[House Report 114-793]
[From the U.S. Government Publishing Office]


114th Congress    }                                     {       Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                     {      114-793

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

 
 AMENDING THE INTERNAL REVENUE CODE OF 1986 TO EXEMPT AMOUNTS PAID FOR 
     AIRCRAFT MANAGEMENT SERVICES FROM THE EXCISE TAXES IMPOSED ON 
                         TRANSPORTATION BY AIR

                                _______
                                

 September 27, 2016.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 3608]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3608) to amend the Internal Revenue Code of 1986 to 
exempt amounts paid for aircraft management services from the 
excise taxes imposed on transportation by air, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................2
          A. Purpose and Summary.................................     2
          B. Background and Need for Legislation.................     2
          C. Legislative History.................................     3
 II. Explanation of the bill..........................................3
          A. Exemption From Excise Tax of Certain Amounts Paid 
              for Aircraft Management Services (sec. 1 of the 
              bill and secs. 4261 and 4271 of the Code)..........     3
III. VOTES OF THE COMMITTEE...........................................7
 IV. BUDGET EFFECTS OF THE BILL.......................................7
          A. Committee Estimate of Budgetary Effects.............     7
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................     7
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................     7
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......8
          A. Committee Oversight Findings and Recommendations....     8
          B. Statement of General Performance Goals and 
              Objectives.........................................     8
          C. Information Relating to Unfunded Mandates...........     9
          D. Applicability of House Rule XXI 5(b)................     9
          E. Tax Complexity Analysis.............................     9
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................     9
          G. Duplication of Federal Programs.....................     9
          H. Disclosure of Directed Rule Makings.................    10
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........10
VII. ADDITIONAL VIEWS................................................19

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. AMOUNTS PAID FOR AIRCRAFT MANAGEMENT SERVICES.

  (a) In General.--Section 4261(e) of the Internal Revenue Code of 1986 
is amended by adding at the end the following new paragraph:
          ``(5) Amounts paid for aircraft management services.--
                  ``(A) In general.--No tax shall be imposed by this 
                section or section 4271 on any amounts paid by an 
                aircraft owner for aircraft management services related 
                to--
                          ``(i) maintenance and support of the aircraft 
                        owner's aircraft; or
                          ``(ii) flights on the aircraft owner's 
                        aircraft.
                  ``(B) Aircraft management services.--For purposes of 
                subparagraph (A), the term `aircraft management 
                services' includes assisting an aircraft owner with 
                administrative and support services, such as 
                scheduling, flight planning, and weather forecasting; 
                obtaining insurance; maintenance, storage and fueling 
                of aircraft; hiring, training, and provision of pilots 
                and crew; establishing and complying with safety 
                standards; or such other services necessary to support 
                flights operated by an aircraft owner.
                  ``(C) Lessee treated as aircraft owner.--
                          ``(i) In general.--For purposes of this 
                        paragraph, the term `aircraft owner' includes a 
                        person who leases the aircraft other than under 
                        a disqualified lease.
                          ``(ii) Disqualified lease.--For purposes of 
                        clause (i), the term `disqualified lease' means 
                        a lease from a person providing aircraft 
                        management services with respect to such 
                        aircraft (or a related person (within the 
                        meaning of section 465(b)(3)(C)) to the person 
                        providing such services), if such lease is for 
                        a term of 31 days or less.
                  ``(D) Pro rata allocation.--If any amount paid to a 
                person represents in part an amount paid for services 
                not described in subparagraph (A), the tax imposed by 
                subsection (a), if applicable to such amount, shall be 
                applied to such payment on a pro rata basis.
                  ``(E) Certain payments treated as made by aircraft 
                owner.--In the case of an aircraft owner which is 
                wholly-owned by another person, amounts paid by such 
                other person on behalf of such aircraft owner shall be 
                treated for purposes of this paragraph as having been 
                paid directly by such aircraft owner.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid after the date of the enactment of this Act.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3608, as reported by the Committee on Ways 
and Means, exempts payments by an aircraft owner for aircraft 
management services associated with the owner's aircraft from 
commercial aviation excise taxes, effectively codifying current 
IRS practices.

                 B. Background and Need for Legislation

    While the Committee continues to work on comprehensive tax 
reform as a critical means of promoting economic growth and job 
creation, the Committee believes it is important to provide 
immediate clarity and certainty on tax issues affecting small 
businesses. The Committee believes that a statutory rule 
specifying the treatment of aircraft management services 
payments under aviation excise taxes will provide such clarity 
and certainty.

                         C. Legislative History


Background

    H.R. 3608 was introduced on September 24, 2015, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 3608 on July 
13, 2016, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The treatment of aircraft management services for aviation 
excise tax purposes was discussed at a Subcommittee on Tax 
Policy Member Day Hearing on Tax Legislation on May 12, 2016.

                      II. EXPLANATION OF THE BILL


   A. Exemption From Excise Tax of Certain Amounts Paid for Aircraft 
Management Services (sec. 1 of the bill and secs. 4261 and 4271 of the 
                                 Code)


                              PRESENT LAW

Taxes dedicated to the Airport and Airway Trust Fund

    Excise taxes are imposed on amounts paid for commercial air 
passenger and freight transportation and on fuels used in 
commercial and noncommercial (i.e., transportation that is not 
``for hire'') aviation to fund the Airport and Airway Trust 
Fund.\1\
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    \1\Sec. 9502 and 49 U.S.C. 48101 et. seq.
---------------------------------------------------------------------------
    For domestic commercial passenger aviation, the excise 
taxes consist of a 7.5 percent ad valorem tax on the amount 
paid for transportation (sometimes referred to as the ``ticket 
tax''), a $4 per-segment fee,\2\ and a 4.3 cents per gallon 
fuel tax.\3\ For commercial freight aviation, the excise taxes 
are an ad valorem tax of 6.25 percent of the amount paid for 
transportation,\4\ as well as the 4.3 cents per gallon fuel tax 
(there is no segment fee).
---------------------------------------------------------------------------
    \2\Sec. 4261; Rev. Proc. 2015-53, 2015-44 I.R.B. 615.
    \3\Sec. 4081.
    \4\Sec. 4271.
---------------------------------------------------------------------------
    For noncommercial aviation, the tax is imposed only on 
fuel, at a rate of 19.3 cents per gallon for gasoline and 21.8 
cents per gallon for jet fuel.\5\
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    \5\Sec. 4081.
---------------------------------------------------------------------------
    In the case of a fractional ownership aircraft program, 
flights under such program are exempted from the taxes levied 
on commercial passenger aviation,\6\ and instead such flights 
are subject both to the fuel taxes for noncommercial aviation 
and a surtax of 14.1 cents per gallon.\7\
---------------------------------------------------------------------------
    \6\Sec. 4261(j).
    \7\Sec. 4043.
---------------------------------------------------------------------------

Tax on domestic air transportation

    In determining whether a flight constitutes taxable 
transportation and whether the amounts paid for such 
transportation are subject to tax, the Internal Revenue Service 
(``IRS'') has generally looked at the nature of the payments 
being made and who has ``possession, command, and control'' of 
the aircraft based on the relevant facts and circumstances.\8\
---------------------------------------------------------------------------
    \8\8 See, e.g., Rev. Rul. 60-311, 1960-2 C.B. 341, which held that, 
because the company in question retains the elements of possession, 
command, and control of the aircraft and performs all services in 
connection with the operation of the aircraft, the company is, in fact, 
furnishing taxable transportation to the lessee and the tax on the 
transportation of persons applies to the portion of the total payment 
that is allocable to the transportation of persons, provided such 
allocation is made on a fair and reasonable basis. If no allocation is 
made, the tax applies to the total payment for the lease of the 
aircraft.
---------------------------------------------------------------------------

Applicability of Federal excise tax to aircraft management services

    Generally, an aircraft management services company 
(``management company'') has as its business purpose the 
management of aircraft owned by other persons (``aircraft 
owners''). In this function, management companies provide 
aircraft owners with administrative and support services (such 
as scheduling, flight planning, and weather forecasting), 
aircraft maintenance services, the provision of pilots and 
crew, and compliance with regulatory standards. Although the 
particular arrangements between management companies and 
aircraft owners may vary, aircraft owners generally pay 
management companies a monthly fee to cover the fixed expenses 
of maintaining the aircraft (such as insurance, maintenance, 
and recordkeeping) and a variable fee to cover the cost of 
using the aircraft (such as the provision of pilots, crew, and 
fuel).
    In addition to general management, aircraft owners 
frequently contract with management companies to place the 
owner's aircraft into a fleet of aircraft to be leased to third 
parties when not being used by the owner.
    The applicability of Federal excise tax to amounts paid for 
aircraft management services has been the subject of litigation 
and has also been addressed in an IRS Chief Counsel Advice 
memorandum.\9\ In the Chief Counsel Advice, the IRS concluded 
under certain factual scenarios that aircraft management fees 
are generally considered amounts paid for taxable 
transportation of a person because possession, command, and 
control of the aircraft have been ceded by the aircraft owner 
to the management company under the terms of a management 
agreement. The IRS stated that control of the pilots is a 
factor in determining who has possession, command and control 
of the aircraft. In the scenarios described in the Chief 
Counsel Advice, while the aircraft is titled in the name of the 
owner, the pilots and crew are management company employees and 
receive their pay, benefits, and income tax reporting documents 
from the management company. In addition to selecting and 
training the pilots and crew, the management company performs 
all of the maintenance on the aircraft and is responsible for 
ensuring that all Federal Aviation Administration maintenance 
and related recordkeeping requirements are satisfied. Due to 
these factors, the IRS concluded that the management company 
had possession, command and control of the aircraft and, as a 
result, was furnishing taxable transportation to the owner.
---------------------------------------------------------------------------
    \9\CCA 2012-10026 (March, 2012).
---------------------------------------------------------------------------
    Because the IRS concluded that the management company 
provided all of the essential elements necessary for providing 
transportation by air and the owner relinquished possession, 
command, and control to the management company, the management 
company was determined to be providing taxable transportation 
to the owner and was therefore required to collect the 
appropriate Federal excise tax from the aircraft owner and 
remit it to the IRS.
    In a 2015 opinion,\10\ an Ohio district court held that the 
existing revenue rulings (in effect for the tax period April 1, 
2005, through June 30, 2009, the period that was the subject of 
the litigation) regarding the possession, command and control 
test failed to provide precise and not speculative notice of a 
collection obligation as it related to whole-aircraft 
management contracts.\11\ As a result, the court ruled as a 
matter of law that because precise and not speculative notice 
was not received, the aircraft management company plaintiff did 
not have a collection obligation with respect to the Federal 
excise tax on payments received for whole-aircraft management 
services.
---------------------------------------------------------------------------
    \10\Netjets Large Aircraft Inc. v. United States, 116 A.F.T.R. 2d. 
2015-6776 (S.D. Ohio, 2015).
    \11\The district court held that such notice is required to persons 
having a deputy tax collection obligation under the rationale of the 
Supreme Court's holding in Central Illinois Public Service Company v. 
United States, 435 U.S. 21 (1978).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the ticket tax should not be 
levied on amounts paid for aircraft management services when 
the management company is providing such services with respect 
to an aircraft owner's own aircraft. The Committee believes 
that establishing a bright-line ownership test will provide the 
necessary clarity to taxpayers and the IRS as to whether any 
such payments fall within the scope of amounts paid for taxable 
transportation.

                        EXPLANATION OF PROVISION

    The provision exempts certain payments related to the 
management and maintenance of aircraft from the Federal excise 
taxes imposed on transportation of persons and property.
    Exempt payments are those amounts paid by an aircraft owner 
for management services related to maintenance and support of 
the aircraft or flights on the owner's aircraft. Applicable 
services include support activities related to the aircraft 
itself, such as its storage, maintenance, and refueling, and 
those related to its operation, such as the hiring and training 
of pilots and crew, as well as administrative services such as 
scheduling, flight planning, weather forecasting, and 
establishing and complying with safety standards.
    Payments for flight services are exempt only to the extent 
that they are attributable to flights on an aircraft owner's 
own aircraft.\12\ Thus, if an aircraft owner makes a payment to 
a management company for the provision of a pilot and the pilot 
provides his services on the aircraft owner's aircraft, such 
payment is not subject to Federal excise tax. However, if the 
pilot provides his services to the aircraft owner on an 
aircraft other than the aircraft owner's (for instance, on an 
aircraft that is part of a fleet of aircraft available for 
third-party charter services), then such payment is subject to 
Federal excise tax.
---------------------------------------------------------------------------
    \12\The provision does not define ``aircraft owner,'' but the 
intent of the provision is to incorporate common law definitions of tax 
ownership into such a determination. Thus, under the provision, in 
order to be considered an ``aircraft owner'' with respect to an 
individual aircraft, an owner must generally, as an individual owner or 
together with co-owners, possess the meaningful benefits and burdens of 
ownership see, e.g., Frank Lyon Co. v. U.S., 435 U.S. 561, 572-73 
(1978); Altria Group, Inc. v. U.S., 658 F.3d 276, 285 (2d Cir. 2011); 
Wells Fargo & Co. v. U.S., 641 F.3d 1319, 1325 (Fed. Cir. 2011); Torres 
v. Commissioner, 88 T.C. 702, 720 (1987); see also Conference Report to 
accompany H.R. 4170, Deficit Reduction Act of 1984, H.R. Rep. No. 98-
432 pt. 2, March 5, 1984, pp. 789, 806 (``In general, for Federal 
income tax purposes, the owner of property must possess meaningful 
burdens and benefits of ownership.''). In applying the meaningful 
benefits and burdens standard, aircraft ownership should be determined 
by reference to whether the incidents of ownership are present, which 
include: (1) legal or beneficial title to the aircraft, Grodt & McKay 
Realty, Inc. v. Commissioner, 77 T.C. 1221, 1236-37 (1981); Salty Brine 
I, Ltd. v. U.S., 761 F.3d 484, 492 (5th Cir. 2014); (2) the right of 
possession of the aircraft, Keith v. Commissioner, 115 T.C. 605, 611 
(2000); (3) an intent to acquire equity in the aircraft, Coleman v. 
Commissioner, 16 F.3d 821, 828 (7th Cir. 1994); (4) the risk of loss or 
damage to the aircraft, Upham v. Commissioner, 923 F.2d 1328, 1334 (8th 
Cir. 1991); (5) the responsibility to pay for the aircraft's 
maintenance and operating costs, Rev. Rul. 79-264, 1979-2 C.B. 92, 
1979; (6) a duty to pay taxes levied on the aircraft, Ibid.; (7) the 
risk of destruction or loss of the aircraft, Ibid.; and (8) the risk of 
diminution in value of the aircraft from depreciation. Ibid.
    Under this standard, which H.R. 3608 does not modify, ownership of 
stock in a commercial airline does not qualify an individual as an 
``aircraft owner'' of a commercial airline's aircraft, and amounts paid 
for transportation on such flights remain subject to the tax imposed by 
section 4261. Similarly, participation in a fractional ownership 
program does not constitute ``aircraft ownership'' for under this 
standard. Amounts paid to a fractional ownership aircraft program for 
transportation are exempt from the ticket tax imposed under section 
4261(j) if the aircraft is operating under subpart K of part 91 of 
title 14 of the Code of Federal Regulations (``subpart K''), and 
flights under such a program are subject to both the fuel tax levied on 
non-commercial aviation and an additional fuel surtax under section 
4043. A property arrangement that seeks to circumvent the surtax by 
operating outside of subpart K, such as by allowing an individual the 
right to use any airplane in a fleet of aircraft through an aircraft 
interchange agreement or through the holding of nominal shares of a 
fleet of aircraft, does not reflect tax ownership of the aircraft flown 
upon, and consequently does not constitute ownership for the purposes 
of the provision.
---------------------------------------------------------------------------
    The provision provides a pro rata allocation rule in the 
event that a monthly payment made to a management company is 
allocated in part to exempt services and flights on the 
aircraft owner's aircraft and in part to flights on aircraft 
other than the aircraft owner's. In such a circumstance, 
Federal excise tax must be collected on that portion of the 
payment attributable to flights on aircraft not owned by the 
aircraft owner.
    Under the provision, a lessee of an aircraft is considered 
an aircraft owner provided that the lease is not a 
``disqualified lease.'' A disqualified lease is any lease of an 
aircraft from a management company (or a related party) for a 
term of 31 days or less.
    In the case of an aircraft owner that is an entity wholly-
owned by a person (such as in the case of a limited liability 
company wholly-owned by an individual), an amount paid by the 
owner of the entity to an aircraft management company shall be 
considered as paid directly by the aircraft owner for purposes 
of determining the exemption from Federal excise tax imposed on 
amounts paid for transportation by air. This is meant to 
accommodate individuals who, for insurance or other business 
reasons, own aircraft through a wholly-owned business entity.

                             EFFECTIVE DATE

    The provision is effective for amounts paid after the date 
of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 3608, a bill to amend the Internal 
Revenue Code of 1986 to exempt amounts paid for aircraft 
management services from the excise taxes imposed on 
transportation by air, on July 13, 2016.
    The bill, H.R. 3608, as amended, was ordered favorably 
reported to the House of Representatives by a voice vote (with 
a quorum being present).

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 3608, as 
reported.
    The provision is estimated to reduce Federal fiscal year 
budget receipts by less than $500,000 for the period 2017-2026.
    Pursuant to clause 8 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 gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

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 there are no new or 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, July 19, 2016.
Hon. Kevin Brady,
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 HR. 3608, a bill to 
amend the Internal Revenue Code of 1986 to exempt amounts paid 
for aircraft management services from the excise taxes imposed 
on transportation by air.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Peter 
Huether.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 3608--A bill to amend the Internal Revenue Code of 1986 to exempt 
        amounts paid for aircraft management services from the excise 
        taxes imposed on transportation by air

    H.R. 3608 would amend the Internal Revenue Code to exempt 
certain aircraft management fees from the excise taxes imposed 
on transportation of persons and property by air. The exemption 
would apply to certain fees charged for maintenance and support 
by a firm that manages a client's personal aircraft. The fees 
that would be excluded from taxation include those for storage 
and maintenance of the aircraft, for hiring and training of 
pilots, and for flight planning and other administrative 
services.
    Enacting H.R. 3608 would reduce revenues; therefore, pay-
as-you-go procedures apply. However, the staff of the Joint 
Committee on Taxation (JCT) estimates that enacting the bill 
would reduce revenues by an insignificant amount, less than 
$500,000, over the 2016-2026 period.
    CBO and JCT estimate that enacting the bill would not 
increase net direct spending in any of the four 10-year periods 
beginning in 2027, and would increase on-budget deficits over 
those periods by very small amounts.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Peter Huether. 
The estimate was approved by Mark Booth, Unit Chief, Revenue 
Estimating.

     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 was as a result of the 
Committee's review of the provisions of H.R. 3608 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        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. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

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

                       E. Tax Complexity Analysis

    The following statement is made pursuant to clause 3(h)(1) 
of rule XIII of the Rules of the House of Representatives. 
Section 4022(b) of the Internal Revenue Service Restructuring 
and Reform Act of 1998 (``IRS Reform Act'') requires the staff 
of the Joint Committee on Taxation (in consultation with the 
Internal Revenue Service and the Treasury Department) 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 of 
1986 and has widespread applicability to individuals or small 
businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, 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 Internal Revenue 
Code of 1986 and that have ``widespread applicability'' to 
individuals or small businesses, within the meaning of the 
rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(g)(2) of H. Res. 5 (114th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes: (1) a program of the Federal 
Government known to be duplicative of another Federal program, 
(2) a program included in any report from the Government 
Accountability Office to Congress pursuant to section 21 of 
Public Law 111-139, or (3) a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169).

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (114th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

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


  A. Text of Existing Law Amended or Repealed by the Bill, as Reported

    In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 33--FACILITIES AND SERVICES

           *       *       *       *       *       *       *


Subchapter C--Transportation by Air

           *       *       *       *       *       *       *


PART I--PERSONS

           *       *       *       *       *       *       *



SEC. 4261. IMPOSITION OF TAX.

  (a) In General.--There is hereby imposed on the amount paid 
for taxable transportation of any person a tax equal to 7.5 
percent of the amount so paid.
  (b) Domestic Segments of Taxable Transportation.--
          (1) In general.--There is hereby imposed on the 
        amount paid for each domestic segment of taxable 
        transportation by air a tax in the amount determined in 
        accordance with the following table for the period in 
        which the segment begins:


 
------------------------------------------------------------------------
   In the case of segments beginning:              The tax is:
------------------------------------------------------------------------
After September 30, 1997, and before     $1.00
 October 1, 1998
After September 30, 1998, and before     $2.00
 October 1, 1999
After September 30, 1999, and before     $2.25
 January 1, 2000
During 2000                              $2.50
During 2001                              $2.75
During 2002 or thereafter                $3.00.
------------------------------------------------------------------------

          (2) Domestic segment.--For purposes of this section, 
        the term ``domestic segment'' means any segment 
        consisting of 1 takeoff and 1 landing and which is 
        taxable transportation described in section 4262(a)(1).
          (3) Changes in segments by reason of rerouting.--If--
                  (A) transportation is purchased between 2 
                locations on specified flights, and
                  (B) there is a change in the route taken 
                between such 2 locations which changes the 
                number of domestic segments, but there is no 
                change in the amount charged for such 
                transportation,
        the tax imposed by paragraph (1) shall be determined 
        without regard to such change in route.
  (c) Use of International Travel Facilities.--
          (1) In general.--There is hereby imposed a tax of 
        $12.00 on any amount paid (whether within or without 
        the United States) for any transportation of any person 
        by air, if such transportation begins or ends in the 
        United States.
          (2) Exception for transportation entirely taxable 
        under subsection (a).--This subsection shall not apply 
        to any transportation all of which is taxable under 
        subsection (a) (determined without regard to sections 
        4281 and 4282).
          (3) Special rule for Alaska and Hawaii.--In any case 
        in which the tax imposed by paragraph (1) applies to a 
        domestic segment beginning or ending in Alaska or 
        Hawaii, such tax shall apply only to departures and 
        shall be at the rate of $6.
  (d) By Whom Paid.--Except as provided in section 4263(a), the 
taxes imposed by this section shall be paid by the person 
making the payment subject to the tax.
  (e) Special Rules.--
          (1) Segments to and from rural airports.--
                  (A) Exception from segment tax.--The tax 
                imposed by subsection (b)(1) shall not apply to 
                any domestic segment beginning or ending at an 
                airport which is a rural airport for the 
                calendar year in which such segment begins or 
                ends (as the case may be).
                  (B) Rural airport.--For purposes of this 
                paragraph, the term ``rural airport'' means, 
                with respect to any calendar year, any airport 
                if--
                          (i) there were fewer than 100,000 
                        commercial passengers departing by air 
                        (in the case of any airport described 
                        in clause (ii)(III), on flight segments 
                        of at least 100 miles) during the 
                        second preceding calendar year from 
                        such airport, and
                          (ii) such airport--
                                  (I) is not located within 75 
                                miles of another airport which 
                                is not described in clause (i),
                                  (II) is receiving essential 
                                air service subsidies as of the 
                                date of the enactment of this 
                                paragraph, or
                                  (III) is not connected by 
                                paved roads to another airport.
          (2) Amounts paid outside the United States.--In the 
        case of amounts paid outside the United States for 
        taxable transportation, the taxes imposed by 
        subsections (a) and (b) shall apply only if such 
        transportation begins and ends in the United States.
          (3) Amounts paid for right to award free or reduced 
        rate air transportation.--
                  (A) In general.--Any amount paid (and the 
                value of any other benefit provided) to an air 
                carrier (or any related person) for the right 
                to provide mileage awards for (or other 
                reductions in the cost of) any transportation 
                of persons by air shall be treated for purposes 
                of subsection (a) as an amount paid for taxable 
                transportation, and such amount shall be 
                taxable under subsection (a) without regard to 
                any other provision of this subchapter.
                  (B) Controlled group.--For purposes of 
                subparagraph (A), a corporation and all wholly 
                owned subsidiaries of such corporation shall be 
                treated as 1 corporation.
                  (C) Regulations.--The Secretary shall 
                prescribe rules which reallocate items of 
                income, deduction, credit, exclusion, or other 
                allowance to the extent necessary to prevent 
                the avoidance of tax imposed by reason of this 
                paragraph. The Secretary may prescribe rules 
                which exclude from the tax imposed by 
                subsection (a) amounts attributable to mileage 
                awards which are used other than for 
                transportation of persons by air.
          (4) Inflation adjustment of dollar rates of tax.--
                  (A) In general.--In the case of taxable 
                events in a calendar year after the last 
                nonindexed year, the $3.00 amount contained in 
                subsection (b) and each dollar amount contained 
                in subsection (c) shall be increased by an 
                amount equal to--
                          (i) such dollar amount, multiplied by
                          (ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for 
                        such calendar year by substituting the 
                        year before the last nonindexed year 
                        for ``calendar year 1992'' in 
                        subparagraph (B) thereof.
                If any increase determined under the preceding 
                sentence is not a multiple of 10 cents, such 
                increase shall be rounded to the nearest 
                multiple of 10 cents.
                  (B) Last nonindexed year.--For purposes of 
                subparagraph (A), the last nonindexed year is--
                          (i) 2002 in the case of the $3.00 
                        amount contained in subsection (b), and
                          (ii) 1998 in the case of the dollar 
                        amounts contained in subsection (c).
                  (C) Taxable event.--For purposes of 
                subparagraph (A), in the case of the tax 
                imposed by subsection (b), the beginning of the 
                domestic segment shall be treated as the 
                taxable event.
                  (D) Special rule for amounts paid for 
                domestic segments beginning after 2002.--If an 
                amount is paid during a calendar year for a 
                domestic segment beginning in a later calendar 
                year, then the rate of tax under subsection (b) 
                on such amount shall be the rate in effect for 
                the calendar year in which such amount is paid.
  (f) Exemption for Certain Uses.--No tax shall be imposed 
under subsection (a) or (b) on air transportation--
          (1) by helicopter for the purpose of transporting 
        individuals, equipment, or supplies in the exploration 
        for, or the development or removal of, hard minerals, 
        oil, or gas, or
          (2) by helicopter or by fixed-wing aircraft for the 
        purpose of the planting, cultivation, cutting, or 
        transportation of, or caring for, trees (including 
        logging operations),
but only if the helicopter or fixed-wing aircraft does not take 
off from, or land at, a facility eligible for assistance under 
the Airport and Airway Development Act of 1970, or otherwise 
use services provided pursuant to section 44509 or 44913(b) or 
subchapter I of chapter 471 of title 49, United States Code, 
during such use. In the case of helicopter transportation 
described in paragraph (1), this subsection shall be applied by 
treating each flight segment as a distinct flight.
  (g) Exemption for Air Ambulances Providing Certain Emergency 
Medical Transportation.--No tax shall be imposed under this 
section or section 4271 on any air transportation for the 
purpose of providing emergency medical services--
          (1) by helicopter, or
          (2) by a fixed-wing aircraft equipped for and 
        exclusively dedicated on that flight to acute care 
        emergency medical services.
  (h) Exemption for Skydiving Uses.--No tax shall be imposed by 
this section or section 4271 on any air transportation 
exclusively for the purpose of skydiving.
  (i) Exemption for Seaplanes.--No tax shall be imposed by this 
section or section 4271 on any air transportation by a seaplane 
with respect to any segment consisting of a takeoff from, and a 
landing on, water, but only if the places at which such takeoff 
and landing occur have not received and are not receiving 
financial assistance from the Airport and Airways Trust Fund.
  (j) Exemption for Aircraft in Fractional Ownership Aircraft 
Programs.--No tax shall be imposed by this section or section 
4271 on any air transportation if tax is imposed under section 
4043 with respect to the fuel used in such transportation. This 
subsection shall not apply after July 15, 2016.
  (k) Application of Taxes.--
          (1) In general.--The taxes imposed by this section 
        shall apply to--
                  (A) transportation beginning during the 
                period--
                          (i) beginning on the 7th day after 
                        the date of the enactment of the 
                        Airport and Airway Trust Fund Tax 
                        Reinstatement Act of 1997, and
                          (ii) ending on July 15, 2016, and (B) 
                        amounts paid during such period for 
                        transportation beginning after such 
                        period.
          (2) Refunds.--If, as of the date any transportation 
        begins, the taxes imposed by this section would not 
        have applied to such transportation if paid for on such 
        date, any tax paid under paragraph (1)(B) with respect 
        to such transportation shall be treated as an 
        overpayment.

           *       *       *       *       *       *       *


      B. Changes in Existing Law Proposed by the Bill, as Reported

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed 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 italics, existing law in 
which no change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e)(1)(B) 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 (new matter 
is printed in italics and existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 33--FACILITIES AND SERVICES

           *       *       *       *       *       *       *


Subchapter C--Transportation by Air

           *       *       *       *       *       *       *


PART I--PERSONS

           *       *       *       *       *       *       *


SEC. 4261. IMPOSITION OF TAX.

  (a) In General.--There is hereby imposed on the amount paid 
for taxable transportation of any person a tax equal to 7.5 
percent of the amount so paid.
  (b) Domestic Segments of Taxable Transportation.--
          (1) In general.--There is hereby imposed on the 
        amount paid for each domestic segment of taxable 
        transportation by air a tax in the amount determined in 
        accordance with the following table for the period in 
        which the segment begins:


 
------------------------------------------------------------------------
   In the case of segments beginning:              The tax is:
------------------------------------------------------------------------
After September 30, 1997, and before     $1.00
 October 1, 1998
After September 30, 1998, and before     $2.00
 October 1, 1999
After September 30, 1999, and before     $2.25
 January 1, 2000
During 2000                              $2.50
During 2001                              $2.75
During 2002 or thereafter                $3.00.
------------------------------------------------------------------------

          (2) Domestic segment.--For purposes of this section, 
        the term ``domestic segment'' means any segment 
        consisting of 1 takeoff and 1 landing and which is 
        taxable transportation described in section 4262(a)(1).
          (3) Changes in segments by reason of rerouting.--If--
                  (A) transportation is purchased between 2 
                locations on specified flights, and
                  (B) there is a change in the route taken 
                between such 2 locations which changes the 
                number of domestic segments, but there is no 
                change in the amount charged for such 
                transportation,
        the tax imposed by paragraph (1) shall be determined 
        without regard to such change in route.
  (c) Use of International Travel Facilities.--
          (1) In general.--There is hereby imposed a tax of 
        $12.00 on any amount paid (whether within or without 
        the United States) for any transportation of any person 
        by air, if such transportation begins or ends in the 
        United States.
          (2) Exception for transportation entirely taxable 
        under subsection (a).--This subsection shall not apply 
        to any transportation all of which is taxable under 
        subsection (a) (determined without regard to sections 
        4281 and 4282).
          (3) Special rule for Alaska and Hawaii.--In any case 
        in which the tax imposed by paragraph (1) applies to a 
        domestic segment beginning or ending in Alaska or 
        Hawaii, such tax shall apply only to departures and 
        shall be at the rate of $6.
  (d) By Whom Paid.--Except as provided in section 4263(a), the 
taxes imposed by this section shall be paid by the person 
making the payment subject to the tax.
  (e) Special Rules.--
          (1) Segments to and from rural airports.--
                  (A) Exception from segment tax.--The tax 
                imposed by subsection (b)(1) shall not apply to 
                any domestic segment beginning or ending at an 
                airport which is a rural airport for the 
                calendar year in which such segment begins or 
                ends (as the case may be).
                  (B) Rural airport.--For purposes of this 
                paragraph, the term ``rural airport'' means, 
                with respect to any calendar year, any airport 
                if--
                          (i) there were fewer than 100,000 
                        commercial passengers departing by air 
                        (in the case of any airport described 
                        in clause (ii)(III), on flight segments 
                        of at least 100 miles) during the 
                        second preceding calendar year from 
                        such airport, and
                          (ii) such airport--
                                  (I) is not located within 75 
                                miles of another airport which 
                                is not described in clause (i),
                                  (II) is receiving essential 
                                air service subsidies as of the 
                                date of the enactment of this 
                                paragraph, or
                                  (III) is not connected by 
                                paved roads to another airport.
          (2) Amounts paid outside the United States.--In the 
        case of amounts paid outside the United States for 
        taxable transportation, the taxes imposed by 
        subsections (a) and (b) shall apply only if such 
        transportation begins and ends in the United States.
          (3) Amounts paid for right to award free or reduced 
        rate air transportation.--
                  (A) In general.--Any amount paid (and the 
                value of any other benefit provided) to an air 
                carrier (or any related person) for the right 
                to provide mileage awards for (or other 
                reductions in the cost of) any transportation 
                of persons by air shall be treated for purposes 
                of subsection (a) as an amount paid for taxable 
                transportation, and such amount shall be 
                taxable under subsection (a) without regard to 
                any other provision of this subchapter.
                  (B) Controlled group.--For purposes of 
                subparagraph (A), a corporation and all wholly 
                owned subsidiaries of such corporation shall be 
                treated as 1 corporation.
                  (C) Regulations.--The Secretary shall 
                prescribe rules which reallocate items of 
                income, deduction, credit, exclusion, or other 
                allowance to the extent necessary to prevent 
                the avoidance of tax imposed by reason of this 
                paragraph. The Secretary may prescribe rules 
                which exclude from the tax imposed by 
                subsection (a) amounts attributable to mileage 
                awards which are used other than for 
                transportation of persons by air.
          (4) Inflation adjustment of dollar rates of tax.--
                  (A) In general.--In the case of taxable 
                events in a calendar year after the last 
                nonindexed year, the $3.00 amount contained in 
                subsection (b) and each dollar amount contained 
                in subsection (c) shall be increased by an 
                amount equal to--
                          (i) such dollar amount, multiplied by
                          (ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for 
                        such calendar year by substituting the 
                        year before the last nonindexed year 
                        for ``calendar year 1992'' in 
                        subparagraph (B) thereof.
                If any increase determined under the preceding 
                sentence is not a multiple of 10 cents, such 
                increase shall be rounded to the nearest 
                multiple of 10 cents.
                  (B) Last nonindexed year.--For purposes of 
                subparagraph (A), the last nonindexed year is--
                          (i) 2002 in the case of the $3.00 
                        amount contained in subsection (b), and
                          (ii) 1998 in the case of the dollar 
                        amounts contained in subsection (c).
                  (C) Taxable event.--For purposes of 
                subparagraph (A), in the case of the tax 
                imposed by subsection (b), the beginning of the 
                domestic segment shall be treated as the 
                taxable event.
                  (D) Special rule for amounts paid for 
                domestic segments beginning after 2002.--If an 
                amount is paid during a calendar year for a 
                domestic segment beginning in a later calendar 
                year, then the rate of tax under subsection (b) 
                on such amount shall be the rate in effect for 
                the calendar year in which such amount is paid.
          (5) Amounts paid for aircraft management services.--
                  (A) In general.--No tax shall be imposed by 
                this section or section 4271 on any amounts 
                paid by an aircraft owner for aircraft 
                management services related to--
                          (i) maintenance and support of the 
                        aircraft owner's aircraft; or
                          (ii) flights on the aircraft owner's 
                        aircraft.
                  (B) Aircraft management services.--For 
                purposes of subparagraph (A), the term 
                ``aircraft management services'' includes 
                assisting an aircraft owner with administrative 
                and support services, such as scheduling, 
                flight planning, and weather forecasting; 
                obtaining insurance; maintenance, storage and 
                fueling of aircraft; hiring, training, and 
                provision of pilots and crew; establishing and 
                complying with safety standards; or such other 
                services necessary to support flights operated 
                by an aircraft owner.
                  (C) Lessee treated as aircraft owner.--
                          (i) In general.--For purposes of this 
                        paragraph, the term ``aircraft owner'' 
                        includes a person who leases the 
                        aircraft other than under a 
                        disqualified lease.
                          (ii) Disqualified lease.--For 
                        purposes of clause (i), the term 
                        ``disqualified lease'' means a lease 
                        from a person providing aircraft 
                        management services with respect to 
                        such aircraft (or a related person 
                        (within the meaning of section 
                        465(b)(3)(C)) to the person providing 
                        such services), if such lease is for a 
                        term of 31 days or less.
                  (D) Pro rata allocation.--If any amount paid 
                to a person represents in part an amount paid 
                for services not described in subparagraph (A), 
                the tax imposed by subsection (a), if 
                applicable to such amount, shall be applied to 
                such payment on a pro rata basis.
                  (E) Certain payments treated as made by 
                aircraft owner.--In the case of an aircraft 
                owner which is wholly-owned by another person, 
                amounts paid by such other person on behalf of 
                such aircraft owner shall be treated for 
                purposes of this paragraph as having been paid 
                directly by such aircraft owner.
  (f) Exemption for Certain Uses.--No tax shall be imposed 
under subsection (a) or (b) on air transportation--
          (1) by helicopter for the purpose of transporting 
        individuals, equipment, or supplies in the exploration 
        for, or the development or removal of, hard minerals, 
        oil, or gas, or
          (2) by helicopter or by fixed-wing aircraft for the 
        purpose of the planting, cultivation, cutting, or 
        transportation of, or caring for, trees (including 
        logging operations),
but only if the helicopter or fixed-wing aircraft does not take 
off from, or land at, a facility eligible for assistance under 
the Airport and Airway Development Act of 1970, or otherwise 
use services provided pursuant to section 44509 or 44913(b) or 
subchapter I of chapter 471 of title 49, United States Code, 
during such use. In the case of helicopter transportation 
described in paragraph (1), this subsection shall be applied by 
treating each flight segment as a distinct flight.
  (g) Exemption for Air Ambulances Providing Certain Emergency 
Medical Transportation.--No tax shall be imposed under this 
section or section 4271 on any air transportation for the 
purpose of providing emergency medical services--
          (1) by helicopter, or
          (2) by a fixed-wing aircraft equipped for and 
        exclusively dedicated on that flight to acute care 
        emergency medical services.
  (h) Exemption for Skydiving Uses.--No tax shall be imposed by 
this section or section 4271 on any air transportation 
exclusively for the purpose of skydiving.
  (i) Exemption for Seaplanes.--No tax shall be imposed by this 
section or section 4271 on any air transportation by a seaplane 
with respect to any segment consisting of a takeoff from, and a 
landing on, water, but only if the places at which such takeoff 
and landing occur have not received and are not receiving 
financial assistance from the Airport and Airways Trust Fund.
  (j) Exemption for Aircraft in Fractional Ownership Aircraft 
Programs.--No tax shall be imposed by this section or section 
4271 on any air transportation if tax is imposed under section 
4043 with respect to the fuel used in such transportation. This 
subsection shall not apply after July 15, 2016.
  (k) Application of Taxes.--
          (1) In general.--The taxes imposed by this section 
        shall apply to--
                  (A) transportation beginning during the 
                period--
                          (i) beginning on the 7th day after 
                        the date of the enactment of the 
                        Airport and Airway Trust Fund Tax 
                        Reinstatement Act of 1997, and
                          (ii) ending on July 15, 2016, and (B) 
                        amounts paid during such period for 
                        transportation beginning after such 
                        period.
          (2) Refunds.--If, as of the date any transportation 
        begins, the taxes imposed by this section would not 
        have applied to such transportation if paid for on such 
        date, any tax paid under paragraph (1)(B) with respect 
        to such transportation shall be treated as an 
        overpayment.

           *       *       *       *       *       *       *


                         VII. ADDITIONAL VIEWS

    There are a great number of important tax priorities that 
the Committee should consider--like legislation to stem the 
tide of inversions, and legislation to fix errors made when the 
Congress considered expiring tax legislation at the end of last 
year--but the July 13th markup did not consider any of those 
important priorities. Indeed, not even a month ago, Republicans 
released a very broad brush ``Blueprint'' outlining their tax 
priorities, but even that isn't being considered. In fact, this 
provision is nowhere to be found in the Republicans' tax reform 
Blueprint, which calls into question the seriousness of the 
Committee's efforts with respect to consideration of this bill.
    In the few days before the Congress leaves for the August 
District work period, the Republicans have chosen to ignore 
these important items, and instead decided to use the 
Committee's precious time to move forward a very narrowly 
targeted bill. The Committee has not heard testimony from 
experts at IRS, Treasury, the Federal Aviation Administration, 
or any stakeholders to discuss the merits of this bill, whether 
our current aviation tax system, a patchwork of excise taxes on 
tickets, varying fuel taxes, and certain per-journey fees, is 
functioning as it should. It is correct that this bill was 
mentioned at a Subcommittee Member Day hearing in May by its 
sponsor, but a deeper examination of H.R. 3608 and how the 
provisions in the bill fit into our larger aviation tax system 
has been rejected by the Majority.
    It is disappointing that the Chairman did not select for 
consideration legislation that has enjoys broad bipartisan 
support in both the House and the Senate tax-writing 
Committees. The Consolidated Appropriations Act mistakenly 
omitted for long-term extension certain renewable energy 
technologies; this would be the perfect opportunity to correct 
that mistake. Yet instead the Committee considered one narrow 
bill that is targeted to a small subset of taxpayers that 
engage in the business of providing aircraft owners with 
management services. There are many taxpayers--hardworking 
Americans--that are affected by provisions that the Committee 
should focus its time and its work on, and instead we focus on 
taxpayers that own private planes.
    For these reasons, Democrats have many reservations about 
this legislation.
                                            Sander M. Levin
                                                    Ranking Member.

                                  [all]