    [United States Statutes at Large, Volume 117, 108th Congress, 1st Session]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    117 STAT. 752

    Public Law 108-27
    108th Congress

    An Act

    To provide for reconciliation pursuant to section 201 of the concurrent
    resolution on the budget for fiscal year 2004. [NOTE: May 28,
    2003 -  [H.R. 2]]

    Be it enacted by the Senate and House of Representatives of the
    United States of America in Congress assembled, [NOTE: Jobs and Growth
    Tax Relief Reconciliation Act of 2003.]

    SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

    (a) Short Title.--This [NOTE: 26 USC 1 note.] Act may be cited as
    the ``Jobs and Growth Tax Relief Reconciliation Act of 2003''.

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

    Sec. 1. Short title; references; table of contents.

    TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS

    Sec. 101. Acceleration of increase in child tax credit.
    Sec. 102. Acceleration of 15-percent individual income tax rate bracket
    expansion for married taxpayers filing joint returns.
    Sec. 103. Acceleration of increase in standard deduction for married
    taxpayers filing joint returns.
    Sec. 104. Acceleration of 10-percent individual income tax rate bracket
    expansion.
    Sec. 105. Acceleration of reduction in individual income tax rates.
    Sec. 106. Minimum tax relief to individuals.
    Sec. 107. Application of EGTRRA sunset to this title.

    TITLE II--GROWTH INCENTIVES FOR BUSINESS

    Sec. 201. Increase and extension of bonus depreciation.
    Sec. 202. Increased expensing for small business.

    TITLE III--REDUCTION IN TAXES ON DIVIDENDS AND CAPITAL GAINS

    Sec. 301. Reduction in capital gains rates for individuals; repeal of 5-
    year holding period requirement.
    Sec. 302. Dividends of individuals taxed at capital gain rates.
    Sec. 303. Sunset of title.

    TITLE IV--TEMPORARY STATE FISCAL RELIEF

    Sec. 401. Temporary State fiscal relief.

    TITLE V--CORPORATE ESTIMATED TAX PAYMENTS FOR 2003

    Sec. 501. Time for payment of corporate estimated taxes.

    [[Page 753]]

    117 STAT. 753

    TITLE I--ACCELERATION OF CERTAIN PREVIOUSLY ENACTED TAX REDUCTIONS

    SEC. 101. ACCELERATION OF INCREASE IN CHILD TAX CREDIT.

    (a) In General.--The item relating to calendar years 2001 through
    2004 in the table contained in paragraph (2) of section 24(a) (relating
    to per child amount) [NOTE: 26 USC 24.] is amended to read as follows:

    ``2003 or 2004                                                 $1,000''.

    (b) Advance Payment of Portion of Increased Credit in 2003.--
    (1) In general.--Subchapter B of chapter 65 (relating to
    abatements, credits, and refunds) is amended by inserting after
    section 6428 the following new section:

    ``SEC. 6429. [NOTE: 26 USC 6429.] ADVANCE PAYMENT OF PORTION OF
    INCREASED CHILD CREDIT FOR 2003.

    ``(a) In General.--Each taxpayer who was allowed a credit under
    section 24 on the return for the taxpayer's first taxable year beginning
    in 2002 shall be treated as having made a payment against the tax
    imposed by chapter 1 for such taxable year in an amount equal to the
    child tax credit refund amount (if any) for such taxable year.
    ``(b) Child Tax Credit Refund Amount.--For purposes of this section,
    the child tax credit refund amount is the amount by which the aggregate
    credits allowed under part IV of subchapter A of chapter 1 for such
    first taxable year would have been increased if--
    ``(1) the per child amount under section 24(a)(2) for such
    year were $1,000,
    ``(2) only qualifying children (as defined in section 24(c))
    of the taxpayer for such year who had not attained age 17 as of
    December 31, 2003, were taken into account, and
    ``(3) section 24(d)(1)(B)(ii) did not apply.

    ``(c) Timing of Payments.--In the case of any overpayment
    attributable to this section, the Secretary shall, subject to the
    provisions of this title, refund or credit such overpayment as rapidly
    as possible and, to the extent practicable, before October 1, 2003. No
    refund or credit shall be made or allowed under this section after
    December 31, 2003.
    ``(d) Coordination With Child Tax Credit.--
    ``(1) In general.--The amount of credit which would (but for
    this subsection and section 26) be allowed under section 24 for
    the taxpayer's first taxable year beginning in 2003 shall be
    reduced (but not below zero) by the payments made to the
    taxpayer under this section. Any failure to so reduce the credit
    shall be treated as arising out of a mathematical or clerical
    error and assessed according to section 6213(b)(1).
    ``(2) Joint returns.--In the case of a payment under this
    section with respect to a joint return, half of such payment
    shall be treated as having been made to each individual filing
    such return.

    ``(e) No Interest.--No interest shall be allowed on any overpayment
    attributable to this section.''.

    [[Page 754]]

    117 STAT. 754

    (2) Clerical amendment.--The table of sections for
    subchapter B of chapter 65 is amended by adding at the end the
    following new item:

    ``Sec. 6429. Advance payment of portion of increased
    child credit for 2003.''.

    (c) Effective [NOTE: 26 USC 24 note.] Dates.--
    (1) In general.--Except [NOTE: Applicability.] as provided
    in paragraph (2), the amendments made by this section shall
    apply to taxable years beginning after December 31, 2002.
    (2) Subsection (b).--The amendments made by subsection (b)
    shall take effect on the date of the enactment of this Act.

    SEC. 102. ACCELERATION OF 15-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET
    EXPANSION FOR MARRIED TAXPAYERS FILING JOINT RETURNS.

    (a) In General.--The table contained in subparagraph (B) of section
    1(f )(8) (relating to applicable percentage) [NOTE: 26 USC 1.] is
    amended by inserting before the item relating to 2005 the following new
    item:

    ``2003 and 2004.............................  200''.

    (b) Conforming Amendments.--
    (1) Section 1(f)(8)(A) is amended by striking ``2004'' and
    inserting ``2002''.
    (2) Section 302(c) of the Economic Growth and Tax Relief
    Reconciliation Act of 2001 [NOTE: 26 USC 1 note.] is amended
    by striking ``2004'' and inserting ``2002''.

    (c) Effective Date.--The [NOTE: Applicability. 26 USC 1
    note.] amendments made by this section shall apply to taxable years
    beginning after December 31, 2002.

    SEC. 103. ACCELERATION OF INCREASE IN STANDARD DEDUCTION FOR MARRIED
    TAXPAYERS FILING JOINT RETURNS.

    (a) In General.--The table contained in paragraph (7) of section
    63(c) (relating to applicable percentage) is amended by inserting before
    the item relating to 2005 the following new item:

    ``2003 and 2004.............................  200''.

    (b) Conforming Amendment.--Section 301(d) of the Economic Growth and
    Tax Relief Reconciliation Act of 2001 [NOTE: 26 USC 1 note.] is
    amended by striking ``2004'' and inserting ``2002''.

    (c) Effective Date.--The [NOTE: Applicability. 26 USC 63
    note.] amendments made by this section shall apply to taxable years
    beginning after December 31, 2002.

    SEC. 104. ACCELERATION OF 10-PERCENT INDIVIDUAL INCOME TAX RATE BRACKET
    EXPANSION.

    (a) In General.--Clause (i) of section 1(i)(1)(B) (relating to the
    initial bracket amount) is amended by striking ``($12,000 in the case of
    taxable years beginning before January 1, 2008)'' and inserting
    ``($12,000 in the case of taxable years beginning after December 31,
    2004, and before January 1, 2008)''.
    (b) Inflation Adjustment.--Subparagraph (C) of section 1(i)(1) is
    amended to read as follows:
    ``(C) Inflation adjustment.--In prescribing the
    tables under subsection (f) which apply with respect to
    taxable years beginning in calendar years after 2000--
    ``(i) except as provided in clause (ii), the
    Secretary shall make no adjustment to the initial
    bracket amounts for any taxable year beginning
    before January 1, 2009,

    [[Page 755]]

    117 STAT. 755

    ``(ii) there shall be an adjustment under
    subsection (f) of such amounts which shall apply
    only to taxable years beginning in 2004, and such
    adjustment shall be determined under subsection
    (f)(3) by substituting `2002' for `1992' in
    subparagraph (B) thereof,
    ``(iii) the cost-of-living adjustment used in
    making adjustments to the initial bracket amounts
    for any taxable year beginning after December 31,
    2008, shall be determined under subsection (f)(3)
    by substituting `2007' for `1992' in subparagraph
    (B) thereof, and
    ``(iv) the adjustments under clauses (ii) and
    (iii) shall not apply to the amount referred to in
    subparagraph (B)(iii).
    If any amount after adjustment under the preceding
    sentence is not a multiple of $50, such amount shall be
    rounded to the next lowest multiple of $50.''.

    (c) Effective [NOTE: 26 USC 1 note.] Date.--
    (1) In general.--The [NOTE: Applicability.] amendments
    made by this section shall apply to taxable years beginning
    after December 31, 2002.
    (2) Tables for 2003.--The Secretary of the Treasury shall
    modify each table which has been prescribed under section 1(f)
    of the Internal Revenue Code of 1986 for taxable years beginning
    in 2003 and which relates to the amendment made by subsection
    (a) to reflect such amendment.

    SEC. 105. ACCELERATION OF REDUCTION IN INDIVIDUAL INCOME TAX RATES.

    (a) In General.--The table contained in paragraph (2) of section
    1(i) (relating to [NOTE: 26 USC 1.] reductions in rates after June 30,
    2001) is amended to read as follows:

    --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    The corresponding percentages shall be substituted for the following percentages:
    ``In the case of taxable years  -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    beginning during calendar year:    28%      31%      36%                                                                                               39.6%
    --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    2001............................   27.5%    30.5%    35.5%                                                                                              39.1%
    2002............................   27.0%    30.0%    35.0%                                                                                              38.6%
    2003 and thereafter.............   25.0%    28.0%    33.0%                                                                                             35.0%''.
    --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    (b) Effective Date.--The [NOTE: Applicability. 26 USC 1
    note.] amendment made by this section shall apply to taxable years
    beginning after December 31, 2002.

    SEC. 106. MINIMUM TAX RELIEF TO INDIVIDUALS.

    (a) In General.--
    (1) Subparagraph (A) of section 55(d)(1) is amended by
    striking ``$49,000 in the case of taxable years beginning in
    2001, 2002, 2003, and 2004'' and inserting ``$58,000 in the case
    of taxable years beginning in 2003 and 2004''.
    (2) Subparagraph (B) of section 55(d)(1) is amended by
    striking ``$35,750 in the case of taxable years beginning in
    2001, 2002, 2003, and 2004'' and inserting ``$40,250 in the case
    of taxable years beginning in 2003 and 2004''.

    (b) Effective Date.--The [NOTE: Applicability. 26 USC 55
    note.] amendments made by subsection (a) shall apply to taxable years
    beginning after December 31, 2002.

    SEC. 107. [NOTE: 26 USC 1 note.] APPLICATION OF EGTRRA SUNSET TO THIS
    TITLE.

    Each amendment made by this title shall be subject to title IX of
    the Economic Growth and Tax Relief Reconciliation Act of

    [[Page 756]]

    117 STAT. 756

    2001 to the same extent and in the same manner as the provision of such
    Act to which such amendment relates.

    TITLE II--GROWTH INCENTIVES FOR BUSINESS

    SEC. 201. INCREASE AND EXTENSION OF BONUS DEPRECIATION.

    (a) In General.--Section 168(k) (relating to [NOTE: 26 USC
    168.] special allowance for certain property acquired after September
    10, 2001, and before September 11, 2004) is amended by adding at the end
    the following new paragraph:
    ``(4) 50-percent bonus depreciation for certain property.--
    ``(A) In general.--In the case of 50-percent bonus
    depreciation property--
    ``(i) paragraph
    (1)(A) [NOTE: Applicability.] shall be applied
    by substituting `50 percent' for `30 percent', and
    ``(ii) except as provided in paragraph (2)(C),
    such property shall be treated as qualified
    property for purposes of this subsection.
    ``(B) 50-percent bonus depreciation property.--For
    purposes of this subsection, the term `50-percent bonus
    depreciation property' means property described in
    paragraph (2)(A)(i)--
    ``(i) the original use of which commences with
    the taxpayer after May 5, 2003,
    ``(ii) which is acquired by the taxpayer after
    May 5, 2003, and before January 1, 2005, but only
    if no written binding contract for the acquisition
    was in effect before May 6, 2003, and
    ``(iii) which is placed in service by the
    taxpayer before January 1, 2005, or, in the case
    of property described in paragraph (2)(B) (as
    modified by subparagraph (C) of this paragraph),
    before January 1, 2006.
    ``(C) Special rules.--
    Rules [NOTE: Applicability.] similar to the rules of
    subparagraphs (B) and (D) of paragraph (2) shall apply
    for purposes of this paragraph; except that references
    to September 10, 2001, shall be treated as references to
    May 5, 2003.
    ``(D) Automobiles.--Paragraph
    (2)(E) [NOTE: Applicability.] shall be applied by
    substituting `$7,650' for `$4,600' in the case of 50-
    percent bonus depreciation property.
    ``(E) Election of 30-percent bonus.--If a taxpayer
    makes an election under this subparagraph with respect
    to any class of property for any taxable year,
    subparagraph (A)(i) shall not apply to all property in
    such class placed in service during such taxable
    year.''.

    (b) Extension of Certain Dates for 30-Percent Bonus Depreciation
    Property.--
    (1) Portion of basis taken into account.--
    (A) Subparagraphs (B)(ii) and (D)(i) of section
    168(k)(2) are each amended by striking ``September 11,
    2004'' each place it appears in the text and inserting
    ``January 1, 2005''.

    [[Page 757]]

    117 STAT. 757

    (B) Clause (ii) [NOTE: 26 USC 168.] of section
    168(k)(2)(B) is amended by striking ``pre-september 11,
    2004'' in the heading and inserting ``pre-january 1,
    2005''.
    (2) Acquisition date.--Clause (iii) of section 168(k)(2)(A)
    is amended by striking ``September 11, 2004'' each place it
    appears and inserting ``January 1, 2005''.
    (3) Election.--Clause (iii) [NOTE: Applicability.] of
    section 168(k)(2)(C) is amended by adding at the end the
    following: ``The preceding sentence shall be applied separately
    with respect to property treated as qualified property by
    paragraph (4) and other qualified property.''.

    (c) Conforming Amendments.--
    (1) The subsection heading for section 168(k) is amended by
    striking ``September 11, 2004'' and inserting ``January 1,
    2005''.
    (2) The heading for clause (i) of section 1400L(b)(2)(C) is
    amended by striking ``30-percent additional allowance property''
    and inserting ``Bonus depreciation property under section
    168(k)''.

    (d) Effective Date.--The [NOTE: Applicability. 26 USC 168
    note.] amendments made by this section shall apply to taxable years
    ending after May 5, 2003.

    SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS.

    (a) In General.--Paragraph (1) of section 179(b) (relating to dollar
    limitation) is amended to read as follows:
    ``(1) Dollar limitation.--The aggregate cost which may be
    taken into account under subsection (a) for any taxable year
    shall not exceed $25,000 ($100,000 in the case of taxable years
    beginning after 2002 and before 2006).''.

    (b) Increase in Qualifying Investment at Which Phaseout Begins.--
    Paragraph (2) of section 179(b) (relating to reduction in limitation) is
    amended by inserting ``($400,000 in the case of taxable years beginning
    after 2002 and before 2006)'' after ``$200,000''.
    (c) Off-the-Shelf Computer Software.--Paragraph (1) of section
    179(d) (defining section 179 property) is amended to read as follows:
    ``(1) Section 179 property.--For purposes of this section,
    the term `section 179 property' means property--
    ``(A) which is--
    ``(i) tangible property (to which section 168
    applies), or
    ``(ii) computer software (as defined in
    section 197(e)(3)(B)) which is described in
    section 197(e)(3)(A)(i), to which section 167
    applies, and which is placed in service in a
    taxable year beginning after 2002 and before 2006,
    ``(B) which is section 1245 property (as defined in
    section 1245(a)(3)), and
    ``(C) which is acquired by purchase for use in the
    active conduct of a trade or business.
    Such term shall not include any property described in section
    50(b) and shall not include air conditioning or heating
    units.''.

    (d) Adjustment of Dollar Limit and Phaseout Threshold for
    Inflation.--Subsection (b) of section 179 (relating to limitations) is
    amended by adding at the end the following new paragraph:
    ``(5) Inflation adjustments.--

    [[Page 758]]

    117 STAT. 758

    ``(A) In general.--In the case of any taxable year
    beginning in a calendar year after 2003 and before 2006,
    the $100,000 and $400,000 amounts in paragraphs (1) and
    (2) shall each be increased by an amount equal to--
    ``(i) such dollar amount, multiplied by
    ``(ii) the cost-of-living adjustment
    determined under section 1(f)(3) for the calendar
    year in which the taxable year begins, by
    substituting `calendar year 2002' for `calendar
    year 1992' in subparagraph (B) thereof.
    ``(B) Rounding.--
    ``(i) Dollar limitation.--If the amount in
    paragraph (1) as increased under subparagraph (A)
    is not a multiple of $1,000, such amount shall be
    rounded to the nearest multiple of $1,000.
    ``(ii) Phaseout amount.--If the amount in
    paragraph (2) as increased under subparagraph (A)
    is not a multiple of $10,000, such amount shall be
    rounded to the nearest multiple of $10,000.''.

    (e) Revocation of Election.--Paragraph (2) [NOTE: 26 USC 179.] of
    section 179(c) (relating to election irrevocable) is amended by adding
    at the end the following new sentence: ``Any such election or
    specification with respect to any taxable year beginning after 2002 and
    before 2006 may be revoked by the taxpayer with respect to any property,
    and such revocation, once made, shall be irrevocable.''.

    (f) Effective Date.--The [NOTE: Applicability. 26 USC 179
    note.] amendments made by this section shall apply to taxable years
    beginning after December 31, 2002.

    TITLE III--REDUCTION IN TAXES ON DIVIDENDS AND CAPITAL GAINS

    SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS; REPEAL OF 5-
    YEAR HOLDING PERIOD REQUIREMENT.

    (a) In General.--
    (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by
    striking ``10 percent'' and inserting ``5 percent (0 percent in
    the case of taxable years beginning after 2007)''.
    (2) The following sections are each amended by striking ``20
    percent'' and inserting ``15 percent'':
    (A) Section 1(h)(1)(C).
    (B) Section 55(b)(3)(C).
    (C) Section 1445(e)(1).
    (D) The second sentence of section 7518(g)(6)(A).
    (E) The second sentence of section 607(h)(6)(A) of
    the Merchant [NOTE: 46 USC app. 1177.] Marine Act,
    1936.

    (b) Conforming Amendments.--
    (1) Section 1(h) is amended--
    (A) by striking paragraphs (2) and (9),
    (B) by redesignating paragraphs (3) through (8) as
    paragraphs (2) through (7), respectively, and
    (C) by redesignating paragraphs (10), (11), and (12)
    as paragraphs (8), (9), and (10), respectively.
    (2) Paragraph (3) of section 55(b) is amended by striking
    ``In the case of taxable years beginning after December 31,
    2000, rules similar to the rules of section 1(h)(2) shall apply
    for purposes of subparagraphs (B) and (C).''.

    [[Page 759]]

    117 STAT. 759

    (3) Paragraph (7) [NOTE: 26 USC 57.] of section 57(a) is
    amended--
    (A) by striking ``42 percent'' the first place it
    appears and inserting ``7 percent'', and
    (B) by striking the last sentence.

    (c) Transitional Rules [NOTE: 26 USC 1 note.] for Taxable Years
    Which Include May 6, 2003.--For purposes of applying section 1(h) of the
    Internal Revenue Code of 1986 in the case of a taxable year which
    includes May 6, 2003--
    (1) The amount of tax determined under subparagraph (B) of
    section 1(h)(1) of such Code shall be the sum of--
    (A) 5 percent of the lesser of--
    (i) the net capital gain determined by taking
    into account only gain or loss properly taken into
    account for the portion of the taxable year on or
    after May 6, 2003 (determined without regard to
    collectibles gain or loss, gain described in
    section 1(h)(6)(A)(i) of such Code, and section
    1202 gain), or
    (ii) the amount on which a tax is determined
    under such subparagraph (without regard to this
    subsection),
    (B) 8 percent of the lesser of--
    (i) the qualified 5-year gain (as defined in
    section 1(h)(9) of the Internal Revenue Code of
    1986, as in effect on the day before the date of
    the enactment of this Act) properly taken into
    account for the portion of the taxable year before
    May 6, 2003, or
    (ii) the excess (if any) of--
    (I) the amount on which a tax is
    determined under such subparagraph
    (without regard to this subsection),
    over
    (II) the amount on which a tax is
    determined under subparagraph (A), plus
    (C) 10 percent of the excess (if any) of--
    (i) the amount on which a tax is determined
    under such subparagraph (without regard to this
    subsection), over
    (ii) the sum of the amounts on which a tax is
    determined under subparagraphs (A) and (B).
    (2) The amount of tax determined under subparagraph (C) of
    section (1)(h)(1) of such Code shall be the sum of--
    (A) 15 percent of the lesser of--
    (i) the excess (if any) of the amount of net
    capital gain determined under subparagraph (A)(i)
    of paragraph (1) of this subsection over the
    amount on which a tax is determined under
    subparagraph (A) of paragraph (1) of this
    subsection, or
    (ii) the amount on which a tax is determined
    under such subparagraph (C) (without regard to
    this subsection), plus
    (B) 20 percent of the excess (if any) of--
    (i) the amount on which a tax is determined
    under such subparagraph (C) (without regard to
    this subsection), over
    (ii) the amount on which a tax is determined
    under subparagraph (A) of this paragraph.
    (3) For [NOTE: Applicability.] purposes of applying
    section 55(b)(3) of such Code, rules similar to the rules of
    paragraphs (1) and (2) of this subsection shall apply.

    [[Page 760]]

    117 STAT. 760

    (4) In applying this subsection with respect to any pass-
    thru entity, the determination of when gains and losses are
    properly taken into account shall be made at the entity level.
    (5) For purposes of applying section 1(h)(11) of such Code,
    as added by section 302 of this Act, to this subsection,
    dividends which are qualified dividend income shall be treated
    as gain properly taken into account for the portion of the
    taxable year on or after May 6, 2003.
    (6) Terms used in this subsection which are also used in
    section 1(h) of such Code shall have the respective meanings
    that such terms have in such section.

    (d) Effective [NOTE: Applicability. 26 USC 1 note.] Dates.--
    (1) In general.--Except as otherwise provided by this
    subsection, the amendments made by this section shall apply to
    taxable years ending on or after May 6, 2003.
    (2) Withholding.--The amendment made by subsection (a)(2)(C)
    shall apply to amounts paid after the date of the enactment of
    this Act.
    (3) Small business stock.--The amendments made by subsection
    (b)(3) shall apply to dispositions on or after May 6, 2003.

    SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL GAIN RATES.

    (a) In General.--Section [NOTE: 26 USC 1.] 1(h) (relating to
    maximum capital gains rate), as amended by section 301, is amended by
    adding at the end the following new paragraph:
    ``(11) Dividends taxed as net capital gain.--
    ``(A) In general.--For purposes of this subsection,
    the term `net capital gain' means net capital gain
    (determined without regard to this paragraph) increased
    by qualified dividend income.
    ``(B) Qualified dividend income.--For purposes of
    this paragraph--
    ``(i) In general.--The term `qualified
    dividend income' means dividends received during
    the taxable year from--
    ``(I) domestic corporations, and
    ``(II) qualified foreign
    corporations.
    ``(ii) Certain dividends excluded.--Such term
    shall not include--
    ``(I) any dividend from a
    corporation which for the taxable year
    of the corporation in which the
    distribution is made, or the preceding
    taxable year, is a corporation exempt
    from tax under section 501 or 521,
    ``(II) any amount allowed as a
    deduction under section 591 (relating to
    deduction for dividends paid by mutual
    savings banks, etc.), and
    ``(III) any dividend described in
    section 404(k).
    ``(iii) Coordination with section 246(c).--
    Such term shall not include any dividend on any
    share of stock--
    ``(I) with respect to which the
    holding period requirements of section
    246(c) are not met (determined by
    substituting in section 246(c)(1) `60
    days' for `45 days' each place it
    appears and by substituting `120-day
    period' for `90-day period'), or

    [[Page 761]]

    117 STAT. 761

    ``(II) to the extent that the
    taxpayer is under an obligation (whether
    pursuant to a short sale or otherwise)
    to make related payments with respect to
    positions in substantially similar or
    related property.
    ``(C) Qualified foreign corporations.--
    ``(i) In general.--Except as otherwise
    provided in this paragraph, the term `qualified
    foreign corporation' means any foreign corporation
    if--
    ``(I) such corporation is
    incorporated in a possession of the
    United States, or
    ``(II) such corporation is eligible
    for benefits of a comprehensive income
    tax treaty with the United States which
    the Secretary determines is satisfactory
    for purposes of this paragraph and which
    includes an exchange of information
    program.
    ``(ii) Dividends on stock readily tradable on
    united states securities market.--A foreign
    corporation not otherwise treated as a qualified
    foreign corporation under clause (i) shall be so
    treated with respect to any dividend paid by such
    corporation if the stock with respect to which
    such dividend is paid is readily tradable on an
    established securities market in the United
    States.
    ``(iii) Exclusion of dividends of certain
    foreign corporations.--Such term shall not include
    any foreign corporation which for the taxable year
    of the corporation in which the dividend was paid,
    or the preceding taxable year, is a foreign
    personal holding company (as defined in section
    552), a foreign investment company (as defined in
    section 1246(b)), or a passive foreign investment
    company (as defined in section 1297).
    ``(iv) Coordination
    with [NOTE: Applicability.] foreign tax credit
    limitation.--Rules similar to the rules of section
    904(b)(2)(B) shall apply with respect to the
    dividend rate differential under this paragraph.
    ``(D) Special rules.--
    ``(i) Amounts taken into account as investment
    income.--Qualified dividend income shall not
    include any amount which the taxpayer takes into
    account as investment income under section
    163(d)(4)(B).
    ``(ii) Extraordinary dividends.--If an
    individual receives, with respect to any share of
    stock, qualified dividend income from 1 or more
    dividends which are extraordinary dividends
    (within the meaning of section 1059(c)), any loss
    on the sale or exchange of such share shall, to
    the extent of such dividends, be treated as long-
    term capital loss.
    ``(iii) Treatment of dividends from regulated
    investment companies and real estate investment
    trusts.--A dividend received from a regulated
    investment company or a real estate investment
    trust shall be subject to the limitations
    prescribed in sections 854 and 857.''.

    [[Page 762]]

    117 STAT. 762

    (b) Exclusion of Dividends From Investment Income.--Subparagraph (B)
    of [NOTE: 26 USC 163.] section 163(d)(4) (defining net investment
    income) is amended by adding at the end the following flush sentence:
    ``Such term shall include qualified dividend income (as
    defined in section 1(h)(11)(B)) only to the extent the
    taxpayer elects to treat such income as investment
    income for purposes of this subsection.''.

    (c) Treatment of Dividends From Regulated Investment Companies.--
    (1) Subsection (a) of section 854 (relating to dividends
    received from regulated investment companies) is amended by
    inserting ``section 1(h)(11) (relating to maximum rate of tax on
    dividends) and'' after ``For purposes of''.
    (2) Paragraph (1) of section 854(b) (relating to other
    dividends) is amended by redesignating subparagraph (B) as
    subparagraph (C) and by inserting after subparagraph (A) the
    following new subparagraph:
    ``(B) Maximum rate under section 1(h).--
    ``(i) In general.--
    If [NOTE: Applicability.] the aggregate
    dividends received by a regulated investment
    company during any taxable year are less than 95
    percent of its gross income, then, in computing
    the maximum rate under section 1(h)(11), rules
    similar to the rules of subparagraph (A) shall
    apply.
    ``(ii) Gross income.--For purposes of clause
    (i), in the case of 1 or more sales or other
    dispositions of stock or securities, the term
    `gross income' includes only the excess of--
    ``(I) the net short-term capital
    gain from such sales or dispositions,
    over
    ``(II) the net long-term capital
    loss from such sales or dispositions.
    ``(iii) Dividends from real estate investment
    trusts.--For purposes of clause (i)--
    ``(I) paragraph (3)(B)(ii) shall not
    apply, and
    ``(II) in the case of a distribution
    from a trust described in such
    paragraph, the amount of such
    distribution which is a dividend shall
    be subject to the limitations under
    section 857(c).
    ``(iv) Dividends from qualified foreign
    corporations.--For purposes of clause (i),
    dividends received from qualified foreign
    corporations (as defined in section 1(h)(11))
    shall also be taken into account in computing
    aggregate dividends received.''.
    (3) Subparagraph (C) of section 854(b)(1), as redesignated
    by paragraph (2), is amended by striking ``subparagraph (A)''
    and inserting ``subparagraph (A) or (B)''.
    (4) Paragraph (2) of section 854(b) is amended by inserting
    ``the maximum rate under section 1(h)(11) and'' after ``for
    purposes of''.
    (5) Subsection (b) of section 854 is amended by adding at
    the end the following new paragraph:
    ``(5) Coordination with section 1(h)(11).--For purposes of
    paragraph (1)(B), an amount shall be treated as a dividend only
    if the amount is qualified dividend income (within the meaning
    of section 1(h)(11)(B)).''.

    [[Page 763]]

    117 STAT. 763

    (d) Treatment of Dividends Received From Real Estate Investment
    Trusts.--Section 857(c) (relating [NOTE: 26 USC 857.] to restrictions
    applicable to dividends received from real estate investment trusts) is
    amended to read as follows:

    ``(c) Restrictions Applicable to Dividends Received From Real Estate
    Investment Trusts.--
    ``(1) Section 243.--For purposes of section 243 (relating to
    deductions for dividends received by corporations), a dividend
    received from a real estate investment trust which meets the
    requirements of this part shall not be considered a dividend.
    ``(2) Section 1(h)(11).--For purposes of section 1(h)(11)
    (relating to maximum rate of tax on dividends)--
    ``(A) [NOTE: Applicability.] rules similar to the
    rules of subparagraphs (B) and (C) of section 854(b)(1)
    shall apply to dividends received from a real estate
    investment trust which meets the requirements of this
    part, and
    ``(B) for purposes of such rules, such a trust shall
    be treated as receiving qualified dividend income during
    any taxable year in an amount equal to the sum of--
    ``(i) the excess of real estate investment
    trust taxable income computed under section
    857(b)(2) for the preceding taxable year over the
    tax payable by the trust under section 857(b)(1)
    for such preceding taxable year, and
    ``(ii) the excess of the income subject to tax
    by reason of the application of the regulations
    under section 337(d) for the preceding taxable
    year over the tax payable by the trust on such
    income for such preceding taxable year.''.

    (e) Conforming Amendments.--
    (1) Paragraph (3) of section 1(h), as redesignated by
    section 301, is amended to read as follows:
    ``(3) Adjusted net capital gain.--For purposes of this
    subsection, the term `adjusted net capital gain' means the sum
    of--
    ``(A) net capital gain (determined without regard to
    paragraph (11)) reduced (but not below zero) by the sum
    of--
    ``(i) unrecaptured section 1250 gain, and
    ``(ii) 28-percent rate gain, plus
    ``(B) qualified dividend income (as defined in
    paragraph (11)).''.
    (2) Subsection (f) of section 301 is amended adding at the
    end the following new paragraph:
    ``(4) For taxation of dividends received by individuals at
    capital gain rates, see section 1(h)(11).''.
    (3) Paragraph (1) of section 306(a) is amended by adding at
    the end the following new subparagraph:
    ``(D) Treatment as dividend.--For purposes of
    section 1(h)(11) and such other provisions as the
    Secretary may specify, any amount treated as ordinary
    income under this paragraph shall be treated as a
    dividend received from the corporation.''.
    (4)(A) Subpart C of part II of subchapter C of chapter 1
    (relating to collapsible [NOTE: 26 USC 341.] corporations) is
    repealed.
    (B)(i) Section 338(h) is amended by striking paragraph (14).

    [[Page 764]]

    117 STAT. 764

    (ii) Sections 467(c)(5)(C), 1255(b)(2), and
    1257(d) [NOTE: 26 USC 467, 1255, 1257.] are each amended by
    striking ``, 341(e)(12),''.
    (iii) The table of subparts for part II of subchapter C of
    chapter 1 is amended by striking the item related to subpart C.
    (5) Section 531 is amended by striking ``equal to'' and all
    that follows and inserting ``equal to 15 percent of the
    accumulated taxable income.''.
    (6) Section 541 is amended by striking ``equal to'' and all
    that follows and inserting ``equal to 15 percent of the
    undistributed personal holding company income.''.
    (7) Section 584(c) is amended by adding at the end the
    following new flush sentence:

    ``The proportionate share of each participant in the amount of dividends
    received by the common trust fund and to which section 1(h)(11) applies
    shall be considered for purposes of such paragraph as having been
    received by such participant.''.
    (8) Paragraph (5) of section 702(a) is amended to read as
    follows:
    ``(5) dividends with respect to which section 1(h)(11) or
    part VIII of subchapter B applies,''.

    (f) Effective [NOTE: Applicability. 26 USC 1 note.] 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, 2002.
    (2) Regulated investment companies and real estate
    investment trusts.--In the case of a regulated investment
    company or a real estate investment trust, the amendments made
    by this section shall apply to taxable years ending after
    December 31, 2002; except that dividends received by such a
    company or trust on or before such date shall not be treated as
    qualified dividend income (as defined in section 1(h)(11)(B) of
    the Internal Revenue Code of 1986, as added by this Act).

    SEC. 303. [NOTE: 26 USC 1 note.] SUNSET OF TITLE.

    All provisions of, and amendments made by, this title shall not
    apply to taxable years beginning after December 31, 2008, and the
    Internal Revenue Code of 1986 shall be applied and administered to such
    years as if such provisions and amendments had never been enacted.

    TITLE IV--TEMPORARY STATE FISCAL RELIEF

    SEC. 401. [NOTE: 42 USC 1396d note.] TEMPORARY STATE FISCAL RELIEF.

    (a) $10,000,000,000 for a Temporary Increase of the Medicaid FMAP.--
    (1) Permitting maintenance of fiscal year 2002 fmap for last
    2 calendar quarters of fiscal year 2003.--Subject to paragraph
    (5), if the FMAP determined without regard to this subsection
    for a State for fiscal year 2003 is less than the FMAP as so
    determined for fiscal year 2002, the FMAP for the State for
    fiscal year 2002 shall be substituted for the State's FMAP for
    the third and fourth calendar quarters of fiscal year 2003,
    before the application of this subsection.

    [[Page 765]]

    117 STAT. 765

    (2) Permitting maintenance of fiscal year 2003 fmap for
    first 3 quarters of fiscal year 2004.--Subject to paragraph (5),
    if the FMAP determined without regard to this subsection for a
    State for fiscal year 2004 is less than the FMAP as so
    determined for fiscal year 2003, the FMAP for the State for
    fiscal year 2003 shall be substituted for the State's FMAP for
    the first, second, and third calendar quarters of fiscal year
    2004, before the application of this subsection.
    (3) General 2.95 percentage points increase for last 2
    calendar quarters of fiscal year 2003 and first 3 calendar
    quarters of fiscal year 2004.--Subject to paragraphs (5), (6),
    and (7), for each State for the third and fourth calendar
    quarters of fiscal year 2003 and for the first, second, and
    third calendar quarters of fiscal year 2004, the FMAP (taking
    into account the application of paragraphs (1) and (2)) shall be
    increased by 2.95 percentage points.
    (4) Increase in cap on medicaid payments to territories.--
    Subject to paragraphs (6) and (7), with respect to the third and
    fourth calendar quarters of fiscal year 2003 and the first,
    second, and third calendar quarters of fiscal year 2004, the
    amounts otherwise determined for Puerto Rico, the Virgin
    Islands, Guam, the Northern Mariana Islands, and American Samoa
    under subsections (f) and (g) of section 1108 of the Social
    Security Act (42 U.S.C. 1308) shall each be increased by an
    amount equal to 5.90 percent of such amounts.
    (5) Scope of application.--The increases in the FMAP for a
    State under this subsection shall apply only for purposes of
    title XIX of the Social Security Act and shall not apply with
    respect to--
    (A) disproportionate share hospital payments
    described in section 1923 of such Act (42 U.S.C. 1396r-
    4);
    (B) payments under title IV or XXI of such Act (42
    U.S.C. 601 et seq. and 1397aa et seq.); or
    (C) any payments under XIX of such Act that are
    based on the enhanced FMAP described in section 2105(b)
    of such Act (42 U.S.C. 1397ee(b)).
    (6) State eligibility.--
    (A) In general.--Subject to subparagraph (B), a
    State is eligible for an increase in its FMAP under
    paragraph (3) or an increase in a cap amount under
    paragraph (4) only if the eligibility under its State
    plan under title XIX of the Social Security Act
    (including any waiver under such title or under section
    1115 of such Act (42 U.S.C. 1315)) is no more
    restrictive than the eligibility under such plan (or
    waiver) as in effect on September 2, 2003.
    (B) State reinstatement of eligibility permitted.--A
    State that has restricted eligibility under its State
    plan under title XIX of the Social Security Act
    (including any waiver under such title or under section
    1115 of such Act (42 U.S.C. 1315)) after September 2,
    2003, is eligible for an increase in its FMAP under
    paragraph (3) or an increase in a cap amount under
    paragraph (4) in the first calendar quarter (and
    subsequent calendar quarters) in which the State has
    reinstated eligibility that is no more restrictive than
    the eligibility under such plan (or waiver) as in effect
    on September 2, 2003.

    [[Page 766]]

    117 STAT. 766

    (C) Rule of construction.--Nothing in subparagraph
    (A) or (B) shall be construed as affecting a State's
    flexibility with respect to benefits offered under the
    State medicaid program under title XIX of the Social
    Security Act (42 U.S.C. 1396 et seq.) (including any
    waiver under such title or under section 1115 of such
    Act (42 U.S.C. 1315)).
    (7) Requirement for certain states.--In the case of a State
    that requires political subdivisions within the State to
    contribute toward the non-Federal share of expenditures under
    the State medicaid plan required under section 1902(a)(2) of the
    Social Security Act (42 U.S.C. 1396a(a)(2)), the State shall not
    require that such political subdivisions pay a greater
    percentage of the non-Federal share of such expenditures for the
    third and fourth calendar quarters of fiscal year 2003 and the
    first, second and third calendar quarters of fiscal year 2004,
    than the percentage that was required by the State under such
    plan on April 1, 2003, prior to application of this subsection.
    (8) Definitions.--In this subsection:
    (A) FMAP.--The term ``FMAP'' means the Federal
    medical assistance percentage, as defined in section
    1905(b) of the Social Security Act (42 U.S.C. 1396d(b)).
    (B) State.--The term ``State'' has the meaning given
    such term for purposes of title XIX of the Social
    Security Act (42 U.S.C. 1396 et seq.).
    (9) Repeal.--Effective [NOTE: Effective date.] as of
    October 1, 2004, this subsection is repealed.

    (b) $10,000,000,000 to Assist States in Providing Government
    Services.--The Social Security Act (42 U.S.C. 301 et seq.) is amended by
    inserting after title V the following:

    ``TITLE VI--TEMPORARY STATE FISCAL RELIEF

    ``SEC. 601. [NOTE: 42 USC 801.] TEMPORARY STATE FISCAL RELIEF.

    ``(a) Appropriation.--There is authorized to be appropriated and is
    appropriated for making payments to States under this section,
    $5,000,000,000 for each of fiscal years 2003 and 2004.
    ``(b) [NOTE: Deadlines.] Payments.--
    ``(1) Fiscal year 2003.--From the amount appropriated under
    subsection (a) for fiscal year 2003, the Secretary of the
    Treasury shall, not later than the later of the date that is 45
    days after the date of enactment of this Act or the date that a
    State provides the certification required by subsection (e) for
    fiscal year 2003, pay each State the amount determined for the
    State for fiscal year 2003 under subsection (c).
    ``(2) Fiscal year 2004.--From the amount appropriated under
    subsection (a) for fiscal year 2004, the Secretary of the
    Treasury shall, not later than the later of October 1, 2003, or
    the date that a State provides the certification required by
    subsection (e) for fiscal year 2004, pay each State the amount
    determined for the State for fiscal year 2004 under subsection
    (c).

    ``(c) Payments Based on Population.--
    ``(1) In general.--Subject to paragraph (2), the amount
    appropriated under subsection (a) for each of fiscal years 2003

    [[Page 767]]

    117 STAT. 767

    and 2004 shall be used to pay each State an amount equal to the
    relative population proportion amount described in paragraph (3)
    for such fiscal year.
    ``(2) Minimum payment.--
    ``(A) In general.--No State shall receive a payment
    under this section for a fiscal year that is less than--
    ``(i) in the case of 1 of the 50 States or the
    District of Columbia, \1/2\ of 1 percent of the
    amount appropriated for such fiscal year under
    subsection (a); and
    ``(ii) in the case of the Commonwealth of
    Puerto Rico, the United States Virgin Islands,
    Guam, the Commonwealth of the Northern Mariana
    Islands, or American Samoa, \1/10\ of 1 percent of
    the amount appropriated for such fiscal year under
    subsection (a).
    ``(B) Pro rata adjustments.--The Secretary of the
    Treasury shall adjust on a pro rata basis the amount of
    the payments to States determined under this section
    without regard to this subparagraph to the extent
    necessary to comply with the requirements of
    subparagraph (A).
    ``(3) Relative population proportion amount.--The relative
    population proportion amount described in this paragraph is the
    product of--
    ``(A) the amount described in subsection (a) for a
    fiscal year; and
    ``(B) the relative State population proportion (as
    defined in paragraph (4)).
    ``(4) Relative state population proportion defined.--For
    purposes of paragraph (3)(B), the term `relative State
    population proportion' means, with respect to a State, the
    amount equal to the quotient of--
    ``(A) the population of the State (as reported in
    the most recent decennial census); and
    ``(B) the total population of all States (as
    reported in the most recent decennial census).

    ``(d) Use of Payment.--
    ``(1) In general.--Subject to paragraph (2), a State shall
    use the funds provided under a payment made under this section
    for a fiscal year to--
    ``(A) provide essential government services; or
    ``(B) cover the costs to the State of complying with
    any Federal intergovernmental mandate (as defined in
    section 421(5) of the Congressional Budget Act of 1974)
    to the extent that the mandate applies to the State, and
    the Federal Government has not provided funds to cover
    the costs.
    ``(2) Limitation.--A State may only use funds provided under
    a payment made under this section for types of expenditures
    permitted under the most recently approved budget for the State.

    ``(e) Certification.--In order to receive a payment under this
    section for a fiscal year, the State shall provide the Secretary of the
    Treasury with a certification that the State's proposed uses of the
    funds are consistent with subsection (d).
    ``(f) Definition of State.--In this section, the term `State' means
    the 50 States, the District of Columbia, the Commonwealth of Puerto
    Rico, the United States Virgin Islands, Guam, the

    [[Page 768]]

    117 STAT. 768

    Commonwealth of the Northern Mariana Islands, and American Samoa.
    ``(g) Repeal.--Effective [NOTE: Effective date.] as of October 1,
    2004, this title is repealed.''.

    TITLE V--CORPORATE ESTIMATED TAX PAYMENTS FOR 2003

    SEC. 501. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

    Notwithstanding section 6655 of the Internal Revenue Code of 1986,
    25 percent of the amount of any required installment of corporate
    estimated tax which is otherwise due in September 2003 shall not be due
    until October 1, 2003.

    Approved May 28, 2003.

    LEGISLATIVE HISTORY--H.R. 2 (S. 2) (S. 1054):
    ---------------------------------------------------------------------------

    HOUSE REPORTS: Nos. 108-94 (Comm. on Ways and Means) and 108-126
    (Comm. of Conference).
    CONGRESSIONAL RECORD, Vol. 149 (2003):
    May 9, considered and passed House.
    May 14, 15, considered and passed Senate, amended, in lieu
    of S. 1054.
    May 22, House agreed to conference report.
    May 23, Senate agreed to conference report.
    WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003):
    May 28, Presidential remarks.