145\
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    \141\Sec. 6331(a). Levy specifically refers to the legal process by 
which the IRS orders a third party to turn over property in its 
possession that belongs to the delinquent taxpayer named in a notice of 
levy.
    \142\Sec. 6331(a).
    \143\Sec. 6331(d).
    \144\Sec. 6330. The administrative hearing is referred to as the 
CDP hearing.
    \145\Sec. 6321.
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    The 30-day pre-levy notice requirements, the taxpayer's 
rights before, during, and following the CDP hearing, and the 
Federal payment levy program are discussed below.

Pre-levy notice requirements

    The notice of intent to levy and the CDP notice must 
include a brief statement describing the following: (1) the 
statutory provisions and procedures for levy, (2) the 
administrative appeals available to the taxpayer, (3) the 
alternatives available to avoid levy, and (4) the provisions 
and procedures regarding redemption of levied property.\146\ In 
addition, the collection due process notice must include the 
following: (1) the amount of the unpaid tax, and (2) the right 
to request a hearing during the 30-day period before the IRS 
serves the levy.
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    \146\Sec. 6330(a)(3), 6331(d)(4). In practice, the notice of intent 
to levy and the collections due process notice is provided together in 
one document, Letter 1058, Final Notice, Notice of Intent to Levy and 
Notice of Your Right to a Hearing. Chief Counsel Advice Memorandum 
2009-041 (November 28, 2008).
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    Upon receipt of this information, the taxpayer may stay the 
levy action by requesting in writing a hearing before the IRS 
Appeals Office.\147\ Otherwise, the IRS will levy after 
expiration of 30 days from the notice.
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    \147\Sec. 6330(b).
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    The notice of intent to levy is not required if the 
Secretary finds that collection would be jeopardized by delay. 
The standard for determining whether jeopardy exists is similar 
to the standard applicable in permitting assessment of tax 
without following the normal deficiency procedures.\148\
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    \148\Secs. 6331(d)(3) and 6861.
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    The CDP notice (and pre-levy CDP hearing) is not required 
if the Secretary finds that collection would be jeopardized by 
delay or the Secretary has served a levy on a State to collect 
a Federal tax liability from a state tax refund. In addition, a 
levy issued to collect Federal employment taxes is excepted 
from the CDP notice and the pre-levy CDP hearing requirement if 
the taxpayer subject to the levy requested a CDP hearing with 
respect to unpaid employment taxes arising in the 2-year period 
before the beginning of the taxable period with respect to 
which the employment tax levy is served. The taxpayer, however, 
in each of these three cases, is provided an opportunity for a 
hearing within a reasonable period of time after the levy.\149\
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    \149\Sec. 6330(f).
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CDP hearing

    At the CDP hearing, the taxpayer may present defenses to 
collection as well as arguments disputing the merits of the 
underlying tax debt if the taxpayer had no prior opportunity to 
present such arguments.\150\ In addition, CDP includes the 
right to negotiate an alternative form of payment, such as an 
offer-in-compromise, under which the IRS would accept less than 
the full amount, or an installment agreement under which 
payments in satisfaction of the debt may be made over time 
rather than in one lump sum, or some combination of such 
measures.\151\ If a taxpayer exercises any of these rights in 
response to the notice of intent to levy, the IRS may not 
proceed with its levy.
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    \150\Sec. 6330(c).
    \151\Sec. 6330(c)(2).
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    After the CDP hearing, a taxpayer also has a right to seek, 
within 30 days, judicial review in the U.S. Tax Court of the 
determination of the CDP hearing to ascertain whether the IRS 
abused its discretion in reaching its determination.\152\ 
During this time period, the IRS may not proceed with its levy.
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    \152\Sec. 6330(d).
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Federal payment levy program

    To help the IRS collect taxes more effectively, the 
Taxpayer Relief Act of 1997\153\ authorized the establishment 
of the Federal Payment Levy Program (``FPLP''), which allows 
the IRS to continuously levy up to 15 percent of certain 
``specified payments,'' such as government payments to Federal 
contractors that are delinquent on their tax obligations. The 
levy generally continues in effect until the liability is paid 
or the IRS releases the levy.\154\
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    \153\Pub. L. No. 105-34.
    \154\Sec. 6331(h). With respect to Federal payments to vendors of 
goods or services (not defined), the continuous levy may be up to 100 
percent of each payment. Sec. 6331(h)(3).
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    Under FPLP, the IRS matches its accounts receivable records 
with Federal payment records maintained by the Department of 
the Treasury's Financial Management Service (``FMS''), such as 
certain Social Security benefit and Federal wage records. When 
the records match, the delinquent taxpayer is provided both 
notice of intention to levy and notice of the right to the CDP 
hearing 30 days before the levy is made. If the taxpayer does 
not respond after 30 days, the IRS can instruct FMS to levy its 
Federal payments. Subsequent payments are continuously levied 
until such time that the tax debt is paid or IRS releases the 
levy.
    On the other hand, upon receipt of this information, the 
taxpayer may stay the levy action by requesting in writing a 
hearing before the IRS Appeals Office. Also, after the CDP 
hearing, a taxpayer has a right to seek, within 30 days, 
judicial review in the U.S. Tax Court of the determination of 
the CDP hearing to ascertain whether the IRS abused its 
discretion in reaching its determination. During this time 
period, the IRS may not proceed with its levy.

                           REASONS FOR CHANGE

    The Committee believes that permitting Federal contractors 
to delay collection until completion of CDP procedures may 
deprive the Federal government of the opportunity to levy 
payments because Treasury likely will have paid the Federal 
contractor before the CDP requirements are met. This lost 
opportunity is especially true in cases where taxpayers abuse 
CDP procedures and raise frivolous arguments simply for the 
purpose of delaying or evading collection of tax. By changing 
current law to allow the IRS to proceed with its levy for 
Federal employment tax liabilities earlier in the debt 
collection process, the Committee believes that the IRS will 
collect more unpaid taxes.\155\
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    \155\Government Accountability Office, Tax Compliance: Thousands of 
Federal Contractors Abuse the Federal Tax System, GAO-07-742T (April 
19, 2007)(approximately 60,000 Federal contractors were delinquent on 
over $7 billion in Federal taxes).
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    The opportunity to delay collection of employment tax 
liabilities presents a greater risk to the government than 
delay may present in other contexts because employment tax 
liabilities continue to increase as ongoing wage payments are 
made to employees. In addition, much of an employer's 
employment tax liability consists of the employees' share of 
FICA tax withheld from employees' wages paid to the government 
on behalf of the employees. The risk for the government is that 
the employees are entitled to credits for amounts actually 
withheld, even if the employer ultimately fails to remit these 
amounts to the government.

                        EXPLANATION OF PROVISION

    The provision allows the IRS to issue levies prior to a CDP 
hearing for Federal employment tax liabilities of Federal 
contractors identified under the Federal Payment Levy Program. 
When a levy is issued prior to a CDP hearing under this 
proposal, the taxpayer has an opportunity for a CDP hearing 
within a reasonable time after the levy.

                             EFFECTIVE DATE

    The provision applies to levies issued after December 31, 
2010.

 G. Required Minimum 10-Year Term, etc., for Grantor Retained Annuity 
                                 Trusts


          (Sec. 307 of the Bill and Sec. 2702(b) of the Code)


                              PRESENT LAW

Overview

    Present law provides special rules for valuing certain 
transfers in trust of temporal interests in property (such as 
annuity interests and remainder interests).\156\ Present law 
also provides rules for determining when a grantor of a trust 
will be treated as the owner of all or part of the trust for 
income tax purposes.\157\ Grantor retained annuity trusts 
(GRATs) and charitable lead trusts (CLTs) are two vehicles, 
often structured as grantor-owned, that are used to make 
transfers of temporal interests in property.
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    \156\See sec. 2702.
    \157\See secs. 671-679.
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Valuation of certain transfers in trust

    In the event of a lifetime transfer in trust to (or for the 
benefit of) a member of the transferor's family where the 
transferor or an applicable family member retains any interest 
in the trust, a special rule applies for purposes of 
determining the value of the transferor's gift.\158\ In 
general, the value of any retained interest that is not a 
``qualified interest'' is treated as zero.\159\ Therefore, 
where a transferor retains an interest that is not a qualified 
interest, the entire amount transferred to the trust generally 
is treated as a gift by the transferor to the remainder 
beneficiaries, which gift is subject to transfer taxation.\160\ 
The value of a retained interest that is a qualified interest, 
on the other hand, is determined using rates and procedures 
described in the Code for valuing temporal interests in 
property.\161\
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    \158\Sec. 2702(a)(1).
    \159\Sec. 2702(a)(2)(A).
    \160\The special valuation rule does not apply in certain excepted 
situations, including: (1) where the transfer is not a completed gift; 
and (2) transfers to certain personal residence trusts. See sec. 
2702(a)(3).
    \161\Sec. 2702(a)(2)(B); sec. 7520.
---------------------------------------------------------------------------
    For these purposes, the term ``qualified interest'' means: 
(1) any interest which consists of the right to receive fixed 
amounts payable not less frequently than annually (i.e., a 
qualified annuity interest); (2) any interest which consists of 
the right to receive amounts which are payable not less 
frequently than annually and are a fixed percentage of the fair 
market value of the property in the trust (determined annually) 
(i.e., a qualified unitrust interest); and (3) any 
noncontingent remainder interest if all of the other interests 
in the trust consist of interests described in (1) or (2) 
(i.e., a qualified remainder interest).\162\
---------------------------------------------------------------------------
    \162\Sec. 2702(b).
---------------------------------------------------------------------------
    A qualified interest is valued under procedures described 
in section 7520 using tables prescribed by the Secretary of the 
Treasury and an interest rate (rounded to the nearest two-
tenths of one percent) equal to 120 percent of the Federal 
midterm interest rate in effect under section 1274(d)(1) for 
the month in which the valuation date falls. The tables and 
rates described in section 7520 assume that the assets in a 
trust will grow at a relatively modest rate.

``Grantor trust'' rules

    For income tax purposes, a trust generally is a separate 
taxpayer. Under certain circumstances however, a grantor is 
treated as the owner of all or part of a trust for income tax 
purposes.\163\ When a grantor is treated as owner of a trust, 
the grantor, when computing his or her taxable income and 
credits, generally must include items of income, deductions, 
and credits of the trust attributable to the portion of the 
trust deemed owned by the grantor for income tax purposes.\164\
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    \163\See secs. 671-679.
    \164\See sec. 671.
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    The Code includes a number of rules regarding when a 
grantor or another person is treated as the owner of all or 
part of a trust for income tax purposes.\165\ A grantor may, 
for example, be treated as the owner of a trust for income tax 
purposes where the grantor has: (1) a sufficient reversionary 
interest in the corpus or income of the trust;\166\ (2) the 
power to control beneficial enjoyment of the corpus or income 
of the trust;\167\ (3) certain administrative powers;\168\ (4) 
the power to revoke all or part of the trust;\169\ or (5) the 
power to distribute income to or for the benefit of the 
grantor.\170\
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    \165\See secs. 673-677.
    \166\Sec. 673.
    \167\Sec. 674.
    \168\Sec. 675.
    \169\Sec. 676.
    \170\Sec. 677.
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    A trust that is structured such that the grantor is treated 
as the owner for income tax purposes, but not for gift or 
estate tax purposes, is sometimes referred to as an 
``intentionally defective grantor trust.''

Grantor retained annuity trusts

    A GRAT generally is an irrevocable trust in which the 
grantor retains an annuity interest structured as a ``qualified 
interest'' under section 2702. The annuity interest must be an 
irrevocable right to receive a fixed amount at least 
annually.\171\ The trustee must be required to invade the 
principal of the trust in the event the income is insufficient 
to pay the qualified annuity.
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    \171\Treas. Reg. sec. 25.2702-3(b).
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    Assuming the transfer of assets to the trust is treated as 
a completed gift for gift tax purposes, the gift to the 
remainder beneficiaries generally will be subject to gift tax 
as of the time of the initial transfer of assets to the trust. 
Therefore, the grantor will be required to use a portion of his 
or her gift tax exemption equal to--or, to the extent 
insufficient exemption remains, to pay gift tax on--the value 
of the remainder interest determined as of the time the grantor 
funds the trust. The annuity portion of a GRAT is valued using 
the procedures for valuing qualified interests outlined in 
section 7520 (described above). To value the remainder interest 
in a GRAT, the value of any qualified interest, as determined 
under section 7520, is subtracted from the value of the 
property transferred to the trust.
    When the grantor's retained annuity interest expires, the 
trust assets are distributed to one or more remainder 
beneficiaries identified in the trust instrument. Because the 
value of the transferor's gift for gift tax purposes is 
determined at the time of the transfer, if trust property grows 
at a rate in excess of the growth rate assumed under section 
7520, the excess appreciation generally will pass to the 
remainder beneficiaries without further gift tax consequences 
to the grantor. If, however, the grantor dies during the trust 
term, that portion of the trust necessary to generate the 
annuity amount will be included in the grantor's gross estate 
for estate tax purposes.\172\ Such inclusion generally results 
in the loss of the transfer tax benefit of using a GRAT.
---------------------------------------------------------------------------
    \172\Sec. 2036.
---------------------------------------------------------------------------
    A GRAT is a grantor trust; therefore, the grantor is 
treated as owner of the trust during the term of the annuity 
interest, and the grantor generally must include in determining 
his or her taxable income and credits the income, deductions, 
and credits of the trust.

                           REASONS FOR CHANGE

    The valuation rates and tables prescribed by section 7520 
often produce relative values of the annuity and remainder 
interests in a GRAT that are not consistent with actual returns 
on trust assets. As a result, under present law, taxpayers can 
use GRATs to make gifts of property with little or no transfer 
tax consequences, so long as the investment return on assets in 
the trust is greater than the rate of return assumed under 
section 7520 for purposes of valuing the lead and remainder 
interests. The Committee believes that such uses of GRATs for 
gift tax avoidance are inappropriate.
    In some cases, for example, taxpayers ``zero out'' a GRAT 
by structuring the trust so that the assumed value of the 
annuity interest under the actuarial tables equals (or nearly 
equals) the entire value of the property transferred to the 
trust. Under this strategy, the value of the remainder interest 
is deemed to be equal to or near zero, and little or no gift 
tax is paid. In reality, however, a remainder interest in a 
GRAT often has real and substantial value, because taxpayers 
may achieve returns on trust assets substantially in excess of 
the returns assumed under section 7520. Any such excess 
appreciation passes to the remainder beneficiaries without 
further transfer tax consequences.
    In addition, grantors often structure GRATs with relatively 
short terms, such as two years, to minimize the risk that the 
grantor will die during the trust term, causing all or part of 
the trust assets to be included in the grantor's estate for 
estate tax purposes. Because GRATs carry little down-side risk, 
grantors frequently maintain multiple short-term, zeroed-out 
GRATs funded with different asset portfolios to improve the 
grantor's odds that at least one trust will outperform 
significantly the section 7520 rate assumptions and thereby 
allow the grantor to achieve a transfer to the remainder 
beneficiaries at little or no gift tax cost.
    The provision is designed to introduce additional downside 
risk to the use of GRATs by imposing a requirement that GRATs 
have a minimum term of 10 years. Relative to shorter-term 
(e.g., two-year) GRATs, a GRAT with a 10-year term carries 
greater risk that the grantor will die during the trust term 
and that the trust assets will be included in the grantor's 
estate for estate tax purposes.\173\ The provision limits 
opportunities to inappropriately achieve gift tax-free 
transfers to family members in situations where gifts of 
remainder interests in fact have substantial value.
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    \173\The proposal also requires that the remainder interest of a 
GRAT have a term greater than zero and prohibits a reduction in the 
annuity during the GRAT term. These requirements are designed to 
prohibit circumvention of the ten-year minimum term requirement of the 
proposal.
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                        EXPLANATION OF PROVISION

    The provision adds certain requirements for an annuity 
interest retained by the transferor to be treated as a 
qualified interest for purposes of the special valuations rules 
applicable to transfers of a trust interest to a member of the 
transferor's family: (1) the retained annuity interest must 
have a term not less than 10 years; (2) the annuity (determined 
on an annual basis) may not decline during the first 10 years 
of the annuity term; and (3) the remainder interest must have a 
value greater than zero at the time of the transfer.

                             EFFECTIVE DATE

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

              H. Increase in Information Return Penalties


            (Sec. 308 of the Bill and Sec. 6721 of the Code)


                              PRESENT LAW

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

                           REASONS FOR CHANGE

    The amount the penalties imposed for failure to file 
information returns was last amended in 1989.\174\ Since then, 
the importance of reliable third-party information reporting to 
the administration of the Code has greatly increased. The 
Committee believes that it is important to increase the 
penalties to ensure that they encourage compliance with the 
reporting obligations.
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    \174\The penalty was originally $50 for each failure, up to a 
maximum of $100,000 per year, as enacted by section 150 of the Tax 
Reform Act of 1986, Pub. L. No. 99-514. In 1989, the present penalty 
amounts in three tiers were enacted. Sec. 7711, Pub. L. No. 101-239.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision increases the first-tier penalty from $15 to 
$30, and increases the calendar year maximum from $75,000 to 
$250,000. The second-tier penalty is increased from $30 to $60, 
and the calendar year maximum is increased from $150,000 to 
$500,000. The third-tier penalty is increased from $50 to $100, 
and the calendar year maximum is increased from $250,000 to 
$1,500,000. For small business filers, the calendar year 
maximum is increased from $25,000 to $75,000 for the first-tier 
penalty, from $50,000 to $200,000 for the second-tier penalty, 
and from $100,000 to $500,000 for the third-tier penalty. The 
minimum penalty for each failure due to intentional disregard 
is increased from $100 to $250. The proposal also provides that 
every five years the penalty amounts will be adjusted to 
account for inflation.

                             EFFECTIVE DATE

    The provision applies with respect to information returns 
required to be filed on or after January 1, 2011.

                      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 votes of the Committee on Ways and Means in its 
consideration of H.R. 4849, the ``Small Business and 
Infrastructure Jobs Tax Act of 2010''.

                    Motion To Report Recommendations

    The bill, H.R. 4849, as amended, was ordered favorably 
reported by a roll call vote of 25 yeas to 15 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................        X   ........  .........  Mr. Camp.........  ........        X   .........
Mr. Rangel.....................        X   ........  .........  Mr. Herger.......  ........        X   .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......  ........        X   .........
Mr. McDermott..................        X   ........  .........  Mr. Brady........  ........        X   .........
Mr. Lewis (GA).................        X   ........  .........  Mr. Ryan.........  ........        X   .........
Mr. Neal.......................        X   ........  .........  Mr. Cantor.......  ........        X   .........
Mr. Tanner.....................        X   ........  .........  Mr. Linder.......  ........        X   .........
Mr. Becerra....................        X   ........  .........  Mr. Nunes........  ........        X   .........
Mr. Doggett....................        X   ........  .........  Mr. Tiberi.......  ........        X   .........
Mr. Pomeroy....................        X   ........  .........  Ms. Brown-Waite..  ........        X   .........
Mr. Thompson...................        X   ........  .........  Mr. Davis (KY)...  ........        X   .........
Mr. Larson.....................        X   ........  .........  Mr. Reichert.....  ........        X   .........
Mr. Blumenauer.................        X   ........  .........  Mr. Boustany.....  ........        X   .........
Mr. Kind.......................        X   ........  .........  Mr. Heller.......  ........        X   .........
Mr. Pascrell...................        X   ........  .........  Mr. Roskam.......  ........        X   .........
Ms. Berkley....................        X   ........  .........
Mr. Crowley....................        X   ........  .........
Mr. Van Hollen.................        X   ........  .........
Mr. Meek.......................        X   ........  .........
Ms. Schwartz...................        X   ........  .........
Mr. Davis (AL).................        X   ........  .........
Mr. Davis (IL).................        X   ........  .........
Mr. Etheridge..................        X   ........  .........
Ms. Sanchez....................        X   ........  .........
Mr. Higgins....................        X   ........  .........
Mr. Yarmuth....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          Votes on Amendments

    An amendment was offered by Mr. Pomeroy on behalf of Mr. 
Larson which would clarify that capital expenditures for levees 
and other flood control projects are a permissible type of 
capital expenditure for qualified Build America Bonds. The 
amendment was agreed to without objection.
     An amendment was offered by Mr. Brady which would strike 
the provision requiring a minimum term for grantor retained 
annuity trusts (GRATs). The amendment was defeated by voice 
vote.
    A roll call vote was conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute.
    An amendment was offered by Mr. Herger which would make 
permanent section 179 expensing at 2009 thresholds was defeated 
by a roll call vote of 15 yeas to 25 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. Rangel.....................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Becerra....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Ms. Brown-Waite..        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Davis (KY)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Reichert.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Boustany.....        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Heller.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Roskam.......        X   ........  .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis (AL).................  ........        X   .........
Mr. Davis (IL).................  ........        X   .........
Mr. Etheridge..................  ........        X   .........
Ms. Sanchez....................  ........        X   .........
Mr. Higgins....................  ........        X   .........
Mr. Yarmuth....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment was offered by Mr. Brady which would strike 
the provision that would limit treaty benefits with respect to 
certain deductible related party payments made to corporations 
substantially owned by entities outside of the U.S. treaty 
network was defeated by a roll call vote of 15 yeas to 25 nays. 
The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. Rangel.....................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Becerra....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Ms. Brown-Waite..        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Davis (KY)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Reichert.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Boustany.....        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Heller.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Roskam.......        X   ........  .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis (AL).................  ........        X   .........
Mr. Davis (IL).................  ........        X   .........
Mr. Etheridge..................  ........        X   .........
Ms. Sanchez....................  ........        X   .........
Mr. Higgins....................  ........        X   .........
Mr. Yarmuth....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment was offered by Ms. Brown-Waite which would 
allow the section 1202 capital gains exclusions to apply to 
partnerships and S-corporations was defeated by a roll call 
vote of 15 yeas to 25 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. Rangel.....................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Becerra....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Ms. Brown-Waite..        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Davis (KY)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Reichert.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Boustany.....        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Heller.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Roskam.......        X   ........  .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis (AL).................  ........        X   .........
Mr. Davis (IL).................  ........        X   .........
Mr. Etheridge..................  ........        X   .........
Ms. Sanchez....................  ........        X   .........
Mr. Higgins....................  ........        X   .........
Mr. Yarmuth....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment was offered by Mr. Reichert which would extend 
the temporary capital gains and dividend rate reduction for two 
years was defeated by a roll call vote of 15 yeas to 25 nays. 
The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. Rangel.....................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Becerra....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Ms. Brown-Waite..        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Davis (KY)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Reichert.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Boustany.....        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Heller.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Roskam.......        X   ........  .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis (AL).................  ........        X   .........
Mr. Davis (IL).................  ........        X   .........
Mr. Etheridge..................  ........        X   .........
Ms. Sanchez....................  ........        X   .........
Mr. Higgins....................  ........        X   .........
Mr. Yarmuth....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment was offered by Mr. Heller which would provide 
a partial capital gains exclusion on the purchase of a second 
home in a high-foreclosure area was defeated by a roll call 
vote of 16 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. Rangel.....................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Becerra....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Ms. Brown-Waite..        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Davis (KY)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Reichert.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Boustany.....        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Heller.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Roskam.......        X   ........  .........
Ms. Berkley....................        X   ........  .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis (AL).................  ........        X   .........
Mr. Davis (IL).................  ........        X   .........
Mr. Etheridge..................  ........        X   .........
Ms. Sanchez....................  ........        X   .........
Mr. Higgins....................  ........  ........  .........
Mr. Yarmuth....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment was offered by Mr. Roskam which would provide 
that the income amounts in the existing marginal rate brackets 
are indexed based on the growth of nonsecurity discretionary 
government spending rather than the current CPI index was 
defeated by a roll call vote of 15 yeas to 25 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. Rangel.....................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Becerra....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Ms. Brown-Waite..        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Davis (KY)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Reichert.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Boustany.....        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Heller.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Roskam.......        X   ........  .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis (AL).................  ........        X   .........
Mr. Davis (IL).................  ........        X   .........
Mr. Etheridge..................  ........        X   .........
Ms. Sanchez....................  ........        X   .........
Mr. Higgins....................  ........        X   .........
Mr. Yarmuth....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment was offered by Mr. Reichert which would extend 
the temporary marginal rate reductions for two years was 
defeated by a roll call vote of 15 yeas to 25 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. Rangel.....................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Becerra....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Ms. Brown-Waite..        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Davis (KY)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Reichert.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Boustany.....        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Heller.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Roskam.......        X   ........  .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis (AL).................  ........        X   .........
Mr. Davis (IL).................  ........        X   .........
Mr. Etheridge..................  ........        X   .........
Ms. Sanchez....................  ........        X   .........
Mr. Higgins....................  ........        X   .........
Mr. Yarmuth....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment was offered by Mr. Camp which would provide a 
temporary 17 percent deduction for businesses with less than 
500 employees, and offset the cost of the provision with 
clarifying that the cellulosic biofuel credit is not available 
for unprocessed fuels was defeated by a roll call vote of 15 
yeas to 25 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. Rangel.....................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Stark......................  ........  ........  .........  Mr. Johnson......        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Becerra....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Ms. Brown-Waite..        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Davis (KY)...        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Reichert.....        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Boustany.....        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Heller.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  Mr. Roskam.......        X   ........  .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis (AL).................  ........        X   .........
Mr. Davis (IL).................  ........        X   .........
Mr. Etheridge..................  ........        X   .........
Ms. Sanchez....................  ........        X   .........
Mr. Higgins....................  ........        X   .........
Mr. Yarmuth....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the 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. 4849 as reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2010-2020:


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.

      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, March 19, 2010.
Hon. Sander M. Levin,
Acting Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4849, the Small 
Business and Infrastructure Jobs Tax Act of 2010.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Grant 
Driessen.
            Sincerely,
                                      Douglas W. Elmendorf,
                                                          Director.
    Enclosure.

H.R. 4849--Small Business and Infrastructure Jobs Tax Act of 2010

    Summary: H.R. 4849 would provide a variety of tax 
incentives to small businesses and extend and expand certain 
other tax incentives and bond programs. The legislation also 
would limit the ability of U.S. subsidiaries of foreign 
corporations to benefit from U.S. tax treaties.
    The Joint Committee on Taxation (JCT) estimates that 
enacting the bill would increase federal revenues by about 
$42.7 billion over the 2010-2020 period and increase direct 
spending by about $42.6 billion over the 2010-2020 period. As a 
result, the bill would produce an estimated reduction in 
deficits of $82 million over the 2010-2020 period.
    Pay-as-you-go procedures apply because enacting the 
legislation would affect both direct spending and revenues.
    JCT has determined that the bill contains three private-
sector mandates and no intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA). JCT estimates that the 
costs of the bill's mandates would exceed the annual threshold 
established by UMRA for private-sector mandates ($141 million 
in 2010, adjusted annually for inflation) in each of the first 
five years the mandates are in effect.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4849 is shown in the following table. 
This legislation's effects on federal spending fall within 
budget function 370 (commerce and housing credit).

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               By fiscal year, in millions of dollars--
                                                                    ----------------------------------------------------------------------------------------------------------------------------
                                                                       2010     2011     2012     2013     2014     2015     2016     2017     2018     2019     2020    2010-2015    2010-2020
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Build America Bonds................................................        0      527    2,138    3,214    3,661    3,661    3,661    3,661    3,661    3,661    3,661       13,201       31,506
Limitation on Treaty Benefits......................................      302      636      668      702      719      737      756      775      794      814      832        3,764        7,735
Minimum Term for Certain Trusts....................................        0        4       12      121      260      381      507      621      743      857      945          778        4,450
Exclusion of Gain on Small Business Stock..........................        2       16        6        0        0     -338     -923     -454     -123      -91      -57         -314       -1,962
Recovery Zone Bonds................................................        4      -34     -101     -125     -118     -115     -108     -108     -108     -108     -108         -489       -1,032
Information Reporting for Rental Expense Payments..................        0        *      227      239      251      261      275      285      299      314      325          978        2,476
Other Provisions...................................................     -147     -259     -130      100      104       66       32       -4      -41      -68     -114         -266         -461
                                                                    ----------------------------------------------------------------------------------------------------------------------------
Total Estimated Changes in Revenues................................      161      890    2,820    4,251    4,877    4,653    4,200    4,776    5,225    5,379    5,484       17,651       42,711

                                                                                   CHANGES IN DIRECT SPENDING

Building America Bonds:
    Estimated Budget Authority.....................................        0      672    2,701    3,995    4,514    4,514    4,514    4,514    4,514    4,514    4,514       16,396       38,966
    Estimated Outlays..............................................        0      672    2,701    3,995    4,514    4,514    4,514    4,514    4,514    4,514    4,514       16,396       38,966
Low-Income Housing Credit:
    Estimated Budget Authority.....................................    1,605      705        0        0        0        0        0        0        0        0        0        2,310        2,310
    Estimated Outlays..............................................    1,605      705        0        0        0        0        0        0        0        0        0        2,310        2,310
Recovery Zone Bonds:
    Estimated Budget Authority.....................................       14       70      141      141      141      141      141      141      141      141      141          648        1,353
    Estimated Outlays..............................................       14       70      141      141      141      141      141      141      141      141      141          648        1,353
Total Estimated Changes in Spending:
    Estimated Budget Authority.....................................    1,619    1,447    2,842    4,136    4,655    4,655    4,655    4,655    4,655    4,655    4,655       19,354       42,629
    Estimated Outlays..............................................    1,619    1,447    2,842    4,136    4,655    4,655    4,655    4,655    4,655    4,655    4,655       19,354       42,629

                                                    NET INCREASE OR DECREASE (-) IN THE DEFICIT FROM CHANGES IN REVENUES AND DIRECT SPENDING

Estimated Deficit Impacta..........................................    1,458      557       22     -115     -222        2      455     -121     -570     -724     -829        1,703         -82
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: * = revenue gain of less than $500,000.
a Negative numbers indicate a reduction in the deficit; positive numbers indicate the opposite.

    Basis of Estimate: JCT estimated all of the effects of H.R. 
4849 on both revenues and outlays.

Revenues

    Build America Bonds. The Build America Bond program, which 
was created in 2009, currently provides a subsidy payment to 
state and local governments for 35 percent of their interest 
costs on taxable government bonds issued before January 1, 
2011, to finance capital expenditures. H.R. 4849 would extend 
the program for bonds issued before April 1, 2013. It also 
would set subsidy payments at 33 percent of the interest 
payment on bonds issued in 2011, 31 percent on bonds issued in 
2012, and 30 percent on those issued in 2013, and would ease 
the restrictions on bonds that qualify for the program. By 
substituting taxable for tax-exempt bonds, the program 
increases taxable income. As a result, JCT estimates that the 
provision would increase revenues by $31.5 billion over the 
2010-2020 period. (It also would increase federal outlays by an 
estimated $39.0 billion over the 2010-2020 period, as discussed 
below.)
    Limitation on Treaty Benefits. The bill would change tax 
provisions that in some cases allow a U.S. subsidiary of a 
foreign corporation to avoid U.S. withholding tax on payments 
to a related subsidiary in a country that has a tax treaty with 
the United States. JCT estimates that this provision would 
increase revenues by $7.7 billion over the 2010-2020 period.
    Minimum Term for Certain Trusts. H.R. 4849 would require 
that grantor retained annuity trusts have a minimum 10-year 
term in order to qualify for a reduced valuation upon transfer 
for purposes of gift taxation. JCT estimates that the provision 
would increase receipts by $4.5 billion over the period from 
2010 to 2020.
    Exclusion of Gain on Small Business Stock. The bill would 
temporarily increase the exclusion from taxable income on the 
amount of gain on sales of small business stock from 75 percent 
to 100 percent of the gain, through December 31, 2011. JCT 
estimates that the change would reduce revenues by $2.0 billion 
from 2010 to 2020.
    Recovery Zone Bonds. The bill would extend the allowance 
period for state and local governments to issue recovery zone 
bonds by one year, through 2011, and provide an additional $10 
billion in authority to issue recovery zone economic 
development bonds and $15 billion in authority to issue 
recovery zone facility bonds. JCT estimates that the provision 
would reduce revenues by $1.0 billion from 2010 to 2020. (The 
provision also would result in higher direct spending, as 
discussed below.)
    Information Reporting for Rental Expense Payments. Current 
law requires a variety of information reports be made available 
for expense payments for rental property. This provision would 
require a recipient of more than $600 in rental income in a 
given year to be treated as a person engaged in a trade or 
business for reporting requirements. JCT estimates that this 
provision would increase revenues by $2.5 billion over the 
2010-2020 period.
    Other provisions. H.R. 4849 also would make other changes, 
including modifying certain tax-exempt bond authority and 
allowing certain tax credits to apply against the alternative 
minimum tax, which JCT estimates would reduce revenues by $0.5 
billion over the 2010-2020 period.

Direct Spending

    Build America Bonds. JCT estimates that the modifications 
to the Build America Bond program would result in additional 
outlays of $39.0 billion over the 2010-2020 period.
    Low-Income Housing Credits. The bill would allow certain 
taxpayers in 2010 to elect to receive direct payments in lieu 
of tax credits for low-income housing. The payments would equal 
85 percent of the present value of the forgone tax credit. JCT 
estimates that the provision would increase outlays by $2.3 
billion over the 2010-2020 period.
    Recovery Zone Bonds. By increasing the allowance to issue 
additional bonds for recovery zones, some of which are 
subsidized by direct federal payments, the bill would result in 
additional subsidy payments to the issuers of $1.4 billion over 
the 2010-2020 period, JCT estimates.
    Pay-as-You-Go Considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. CBO estimates that enacting H.R. 4849 would increase 
both direct spending and revenues, and would increase the 
deficit over the 2010-2015 period, but would reduce the 
cumulative deficits over the 2010-2020 period.
    The net changes in outlays and revenues that are subject to 
pay-as-you go procedures are shown in the following table.

  CBO ESTIMATE OF PAY-AS-YOU-GO ACT EFFECTS FOR H.R. 4849, THE SMALL BUSINESS AND INFRASTRUCTURE JOBS TAX ACT OF 2010, AS ORDERED REPORTED BY THE HOUSE
                                                      COMMITTEE ON WAYS AND MEANS ON MARCH 17, 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         By fiscal year, in millions of dollars--
                                ------------------------------------------------------------------------------------------------------------------------
                                   2010     2011     2012     2013     2014     2015     2016     2017     2018     2019     2020   2010-2015  2010-2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       NET INCREASE OR DECREASE (-) IN THE DEFICIT

Statutory Pay-as-You Go Impact.    1,458      557       22     -115     -222        2      455     -121     -570     -724     -829     1,703        -82
Memorandum:
    Changes in Outlays.........    1,619    1,447    2,842    4,136    4,655    4,655    4,655    4,655    4,655    4,655    4,655    19,354     42,629
    Changes in Revenues........      161      890    2,820    4,251    4,877    4,653    4,200    4,776    5,225    5,379    5,484    17,651     42,711
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: JCT has 
determined that the bill contains three private-sector mandates 
as defined in UMRA: (i) a limitation on treaty benefits; (ii) a 
requirement to provide information reporting for expense 
payments for rental property; and (iii) a requirement that 
grantor retained annuity trusts (``GRATs'') have a minimum 10-
year term. In aggregate, the costs of all the mandates in the 
bill would exceed the annual threshold established by UMRA for 
private-sector mandates ($141 million in 2010, adjusted 
annually for inflation) in each of the first five years the 
mandates are in effect.
    JCT has determined that the bill contains no 
intergovernmental mandates as defined in UMRA.
    Estimate prepared by: Grant Driessen.
    Estimate approved by: Frank Sammartino, 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: the effects of the bill 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.
    The bill provides tax incentives for small business and 
infrastructure investment that seem likely to result in small 
positive increases in employment and output. Among the tax 
incentives for small business, the three most notable 
provisions are: allowing the temporary exclusion of 100 percent 
of gain on certain small business stock; allowing nonrecourse 
small business investment company loans from the Small Business 
Administration to be treated as amounts at risk; and increasing 
the amount allowed as a deduction for startup expenditures. 
These provisions increase the after-tax return on capital, 
thereby lowering the cost of capital and tending to spur 
investment. Among the tax incentives for infrastructure 
spending, the three most notable provisions are: extension of 
Build America Bonds; extension and additional allocation of 
recovery zone bond authority; and a cash out provision for 
certain low income housing credit provisions. The bond 
provisions provide a deeper subsidy than is generally available 
in the tax exempt bond market, while the cash out provision is 
intended to open a market to investors who otherwise would not 
be able to take advantage of the current-law low income housing 
credits. Thus, these provisions are structured to encourage 
business and infrastructure investment in the near future, with 
associated net revenue losses occurring mostly in the later 
years. At the same time, all of the provisions are structured 
to provide only a limited amount of tax benefits relative to a 
small portion of the economy.
    There are several sources of uncertainty in quantifying the 
effects of these incentives. Because they are targeted to 
specific sub-sectors of the economy, it is possible that these 
tax incentives will in part result in a reallocation of capital 
toward the favored activities, and away from other activities. 
However, because the economy is currently in an economic 
downturn, with under-used economic resources, we expect that at 
least some of the investment responding to these incentives 
will be new investment. Also, the temporary nature of these 
incentives increases the amount of uncertainty associated with 
modeling the effects of these proposals on the economy. 
Further, there may be timing effects that affect output and 
employment in the short term but roughly cancel out over the 
budget horizon.
    The projected net revenue losses from small business and 
infrastructure incentives in the bill are offset by tax 
increases, most of which are imposed on business income. To the 
extent that the business provisions decrease the after-tax 
return to business investment, they might have negative effects 
on output and employment. Notable among these revenue raisers 
are: limitations on treaty benefits; required information 
reporting for rental property expense payments; repeal of the 
80/20 rules; and a minimum 10-year term for Grantor Retained 
Annuity Trusts (``GRATs'').
    Again, there is considerable uncertainty in quantifying the 
effect of these provisions. To the extent that these provisions 
level the playing field among different types of business 
activities, it is possible that they would enhance efficiency. 
The proposals affecting U.S. companies that are either 
controlled by foreign investors and/or conduct a substantial 
amount of their activity overseas potentially would affect a 
relatively small amount of aggregate international capital 
flows. The provision that limits treaty benefits has mixed 
effects on the relatively small amount of affected capital 
flows, in part because the provision generally would not affect 
a U.S. corporation that reinvests earnings from U.S. operations 
back into U.S. activity. With respect to the potential direct 
investment consequences of both provisions, other issues such 
as proximity to customers may tend to dominate the tax issues 
addressed in the legislation, thus providing incentives to 
interested foreign parties to restructure their offshore 
operations and/or work to extend or deepen the U.S. bilateral 
treaty network, rather than to withdraw or diminish their 
overall investment in the United States. But there is 
considerable uncertainty about the business and policy response 
of interested foreign parties. Finally, the provision affecting 
GRATs has the effect of increasing estate and gift taxation. 
There is considerable quantitative uncertainty about whether 
estate and gift taxes affect investment. Because the bill is 
approximately revenue neutral over the budget window, standard 
crowding-out effects on long-term borrowing costs seem likely 
to be minimal.
    While there is considerable uncertainty about the net 
effect on output and employment, there is some likelihood that 
the positive effects of the targeted investment and business 
incentives are not fully offset by the negative effects of the 
revenue raisers. But as a result of the uncertainty of the 
effects of the bill, and the small size of the changes relative 
to the overall U.S. economy, its macroeconomic effects are 
incalculable within the context of a model of the aggregate 
economy.

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


          A. Committee Oversight Findings and Recommendations

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

        B. Statement of General Performance Goals and Objectives

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

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the 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) limitation on treaty 
benefits (sec. 301 of the bill); (2) require information 
reporting for rental property expense payments (sec. 304 of the 
bill); and (3) require a minimum 10-year term for grantor 
retained annuity trusts (``GRATs'') (sec. 307 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(b) of rule XXI of the Rules of the House of 
Representatives provides, in part, 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 
(the ``Code'') and has widespread applicability to individuals 
or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses.

                        G. Limited Tax Benefits

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

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

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

                     INTERNAL REVENUE CODE OF 1986


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



Subpart D--Business Related Credits

           *       *       *       *       *       *       *



SEC. 38. GENERAL BUSINESS CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (4) Special rules for specified credits.--
                  (A) * * *
                  (B) Specified credits.--For purposes of this 
                subsection, the term ``specified credits'' 
                means--
                          (i) * * *

           *       *       *       *       *       *       *

                          (v) the credit determined under 
                        section 45D, but only with respect to 
                        credits determined with respect to 
                        qualified equity investments (as 
                        defined in section 45D(b)) initially 
                        made before January 1, 2012,
                          [(v)] (vi) the credit determined 
                        under section 45G,
                          [(vi)] (vii) the credit determined 
                        under section 46 to the extent that 
                        such credit is attributable to the 
                        energy credit determined under section 
                        48,
                          [(vii)] (viii) the credit determined 
                        under section 46 to the extent that 
                        such credit is attributable to the 
                        rehabilitation credit under section 47, 
                        but only with respect to qualified 
                        rehabilitation expenditures properly 
                        taken into account for periods after 
                        December 31, 2007, and
                          [(viii)] (ix) the credit determined 
                        under section 51.

           *       *       *       *       *       *       *


Subpart J--Build America Bonds

           *       *       *       *       *       *       *


SEC. 54AA. BUILD AMERICA BONDS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Build America Bond.--
          (1) In general.--For purposes of this section, the 
        term ``build America bond'' means any obligation (other 
        than a private activity bond) if--
                  (A) * * *
                  (B) such obligation is issued before [January 
                1, 2011] April 1, 2013, and

           *       *       *       *       *       *       *

  (g) Special Rule for [Qualified Bonds Issued Before 2011] 
Certain Qualified Bonds.--In the case of a qualified bond 
issued before [January 1, 2011] April 1, 2013--
          (1) * * *
          (2) Qualified bond.--For purposes of this subsection, 
        the term ``qualified bond'' means any build America 
        bond issued as part of an issue if--
                  (A) 100 percent of the excess of--
                          (i) * * *

           *       *       *       *       *       *       *

                are to be used for capital expenditures 
                (including capital expenditures for levees and 
                other flood control projects), and
          (3) Treatment of current refunding bonds.--
                  (A) In general.--For purposes of this 
                subsection, the term ``qualified build America 
                bond'' includes any bond (or series of bonds) 
                issued to refund a qualified build America bond 
                if--
                          (i) the average maturity date of the 
                        issue of which the refunding bond is a 
                        part is not later than the average 
                        maturity date of the bonds to be 
                        refunded by such issue,
                          (ii) the amount of the refunding bond 
                        does not exceed the outstanding amount 
                        of the refunded bond, and
                          (iii) the refunded bond is redeemed 
                        not later than 90 days after the date 
                        of the issuance of the refunding bond.
                  (B) Applicable percentage.--In the case of a 
                refunding bond referred to in subparagraph (A), 
                the applicable percentage with respect to such 
                bond under section 6431(b) shall be the lowest 
                percentage specified in paragraph (2) of such 
                section.
                  (C) Determination of average maturity.--For 
                purposes of subparagraph (A)(i), average 
                maturity shall be determined in accordance with 
                section 147(b)(2)(A).

           *       *       *       *       *       *       *


PART VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

                          (iv) Tax exempt interest on bonds 
                        issued in 2009 [and 2010], 2010, and 
                        2011.--
                                  (I) In general.--Clause (i) 
                                shall not apply in the case of 
                                any interest on a bond issued 
                                after December 31, 2008, and 
                                before [January 1, 2011] 
                                January 1, 2012.

           *       *       *       *       *       *       *


SEC. 57. ITEMS OF TAX PREFERENCE.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

                          (vi) Exception for bonds issued in 
                        2009 [and 2010], 2010, and 2011.--
                                  (I) In general.--For purposes 
                                of clause (i), the term 
                                ``private activity bond'' shall 
                                not include any bond issued 
                                after December 31, 2008, and 
                                before [January 1, 2011] 
                                January 1, 2012.

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


Subpart A--Private Activity Bonds

           *       *       *       *       *       *       *


SEC. 146. VOLUME CAP.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Exception for Certain Bonds.--Only for purposes of this 
section, the term ``private activity bond'' shall not include--
          (1) * * *

           *       *       *       *       *       *       *

          (3) any exempt facility bond issued as part of an 
        issue described in paragraph (1), (2), (4), (5), (12), 
        (13), (14), or (15) of section 142(a), and

           *       *       *       *       *       *       *

  (k) Facility Must be Located Within State.--
          (1) * * *
          (2) Exception for certain facilities where state will 
        get proportionate share of benefits.--Paragraph (1) 
        shall not apply to any exempt facility bond described 
        in paragraph [(4), (5), (6),] (6) or (10) of section 
        142(a) if the issuer establishes that the State's share 
        of the use of the facility (or its output) will equal 
        or exceed the State's share of the private activity 
        bonds issued to finance the facility.
          (3) Treatment of governmental bonds to which volume 
        cap allocated.--Paragraph (1) shall not apply to any 
        bond to which volume cap is allocated under section 
        141(b)(5)--
                  (A) * * *
                  (B) for a facility of a type described in 
                paragraph [(4), (5), (6),] (6) or (10) of 
                section 142(a),

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 195. START-UP EXPENDITURES.

  (a) * * *
  (b) Election to Deduct.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Increased limitation for taxable years beginning 
        in 2010 or 2011.--In the case of any taxable year 
        beginning in 2010 or 2011, paragraph (1)(A)(ii) shall 
        be applied--
                  (A) by substituting ``$20,000'' for 
                ``$5,000'', and
                  (B) by substituting ``$75,000'' for 
                ``$50,000''.

           *       *       *       *       *       *       *


Subchapter C--Corporate Distributions and Adjustments

           *       *       *       *       *       *       *


PART III--CORPORATE ORGANIZATIONS AND REORGANIZATIONS

           *       *       *       *       *       *       *


Subpart C--Effects on Corporation

           *       *       *       *       *       *       *


SEC. 361. NONRECOGNITION OF GAIN OR LOSS TO CORPORATIONS; TREATMENT OF 
                    DISTRIBUTIONS.

  (a) * * *
  (b) Exchanges Not Solely in Kind.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Treatment of transfers to creditors.--For 
        purposes of paragraph (1), any transfer of the other 
        property or money received in the exchange by the 
        corporation to its creditors in connection with the 
        reorganization shall be treated as a distribution in 
        pursuance of the plan of reorganization. The Secretary 
        may prescribe such regulations as may be necessary to 
        prevent avoidance of tax through abuse of the preceding 
        sentence or subsection (c)(3). [In the case of a 
        reorganization described in section 368(a)(1)(D) with 
        respect to which stock or securities of the corporation 
        to which the assets are transferred are distributed in 
        a transaction which qualifies under section 355, this 
        paragraph shall apply only to the extent that the sum 
        of the money and the fair market value of other 
        property transferred to such creditors does not exceed 
        the adjusted bases of such assets transferred (reduced 
        by the amount of the liabilities assumed (within the 
        meaning of section 357(c))).]

           *       *       *       *       *       *       *

  (d) Special Rules for Transactions Involving Section 355 
Distributions.--In the case of a reorganization described in 
section 368(a)(1)(D) with respect to which stock or securities 
of the corporation to which the assets are transferred are 
distributed in a transaction which qualifies under section 
355--
          (1) this section shall be applied by substituting 
        ``stock other than nonqualified preferred stock (as 
        defined in section 351(g)(2))'' for ``stock or 
        securities'' in subsections (a) and (b)(1), and
          (2) the first sentence of subsection (b)(3) shall 
        apply only to the extent that the sum of the money and 
        the fair market value of the other property transferred 
        to such creditors does not exceed the adjusted bases of 
        such assets transferred (reduced by the amount of the 
        liabilities assumed (within the meaning of section 
        357(c))).

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart C--Taxable Year for Which Deductions Taken

           *       *       *       *       *       *       *


SEC. 465. DEDUCTIONS LIMITED TO AMOUNT AT RISK.

  (a) * * *
  (b) Amounts Considered at Risk.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Qualified nonrecourse financing treated as amount 
        at risk.--For purposes of this section--
                  (A) In general.--Notwithstanding any other 
                provision of this subsection, [in the case of 
                an activity of holding real property,] a 
                taxpayer shall be considered at risk with 
                respect to the taxpayer's share of any 
                qualified nonrecourse financing[ which is 
                secured by real property used in such 
                activity].
                  [(B) Qualified nonrecourse financing.--For 
                purposes of this paragraph, the term 
                ``qualified nonrecourse financing'' means any 
                financing--
                          [(i) which is borrowed by the 
                        taxpayer with respect to the activity 
                        of holding real property,
                          [(ii) which is borrowed by the 
                        taxpayer from a qualified person or 
                        represents a loan from any Federal, 
                        State, or local government or 
                        instrumentality thereof, or is 
                        guaranteed by any Federal, State, or 
                        local government,
                          [(iii) except to the extent provided 
                        in regulations, with respect to which 
                        no person is personally liable for 
                        repayment, and
                          [(iv) which is not convertible debt.]
                  (B) Qualified nonrecourse financing.--For 
                purposes of this paragraph--
                          (i) In general.--The term ``qualified 
                        nonrecourse financing'' means any 
                        financing--
                                  (I) which is qualified real 
                                property financing or qualified 
                                SBIC financing,
                                  (II) except to the extent 
                                provided in regulations, with 
                                respect to which no person is 
                                personally liable for 
                                repayment, and
                                  (III) which is not 
                                convertible debt.
                          (ii) Qualified real property 
                        financing.--The term ``qualified real 
                        property financing'' means any 
                        financing which--
                                  (I) is borrowed by the 
                                taxpayer with respect to the 
                                activity of holding real 
                                property,
                                  (II) is secured by real 
                                property used in such activity, 
                                and
                                  (III) is borrowed by the 
                                taxpayer from a qualified 
                                person or represents a loan 
                                from any Federal, State, or 
                                local government or 
                                instrumentality thereof, or is 
                                guaranteed by any Federal, 
                                State, or local government.
                          (iii) Qualified sbic financing.--The 
                        term ``qualified SBIC financing'' means 
                        any financing which--
                                  (I) is borrowed by a small 
                                business investment company 
                                (within the meaning of section 
                                301 of the Small Business 
                                Investment Act of 1958), and
                                  (II) is borrowed from, or 
                                guaranteed by, the Small 
                                Business Administration under 
                                the authority of section 303(b) 
                                of such Act.

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 861. INCOME FROM SOURCES WITHIN THE UNITED STATES.

  (a) Gross Income From Sources Within United States.--The 
following items of gross income shall be treated as income from 
sources within the United States:
          (1) Interest.--Interest from the United States or the 
        District of Columbia, and interest on bonds, notes, or 
        other interest-bearing obligations of noncorporate 
        residents or domestic corporations not including--
                  [(A) interest from a resident alien 
                individual or domestic corporation, if such 
                individual or corporation meets the 80-percent 
                foreign business requirements of subsection 
                (c)(1),]
                  [(B)] (A) interest--
                          (i) * * *

           *       *       *       *       *       *       *

                  [(C)] (B) in the case of a foreign 
                partnership, which is predominantly engaged in 
                the active conduct of a trade or business 
                outside the United States, any interest not 
                paid by a trade or business engaged in by the 
                partnership in the United States and not 
                allocable to income which is effectively 
                connected (or treated as effectively connected) 
                with the conduct of a trade or business in the 
                United States.

           *       *       *       *       *       *       *

  [(c) Foreign Business Requirements.--
          [(1) Foreign business requirements.--
                  [(A) In general.--An individual or 
                corporation meets the 80-percent foreign 
                business requirements of this paragraph if it 
                is shown to the satisfaction of the Secretary 
                that at least 80 percent of the gross income 
                from all sources of such individual or 
                corporation for the testing period is active 
                foreign business income.
                  [(B) Active foreign business income.--For 
                purposes of subparagraph (A), the term ``active 
                foreign business income'' means gross income 
                which--
                          [(i) is derived from sources outside 
                        the United States (as determined under 
                        this subchapter) or, in the case of a 
                        corporation, is attributable to income 
                        so derived by a subsidiary of such 
                        corporation, and
                          [(ii) is attributable to the active 
                        conduct of a trade or business in a 
                        foreign country or possession of the 
                        United States by the individual or 
                        corporation (or by a subsidiary.)
                For purposes of this subparagraph, the term 
                ``subsidiary'' means any corporation in which 
                the corporation referred to in this 
                subparagraph owns (directly or indirectly) 
                stock meeting the requirements of section 
                1504(a)(2) (determined by substituting ``50 
                percent'' for ``80 percent'' each place it 
                appears).
                  [(C) Testing period.--For purposes of this 
                subsection, the term ``testing period'' means 
                the 3-year period ending with the close of the 
                taxable year of the individual or corporation 
                preceding the payment (or such part of such 
                period as may be applicable). If the individual 
                or corporation has no gross income for such 3-
                year period (or part thereof), the testing 
                period shall be the taxable year in which the 
                payment is made.
          [(2) Look-thru where related person receives 
        interest.--
                  [(A) In general.--In the case of interest 
                received by a related person from a resident 
                alien individual or domestic corporation 
                meeting the 80-percent foreign business 
                requirements of paragraph (1), subsection 
                (a)(1)(A) shall apply only to a percentage of 
                such interest equal to the percentage which--
                          [(i) the gross income of such 
                        individual or corporation for the 
                        testing period from sources outside the 
                        United States (as determined under this 
                        subchapter), is of
                          [(ii) the total gross income of such 
                        individual or corporation for the 
                        testing period.
                  [(B) Related person.--For purposes of this 
                paragraph, the term ``related person'' has the 
                meaning given such term by section 954(d)(3), 
                except that--
                          [(i) such section shall be applied by 
                        substituting ``the individual or 
                        corporation making the payment'' for 
                        ``controlled foreign corporation'' each 
                        place it appears, and
                          [(ii) such section shall be applied 
                        by substituting ``10 percent or more'' 
                        for ``more than 50 percent'' each place 
                        it appears.]
  [(d)] (c) Special Rule for Application of Subsection 
(a)(2)(B).--For purposes of subsection (a)(2)(B), if the 
foreign corporation has no gross income from any source for the 
3-year period (or part thereof) specified, the requirements of 
such subsection shall be applied with respect to the taxable 
year of such corporation in which the payment of the dividend 
is made.
  [(e)] (d) Income From Certain Railroad Rolling Stock Treated 
as Income From Sources Within the United States.--
          (1) * * *

           *       *       *       *       *       *       *

  [(f)] (e) Cross Reference.--For treatment of interest paid by 
the branch of a foreign corporation, see section 884(f).

           *       *       *       *       *       *       *


PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

           *       *       *       *       *       *       *


Subpart A--Nonresident Alien Individuals

           *       *       *       *       *       *       *


SEC. 871. TAX ON NONRESIDENT ALIEN INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

  (i) Tax Not to Apply to Certain Interest and Dividends.--
          (1) * * *
          (2) Amounts to which paragraph (1) applies.--The 
        amounts described in this paragraph are as follows:
                  (A) * * *
                  [(B) A percentage of any dividend paid by a 
                domestic corporation meeting the 80-percent 
                foreign business requirements of section 
                861(c)(1) equal to the percentage determined 
                for purposes of section 861(c)(2)(A).]
                  [(C)] (B) Income derived by a foreign central 
                bank of issue from bankers' acceptances.
                  [(D)] (C) Dividends paid by a foreign 
                corporation which are treated under section 
                861(a)(2)(B) as income from sources within the 
                United States.

           *       *       *       *       *       *       *


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.

           *       *       *       *       *       *       *


PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

           *       *       *       *       *       *       *


Subpart A--Foreign Tax Credit

           *       *       *       *       *       *       *


SEC. 904. LIMITATION ON CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Source Rules in Case of United States-Owned Foreign 
Corporations.--
          (1) * * *

           *       *       *       *       *       *       *

          [(9) Treatment of certain domestic corporations.--For 
        purposes of this subsection--
                  [(A) in the case of interest treated as not 
                from sources within the United States under 
                section 861(a)(1)(A), the corporation paying 
                such interest shall be treated as a United 
                States-owned foreign corporation, and
                  [(B) in the case of any dividend treated as 
                not from sources within the United States under 
                section 861(a)(2)(A), the corporation paying 
                such dividend shall be treated as a United 
                States-owned foreign corporation.]
          (9) Treatment of certain domestic corporations.--In 
        the case of any dividend treated as not from sources 
        with the United States under section 861(a)(2)(A), the 
        corporation paying such dividend shall be treated for 
        purposes of this subsection as a United States-owned 
        foreign corporation.

           *       *       *       *       *       *       *


Subchapter P--Capital Gains and Losses

           *       *       *       *       *       *       *


PART I--TREATMENT OF CAPITAL GAINS

           *       *       *       *       *       *       *


SEC. 1202. PARTIAL EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS 
                    STOCK.

  (a) Exclusion.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) [Special rules for 2009 and 2010] Special 75 
        percent exclusion.--In the case of qualified small 
        business stock acquired [after the date of the 
        enactment of this paragraph and before January 1, 2011] 
        after February 17, 2009, and before March 16, 2010--
                  (A) * * *

           *       *       *       *       *       *       *

          (4) Special 100 percent exclusion.--In the case of 
        qualified small business stock acquired after March 15, 
        2010, and before January 1, 2012--
                  (A) paragraph (1) shall be applied by 
                substituting ``100 percent'' for ``50 
                percent'',
                  (B) paragraph (2) shall not apply, and
                  (C) paragraph (7) of section 57(a) shall not 
                apply.

           *       *       *       *       *       *       *


Subchapter Y--Short-Term Regional Benefits

           *       *       *       *       *       *       *


PART III-- RECOVERY ZONE BONDS

           *       *       *       *       *       *       *


SEC. 1400U-1. ALLOCATION OF RECOVERY ZONE BONDS.

  (a) Allocations.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Allocations by states.--
                  (A) In general.--Each State with respect to 
                which an allocation is made under paragraph (1) 
                shall reallocate such allocation among the 
                counties and large municipalities in such State 
                in the proportion to each such county's or 
                municipality's 2008 employment decline bears to 
                the aggregate of the 2008 employment declines 
                for all the counties and municipalities in such 
                State. A county or municipality may waive any 
                portion of an allocation made under this 
                subparagraph. A State may by law treat a county 
                or municipality as waiving any portion of an 
                allocation made under this subparagraph if 
                there is a reasonable expectation that such 
                allocation would not otherwise be used.

           *       *       *       *       *       *       *

  (c) Allocation of 2010 Recovery Zone Bond Limitations Based 
on Unemployment.--
          (1) In general.--The Secretary shall allocate the 
        2010 national recovery zone economic development bond 
        limitation and the 2010 national recovery zone facility 
        bond limitation among the States in the proportion that 
        each such State's 2009 unemployment number bears to the 
        aggregate of the 2009 unemployment numbers for all of 
        the States.
          (2) Minimum allocation.--The Secretary shall adjust 
        the allocations under paragraph (1) for each State to 
        the extent necessary to ensure that no State (prior to 
        any reduction under paragraph (3)) receives less than 
        0.9 percent of the 2010 national recovery zone economic 
        development bond limitation and 0.9 percent of the 2010 
        national recovery zone facility bond limitation.
          (3) Allocations by states.--
                  (A) In general.--Each State with respect to 
                which an allocation is made under paragraph (1) 
                shall reallocate such allocation among the 
                counties and large municipalities (as defined 
                in subsection (a)(3)(B)) in such State in the 
                proportion that each such county's or 
                municipality's 2009 unemployment number bears 
                to the aggregate of the 2009 unemployment 
                numbers for all the counties and large 
                municipalities (as so defined) in such State.
                  (B) 2010 allocation reduced by amount of 
                previous allocation.--Each State shall reduce 
                (but not below zero)--
                          (i) the amount of the 2010 national 
                        recovery zone economic development bond 
                        limitation allocated to each county or 
                        large municipality (as so defined) in 
                        such State by the amount of the 
                        national recovery zone economic 
                        development bond limitation allocated 
                        to such county or large municipality 
                        under subsection (a)(3)(A) (determined 
                        without regard to any waiver thereof), 
                        and
                          (ii) the amount of the 2010 national 
                        recovery zone facility bond limitation 
                        allocated to each county or large 
                        municipality (as so defined) in such 
                        State by the amount of the national 
                        recovery zone facility bond limitation 
                        allocated to such county or large 
                        municipality under subsection (a)(3)(A) 
                        (determined without regard to any 
                        waiver thereof).
                  (C) Waiver of suballocations.--A county or 
                municipality may waive any portion of an 
                allocation made under this paragraph. A State 
                may by law treat a county or municipality as 
                waiving any portion of an allocation made under 
                this paragraph if there is a reasonable 
                expectation that such allocation would not 
                otherwise be used.
                  (D) Special rule for a municipality in a 
                county.--In the case of any large municipality 
                any portion of which is in a county, such 
                portion shall be treated as part of such 
                municipality and not part of such county.
          (4) 2009 unemployment number.--For purposes of this 
        subsection, the term ``2009 unemployment number'' 
        means, with respect to any State, county or 
        municipality, the number of individuals in such State, 
        county, or municipality who were determined to be 
        unemployed by the Bureau of Labor Statistics for 
        December 2009.
          (5) 2010 national limitations.--
                  (A) Recovery zone economic development 
                bonds.--The 2010 national recovery zone 
                economic development bond limitation is 
                $10,000,000,000. Any allocation of such 
                limitation under this subsection shall be 
                treated for purposes of section 1400U-2 in the 
                same manner as an allocation of national 
                recovery zone economic development bond 
                limitation.
                  (B) Recovery zone facility bonds.--The 2010 
                national recovery zone facility bond limitation 
                is $15,000,000,000. Any allocation of such 
                limitation under this subsection shall be 
                treated for purposes of section 1400U-3 in the 
                same manner as an allocation of national 
                recovery zone facility bond limitation.

SEC. 1400U-2. RECOVERY ZONE ECONOMIC DEVELOPMENT BONDS.

  (a)  * * *
  (b) Recovery Zone Economic Development Bond.--
          (1) In general.--For purposes of this section, the 
        term ``recovery zone economic development bond'' means 
        any build America bond (as defined in section 54AA(d)) 
        issued before [January 1, 2011] January 1, 2012, as 
        part of issue if--
                  (A) * * *

SEC. 1400U-3. RECOVERY ZONE FACILITY BONDS.

  (a)  * * *
  (b) Recovery Zone Facility Bond.--
          (1) In general.--For purposes of this section, the 
        term ``recovery zone facility bond'' means any bond 
        issued as part of an issue if--
                  (A)  * * *
                  (B) such bond is issued before [January 1, 
                2011] January 1, 2012, and

           *       *       *       *       *       *       *


Subtitle B--Estate and Gift Taxes

           *       *       *       *       *       *       *


CHAPTER 11--ESTATE TAX

           *       *       *       *       *       *       *


Subchapter B--Estates of Nonresidents Not Citizens

           *       *       *       *       *       *       *


SEC. 2104. PROPERTY WITHIN THE UNITED STATES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Debt Obligations.--For purposes of this subchapter, debt 
obligations of--
          (1) * * *

           *       *       *       *       *       *       *

owned and held by a nonresident not a citizen of the United 
States shall be deemed property within the United States. With 
respect to estates of decedents dying after December 31, 1969, 
deposits with a domestic branch of a foreign corporation, if 
such branch is engaged in the commercial banking business, 
shall, for purposes of this subchapter, be deemed property 
within the United States. This subsection shall not apply to a 
debt obligation to which section 2105(b) applies[ or to a debt 
obligation of a domestic corporation if any interest on such 
obligation, were such interest received by the decedent at the 
time of his death, would be treated by reason of section 
861(a)(1)(A) as income from sources without the United States].

           *       *       *       *       *       *       *


CHAPTER 14--SPECIAL VALUATION RULES

           *       *       *       *       *       *       *


SEC. 2702. SPECIAL VALUATION RULES IN CASE OF TRANSFERS OF INTERESTS IN 
                    TRUSTS.

  (a) * * *
  (b) Qualified Interest.--[For purposes of]
          (1) In general.--For purposes of this section, the 
        term ``qualified interest'' means--
                  [(1)] (A) any interest which consists of the 
                right to receive fixed amounts payable not less 
                frequently than annually,
                  [(2)] (B) any interest which consists of the 
                right to receive amounts which are payable not 
                less frequently than annually and are a fixed 
                percentage of the fair market value of the 
                property in the trust (determined annually), 
                and
                  [(3)] (C) any noncontingent remainder 
                interest if all of the other interests in the 
                trust consist of interests described in 
                [paragraph (1) or (2)] subparagraph (A) or (B).
          (2) Additional requirements with respect to grantor 
        retained annuities.--For purposes of subsection (a), in 
        the case of an interest described in paragraph (1)(A) 
        (determined without regard to this paragraph) which is 
        retained by the transferor, such interest shall be 
        treated as described in such paragraph only if--
                  (A) the right to receive the fixed amounts 
                referred to in such paragraph is for a term of 
                not less than 10 years,
                  (B) such fixed amounts, when determined on an 
                annual basis, do not decrease relative to any 
                prior year during the first 10 years of the 
                term referred to in subparagraph (A), and
                  (C) the remainder interest has a value 
                greater than zero determined as of the time of 
                the transfer.

           *       *       *       *       *       *       *


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.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Treatment of Rental Property Expense Payments.--
          (1) In general.--For purposes of subsection (a), a 
        person receiving rental income from real estate (other 
        than a qualified residence) shall be considered to be 
        engaged in a trade or business of renting property.
          (2) Qualified residence.--For purposes of paragraph 
        (1), the term ``qualified residence'' means----
                  (A) the principal residence (within the 
                meaning of section 121) of the taxpayer, and
                  (B) 1 other residence of the taxpayer which 
                is selected by the taxpayer for purposes of 
                this subsection for the taxable year and which 
                is used by the taxpayer as a residence (within 
                the meaning of section 280A(d)(1)).

           *       *       *       *       *       *       *


CHAPTER 63--ASSESSMENT

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 6211. DEFINITION OF A DEFICIENCY.

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

           *       *       *       *       *       *       *

          (4) For purposes of subsection (a)--
                  (A) any excess of the sum of the credits 
                allowable under sections 24(d), 25A by reason 
                of subsection (i)(6) thereof, 32, 34, 35, 36, 
                36A, 53(e), 168(k)(4), 6428, and 6431 and 
                subchapter C of chapter 65 (including any 
                payment treated as made under such subchapter) 
                over the tax imposed by subtitle A (determined 
                without regard to such credits), and

           *       *       *       *       *       *       *


CHAPTER 64--COLLECTION

           *       *       *       *       *       *       *


Subchapter D--Seizure of Property for Collection of Taxes

           *       *       *       *       *       *       *


                  PART I--DUE PROCESS FOR COLLECTIONS

SEC. 6330. NOTICE AND OPPORTUNITY FOR HEARING BEFORE LEVY.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Disqualified Employment Tax Levy.--For purposes of 
subsection (f), a disqualified employment tax levy is any levy 
in connection with the collection of employment taxes for any 
taxable period if the person subject to the levy (or any 
predecessor thereof) requested a hearing under this section 
with respect to unpaid employment taxes arising in the most 
recent 2-year period before the beginning of the taxable period 
with respect to which the levy is served or if the person 
subject to the levy (or any predecessor thereof) is a Federal 
contractor that was identified as owing such employment taxes 
through the Federal Payment Levy Program. For purposes of the 
preceding sentence, the term ``employment taxes'' means any 
taxes under chapter 21, 22, 23, or 24.

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 or services] property, goods, 
        or services sold or leased to the Federal Government.

           *       *       *       *       *       *       *


              CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

                   subchapter a. procedure in general

     * * * * * * *

subchapter c. direct payment provisions

           *       *       *       *       *       *       *


Subchapter B--Rules of Special Application

           *       *       *       *       *       *       *


SEC. 6425. ADJUSTMENT OF OVERPAYMENT OF ESTIMATED INCOME TAX BY 
                    CORPORATION.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section and section 
6655(h) (relating to excessive adjustment)--
          (1) The term ``income tax liability'' means the 
        excess of--
                  (A) * * *
                  (B) [the credits] the sum of--
                          (i) the credits against tax provided 
                        by part IV of subchapter A of chapter 
                        1[.], plus
                          (ii) the credits allowed (and 
                        payments treated as made) under 
                        subchapter C.

           *       *       *       *       *       *       *


SEC. 6431. CREDIT FOR QUALIFIED BONDS ALLOWED TO ISSUER.

  (a) In General.--In the case of a qualified bond issued 
before [January 1, 2011] April 1, 2013, the issuer of such bond 
shall be allowed a credit with respect to each interest payment 
under such bond which shall be payable by the Secretary as 
provided in subsection (b).
  (b) Payment of Credit.--[The Secretary]
          (1) In general.--The Secretary shall pay 
        (contemporaneously with each interest payment date 
        under such bond) to the issuer of such bond (or to any 
        person who makes such interest payments on behalf of 
        the issuer) [35 percent] the applicable percentage of 
        the interest payable under such bond on such date.
          (2) Applicable percentage.--For purposes of this 
        subsection, the term ``applicable percentage'' means 
        the percentage determined in accordance with the 
        following table:


----------------------------------------------------------------------------------------------------------------
   In the case of a qualified bond issued during calendar
                           year:                                        The applicable percentage is:
----------------------------------------------------------------------------------------------------------------
2009 or 2010...............................................  35 percent
2011.......................................................  33 percent
2012.......................................................  31 percent
2013.......................................................  30 percent
----------------------------------------------------------------------------------------------------------------

                                                             

           *       *       *       *       *       *       *
                Subchapter C--Direct Payment Provisions

Sec. 6451. Elective payments in lieu of low income housing credit for 
          bond-financed buildings.

SEC. 6451. ELECTIVE PAYMENTS IN LIEU OF LOW INCOME HOUSING CREDIT FOR 
                    BOND-FINANCED BUILDINGS.

  (a) In General.--Any person making an election under this 
section with respect to any qualified bond-financed low-income 
building originally placed in service by such person during the 
taxable year shall be treated as making a payment, against the 
tax imposed by subtitle A for the taxable year, equal to the 
direct payment amount with respect to such building. Such 
payment shall be treated as made on the later of the due date 
of the return of such tax or the date on which such return is 
filed.
  (b) Qualified Bond-Financed Low-Income Building.--For 
purposes of this section, the term ``qualified bond-financed 
low-income building'' means any qualified low-income building 
to which paragraph (1) of section 42(h) does not apply by 
reason of paragraph (4)(B) of such section.
  (c) Direct Payment Amount.--For purposes of this section, the 
term ``direct payment amount'' means, with respect to any 
building, 25.5 percent of the qualified basis of such building.
  (d) Special Rules for Certain Non-Taxpayers.--
          (1) Denial of payment.--Subsection (a) shall not 
        apply with respect to any building placed in service 
        by--
                  (A) any governmental entity, or
                  (B) any organization described in section 
                501(c) or 401(a) and exempt from tax under 
                section 501(a).
          (2) Special rules for partnerships and s 
        corporations.--In the case of property originally 
        placed in service by a partnership or an S 
        corporation--
                  (A) the election under subsection (a) may be 
                made only by such partnership or S corporation,
                  (B) such partnership or S corporation shall 
                be treated as making the payment referred to in 
                subsection (a) only to the extent of the 
                proportionate share of such partnership or S 
                corporation as is owned by persons who would be 
                treated as making such payment if the building 
                were placed in service by such persons, and
                  (C) the return required to be made by such 
                partnership or S corporation under section 6031 
                or 6037 (as the case may be) shall be treated 
                as a return of tax for purposes of subsection 
                (a).For purposes of subparagraph (B), rules 
                similar to the rules of section 168(h)(6) 
                (other than subparagraph (F) thereof) shall 
                apply.
  (e) Coordination With Low Income Housing Credit.--In the case 
of any property with respect to which an election is made under 
this section, no credit shall be determined under section 42 
with respect to such building for any taxable year.
  (f) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) Other definitions.--Terms used in this section 
        which are also used in section 42 shall have the same 
        meaning for purposes of this section as when used in 
        such section.
          (2) Application of recapture rules, etc.--Except as 
        otherwise provided by the Secretary, rules similar to 
        the rules of section 42 shall apply, including the 
        recapture rules of section 42(j).
          (3) Provision of information.--A person shall not be 
        treated as having elected the application of this 
        section unless the taxpayer provides such information 
        as the Secretary may require for purposes of verifying 
        the proper amount to be treated as a payment under 
        subsection (a) and evaluating the effectiveness of this 
        section.
          (4) Exclusion from gross income.--Any credit or 
        refund allowed or made by reason of this section shall 
        not be includible in gross income or alternative 
        minimum taxable income.
  (g) Termination.--Subsection (a) shall not apply with respect 
to any building placed in service during a taxable year 
beginning after December 31, 2010.

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


Subchapter A--Additions to the Tax and Additional Amounts

           *       *       *       *       *       *       *


PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 6654. FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME TAX.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Tax Computed After Application of Credits Against Tax.--
For purposes of this section, the term ``tax'' means--
          (1) * * *

           *       *       *       *       *       *       *

          (3) [the credits] the sum of--
                  (A) the credits against tax provided by part 
                IV of subchapter A of chapter 1, other than the 
                credit against tax provided by section 31 
                (relating to tax withheld on wages)[.], and
                  (B) the credits allowed (and payments treated 
                as made) under subchapter C of chapter 65.

           *       *       *       *       *       *       *


SEC. 6655. FAILURE BY CORPORATION TO PAY ESTIMATED INCOME TAX.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Definitions and Special Rules.--
          (1) Tax.--For purposes of this section, the term 
        ``tax'' means the excess of--
                  (A) * * *
                  (B) [the credits] the sum of--
                          (i) the credits against tax provided 
                        by part IV of subchapter A of chapter 
                        1[.], plus
                          (ii) the credits allowed (and 
                        payments treated as made) under 
                        subchapter C of chapter 65.

           *       *       *       *       *       *       *


Subchapter B--Assessable Penalties

           *       *       *       *       *       *       *


PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION 
                    INFORMATION WITH RETURN.

  (a) * * *
  [(b) Amount of Penalty.--
          [(1) In general.--Except as provided in paragraph 
        (2), the amount of the penalty under subsection (a) 
        shall be--
                  [(A) $10,000 in the case of a natural person, 
                and
                  [(B) $50,000 in any other case.
          [(2) Listed transaction.--The amount of the penalty 
        under subsection (a) with respect to a listed 
        transaction shall be--
                  [(A) $100,000 in the case of a natural 
                person, and
                  [(B) $200,000 in any other case.]
  (b) Amount of Penalty.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amount of the penalty under subsection 
        (a) with respect to any reportable transaction shall be 
        75 percent of the decrease in tax shown on the return 
        as a result of such transaction (or which would have 
        resulted from such transaction if such transaction were 
        respected for Federal tax purposes).
          (2) Maximum penalty.--The amount of the penalty under 
        subsection (a) with respect to any reportable 
        transaction for any taxable year shall not exceed--
                  (A) in the case of a listed transaction, 
                $200,000 ($100,000 in the case of a natural 
                person), or
                  (B) in the case of any other reportable 
                transaction, $50,000 ($10,000 in the case of a 
                natural person).
          (3) Minimum penalty.--The amount of the penalty under 
        subsection (a) with respect to any transaction for any 
        taxable year shall not be less than $10,000 ($5,000 in 
        the case of a natural person).

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 6721. FAILURE TO FILE CORRECT INFORMATION RETURNS.

  (a) Imposition of Penalty.--
          (1) In general.--In the case of a failure described 
        in paragraph (2) by any person with respect to an 
        information return, such person shall pay a penalty of 
        [$50] $100 for each return with respect to which such a 
        failure occurs, but the total amount imposed on such 
        person for all such failures during any calendar year 
        shall not exceed [$250,000] $1,500,000.

           *       *       *       *       *       *       *

  (b) Reduction Where Correction in Specified Period.--
          (1) Correction within 30 days.--If any failure 
        described in subsection (a)(2) is corrected on or 
        before the day 30 days after the required filing date--
                  (A) the penalty imposed by subsection (a) 
                shall be [$15] $30 in lieu of [$50] $100, and
                  (B) the total amount imposed on the person 
                for all such failures during any calendar year 
                which are so corrected shall not exceed 
                [$75,000] $250,000.
          (2) Failures corrected on or before august 1.--If any 
        failure described in subsection (a)(2) is corrected 
        after the 30th day referred to in paragraph (1) but on 
        or before August 1 of the calendar year in which the 
        required filing date occurs--
                  (A) the penalty imposed by subsection (a) 
                shall be [$30] $60 in lieu of [$50] $100, and
                  (B) the total amount imposed on the person 
                for all such failures during the calendar year 
                which are so corrected shall not exceed 
                [$150,000] $500,000.

           *       *       *       *       *       *       *

  (d) Lower Limitations for Persons With Gross Receipts of Not 
More Than $5,000,000.--
          (1) In general.--If any person meets the gross 
        receipts test of paragraph (2) with respect to any 
        calendar year, with respect to failures during such 
        taxable year--
                  (A) subsection (a)(1) shall be applied by 
                substituting ``[$100,000] $500,000'' for 
                ``[$250,000] $1,500,000'',
                  (B) subsection (b)(1)(B) shall be applied by 
                substituting ``[$25,000] $75,000'' for 
                ``[$75,000] $250,000'', and
                  (C) subsection (b)(2)(B) shall be applied by 
                substituting ``[$50,000] $200,000'' for 
                ``[$150,000] $500,000''.

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (3) in the case of any penalty determined under 
        paragraph (2)--
                  (A) the [$250,000] $1,500,000 limitation 
                under subsection (a) shall not apply, and

           *       *       *       *       *       *       *

  (f) Adjustment for Inflation.--
          (1) In general.--For each fifth calendar year 
        beginning after 2012, each of the dollar amounts under 
        subsections (a), (b), (d) (other than paragraph (2)(A) 
        thereof), and (e) shall be increased by such dollar 
        amount multiplied by the cost-of-living adjustment 
        determined under section 1(f)(3) determined by 
        substituting ``calendar year 2011'' for ``calendar year 
        1992'' in subparagraph (B) thereof.
          (2) Rounding.--If any amount adjusted under paragraph 
        (1)--
                  (A) is not less than $75,000 and is not a 
                multiple of $500, such amount shall be rounded 
                to the next lowest multiple of $500, and
                  (B) is not described in subparagraph (A) and 
                is not a multiple of $10, such amount shall be 
                rounded to the next lowest multiple of $10.

           *       *       *       *       *       *       *


CHAPTER 80--GENERAL RULES

           *       *       *       *       *       *       *


Subchapter C--Provisions Affecting More Than One Subtitle

           *       *       *       *       *       *       *


SEC. 7871. INDIAN TRIBAL GOVERNMENTS TREATED AS STATES FOR CERTAIN 
                    PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Additional Requirements for Tax-Exempt Bonds.--
          (1) * * *
          (2) No exemption for private activity bonds.--Except 
        as provided in [paragraph (3)] paragraphs (3) and (4), 
        subsection (a) of section 103 shall not apply to any 
        private activity bond (as defined in section 141(a)) 
        issued by an Indian tribal government (or subdivision 
        thereof).

           *       *       *       *       *       *       *

          (4) Exception for bonds for water and sewage 
        facilities.--Paragraph (2) shall not apply to an exempt 
        facility bond 95 percent or more of the net proceeds 
        (as defined in section 150(a)(3)) of which are to be 
        used to provide facilities described in paragraph (4) 
        or (5) of section 142(a).

           *       *       *       *       *       *       *

                              ----------                              


TITLE 31, UNITED STATES CODE

           *       *       *       *       *       *       *


Subtitle II--the BUDGET PROCESS

           *       *       *       *       *       *       *


CHAPTER 13--APPROPRIATIONS

           *       *       *       *       *       *       *


SUBCHAPTER II--TRUST FUNDS AND REFUNDS

           *       *       *       *       *       *       *


Sec. 1324. Refund of internal revenue collections

  (a) * * *
  (b) Disbursements may be made from the appropriation made by 
this section only for--
          (1) * * *
          (2) refunds due from credit provisions of the 
        Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.) 
        enacted before January 1, 1978, or enacted by the 
        Taxpayer Relief Act of 1997, or from section 25A, 35, 
        36, 36A, 168(k)(4)(F), 53(e), 54B(h), 6428, or 6431, of 
        such Code, or due under section 3081(b)(2) of the 
        Housing Assistance Tax Act of 2008, or from the 
        provisions of subchapter C of chapter 65 of such Code.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    H.R. 4849 is touted by the Majority as the ``small business 
and infrastructure'' component of its so-called ``jobs 
agenda.'' But it is hard to see how this grab bag of narrow 
provisions--which actually amounts to a net tax increase 
overall--can be taken seriously as either a ``small business'' 
bill or a ``jobs'' bill. Having seen every one of our common-
sense, jobs-focused amendments defeated during our markup--
despite our good-faith efforts to improve the bill--we voted 
unanimously against this legislation in Committee. We did so 
for four main reasons.

         I. TAX INCREASES WILL HURT AN ALREADY WEAKENED ECONOMY

    According to the Joint Committee on Taxation, the bill 
provides $16.75 billion in narrow, limited tax relief, but 
raises $16.83 billion in new revenue.\1\ A net tax increase on 
our economy, especially while unemployment remains near 10%, 
will not put Americans back to work.
---------------------------------------------------------------------------
    \1\In calculating these totals, however, the Joint Committee on 
Taxation has counted spending increases as revenue reductions. If the 
spending increases are counted as outlays, as they should be under CBO 
conventions, then the net effect of the bill is actually an increase in 
outlays of $42.6 billion and an increase in revenues of $42.7 billion.
---------------------------------------------------------------------------
    The biggest tax increase in the bill is a highly 
controversial $7.7 billion proposal by Rep. Lloyd Doggett (D-
TX) to raise taxes on companies located in the U.S. and 
employing American workers. These are referred to as 
``insourcing'' companies--U.S. subsidiaries of companies 
headquartered abroad that create and sustain good jobs right 
here in the United States. As we pointed out during Committee 
debate, taxing these employers and these jobs would be 
dangerous for our already struggling economy, could encourage 
these companies to move U.S. jobs overseas or to curtail future 
job-creating investments in America, and could invite 
retaliation by other countries. In addition, as even the Obama 
Administration's own witness admitted at the markup, the 
Treasury Department has ``concerns about the specifics of this 
provision . . . and whether it will override . . . many of our 
income tax treaties.'' Tax increases are never a good idea, but 
this one is a particularly bad idea at a particularly bad time.

 II. THE BILL'S NARROW TAX RELIEF WILL BE INEFFECTIVE AT CREATING JOBS

    Moreover, the particular hodge-podge of narrow, targeted 
tax relief provisions contained in H.R. 4849 is too minuscule 
and ineffective to have a meaningful, positive effect on 
employment. While some of the bill's individual tax provisions 
may be unobjectionable policy, they do not represent a clear, 
coherent plan for creating jobs. Slapping together a dozen 
unrelated tax provisions and calling it a ``jobs'' bill is not 
an effective strategy to get America back to work.
    In particular, it is important to note that, despite the 
Majority's rhetoric, the vast majority of the tax relief 
provided in this bill is not targeted toward small businesses 
at all. Indeed, roughly 80% of the bill's tax relief would go 
instead to state and local governments through various 
``infrastructure'' provisions. These infrastructure provisions 
include a major expansion of ``Build America Bonds,'' which are 
heavily subsidized for the benefit of state and local 
governments. State and local governments are important; but 
those small governments are not small businesses, and they do 
not create the kind of private-sector jobs we need.
    Equally unfortunate is the fact that, prior to markup, the 
Majority stripped out of the bill the one major provision that 
was potentially ripe for bipartisan compromise--pension funding 
relief. It is regrettable that the Majority's own internal 
disagreements continue to prevent the Committee from making any 
bipartisan progress on an issue of such significance to 
American employers, their workers, and their retirees. We 
continue to believe that, as has historically been the case on 
pensions, this is an area where bipartisan agreement can be 
found and that we should come together to find appropriate 
solutions.

 III. MORE ``JOBS'' BILLS WOULD BE UNNECESSARY HAD THE STIMULUS WORKED

    Needless to say, this latest installment of the Majority's 
supposed ``jobs agenda'' would not be necessary if the 
Democrats' failed $862 billion stimulus had actually worked in 
the first place. While the Majority promised that their 2009 
stimulus law would keep the unemployment rate below 8%, 
unemployment continues to hover near 10%. And instead of 
creating 3.7 million jobs as promised, the stimulus has been 
followed by more than 3 million additional job losses. With a 
record 16 million Americans now unemployed, the country 
continues to ask: Where are the jobs? Unfortunately, this 
latest offering by the Majority provides no real answer.

      IV. TO REALLY HELP ON JOBS, ABANDON THE HEALTH CARE TAKEOVER

    The best thing the Majority could do to encourage job 
creation is to abandon its plans for a massive government 
takeover of the nation's health care system. Unfortunately, 
Democratic leaders remain intent on ramming through their 
wildly unpopular health bill, which features roughly half-a-
trillion dollars in job-killing tax increases. The severe 
uncertainty that employers face due to the Democrats' health 
care takeover is discouraging businesses all across the country 
from hiring new workers.

                               CONCLUSION

    H.R. 4849 is hardly a small business bill, and it is 
certainly not a ``jobs'' bill. It raises taxes on employers 
during an economic downturn, it provides only a pittance of tax 
relief for small businesses, and it will do nothing to gloss 
over the Majority's failed stimulus policy that has left 
unemployment stranded near 10%. For the sake of American jobs, 
this bill--along with the Majority's trillion dollar health 
care takeover--should be defeated.

                                   Dave Camp, Ranking Member.
                                   Wally Herger.
                                   Sam Johnson.
                                   Kevin Brady.
                                   Paul Ryan.
                                   Eric Cantor.
                                   John Linder.
                                   Devin Nunes.
                                   Patrick J. Tiberi.
                                   Ginny Brown-Waite.
                                   Geoff Davis.
                                   David G. Reichert.
                                   Charles W. Boustany, Jr.
                                   Dean Heller.
                                   Peter J. Roskam.

                                  
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